Pro-Employee Whistleblower Standard Embraced by SCOTUS

Friday, February 9th, 2024

On February 8, 2024, a unanimous United States Supreme Court ruled that whistleblowers bringing a retaliatory discharge claim under the Sarbanes-Oxley Act (“SOX”) are not required to prove that the employer acted with “retaliatory intent,” but need only prove that their “protected activity” was a “contributing factor” in the employer’s unfavorable personnel action.  The ruling reversed a Second Circuit decision which had overturned a $900,000 jury verdict in favor of a former employee against UBS Securities, LLC.[1] The Court’s ruling is yet another disappointment for businesses hoping for greater judicial protection from the growing number of retaliation claims.[2]

Justice Sotomayor’s opinion for the Court noted two related reasons for the ruling.  First, the statute, 18 U.S.C §1514A, does not reference or include a “retaliatory intent” or “animus” requirement. Instead, when Congress drafted SOX, it said no employer “may discharge, demote, … or in any other manner discriminate against an employee … because of” the employee’s protected whistleblowing activity.  The Court noted that to “discriminate” typically means simply “to make a difference in treatment or favor of one as compared with others.” [3] Accordingly, the Second Circuit was wrong to conclude the word “discriminate” requires a plaintiff to prove the presence of a malevolent motive or “animus” on the part of the employer/decisionmaker.

Second, the Supreme Court observed that the statutory language[4] calls for the employer intent to be proved using the contributory factor burden-shifting framework used in most federal whistleblower protection laws.[5] The Court found that the “contributory factor” framework was specifically chosen by Congress in order that the protection provided would be plaintiff-friendly so that employees would not have to show that their protected activity was a “significant”, “motivating’, “substantial”. or “predominant” factor in making the adverse decision in this context.[6]

As Justice Alito noted in his concurring opinion, the Court’s decision still requires the plaintiff to prove that the employer treated him/her worse “because of” the protected activity, which involves an intentional act; however, the plaintiff need not prove the protected activity was the only reason, or even that it was the principal reason for the adverse decision.  A showing that the protected activity “helped to cause or bring about” the decision is enough.

Once the employee comes forward with direct or circumstantial evidence that the protected activity helped to cause the adverse decision, the intent requirement is met and the burden then shifts to the employer to “demonstrate, by clear and convincing evidence, that the employer would have taken the same unfavorable personnel action in the absence of the protected behavior.”  This burden shifting framework is meant to be plaintiff-friendly because discriminatory intent is often difficult to prove and the employer controls most of the relevant evidence.  As Justice Alito noted, this framework in effect requires the employer to show that the employee’s protected activity did not cause the challenged employment decision.

The upshot is that retaliatory discharge claims will have even stronger staying power.  In Murray, this meant a $2.7 million swing for the employer (between damages and attorney’s fees awarded to the plaintiff).  Plaintiffs will surely like their chances at trial better with the more friendly standard adopted in Murray.

For more information about claims involving potential whistleblowers, please contact the lawyers at Gentry Locke who are frequently engaged to conduct internal investigations, to respond to government inquiries, to advise and represent management regarding employment decisions, and to represent companies and individual whistleblowers in litigation.

[1] See Murray v. UBS Securities LLC, 43 F.4th 254, 258 (2d Cir. 2022), rev’d Murray v. UBS Securities, LLC, 601 U.S. ___ (2024). The Supreme Court also noted that the district court had also awarded $1.769 million to Murray for attorney’s fees and costs through trial, before the additional fees and expenses associated with the appeals to the Second Circuit and U.S. Supreme Court
[2] Whistleblower claims are nothing new. https://www.gentrylocke.com/article/a-strange-new-normal-the-pandemic-and-a-new-virginia-law-usher-in-the-decade-of-the-whistleblower/ ; https://www.gentrylocke.com/whistleblowers-in-the-workplace-the-new-world-order/
[3] Quoting Bostock v Clayton County, 590 U.S. 644, 663 (2020).  In Bostock, the Court made it clear that in a claim of employment discrimination under Title VII a lack of “animosity” is “irrelevant” to proving the existence of discrimination.
[4] SOX, 18 U.S.C. §1514A(b)(2)(C) requires the court to apply the legal burdens of proof set forth in 49 U.S.C.§42121(b).
[5] This burden-shifting framework originated in the Whistleblower Protection Act of 1989, 5 U.S.C.§1221(e), and has since been used in more than ten (10) federal statutes enacted to protect employees who may face retaliation for reporting unlawful conduct that impacts public health, safety, or welfare in various industries.
[6] It bears noting that under Title VII, a plaintiff must show that the protected activity was a motivating or substantial factor in the adverse action.  EEOC v Abercrombie & Fitch Stores, Inc., 575 U.S. 768, 772-73 (2015).

New 2024 “Low Wage” Salary Level for Virginia Non-Compete Agreements

Thursday, February 8th, 2024

As of July 1, 2020, Virginia became one of twelve (12) states that imposed a ban  on the use of non-compete agreements for “low wage employees.”[1] At the time of adoption, the salary threshold for a “low wage employee” was $59,124 annually (or $1,137 per week). This salary threshold was not fixed by statute, but instead, the General Assembly adopted a moving target definition that ties the “low wage” salary threshold to the “average weekly wage of the Commonwealth” as determined by the Virginia Employment Commission. The practical effect is that a new average weekly wage is calculated before or at the beginning of each year when, inevitably, the average weekly wage goes up.

On January 16, 2024, more than three-years after the General Assembly adopted the restriction, the Virginia Department of Labor & Industry (“DOLI”) announced that the average weekly wage for the next twelve (12) months had risen to $73,320 annually, or $1,410 per week.[2] An annual salary of $73,320 is not a salary historically perceived as a “low” wage.[3] Accordingly, the time is now for employers to audit existing employment agreements that were entered into on or after July 1, 2020, to determine whether any of those agreements contain a provision that “restrains, prohibits or otherwise restricts an individual’s ability, following termination of employment, to compete with his former employer.”[4]

It is likely that many employers who entered into employment agreements within the past 3.5 years brushed aside the non-compete restriction for “low wage” employees because those newly hired employees were paid $70,000 per year or more—a salary which, by all accounts, is not “low.” With the latest increase to $73,320, these employers will find that the ban now applies because they suddenly have “low wage” employees. Those employers who do not want to (or cannot) raise these employees’ salaries to $73,325 or more, or do not want to (or cannot) commit to giving another pay raise each year to keep pace with the Virginia Employment Commission’s “average weekly wage,” should think twice before including a non-compete provision in their employment agreements.

As something of a silver lining, unlike similar laws in other states, the Virginia law does not require an employer in this situation to notify affected employees that a noncompete provision in the employee’s employment contract is now unenforceable or void. Also, it is important to remember that agreements entered into before July 1, 2020, are not subject to this ban.[5] Accordingly, as long as a “grandfathered” restrictive covenant is otherwise “reasonable” in geography, time and scope, a court is likely to enforce the restriction against an employee—even as to a lower wage employee who earns far less than $73,320.[6]

Going forward, however, an employer planning to hire a new employee who will be paid below $73,320 must avoid any requirement that the employee sign a “covenant not to compete” without getting legal advice on how to draft the agreement—which will require careful nuance. Moreover, if an employee quits or is separated from employment, employers should have any 2020 or “newer” agreement reviewed before a manager or owner threatens a current or former employee with enforcement of a “covenant not to compete.” Virginia gives workers the right to file suit to invalidate such a covenant in the agreement, and if they prevail, the worker is entitled to be paid liquidated damages as well as lost wages, benefits, and attorney’s fees. In addition, the Commonwealth can impose a civil monetary penalty of up to $10,000 per violation.

