In Landmark Decision, the Supreme Court Strikes Down Key Provision of the Lanham Act that Prohibits Registration of Disparaging Trademarks
On Monday, June 19, 2017, the U.S. Supreme Court in Matal v. Tam, 582 U.S._ (2017), unanimously struck down the disparagement clause of the Lanham Act, 15 U.S.C.A. § 1052(a), on grounds that it violates the Free Speech Clause of the First Amendment. The disparagement clause – in force for over 70 years – is found in section 2(a) of the Act and prohibits the registration of trademarks that “may disparage . . . persons, living or dead, institutions, beliefs, or national symbols, or bring them into contempt, or disrepute.” 15 U.S.C.A. § 1052(a). Justice Alito, writing for the Court, opined that the provision “offends a bedrock First Amendment principle: Speech may not be banned on the ground that it expresses ideas that offend.”
The disparagement clause has been the subject of much debate since 2014 when the Patent and Trademark Office (PTO) cited the clause in revoking six federal trademark registrations belonging to the Washington Redskins, a result which was affirmed by a district court in Virginia. The Supreme Court’s holding in Tam is no doubt music to the ears of Redskins’ owner Dan Snyder, whose appeal of the district court’s ruling is currently pending before the U.S. Court of Appeals for the Fourth Circuit. Given the Supreme Court’s invalidation of Section 2(a), a victory for the Redskins in the Fourth Circuit appears all but guaranteed.
Of course, the ruling is also a victory for the trademark applicant in Tam – the front-man of the Asian-American band THE SLANTS – whose application to trademark the band name was rejected by the PTO pursuant to section 2(a). Although the band sought to “reclaim the stereotype [of Asians having slanted eyes] and take ownership of the term,” the Trademark and Trial Appeal Board affirmed the PTO Examiner’s finding that the name “THE SLANTS” is disparaging to people of Asian descent.
In its petition, the Government argued that trademarks are “government speech” and thus outside the purview of the Free Speech Clause of the First Amendment. The Court disagreed, noting that the Government “does not dream up these marks, and it does not edit marks submitted for registration.” Justice Alito mused that the Government is hardly advancing a particular message or viewpoint in registering marks and, if it is, “the federal government is babbling prodigiously and incoherently.” The PTO has made clear that registration of a mark does not constitute approval of it. And unlike, for example, advertisements promoting beef products, license plates, or landmarks in public parks, trademarks have never been traditionally used to convey a government message.
The Court also rejected the argument that the Government is permitted to regulate speech in connection with offering benefits under government programs. The Government argued that it is not required to subsidize activities it does not wish to promote. But the Court drew a key distinction between cases in which the Government actually pays cash subsidies or their equivalent to promote certain activities (e.g., cash grants to artists or funds to private parties for family planning services) and the federal registration of trademarks, in which applicants and trademark holders actually pay the Government fees.
Finally, the Court declined to adopt a new doctrine providing for a limited public forum for private speech, with content-, or speaker-based restrictions. The Court explained that the disparagement clause does not provide a limited public forum for private speech; rather, it “discriminates on the bases of ‘viewpoint’” by denying federal registration to viewpoints deemed offensive by certain groups.
Accordingly, the Supreme Court held that the disparagement clause of the Lanham Act regulates private speech and fails to meet even the relaxed scrutiny of Central Hudson Gas & Elec. Corp. v. Public Serv. Comm’n of N.Y., 447 U.S. 557 (1980) because the provision is “not 'narrowly drawn' to drive out trademarks that support invidious discrimination.”
The result is that the PTO can no longer deny the registration of any mark that meets the Lanham Act’s other viewpoint-neutral requirements. The ruling, of course, is likely to result in a marked increase in trademark applications for offensive or hateful marks that the PTO now has no choice but to register. Nonetheless, free speech advocates claim that the result is a major win for freedom of expression. The decision certainly confirms that the Court is loath to carve out exceptions to free speech protections. Indeed, as Justice Kennedy wrote in a concurrence, “To permit viewpoint discrimination in this context is to permit government censorship."
U.S. Department of Labor Withdraws Independent Contractor and Joint Employment Guidance
In a positive development for employers, the United States Department of Labor (DOL) announced on Wednesday, June 7, 2017, that it is withdrawing two Interpretations issued during the Obama Administration.
Interpretation No. 2015-1 addressed the classification of independent contractors under the Fair Labor Standards Act (FLSA), and took the expansive view that most workers qualify as employees and are thus entitled to minimum wages and overtime pay. Interpretation No. 2016-01 expanded the definition of "joint employment" under the FLSA and the Migrant and Seasonal Agriculture Protection Act (MSPA), allowing more workers to claim they were due wages by more than one company.
