TEQ Hub
(by Christian Farmakis, Susanna Bagdasarova, Kate Cooper and Dane Fennell)
Reminder – Upcoming January 1, 2025 compliance deadline for the Financial Crimes Enforcement Network (FinCEN) Beneficial Ownership Information Reporting Rule (the “Rule”).
By now, you have likely heard about the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (“FinCEN”) Beneficial Ownership Information Reporting Rule (the “Rule”) from your accountant, attorney, or business colleagues. Promulgated under the Corporate Transparency Act (“CTA”), the Rule requires most business entities to disclose information to FinCEN about their ‘beneficial owners’: individuals who directly or indirectly own or control such entities.
Enacted as part of the Anti-Money Laundering Act in 2021, the CTA is intended to “prevent and combat money laundering, terrorist financing, corruption, tax fraud, and other illicit activity.” The Rule aims to enhance transparency and support the mission of the CTA by requiring domestic and U.S. registered foreign entities to report information about their beneficial owners to FinCEN. Most entities in the U.S. will likely be required to comply with the Rule, and FinCEN estimates approximately 32 million business will be required to make a filing. The Rule exempts 23 types of entities from reporting requirements, primarily large or regulated entities already subject to various reporting requirements, such as banks, SEC-reporting companies, insurance companies, and ‘large operating companies’, as well as wholly owned subsidiaries of the foregoing. Entities formed before January 1, 2024, have until 2025 to comply, while entities formed in 2024 have a 90-day compliance period.
Under the Rule, reporting companies must provide detailed personal identifying information for each individual beneficial owner, including name, date of birth, residential street address, and unique identifying number (such as a passport or driver’s license number). A ‘beneficial owner’ is a natural person who directly or indirectly owns or controls at least 25% of the ownership interests of a reporting company or who exercises ‘substantial control’ over the reporting company. Both ‘substantial control’ and ‘ownership interests’ are defined broadly to prevent loopholes allowing corporate structures to obscure owners or decision-makers. Companies formed after January 1, 2025, must also provide this information for ‘company applicants’, the individuals who make or direct the filing of a reporting company’s formation or foreign registration documents. The Rule also requires supplemental filings to be made within 30 days of any change to any of the reported information, for example, a change in residential address. Businesses will need to monitor changes in ownership and management throughout the year for compliance purposes.
FinCEN is authorized to disclose the reported information upon request under specific circumstances to federal agencies engaged in national security, intelligence or law enforcement activities and to state local and tribal law enforcement agencies, as well as certain other limited entities. Failure to comply with the requirements may result in potential civil and criminal consequences, including civil penalties of up to $500 per day a violation has not been remedied and criminal penalties of $10,000 and/or up to two years in prison for willful noncompliance.
The future of enforcement is uncertain as the Rule is currently being challenged in the courts on constitutional grounds. Reporting requirements have been paused for certain entities following an injunction issued by the Northern District of Alabama on March 1, 2024, which ruled the CTA unconstitutional because it exceeds Congress’s enumerated powers. With this and other cases challenging the validity of the Rule making their way through the courts, what should companies do in the meantime? Given the uncertainty about the constitutionality of the Rule and future enforcement, we recommend the following:
- New entities formed or registered on or after January 1, 2024, and before January 1, 2025, should comply with the applicable reporting requirements and make their filings within 90 calendar days after formation or registration.
- Existing entities formed or registered prior to January 1, 2024, should begin their reporting analysis now to ensure compliance in advance of the New Year’s deadline.
Every entity organized under U.S. law or registered to do business in the U.S. will need to determine (i) whether it is exempt from reporting requirements and (ii) if not, what information it must report. Companies with simple management and ownership structures may be able to navigate the filing on their own. However, where complex management or ownership structures or uncertainty about determinations of beneficial ownership or substantial control exist, an attorney can help you avoid missteps.
To view the full article, click here.
Pennsylvania Business Central
(by Kevin Douglass, Carla Castello, and Stephen Antonelli)
Today’s businesses are subject to increasing workplace scrutiny concerning possible misconduct of their owners, officers, management, and personnel. When faced with an allegation that can potentially expose the company to legal, financial and reputational harm, it is critical that the company promptly investigate the facts and assess the business risk in order to make an informed decision on the best course of action.
Is an Internal Company Investigation Warranted?
Employee complaints, or even allegations from third parties, concerning improper workplace conduct should always be taken seriously. Whether the claims involve an entry level employee, a manager, a corporate officer, or anyone in between, the company should assess whether the allegations, if true, would constitute violations of law or company policies, or otherwise materially impact the company’s finances, culture, reputation, or workforce.
Workplace investigations are often sensitive. Employees may be reluctant to step forward and become the center of an investigation. They may also fear backlash from the individual(s) being investigated, particularly if they carry significant clout within the company. The company can assuage those concerns by reminding employees involved in the investigation of the company’s obligation to comply with applicable anti-retaliation laws and company policies. The company should also explain that it will perform the investigation with impartiality and (as much as possible) confidentiality, and that it will comply with the organization’s policies and procedures while minimizing business disruption.
Planning for and Conducting the Investigation
At the outset, the company must define the scope and purpose of the investigation (i.e. identify the allegations and the reasons for undertaking the investigation), select an investigation team, and determine a timeline for the investigation. It is important to recognize that the scope may shift as the investigation progresses and information is gathered. The team needs to implement measures designed to protect the attorney-client privilege and the attorney work product doctrine, including defining the roles of both internal and/or external attorneys and determining whether counsel will lead the investigation. The company should also identify the employees who will serve as the points of contact with the investigation team and the frequency and manner in which they will be kept informed of the investigation’s progress.
Another critical consideration is the preservation, collection, and review of key documents, including e-mails and text messages. In that regard, the organization’s document retention policy must be reviewed, and a notice issued to ensure the preservation of relevant communications and other documents that could become evidence in potential subsequent litigation. The team should also evaluate whether to engage a third-party to collect documents in a forensically sound manner from company-issued electronic devices. It is helpful to compile at the outset a list of potential people to be interviewed, including current and former employees, consultants, and any other individuals with pertinent information, including the person(s) who is the target of the investigation. Typically, the target of the investigation will be interviewed near the conclusion of the other interviews.
When planning for interviews, the investigation must balance the need for a thorough investigation while maintaining confidentiality and meeting timelines. How many interviews should be conducted and which interviews are critical to the investigation? It is recommended that the investigation team explain during the interviews the importance of confidentiality and, if counsel is conducting the interview, also emphasize that counsel represents the company, not the individual being interviewed. It is critical to exercise care concerning the manner in which the records witness statements or facts in interview notes, as those notes may become discoverable in potential subsequent litigation. Moreover, attorneys’ impressions or communications of the interviews should be separately recorded and protected.
Concluding the Investigation
As the investigation proceeds, the company should determine whether to prepare a written or verbal report, or materials for a presentation. If issuing a written report, the company should take appropriate steps to ensure confidentiality and privilege where appropriate. The company must then decide whether the investigation team will simply report its findings or take the additional step of recommending a course of action, up to and including disciplinary measures. Ultimately, management, the board of directors, or other decision makers must act in the best interests of the organization and decide what, if any, action is necessary to address the allegations that led to the investigation. At the investigation’s conclusion, the company should inform the complaining employee(s) as well as the target(s) of the outcome while reminding them of the company’s interest in maintaining confidentiality.
