On June 25, 2018, President Trump signed into law the Whistleblower Protection Coordination Act (the “Act”), permanently reinstating the Whistleblower Ombudsman Program, which was created in 2012 to encourage employees of federal government administrative agencies to report wrongdoing but expired on November 27, 2017 due to a five-year sunset clause.

The Act, which Congress passed with bipartisan support, reauthorizes a “Whistleblower Protection Coordinator” at each administrative agency’s Office of Inspector General (“OIG”) to educate agency employees about their rights to blow the whistle on suspected wrongdoing and the remedies available to them should their employers retaliate against them for doing so. Additionally, the Coordinator is tasked with ensuring that the OIG handles such whistleblower complaints promptly and thoroughly and coordinates with the U.S. Office of Special Counsel, Congress, and other agencies to address the allegations appropriately.

While the Act is specific to federal government employees and has no impact on the anti-whistleblower retaliation protections of the Sarbanes-Oxley and Dodd-Frank Wall Street Reform and Consumer Protection Acts, it is notable that the Trump administration passed the Act rather than letting the Whistleblower Ombudsman Program remain expired. This executive action suggests that the Trump administration does not currently appear to be intent upon rolling back legislative efforts to encourage employees to report suspected legal violations and to protect those that do from retaliation by their employers.

This post was written with assistance from Cynthia Joo, a 2018 Summer Associate at Epstein Becker Green.

Featured on Employment Law This Week:  New Legislation Eases Disclosure Requirements for Startups under the Dodd-Frank Wall Street Reform.

Startups offering equity plans get regulatory relief. The legislation that President Trump signed in May to ease regulations under the Dodd-Frank Wall Street Reform and Consumer Protection Act also contained some good news for startups. The law adjusts the Rule 701 thresholds, which allow private companies to offer equity to employees without registering the sales as public offerings.

Watch the segment below.

Our colleague Joshua A. Stein, a Member of the Firm at Epstein Becker Green, has a post on the Retail Labor and Employment Law blog that will be of interest to many of our readers in the financial services industry: “Nation’s First Website Accessibility ADA Trial Verdict Is In and It’s Not Good for Places of Public Accommodation.”

Following is an excerpt:

After years of ongoing and frequent developments on the website accessibility front, we now finally have – what is generally believed to be – the very first post-trial ADA verdict regarding website accessibility.  In deciding Juan Carlos Gil vs. Winn-Dixie Stores, Inc. (Civil Action No. 16-23020-Civ-Scola) – a matter in which Winn-Dixie first made an unsuccessful motion to dismiss the case (prompting the U.S. Department of Justice (“DOJ”) to file a Statement of Interest) – U.S. District Judge Robert N. Scola, Jr. of the Southern District of Florida issued a Verdict and Order ruling in favor of serial Plaintiff, Juan Carlos Gil, holding that Winn-Dixie violated Title III of the ADA (“Title III”) by not providing an accessible public website and, thus, not providing individuals with disabilities with “full and equal enjoyment.”

Judge Scola based his decision on the fact that Winn-Dixie’s website, “is heavily integrated with Winn-Dixie’s physical store locations” that are clearly places of public accommodation covered by Title III and, “operates as a gateway to the physical store locations” (e.g., by providing coupons and a store locator and allowing customers to refill prescriptions). …

Read the full post here.

Advisers and financial institutions that provide fiduciary investment advice have an additional 60 days before having to comply with the final regulations defining who is a fiduciary under the Employee Retirement Income Security Act of 1974, as amended (the “Fiduciary Rule”).  On April 4, 2017, the Department of Labor (“DOL”) issued a final rule (the “Final Rule”), which delays the applicability date of the Fiduciary Rule until June 9, 2017 and also extends for 60 days the applicability dates of the Best Interest Contract Exemption (the “BIC Exemption”) and the Class Exemption for Principal Transactions in Certain Assets Between Investment Advice Fiduciaries and Employee Benefit Plans and IRA (the “Principal Transaction Exemption” and collectively, the “Exemptions”).  Advisers and financial institutions relying on the Exemptions as of June 9 need only comply with the impartial conduct standards (as explained below), as the remaining conditions of the Exemptions will not become effective until January 1, 2018, if not withdrawn or revised.  The 60-day delay was proposed by the DOL on March 2, 2017, in response to a directive from President Trump to review the Fiduciary Rule (the “President’s Memorandum”), as explained in this article.

