The Week Ahead in the European Parliament –  October 18, 2019

Summary

Next week, Members of the European Parliament (“MEPs”) will gather in Strasbourg for plenary sessions.  Important debates and votes are scheduled to take place.

What won’t take place next week is a vote to confirm the next European Commission.  A spokesman of the Parliament indicated that the vote will be delayed after three Commissioners-designate were rejected by the Parliament as no alternative candidates have yet been approved.  This means that the new European Commission will assume office on December 1, 2019, at the earliest, instead of November 1, 2019, as planned.

On Tuesday, MEPs will debate the outcomes of the EU summit that took place on October 17 and 18.  While the outcomes are still uncertain, they will include a position of the European Council on the new Brexit preliminary deal that was struck between the European Commission and the United Kingdom after an intense few days of negotiations.  The deal includes a complicated customs arrangement between Great Britain and Northern Ireland to keep an open border between Northern Ireland and Ireland, while placing Northern Ireland formally outside the EU’s customs union.  UK authorities will apply EU tariffs if goods are at risk of entering the single market.  The risk-factor would be determined by a Joint Committee that is to be set up under the Withdrawal Agreement.  It remains uncertain whether the British House of Commons will accept this deal on Saturday, October 19.  If they do not, the UK will likely as for an extension and the European Council will meet to decide whether to grant this.  Also, Bernd Lange, Chair of the Parliament’s Committee on International Trade, has criticized the latest deal because it could create loopholes.  Nevertheless, he suggested that these concerns should be dealt with in a future trade agreement.  An EU press release, including the revised protocol and political declaration, can be found here.

On Wednesday, MEPs will debate on the Turkish military operations in north-east Syria.  They may put forward a resolution for a vote on Thursday.  The Member States of the EU have already condemned Turkey’s military actions in Syria and have committed themselves to stop exporting arms to Turkey.  This falls short of an EU-wide embargo because it will not be implemented at the EU level.  The EU is also preparing sanctions.  An opinion or condemnation of the European Parliament could put political pressure tool on Member States to adopt or support effective actions against Turkey.  The statement of the Council of the EU can be found here.

Meetings and Agenda

Monday, October 21, 2019 

Plenary Session

17:00 – 21:00

Debates

  • B.A

Joint meeting: Economic and Monetary Affairs & Environment, Public Health and Food Safety Committees

19:30 – 19:45

Votes

  • Establishment of a framework to facilitate sustainable investment – Vote on the decision to enter into interinstitutional negotiations
  • Co-rapporteurs: Bas EICKHOUT (Greens/EFA, NL), Sirpa PIETIKÄINEN (EPP, FI)

Committee on Regional Development

19:00 – 20:00

Votes

  • Financial assistance to Member States to cover serious financial burden inflicted on them following a withdrawal of the United Kingdom from the Union without an agreement (COD)
  • Rapporteur: Younous Omarjee (GUE/NGL, FR)

Committee on Civil Liberties, Justice and Home Affairs

19:00 – 21:30

Votes

  • Election of the third Vice-Chair
  • Search and rescue in the Mediterranean (SAR) (RSP) – adoption of motion for a resolution
  • Rapporteur: Juan Fernando LÓPEZ AGUILAR (S&D, ES)

Debate (19.30-20.30)

  • Exchange of views with Dunja MIJATOVIĆ, Commissioner for Human Rights, Council of Europe

Tuesday, October 22, 2019

Plenary Session

9:00 – 12:20

Debates

(possibly) Votes on requests for urgent procedure (Rule 163)

  • Conclusions of the European Council meeting of 17 and 18 October 2019
  • Review of the Juncker Commission

12:30 – 14:30

Votes followed by explanations of votes

  • Implementation and financing of the EU general budget in 2020 in relation to the UK’s withdrawal from the EU
  • Rapporteur: Johan Van Overtveldt (ECR, BE)
  • Periods of application of Regulation (EU) 2019/501 and Regulation (EU) 2019/502
  • Rapporteur: Karima Delli (Greens/EFA, FR)
  • European Globalisation Adjustment Fund (2014-2020)
  • Rapporteur: Vilija Blinkevičiūtė (S&D, LT)
  • Financial assistance to Member States to cover serious financial burden inflicted on them following a UK’s withdrawal from the EU without an agreement
  • Rapporteur: Younous Omarjee (GUE/NGL, FR)
  • Fishing authorisations for Union fishing vessels in United Kingdom waters and fishing operations of United Kingdom fishing vessels in Union waters
  • Rapporteur: Chris DAVIES (RE, UK)
  • Texts on which debate is closed

15:00 – 21:00

Debate

  • Debates on foreign affairs issues in the presence of the Vice-President of the Commission/High Representative of the Union for Foreign Affairs and Security Policy (to be defined)
  • General budget of the European Union for 2020 – all sections
  • Co-rapporteurs: Monika Hohlmeier (EPP, GE), Eider Gardiazabal Rubial (S&D, ES)
  • Discharge 2017: European Asylum Support Office (EASO)
  • Rapporteur: Petri Sarvamaa (EPP, FI)
  • Discharge 2017: EU general budget – European Council and Council
  • Rapporteur: Isabel García Muñoz (S&D, ES)

Wednesday, October 23, 2019

Plenary session

09:00 – 11:45

Debates

11:45 – 12:15

Vote (preceded by a round of political group speakers in reverse order)

  • Election of the Commission

12:30 – 14:30

Votes followed by explanations of votes

  • Draft general budget of the European Union for 2020 – all sections
  • General budget of the European Union for 2020 – all sections
  • Co-rapporteurs: Monika Hohlmeier (EPP, GE), Eider Gardiazabal Rubial (S&D, ES)