Kevin Douglass is a shareholder in the Litigation, Energy and Natural Resources, and Emerging Technologies groups. He is a complex commercial litigator with significant trial and arbitration experience. He also provides counseling and litigation services to businesses, business owners, managers, directors and officers. On behalf of companies, he has managed confidential internal investigations concerning the conduct of officers and employees.
Carla Castello is a shareholder in the Litigation, Emerging Technologies, and Employment and Labor groups. She has a broad range of range of litigation experience in several areas including commercial, labor and employment, consumer protection, antitrust, energy, and toxic tort. She represents corporate clients in defending a variety of matters, including environmental and toxic tort disputes, commercial contract disputes and conflicts between shareholders in closely held businesses.
Stephen Antonelli is a shareholder in the Employment and Labor, Litigation, and Energy and Natural Resources groups. He represents employers of all sizes, from Fortune 500 companies and large healthcare organizations to non-profit organizations and family-owned businesses. His practice focuses on all phases of employment and labor law, from complex class and collective actions and fast-paced cases involving the interpretation of restrictive covenants, to single-plaintiff discrimination claims and day-to-day human resources counseling.
To view the full article, click here.
Published in the Pennsylvania Business Central on September 27, 2024.
TEQ
(by Kristen Petrina)
Artificial Intelligence (AI) is advancing at unprecedented speeds. AI relies on vast amounts of datasets for processing and model training, creating the challenge of balancing the benefits of AI, while protecting data privacy. As a result of improper data processing and usage, organizations are facing harsh penalties including AI usage prohibition, algorithm disgorgement, and multibillion dollar fines. When considering how to introduce AI into any organization, one of the first questions to consider is, “How can AI be utilized to drive innovation without violating privacy and misusing collected data?”
AI governance analysis should be under a privacy lens, as personal data is at the core of many opportunities that come with AI development. Privacy risks may result in societal and ethical impacts on individuals which speaks to the heart of responsible AI usage. Incorporating responsible AI practices is user specific to each organization and it is possible to protect privacy and drive innovation. In order to achieve both goals, organizations should consider data protection preventative measures before implementing AI into its processes.
- Data privacy should be addressed at the onset of AI implementation. Organizations should conduct risk assessments and consider data enablement through AI from the beginning before it becomes an issue. Generative AI in particular is self-learning, the more data fed into the model, the harder it will be to unwind or remove data if improperly used.
- AI and data privacy governance teams must work together from the beginning to address any risks that may arise. Organizations may consider forming an ethical AI committee engaging diversified team members to reduce potential bias in the development and design.
- Contemplate data inputs by asking questions such as what the existing and potential future data sources may be, what data will be collected, what are in the datasets, how to categorize the types of data, will the data modeling receive personal or sensitive data, should those things be included.
- Consider data outputs by asking questions such as what information will be displayed after processing, what is the impact of the processing, is there any potential for harm from the processing and results, what controls are needed at the data layer to mitigate the risks.
- Review regulatory and data privacy requirements that impact and influence AI to assess and address any privacy policy gaps as a result of the introduction of AI into the organization’s processes. Policies can include but are not limited to addressing transparency into training data origins, acceptable use policies, data quality, validation of algorithms to confirm the AI model meets the organization’s AI and data policies, and sharing or transfer of data with third parties.
- What consent did the data owner give, particularly what purpose did the owner agree to? When implementing AI, organizations can get ahead of consent issues by educating the data owner of the intended purpose and use of the data.
- Build privacy measures into the system’s architecture to guarantee alignment with purpose consent given by the data owner and careful treatment of the data.
- Is the value provided to the organization proportional to the data owners risk? If data is used, should it be minimized to strip identifying features, or is it essential to include information such as sensitive data to determine if the model is biased?
- Determine the permanence of the data, depending on how it is incorporated into the AI model, an enforcement action can result in the loss of years of data. Additionally, some states allow data owners to be forgotten. If data is not de-identified it is possible to remove it from the datasets, however, if the data is de-identified it will not be possible to determine how the data was used and for the data to be removed from the datasets, potentially requiring a retraining of the model.
- Implement data security and privacy controls for stored decommissioned AI systems and associated data.
Organizations must safeguard data and ensure privacy compliance within AI systems, however, that does not mean innovation cannot thrive. An organization that considers privacy from the onset of AI implementation can drive innovation while also protecting privacy and reducing the risk of future penalties.
To view the full article, click here.
The Legal Intelligencer
(by Steve Antonelli and Alex Farone)
Changes in the world of non-competition agreements (“non-competes”) have been particularly prevalent in recent weeks, most notably including court activity barring the Federal Trade Commission’s new non-compete ban and Pennsylvania’s new law restricting the use of certain non-competes for healthcare practitioners.
In May of this year, the Federal Trade Commission (FTC) published a final rule that would ban nearly all new non-competes with employees, independent contractors, and volunteers nationwide, with the exception of non-competes entered into pursuant to certain business sales, on the basis that non-competes are an unfair method of competition and therefore a violation of Section 5 of the FTC Act.
The final rule would also void all pre-existing non-competes except (1) those made with senior executives earning more than $151,164 annually who are in a policy-making position, and (2) those that have been breached and for which a cause of action accrued prior to the final rule’s effective date of September 4, 2024.
The final rule would additionally require employers to provide “clear and conspicuous notice” to all current and former workers, other than senior executives, with existing non-competes by September 4 stating that the non-compete will not be, and cannot legally be, enforced. Immediately after the final rule was published, legal challenges to the ban were quickly filed in various federal courts across the country. As the September 4 deadline approached without a decisive ruling from any of these courts, employers wondered whether the non-compete ban would be ultimately enforceable and began to make strategic plans on whether to proactively change their non-compete practices.
Two weeks before the ban went into effect, on August 20, 2024, the U.S. District Court for the Northern District of Texas ruled against the FTC, finding that the non-compete ban exceeded the FTC’s statutory authority. In Ryan LLC, et al. v. Federal Trade Commission, the court determined that the creation of substantive rules like the non-compete ban stretched beyond the FTC’s power, and that the ban was unreasonably overbroad.
The Ryan decision sets aside the non-compete ban nationally, meaning the ban cannot be enforced or take effect on September 4. All requirements of the FTC rule—including banning the use of new non-competes and notifying workers and former workers with existing non-competes of the unenforceability of those agreements, with few exceptions—are no longer in effect. Employers may continue to utilize non-competes, in the manner prescribed by state statutes and case law. Despite being somewhat overshadowed by the FTC rule and the various legal challenges to it, on July 17, 2024, Governor Josh Shapiro signed one such Pennsylvania state statute into law.
Act 74, which is known as the Fair Contracting for Health Care Practitioners Act, takes effect on January 1, 2025. As of that date, most new non-competes between an employer and a health care practitioner shall be void and unenforceable as contrary to Pennsylvania public policy if the length of the agreement lasts longer than one year. If the time period of a non-compete entered after January 1, 2025 is one year or less, the non-compete will be enforceable, unless the employer dismisses the practitioner. The act will not impact existing non-competes entered before January 1, 2025, regardless of the length of the agreement. Additionally, employers may still enforce non-competes that are entered “as a direct result of” a sale or other transaction (such as a merger) of the health care practitioner’s ownership interest, or substantial ownership interest of, the assets of a business.