In the Final Rule, the DOL explains that, while its review of the Fiduciary Rule is likely to take more than 60 days, a delay in the application of the Fiduciary Rule and impartial conduct standards for an extended period would not be appropriate, given the DOL’s previous findings of ongoing injury to retirement investors. The impartial conduct standards require advisers and financial institutions to:

  • Give advice that is in the “best interest” of the retirement investor. This best interest standard has two chief components – prudence and loyalty;
  • Charge no more than reasonable compensation; and
  • Make no misleading statements about investment transactions, compensation, and conflicts of interest.

For this reason, the DOL concludes that it can best protect the interests of retirement investors in receiving sound advice, provide greater certainty to the public and minimize the risk of unnecessary disruption by extending the applicability date to June 9, 2017 for the Fiduciary Rule and the impartial conduct standards in the Exemptions. Compliance with the other conditions of the Exemptions, such as requirements to make specific disclosures and representations of fiduciary compliance in written communications with investors is not required until January 1, 2018, by which time the DOL intends to complete the examination directed by the Presidential Memorandum.

The DOL cites the following advantage of the approach set forth in the Final Rule:

  • With the June 9,2017 applicability date for the impartial conduct standards, provides retirement investors with the protection of basic fiduciary norms and standards of fair dealing, while honoring the directive in the President’s Memorandum to review any potential undue burdens.
  • By delaying implementation of the other conditions of the Exemptions until January 1, 2018, eliminates or mitigates the risk of litigation in the IRA marketplace, which was one one of the chief concerns expressed by the financial services industry in connection with the Fiduciary Rule and the Exemptions.
  • Addresses concerns of the financial services industry about uncertainty over whether they need to immediately comply with all of the requirements of the Exemptions.

The DOL leaves open the possibility that it may further extend the January 1, 2018 applicability dates or to grant additional interim relief. The DOL states that the Final Rule does not foreclose the DOL from considering and making changes to the Fiduciary Rule and the Exemptions, based on new evidence or analyses developed pursuant to the President’s Memorandum.

Takeaways for Advisers and Financial Institutions

Effective June 9, 2017, advisers and financial institutions that provide fiduciary investment advice to retirement plan investors will have to comply with the Fiduciary Rule and the impartial conduct standards in the Exemptions. Since, in the view of the DOL, these provisions are generally the least controversial aspects of the DOL’s changes to the rules related to fiduciary investment advice, compliance with the June deadline most likely will not be difficult, especially in light of the 60-day delay.

However, advisers and financial institutions should also look past June 9 to the January 1, 2018 deadline and determine if they will delay or adjust their implementation schedule to meet that deadline. Those advisers and institutions that assume the Fiduciary Rule and Exemptions will be significantly revised or rescinded may want to consider significantly delaying the implementation process pending additional guidance from the DOL.  Alternatively, some of these advisers and institutions may want to consider whether they will incorporate all or portions of the Fiduciary Rule and Exemptions into their business practices, even if rescinded by the DOL.

A month into the Trump presidency, there have been a number of important statements from the executive branch on the regulation of executive compensation impacting the financial services industry. On February 3, 2017, President Trump issued a statement on the core principles for regulating the U.S. financial system (“Core Principles”). The statement requires the Treasury and all heads of member agencies of the Financial Stability Oversight Council to report within 120 days (by June 3, 2017) all existing laws, treaties, guidance, regulations, etc., that promote the Core Principles, and all such laws, etc., that inhibit the Core Principles. The Core Principles provide some insight into future regulation or repeal efforts by the Trump administration impacting executive compensation.

The Core Principles

The Core Principles include empowering Americans to make independent financial decisions and informed choices in the marketplace, save for retirement, and build individual wealth. This statement appears to favor a more hands-off approach to individual investment decisions. The Core Principles also require regulations that foster economic growth through more rigorous regulatory impact analysis addressing “systemic risk and market failures, such as moral hazard and information asymmetry.” This would presumably require a more extensive review of the regulatory cost of compliance favoring deregulation. However, the focus on systemic risk arising from moral hazard and information asymmetry could impact executive compensation to the extent compensation practices are seen to further individual conduct that could lead to systemic risk. The Core Principles further require regulations to enable American companies to be competitive with foreign firms in domestic and foreign markets and to advance American interests in international financial regulatory negotiations and meetings. The other Core Principles include preventing taxpayer-funded bailouts; making regulations more efficient, effective, and appropriately tailored; and restoring public accountability within federal financial regulatory agencies and rationalizing the regulatory framework, arguably all in favor of deregulation or possibly regulation by stated principles rather than by strict construction.