There is one final reminder to all employers who use covenants not to compete. While employers do not have to send a notice to individual employees that their noncompete agreement is void or unenforceable, Virginia law does require employers to make and maintain a general posting of either a copy of the Virginia Code § 40.1-28.7:8 (the Code section memorializing the non-compete ban for “low wage” employees), or an approved summary of that Code section provided by DOLI. This post must be kept alongside other required federal and state employment law postings.

If you have questions regarding employment agreements, noncompete or non-solicitation provisions, or other restrictive covenants designed to prevent competition or the protection of confidential information and intellectual property, please contact a member of Gentry Locke’s Employment Team.

[1] Va. Code § 40.1-28.7:8.
[2] See Virginia Department of Labor and Industry, Notice of the Average Weekly Wage for 2024, available at https://www.doli.virginia.gov/2024/01/16/notice-of-the-average-weekly-wage-for-2024/.  This is up $3,484 from 2023, when the average weekly wage was $69,836 annually (or $1,343 per week).
[3] Statistics from the U.S. Bureau of Labor Statistics (“BLS”) show that the average mean wage in all occupations in Virginia in 2023 was $65,960.  See https://www.bls.gov/oes/current/oes_va.htm/#00-0000.  It follows that there are a lot of employees making less than $73,320.
[4] While noncompete provisions are less common in contracts with independent contractors, Virginia’s law  also applies to independent contractors.  The threshold for an independent contractor is the average weekly wage but is the “median hourly wage” for the Commonwealth of Virginia for all occupations as reported for the prior year by the BLS.  At the present time, that median hourly wage for Virginia for 2023 was $23.22 per hour. See https://www.bls.gov/oes/current/oes_va.htm#00-0000.
[5] Virginia law may not be the only legal standard that applies.  As noted below in ftn. 6, and in an earlier article, last January, the Federal Trade Commission (“FTC”) began the process required to adopt regulations that would invalidate nearly all noncompete agreements.   As of this time, the FTC has no further action to move these regulations forward, and it is questionable whether any new rules will be rolled out before the November election.  Even if the FTC does issue the new regulation, those new rules will almost certainly be challenged in court, potentially enjoining its implementation and enforcement.
[6] While Virginia law may find a “grandfathered” agreement enforceable, an employer might face a legal challenge to enforcement under another federal law.  On May 31, 2023, the General Counsel to the National Labor Relations Board (“NLRB”) issued a memo stating that her office intended to challenge the enforceability of non-compete restrictions required of non-supervisory employees and argued that non-compete provisions unlawfully interfere with employees’ protected rights under Section 7 of the National Labor Relations Act, which extend to non-union employers. In September 2023, the Cincinnati Regional Office of the NLRB filed a complaint against an employer who required its employees to sign an agreement that contained a non-compete as well as customer and employee non-solicitation provisions that applied for two years.  The General Counsel’s legal position has been roundly criticized as an unprecedented overreach, but it is unclear how or when the NLRB might resolve this case. Once the NLRB decides the case, the General Counsel’s position will ultimately be decided by a federal court.

Forever Barred? The Statute of Limitations and its Limited Exceptions When Bringing a Medical Malpractice Lawsuit

Wednesday, January 31st, 2024

Navigating how to bring a personal injury claim in Virginia can be very confusing without experienced medical malpractice attorneys. Adding to that confusion, bringing a lawsuit for an injury caused by medical negligence, or medical malpractice, by a healthcare provider, adds additional complexities. Some requirements are so important that failure to comply with them can derail a lawsuit before it even begins. One such requirement is that you must bring your lawsuit within the time allowed under Virginia law, or it will be forever barred. This is known as a statute of limitations.

The General Rule

What is a statute of limitations? A statute of limitations is a defined period of time within which you must file a lawsuit after you suffer an injury. This limitation period is expressed in the Code of Virginia.

Why does it matter what statute of limitations applies to your potential lawsuit against a healthcare provider? Well, if you don’t bring a lawsuit within the time that the code requires, you can be permanently barred from ever bringing it. It is heartbreaking as a lawyer when you get a call from a potential client who has suffered real malpractice, but it occurred so long ago that any lawsuit would be barred by the statute of limitations.

In Virginia, the statute of limitations for bringing a personal injury lawsuit, which includes a lawsuit against a healthcare provider for medical negligence (medical malpractice), is two (2) years. This limitation period is set out in Va. Code § 8.01-243(A), which states: “[U]nless otherwise provided in this section or by other statute, every action for personal injuries, whatever the theory of recovery, and every action for damages resulting from fraud, shall be brought within two years after the cause of action accrues.”

Similarly, a medical negligence claim that results in a death, also known as a wrongful death action, has a statute of limitations of two (2) years from the date of the person’s death. This is also established by Virginia law in Va. Code § 8.04-244.

Importantly, the clock starts running on your time to bring a lawsuit at the time the “cause of action accrues.” This is a fancy way of saying that in most cases, your countdown starts from the time the negligence (malpractice) occurs. Generally, this accrual is the moment when the malpractice first occurred (for a personal injury action) or from the date of the person’s death (in a wrongful death action). Virginia, unlike some states, does not have a general rule that allows an injured party to wait until their injury is discovered before staring the countdown clock.

The (limited) Exceptions that Prove the Rule

Despite this, Virginia does have certain instances where the time to file your claim, the statute of limitations, is extended. Some of those ways are as established by statute in Va. Code § 8.01-243. Additionally, there are other doctrines/rules that have been established by the Virginia Courts that can potentially extend the amount of time you have to bring a lawsuit. Examples of where the statute of limitations for medical malpractice can be extended under Virginia law include:

• If the malpractice occurs when the patient was a minor.

It is very important that you note that this applies only to medical negligence (malpractice) claims and not other types of personal injuries for a minor (e.g., injuries suffered in a motor vehicle collision). For example, if a minor is under the age of 8, they have until the age of 10 to bring the action (by and through their “next friend,” which is a topic outside the scope of this article).  Code § 8.01-243.1.

• If a foreign object “having no therapeutic of diagnostic effect” is left in the body.

Examples that our firm have seen that fall under this exception include a surgeon leaving a surgical sponge in a patient’s body following a procedure and a surgeon leaving an instrument inside of the body. If this occurs, a person has one (1) year from the date the foreign object was found, or should have been found, to bring a lawsuit. Va. Code § 8.01-243(C)(1).

• In cases where “fraud, concealment, or intentional misrepresentation prevented discovery of the injury within the two-year period.”

For example, fraud or concealment can include a healthcare provider who hides the malpractice from you, or altered your medical record, and it was impossible for you to discover it until you sought additional treatment. (This will tie into another extension that will be discussed later). Again, if this occurs, the person has one (1) year to bring a lawsuit after the injury is discovered, or should have been discovered. Va. Code § 8.01-243(C)(2).

• In instances where cancer is not timely and properly diagnosed.

The law states that where a healthcare provider failed to diagnose “a malignant tumor, cancer, or an intracranial, intraspinal, or spinal scwannoma…” the statute of limitations is one year from the date the cancer is discovered, or should have been discovered. Code § 8.01-243(C)(3).

As mentioned earlier, there is at least one other way in which the time to bring your medical malpractice lawsuit can be extended, this is known as the “continuing treatment rule.” Unlike the other ways mentioned in this article, this rule is not set out in any Virginia code book, but was established by the Supreme Court of Virginia more than forty (40) years ago in Farley v. Goode, 219, Va. 969 (1979). In Farley, The Supreme Court of Virginia held, essentially, “[w]hen malpractice is claimed to have occurred during a continuous and substantially uninterrupted course of examination and treatment…the cause of action for that malpractice accrues, and the statute of limitations commences to run when the improper course of examination, and treatment if any, for the particular malady terminates.” In other words, if the treatment is with the same physician, for the same condition, and the treatment is “continuous and substantially uninterrupted,” then the statute of limitations can be extended.