15:00 – 21:00

Debates

  • Topical debate (Rule 162)
  • Presentation of the Court of Auditors’ annual report – 2018

Thursday, October 24, 2019

Plenary session

09:00 – 11:50

Debates

  • Debates on cases of breaches of human rights, democracy and the rule of law (Rule 144)

12:00 – 14:00

VOTES followed by explanations of votes

  • Motions for resolutions concerning debates on cases of breaches of human rights, democracy and the rule of law (Rule 144)

15:00 – 16:00

Debates

  • Major interpellations (Rule 139)

 Friday, October 25, 2019

No meetings of notes

U.S. and U.K. Sign CLOUD Act Agreement

On October 3, 2019, the United States and United Kingdom signed an agreement on cross-border law enforcement demands for data from service providers (“Agreement”). The Agreement is the first bilateral agreement to be entered under the Clarifying Lawful Overseas Use of Data (CLOUD) Act. It obligates each Party to remove barriers in their domestic laws so that U.S. and U.K. national security and law enforcement agencies may obtain certain electronic data directly from Communications Service Providers (“CSPs”) located in the jurisdiction of the other Party. The Agreement will go into effect 180 days after its transmission to Congress by the Attorney General, unless Congress disapproves by joint resolution.

Under the CLOUD Act, once the Agreement goes into effect, CSPs subject to jurisdiction in the United States will be excepted from a statutory prohibition that would otherwise preclude them from producing stored communications content directly to U.K. authorities. Similarly, under U.K. law, CSPs subject to jurisdiction in the United Kingdom will not be prohibited from disclosing stored content to U.S. authorities. Neither the CLOUD Act nor the Agreement establishes jurisdiction over a CSP if jurisdiction does not otherwise exist, nor do they compel a provider to produce data if the domestic law of the Party issuing the data demand does not require such production. As a general matter, the domestic law of the United States and United Kingdom largely will continue to govern demands for data issued by government agencies under the Agreement. However, in accordance with the requirements of the CLOUD Act, the Agreement imposes some important limitations on those demands, which we summarize below.

Restrictions on Law Enforcement Demands

  • Targeting Restrictions. The Agreement imposes restrictions on the accounts that may be subject to demands for data under the Agreement. Specifically, the United Kingdom may not issue demands for data of U.S. citizens, nationals, or lawful permanent residents (“U.S. persons”), nor may it demand the data of persons located inside the United States. Similarly, the United States may not demand the data of any person located in the United Kingdom. (According to the U.K. Home Office’s explanatory memorandum, the distinction between these targeting limitations for the respective countries arises from EU rules prohibiting discriminatory treatment between citizens of different member states.) (Articles 1.12, 4.3).
  • Targeting Procedures. Each Party must implement “targeting procedures” to guide decisions about which accounts may be targeted by data demands under the Agreement. (Article 7.1).
  • Serious Crime Limitation. Any law enforcement demand for data covered by the Agreement must be “for the purpose of obtaining information relating to the prevention, detection, investigation, or prosecution” of a “Serious Crime, including terrorist activity.” While the CLOUD Act does not define “serious crime,” the Agreement specifies that serious crime is an offense punishable by a maximum term of imprisonment of at least three years. (Articles 1.5, 1.14, 4.1).
  • Specific Account Limitation. Consistent with the CLOUD Act, the Agreement also provides that the order must target specific user accounts and identify a “specific person, account, address, personal device, or any other specific identifier.” In other words, the Agreement cannot be used to acquire data in bulk. (Article 4.5).

Procedures for Issuance and Enforcement of Law Enforcement Demands

  • Application of the Agreement. The Agreement is not the exclusive means by which government authorities of a Party may obtain data from CSPs subject to the other Party’s jurisdiction. Each Party may still use other legal authorities and mechanisms, such as mutual legal assistance requests, to obtain data from CSPs subject to the jurisdiction of the other Party. The Agreement provides that it “shall apply” to any demands for data as to which the Party issuing the demand “invokes” the Agreement with notice to the relevant CSP. Notice to the other Party is not required. (Articles 3.2, 11.1).
  • Certification by Designated Authority. The Agreement provides for a “designated authority”—a governmental entity designated, for the United Kingdom, by the Secretary of State for the Home Department, and for the United States, by the Attorney General. These designated authorities must review demands for data under the Agreement and certify in writing that the demand is lawful and complies with the Agreement before it may be transmitted to a CSP under the Agreement. (Article 5.7).
  • Third-Party Country Notification. If either Party issues a demand for the data of a person reasonably believed to be located in a third-party country (i.e., not in the United States or United Kingdom), the designated authority of the Party issuing the demand must notify the appropriate authorities in that third country. The Agreement excepts from this notification requirement circumstances where notice would be “detrimental to operational or national security, impede the conduct of an investigation, or imperil human rights.” (Article 5.10).
  • Appeal to Designated Authority. If a CSP has a “reasonable belief” that the Agreement may not properly be invoked with regard to the order, it can make an objection to the designated authority of the Party that issued the order. If the objections are not resolved, the CSP can also make the objection to its own designated authority. That designated authority may determine that the Agreement does not apply to the demand if it concludes the Agreement was not properly invoked. (Articles 5.11, 5.12)

Data Handling and Use Restrictions

  • Minimization Procedures. The United Kingdom is obligated to implement and apply “minimization” procedures to data received pursuant to demands under the Agreement. These procedures must “minimize the acquisition, retention, and dissemination” of information concerning U.S. persons that is inadvertently acquired under the Agreement. (Article 7.2).
  • Restrictions on Data Transfer to the United States. The minimization procedures must prohibit the United Kingdom from disseminating to the United States the content of a communication involving a U.S. person unless it relates to a “significant harm, or threat thereof, to the United States or U.S. person, including crimes involving national security such as terrorism, significant violent crime, child exploitation, transnational organized crime, or significant financial fraud.” (Article 7.5).
  • Transfer to Third Countries. As a general matter, a Party receiving data under the Agreement may not transfer it to a third country or international organization without first obtaining consent of the Party from which the data was received. (Article 8.2).
  • Death Penalty and Free Speech Limits on Data Use. The United States must obtain approval from the United Kingdom before using evidence obtained from an order in cases for which the death penalty is sought. Similarly, the United Kingdom must obtain the approval of the United States in order to use evidence obtained from an order in a case that raises free speech concerns. (Article 8.4).

