Is a Training Intern Entitled to Wages under the FLSA? The Eleventh Circuit Court of Appeals Says “Maybe”

Businesses who take on unpaid training interns or participants under job shadowing programs may want to take notice of this ruling from the Eleventh Circuit Court of Appeals, which indicates that it is possible for those participants to be entitled to wages under the Fair Labor and Standards Act.

Scott Axel was having trouble finding work. His father worked as a wholesaler at an auto dealer and persuaded his employer, Fields Motorcars, to bring his son in as a training intern. For fifteen months, Scott Axel shadowed his father on the job, but his activities took a turn when he took on retail and sales tasks, such as posting cars for sale on social media and auction websites.

The plaintiff’s father’s employment with the dealer was terminated and as a result, Axel’s training activities ended. He sued under the Florida Labor Standards Act (FLSA) and the Florida Minimum Wage Act (FMWA), estimating that over his fifteen-month tenure, he worked over sixty hours per week without pay.

The district court granted summary judgment in favor of Fields Motorcars. Upon appeal, the Eleventh Circuit Court of Appeals vacated the summary judgment ruling for the defendant and remanded the case to the district court. The Court of Appeals noted that Axel’s activities were sometimes consistent with the activities of an employee, and other times a trainee.

While the Eleventh Circuit concluded that it did not have enough information about the plaintiff’s time spent on his father’s work (wholesaling tasks) or retail tasks under the supervision of other employees, the court noted that the proper outcome was not necessarily an “all or nothing” determination.

The circuit court’s ruling poses a cautionary tale for businesses that may consider offering unique training opportunities as part of their business. Here, the circuit court suggests that depending on the activities performed by a person who is an informational intern, a job shadower, or a trainee, those activities could entitle a person to wages under the FLSA or state minimum wage laws.

Is a Training Intern Entitled to Wages under the FLSA The Eleventh Circuit Court of Appeals Says Maybe (PDF)

Recap: “BCLBE Leadership Lunch Talk – Funding Innovation”

On October 23, 2017, the Berkeley Center for Law, Business and the Economy (BCLBE) welcomed Chris Young ‘05, Head of Legal at GoFundMe, for a Q&A discussion about his career, his position as a company counsel at a venture-backed startup, and the crucial role attorneys play in the startup world.

A graduate of SDSU and Berkeley Law, Young began his career as a litigator at Morrison Foerster. After litigating a high-profile class action suit addressing education inequality, Young was asked to join the 2008 Obama presidential campaign as the Deputy Finance Director of Northern California. Faced with a difficult decision between staying at his firm, clerking, or joining the campaign, Young’s mentors encouraged him to take advantage of the opportunity to work for President Obama. He took their advice and served on the campaign until the election, at which point he returned to his hometown of Sacramento to work as Mayor Johnson’s Senior Advisor. Young moved to Washington D.C. shortly thereafter to work in the White House and the Department of Justice. He then returned to the Bay Area in 2010 to work as a Senior Associate trial attorney at Keker, Van Nest & Peters. In 2014, he left to join OpenGov as its head of business development and counsel, until finally starting his current position in November 2015.

Young attributes part of his success to the encouragement and understanding of his mentors. When presented with the opportunity to work for President Obama, he was initially hesitant to leave his firm and defer his clerkship. However, a senior partner pushed him to take it, stressing that Young could always return to big law. The judge also told him to risk it and enjoy the journey. At the end of the day, Young would encourage any law student to “take chances and bet on yourself” when making career decisions.

Those chances eventually brought Young to GoFundMe, where he has served as Head of Legal for two years. GoFundMe, which Young refers to as “America’s company,” is a rapidly expanding crowd-funding platform, experiencing 300% annual growth with 50 million users worldwide since its launch eight years ago. Young said the best part of his job is that every day there is something new on his desk. Whether he is dealing with corporate governance, litigation, contract negotiations, or equity issues, Young said, “you have to have a sense of confidence and a little bit of insanity to think that you can handle everything that comes your way.” He shared that as counsel to a startup, it is important to balance the company’s want for growth with keeping it out of harm’s way, which presents new challenges every day.