However, people need to also be aware that there is a statute of repose that applies to all medical negligence (malpractice) suits in Virginia. Even if the malpractice falls under one of the covered areas or doctrines, it may be forever barred if you do not file suit within ten (10) years from the date of the malpractice.  Va. Code § 8.01-243(C)(3).

As you can see, it is essential that you speak with one of our personal injury lawyers in Roanoke, Virginia who understands all of the potential pitfalls, traps, and nuances related to filing and litigating a medical malpractice claim. Failure to understand personal injury law in Virginia and appreciate one of these nuances can be disastrous for your potential claim and could leave you forever barred from the courthouse.

Contact us to speak with a Virginia personal injury lawyer.

Supplemental Authority on Appeal: Rules and Considerations

Monday, January 29th, 2024

Despite a set schedule, appellate briefing is not necessarily closed prior to decision.  Even after oral argument, a party may submit “supplemental authorities” by letter to the clerk.  This letter is not limited to just citing the new authority—argument is ok too.

The rules for submitting supplemental authority are similar across the Court of Appeals of Virginia, the Supreme Court of Virginia, and the Fourth Circuit. The “authority” cited must be “pertinent and significant.”  Temporally, it should “come to a party’s attention” (i) after the party’s petition/brief was filed or (ii) after oral argument, but before decision; the letter must then be filed “promptly.  It needs to also explain why the authority is being submitted—including by reference “to the page of the brief or to a point argued orally.” And the body of the letter is limited to 350 words.  See Va. Sup. Ct. Rule 5:6A; Va. Sup. Ct. Rule 5A:4A; FRAP 28(j).

The opposing party has the right to respond.  This response is subject to the same substantive limitations, and must be submitted within 14 days (in the Court of Appeals of Virginia) or “promptly” (in the Supreme Court of Virginia or the Fourth Circuit).

While these are the basic rules, what factors bear on whether a party should submit a supplemental authority letter?  Sometimes the decision is easy—i.e., if there is a new controlling case.  Often, however, it will be a judgment call.  To assist in exercising that judgment, here are a few considerations:

1. Does the material qualify as supplemental authority?

Under the rules, three words (each subject to interpretation) control this threshold inquiry: “authority,” “pertinent,” and “significant.”  In general, “authority” should be limited to legal authorities, not material that would supplement the evidentiary appellate record.  See 21 Moore’s Federal Practice – Civil § 328.60 (with limited exception, “authorities” are things like “statutes, cases, [and] regulations”).

“Pertinent” relates to the requirement to reference where the issue was previously discussed.  In other words, a supplemental authority letter is not a vehicle to introduce additional arguments.  See United States v. Ashford, 718 F. 3d 377, 381 (4th Cir. 2013) (finding that litigants may not use such a letter “as a means to advance new arguments couched as supplemental authorities”); Va. Sup. Ct. Rule 5:6A (the Supreme Court of Virginia “may refuse to consider the supplemental authorities if they unfairly expand the scope of the arguments on brief”); Va. Sup. Ct. Rule 5A:4A (same for the Court of Appeals of Virginia).

As for “significant,” one rule-of-thumb is whether a party would have cited the authority in the relevant filing, had it been aware of the authority at the time.

2. What about timing?

By rule, the supplemental authority should only have “come to a party’s attention” after the party’s last substantive filing or oral argument.  While this is not strictly pegged to when the authority was available, litigants are expected to be aware of pre-existing relevant authorities.  The letter accordingly should explain any disconnect or delay.  See Va. Sup. Ct. Rule 5:6A (supplemental authorities may be rejected if they “raise matters that should have been previously briefed [or], appear to be untimely”); Va. Sup. Ct. Rule 5A:4A (same).

Letters must also be filed “promptly.”  Key here is to avoid the appearance of gamesmanship and to give adequate time for consideration—both by the court and your opponent.  Of course, if a decision is pending and the material is helpful, the supplemental authority should be filed as soon as possible.

Although the rules appear to allow reference at oral argument without first submitting a supplemental authority letter, that would not be good practice (and the supplemental authority may be rejected on the spot).  Rather, a letter should be submitted in advance of a hearing.

3. Can you include argument?

“Argument” used to be expressly forbidden.  In 2002, however, Rule 28(j) of the Federal Rules of Appellate Procedure was amended to remove this prohibition, and now “permits parties to decide for themselves what they wish to say about supplemental authorities.”  FRAP 28, Committee Notes on Rules—2002 Amendment.  The Virginia Rules were adopted in 2015 and likewise contain no restriction on argument.

4. What will your opponent likely say?

A supplemental authority letter can be a great opportunity: litigants have 350 words to introduce new authority and argue its significance to the appeal.  But any evaluation of whether to submit such letter must game-out what your opponent will likely say in response.  Just like an opening letter, a response can both highlight aspects of the authority and present related argument.

There is only an opening letter and response—no reply is permitted.  This sequencing is important in assessing whether a letter will be a net positive.  Appellate Lawyers, in particular, may be loath to give their opponents a platform to have the “last word.” 

The DOL’s New Employee-Friendly Independent Contractor Rule

Thursday, January 25th, 2024

Earlier this month, the Department of Labor (DOL) issued a new final rule intended to be effective March 11, 2024 that will address when a worker can be properly classified as an independent contractor. The misclassification of workers has been an issue of concern for several years, especially for worker-right advocates, which led to new legislation being passed in Virginia and many other states.[1] On the other hand, many business groups, especially those which rely heavily on independent contractors, such as those in the trucking and construction industry, and others in the gig-economy, are concerned that the new regulations unfairly tilt the analysis against those who prefer to be treated as independent contractors. This article will provide background on the issue and an analysis of the DOL’s new independent contractor rule.[2]

Background

The Fair Labor Standards Act (FLSA) provides certain protection for workers classified as employees. This protection includes a guaranteed minimum wage for all hours worked, overtime pay at least one and one-half times the employee’s regular rate of pay for hours worked over 40 within a single workweek, and mandates employers to maintain certain employee records. Independent contractors, on the other hand, are not afforded these protections under the FLSA.

Interestingly, guidance for distinguishing an employee from an independent contractor is not within the text of the FLSA. Until 2021, the DOL had not issued regulations that established specific criteria for determining a worker’s status under the FLSA. Instead, the criteria for worker classification were developed through case law and informal guidance from the DOL, like Fact Sheet 13, and both concentrated on the “economic reality” of the relationship between the company and the worker using the following six non-exhaustive factors:

1. Worker’s opportunity for profit or loss depending on managerial skill;
2. Investments by the worker and potential employer;
3. Degree of permanence of the work relationship;
4. Nature and degree of control;
5. Extent to which the work performed is an integral part of the potential employer’s business; and
6. Skill and initiative to perform the work.

While the DOL and most federal circuit courts used this “economic reality” test,[3] there was inconsistency in the application of the relevant factors, leaving companies with a lack of clarity when determining a worker’s status. There was no single bright-line test.

In an effort to promote greater certainty and simplicity, the DOL during the Trump Administration adopted a formal independent contractor rule, which was published on January 7, 2021 (2021 IC Rule). The 2021 IC Rule utilized a five factor test to determine whether a worker is an employee or independent contractor; however, unlike the traditional “economic reality” test, the 2021 IC Rule designated two of the five factors as “core factors.”[4] The DOL explained that these two “core factors” were typically more probative in determining the status of a worker and, thus, should carry greater weight than the other factors. For this reason, if the two “core factors” pointed toward the same classification, then the worker should be classified that way. If the two “core factors” pointed in different directions, then the three “non-core factors” should be considered to determine a worker’s classification. The 2021 IC Rule made clear, however, that it was highly unlikely that the “non-core factors” could outweigh the probative value of the two “core factors.”