Oversight and Reporting

  • Compliance Review. Within a year of the Agreement’s entry into force and periodically thereafter, each Party must engage in a review of the other Party’s compliance with the Agreement, including a review of both its issuance of orders and handling of data received under the Agreement. (Article 12.1).
  • Annual Reports. The designated authorities of the United States and United Kingdom must issue and exchange annual reports containing aggregate data on their use of the Agreement. (Article 12.4).

United States and European Union Impose Additional Sanctions in Response to Actions by Turkish Government

Introduction

On October 14, 2019, President Trump issued an Executive Order Blocking Property and Suspending Entry of Certain Persons Contributing to the Situation in Syria. This Order provides authority for the imposition of sanctions (including secondary sanctions) on certain entities and individuals in response to Turkey’s military operations in Syria, which the Order states endanger innocent civilians, destabilize the region, and undermine the campaign to defeat the Islamic State.

The Executive Order provides authority to impose sanctions on parts of the Government of Turkey, current and former officials of the Government of Turkey, sectors of Turkey’s economy, and persons who are otherwise determined to be involved in actions or policies that threaten the peace, security, stability, or territorial integrity of Syria. The Executive Order provides additional authority to impose sanctions on foreign persons engaged in a range of activities that disrupt or prevent a ceasefire in northern Syria, the voluntary return to Syria of displaced persons, or efforts to promote a political solution to the conflict in Syria, or involve the commission of serious human rights abuses in relation to Syria. It further authorizes various secondary sanctions (a) for certain dealings in support of persons whose property is blocked pursuant to the Executive Order, and (b) against foreign financial institutions that knowingly conduct or facilitate any significant financial transaction on behalf of such a blocked party.

Relying on the Executive Order, the Administration blocked all property and interests in property of the Government of Turkey’s Ministry of National Defense and Ministry of Energy and Natural Resources, as well as the property and interests in property of the Minister of National Defense, Minister of Energy and Natural Resources, and Minister of the Interior.

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U.S.-China Trade Truce Leaves Considerable Uncertainty for Global Business

President Trump last Friday announced tentative agreement on the first installment of a possible multi-stage deal to end the year and a half trade war between the United States and China. “The deal I just made with China is, by far, the greatest and biggest deal ever made for our Great Patriot Farmers in the history of our Country,” boasted Trump, saying China had pledged to buy $40-50 billion in U.S. agricultural products while also claiming agreement on financial services, currency, intellectual property, and technology transfer.  He said the U.S. would further postpone a planned tariff hike while the details are worked out.  Our detailed analysis on this tentative deal can be found here.

While this tentative deal signals a de-escalation in trade tensions that serves both sides, it is not likely, by itself, to stabilize the U.S.-China economic relationship in a durable way that lifts the uncertainty facing global businesses. The Federal Reserve has estimated that trade policy uncertainty could sap $850 billion — 1 percent — from the global economy in 2020, and the IMF assesses that the ongoing U.S.-China trade tensions alone may shave $700 billion, or 0.8 percent, off global output in 2020.

China’s official statements on the tentative “Phase One” deal have been remarkably cautious, noting that “both sides agreed to make efforts toward ultimately reaching agreement,” although the Foreign Ministry today affirmed that China was on the same page as the United States. A “Phase One” deal may well come together in time for Presidents Trump and Xi to announce it on the margins of the APEC summit in mid-November and may lead to postponement of new tariffs scheduled to take effect in December.  But even so, it would only scratch the surface of the differences between the U.S. and Chinese economic systems that underlie the trade tensions and will continue to fuel them into the future. Those tougher issues would be left to negotiations on a Phase 2 deal, and it is questionable whether a comprehensive deal strong enough to warrant lifting all of the additional tariffs levied by both sides since March 2018 can be reached. Nor can a return to tariff escalation be ruled out if these talks bog down.

Moreover, even with an accommodation on trade, national security concerns on both sides and the growing geopolitical rivalry between the U.S. and China will likely continue to create new compliance risks for companies and disruptions to supply chains and business plans as each country seeks to reduce its dependencies on the other, particularly in the technology sector.  Businesses will need to evaluate the specific risks and opportunities for their companies in different potential future scenarios as this the resetting of the U.S.-China relationship continues to unfold in the years to come.

The Week Ahead in the European Parliament –  October 11, 2019

Summary

Next week, Members of the European Parliament (“MEPs”) will gather in Brussels for committee meetings and political group meetings.  It will be relatively quiet in camera, but a lot will be happening behind the scenes.

Over the past two weeks, MEPs have rejected three candidates for the next European Commission, one from each of the three largest political groups.  Just yesterday, MEPs rejected Sylvie Goulard, the French candidate associated with the Renew Europe party block, and originally slated to lead the Commission’s efforts on the internal market, including industrial policy, defense and technology.  She performed poorly during hearings, as the center-right European Peoples’ Party led the charge against her.  Last week, the Committee on Legal Affairs (“JURI”) had blocked the confirmation of Romania’s Rovana Plumb, who was supported by the center-left Socialists and Democrats, and Hungary’s László Trócsányi, who was supported by the center-right European People’s Party.  The political groups will use their meetings next week to discuss alternative candidates already brought forward by Romania and Hungary. France has yet to announce its new candidate.