Young also loves the public service aspect of his job. He emphasized that GoFundMe is an open platform that helps people from all walks of life, regardless of their location or political beliefs. Young recently started a charity through GoFundMe to directly assist those in need, and was able to raise $6 million to help hurricane, California fire, and Las Vegas shooting victims. Young said that seeing how those funds impacted people’s lives was inspiring, and reinforced the importance of GoFundMe’s role in the world.  “When I wake up in the morning, I know that I’m going to work at a company that’s allowing people to help each other out,” Young shared.

Recap BCLBE Leadership Lunch Talk – Funding Innovation (PDF)

Aramco Still Plans to Go Public in 2018 in Largest IPO in History

Early last year, Saudi Arabia’s Crown Prince, Mohammed bin Salman, announced that talks of an Aramco initial public offering (IPO) were in progress. Aramco is by far the largest oil company in the world, with the Crown Prince and other Saudi officials valuing the company above $2 trillion. The public sale of just 5% of the company would mark it as the largest IPO in history (Alibaba’s $25 billion IPO in 2014 is currently the largest).

Aramco’s CEO, Amin Nasser, told the New York Times that the IPO is planned for the latter half of 2018. Where to go public, specifically, is the question that has been causing a stir. According to the Saudi Finance Minister, a listing on Tadawul, the Kingdom’s local exchange, is set in stone. So the burning question is where else will Aramco be listed?

Expectedly, major international exchanges such as the New York and London exchanges are competing as potential venues for the IPO, which will surely bolster trade activity. Rumors have also circulated the past few months of a possible private sale to China – which Aramco’s CEO has denied. Because many believe that an overseas listing occurring before 2019 is not feasible, there has been speculation that Tadawul could be the only exchange where Aramco will be listing.

However, it is important to view the IPO in the context of its timing and purpose. The Aramco IPO is the crux of Saudi Vision 2030, a plan headed by the Crown Prince to diversify the Kingdom’s traditionally oil-based economy and reduce its reliance on oil. Saudi Arabia owns Aramco, and therefore any significant move on Aramco’s part would affect the Saudi economy.

The Saudi Government has made it clear, economic growth beyond current levels is an important and viable long-term goal for the Kingdom. Whatever measures taken by the Kingdom’s prized possession will be carefully designed to accelerate that prosperity. With hundreds of billions of dollars in reserves, Saudi Arabia is not likely going public solely for the payout.

The Aramco IPO has the potential to produce a myriad of fruitful effects for the Saudi financial landscape. The IPO will encourage market transparency within the kingdom and undoubtedly  attract foreign investment, both of which seem it be in line with the Crown Prince’s vision. Given what is at stake for the Kingdom and the potential for adverse legal implications of listing in foreign exchanges, Aramco’s caution in choosing where to list should come as no surprise.

Aramco Still Plans to Go Public in 2018 in Largest IPO in History (PDF)

Grab Expands its Runway with Record Debt Funding

Singapore based ride-sharing start-up, Grab, announced on October 20, 2017, that it was moving forward with the single largest debt financing deal secured by a Southeast Asian company to date, at $700 million.

Originally conceived as a taxi-hailing service, Grab, formerly GrabTaxi, is one of the most popular mobile applications in Southeast Asia, servicing Singapore, Malaysia, Indonesia, the Philippines, Vietnam, Thailand, and Myanmar.  It outperforms Uber both in application downloads and market share, accounting for more than 70% of all private vehicle hailing.  It’s latest round of debt financing comes on the curtails of a larger capital raising venture that has netted the start-up $4 billion to date.

The express purpose of its latest debt financing is to purchase a fleet of vehicles which can be offered with affordable leasing terms to prospective partner-drivers in Singapore and Indonesia, many of whom cannot afford a car given high prices in the former and lack of credit options to purchase a car in the latter.

Grab’s ridesharing service is not limited to cars, as it also offers a bike sharing service. GrabBike provides a faster, cheaper, and more efficient more of transportation in many of the heavily congested cities in which the app operates. However, regulatory issues in countries like the Philippines have forced GrabBike to cease operations. Moreover, GrabBike only recently became available in Thailand after transport authorities forced the app to suspend service last year in light of regulatory concerns.