Non-competes covered by the act are agreements between an employer and a health care practitioner that prohibits the health care practitioner from treating patients or accepting new patients, whether independently or through the employment of a competitor after the term of the practitioner’s employment. The term “health care practitioner” is defined as medical doctors, doctors of osteopathy, certified registered nurse anesthetists, certified nurse practitioners, and physicians’ assistants, as those terms are defined by applicable laws.
Following the departure of a health care practitioner from their employer, the act also requires employers to take certain steps relative to patients who had been seen by the practitioner within the year before their departure (or two years for ongoing outpatient relationships). The employer must notify patients of: (1) the practitioner’s departure; (2) the manner in which the patient may transfer their health records to a different health care practitioner; and (3) the fact that the patient may be assigned to a new health care practitioner with the employer, if the patient chooses to continue receiving care from the employer.
Employers should continue to monitor the status of the now-barred FTC non-compete ban, as well as Pennsylvania’s newly enacted Fair Contracting for Health Care Practitioners Act. If you have questions about either, please contact Stephen A. Antonelli at 412-394-5668 or santonelli@babstcalland.com, or Alexandra G. Farone at (412) 394-6521 or afarone@babstcalland.com.
Stephen A. Antonelli is a shareholder in the Employment and Labor and Litigation groups of Babst Calland. His practice includes representing employers in all phases of labor and employment law, from complex class and collective actions and fast-paced cases involving the interpretation of restrictive covenants, to single-plaintiff discrimination claims and day-to-day human resources counseling.
Alexandra Farone is an associate in the Litigation and Employment and Labor groups of Babst Calland. Ms. Farone’s employment and labor practice involves representing corporate clients, municipalities, and individuals on all facets of employment law, including restrictive covenants, discrimination claims, human resources counseling, grievances, and labor contract negotiations.
To view the full article, click here.
Reprinted with permission from the September 17, 2024 edition of The Legal Intelligencer© 2024 ALM Media Properties, LLC. All rights reserved.
Firm Alert
UPDATE: Babst Calland Stands Ready to Advise All Clients on FinCEN Matters
(by Chris Farmakis, Susanna Bagdasarova, Kate Cooper, and Dane Fennell)
Following up on our May 2024 Alert, Babst Calland would like to remind you of the upcoming January 1, 2025 compliance deadline for the Financial Crimes Enforcement Network (FinCEN) Beneficial Ownership Information Reporting Rule (the “Rule”). Although it is currently being challenged in the courts, the compliance requirements and deadlines remain in effect for the majority of entities at this time.
The Rule requires most business entities to disclose personal information to FinCEN about their “beneficial owners”: individuals who directly or indirectly own or control such entities. Most entities in the U.S. will likely be required to comply with the Rule, and FinCEN estimates approximately 32 million businesses will be required to make a filing. The Rule exempts 23 types of entities from reporting requirements, primarily large or regulated entities already subject to various reporting requirements, such as banks, SEC-reporting companies, insurance companies, and ‘large operating companies’, as well as wholly owned subsidiaries of the foregoing. Every entity organized under U.S. law or registered to do business in the U.S. will need to determine (i) whether it is exempt from reporting requirements and (ii) if not, what information it must report.
Babst Calland is ready to help with all aspects of compliance, from legal analysis of your reporting obligations or exemption therefrom, through the report preparation and filing process using our firm’s secure technology platform. We recommend beginning the process of analysis and information gathering well in advance to ensure compliance by the below deadlines:
- January 1, 2025, for existing entities formed or registered prior to January 1, 2024
- Within 90 calendar days after formation or registration for new entities formed or registered on or after January 1, 2024, and before January 1, 2025
Babst Calland will continue to monitor regulatory and judicial updates and inform you of any significant changes affecting your compliance obligations. Please reach out to fincenassist@babstcalland.com or your Babst Calland client relationship lawyer if you would like Babst Calland to assist you with your company’s compliance obligations under the Rule.
To be clear, Babst Calland will only provide advice related to Rule compliance when explicitly requested to do so. We look forward to servicing your needs on this developing area of the law.
Thank you for your continued trust and partnership.
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FNREL Mineral and Energy Law Newsletter
Pennsylvania – Oil & Gas
(Joseph K. Reinhart, Sean M. McGovern, Gina F. Buchman and Matthew C. Wood)
On June 29, 2024, the Pennsylvania Department of Environmental Protection (PADEP) published notice in the Pennsylvania Bulletin that the proposed Erosion and Sediment Control General Permit for Earth Disturbance Associated with Oil and Gas Exploration, Production, Processing or Treatment Operations or Transmission Facilities (ESCGP-4) was available for public comment. 54 Pa. Bull. 3717 (June 29, 2024). The current ESCGP-3 is scheduled to expire on January 6, 2025. PADEP issues ESCGPs under the authority of the Pennsylvania Clean Streams Law, 35 Pa. Stat. §§ 691.1—.1001.
In the Pennsylvania Bulletin notice, PADEP stated that it was not proposing “significant changes” to the ESCGP-4 as compared to the ESCGP-3, but there are several noteworthy differences between the two permits. First, as a threshold matter, the ESCGP-4 contains a requirement that in discharges approved under the ESCGP-4 that exhibit a condition rendering it ineligible for coverage, “the permittee promptly shall take action to restore eligibility, to notify the Department in writing of the condition, and, if eligibility cannot be restored, to submit an individual erosion and sediment control permit (Individual E&S Permit) application to the Department.”
Next, the ESCGP-4 proposes to now require operators to submit a notice of intent (NOI) for coverage under the ESCGP-4 at least 60 days prior to the planned date for commencing any new discharge. The ESCGP-3 did not contain an NOI submission deadline. Further, PADEP has removed the expedited review option that was available under the ESCGP-4 for projects meeting specific criteria.
PADEP is also proposing new substantive requirements in the ESCGP-4. Under the ESCGP-3, weekly inspections of controls were required, as well as inspections following stormwater events. The ESCGP-4 adds an inspection requirement following “snowmelt sufficient to cause a discharge” and requires that inspections be documented using PADEP’s Chapter 102 Visual Site Inspection Report form (Doc. ID No. 3800-FM-BCW0271d) or a similar form that contains the same information. The ESCGP-4 also requires that the inspections be completed by “qualified personnel, trained and experienced in erosion and sediment control and post-construction stormwater management” and outlines requirements for such qualifications. Further, where the ESCGP-3 required “immediate” action to restore controls, the ESCGP-4 requires the initiation of repair or replacement within 24 hours of discovery of an issue.
Finally, the ESCGP-4 also proposes to require that any stormwater control measure (SCM) implemented by an operator that is not in PADEP’s Erosion and Sediment Pollution Control Manual (No. 363-2134-008) or the Water Quality Antidegradation Guidance (No. 391-0300-002) must be approved by PADEP. The ESCGP would also require confirmation testing for infiltration capacity of SCMs that must be reviewed by a licensed professional. Operators will also have to document the implementation of each structural SCM using a PADEP form and submit this documentation to PADEP within 30 days of completion of construction.
Comments on the ESCGP-4 were due by July 29, 2024.