The DOL’s New Independent Contractor Rule

After the Biden Administration took office two weeks later, the DOL changed course and set its sights on rescinding the 2021 IC Rule due to a belief that the 2021 IC Rule would cause confusion and complicate the analysis because the 2021 IC Rule conflicted with decades of case law applying the six factor “economic reality” test. The DOL reasoned that no factor or combination of factors should be emphasized over others, nor afforded predetermined weight. This dispute resulted in litigation, and the eventual decision for the DOL to issue a new rule that seeks to bring a return to the totality of the circumstances approach of the “economic reality” test historically applied. In doing so, the DOL declined to embrace the three pronged “ABC test” created by the California Assembly Bill 5 enacted in 2019.

In the newly released final rule, the DOL elected to provide additional detail concerning how each of the six underlying factors should be applied. The six factors and some of the specific guidance related to each of those factors is set forth below.

1. Opportunity for Profit or Loss Depending on Managerial Skill.

This factor focuses on whether the worker has opportunities for profit or loss based on managerial skill (including initiative or business acumen or judgment) that affect the worker’s economic success or failure in performing the work. The following non-exclusive list of facts are suggested as being relevant when applying this factor:

• whether the worker determines or can meaningfully negotiate the charge or pay for the work provided;
• whether the worker accepts or declines jobs or chooses the order and/or time in which the jobs are performed;
• whether the worker engages in marketing, advertising, or other efforts to expand their business or secure more work; and
• whether the worker makes decisions to hire others, purchase materials and equipment, and/or rent space.

If a worker has no opportunity for a profit or loss, then this factor suggests that the worker is an employee. The DOL went on to observe that some decisions a worker makes that impacts their pay typically will not indicate the exercise of managerial skill necessary for independent contractor status. For example, a decision to work more hours or take more jobs when that worker is paid at a fixed hourly rate or fixed rate per job would not be exercising the managerial skill required by this factor, because, they are simply earning more by working more. By contrast, managerial skill is involved when the worker has the ability to accept or decline certain jobs where the jobs vary in their degree of possible profitability and the worker is responsible for determining which jobs to pursue and how the worker’s resources and time should be allocated amongst the various jobs they elect to pursue.

2. Investments by the Worker and the Potential Employer.

The second factor considers whether investments by a worker are capital or entrepreneurial in nature. The types of investments that will be viewed as capital or entrepreneurial investments under this factor are those investments which “generally support an independent business and serve a business-like function, such as increasing the worker’s ability to do different types of or more work, reducing costs, or extending market reach.” In contrast, expenditures made that are more akin to costs borne by a worker to perform a job, such as the costs for tools and equipment necessary for the job, and costs unilaterally imposed by an employer on a worker, would not be viewed as a capital or entrepreneurial investment.

In response to criticism of the proposed rule, the new final rule makes clear that the DOL will not compare the amount of a worker’s investments to the amount of the potential employer’s investments. Rather, the DOL will compare the nature of the worker’s investments to the potential employer’s investments to determine whether the worker is making similar types of investments as the potential employer (even if the investments are smaller) that indicate the worker is operating independently, thereby signaling independent contractor status.

3. Degree of Permanence of the Work Relationship

The third factor considers the duration, continuity, and exclusivity of the relationship. When the relationship is indefinite in duration, continuous, or exclusive of work for other employers, the factor weighs in favor of the worker being an employee. When the relationship is definite in duration, non-exclusive, project based or sporadic due to the worker being in business for themselves and marketing their labor or services to multiple entities, the factor weighs in favor of the worker being an independent contractor.

4. Nature and Degree of Control

The fourth factor considers the potential for employer’s control, including reserved control, over the performance of the work and economic aspects of the working relationship. Facts relevant to this consideration include whether the potential employer sets the worker’s schedule, supervises the performance of the work, uses technological means to supervise the performance of the work, reserves the right to supervise and/or discipline workers (even if not used), or limits the worker’s ability to work for others. The potential employer’s ability to control prices or rates for services and the marketing of the services or products provided by the worker will also be considered indicators of an employment relationship.

On the other hand, the DOL in the final rule recognized that certain actions taken by a potential employer to ensure compliance with specific laws and regulations do not indicate employer control. However, actions taken by the potential employer that go beyond compliance with specific laws or regulations and that serve the potential employer’s own compliance methods, safety, quality control, or contractual or customer service standards may be indicative of control.

5. Extent to Which the Work is an Integral Part of the Company’s Business.

The next factor considers whether the work performed by a worker is an integral part of the potential employer’s business. The focus of this factor is whether the potential employer could function without the service performed by the workers. When the work performed is critical, necessary, or central to the potential employer’s principal business, then this factor weighs in favor of the worker being an employee.

6. Skill and Initiative.

The sixth favor considers whether the worker uses specialized skills to perform the work and whether those skills contribute to a business-like initiative. When a worker depends on potential employer training or does not use specialized skills, then this factor weighs in favor of the worker being an employee. The DOL also notes that just because a worker brings specialized skills to the job, this fact alone does not make a worker an independent contractor, as some employees have specialized skills.

7. Additional Factors

The new rule specifically states that the foregoing six factors are not exhaustive, and the DOL suggests that there may be additional factors relevant in determining whether the worker is an employee or independent contractor for purposes of the FLSA, but mentions none specifically.

Conclusion and Takeaways

At the outset, it is important to note that the new rule only impacts the analysis of whether a worker is an employee or independent contractor under the FLSA. It has no impact whatsoever on state wage and hour laws, like the California ABC test, the National Labor Relations Act (NLRA), Internal Revenue Code or any other federal or state laws under which independent contractor status may be assessed. That being said, once it takes effect the new rule will significantly impact all employers who utilize independent contractors in terms of its dealings with the DOL.

As of March 11, 2024, the DOL will treat the new rule as the controlling standard for determining worker classifications under the FLSA, unless or until a court rules otherwise. While there continues to be a great deal of uncertainty about the fate of the new rule, employers would be well-served to familiarize themselves with the new rule, should consider an audit or privileged review of current independent contractor relationships and seek legal advice from an experienced attorney on compliance issues. Reclassifying workers from independent contractors to employees must be handled carefully. Moreover, the costs associated with the misclassification can be quite significant, especially if it involves a large group of workers.

If you have any questions or need assistance in assessing certain members of your workforce or independent contractor arrangements to determine proper worker classifications, or if you need assistance with a DOL audit or compliance review, please contact the members of the Gentry Locke Labor & Employment team.

[1] As of July 1, 2020, Virginia adopted a very pro-employee statute, which includes a presumption that workers are to be considered an employee unless the employer can prove they are an independent contractor using the 21 factor IRS test. Va. Code §40.1-28.7:7. This law also creates a private right of action by an individual who believes they have been misclassified, in addition to series of penalties for misclassifications. See Va. Code §58.1-1901. Interestingly, since its enactment, this statute has not yet resulted in a flood of litigation as originally feared.
[2] There are several lawsuits currently pending that seek to block implementation of the new DOL independent contractor rule. It is uncertain at this time whether the new misclassification rule will become effective on March 11, 2024.
[3] Federal courts with jurisdiction over Virginia have historically applied the six factor test. See Hall v DIRECTTV, LLC, 846 F.3d 757,774 (4th Cir. 2017).
[4] The two “core factors” are the worker’s opportunity for profit or loss and the nature and degree of control. The other three “non-core factors” are the skill required for the work, whether work is part of an integrated unit of production, and the degree of permanence of the work relationship.