MEPs will also be occupied with developments surrounding the European Summit taking place on October 17 and 18 in Brussels.  The Member States’ heads of government will gather to discuss the critical issue of Brexit and whether a deal with the United Kingdom is still a possibility before the October 31 deadline.  Prime Minister Boris Johnson’s most recent Brexit proposal has received little enthusiasm in Brussels. In the meantime, President Macron and his state secretary for European affairs, Amélie de Montchalin, again mentioned the importance of political change in the UK in influencing France’s willingness to agree to a potential further extension of the Brexit deadline.

Meetings and Agenda

Monday, October 14, 2019

Committee on Foreign Affairs

15:00 – 18:30

Debates

  • Exchange of views with Nikola DIMITROV, Minister of Foreign Affairs of the Republic of North Macedonia
  • Exchange of views with Tagese CHAFO, House Speaker of the Ethiopian Parliament – Joint debate with the Committee on Development
  • Exchange of views with Vadym PRYSTAIKO, Minister of Foreign Affairs of Ukraine

Committee on Budgets

16:00 – 18:00

Voting time

  • General budget of the European Union for the financial year 2020 – all sections (BUD)
    • Co-rapporteurs: Monika HOHLMEIER (EPP, DE), Eider GARDIAZABAL RUBIAL (S&D, ES)
  • Measures concerning the implementation and financing of the general budget of the Union in 2020 in relation to the withdrawal of the United Kingdom from the Union (APP)
    • Rapporteur: Johan Van OVERTVELDT (ECR, BE)

Committee on Legal Affairs

15:00 – 18:00

Debates

  • Exchange of views with the Executive Director of the EUIPO
  • Examination of corrigendum: Proposal for a Directive of the European Parliament and of the Council amending Directive (EU) 2017/1132 as regards cross-border conversions, mergers and divisions

Committee on Civil Liberties, Justice and Home Affairs

15:00 – 18:30

Debates

  • State of play on current Justice and Home Affairs matters – exchange of views with the Council Presidency and the Commission (15.30-16.30)

Tuesday, October 15, 2019

No meetings of note

Wednesday, October 16, 2019

No meetings of note

Thursday, October 17, 2019

Committee on Budgetary Control

09:00 – 12:30   

  • Annual Report 2018 on the protection of the EU’s financial interests
  • 2018 discharge: General budget of the EU – European Commission
    • Rapporteur: Monika Hohlmeier (PPE)
  • ECA Briefing paper on Delivering performance in Cohesion
    • Rapporteur: Ryszard Czarnecki (ECR)
  • ECA Special Report 6/2019 (Discharge 2018): Tackling fraud in EU cohesion spending: managing authorities need to strengthen detection, response and coordination
    • Rapporteur: Lefteris Christoforou (PPE)

Committee on Industry, Research and Energy

09:00 – 12:30

  • Exchange of views with the Commission on the preparation of the delegated act setting the Union list of Projects of Common Interest (PCI)
  • Exchange of views with the Commission services on the upcoming World Radio Communication Conference (WRC-19)

 Friday, October 18, 2019

No meetings of note

It’s Worse Than You Think

The Syrian Civil War entered a new phase this week, with the US ending its support for the Syrian Democratic Forces (“SDF”) – a political movement of mixed ethnicities and religions organized around the Syrian Kurdish Democratic Union Party and its paramilitaries – in advance of a large-scale Turkish military operation in northeastern Syria. In a rare moment of bipartisanship, both Democratic and Republican foreign policy leaders decried the decision, acknowledging the US was effectively abandoning its most effective partner in the conflict against the Islamic State. Having spent time at the Department of Defense, and having numerous colleagues fight alongside the SDF, I am both deeply troubled with these events and unable to provide a more detailed commentary on this relationship in this forum. With that said, this is not the only crisis facing the US, and if other global developments are acknowledged, global stability – both political and economic – cannot be taken for granted at this time.

While President Trump’s interest in limiting American involvement in the Middle East is clear, he embraced the challenge of North Korea’s (“DPRK”) nuclear weapons program personally. His direct engagements with Kim Jong-Un were truly novel developments, clearly limiting belligerent rhetoric between the two countries, even if a practical agreement on reducing the DPRK’s nuclear program has proven elusive. While conducting another round of talks remains possible, what is certain is that the DPRK breached a new technological threshold recently. Simply having nuclear weapons is a useful as a basic deterrent, but delivering nuclear weapons reliably is an essential next step in having a credible deterrent. Last week, the DPRK conducted a successful test of a submarine-launched ballistic missile. While not likely operational at this time, this weapon gives the DPRK a so-called “second strike” capability, which means that if the US or China sought to strike DPRK’s command and control systems and nuclear arsenal, DPRK submarines would still be available to counterattack with nuclear weapons. Ultimately, the DPRK – despite its political and economic isolation – demonstrated again the Inevitability Challenge of counter-proliferation and fielded a system that effectively precludes opponents from considering options to remove its government without a dramatic cost being incurred in response.

Concurrently, the Russian Intelligence Services have introduced a renaissance of sorts – few developments in politics are truly new, ask Leon Trotsky – by embracing assassination. One incident, the attempted killing of a former Russian intelligence official in the United Kingdom, captured global attention due to the brazen nature of the attack and the employment of a highly dangerous toxin. A second incident in Berlin this past August has not received the same amount of public attention, despite the location of the attack and the nature of the victim. Now, a former official with Russian military intelligence has confirmed the existence of a highly-classified special missions unit likely responsible for these attacks, as well as other operations, all with the strategic goal of undermining European political cohesion. That Russia has formalized these operations and continues to execute them against a variety of targets demonstrates both Vladimir Putin’s tolerance for risk and that the responses to these activities, e.g. expulsion of diplomats, indictments, or economic sanctions, have not served as an effective deterrent.