Copyright © 2024, The Foundation for Natural Resources and Energy Law, Westminster, Colorado
FNREL Mineral and Energy Law Newsletter
Pennsylvania – Oil & Gas
(Joseph K. Reinhart, Sean M. McGovern, Gina F. Buchman and Matthew C. Wood)
At the May 16, 2024, Water Resources Advisory Committee (WRAC) meeting, the Pennsylvania Department of Environmental Protection (PADEP) presented a revised draft proposed rule that would amend and clarify certain existing spill reporting requirements. The regulation, 25 Pa. Code § 91.33 (Existing Rule), governs notification requirements for unauthorized releases of substances into waters of the commonwealth. Specifically, the Existing Rule requires immediate notification to PADEP if the release of a substance “would endanger downstream users of the waters of this Commonwealth, would otherwise result in pollution or create a danger of pollution of the waters, or would damage property.” 25 Pa. Code § 91.33(a). The party responsible for initiating the notification is “the person at the time in charge of the substance or owning or in possession of the premises, facility, vehicle or vessel from or on which the substance is discharged or placed.” Id. Notably, the Existing Rule, which was adopted in 1971, offers no clear guidance on determining whether notification is required.
To address this, PADEP has proposed a revised draft of the regulation that clarifies the requirements for notifying or not notifying the agency of an unauthorized release (Proposed Rule). See Proposed Revisions to 25 P.A. Code § 91.33. Proposed subsection 91.33(a.1) would require reporting for substances listed in 40 C.F.R. § 117.3 when released in amounts equal to or greater than their reportable quantities and subsection 91.33(a.2) states that a person who immediately notifies PADEP in accordance with subsections (a) and (a.1) has satisfied the notification requirements under section 91.33. The most substantive changes are found in proposed subsection 91.33(a.3), which sets forth the method by which a responsible party can determine that an unauthorized release does not require immediate notification to PADEP. To reach the conclusion that an unauthorized release does not require immediate notification, the responsible party must evaluate and document enumerated factors to determine that the substance(s) “does not cause or threaten pollution of the waters, endanger downstream users or cause damage to property.” Proposed Rule § 91.33(a.3). Those factors include:
- The properties of the substance(s) involved (e.g., harmful effects on human health, animal health, and the environment); persistence in the environment (and how the substance(s) might change); mobility of the substance(s) in soil and water; and the concentration and quantity of the substance(s);
- The location or locations involved, including proximity to commonwealth waters and the characteristics of such waters; land use, soils, and geology; and the presence and qualities of relevant infrastructure, e.g., spill containment systems;
- Weather conditions before, during, and after the incident;
- Presence and implementation of adequate response plans, procedures, or protocols;
- The duration of the accident or other activity or incident.
Id. Under the Proposed Rule, the responsible party would be required to provide this documentation to PADEP upon request, with a signed statement attesting to its accuracy. Id. § 91.33(a.4). The last addition, proposed subsection 91.33(a.5), confirms that not immediately reporting “an accident or other activity or incident which caused or threatened pollution, endangered downstream users or caused damage to property as described in subsection (a)” is a violation of section 91.33.
At the May 16, 2024, WRAC meeting, PADEP stated its goals for and the purposes of the Proposed Rule: (1) make notification requirements straightforward for stakeholders, including PADEP’s consistent application of the Proposed Rule; (2) provide stakeholders increased clarity and consistency regarding notification of unauthorized discharges; and (3) confirm that the Proposed Rule does not expand the set of discharges that require notification to PADEP. PowerPoint Presentation, WRAC, “Notification Requirements for Unauthorized Discharges to Waters of the Commonwealth: Revised Draft Proposed Rulemaking” (May 16, 2024) (PADEP Presentation). PADEP also offered examples of unauthorized discharges where notification would not be required (e.g., minor motor oil spill that will not reach waters), may be required (e.g., spill of non-liquid materials like soybeans into stream), and would be required (e.g., sanitary sewer overflows that reach waters of the commonwealth). See PADEP Presentation, slides 13–15. Although not required to move the Proposed Rule forward, PADEP requested WRAC’s support.
This is not the first time PADEP has attempted to revise the Existing Rule or offer clarifying guidance. In September 2023, the agency presented a draft revision to WRAC (that revision was updated by the Proposed Rule). Prior to that, PADEP published a draft technical guidance document (TGD) that offered guidance on notifying PADEP under the Existing Rule. See “Guidance on Notification Requirements for Spills, Discharges, and other Incidents of a Substance Causing or Threatening Pollution to Waters of the Commonwealth Under Pennsylvania’s Clean Streams Law,” No. 383-4200-003 (Oct. 16, 2021).
Although this TGD was never finalized, some of its elements, e.g., the factors for evaluating the risk that an unauthorized release constitutes or threatens pollution, are included in the Proposed Rule. In its recent meeting with WRAC, PADEP said it intends to revisit the October 2021 TGD when the Proposed Rule is finalized, including providing “updated practical examples of when reporting may or may not be required . . . .” PADEP Presentation, slide 16. Although PADEP has not yet indicated how it will proceed, if the agency decides to move forward with the Proposed Rule as written, the Proposed Rule will be published in the Pennsylvania Bulletin, which will begin a public comment period.
Copyright © 2024, The Foundation for Natural Resources and Energy Law, Westminster, Colorado
FNREL Mineral and Energy Law Newsletter
Pennsylvania – Oil & Gas
(Joseph K. Reinhart, Sean M. McGovern, Gina F. Buchman and Matthew C. Wood)
On April 4, 2024, the Pennsylvania Public Utility Commission (PUC), in a 4–1 vote, adopted a joint motion to comprehensively review processing times of certain applications under its purview. See Press Release, PUC, “PUC Launches Comprehensive Review of Application Procedures” (Apr. 4, 2024). Specifically, the PUC proposed to analyze how to make more efficient application processes that do not have applicable regulatory or statutory deadlines (or have deadlines that the PUC has authority to extend). Joint Motion for Chairman Stephen M. De Frank and Commissioner Ralph V. Yanora (Joint Motion), at 2.
The initiative consists of two parts. First, the PUC directed each of its various bureaus that work on these types of applications to review and inventory each applicable proceeding with the following information:
- the methods by which the PUC receives the applicable filings;
- the statutory or regulatory authority underlying issued approvals;
- whether publication of an application is required;
- whether the application has a protest period, and if so, its length; and
- a description of the bureau’s tasks.
Id.
Second, the Office of the Executive Director will analyze the inventory information, examine each bureau’s average application review time and the total average processing time from application filing to a final decision, and evaluate process improvements. Id. The goal of the evaluation is to reduce processing times by at least 15% (subject to revision), while also considering the allocation of necessary resources, legal deadlines, and compliance with applicable legal requirements under the Public Utility Code, PUC Regulations, or PUC Orders. Id.
According to the Joint Motion, the PUC’s initiative was influenced by multiple Shapiro administration actions, including: (1) the February 2024 PermitConnectPA workshop, which focused on making permitting, licensing, application, and certification procedures more efficient; (2) Governor Shapiro’s creation of the Office of Transformation and Opportunity, “to position Pennsylvania as the most business-friendly state in the U.S. and to empower [stakeholders] to reignite economic growth and promote prosperity throughout the Commonwealth”; and (3) Governor Shapiro’s Executive Order 2023-07, “Building Efficiency in the Commonwealth’s Permitting, Licensing, and Certification Processes” (Jan. 31, 2023). Id. at 1. Executive Order 2023-07 directed all commonwealth agencies to catalog the types of permits, licenses, or certifications they issue (including legal authority and timeframes) and submit the information to the Governor’s office for review and recommendations to make processing times more efficient.