Do I Need an Autopsy for a Medical Malpractice/Wrongful Death Lawsuit?

Wednesday, January 17th, 2024

Our firm is often asked whether it is necessary to have an autopsy performed on your family member if he or she passes away, and you suspect that medical malpractice was the cause of your loved one’s death. The short answer is, that it is not a legal requirement in Virginia; however, wrongful death attorneys will agree that it is highly recommended. A wrongful death claim based upon medical malpractice is a claim that is brought when a family member dies as a result of the negligence of a healthcare provider.

To have a meritorious medical malpractice action in Virginia, you must be able to successfully prove that one or more of the healthcare providers who treated your loved one committed “malpractice” and that that malpractice was a “proximate cause” of your loved one’s death.  

Proximate Cause

“Malpractice” is defined as the failure of a healthcare provider to act with a degree of skill and diligence of a reasonably prudent healthcare provider. The mere fact that your loved one died, does not by itself show malpractice. A “proximate cause” is defined as a cause which in natural and continuous sequence produces the injury and damage (death) and without which the death would not have occurred.

An autopsy, which would be performed after your loved one’s death, can be invaluable in proving not only that malpractice was the cause of death, but also would help establish proximate cause. It is the burden of the person bringing the lawsuit to prove that there was not only malpractice involved in your loved one’s care but also that the malpractice was the proximate cause of his or her death. The purpose of an autopsy is to determine the most likely cause of death which will also include examining the major contributing factors to the death and whether or not that death was a natural or accidental death or the direct result of medical negligence. Sometimes, the lack of an autopsy would prevent an attorney from having the necessary evidence to file and successfully pursue a medical malpractice case.

Avenues of Approach

When a family member suspects that there might be medical malpractice involved in a loved one’s death, there are several avenues that can be pursued to arrange for an autopsy. If your loved one is hospitalized, the doctor or in-house pathologist for the hospital can perform the autopsy. There could be bias involved in this “in-house” autopsy as the hospital employee performing the autopsy might be biased in favor of the healthcare institution that is responsible for your loved one’s death.

Other options for having an autopsy performed would be to hire a private pathologist, or have the local coroner or medical examiner perform the autopsy. If your family is contemplating a wrongful death suit based upon malpractice, it would be wise to begin investigating these options prior to your loved one’s death if his or her death is imminent.  

Making these arrangements once your loved one has expired, is often difficult. Experienced medical malpractice attorneys can help you investigate and decide whether the hospital would be the appropriate institution to perform an autopsy, whether the medical examiner or coroner would be willing to perform the autopsy or whether a private pathologist would be the best avenue. If a private pathologist would be the best option, an experienced medical malpractice attorney can make arrangements to engage the services of a qualified private pathologist.

Conclusion

Our wrongful death attorneys in Virginia can help you make all of these decisions. We also can help arrange a private autopsy if that is determined to be necessary.

If an autopsy has already been performed, we can review the autopsy report and give you our opinion of whether this would be an economically viable wrongful death case that we believe would be a potentially successful case that would result in a settlement or jury verdict.

In Virginia, there is a two-year statute of limitations for the filing of all wrongful death cases. Therefore, you would have two years from the death of your loved one to file a wrongful death case or it would be forever barred. In a wrongful death case based on medical malpractice, even though you have two years to file a lawsuit, we highly recommend that a potential wrongful death case should be investigated immediately after your loved one’s death to arrange for an autopsy and examine the medical evidence while it is still fresh.

If you have lost a family member as a result of medical malpractice, please contact us or call 540.983.9300. Our initial consultation is always free and confidential. We have a team of experienced Virginia wrongful death attorneys who would be more than happy to assist you.

New Cybersecurity Requirements For Healthcare Providers and Hospitals

Thursday, January 11th, 2024

On December 6, 2023, the United States Department of Health and Human Services (HHS) initiated new cybersecurity requirements for hospitals in an effort to protect the healthcare sector from cyber-attacks.

Hospitals and healthcare providers are particularly attractive targets for threat actors due to their size, dependence on technology, and access to data (including sensitive health-related data). Because sophisticated hackers appreciate the massive disruption and harm that an attack could cause to a healthcare provider and their data subjects, ransomware attacks are the weapon of choice for these threat actors. Gentry Locke is an experienced cybersecurity law firm that has data privacy and cybersecurity lawyers who can proactively assist healthcare providers to avoid these costly attacks.  

Four New Requirements

HHS reported a 93% increase in large-scale data breaches from 2018-2022, with a 278% increase in ransomware attacks. Not only are cyberattacks on healthcare providers prolific, their consequences can be tragic, with 17% of healthcare cyberattacks leading to physical harm or death.

With the increase of cyber-attacks on healthcare organizations that threaten the safety of patients, HHS recognized a need to expand on the current procedures and resources allocated to the healthcare sector and introduced four measures to improve cybersecurity:  

1) Establish voluntary cybersecurity performance goals for the healthcare sector

2) Provide resources to incentivize and implement these cybersecurity practices

3) Implement an HHS-wide strategy to support greater enforcement and accountability

4) Expand and mature the one-stop shop within HHS for healthcare sector cybersecurity

The cumulative effect of these measures is to incentivize compliance, establish tangible standards and benchmarks, provide hospitals with resources for cybersecurity education and implantation, and disincentivize non-compliance by bolstering HHS’s enforcement powers.

To provide guidance for industry, HHS will introduce the Healthcare and Public Health Sector Cybersecurity Performance Goals (HPH CPGs) which will create direct guidelines to promote the use of essential security practices across healthcare facilities. 

Further, HHS plans to collaborate with Congress to supply financial support to hospitals through an upfront investment program and an incentives program. The upfront investment program will alleviate the financial burden for low-resourced hospitals to cover the cost of the essential HPH CPGS. The incentive programs will allow all hospitals to implement advanced cybersecurity protocols.

HHS also announced that it is coordinating with Congress to increase civil monetary penalties for Health Insurance Portability and Accountability Act (HIPAA) violations. HHS also plans to initiate “proactive audits” and investigations. These measures will provide the federal government with a tool to ferret out and financially punish non-compliance. Gentry Locke’s cybersecurity attorneys and white collar defense attorneys are experienced in advising and defending entities that find themselves subject to government investigations and enforcement actions.

The HHS Office for Civil Rights (OCR) will update the HIPAA Security Rule in the spring of 2024, including new cybersecurity requirements, which will be subject to greater enforceability, given the implementation of proactive audits and corresponding financial penalties.

Finally, the established internal HHS support system within the Administration of Strategic Preparedness and Response (ASPR) will undergo changes to provide hospitals with a clear resource to report and respond to cyberattacks. HHS also plans to bolster coordination with the Federal Government to expand the availability and use of all available resources.

HHS further signaled its pronounced focus on cybersecurity when HHS OCR announced its first ever settlement under HIPAA’s Security Rule resulting from a phishing cyberattack. OCR’s investigation revealed that a 2021 data breach suffered by Lafourche Medical Group which impacted approximately 35,000 individuals resulted from a failure by Lafourche to conduct risk assessments and identify potential threats and vulnerabilities as required by HIPAA. Under the settlement, Lafourche Medical Group will pay $480,000 in penalties and implement a corrective action plan that will be monitored by OCR for the next two years. 

Also on December 6, a healthcare accreditation nonprofit known as the Joint Commission announced a new health data privacy certification program which will train hospitals on protecting patient privacy while transferring the data to third-party organizations for secondary use. The program called the Responsible Use of Health Data Certification, will not only aid the healthcare industry in preventing cyberattacks but will also generate increased trust from stakeholders and patients concerned about the vulnerability of their sensitive health data.