Potential Impact on Executive Compensation

Based on review of the Core Principles and recent regulatory statements from the Trump administration, including the reduction of two regulations for every one regulation added, the re-proposed rules under Section 956 of Dodd-Frank are not likely to be approved in their final form given the scope and breadth of the regulations. Arguably, these rules would go against the Core Principles favoring deregulation and could inhibit American competitiveness with foreign firms in domestic and foreign markets as to the recruitment and retention of talent. Also, given that the re-proposed regulations were based on international executive compensation standards (particularly, regulatory guidance promulgated in Europe), adopting the re-proposed rules might not be viewed as advancing American interests in international financial regulatory negotiations.

Presumably in furtherance of these Core Principles, on February 6, 2017, the Acting Chairman of the SEC, Michael S. Piwowar, issued a statement requesting comments from the public within the next 45 days (by March 23, 2017) on the challenges that issuers are facing with compliance with the CEO pay ratio disclosure rule under Dodd-Frank. The CEO pay ratio disclosure rule requires public companies to disclose the ratio of the median of the annual total compensation of all employees to the annual total compensation of the CEO. Gathering data to prepare the calculation has been challenging for large employers with a diverse domestic and global workforce, and the ratio itself has been criticized as not providing meaningful information. Based on comments, the SEC Acting Chairman stated that SEC staff will be directed to determine whether additional relief is appropriate. As to the review of other executive compensation provisions under Dodd-Frank that are currently in effect, such as say-on-pay and clawback requirements, they likely will be subject to the overall regulatory review, but their repeal might not be first on the agenda.

The final area of interest is President Trump’s pre-election criticisms of the treatment of carried interests, which generally are tax-favored partnership interests that, when sold, frequently generate profits that are paid to private equity fund managers as compensation. However, that compensation may be taxed at a long-term capital gains rate of 20 percent or less, rather than as ordinary income. Thus far under the new presidency, there have been no official statements in this area, but the discussion of carried interests could become part of the broader tax reform agenda expected from the Trump administration.

This year, financial services organizations can expect a new direction on executive compensation to take shape.

A version of this article originally appeared in the Take 5 newsletter Five Employment Issues Under the New Administration That Financial Services Employers Should Monitor.”

A version of this article originally appeared in the Take 5 newsletter Five Employment Issues Under the New Administration That Financial Services Employers Should Monitor” on  February 28, 2017.

It is no secret that the new administration under President Trump brings with it a fundamental shift in executive attitude with respect to both legal and illegal immigration. The transitional period leading up to January’s inauguration left employers and their foreign national employee populations mired in uncertainty regarding the future of former President Barack Obama’s largely immigration-friendly reforms. Shortly after entering the White House, President Trump made headlines by signing a series of controversial EOs that created a travel ban on nationals “from” seven primarily Muslim countries, eliminated visa interview waiver programs, suspended refugee programs, expanded removal grounds, eliminated federal funding for “sanctuary” cities, and directed the design and build-out of a wall at the United States/Mexico border. These EOs created discord among the government agencies that are charged with executing the EOs but were largely kept out of the drafting process. In addition, the EOs left employers scrambling to identify and support their impacted employee populations and cemented notions that the Trump administration has initiated a new immigration dialogue that will focus on enforcement and the impact of immigration on U.S. workers.

On January 27, 2017, a draft EO leaked. In this currently unsigned EO titled “Executive Order on Protecting American Jobs and Workers by Strengthening the Integrity of Foreign Worker Visa Programs,” President Trump presupposes a broken immigration system that violates immigration laws and injures U.S. workers. The draft EO would therefore direct an investigation into, and a revamping of, our nation’s existing immigration framework. Among other things, the draft EO would mandate Department of Homeland Security (“DHS”) review of all regulations that allow foreign nationals to work in the United States, and it would call for the rescission of all such regulations that are not in the (undefined) “national interest.” This draft EO, if signed, would also restrict the use of parole admissions, change how H-1B visas and immigrant numbers are allocated, expand employer site visit programs, and reform student practical training and J-1 summer work programs.