The Joint Motion directs the bureaus to submit their inventories within 60 days of its adoption (by June 3, 2024) and the Office of the Executive Director is tasked with reviewing and compiling the inventories into a report within six months of its adoption, unless a request for an extension is submitted and approved. Id. at 3. The PUC docket for this action is No. M-2024-3047172.
Copyright © 2024, The Foundation for Natural Resources and Energy Law, Westminster, Colorado
FNREL Mineral and Energy Law Newsletter
Pennsylvania – Mining
(Joseph K. Reinhart, Sean M. McGovern, Gina F. Buchman and Christina M. Puhnaty)
On June 1, 2024, the Pennsylvania Department of Environmental Protection (PADEP) issued a request for information (RFI) to anyone interested in submitting concept papers for PADEP’s consideration for the Design, Development, Commercialization and Maintenance of Clean Energy Campus (CEC) Projects on abandoned mine lands (AML) controlled by the Commonwealth. 54 Pa. Bull. 3098 (June 1, 2024) PADEP requests concept papers from project sponsors, namely clean energy project developers, asset owners, financial institutions, and other relevant parties, willing to coinvest with PADEP to transfer AML sites into CECs. PADEP notes in the notice that it owns 13 properties greater than 50 acres in size eligible for conversion.
In terms of design, PADEP requests information on the design for land reclamation and remediation to create sites ready for clean energy generation or energy storage sites. PADEP is looking for a sponsor who can provide professional design services, feasibility studies, geophysical investigations, construction oversight, and other technical services as required. Such remediation designs could require action in perpetuity. With respect to development, PADEP is looking for a project sponsor that can manage the remediation and development of the site by completing leases, conducting site preparation, securing permitting, conducting geotechnical investigations, and securing interconnection. PADEP has pointed to EPA’s Revitalization Handbook as guidance for renewable energy development on AML sites, which recommends property purchasers assess whether they should conduct all appropriate inquiries to take advantage of CERCLA liability protections. For commercialization, PADEP seeks sponsors with experience deploying grid-scale clean energy generation and storage projects. PADEP will require a project sponsor to invest capital and be responsible for “any and all risks associated with the investment.” 54 Pa. Bull. at 3099. The project sponsor must also consider the availability of tax credits under the Inflation Reduction Act of 2022, Pub. L. No. 117-169, 136 Stat. 1818, for the project. Finally, PADEP is looking for a sponsor that can oversee the long-term maintenance of the project.
PADEP is also soliciting feedback on the possibility of using loans through the U.S. Department of Energy’s (DOE) Loan Programs Office (LPO) Title 17 Clean Energy Financing Program, specifically the DOE LPO Energy Infrastructure Reinvestment (EIR) category of the Title 17 Clean Energy Financing Program. The EIR expands the LPO’s mission to allow for the repurposing of energy infrastructure to avoid, reduce, utilize, or sequester air pollutants, including anthropogenic GHG emissions. EIR funds are available on or before September 30, 2026.
PADEP will prioritize concept papers that utilize one or more of the following technologies: solar, wind, advanced or enhanced geothermal, small modular reactor nuclear, biomass generation with carbon capture and sequestration, new manufacturing facilities for clean energy products or services, coal ash remediation with site redevelopment, critical minerals recovery (including processing, manufacturing, and recycling of mineral alternatives), hydrogen production and infrastructure, and sustainable aviation fuels or other biofuels production.
For more detail, see PADEP’s “Assessment of Solar Development on Previously Impacted Mine Lands in Pennsylvania” (May 7, 2024).
Copyright © 2024, The Foundation for Natural Resources and Energy Law, Westminster, Colorado
FNREL Mineral and Energy Law Newsletter
Pennsylvania – Mining
(Joseph K. Reinhart, Sean M. McGovern, Gina F. Buchman and Christina M. Puhnaty)
The Pennsylvania Department of Environmental Protection (PADEP) has issued a revised version of the General Plan Approval and/or General Operating Permit BAQ-GPA/GP-21, Coal-Mine Methane Enclosed Flare (Revised GP-21). As reported in Vol. 41, No. 2 (2024) of this Newsletter, on March 16, 2024, PADEP announced an opportunity to submit public comments on the proposed revised permit. See 54 Pa. Bull. 1429 (Mar. 16, 2024). Industry groups appealed the previous version of the permit issued on September 23, 2023, and PADEP decided to revise the permit because it “was presented additional source and site-specific information . . . and upon review, decided certain changes were warranted to address the new information and intended use of GP-21.” Technical Support Document for the Revised GP-21, at 2.
PADEP published the final version of the revised GP-21 permit on June 15, 2024. See 54 Pa. Bull. 3493 (June 15, 2024). The Revised GP-21 incorporates the proposed changes, including an increase in the best available technology (BAT) compliance requirement to limit NOx emissions to less than or equal to 0.15 lb/MMBtu, allowing operators to install and operate methane gas monitors to continuously measure and record the coal-mine gas methane concentration, and removed the requirement to conduct quarterly gas analysis at the inlet gas stream to the enclosed flare if a methane gas monitor is used. PADEP also published a comment and response document that summarizes the comments received on the draft published in March.
The GP-21 permit, permit application, application instructions, technical support documents, and comment and response documents are available here.
Copyright © 2024, The Foundation for Natural Resources and Energy Law, Westminster, Colorado
Employment and Labor Alert
(by Alex Farone, Steve Silverman and Steve Antonelli)
A Texas federal district court has barred the Federal Trade Commission’s (FTC) ban on most non-competition agreements (“non-competes”) slated to take effect on September 4, 2024, as previously reported. This decision halts the quickly approaching requirement for employers to cease the use of most non-competes and notify workers of their unenforceability. At least for the immediate future, employers may continue to use non-competes as they did before the proposed ban.
The Court Decision
On August 20, U.S. District Judge Ada Brown granted summary judgment against the FTC in a suit brought by a tax company and the U.S. Chamber of Commerce, ruling that the non-compete ban exceeded the FTC’s statutory authority. In Ryan LLC, et al. v. Federal Trade Commission, the FTC argued that the Federal Trade Commission Act (the Act) permits it to promulgate rules prohibiting unfair methods of competition, but the court determined that the FTC’s power in this regard is limited to creating rules of agency procedure. The court held that the creation of substantive rules like the non-compete ban stretches beyond the Act, as evidenced by the fact that the Act contains no penalty provisions to allow the FTC to seek sanctions for unfair methods of competition.
The court further concluded that the non-compete ban is arbitrary and capricious because it is unreasonably overbroad without a reasonable explanation for the “one-size-fits-all approach with no end date.” The court noted that the FTC provided no evidence as to why it imposed a national, sweeping ban on nearly all non-competes rather than targeting “specific, harmful non-competes.” Further, the FTC did not adequately analyze whether there are alternative approaches that would have sufficiently addressed unfair competition other than the proposed broad, nationwide prohibition.
