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FMG Law Blog Line

Archive for July, 2017

FBI Issues Warning About the Dangers of Internet-Connected Toys

Posted on: July 21st, 2017

By: Jennifer Lee

The FBI is alerting parents to the risks and dangers associated with bringing an internet-connected smart toy into their homes and their children’s lives. Earlier this week, the Bureau’s Internet Crime Complaint Center (IC3) issued a consumer notice regarding internet-connected toys. It urges parents to “consider cyber security prior to introducing smart, interactive, internet-connected toys into their homes or trusted environments.”

Internet-connected toys can pose a privacy and cybersecurity threat to families who choose to bring such toys into their home as many of these toys are designed to be interactive and are increasingly incorporating technology that learn and tailor their behavior based on such interactions.

For example, most of these toys can carry a conversation, and in fact, this is one of the selling points of such internet-connected toys like CloudPets and Hello Barbie. But this feature requires a microphone. According to the IC3, it is very possible—and even likely—that the microphones are on all the time, listening to not only children’s chatter, but everything else that is happening in the background in its vicinity. Furthermore, it is also almost certain that the data the toys record get transmitted to a remote server. This is a cause for concern because most parents are unaware of what data is being transmitted, to whom the data is transmitted, or the cybersecurity practices, privacy policies, and data retention policies of its recipient.

Another risk that the IC3 warned parents of is that the personal identifiable information (PII) of their children could be collected in connection with their use of these toys. If the toy maker or the company responsible for collecting and maintaining the information suffers a data breach, such PII —including children’s names, physical addresses, and phone numbers —may be leaked, which could result in identity theft. If the leaked data contains GPS data, it could allow someone to pinpoint the child’s physical location.

The increase in popularity and sales of internet-connected toys and the ubiquity of data breaches pose a new set of potential lawsuits for toy-makers. Whereas before, toy makers mostly worried about product liability claims stemming from alleged manufacturing or design defects, now, toy makers face potential privacy and data breach litigation as well.

In fact, one such lawsuit was already filed against Mattel and ToyTalk for Mattel’s interactive doll, Hello Barbie, in December 2015. The purported class action complaint, filed in Los Angeles County Superior Court, alleged that the defendants did not disclose ToyTalk’s plan to and practice of using children’s conversation data for data mining and other purposes. The complaint further alleged that the defendants did not have sufficient cybersecurity protections in place to fend off attacks from hackers and to prevent them from gaining unauthorized access to the data collected and to the toys themselves, which would allow them to interact with children through the toys without anyone’s knowledge.

Although the Hello Barbie case was dismissed with prejudice at the plaintiff’s request, it is not a one-off situation. Because more and more toys are becoming internet-connected and data breaches are on the rise, a new wave of privacy and data breach lawsuits involving internet-connected toys, especially in the form of class actions, are on the horizon.

To minimize the risk of becoming embroiled in such expensive litigation, makers of internet-connected toys should be intentional about the quality and quantity of data they collect from children to ensure that they only collect data that is absolutely necessary for the proper function of the toy, and if it must collect PII, anonymize any PII collected. In addition, toy makers should audit their privacy policies and data retention policies to confirm compliance with applicable federal and state regulations, such as COPPA. Finally, toy makers should enact and adopt adequate cybersecurity measures and protocols to prevent any unauthorized access to the data collected and to the toys themselves.

If you have any questions regarding privacy and data breach litigation or how your business can be prepared for and respond to a cyberattack, please contact Jennifer Lee at [email protected].


Efforts to Postpone ELD Mandate Build Momentum

Posted on: July 20th, 2017

By: Parker M. Green

Legislative efforts are underway that could end up delaying the December 18, 2017 compliance deadline with the electronic logging device (“ELD”) mandate. The transportation law practice group recently created a countdown clock to the compliance deadline, which has been a source of contentious debate in the transportation industry for several years.  Now, with only 150 days until the deadline, Congress has given ELD opponents a sign of hope.

First, the U.S. House Appropriations Committee issued a report on Monday directing the Federal Motor Carrier Safety Administration (FMCSA) to “analyze whether a full or targeted delay in ELD implementation and enforcement would be appropriate and, if so, what options DOT has within its statutory authority to provide temporary regulatory relief until all ELD implementation challenges can be resolved.” The Committee passed the directive, which has been sent to the full House for consideration. As a result, the FMCSA must now provide Congressional appropriations committees with a full report on its findings within the next 60 days.  A full text of the Committee’s directive is available here

Then, only 1 day after the directive, U.S Rep. Brian Babin (R-TX) introduced the “ELD Extension Act of 2017” to the House of Representatives. The proposed bill would delay the ELD mandate’s compliance deadline by two years, or until December 2019. The bill has been referred to the Transportation & Infrastructure Committee, which represents an initial step in what is usually a prolonged legislative process. Nevertheless, the proposed bill coupled with the Committee’s directive signal growing momentum in favor of postponing the December 18, 2017 compliance deadline, if not repealing the Congressional ELD mandate in its entirety. Congress must act unusually fast– i.e., enact necessary legislation in less than 90-120 days – to officially postpone the ELD deadline.  That window would be cut in half if the FMCSA takes the full 60 days allotted for providing its “full report” on targeted and/or full delays of the ELD mandate.  Needless to say, Congress rarely (if ever) moves with the speed and efficiency required to enact legislation within those time constraints.