While these Interpretations were viewed by the Obama Administration as an effort to crack down on employee misclassification and tighten standards for determining joint employment, they created more legal risks for companies by calling into question longstanding work arrangements. The Interpretations were not law, but they served as a guide for the DOL's Wage & Hour Division in its enforcement efforts. Withdrawal of the Interpretations signals that the Trump Administration DOL will be less aggressive in its enforcement efforts in these two areas; however, state laws may differ from federal laws with regard to independent contractor and joint employment status.
For example, Nevada and Arizona have adopted laws that allow for greater certainty for businesses.
In 2015, Nevada enacted NRS 608.0155, which creates a presumption that a person is an independent contractor if he or she (1) possesses or has applied for an employer identification number or social security number, or has filed a tax return for a business or earnings from self-employment with the IRS in the previous year, (2) is required by the contract with the principal to hold any necessary state business registration, licenses, insurance or bonding, and (3) satisfies three or more of the following criteria:
In 2016, Arizona enacted A.R.S. § 23-1601, which creates a rebuttable presumption that an independent contractor relationship exists if the contractor signs a declaration acknowledging that (1) the contractor operates its own business, (2) the contractor is not an employee of the employing entity, (3) the employing entity does not restrict the contractor's ability to perform services for other parties and expects that the contractor will provide services for other parties, (4) the contractor will be paid based on the work to be performed, not on a salary or hourly basis, and (5) the contractor is not covered by the employing entity's health or workers compensation insurance.
California law has principally relied on a multi-factor common law test to determine contractor vs. employee status. However, the California Supreme Court is currently considering an expansive definition of the word "employ." In Dynamex Operations West v. Superior Court, 179 Cal. Rptr. 3d 69, the Second Appellate District rejected the traditional common law test based on whether the employer has the right to control the manner and means of accomplishing the result desired, in favor of defining the word "employ" to mean "to engage, suffer, or permit to work." If upheld, Dynamex will result in the reclassification of many independent service providers as employees, entitling them to California's wage and hour protections.
In light of these developments, employers should seek legal counsel when considering whether to engage someone as a contractor or employee, and to evaluate existing contractor arrangements to determine whether they satisfy these legal tests.
14 Payne & Fears LLP Attorneys Recognized in Southern California Super Lawyers and Rising Stars Lists
Irvine, Calif. – Payne & Fears LLP is pleased to announce that nine partners, Jeffrey K. Brown, Daniel F. Fears, Daniel M. Livingston, James R. Moss, Jr., Benjamin A. Nix, James L. Payne, Eric C. Sohlgren, Scott S. Thomas, and Thomas L. Vincent, have been selected for inclusion in the 2017 Southern California Super Lawyers. Among the nine, Daniel F. Fears has been named in the Top 50: 2017 Orange County Super Lawyers.
In addition, Andrew K. Haeffele, Rhianna S. Hughes, Robert T. Matsuishi, Alejandro G. Ruiz, and Scott O. Luskin were named to the Southern California Rising Stars 2017 list.
Super Lawyers and Southern California Rising Stars conduct a thorough multi-phase process that includes nominations, independent research evaluations of candidates, and peer reviews by practice area.
About Payne & Fears LLP
Media Related Inquiries: Sheenika S. Gandhi | Director of Marketing 949-797-1207
California Court of Appeal Clarifies the Limits of the Attorney-Client Privilege for Communications with an Attorney and a Third Party Consultant
A recent decision by the California Court of Appeal in Behunin v. Superior Court, 9 Cal. App. 5th 833 (2017), is a reminder that a party’s communications with an attorney and a third party consultant must be reasonably necessary for the attorney’s representation of the client for the attorney-client privilege to apply.
Behunin concerned a dispute over an unsuccessful Indonesian real estate deal involving Nicholas Behunin and Michael Schwab (the son of Charles Schwab, the founder of his namesake brokerage firm). As part of their business, the parties allegedly cultivated a relationship with the family of former Indonesian president Muhammad Suharto. When the investment failed, Behunin sued the Schwabs based on their alleged promises to fund the venture.
Once the lawsuit was filed, Behunin’s attorney hired a PR consultant to engage in a social media campaign against the Schwabs to generate negative publicity in order to create leverage for a settlement. This included creating a website (www.chuck-you.com) which allegedly used the same design as the Schwabs’ investment website, and linked the Schwabs to Suharto and the crimes committed by his regime. The Schwabs in turn sued Behunin and his attorney for defamation and related claims.
In discovery, Behunin and his attorney argued that their communications with the PR firm were protected by the attorney-client privilege. After the trial court ordered the production of the communications, Behunin filed a writ petition with the Court of Appeal which requested an immediate stay of the order.