Conclusion

While every sector is at risk of cyberattacks, the healthcare sector continues to be an attractive target for cyber criminals, requiring advanced measures to ensure the safety of patients and efficiency of healthcare facilities. HHS’ new measures to increase cybersecurity will provide healthcare facilities with clear goals, financial support, increased HIPPA penalties and a coordinated system within ASPR to bolster relevant cybersecurity strategies. While cyberattacks on the healthcare system continue to dominate headlines, the hope is that clearer guidance and stronger financial incentives will encourage the healthcare sector to focus on cybersecurity. If you have questions, contact the experienced Criminal & Government Investigations attorneys at Gentry Locke. 

“The Driver Who Crashed into Me Is High”: How Defendant’s Marijuana Use Can Impact Your Virginia Motor Vehicle Personal Injury Case

Wednesday, January 10th, 2024

Virginia has recently decriminalized the possession of four (4) ounces or less of marijuana.^[1]   Police in Virginia can no longer “stop, search, or seize any person, place, or thing” based “solely” on “the odor marijuana.”^[2]  Virginians now frequently encounter the distinctive “skunk-like” odor of marijuana in public places.  Alarmingly, Virginians also encounter that odor, sometimes accompanied by visible smoke, emanating from vehicles operating on public roadways.   This is so even though it remains a crime for any person—driver or passenger—to use marijuana “in a motor vehicle being driven upon a public highway of the Commonwealth.”^[3]  Gentry Locke’s personal injury attorneys have seen cases rise regarding this ongoing issue and can help you navigate through what’s next.

The Situation at Hand

Imagine that you are driving home after working a second shift in your hometown.  You have a green light as you approach an intersection.  It is just past midnight and traffic is nonexistent.  As you proceed through the intersection you are hit broadside (“t-boned”) on the driver’s side by another vehicle which you know had run their red light.  The driver comes up to you while you are trapped in the driver’s seat, the crumpled door crushing your injured body.  You smell what you believe is the odor of marijuana.  When you ask the driver if they had been smoking  marijuana, the driver responds, “Yeah. So what?  It’s not illegal,” then falsely accuses you, “Why did you run the red light?”   A police cruiser arrives moments later.  You call out to the officer that you are injured and trapped.  The other driver hurries over to try and tell the officer their side of the story first.  The officer brushes past the other driver to get to you to check on your injuries.  You blurt out: “The driver who crashed into me is high.  They admitted it.  They ran the red light.”

With no eyewitnesses, no vehicle dashcams, and no mounted traffic cameras, your motor vehicle crash could descend into a contest of one driver’s word against the other’s.  But, like you, when the officer returns to the other driver he smells the odor of marijuana.  The other driver has bloodshot eyes, fumbles around when asked for license and registration, and is slow to answer simple questions.  These observations, combined with your statements and the fact of the accident itself, gives the officer reasonable articulable suspicion to conduct a field sobriety test on the other driver, which the driver fails.^[4]  When the officer arrests the other driver for driving while intoxicated (DWI), the driver states: “You can’t do that.  I’m not drunk and I haven’t taken any illegal drugs.”  The officer responds, quoting the Virginia DWI statute:  “Sure I can.  It is unlawful in Virginia for a driver to operate a motor vehicle while ͑ under the influence … of any … self-administered intoxicant or drug of whatsoever nature, or any combination of such drugs, to a degree which impairs his ability to drive or operate any motor vehicle  … safely.̕ ”^[5]  Toxicology on the post-arrest blood draw confirms the presence of THC, the active substance primarily responsible for marijuana’s mental effects.^[6]

Where We Can Help

While you are recovering from your injuries, you reach out to the plaintiff’s personal injury attorneys at Gentry Locke about filing a civil lawsuit against the other driver.  You ask, “Does it make a difference that the other driver was high?”  We tell you, “It certainly does. And here’s why.”

First, in your lawsuit, you must prove that the other driver was negligent.  Negligence is the failure to use “ordinary care,” which “is the care a reasonable person would have used under the circumstances of this case.”^[7]  A driver “facing a steady red traffic light has the duty to stop and remain stopped so long as the light is red and thereafter not proceed until it is safe to do so in the exercise or ordinary care.”^[8]  The failure to stop at a red light and not proceed thereafter until it is safe to do is negligent.^[9]  We explain that we will retain an expert forensic toxicologist to testify regarding the significance of the toxicology findings of the other driver’s THC level and about marijuana’s status as a “perception altering drug” that affects “spatial awareness” and can slow the user’s reactions and movements.^[10]  This evidence will make the other driver’s account of their actions, and who had the red light, hard for the jury to believe.

Second, we tell you that the other driver’s DWI from marijuana use may give rise to a punitive damages claim under Virginia law. Where punitive damages are recoverable, you may be awarded up to $350,000.00 in punitive damages by the jury.^[11]  Punitive damages may be awarded in addition to “compensatory damages” aimed at making you whole for your bodily injuries, any disfigurement, medical expenses, lost earnings/reduced earning capacity, pain, suffering, and inconvenience.^[12]  A claim for punitive damages against a driver who was DWI from marijuana “must be supported by factual allegations sufficient to establish the defendant’s conduct was willful or wanton.”^[13]  Where a defendant is DWI from alcohol (rather than marijuana or other drugs), the defendant’s conduct shall be deemed sufficiently willful and wanton to warrant punitive damages if the defendant’s blood alcohol concentration (BAC) is 0.15 or higher at the time of the crash and the defendant knew or should have known while drinking that their ability to drive a motor vehicle would be impaired.^[14]

To recover punitive damages from a defendant who is DWI from marijuana, however, you will have to prove the defendant’s willful and wanton negligence—that is, “action undertaken in conscious disregard of another’s rights, or with reckless indifference to consequences with the defendant aware, from his knowledge of existing circumstances and conditions, that his conduct probably would cause injury to another.”^[15]  One example of conduct egregious enough to support punitive damages is an intoxicated driver’s continuing to drive the wrong way down a highway after oncoming traffic has blown their horn and flashed their headlights to alert the driver.^[16]  But there are plenty of other ways to prove a defendant acted with conscious disregard for others.  Ultimately, the question of whether a defendant acted with knowledge “that his conduct probably would cause injury to another” will always depend on the specific facts developed. That is why which personal injury lawyer you choose to represent you is so important.  We have a team of experienced attorneys at Gentry Locke who have successfully navigated Virginia personal injury law issues before.  

If you have been seriously injured, or a family member has been seriously injured or killed, in a Virginia motor vehicle collision due to the negligence of another driver (regardless of whether you suspect intoxication), please Contact Us or call 540.983.9300. Our initial consultation is always free and confidential. 

^[1] See Va. Code § 4.1-1100.
^[2] Va. Code § 4.1-1302(A).
^[3] Va. Code § 4.1-1107(B).
^[4] See, e.g., Bryant v. Commonwealth, 2022 Va. App. LEXIS 569 (Ct. of Appeals Nov. 9, 2022) (unpublished).
^[5] Va. Code § 18.2-266(iii).
^[6] Marijuana (dea.gov), accessed 9/13/23.
^[7] Va. Model Jury Instr. – Civil, Instr. No. 4.000.
^[8] Va. Model Jury Instr. – Civil, Instr. No. 10.262.
^[9] Va. Model Jury Instr. – Civil, Instr. No. 10.262.  To prevail, you also must prove that the other driver’s negligence was a proximate cause of the accident and the amount of your damages resulting from the accident.  Va. Model Jury Instr. – Civil, Instr. No. 3.000.
^[10] Bryant, 2022 Va. App. LEXIS 569, at *4-*5.
^[11] Va. Code § 8.01-38.1.
^[12] Va. Model Jury Instr. – Civil, Instr. No. 9.000.
^[13] Woods v. Mendes, 265 Va. 68, 76 (2003).
^[14] Va. Code § 8.01-44.5.
^[15] Woods, 265 Va. at 76-77.
^[16] Booth v. Robertson, 236 Va. 269, 270-72 (1988).