Russian aggression and DPRK weapons tests make for a more dangerous world, but taken in isolation, either of these developments would not truly be indicators of a shifting global status quo. When PM Boris Johnson’s struggles with Brexit, Iraq’s nation-wide street protests, India’s military occupation of Kashmir, and a global ecological crisis are added to the cumulative effect (to name a few high profile examples), the strain on global political and economic systems becomes unmistakable. There is no one cause to these troubles, and a collective solution to any of them is likely impossible given the makeup of international leadership and their often opposing interests, so it is likely that 2019 will end with greater international uncertainty than at the year’s outset.

In closing, the contribution of the men and women of the SDF to America’s national security is notable and the current news cycle’s attention is warranted. However, this attention is likely fleeting, as a new crisis will eventually overtake the plight of Syrian Kurds in the popular imagination. No future crisis can be perfectly predicted, of course, but a serious assessment of global risk would indicate that at least one is more likely than other eventualities. Acknowledging that the US will not intervene on behalf of its battlefield partners in Syria, and that the SDF’s defeat at the hands of the Turkish Armed Forces – and the release of thousands of Islamic State adherents from SDF-run prisons – is certain, the return of Islamic State-inspired terror to Europe and elsewhere is now all but inevitable. It is a sad reflection on the state of the world to note that Kurds under attack from the Islamic State now will be pushed to memory as a resurgent Islamic State unleashes new rounds of attacks against new targets in 2020 and beyond. With even this one possibility acknowledged, observers of politics and global financial markets alike would be wise to adjust their projections for the coming year accordingly.

FDA Issues Updated Guidance on the Regulation of Digital Health Technologies

On September 26, 2019, the FDA issued two revised guidance documents addressing its evolving approach to the regulation of digital health technologies.  These guidances primarily describe when digital health solutions will or will not be actively regulated by FDA as a medical device.  In parallel, FDA also updated four previously final guidance documents to ensure alignment with the new approaches being adopted by the Agency.

As background, FDA issued draft guidance documents in December 2017 that sought to implement section 520(o)(1) of the Federal Food, Drug, and Cosmetic Act (“FDCA”), which was enacted by Congress in the 21st Century Cures Act of 2016 (the “Cures Act”).  Those guidance documents raised a number of issues that we discussed on this previous alert.

After receiving comments from stakeholders, the Agency responded by issuing: (i) a revised draft guidance document for clinical decision support (CDS) software (“Clinical and Patient Decision Support Software” or the “CDS Draft Guidance”) and (ii) a final guidance document for other software functions exempted by the Cures Act (“Changes to Existing Medical Software Policies Resulting from Section 3060 of the 21st Century Cures Act” or the “Software Policies Guidance”).

Here are key takeaways on FDA’s newly-issued guidance:

  • The Agency now classifies decision support software intended for use by both healthcare professionals (HCP) and patients as “clinical decision support” or “CDS” software. Previously the Agency used the term CDS software only for software intended for healthcare professionals, whereas “patient decision support” or “PDS” software was intended for patients or caregivers.  FDA now considers all decision support software to be CDS and distinguishes between: (1) “Non-Device CDS,” which must meet the Cures Act criteria, including an intended use by HCPs and (2) “Device CDS,” which includes all CDS intended for use by patients, as well as HCP-facing CDS that do not meet the Cures Act criteria.  But the Agency will exercise enforcement discretion for (in other words, not regulate) certain Device CDS intended for use by both HCPs and patients to inform management of non-serious healthcare situations or conditions.
  • FDA incorporates the International Medical Device Regulators Forum (“IMDRF”) Software as a Medical Device Risk Categorization Framework into the Agency’s approach regulating CDS software. FDA utilizes the IMDRF framework for two purposes:
    • First, FDA utilizes the framework to define when software functions do not meet the Cures Act criteria for Non-Device CDS because they go beyond “supporting or providing recommendations,” stating that software functions that drive clinical management or treat or diagnose are not CDS.  This application raises some potential issues given that the IMDRF language does not align fully with the statutory language in the Cures Act.
    • Second, FDA utilizes the framework to define those lower-risk Device CDS that are subject to enforcement discretion, as contrasted to those Device CDS – specifically Device CDS intended to address serious and critical situations or conditions – that remain subject to regulation as a device.
  • The new guidance documents address dynamic digital health solutions, such as those that incorporate artificial intelligence and machine learning, and bioinformatics software. FDA’s initial draft guidance documents did not discuss these technologies.
  • In the final Software Policies Guidance, FDA notes that the regulation of software functions that provide for alarms, alerts and flags should be considered under the CDS Draft Guidance and may not always be subject to enforcement discretion. The CDS Draft Guidance proposes to continue enforcement discretion for certain low-risk notifications, but an “alarm” or an “alert” that a healthcare provider or caregiver relies on to make a treatment decision remains subject to FDA regulatory oversight.
  • FDA clarifies that hardware is not exempt from the definition of a medical device under the Cures Act, i.e., hardware that is intended for Cures Act functions, such as general wellness or to transfer, store, and display device data, are not excluded from the definition of a device. However, many of these products are subject to enforcement discretion under FDA’s other guidances.
  • It remains unclear how the new guidance documents relate to or align with FDA’s other digital health initiatives, including the Agency’s proposed frameworks on prescription drug-use-related software (PDURS) and real-world evidence, the discussion paper for artificial intelligence/machine learning (AI/ML)-based software, or the Software Precertification (Pre-Cert) Pilot Program.  The CDS Draft Guidance explicitly says that the document does not address Device CDS that is part of a combination product or the labeling requirements for CDS disseminated by or on behalf of a drug or biologic sponsor.