Whether Grab plans to expand its vehicle holdings to other countries in the region in order to counteract legal pushback associated with its expanding bike service remains unknown. However, it certainly raises important questions about how investors should consider the often unanticipated legal obstacles that can emerge from novel tech start-ups.

Grab Expands its Runway with Record Debt Funding (PDF)

The Struggle for Transparency in Political Advertising

On October 19, 2017, Senators Mark Warner, Amy Klobuchar, and John McCain introduced new campaign finance legislation. The “Honest Ads Act” seeks to compel greater disclosure surrounding online political advertising. More specifically, the bill would force large digital platforms (those with at least 50 million monthly views) to keep a public file of paid political advertising exceeding $500 per advertiser.

In response to reports of Russian interference in the 2016 election, the goal of the Honest Ads Act is to prevent foreign actors from buying ads on online platforms. It would require sites like Facebook and Twitter to “make ‘all reasonable efforts’ to ensure that foreign individuals and entities are not buying political advertisements to influence the U.S. electorate.”

Per the Federal Election Campaign Act of 1971, radio, television, and newspaper ads already carry restrictions when it comes to political advertisement disclosures. Online advertising, however, has remained untouched by these rules. Proponents of the exemption argued that as an “evolving mode of mass communication,” the Internet required fewer restrictions than other forms of media. This exemption allowed Russian companies to purchase $100,000 in political advertisements during the latest presidential election.

Despite the bipartisan nature of this bill, some social media companies have already mounted a campaign to influence or even resist the proposed changes. Facebook’s Chief Operating Officer argued that Facebook is not a media company, but rather “a tech company” that would take its own steps to achieve advertising transparency. Facebook’s Vice President of U.S. Public Policy, however, said the company would work with lawmakers to create a legislative solution to the political advertisement problem. A Twitter spokesperson noted that the company “look[s] forward to engaging with Congress and the FEC on these issues.”

Representatives Derek Kilmer and Mike Coffman have introduced a companion bill to the Honest Ads Act in the House. It is unclear when either version of the bill will come up for a vote.

The Struggle for Transparency in Political Advertising (PDF)

Uber Discrimination Lawsuits in Tech

Three Latina female engineers have filed suit against Uber for gender and race discrimination. The suit, filed in San Francisco on October 24, 2017, alleges that Uber violated the Equal Pay Act by using a “stack ranking” system. The promotion vehicle is alleged to be an unreliable qualitative method that systematically undervalues female employees and employees of color. The three plaintiffs are represented by Outten & Golden, which has also represented employees in suits against Goldman Sachs and Microsoft.

The suit comes after Uber attempted to amend some of its culture issues. In August, the company instituted a new policy that bumped up the salaries of employees who were not paid the median amount for their jobs. The policy change also included a 2.5% salary increase for each year an employee had worked at Uber.

These changes come after Uber acknowledged its pervasive sexism following a viral blog post detailing an engineer’s experience with rampant sexism and sexual harassment. In response, Uber’s CEO Travis Kalanick ultimately resigned. Eric Holder was then hired to review the company’s policies, and Frances Frei of Harvard Business School was brought on board to improve company culture.

Uber is not the only company facing similar charges. Google, Tesla, and Microsoft have been the subject of discrimination lawsuits in recent months. Given the pervasiveness of these suits, it is possible that more employees will come forward in the future. With more employees beginning to speak out, these suits may mark a watershed moment in the technology industry.

Uber Discrimination Lawsuits in Tech (PDF)

Supreme Court to Decide Microsoft Data Privacy Case

This month, the Supreme Court has decided to hear a case that will resolve whether a United States company, Microsoft, must provide data stored on servers outside the United States.  The decision will impact what data is available to the United States Government and will have reactions in countries where the data is stored.

In 2016, a Second Circuit decision overturned a district court ruling and held that the Government cannot compel an internet service provider to produce information overseas that would constitute an extra-territorial application of the statute not in accordance with congressional intent.  The court focused on user privacy and increased global freedom of expression.

This decision has been criticized for not addressing the complexities of data in the technological age. One of the difficulties in all of this is interpreting anachronistic legal terms and cases to a world that where technological progress and entrepreneurship is moving at an incredible pace.  Applying the Fourth Amendment in a digital world means a breakdown of traditional distinctions protecting privacy.

