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October 2015 edition

Best practices for merger investigations; Data breach standing; Independent contractor misclassification

Best Practices for Merger Investigations

The FTC recently updated its best practices for merger investigations to increase the efficiency of merger reviews and underscore the importance of early preparation, after determining that its 2006 reforms did little to reduce the length of merger investigations.

The FTC's updated best practices advise parties to merger investigations to, among other things:

  • Volunteer key information not included in the Hart-Scott-Rodino (HSR) filing during the initial waiting period or before the filing is made. Volunteering supplemental information early may avoid the issuance of a burdensome request for additional documents (known as a Second Request).
  • Be prepared to provide the FTC with specific documents early in the process, including:
    • recent strategic plans;
    • lists of customers and competitors;
    • organization charts; and
    • maps of how data is stored within the organization.
  • Withdraw and refile their HSR filing near the end of the initial review period if there are lingering issues that may be resolved without a Second Request. Adhering to guidance from the FTC and DOJ is important to efficiently getting deals through antitrust review, particularly given the continued high levels of merger enforcement activity. For example, in recent months:
  • The FTC obtained an injunction in federal court against the Sysco and US Foods merger.
  • The DOJ filed a lawsuit to enjoin Electrolux's proposed acquisition of GE's appliance business.
  • The FTC required Dollar Tree to divest 330 stores to close its acquisition of Family Dollar.

For more information on strategies for avoiding or narrowing a Second Request, see Practice Note, Avoiding, Negotiating and Responding to Second Requests.

Data Breach Standing

Companies should consider their data breach litigation strategy given a Seventh Circuit decision departing from the prevailing view that plaintiffs lack standing when they allege no financial injury and rely instead on allegations of increased risk of future harm.

In Remijas v. Neiman Marcus Group, LLC, he district court dismissed plaintiffs' claims that Neiman's data breach exposed their credit and debit card information for lack of standing in line with most decisions since the US Supreme Court's Clapper v. Amnesty International decision. The Seventh Circuit reversed, holding that the plaintiffs had alleged sufficient injury based on:

  • Aggravation and loss of time resulting from fraudulent charges.
  • A plausible risk of future harm.

The Seventh Circuit distinguished Clapper, noting that:

  • In Neiman, the plaintiffs' information was actually accessed.
  • Neiman's offer of free credit monitoring and identity theft protection suggested that the data breach put the plaintiffs at substantial risk of harm.

The Seventh Circuit also held that Neiman's admission of the breach and notice to customers were admissions sufficient to prove causation.

This decision is the first appellate court decision on data breach standing since Clapper and will pose a significant hurdle to standing motions. Counsel should be aware that cases are more likely to be resolved on Federal Rule of Civil Procedure (FRCP) 12(b)(6) motions or at the summary judgment or class certification stages, all of which weigh in favor of early settlement.

For more information on this decision, see Legal Update, Seventh Circuit Holds Neiman Marcus Data Breach Plaintiffs Have Standing.

Independent Contractor Misclassification

Companies should review their independent contractor relationships in light of the Department of Labor's (DOL's) recent guidance on the economic realities test for identifying misclassified workers.

Administrator's Interpretation No. 2015-1 (guidance) clarifies the factors for determining if a worker is economically dependent on the company or in business for himself under the Fair Labor Standards Act (FLSA). The guidance takes the aggressive position that most workers are employees under the FLSA and states that a true independent contractor typically:

  • Does not perform work integral to the company's business.
  • Exercises managerial skills that affect his profit or loss.
  • Makes significant investments in his business beyond tools and comparable to the company's investments.
  • Possesses business skills and judgment beyond technical skills.
  • Does not work continuously for the company, unless a permanent or an indefinite relationship results from the worker's business initiative.
  • Exercises meaningful control over the work.

The guidance rejects the argument commonly made by companies that control over the worker is necessary due to the nature of the business or regulatory requirements.

  • Courts may vary in the level of deference afforded to the guidance, but companies should:
  • Conduct a privileged audit of their workforce.
  • Consider strategies for minimizing exposure from misclassification, including class action waivers in arbitration agreements.
  • Evaluate alternatives to reclassification, such as modifying the nature of the relationship.

Written independent contractor agreements are a good practice, although they are not determinative. These agreements should:

  • Be individually tailored and accurately describe the relationship.
  • Include terms that reflect the economic realities test.
  • Avoid boilerplate language and other red flags, such as non-compete provisions.
  • Be followed in practice.
  • Include strong indemnification language, if contracting with a company that employs the worker.

For more information on independent contractor classification, including the benefits of the classification and the penalties for misclassification, see Practice Note, Independent Contractor Classification.

About Practical Law

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