In conjunction with the two revised Cures Act guidances, FDA also updated the following guidances:

By issuing another draft guidance on CDS software, rather than finalizing the previous draft guidance, FDA signals its desire to receive additional stakeholder input before setting policies around CDS software.  This also means that it could be many months, or even years, before we see final FDA guidance around CDS software.

Companies who are marketing, developing, partnering, or investing in digital health solutions will want to review the new guidance documents and consider how any changes to FDA’s approach will affect their product portfolios.  Companies should consider submitting comments on the CDS Draft Guidance, as well as the Software Policies Guidance given some of the issues noted above.  For the CDS Draft Guidance, the FDA docket is open for comments until December 26, 2019.

 

Hiring Employees vs. Independent Contractors: Navigating Classification Issues in a Drastically Altered California Legislative Landscape

Recently enacted California Assembly Bill 5 (“AB-5”) is a game changer for businesses that use independent contractors in California — and a warning shot for employers nationwide.  Subject to exemptions for certain occupations and professions, AB-5 imposes a strict “ABC” test that appears to put a thumb on the scale of classifying workers as employees rather than independent contractors.

The ABC test was adopted last year by the California Supreme Court in its Dynamex decision to determine classification of workers for purposes of the state’s Industrial Welfare Commission Wage Orders.  For 20 years before Dynamex, worker classification was governed by the more relaxed “Borello” multi-factor test, which focuses on the hirer’s right to control an individual’s work and other secondary factors.  AB-5 now makes the ABC test the default standard for determining worker classification — not just under the Wage Orders, but also for all California Labor Code, unemployment insurance, and workers’ compensation claims.

As a result of the passage of AB-5, companies that hire consultants or contractors based in California should take a hard look at those relationships and determine whether they need to reclassify any such individuals as employees.  For other companies, this legislation should be monitored as the potential tip of an iceberg of a trend in many states, and potentially nationwide, toward imposing additional hurdles in classifying workers as independent contractors.The ABC Test Under AB-5

Under the ABC test codified in AB-5, a person providing labor or services for remuneration must be treated as an employee, rather than an independent contractor unless the hirer can demonstrate that all three of the following conditions are satisfied:

  1. The person is free from the control and direction of the hiring entity in connection with the performance of the work. This prong must be satisfied both under the terms of the contract and in operation.  If the contract gives power to the hiring entity to control the individual’s work or the hiring entity insists on exercising such power even without such contractual authority, the worker will be deemed to be an employee under the ABC test.
  2. The person performs work that is outside the usual course of the hiring entity’s business. This prong requires a fact-based inquiry that at times (but certainly not always) will produce clear-cut answers. For example, a plumber hired by an accounting firm to fix a toilet is performing work (plumbing) that is outside the entity’s usual business (accounting).
  3. The person is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed. Performing work for multiple clients, or at least the ability to do so (g., a worker owning a business in a similar field or generally representing himself or herself as being available to perform similar work), helps demonstrate satisfaction of this prong.

The AB-5 test purports to be a mere declaration of existing law with respect to violations of the Wage Orders of the Industrial Welfare Commission and violations of the Labor Code relating to Wage Orders.  For all other purposes, the AB-5’s test’s application to the Labor Code take effect in 2020.

Who’s Exempt?

AB-5 exempts a number of occupations and professions from the strict ABC test and specifies that the Borello factors (with some exceptions) apply to the determination of whether these individuals should be classified as employees or independent contractors.  Notably, AB-5 applies the enumerated exemptions retroactively to the extent that they would relieve an employer of liability.  The exemptions include:

  1. Occupational Exemptions. Occupational exemptions cover certain licensed doctors, veterinarians, attorneys, architects, accountants, engineers, persons licensed by the California Department of Insurance, securities broker-dealers or investment advisors, direct salespeople, and commercial fishermen. (For the full list of occupational exemptions, see Labor Code § 2750.3(b).)
  2. Professional Services Exemption. Enumerated professional services are eligible for exemption from the ABC test, including, marketing, human resource administrators, travel agents, graphic designers, grant writers, fine artists, still photographers, payment processing agents, and licensed estheticians and manicurists, among others. (For the full list, see Cal. Labor Code § 2750.3(c).) To qualify for this exemption, the hiring entity must demonstrate that that several conditions are satisfied, including that the individual (A) has the ability to set his or her own business hours and rates and maintains a business location separate from the hirer, (B) is customarily engaged in the same type of work with other hiring entities, and (C) customarily and regularly exercises discretion and independent judgment in performing the services.  In addition, for any work performed more than six months after January 1, 2020, the individual must have a business license.  (For full details on this exemption, see Cal. Labor Code § 2750.3(c).)
  3. Other Exemptions. AB-5 provides a number of additional exemptions, including for business-to-business contracts, real estate licensees, and repossession agencies subject to the California Business and Professions Code (which, notably, may default to the rules of the California Business and Professions Code, Unemployment Insurance Code, or Section 3200 of the Labor Code rather than the Borello test, depending on the circumstances), construction subcontractors, and “service providers” that provide, for example, minor home repair, moving, tutoring, event planning, home cleaning, pool and yard cleanup, web design, and dog grooming and walking. (For a full list of these exemptions, see Labor Code § 2750.3(d) through § 2750.3(h).)

Business Impact of AB-5

Businesses impacted by AB-5 will face complicated, and potentially costly, decisions as to whether and how they should make changes to the classification of their workers as independent contractors.   Impacted business should determine if they can rely on an exemption, and if not, whether they can satisfy the ABC test, which in many cases may involve fact patterns that present close calls.   Whether or not to reclassify in such situations may come down to a business’s risk tolerance.

