August 2012

Genetically modified organism lemons

California’s Secretary of State recently announced that the California Right to Know Labeling Initiative will be Proposition 37 on this November’s state ballot. If passed, this initiative would require labeling by food manufacturers of any genetically modified organisms (GMOs), also known as genetically engineered organisms (GEOs).

GMOs made their first public appearance in 1994, when a tomato became the first genetically engineered product sold. Since then, GMOs have become increasingly more common in everyday products. In fact, the Grocery Manufacturers of America estimates that approximately 70 to 75% of processed foods available in U.S. grocery stores contain a GMO.   Furthermore, the FDA, which oversees product labeling requirements, considers GMOs to be “generally regarded as safe” (GRAS) and does not require that they be identified on product labels.  Nevertheless, despite nearly two decades of main stream retailing, it seems that the American public remains largely unfamiliar with the both the benefits and commonality of GMOs, as well the scientific community’s support for their safety.

How will Prop 37 impact the food manufacturing industry?

Should California vote in favor of Proposition 37, the imposition of similar labeling requirements is likely to follow in other states around the country.  As a result, manufacturers will likely experience increases in operational costs, as they are forced to adjust their manner of handling and preparing their products to account for GMOs.  Furthermore, food companies will also see increased legal costs,  because increased labeling requirements would also increase the potential for litigation, namely false-labeling class actions, which are becoming increasingly more common.  These class actions are not only costly to defend, but also harmful to a food company’s brand.

Where will these impacts manifest?   

  • Food producers will need to implement a system for maintaining separate inventories of product, so as not to mix the GMOs and non-GMOs.
  • Companies will be forced to amend their HACCP plans to address the handling of GMOs.
  • Overhead may increase as a result of inconsistent GMO labeling requirements nationally.
  • Companies will be forced to choose between having one label which adheres to each state’s requirements and utilizing different labels depending on the state in which the GMO containing product will be sold.
  • In response to potential consumer backlash against products containing GMOs, food manufacturing companies may need to raise the price of their products, discontinue certain brands, or engage in costly marketing campaigns to ensure future profitability.
  • Increased labeling requirements would also increase the potential for litigation in the form of false-labeling claims.

In business, smart companies aim to do business ethically and place the health and safety of their consumers first; they have the ability to meet goals while still complying legally with an ever-changing legislative landscape.

What are smart companies in the California food industry doing to prevent consumer backlash and insulate themselves from potential lawsuits in a post-Proposition 37 market?

  • Communicating: In-house counsel and litigation counsel should be having frequent conversations regarding the short and long impact of this initiative. Great litigation firms not only understand how legislative changes impact their clients’ ability to remain profitable, but they are proactively providing solutions that address present and future challenges, as well as ensuring that their clients understand the risks and outcomes associated with each.
  • Searching for Opportunities: Proposition 37 is an agent of change. Whether that change has a positive or negative impact on a company can depend largely on the ability of the organization’s leadership to seek out opportunities to enhance performance and value. This is another area where outside counsel can be particularly effective by providing in-house training, trend analysis and creative, cost-effective solutions.
  • Understanding that Knowledge is Power: In a real-time, social media driven world smart companies are making sure that their websites are not only current but linked across their social media platforms so that brand loyal consumers have easy access to product information that is transparent and accurate.
  • Seeing the Bigger Picture: Should Proposition 37 pass, other states may soon follow suit and impose similar labeling requirements which could increase the potential for litigation, including class action law suits. Often these types of suits can be prevented by aggressively and rapidly responding to an initial claim. Make sure your litigation attorneys have an intimate understanding of legal nuances and variances for each state where you do business so that they can respond to any threats immediately and appropriately.

Like the food industry, we will watch carefully this fall to see whether California votes in favor of Proposition 37.  Until then, the authors would be pleased to respond to any questions our readers may have regarding Proposition 37 and the potential impact we believe it could have on the food industry.

Court Ruling

  • The Massachusetts Payment of Wages Statute (the “Wage Act”) has lately received a great deal of attention from Massachusetts trial and appellate courts.  Although the statute has been in place since 1993, Massachusetts employers have recently faced a marked increase in Wage Act claims, likely due to the availability of treble damages and attorneys fees.  Just in the past year, Massachusetts court rulings have reflected this renewed interest in the Wage Act, as they attempt to define the law and its intricacies. Below is just a sample of Massachusetts courts’ continuing concern with the Wage Act:

Dow v. CasaleOut-of-state Employees.  Superior Court Judge Peter Lauriat recently ruled that an out-of-state employee could bring a valid Wage Act claim against his employers because they were located in Massachusetts.  Plaintiff had been a salesman for Starback Communications, Inc., and lived and worked in Florida.  When the company folded, he sued his employers in Massachusetts for unpaid commissions and wages.  The defendant employers moved for summary judgment, claiming that the Wage Act should not apply to employees outside of the Commonwealth.  Judge Lauriat disagreed, ruling that employees outside of Massachusetts could sue under the Wage Act if they have sufficient contacts with the Commonwealth.  In Dow, the court found that the plaintiff met this burden after considering that he:

  • Conducted most business over the internet;
  • Was in daily contact with his supervisor in Massachusetts;
  • Had customers in Massachusetts;
  • Traveled often to Massachusetts;
  • Occasionally worked in the same space at the company’s office in Massachusetts;
  • Owned business cards bearing the firm’s Massachusetts address; and
  • Was required to process all purchase orders through the Massachusetts location.