The Court of Appeal denied Behunin’s petition. In a case of first impression in California, the court relied on analogous federal cases to determine that the attorney-client privilege can be waived for communications that are disclosed to PR consultants. Behunin failed to show that the communications with his attorney in which the PR firm participated were “reasonably necessary” to accomplish the purpose for which his attorney was retained, i.e., to provide legal advice to Behunin and to represent him in the lawsuit. It was immaterial that Behunin and his attorney intended for the communications with the PR firm to be privileged. Also important was the fact that the only involvement Behunin’s attorney had was to hire the PR firm and to act as a liaison between it and Behunin. While the court acknowledged that hiring a PR firm may sometimes be necessary to accomplish the purpose of an attorney’s representation and may be a legitimate litigation strategy, the court explained that it would go too far to extend the attorney-client privilege to all communications with the PR firm.
Although the Behunin court did not explicitly state when communications with a PR firm may be “reasonably necessary” for an attorney to provide legal advice and representation, comparable federal cases provide some guidance. For example, when a PR consultant is necessary to clarify or to improve comprehension of communications between an attorney and a client, or when a PR consultant is the “functional equivalent” of an employee since he or she regularly works with the party and its attorneys to prepare press releases. We encourage our clients who hire a PR firm, or any other consultant not directly connected to the litigation, to be cautious and assume that all communications with their attorney and the consultant are discoverable.
Expansion of San Francisco's Paid Parental Leave
The new year brought to San Francisco the most comprehensive parental leave law offered anywhere in the country. Under the San Francisco Paid Parental Leave Ordinance (PPLO), when covered employees use California paid family leave (PFL) benefits for new child bonding - bonding with a child during the first year after birth or placement through foster care or adoption - covered employers must pay supplemental compensation.
The PPLO became effective on January 1, 2017, for employers with 50 or more employees. San Francisco employers with a smaller headcount will soon follow suit: effective July 1, 2017, the PPLO will apply to employers with 35 or more employees, and on January 1, 2018, to employers with 20 or more employees.
While the California PFL program currently pays employees 55 percent of their wages, up to a maximum weekly benefit of $1,173, for a six-week period, PPLO requires employers to pay supplemental compensation up to a maximum of $980 per week.
Who is eligible?
The employee must work at the employer for at least 180 days. The employee can be full-time, part-time, or temporary, but not an independent contractor. The employee has to work a minimum of 8 hours per week in San Francisco, with 40 percent of his or her total work hours in San Francisco. All new parents who meet these conditions are eligible for PPLO benefits.
Can employers require employees to use paid time off?
The PPLO allows employers to require employees to use up to two weeks of accrued paid time off to help satisfy the employers' obligation to pay supplemental compensation during the leave period. This would be counted toward the employers' total six-week obligation to provide supplemental compensation.
What if the employer already has a paid parental leave policy?
PPLO specifies that an employer is not required to pay supplemental compensation if it has an existing policy that provides employees with at least six weeks of fully paid parental leave for new child bonding within any 12-month period.
Is there any required paperwork for the employee to submit?
To receive San Francisco supplemental compensation, an employee must sign a form created by San Francisco's Office of Labor Standards Enforcement (OLSE).
The form requires the employee to agree to reimburse supplemental compensation received, in full, if he or she voluntarily terminates employment within 90 days of the end of his or her leave period, if the employer makes a written reimbursement request. The form can be found here.
Does the six weeks paid leave have to be taken at once?
No. The employee can opt to take the six weeks all at once or intermittently over 12 months.
Is there a cap on how much supplemental compensation employees can receive?
Yes. The total amount of money an employee can receive from the state plus the employer is $2,133 per week. That means employees who earn 110,916 or less a year will receive full paid leave during those six weeks, but those who earn more than that will receive less than full paid leave.
Who may enforce the ordinance?
The OLSE may investigate any possible violations of the ordinance by an employer and bring an administrative enforcement or civil action against an employer. The City may bring a civil action in court against an employer for violations of the ordinance. A person or entity may also bring a civil action against an employer after he/she/it provides the OLSE and the City Attorney with written notice and more than 90 days have passed without the City Attorney filing suit or the OLSE providing notice of its intent to bring an administrative enforcement action or a determination that no violation has occurred.
To Boycott, or Not? How Business Owners Should React
From Fox News to United Airlines to the “Trump Effect,” consumer boycotts are trending. But when do boycotts actually work, and how should business owners react?
The rise of instant media consumption certainly parallels the rise in instant outrage over large corporations’ actions (read: anything from controversial deals to actions or comments by executives) that bleed into the social or political realm. But boycotting businesses even predates Facebook. Take Shell, for example. In 1995, Germany’s arm of Greenpeace boycotted the fuel icon after an out of commission petroleum platform made moves toward deep water disposal. The aggressive public campaign against Shell resulted in (1) Shell changing the disposal plan completely, and (2) a reduction of fuel sales in Germany by nearly 40%.