Consequences of this determination can be expensive.  Employers of individuals formerly classified as contractors have to pick up normal employment costs, such as the employer’s portion of federal and state withholding taxes, workers’ compensation insurance, sick leave, business expenses, unemployment insurance, and, to the extent applicable, the cost of coverage under employee benefit plans and programs.  Balanced against these costs of reclassification is the risk of maintaining a consulting arrangement with workers that arguably could be treated as employees under AB-5.  Failure to comply with AB-5 can lead to expensive legal claims, such as for failure to pay minimum wages and overtime, meal and rest period violations, waiting time penalties, and unemployment insurance violations, to name just a few.

These risks are compounded by existing and new enforcement mechanisms that empower workers and government entities to bring claims against employers for misclassification.  Under the existing Private Attorneys General Act, workers may bring claims to recover civil penalties for Labor Code violations stemming from worker misclassification.  And, under a new enforcement mechanism in AB-5, the California Attorney General and certain city attorneys and prosecutors may bring claims for injunctive relief against companies they believe to be misclassifying workers — adding a new level of risk for employers that typically faced risk of misclassification lawsuits brought by workers only.

What’s Next

Although businesses that operate in California need to grapple with AB-5 now, the topic of worker classification in California is likely not settled. In his signing message, Governor Newsom indicated he would continue discussions with business and labor groups.

In addition, companies around the country should pay close attention to similar pending legislation, such as in New York, Oregon and Washington. Worker classification is also on the national agenda, as multiple Democratic presidential candidates have indicated their support for AB-5 and similar measures.

The Week Ahead in the European Parliament –  October 4, 2019

Summary

Next week, Members of the European Parliament (“MEPs”) will gather in Brussels for committee meetings and mini-Plenary sessions.  Several interesting debates and hearings are set to take place.

On Monday, the Committee on Constitutional Affairs (“AFCO”) and the Committee on Civil Liberties, Justice, and Home Affairs (“LIBE) will have a hearing with Commissioner-designate Vĕra Jourová.  Since 2014, she holds the portfolio of Justice, Consumer Protection and Gender Equality.  She has been active as the Commissioner on data protection issues and has been credited for making the EU’s General Data Protection Regulation (“GDPR”) a worldwide standard.  If she endures Monday’s hearing, she will receive a new portfolio on “Values and Transparency”, which will include: coordinating the Commission’s work on upholding the rule of law in the EU; countering disinformation and fake information; and, improving the lead candidate system (“Spitzenkandidaten”) in the elections of the European Parliament.

On Tuesday, Vice Presidents-designate Margrethe Vestager and Frans Timmermans will also appear before the European Parliament.  Margrethe Vestager will be questioned by MEPs from the Committee on Industry, Research and Energy (“ITRE”), the Committee on the Internal Market and Consumer Protection (“IMCO”), and the Committee on the Economic and Monetary Union (“ECON”).  If confirmed, Vestager will not only continue her work as Commissioner for Competition, but will also develop a new long-term industrial strategy and coordinate the EU’s digital strategy.  She will lead the ambitious effort to introduce a European approach on Artificial Intelligence within the first 100 days of the new Commission.  She will also be concerned with the work on a new Digital Services Act and finding international consensus on digital taxation.

Vice President-designate Frans Timmermans will be questioned by the Committee on Environmental, Public Health and Food Safety (“ENVI”), on his plans for the European Green Deal, which he has to present within the first 100 days of his mandate.  As lead of the Climate portfolio, he will also introduce the first European Climate Law within the first 100 days, that will enshrine the EU’s ambition of becoming the first climate-neutral continent by 2050.  To this end, Timmermans’ Green Deal will set out a strategy that will include leading international negotiations with other major emitters and establishing a Just Transition Fund.

 Meetings and Agenda

Monday, October 7, 2019 

Joint meeting of the Committee on Constitutional Affairs and the Committee on Civil Liberties, Justice, and Home Affairs

14:30-17:30

  • Hearing of Commissioner-designate Vĕra Jourová – Vice-President: Values and Transparency

Committee on Foreign Affairs

14:30-17:30

  • Hearing of the High Representative of the Union for Foreign Affairs and Security Policy / Vice-President of the Commission-designate Joseph Borell.

Committee on Employment and Social Affairs

15:30-17:30

Debates

  • Hearing of candidates to be designated as experts to the Management Boards of Cedefop, Eurofound, EU-OSHA and ELA

Votes

  • Appointment of candidates to be designated as experts to the Management Boards of Cedefop, Eurofound, EU-OSHA and ELA General budget of the European Union for the financial year 2020 – all sections – Retabling of EMPL budgetary amendments to Plenary –
    • Rapporteur: Lucia ĎURIŠ NICHOLSONOVÁ (ECR, SK) 

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Blowing the Whistle on a Breach of Contract? D.C. Circuit Addresses Scope of FCA’s Anti-Retaliation Rules

The False Claims Act has long protected relators from retaliation for preparing a qui tam complaint.  But what if an employee “blows the whistle” on a garden-variety problem — for instance, a laboratory that she believes is falling short of standards in a federal funding agreement?In a split decision, a panel of the D.C. Circuit took on that issue last month.  The outcome was this:  If the employee reasonably believes that her employer is or “would soon” submit a false claim, then the FCA’s anti-retaliation provisions may apply.  Singletary v. Howard University, No. 18-7158 (D.C. Cir. Sept. 20, 2019).  The Court’s decision was based on the Fraud Enforcement and Recovery Act of 2009, which amended 31 U.S.C. § 3730(h)(1) to forbid employers from discharging, demoting, or otherwise discriminating against an employee for “efforts to stop 1 or more violations of” the FCA.Contractors and grantees should take note of this decision, which may give litigants a basis to broadly read the FCA’s retaliation provisions.  However, in a potentially crucial omission, the D.C. Circuit expressly did not decide whether the Supreme Court’s decision in Escobar might affect its ruling, apparently because the issue was not raised during litigation.  Escobar held that garden-variety breaches of contract or regulatory violations generally cannot support a claim under the FCA, which would seem to be a powerful limit on whether an employee’s concerns are reasonable.  See Universal Health Servs., Inc. v. United States ex rel. Escobar, 136 S. Ct. 1989, 2001-03 (2016).[1]