Moreover, Judge Lauriat ruled that,

“the Wage Act was designed to regulate the actions of Massachusetts employers, regardless of where the employees work,” and offered that “in this age of the ubiquitous Blackberry, IPad [sic] and smartphone, any person can work in any location that has internet access. Were the court to accept [the defendants’] argument, the Wage Act would afford no protection to an employee who conducted the employer’s business anywhere but in Massachusetts.”

Though Judge Lauriat’s expansion of the Wage Act does not hold precedential value, it will at least provide guidance to other trial courts.  As such, Massachusetts employers must be prepared that a court may very well hold that the Wage Act applies to employees located anywhere in the country, so long as their employer is located in Massachusetts and they establish sufficient contacts with the Commonwealth.

Farrell v. Farrell Sports Concepts, et al. Severance Pay.  Superior Court Judge Garry Inge recently held, in a very controversial opinion, that a fired employee cannot sue his employer for severance pay under the Wage Act.  Previously, in 2003, The Massachusetts Appeals Court held in Prozinski v. Northeast Real Estate Services that severance pay was not available through the Wage Act because it is not expressly mentioned in the statute.  Two years later, the Massachusetts Supreme Judicial Court ruled that the term “wages” could include other types of pay, though it did not specifically address severance pay. One Superior Court judge has previously interpreted that SJC ruling to include severance pay, while other courts, such as the Farrell court have held fast to the Prozinski ruling.  As such, there is a direct conflict which will surely lead to some clarification by the appellate courts.

Meshna, et al. v. ScrivanosTipping Policy.  In Meshna, Dunkin’ Donuts employees sued the franchise owner and claimed that her “no-tipping” policy violated the Wage Act.  Superior Court Judge Fabricant disagreed, holding that employers have a valid interest in avoiding the burden of accounting for and allocating tips among their employees.   He also ruled, however, that employers must effectively communicate that policy to customers.  If customers leave tips despite the policy, it would be a violation for the employer to retain those proceeds for herself.  The decision is a clear warning to retail employers that they must clearly communicate any such no-tipping policy to its customers and despite the policy, must properly distribute to employees any tips received.

Keefe v. Enterprise Associates, LLC, et al.Limited Liability Companies.  Keefe expands the reach of the Wage Act to members of limited liability companies.  The defendants in this case moved to dismiss a Wage Act claim based on language in the statute which specifically creates a presumption of “employer” status in corporate officers, while making no mention of LLC members.  The defendant claimed that the omission was intentional and that LLCs were not intended to be potentially liable under the Wage Act.  Superior Court Judge McIntyre disagreed, and in so doing held that the LLC Act defines LLC members as “persons,” and thus they are subject to the Wage Act’s provisions.  This ruling opens the door for plaintiffs to sue a vast new cohort of employers.

Melia v. ZenhireEmployment Contracts, Forum Selection Clauses The Supreme Judicial Court, Massachusetts’ highest appellate court, recently upheld the use of forum selection clauses in employment contracts.  In Melia, the defendant moved to dismiss a Massachusetts Wage Act claim on grounds that an employment contract dictated that the claim be filed inNew York.  The SJC agreed, finding a presumption in the Act that forum selection clauses are enforceable.  The SJC held, however, that a party can rebut such a presumption by showing that:  (1) the Wage Act applies; (2) the selected forum’s choice-of-law rules would select a law other thanMassachusetts; and (3) application of that law would deprive plaintiff of a right guaranteed by the Wage Act.  So, even though the SJC would allow the case to proceed in the selected forum, it has attempted to ensure the protections of the Wage Act are not mitigated. The SJC’s ruling could be a useful tool for employers to try to avoid some of the effects of the Wage Act.

Astonishingly, all of these decisions were issued just within the last year.  As plaintiffs and management-side attorneys continue to battle in the lower courts, the disputes will eventually lead to appellate consideration.  For example, the SJC is currently soliciting amicus briefs in the Dixon v. City of Malden case.  In Dixon, plaintiff brought suit pursuant to the Wage Act for unpaid vacation time.  The issue before the court is whether the defendant’s voluntary payment of three months pay after termination, which was part of a settlement over a disputed employment agreement, served to mitigate his damages.

One thing is clear: the Wage Act has ignited debates across a spectrum of legal issues.  As such, Massachusetts employers must be aware of the constantly changing contours of the Act, and should be prepared for the upward trend in Wage Act claims to continue.