For any questions please contact Parker Green at [email protected].

An Update on Trump’s Nominations for the NLRB and DOL

Posted on: July 20th, 2017

By: Agne Krutules

Last Thursday, President Donald Trump’s two nominees, William Emanuel and Marvin Kaplan, to fill the National Labor Relations Board (NLRB) testified before the Senate. The Senate Committee on Health, Education, Labor & Pensions also heard from Patrick Pizzella, Trump’s nominee for deputy secretary of labor.

Emanuel, a management-side labor attorney, has spent much of his 50-year legal career representing employers in labor disputes. Kaplan, an Occupational Safety and Health Review Commission attorney, has spent a decade in Washington, D.C., advising lawmakers and regulators on various employment-related issues. Pizzella has been twice confirmed by Senate committees to agency jobs, first as an assistant secretary of labor under President George W. Bush, and later to his current position with the Federal Labor Relations Authority (FLRA) under President Obama. 

If both Emanuel and Kaplan are confirmed (which is expected), the NLRB will have a Republican majority for the first time since June 2007. If Republicans re-establish control, it is expected that they will reverse some Obama-era policies and decisions, although employers should understand that such a movement likely will take some time.  

 For any questions, please contact Agne Krutules at [email protected].


Circuit Split at a Tipping Point

Posted on: July 19th, 2017

By: Michael M. Hill

Many people know that employers in hospitality industries, like restaurants and hotels, where employees customarily receive tips from customers, are allowed under federal law to pay their tipped employees less than the federal minimum wage as long as these employees earn enough in tips to make up the difference and the employer provides certain notices. Under the Fair Labor Standards Act (“FLSA”), this is known as the employer’s “tip credit.”

But what if the employer chooses not to take the tip credit and instead pays its employees the minimum wage? Can the employer then keep all the tips? In the Tenth Circuit, which covers federal courts in Colorado, Kansas, New Mexico, Oklahoma, Utah, and Wyoming, the answer is “yes.”

In Marlow v. New Food Guy, Inc., No. 16-1134 (10th Cir. June 30, 2017), a catering company chose not to take the tip credit and instead paid its employee $12 an hour and $18 an hour for overtime. But the employee sued under the FLSA, claiming that she also was entitled to a share of the tips paid by the company’s customers. A federal court in Colorado dismissed the case, and the Tenth Circuit affirmed, holding that the FLSA does not require employers to pay its customers’ tips to its employees if the employer already is paying at least the minimum wage.

The interesting thing about this ruling is the employee’s argument that letting the company keep the customers’ tips violated a 2011 Department of Labor (“DOL”) regulation that tips are the property of the employee. The Court did not disagree; its holding directly contradicts this regulation. But the Court held that the DOL exceeded its authority in issuing the regulation. Congress did not tell the DOL to regulate ownership of tips; nor was there any ambiguity in the statute that needed clarification. Thus, in the Tenth Circuit’s view, because the DOL spoke without invitation or authority, this regulation is invalid.

The Supreme Court may well step in as we now have a circuit split on the issue. In Oregon Rest. & Lodging Ass’n v. Perez, 816 F.3d 1080 (9th Cir. 2016), which we wrote about here, the Ninth Circuit upheld this same regulation in holding that a company could not force its tipped employees to pool their tips with non-tipped employees (such as kitchen staff), even if the company paid minimum wage or higher, because, under the DOL regulation, tips are the property solely of the employee. The Ninth Circuit covers Alaska, Arizona, California, Hawaii, Idaho, Montana, Nevada, Oregon, and Washington.

The bottom line is that employers of tipped employees, with operations in multiple states, need to be sure their policies regarding tips comply with the interpretation of federal law in their circuit, as well as with the applicable compensation laws of their state.

For any questions, please contact Michael Hill at [email protected].

UPDATE: Governor Signs N.C. Farm Bill into Law; Unions Vow Legal Challenge

Posted on: July 18th, 2017

By: Paul H. Derrick

The ink was barely dry on Gov. Roy Cooper’s signature on the Farm Act of 2017 when leaders of the Farm Labor Organizing Committee (FLOC) and other unions vowed to take legal action to stop the implementation of the law.

As we recently noted, FLOC says the new law would cripple its efforts to collect dues and to organize farmworkers. The Farm Act makes it a violation of the state’s public policy for farms to be required to collect membership dues from employees and forward them along to a union, even if the union and the farm have executed a collective bargaining agreement that requires such dues collection. The law also makes it a violation of public policy for a union to persuade a farm to enter into a union contract as a means of settling a lawsuit or avoiding litigation in the first place.

In a prepared statement posted on FLOC’s website, union president Baldemar Velasquez said that “Gov. Cooper chose to be on the wrong side of history.” He went on to say that “the fight is not yet over. We plan to challenge this [law] in the courts.” Meanwhile, FLOC has planned rallies and press conferences to enlist public support for its cause, and state AFL-CIO secretary-treasurer MaryBe McMillan has pledged the assistance of the unions in her organization, as well.

North Carolina consistently ranks at or near the bottom among all states in terms of percentage of workers being represented by a union. For decades, state officials on both sides of the political aisle have joined with pro-business interests to tout North Carolina’s relatively union-free environment as a major factor in attracting new business to the state.

We will continue to keep you apprised of developments in this area as they occur. In the meantime, if you have any questions or would like more information, please contact Paul Derrick at [email protected].