What this Means for Employers
The Ryan decision sets aside the non-compete ban nationally, meaning the ban cannot be enforced or take effect on September 4. All requirements of the FTC rule—including banning the use of new non-competes and notifying workers and former workers with existing non-competes of the unenforceability of those agreements, with few exceptions—are no longer in effect. Employers may continue to utilize non-competes, in the manner prescribed by state statutes and case law.
Any employer that proactively notified workers of the unenforceability of their non-competes in anticipation of the ban going into effect on September 4 should speak to its attorney promptly regarding the status of those non-competes. They may still be enforceable if the notices did not include a true invalidation or release, but legal counsel should evaluate any such notice on a case-by-case basis.
There is a reasonable likelihood of an appeal, in which case, there may be additional developments to follow. Babst Calland will continue to monitor this situation and will advise as to whether employers must take any action in the future.
If you have questions about the status of the now-barred FTC non-compete ban, use of non-competes under existing state law, or strategies to deal with the ever-changing landscape of non-competes, please contact Alexandra G. Farone at (412) 394-6521 or afarone@babstcalland.com, Steven B. Silverman at 412-253-8818 or ssilverman@babstcalland.com, or Stephen A. Antonelli at 412-394-5668 or santonelli@babstcalland.com.
The Legal Intelligencer
(by Max Junker and Anna Hosack)
If sunlight is said to be the best of disinfectants and electric lights the most efficient policeman, then what is said of the darkness of anonymity? Many agencies have been receiving Right-to-Know Law, 65 P.S. § 67.701, et seq. (“RTKL”) record requests created through “FOIA Buddy” that they suspect are anonymous. FOIA Buddy is an online service that lists its mission as “simplifying the process of requesting public records.” After numerous inquiries about anonymous requests, the Pennsylvania Office of Open Records (“OOR”) released a memo confirming that FOIA Buddy is operated by people who have a stated goal of efficiently promoting government transparency and accountability in a cost-effective manner for all involved and that the OOR found no indication that FOIA Buddy is part of a phishing, scraping, or scamming activity. The memo also stated that the OOR is unable to provide specific legal advice on responding to RTKL requests that are made by or through FOIA Buddy. However, the OOR recommends that agencies ensure their internal RTKL policies are clear and posted on the agency’s website and easily accessible. This has provided an opportunity for local agencies to dust off their RTKL policies, which likely have not been reviewed since the enactment of the new RTKL in 2008.
Section 702 of the RTKL provides that “Agencies may fulfill verbal, written or anonymous verbal or written requests under this act.” Therefore, agencies have discretion as to whether they will answer anonymous requests. For a request not to be anonymous, the request must have a valid requester with an ascertainable address. A “requester” is defined by the RTKL as “[a] person that is a legal resident of the United States.” Section 703 of the RTKL requires that all written requests under the RTKL “shall include the name and address to which the agency should address its response.” The use of an alias or fake name or the lack of inclusion of a verifiable address on the RTKL form constitutes an anonymous request.
While “Frank Curry” from FOIA Buddy sent agencies into a flurry of activity over the past few weeks, anonymous requests previously have been addressed by the OOR. In Ryan v. Cumberland County, OOR Dkt. No. AP 2024-0349 (Apr. 12, 2024), the OOR addressed a RTKL request from “Ryan” which included only an email address and a zip code. The OOR concluded that without an ascertainable address, the OOR could not confirm “Ryan” was a legal resident of the United States. In John Doe v. Pennsylvania Dept. of Community and Economic Development, OOR Dkt. No. AP 2024-0543 (Feb. 27, 2024), the Requester creatively submitted a sworn affidavit to prove he/she was in fact a legal resident of the United States but redacted the name and signature from that sworn affidavit. The redacted affidavit and request which only included the name “John Doe” and an email address was insufficient for the OOR to determine that the Requester was in fact a legal resident of the United States. In Anonymous v. Downington Area School District, OOR Dkt. No. AP 2023-2329 (Sept. 28, 2023), the OOR held that a request that only included the name “Anonymous” which was appealed by an email address “uwchlanauditing@gmail.com” was an anonymous request because the Pennsylvania Department of States does not list an entity registered as Uwchlan Auditing.
Although there have been numerous RTKL appeals of denied record requests by “Frank Curry,” the OOR denied the majority of those appeals as insufficient. Recently, the OOR finally had the opportunity to address anonymity concerns in Frank Curry v. South Western School District, OOR Dkt. No. AP 2024-1311 (Jun. 20, 2024). The School District had received ten RTKL requests from “Frank Curry” seeking records related to IT operations, contracts, staff, and budgets. On appeal, the School District asserted sufficient evidence that “Frank Curry” is the equivalent of a “John Doe” and requests utilizing the “Frank Curry” name have opted into the anonymous request function of FOIA Buddy’s service. In fact, the Solicitor created a FOIA Buddy account to show that the name “Frank Curry” was assigned to his anonymous request. The School District had adopted a policy of fulfilling only RTKL requests made by a legal resident of the United States and its website notifies requesters that anonymous requests will not be fulfilled. Therefore, as an anonymous request, the School District was not required to respond to the request.
On appeal, the “Frank Curry” asked the OOR to make a finding of bad faith against the School District. Under the RTKL, a finding of bad faith may be appropriate where an agency refuses to comply with its statutory duties. The OOR concluded that the School District had not acted in bad faith in ignoring the request because the RTKL requests were anonymous requests which the School District was not required to respond to under the RTKL and because the School District promptly notified ”Frank Curry” of the anonymity issue in its timely denial letter.
In the wake of agency concern over anonymous requests, the OOR recommends that agencies ensure their internal RTKL policies are clear, especially regarding what requests will be accepted or denied. Agencies should review and revise RTKL policies to state that anonymous RTKL requests will not be accepted by the agency. If a request is received from “Frank Curry” utilizing the “foiabuddy.com” email address and the agency has a clear and accessible internal RTKL policy stating that anonymous requests will not be accepted, the agency may ignore the request as anonymous.
In light of this new anonymous service, agencies should review their old RTKL policies or consider the adoption of a policy for agencies that do not currently have one. Agencies are not required to promulgate regulations and/or policies under the RTKL, but they may do so in accordance with Section 504 of the RTKL. Notably, Section 504(b) of the RTKL requires that any such regulations or policies must be posted at the agency’s physical location and on the agency’s website if it maintains one. The OOR has published a sample Agency RTKL Policy on its website which may be a good starting place for agencies adopting or revising their current policies. It is important to remember that the RTKL prohibits the adoption of regulations or policies that include the following: (i) a limitation on the number of records that may be requested or made available for inspection or duplication and/or (ii) a requirement to disclose the purpose or motive in requesting access to records. When revamping its RTKL policy, an agency should consider the following:
- Agency Contact Information
With the constant ebb and flow of staffing at agencies, the policy must remain up to date as far as the title of the agency employee who is tasked with being the Open Records Officer (“ORO”). Agencies may also consider designating an Alternate Open Records Officer (“AORO”) in the event that the ORO is unavailable such as during a vacation. An agency’s policy should include the contact information for the ORO and AORO (if applicable).
- ORO Responsibilities
The policy may also list the responsibility of the ORO and/or AORO in receiving, processing, and responding to RTKL requests.