Additionally, there may be impacts in foreign relations.  The European Union (EU) has updated their policies in what they call the General Data Protection Regulation.   It is worth considering whether this policy, which has yet to go into effect, would have implications for EU companies with data stored in the United States.  One of the key changes in their law is the extra-territorial application.

What will the Supreme Court have to say?  Will they draw clear lines?  Will they acknowledge the complexities of this space?  Will they issue a ruling that impacts entrepreneurship or your individual data privacy?  Or will they send a message the Fourth Amendment needs to be squared immediately with our individual constitutional rights?

Supreme Court to Decide Microsoft Data Privacy Case (PDF)

Nursing Home Giant Owes Landlord Over $300 Million In Rent

Significant changes could be coming for thousands of elderly residents living at HCR ManorCare’s 292 nursing home and assisted care facilities. On August 17, 2017, HCR’s landlord and real estate company, Quality Care Properties, Inc., filed a complaint seeking to recover over $300 million in rent owed. The complaint asks the Court to appoint a receiver to facilitate transfer of the homes to a new operator. On October 19, QCP announced it had agreed to extend the deadline for HCR to respond to the receivership complaint. HCR now has until November 1 to respond.

A receivership is an alternative remedy to traditional bankruptcy and eviction. In a receivership proceeding, the court orders transfer of the insolvent’s assets to an appointed receiver. The receiver will facilitate transition of ownership to a new entity who will hopefully be able to run the operation profitably and meet its obligations. During the interim, the court empowers the receiver with the power to manage the business and protect its assets. Receiverships enable continuity and stability, but are only granted in certain circumstances that vary depending on jurisdiction.

Receiverships have been used to transfer ownership of smaller nursing home companies in the past. Recently in July 2017, a court approved the transfer of Fortis Management Group’s 65 nursing homes and assisted living facilities to a receiver. However, a court has yet to apply receivership to a nursing home giant like HCR ManorCare.

QCP’s lawsuit hits HCR amidst Department of Justice accusations of Medicare fraud. On April 21, 2015, the DOJ announced it had intervened in a consolidated False Claims Act lawsuit against HCR. The government alleged that HCR pressured staff to push unnecessary services on residents and kept discharge-worthy patients in its facilities to increase Medicare billables. The case is still pending in District Court. If the Court finds HCR engaged in intentional fraud, liability under the False Claims Act may not be dischargeable in bankruptcy.

HCR and QCP expect to use the deadline extension to discuss the possibility of selling and releasing properties, governance and protocol changes, and asset stewardship. It is unclear whether these talks are aimed at completely avoiding the receivership or preliminarily restructuring HCR’s assets in advance of the proceeding. Either way, for thousands of HCR ManorCare residents, home could be completely different in the not so distant future.

Nursing Home Giant Owes Landlord Over $300 Million In Rent (PDF)

$150 Billion Spark Bipartisanship and Changes the Definition of “Worthy”

Congress and White House personnel are attempting to raise the financial threshold for a banking institution to be considered a “Systematically Important Financial Institution” (SIFI). On its face, this may seem to bring about banking reform; however, this would lead to a dramatic decrease in federal oversight and transparency. Considering the 2008 financial crisis, it is difficult to understand why any banking institution would not be considered systematically important. Nevertheless, the arguably arbitrary $50 billion threshold is taking center stage for what has already been a controversial Trump agenda.

At a time when there has been very little to celebrate about our government’s ability to work in a bipartisan manner, it appears that economics has forced the hand of some, including top White House economic advisor, Gary Cohen. Cohen was considered the “most important person” in Washington and on Wall Street. Cohen has been working with Democrats and Republicans to create significant changes in U.S. banking. On October 16, 2017, Cohen told the American Banking Association that the SIFI threshold needs to be raised from $50 billion to $200 billion. Is the U.S. banking system ready for a $150 million-dollar threshold increase only seven years after the $50 billion threshold was implemented?

Let’s put this into perspective. The 2008 financial crisis was the most stifling financial dilemma since the Great Depression. Several economic markets were crashing. The financial sector, credit industry, real estate market, and auto industry required federal funding to prevent economic turmoil. Many companies failed and many people lost their assets in the aftermath. It is also important to consider that the United States was not the only country that experienced the shock. The economic shock was so profound that it traveled across the Atlantic Ocean and devastated many European markets.