Corporate Transparency Act Notification and Facts

Tuesday, January 9th, 2024

Dear Gentry Locke Clients:

This letter is to notify you of a significant change in federal law that will impact nearly everyone operating a business through a legal entity such as a corporation, limited liability company, limited partnership or other similar entity.

The Corporate Transparency Act (the “CTA”) became effective on January 1, 2024, and all required companies should be prepared to comply with the new reporting requirements. The CTA requires specific private companies that meet the CTA criteria of a “reporting company” (“Reporting Company”) to file informational reports with the Department of the Treasury’s Financial Crimes Enforcement Network (“FinCEN”) disclosing its beneficial ownership information as it relates to the company and its owners and principals. A Reporting Company will report its beneficial ownership information through a new federal government online portal called the “Beneficial Ownership Secure System.”  More information is provided on the enclosed CTA Fact Sheet.

Additional information about the reporting requirements, including answers to questions such as “is my company required to report beneficial ownership information to FinCEN,” “who is a beneficial owner,” and “when do I need to report my company’s beneficial ownership information” is available on FinCEN’s beneficial ownership information webpage, https://www.fincen.gov/boi.

While the responsibility for the required disclosures is that of the entity, Gentry Locke will stand ready to assist with the analysis of your entity structure to determine if your entity is considered a Reporting Company, and, if so, determining its beneficial owners. Gentry Locke will not be reporting the required information to the federal system on your behalf.

If you have any questions, please contact one of our attorneys or email us at CTA@gentrylocke.com.

Sincerely,

Gentry Locke Rakes & Moore, LLP

Background

The Corporate Transparency Act (the “CTA”), enacted in 2021, requires certain companies formed in, or registered to do business in, the United States to report its “beneficial ownership information” (“BOI”). The purpose of the CTA is to combat the use of shell companies for illicit activities such as money laundering, terrorist financing, tax fraud and corruption by uncovering illicit actors that use corporate structures to conceal their individual identities.  The CTA became effective on January 1, 2024.

Companies Required to File a BOI Report

The CTA requires a Reporting Company to file a BOI report. A Reporting Company means any entity that is:

• created by the filing of a document with the secretary of state or a similar office under the law of a State or Indian tribe; or
• formed under the laws of a foreign country and registered to do business in the United States by the filing of a document with a secretary of state or a similar office under the laws of a State or Indian tribe; and
• does not meet one of the 23 exemptions to reporting under the CTA.

Exemptions to Reporting BOI

Currently, the CTA provides 23 specific reporting exemptions. Most of these exemptions cover entities already subject to regulation by government entities, including public companies; large private companies (detailed below); regulated insurance companies; public accounting firms; registered investment companies and advisors; banks; regulated public utilities; as well as certain tax-exempt entities.

We expect that the most significant exemption will be the “large operating company” exemption, which applies to an entity that:

• directly (i.e., not on a consolidated or affiliated basis) employs more than 20 employees on a full-time basis in the United States;
• has filed a federal income tax return in the previous year demonstrating more than $5,000,000 in gross receipts or sales in the aggregate (on a consolidated basis, if applicable); and
• has an operating presence at a physical office within the United States.

Reporting Information: Beneficial Owners and Company Applicants

Beneficial Owner: Once it is determined whether an entity meets the definition of a Reporting Company, the next step is to identify the Reporting Company’s Beneficial Owner(s). A Beneficial Owner is any individual who, directly or indirectly, meets at least one of the following criteria:

• exercises “substantial control” over the Reporting Company; or
• owns or controls at least 25% of the “ownership interest” of the Reporting Company. The identity of these individuals must be reported to Department of the Treasury’s Financial Crimes Enforcement Network (“FinCEN”).

The CTA published final rules that further define the terms “substantial control” and “ownership interest” and describes criteria for determining whether an individual owns or controls 25% of the ownership interests of a Reporting Company.

• Under the final rule, “substantial control” means (1) service as a senior officer, (2) authority over the appointment or removal of any senior officer or dominant majority of the board of directors (or other similar governing body) of a Reporting Company, (3) direction, determination or decision of, or substantial influence over, important matter of a Reporting Company, or (4) any other form of substantial control over the Reporting Company.
• The final rule defines “ownership interest” as any instrument, contract, arrangement, understanding, or mechanism used to establish ownership, such as any equity, stock, capital, or profit interest..

Beneficial Owners may also include individuals that hold ownership interests in a Reporting Company through a trust or similar arrangement as well as those owning or controlling one or more intermediate entities that separately or collectively own or control ownership interests of a Reporting Company.

Company Applicant: In addition to reporting information regarding its Beneficial Owner(s), a Reporting Company must also file certain information regarding its Company Applicant. A Company Applicant is either the direct filer of the information or the person overseeing the filing of the information. If an advisor is retained to complete the filing on behalf of the Reporting Company, he or she will also be a Company Applicant in addition to the person employed by the Reporting Company who is overseeing this compliance process. This requirement to file information on the Company Applicant(s) only applies to a Reporting Company formed on or after January 1, 2024.

Reporting Timelines, Filing Costs and Penalties

Initial BOI Reporting Timelines: A Reporting Company created or registered to do business prior to January 1, 2024, has until January 1, 2025, to file its initial BOI report with FinCEN through a new federal government online portal called the “Beneficial Ownership Secure System” (“BOSS”). A Reporting Company created or registered to do business on or after January 1, 2024, is required to file its initial BOI report with FinCEN through the BOSS within 30 calendar days of the date on which the company is created or registered. However, on November 29, 2023, FinCEN issued a final rule extending the CTA deadline to file initial BOI reports for only those entities created or registered in 2024 from 30 days to 90 days. A company formed on or after January 1, 2025, remains subject to the 30 day reporting timeframe. There is a 90 day deadline to correct mistakes made in an initial BOI report.  If a company makes a correction within this timeframe, it may avoid penalties.

Change in BOI Reporting Timeline: If there is any change in information previously reported to FinCEN in a BOI report (including but not limited to a Beneficial Owner’s change of residential address), the Reporting Company will have 30 calendar days to file an updated report reflecting the change in information.

Approximate Filing Costs: It is anticipated that it will cost a Reporting Company with simple management and ownership structure (which FinCEN expects to be the majority of Reporting Companies) approximately $85 (per entity) to prepare and submit an initial BOI report.

Penalties: The penalties for noncompliance include both civil and criminal penalties for anyone who willfully fails to report or update BOI or provides false information in a report. Civil penalties include a fine of $500 per day (not to exceed $10,000) and criminal penalties include up to two years of imprisonment.

Filing Information

The Reporting Company must report the following information related to the Reporting Company on the BOSS:

• full legal name including any trade names or d/b/a names;
• its principal place of business;
• its jurisdiction of formation; and
• a unique taxpayer ID number (TIN and EIN).

The Reporting Company must report the following information related to its Beneficial Owner(s) and, for entities formed or registered after January 1, 2024, its Company Applicant(s) on the BOSS:

• the full name and date of birth of such individual(s);
• the current address for such individual(s);
• a unique identifying number for such individual(s) from an unexpired US passport number, driver’s license number or other specified documents; and
• an image of the document from which such unique ID number was obtained.

For filing efficiency, any individual or entity may obtain a FinCEN identifier (referred to as a “FinCEN ID”) by providing FinCEN the same information that a Reporting Company is required to report regarding the individual or entity.