- Record Request Information
An agency’s policy can dictate the method of submission of RTKL requests and all agencies must accept RTKL requests on the OOR’s standard form. However, if an agency’s policy dictates the use of a form, agencies do not have to honor record requests outlined in an email or letter. Similar to anonymous requests, the agency can state that it will not acknowledge verbal or repeat RTKL requests. The policy may also include the agency’s hours of daily operation and a notice that requests received outside those hours of operation will be considered received by the agency as of the next business day.
- Fee Waiver
The policy can dictate whether an agency will waive all fees under a certain dollar amount.
- Posted Public Records
Where a record is available on an agency’s website, Section 704 of the RTKL allows the agency to point requesters to the website rather than providing copies of the record. The RTKL policy can designate what records will be posted to the website.
- Record Retention Policy
An agency’s policy may include a reference to the agency’s record retention policy to put requesters on notice of what records are no longer available, which may help reduce RTKL requests.
Even if an agency does not have a RTKL policy, pursuant to Section 504(b) of the RTKL, it must post the following information at its physical office and on its website: (i) ORO contact information, (ii) OOR contact information for appeals, and (iii) a form which may be used to file a RTKL request. This information may be incorporated into the RTKL policy to satisfy this requirement. While not required, a RTKL policy posted to the agency’s website and physical offices can help show an agency was not acting in bad faith in not responding to a verbal or anonymous request. RTKL policies can also be a helpful reminder to agency staff of an agency’s internal review and procedure related to processing RTKL requests which can often be complex. Our office continually monitors the OOR’s guidance on RTKL policies and the processing of anonymous requests. A government agency should be operating in the sunlight and can do so through clear RTKL policies that prevent records requesters from operating in the darkness.
Robert Max Junker is a shareholder in the Public Sector, Energy and Natural Resources, and Employment and Labor groups of Babst Calland Clements & Zomnir. Contact him at rjunker@babstcalland.com. Anna R. Hosack is an associate in Babst Calland’s Public Sector group and focuses her practice on zoning, subdivision, land development, and general municipal matters. Contact her at ahosack@babstcalland.com.
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Reprinted with permission from the August 20, 2024 edition of The Legal Intelligencer© 2024 ALM Media Properties, LLC. All rights reserved.
The Legal Intelligencer
(by Casey Alan Coyle and Michael Libuser)
Courts have long extolled the benefits of stare decisis, saying that it “promotes the evenhanded, predictable, and consistent development of legal principles, fosters reliance on judicial decisions, and contributes to the actual and perceived integrity of the judicial process.” Payne v. Tennessee, 501 U.S. 808, 827 (1991). Indeed, it has been said that, without the doctrine, “we may fairly be said to have no law.” Commonwealth v. Thompson, 985 A.2d 928, 953–54 (Pa. 2009) (quoting McDowell v. Oyer, 21 Pa. 417, 423 (1853)). Recently, however, the U.S. Supreme Court has departed from longstanding precedent in several cases—most notably in Dobbs v. Jackson Women’s Health Organization, 597 U.S. 215 (2022)—leading some members of the High Court to accuse it of making a “laughing-stock” of stare decisis. Loper Bright Enters. v. Raimondo, 144 S. Ct. 2244, 2295 (2024) (Kagan, J., dissenting, joined by Sotomayor and Jackson, JJ.).
The public’s confidence in the High Court has suffered as a result. According to a recent Gallup poll, the approval of the U.S. Supreme Court is near a historic low, with only 43% of Americans approving of its performance. The current approval rate is “statistically similar to its ratings over the past three years since it declined to block a Texas abortion law in 2021 and later overturned Roe v. Wade in the landmark 2022 [Dobbs] decision.” Megan Brenan, Approval of U.S. Supreme Court Stalled Near Historical Low, Gallup (July 30, 2024). Thus, there is ostensibly a direct correlation between adherence to precedent and the public’s view of the courts.
Two appeals pending before the Pennsylvania Supreme Court are about to test that theory. Those appeals—Freilich v. SEPTA, No. 10 EAP 2024, and Yoder v. McCarthy, No. 43 EAP 2024— collectively seek to overturn over 150 years of precedent, including a pair of unanimous decisions that were argued on the same day more than a decade ago, Zauflik v. Pennsbury School District, 104 A.3d 1096 (Pa. 2014), and Patton v. Worthington, 89 A.3d 643 (Pa. 2014).
Freilich
Freilich involves a purported “as applied” challenge to Section 8528 of the Sovereign Immunity Act, 42 Pa.C.S. §8528, under Article I, Section 6 (“right to jury trial”) and Article I, Section 11 (“remedies clause”) of the Pennsylvania Constitution. Section 8528 limits damages arising from the same cause or transaction or occurrence—or series of causes of action or transactions or occurrences—to $250,000 per plaintiff or $1 million in the aggregate in actions against Commonwealth parties. Section 8553 of the Political Subdivision Tort Claims Act, 42 Pa.C.S. §8553 (“Tort Claims Act”), similarly limits damages arising from the same cause or transaction or occurrence—or series of causes of action or transactions or occurrences—to $500,000 in the aggregate in actions against local agencies or their employees. The Sovereign Immunity Act and Tort Claims Act are “interpreted consistently, as they deal with indistinguishable subject matter,” Finn v. City of Philadelphia, 664 A.2d 1342, 1344 (Pa. 1995), and have “no legally significant differences” in the way they operate, Lyles v. PennDOT, 516 A.2d 701, 703 (Pa. 1986).
Over the last 40 years, the Pennsylvania Supreme Court and the Pennsylvania Commonwealth Court have upheld statutory caps on damages on at least eight separate occasions amid a flurry of constitutional challenges. For instance, in Smith v. City of Philadelphia, 516 A.2d 306 (Pa. 1986), the Pennsylvania Supreme Court held that Section 8553 of the Tort Claims Act was constitutional under Article I, Section 11 of the Pennsylvania Constitution, reasoning: “If the legislature may abolish a cause of action, surely it may also limit the recovery on the actions which are permitted. To hold otherwise would be, in our view, to grant with one hand what we take away with the other. Such a result would be absurd, or at least, unreasonable.” Likewise, in Griffin v. SEPTA, 757 A.2d 448 (Pa. Commw. Ct. 2000), the en banc Commonwealth Court concluded that inflation did not render the statutory cap unconstitutional, opining that “the mere passage of time will not render the amount of the cap unconstitutional due to the influence of inflation.” “Presumably,” the court went on to state, “the legislature was aware of the effects of inflation and could have opted for some cap indexed to inflation. That the legislature did not index the cap to inflation but set forth an absolute dollar amount does not render the cap unconstitutional.” By way of another example, in Zauflik, the Pennsylvania Supreme Court unanimously rejected the “creative argument” that the application of the damages cap violates Article I, Section 6 of the Pennsylvania Constitution. The Court determined that “[t]he damages cap does not present a condition or restriction on [the plaintiff’s] right to have a jury hear her case; rather, the burden lies in the limited amount of recovery allowed, and that is obviously not the same thing.”
Despite over four decades of unbroken precedent upholding the constitutionality of statutory caps on governmental tort liability, the Pennsylvania Supreme Court granted allocatur in Freilich in March. The Court agreed to hear, inter alia, whether Section 8528 violated the plaintiff’s right to a remedy in Article I, Section 6 of the Pennsylvania Constitution “under the facts of [that] case.” Briefing is set to be completed this month, and it is anticipated that oral argument will take place in the fall.