As a result of the financial crisis, Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act). The Dodd-Frank Act was the culmination of studies conducted by the Commodity Futures Trading Commission (CFTC) and implemented an increase in regulation of swap market dealers. The current listing of swap dealers features more than 100 banking institutions considered SIFIs because they possess more than $50 billion dollars in assets. These banking institutions face greater federal oversight to increase transparency and lower risk to Americans. The $50 billion threshold was implemented to protect Americans; however, some economists attribute a negative impact to the threshold because it limits banks from lending to “worthy” customers. Does a $150 billion increase in the threshold change the definition of a worthy customer?

The worthy customer is as ambiguous and arbitrary as the slogan, “let banks be banks again,” used by President Trump to support the proposed $150 billion threshold increase. It is unclear exactly how many of the approximately one-hundred SIFIs would be free from governmental oversight. However, if letting banks be banks again means allowing institutions to engage in risky transactions to the detriment of Americans, it is as undesirable as waking up to the loss of all your fantasy stock.

$150 Billion Spark Bipartisanship and Changes the Definition of Worthy (PDF)

Recap: “Leadership Lunch Talk: Ricardo Cortes-Monroy, Nestlé – Sustenance and Sustainability”

On October 24th, 2017, the Berkeley Center for Law, Business and the Economy (BCLBE) hosted Ricardo Cortes-Monroy, Chief Legal Officer and General Counsel of Nestlé.

Nestlé is the world’s largest food company, manufacturing more than 10,000 different products, employing around 330,000 people, and maintaining a presence in over 150 countries. Mr. Cortes-Monroy not only manages the company’s giant legal department, but is recognized as a leader in the legal community for advancing corporate citizenship.

He explained that sustainability and corporate responsibility should be understood as legal issues, and urged this needs to be embraced by other inside counsel. In the past, these concepts were only acknowledged as public relations concerns—indeed many lawyers today view corporate responsibility as nothing more than a marketing fad. Mr. Cortes-Monroy, however, explains these concepts are relevant business considerations. In the food industry, you must maintain trust and a positive reputation to be successful with consumers. But for Mr. Cortes-Monroy, the bottom line is, “It’s not about what is legal, but what is right.”

The paramount example of Mr. Cortes-Monroy’s commitment to this ideal is the Thai fisheries case. In 2014, media outlets and NGOs began reporting on ties between horrific labor conditions on fishing boats in Thailand and Purina cat food, a brand owned by Nestlé. In response to these reports, Nestlé’s legal department commissioned global NGO Verité  to investigate its production sites in Thailand. Using supply chain mapping, Verité confirmed a link. In an incredibly dangerous move and despite significant legal risks, Nestlé published the report online, basically admitting wrongdoing. Mr. Cortes-Monroy recognizes, “from a defense lawyer perspective, what we did was crazy.”

Yet, the company was publically praised for disclosing the report and announcing an action plan to combat slave labor in its supply chain. Measures outlined in the plan include commissioning an emergency response team, launching an awareness campaign, training boat owners and captains, and utilizing a traceability system and audits. Nestlé’s disclosure ultimately shielded the company from liability under the safe harbor doctrine in one California class action.

Nestlé’s commitment to corporate responsibility may be having an influence on other companies, as well. Pulling straight from the Nestlé playbook, Patagonia engaged Verité to investigate forced labor in their clothing supply chain and to assist the company with a strategy moving forward.

Nestlé continues to strive for improvement in sustainability. For example, the company has committed to purchase only cage-free eggs by 2020. As Mr. Cortes-Monroy concluded, “Challenges are still there, but there has been remarkable progress in the last few years.”

The presentation also discussed Nestlé’s Summer Internship Program for 1L students. Second year Berkeley Law student Lauren Kelly-Jones was on-hand to share her experience interning in Nestlé’s Legal Sustainability & Creating Shared Value group this past summer in Vevey, Switzerland. Interested first year students may apply for next summer’s program when the application becomes available on December 1st.

Recap Leadership Lunch Talk Ricardo Cortes-Monroy, Nestlé – Sustenance and Sustainability (PDF)