Many of the provisions of the draft EO seem directed at unraveling immigration reforms created under the Obama administration, including employment authorization for spouses of certain H-1B visa holders and recipients of benefits under Deferred Action for Childhood Arrivals (more commonly known as “DACA”). However, the draft EO could also have far-reaching impacts on financial services employers. For example, a merit-based reallocation of H-1B visa numbers based on compensation may prove beneficial to financial services companies because it would likely favor the types of highly paid professional that financial services organizations typically hire. On the other hand, a merit-based system that favors degrees in Science, Technology, Engineering, and Mathematics, the so-called “STEM” degrees, might adversely impact those financial services firms that do not have large back and middle offices of employees with this academic background. Also, proposed restrictions in F-1 practical training programs may make it more difficult for financial services employers to recruit top talent out of U.S. universities, especially MBA programs that do not qualify for STEM benefits. Finally, the draft EO’s apparent crackdown on IT consultancies, which transfer relatively large numbers of foreign workers to the United States under the L-1 visa program, is also likely to have a trickle-down effect on financial services companies that rely on consultancies for project-based IT support.

Despite the sweeping rhetoric of the draft EO, employers should not expect many changes for 2017. Most of the changes delineated in the draft EO implicate existing laws and regulations that cannot be modified by an EO, and would require an expansive overhaul of our U.S. immigration system. Major programmatic changes would require congressional action that is unlikely in a fractured Congress. Any proposed regulatory changes would also require significant lead time, as they would be subject to notice and comment requirements under the Administrative Procedure Act and would likely be impacted by President Trump’s January 30, 2017, EO requiring rescission of two federal regulations each time a new one is established.

Although it made many fewer headlines, it is important to note in this context that many longstanding DHS policies and practices were recently codified in an expansive set of new regulations published by U.S. Citizenship and Immigration Services (“USCIS”) in November 2016, which by no coincidence took effect on January 17, 2017. These new rules, “Retention of EB-1, EB-2, and EB-3 Immigrant Workers and Program Improvements Affecting High-Skilled Nonimmigrant Workers,” were intended to modernize and improve aspects of certain visa programs and clarify and codify longstanding DHS policies and practices with respect to the American Competitiveness in the Twenty-First Century Act (“AC21”), which focuses, in large part, on H-1B and green card portability. Of particular note, the new rules:

  • clarify the use and establishment of priority dates;
  • expound H-1B portability and successive portability benefits;
  • confirm H-1B recapture and cap-exempt status eligibility requirements;
  • establish grace periods for certain job seekers;
  • describe eligibility for post sixth-year H-1B extensions under AC21;
  • clarify green card portability requirements and explain the purpose and use of new USCIS Form I-485 Supplement J; and
  • provide automatic employment authorization document (“EAD”) extensions for certain EAD holders, while eliminating USCIS’s obligation to adjudicate EAD applications within 90 days.

In the coming months and years, shifts in the nation’s approach to immigration policy are inevitable due to the change in administrations. Like the recent EOs, some may happen quickly and with very little notice. More substantial programmatic changes, however, will occur over time through the normal legislative and regulatory channels. In the immediate term, employers should advise their foreign national populations to take caution in all international travel and to expect delays in visa application processing and heightened screening across all inspection facilities. Employers should direct specific questions about the EOs, and questions about the impacts of the new USCIS rules and their interplay with the EOs, to their immigration counsel. In the longer term, financial services firms should expect an ongoing dialogue about the future of U.S. immigration law and, if they want the law to develop in a more positive direction, get engaged in the legislative and regulatory processes. Regardless of sentiments about how the conversation starts, these employers should recognize that opportunities exist to make the system better and more efficient. The time is therefore ripe for stakeholder advocacy.

Our colleagues Judah L. Rosenblatt, Jeffrey H. Ruzal, and Susan Gross Sholinsky, at Epstein Becker Green, have a post on the Hospitality Labor and Employment Law Blog that will be of interest to many of our readers in the financial services industry: “Where Federal Expectations Are Low Governor Cuomo Introduces Employee Protective Mandates in New York.”

Following is an excerpt:

Earlier this week New York Governor Andrew D. Cuomo (D) signed two executive orders and announced a series of legislative proposals specifically aimed at eliminating the wage gap in gender, among other workers and strengthening equal pay protection in New York State. The Governor’s actions are seen by many as an alternative to employer-focused federal policies anticipated once President-elect Donald J. Trump (R) takes office. …

According to the Governor’s Press Release, the Governor will seek to amend State law to hold the top 10 members of out-of-state limited liability companies (“LLC”) personally financially liable for unsatisfied judgments for unpaid wages. This law already exists with respect to in-state and out-of-state corporations, as well as in-state LLCs. The Governor is also seeking to empower the Labor Commissioner to pursue judgments against the top 10 owners of any corporations or domestic or foreign LLCs for wage liabilities on behalf of workers with unpaid wage claims. …

Read the full post here.