Yoder
Yoder concerns a challenge to statutory employer immunity. Under Section 302(b) of the Workers’ Compensation Act, 77 P.S. §462 (WCA), general contractors are secondarily liable for the payment of workers’ compensation benefits to the injured employees of their subcontractors. Thus, if the subcontractor-employer defaults, these general contractors must pay workers’ compensations benefits to the subcontractor-employees. Therefore, although they are not the actual employers of the subcontractor-employers, general contractors are considered “statutory employers” of the subcontractor-employees due to their treatment under the WCA. In exchange for assuming secondary liability for the payment of workers’ compensation benefits, statutory employers have immunity in tort for work-related injuries sustained by subcontractor-employees. This immunity “pertains by virtue of statutory-employer status alone, such that it is accorded even where the statutory employer has not been required to make any actual benefit payments.” Patton, 89 A.3d at 645.
The Pennsylvania Supreme Court first recognized statutory employer immunity over a century ago in Qualp v. James Stewart Co., 109 A. 780 (Pa. 1920). Since that time, the Pennsylvania Supreme Court has reiterated the validity of the doctrine on numerous occasions. For example, in Fonner v. Shandon, Inc., 724 A.2d 903 (Pa. 1999), the Pennsylvania Supreme Court rejected the argument that the 1974 amendments to the WCA—which made it mandatory, rather than elective, for employers to provide workers’ compensation coverage for employees—eliminated statutory employer immunity. The Court reasoned that “when the General Assembly amended Section 302(b) in 1974, it could have at the same time amended” a different section of the act––Section 203—to provide that a “statutory employer in reserve status could only escape liability for a common law suit if the statutory employer had the direct responsibility to pay workers’ compensation benefits.” As the Court noted, however, the General Assembly “did not make any changes in the 1974 or subsequent amendments to Section 203 in spite of established case law.” More recently, in Patton, the Pennsylvania Supreme Court unanimously reaffirmed the validity of the “relatively straightforward” statutory-employer doctrine. In a notable concurring opinion, the late Chief Justice Max Baer described Section 203(b) as “clear and unambiguous” and the Pennsylvania Supreme Court’s precedent as “consistent[]” over decades.
Notwithstanding the settled nature of statutory employer immunity, the Pennsylvania Supreme Court granted allocatur in Yoder in May. Among other issues, the Court agreed to hear whether it should overrule Fonner and hold that the 1974 amendments to the WCA “necessitates denying ‘statutory employer’ status to general contractors unless they in fact have been called on to pay workers’ compensation benefits to the injured employee of a subcontractor.” Briefing is set to be completed in the late fall, and it is anticipated that oral argument will take place in early 2025.
Conclusion
If the U.S. Supreme Court’s fallen approval rating is, at least in part, a result of its own tendency to revisit and overturn prior case law, it serves as a warning to state appellate courts—overruling precedent can undermine public confidence in the courts and strike a blow to their perceived integrity. Whether that warning will discourage state appellate courts from revisiting well-settled precedent remains to be seen, but Freilich and Yoder are front and center on that issue. If state appellate courts’ adherence to stare decisis ebbs and flows along the lines of the U.S. Supreme Court, they could contribute to a new era of “optional” stare decisis and, with it, find a corresponding decline in public approval.
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Casey Alan Coyle is a shareholder at Babst, Calland, Clements and Zomnir, P.C. and Co-Chair of the firm’s Litigation Group. He focuses his practice on appellate law and complex commercial litigation. Coyle is also a former law clerk to Chief Justice Emeritus Thomas G. Saylor of the Pennsylvania Supreme Court. Contact him at 267-939-5832 or ccoyle@babstcalland.com.
Michael Libuser is a litigation associate at the firm. He focuses his practice on appellate law and complex commercial litigation. Before entering private practice, Libuser served as a law clerk to the Honorable Yvette Kane, Senior United States District Judge for the Middle District of Pennsylvania, and the Honorable Karoline Mehalchick, United States District Judge for the Middle District of Pennsylvania (then United Magistrate Judge). Contact him at 717-868-8379 or mlibuser@babstcalland.com.
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Reprinted with permission from the August 15, 2024 edition of The Legal Intelligencer© 2024 ALM Media Properties, LLC. All rights reserved.
TEQ Hub
(by Kristen Petrina)
Artificial Intelligence (AI) is advancing at unprecedented speeds. AI relies on vast amounts of datasets for processing and model training, creating the challenge of balancing the benefits of AI, while protecting data privacy. As a result of improper data processing and usage, organizations are facing harsh penalties including AI usage prohibition, algorithm disgorgement, and multibillion dollar fines. When considering how to introduce AI into any organization, one of the first questions to consider is, “How can AI be utilized to drive innovation without violating privacy and misusing collected data?”
AI governance analysis should be under a privacy lens, as personal data is at the core of many opportunities that come with AI development. Privacy risks may result in societal and ethical impacts on individuals which speaks to the heart of responsible AI usage. Incorporating responsible AI practices is user specific to each organization and it is possible to protect privacy and drive innovation. In order to achieve both goals, organizations should consider data protection preventative measures before implementing AI into its processes.
- Data privacy should be addressed at the onset of AI implementation. Organizations should conduct risk assessments and consider data enablement through AI from the beginning before it becomes an issue. Generative AI in particular is self-learning, the more data fed into the model, the harder it will be to unwind or remove data if improperly used.
- AI and data privacy governance teams must work together from the beginning to address any risks that may arise. Organizations may consider forming an ethical AI committee engaging diversified team members to reduce potential bias in the development and design.
- Contemplate data inputs by asking questions such as what the existing and potential future data sources may be, what data will be collected, what are in the datasets, how to categorize the types of data, will the data modeling receive personal or sensitive data, should those things be included.
- Consider data outputs by asking questions such as what information will be displayed after processing, what is the impact of the processing, is there any potential for harm from the processing and results, what controls are needed at the data layer to mitigate the risks.
- Review regulatory and data privacy requirements that impact and influence AI to assess and address any privacy policy gaps as a result of the introduction of AI into the organization’s processes. Policies can include but are not limited to addressing transparency into training data origins, acceptable use policies, data quality, validation of algorithms to confirm the AI model meets the organization’s AI and data policies, and sharing or transfer of data with third parties.
- What consent did the data owner give, particularly what purpose did the owner agree to? When implementing AI, organizations can get ahead of consent issues by educating the data owner of the intended purpose and use of the data.
- Build privacy measures into the system’s architecture to guarantee alignment with purpose consent given by the data owner and careful treatment of the data.
- Is the value provided to the organization proportional to the data owners risk? If data is used, should it be minimized to strip identifying features, or is it essential to include information such as sensitive data to determine if the model is biased?
- Determine the permanence of the data, depending on how it is incorporated into the AI model, an enforcement action can result in the loss of years of data. Additionally, some states allow data owners to be forgotten. If data is not de-identified it is possible to remove it from the datasets, however, if the data is de-identified it will not be possible to determine how the data was used and for the data to be removed from the datasets, potentially requiring a retraining of the model.
- Implement data security and privacy controls for stored decommissioned AI systems and associated data.
Organizations must safeguard data and ensure privacy compliance within AI systems, however, that does not mean innovation cannot thrive. An organization that considers privacy from the onset of AI implementation can drive innovation while also protecting privacy and reducing the risk of future penalties.
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