In sharp contrast, and more recently, Chik-fil-A CEO Dan Cathy’s public comments opposing same-sex marriage—and the online outcry that followed—drove the company to cease funding organizations which had previously been criticized for similarly “discriminating.” The result? Sales increased by 12%.
Considering the disparity in economic effect on large companies, what is the likely risk to small business owners confronting consumer boycotts? The reality is that even small-scale efforts to ostracize local businesses can have detrimental results on owners’ financial stability. As mentioned, social media helps spread news – reliable or not – at a lightning fast pace. Opinions that have been branded “unpopular” by a majority of Twitter users could be the kiss of death for a small supplier relying heavily both on new and varied customers or long-term clients.
Conversely, businesses may want to participate in boycotts – a la advertisers from Mercedes-Benz, Constant Contact, and others versus Bill O’Reilly and Fox News. Small companies may be in a position to voice concern by withdrawing their own business from media outlets or otherwise.
The considerations for both being boycotted or choosing to boycott are similar:
Beyond that, companies may need to decide whether to fight back, especially in situations where customers are not always right. Information travels at the speed of light, whether or not it is verified. Companies falling victim to “fake news” about their business practices could face boycotts, protests, or worse based on someone’s published false or defamatory statements.
Generally speaking, a company is not considered to have a reputation in the sense that an individual does. But statements that would impact a company’s financial soundness are typically considered defamatory under the law, and a company could potentially sue if statements would have the effect of deterring customers. (Note: this is not necessarily true if defamatory statements are directed only against an individual within the business.)
So, what steps can a business take when circuited or published information is entirely false and directly affects its ability to operate?
Key California Employment Law Cases: March 2017
This month’s key California employment law cases involve arbitration and PAGA issues.
Arbitration - Farrar v. Direct Commerce, Inc., 9 Cal. App. 5th 1257, 215 Cal. Rptr. 3d 785 (2017)
Arbitration/PAGA - Betancourt v. Prudential Overall Supply, 9 Cal. App. 5th 439 (2017)
Update: Los Angeles "Ban-the-Box" Legislation
In January, we issued an Employment Alert regarding Los Angeles's new "Ban-the-Box" law, known as the Los Angeles Fair Chance Initiative for Hiring, which went into effect on January 22, 2017. The law restricts inquiry into the criminal background of applicants until after a conditional offer of employment is made.
An employer seeking to disqualify an applicant based on criminal history must follow specific procedures. These include a written assessment showing a link between specific aspects of the applicant's criminal history with risks inherent in the duties of the employment position applied for, as well as a written "reassessment" if an applicant presents information or documentation for an employer to consider. Failure to comply may subject an employer to administrative remedies and a civil action. The law also contains notice and posting requirements.
Guidance, Forms and Notices:
The Los Angeles Bureau of Contract Administration recently published guidance, forms and notices relating to the new law, including:
We encourage all Los Angeles employers to download and review these documents, as they will help ensure compliance with the new law. These and additional resources are available on the Bureau's website at: City of Los Angeles Bureau of Contract Administration.
Arizona Legislature Approves Disability Lawsuits Bill
On Monday, Arizona state senators approved legislation that, if signed into law, will give businesses at least thirty days to cure violations of the Arizonans with Disabilities Act before they can be sued.
Time Frame to Rectify ADA Violations
The legislation, SB 1406, provides:
Importantly, there are many instances in which a business may get more than thirty days to correct a violation. For instance, if a business must obtain government approval to make the changes required to comply with the Arizonans with Disabilities Act, then the business will have thirty days to provide the complainant with a corrective action plan and another sixty days to implement the changes before the complainant can file suit. The time period needed for the government to make a decision is not counted in the sixty days.
By giving Arizona businesses an opportunity to cure violations before being sued, this bill will almost certainly cut down on the amount of vexatious litigation they may face.
SB 1406 has already passed the House and is now going to Governor Doug Ducey for signature.
Payne & Fears has decades of experience assisting businesses in their efforts to comply with disability statutes, including providing employees with reasonable accommodations. Should you need assistance in this regard, or if you would like more information about this topic, please contact:
Matthew L. Durham
Rhianna S. Hughes
Utah 2017 Legislative Update – Employment Law Issues
The 2017 session of the Utah Legislature produced few bills affecting employment law; but two bills recently signed by the Governor and one bill that was not passed this year may have an impact on Utah businesses.
Summary of Bills and Suggested Action
1. HB0238S01 Payment of Wages Act Amendment
2. SB0170 Workers' Compensation Workgroup
3. SB210 Equal Pay Amendments