Background on Singletary v. Howard University

The case began when Singletary, who served as the university’s attending veterinarian, became concerned about the living conditions of mice in one of the school’s laboratories.  Singletary Majority Op. at 7-8.  According to her complaint, she warned her superiors that the animal’s living conditions did not comply with the terms of various grants from the National Institutes of Health (“NIH”), but her superiors were unresponsive.  Id. at 8.  Among other things, the grants allegedly required compliance with the Animal Welfare Act of 1966 and the Health Research Extension Act of 1985.  Id. at 4-5.

After raising the issue inside the university, Singletary found mice dead in the laboratory, which prompted her to email NIH’s Office of Laboratory Animal Welfare (“OLAW”) to report the issue.  Id. at 8-9.  OLAW requested a corrective action plan, and the university then fixed the issue.  Id.  In the weeks following Singletary’s email, she alleges that her employer accused her of lacking professionalism and later reduced her appointment as attending veterinarian by six months.  Id. at 9.

Importantly, her warnings to the university and her email to OLAW “did not accuse the University of fraud in terms.”  Id. at 18.

The D.C. Circuit’s Split Decision

The question for the D.C. Circuit was whether her complaint stated a valid claim of retaliation for attempting to stop fraud.  Assuming that her allegations were true, the majority opinion found her claim was viable because she had a reasonable belief that (a) her employer “was or would soon” submit false claims and (b) her employer’s certifications were necessary to receive federal grant money.  Singletary Maj. Op. at 16.  Although Singletary did not “accuse the university of fraud in terms,” she alleged that the university was required to make annual certifications of compliance, and that her complaints “coincided” with the annual reporting period.  Id. at 17.  For the majority, that was enough.[2]

According to the dissent, that fell short.  Because she “never told the University that she was concerned about possible fraud,” the university had no reason to think she was attempting to stop fraud.  Singletary Dissent at 7.  Further, Singletary’s apparent goal was for the university to come into compliance with its grant terms, not to correct a prior false submission to the government.  Id. at 8.  On this point, the dissent noted Escobar’s instruction that mere violations of contract or regulation do not equate to fraud unless they are material to a false claim for money.  Id. (citing Escobar, 136 S. Ct. at 2001).  This instruction has led to the dismissal of many FCA matters.  See United States ex rel. Berkowitz v. Automation Aids, Inc., 896 F.3d 834, 842 (8th Cir. 2018) (allegation that defendant sold non-compliant products did not demonstrate fraud under Escobar); United States ex rel. Scharff v. Camelot Consulting, 13-cv-3791, 2016 WL 5416494, at *8 (S.D.N.Y. Sept. 28, 2016) (allegation that defendant violated Medicaid regulations was insufficient to show fraud under Escobar).

Escobar may have been the key difference between the majority’s approach and the dissent’s.  The majority opinion expressly did not address Escobar, commenting in a footnote that defendant’s counsel had not raised it.  Singletary Maj. Op. at 14-15 n.3.  But Escobar appears to cut strongly against the outcome here, given its statement that the FCA is not intended to cover garden-variety legal violations.  Escobar, 136 S. Ct. at 2001-03.  Escobar should affect whether an employee has an objectively reasonable belief that he or she is stopping false claims, and may mean that Singletary is limited to its facts.

Key Takeaways

  • The FCA’s retaliation provisions may cover an employee’s reasonable belief that he or she is stopping fraud.  Employers should take a broad view of the FCA’s provisions when handling internal complaints from employees.
  • The scope of this case remains to be seen, as the Court did not consider Escobar.  Because the defendant did not raise Escobar as a defense, the majority opinion declined to consider its holding that the FCA does not apply to garden-variety breaches of contract or regulations.
  • Universities and research grantees should be cautioned — federal grants come with a wide spectrum of FCA compliance risks.  Grantees should carefully investigate allegations that they are not in compliance with grant terms.  As this case shows, litigants may attempt to frame even basic non-compliance as a matter of fraud.

[1]           Prior to the 2009 amendments, employees could claim protection for actions taken “in furtherance of” an FCA claim.  Courts generally approached that issue by inquiring whether an employee’s actions “reasonably could lead to a viable False Claims Act case.”  See United States ex rel. Yesudian v. Howard University, 153 F.3d 731, 740 (D.C. Cir. 1998).  Courts are beginning to take a similar approach to the “efforts to stop” standard and often cite pre-2009 case law for that proposition, and thus Singletary may be part of a growing trend.  E.g., United States ex rel. Grant v. United Airlines, Inc., 912 F.3d 190, 201-02 (4th Cir. 2019) (inquiring as to whether employee had objectively reasonable belief that his employer “is violating, or soon will violate” the FCA, citing case law under the False Claims Act Amendments of 1986); see also Shi v. Moog, Inc., 19-cv-339, 2019 WL 4543129, at *6 (W.D.N.Y. Sept. 19, 2019) (same).  Notably, both Grant and Shi involved allegations that the employer had committed fraud, as opposed to allegations that the employer would in the future commit fraud.  Neither Grant nor Shi cite Escobar.

[2]           The Court also found that she satisfied the remaining elements for stating a claim of retaliation.

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