For current guidance and updates related to the CTA rules and to assist entities in working through these complex provisions in an organized manner, FinCEN has released a “Small Entity Compliance Guide” available at: https://www.fincen.gov/boi/small-entity-compliance-guide and has also published a list of FAQs available at https://www.fincen.gov/boi-faqs.

If you have any questions, please email us at CTA@gentrylocke.com.

The Executive View: Virginia Regulatory Process, Appeals, and Lessons Learned from the Inside

Friday, January 5th, 2024

My law professor once said that administrative law is “electrical engineering for lawyers.”  I did not fully appreciate what this meant, other than that it sounded complicated.  That was until I had the opportunity to spend years watching the regulatory and appellate process up-close.  

I had the honor and privilege of coordinating review of Virginia’s regulatory process on behalf of the Virginia Governor.  As Deputy Counsel and then Counsel to Governor Terry McAuliffe, I reviewed more regulations than, I suspect, most any other lawyer in the state. More importantly, I saw the process work and not work.  And I watched how appeals progressed to the Supreme Court of Virginia through judicial review of agency action.

From this experience, I understand more how administrative law parallels the intricacies of electrical engineering. There are so many factors at play, all of which must align, for things to work—law, policy, politics, science, data, and the inexorable ticking of the clock.  This article attempts to provide some lessons learned from that experience.

Lesson One: The Process is a Gauntlet, so Know Your Goal Up Front

Whether your regulatory issue involves a general regulation or a case-specific decision (such as obtaining a permit or license or other regulatory approval), they both share important similarities.  The Virginia Administrative Process Act (“VAPA” at Va. Code § 2.2-4000, et seq.) defines separately procedures for rulemaking and case decisions, with strict procedures for adopting regulations, making case decisions, and judicial review.

Because agencies act only under statutory authority, they have to follow those rules.  So the process matters immensely.  Thus, know what you want from the beginning.  

For instance, say you want to stop a regulatory change at all costs.  That means you want to make the process harder for the agency.  If the agency messes up along the way, and even if you lose before the agency, you might win an appeal of the decision, and as discussed below, time is your friend.

If, on the other hand, you need the agency to grant a license or permit, then your fate is not only in convincing the agency, but also having that decision survive appeals and judicial review.  Time is your enemy, and so you want to be a helping hand to get things wrapped up quickly and effectively.

Lesson Two: Many Calendars and Actors Impact Timing of Regulatory Process

The process for enacting or amending a regulation is defined by statute, and it takes time—but that statutory calendar is not the only one at play.  

On paper, the Virginia regulatory process goes through three phases—the Notice of Intended Regulatory Action (“NOIRA”), the Proposed phase, and the Final phase.  Public comment periods are required between each phase, with a 30-day period before a Final regulation becomes effective after it is published in the Virginia Register of Regulations.  Thus, in general, the process cannot be faster than 120-180 days.  But it never goes that fast, and the timeline is far more complicated and impacted by multiple different actors:

• Executive Branch Review Calendar — This process is layered atop the statutory process by Governors’ Executive Orders.  Every modern Governor has imposed some review process (partially required also under VAPA) through which the Attorney General, the Department of Planning and Budget, the Cabinet Secretary, and the Governor all review regulations as they advance through the regulatory process.  This process has few enforceable deadlines, so it can become a regulatory purgatory.
• Legislative Calendar – The General Assembly session occupies an immense amount of agencies’ time.  So in the month before and during the legislative session (say December to April), good luck getting any agency to do anything.
• Board’s Calendar – If the regulatory action is controlled by a Board (and not a full-time agency head), then that Board’s calendar becomes relevant.  Most regulatory boards do not meet every day or even week.  They might meet every month or perhaps even less frequently.  So, if your action misses March’s meeting, it might be another month or more before action can be taken.

Accordingly, the Virginia Registrar estimates that actions generally take between 18 and 24 months.  Even when the action is a high priority for the Virginia Governor (and thus the Executive Branch), it will take around one year.  For instance, Governor Youngkin made exiting the Regional Greenhouse Gas Initiative a high priority.  That regulatory action, through the State Air Pollution Control Board, took just under one year from the publication of the NOIRA to it becoming finally effective.   

But of course, the regulatory process is not “over” at the Final stage.  There is the calendar for appeals and judicial review of regulatory action, if a stakeholder pursues it.  That can take years to wind through the Circuit Court, the Court of Appeals of Virginia, and the Supreme Court of Virginia.

Lesson Three: The Passage of Time is Not Neutral

A related lesson is that timing is not neutral.  Since the regulatory process occurs within a dynamic political system, delay tends to favor the status quo.  Thus, generally speaking, proponents of a regulatory action need to get things done ASAP; opponents (a/k/a proponents of the status quo) generally benefit from time.

The reason returns us to my law professor: the regulatory process requires alignment, just like an electrical circuit.  And, over time, something will undoubtedly change that could mean the required alignment no longer exists.  For instance, there may be a new Governor with a different policy view (which is guaranteed every four years under the Virginia Constitution).  There may be a new General Assembly, with different priorities (possible every two years).  The underlying policy issues (or public perception of them) may shift in one direction or another.  Once the regulatory “circuits” are no longer aligned, the regulatory process stalls, and the status quo is maintained.  

Accordingly, proponents of a particular regulatory action—particularly if it is politically contentious—have a limited window, which makes perfecting the regulatory process all the more important.

Lesson Four: Proponents Should Help the Agency Get it Right; Opponents Should Make it Harder

Because of this “alignment” dynamic, and pulling together Lessons 1-3, there are certain takeaways for stakeholders.  Let’s accept that a given regulatory process takes 1.5-2 years, and, let’s assume that judicial review will take 2-3 years.  Thus, generally speaking, if an agency action fails to pass judicial review, there will almost certainly be a new Governor, with a new administration, before the agency can reconsider the issue.  So the “alignment” is fleeting.  

Thus, proponents should see their fate as tied to the agency getting it right the first time.  Under administrative law, agencies generally get deference from the appellate courts; however, errors in the process or in considering the issues can be fatal.  Thus, to win an appeal, proponents need to act as allies to the agency—help it get things right and be vigilant:  

1. Do not let errors fester—if the agency didn’t do something right, advocate for getting it right then, rather than waiting for judicial review to set things back years after the fact.
2. Be engaged and provide evidentiary support for the regulatory action. 

The same lessons teach opponents to make things harder.  And, here, opponents need to be equally vigilant:

1. Demand more process to draw things out—delay is your friend.
2. Submit contrary evidence on the record—and know that substantive evidence (such as studies, data, etc) is going to be much harder for the agency to get around than generic opposition from public comments.

Lesson Five: Mind the State Budget

The State Budget, adopted every two years and amended every other year, is always the most important piece of legislation passed by the General Assembly.  But it is not just about money.  A lot, and I mean a lot, of policy is made through the State Budget.  

Thus, stakeholders should pay attention to budget language—both as it is being considered and implemented.  The General Assembly, ultimately, is the chief policymaker in Virginia, and it has an enormous ability to attach conditions to the appropriations it makes.  And that conditioning power is often used to direct or restrict regulatory action by the Executive Branch.

That can be a total game-changer—so just be aware of how legislative changes, even arcane ones in the State Budget, could impact the regulatory process in ways helpful or hurtful to your cause.

Conclusion

The regulatory process is a dynamic one that operates alongside political and judicial processes.  It is, in many ways, electrical engineering for lawyers, but it also is a human process.  So, in the end, participation is key—and quality matters more than quantity.  That said, when the stakes are high in a regulatory action, I hope some of these lessons-learned from the inside will be helpful in successfully navigating the process. If you have any questions or need guidance on Virginia regulatory processes or appeals, contact us today.