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Johnson & Johnson Talc Spinoff Files for Bankruptcy Protection

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baby powder may contain asbestos
Asbestos talc in baby powder

Johnson & Johnson, while not filing for bankruptcy protection itself, may still avoid asbestos talc liabilities. This is done by spinning liabilities off to a newly created subsidiary.

Late last week, Johnson & Johnson (J&J) created a new subsidiary named LTL Management. Company officials confirmed the parent company then moved $2 billion in asbestos talc lawsuit funds over to LTL Management. In turn, LTL Management then filed for bankruptcy protection on October 14th. 

This bankruptcy technique saw increasing use by large corporations in recent years seeking to avoid responsibility from product liability and class action claims. 

Since last summer, lawyers representing cancer victims unsuccessfully asked multiple judges to prevent J&J from completing a spin-off of its liabilities.

Bankruptcy protection restricts recovery for thousands

Recent lawsuits, as well as a Reuters investigation in 2018, revealed that asbestos contaminated talcum powder existed in baby powder for years. Thousands of cancer lawsuits were pending against Johnson & Johnson at the time of the LTL Management bankruptcy filing.  Now the recovery options for those individuals are significantly restricted by this bankruptcy protection maneuver.

Linda Lipsen, of the American Association for Justice, called Johnson & Johnson’s move “an unconscionable abuse of the legal system. Congress must act to ensure that no other ill-intentioned corporation can ever do the same by passing the Nondebtor Release Prohibition Act of 2021 as soon as possible.”

Need to examine reform measures

Congress is examining how to reform the bankruptcy code to limit corporations’ ability to avoid legal responsibility.  “Bankruptcy is there to help companies in trouble, but over time rich people in giant corporations have figured out how to game the system.  Johnson & Johnson has decided to join in on the abuse of our bankruptcy system to shield its assets and evade liability for the harm it has caused people across the country.  We can’t keep letting this happen and our Nondebtor Release Prohibition Act would enact criminal reforms to stop it,” said U.S. Senator Elizabeth Warren.  

Final Rule: Independent Contractor Status under the Fair Labor Standards Act

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29 CFR Parts 780, 788, and 795

A final rule clarifying the standard for employee versus independent contractor status under the Fair Labor Standards Act (FLSA) was announced by the Department of Labor (Department) on January 6, 2021. The effective date of the final rule is March 8, 2021 and includes a multi-factor test for determining whether workers are independent contractors, meaning that the business they perform work for doesn’t have to pay minimum wage or overtime that the Fair Labor Standards Act requires for employees.

Clarifications in the final rule

  • Sets forth an “economic reality” test to determine whether an individual is in business for him or herself (independent contractor) or is economically dependent on a potential employer for work (FLSA employee.)
  • Identifies and explains two “core factors” that are most probative to the question of whether a worker is economically dependent on someone else’s business or is in business for him or herself:
    • The nature and degree of control over the work.
    • The worker’s opportunity for profit or loss based on initiative and/or investment.
  • Identifies three other factors that may serve as additional guideposts in the analysis, particularly when the two core factors do not point to the same classification. The factors are:
    • The amount of skill required for the work.
    • The degree of permanence of the working relationship between the worker and the potential employer.
    • Whether the work is part of an integrated unit of production.
  • Provides that the actual practice of the worker and the potential employer is more relevant than what may be contractually or theoretically possible.
  • Provides six fact-specific examples applying the factors.

The final rule was published in the Federal Register on January 7, 2021.

Will the independent contractor status Rule be permanent? 

The rule clarifying independent contractor status is scheduled to become effective on March 8, 2021. However, a spokesperson for the Biden administration called out the rule as one that the administration is likely to revise in the days before its publication, bringing into question whether it will ever be permitted to take effect. In addition, independent contractor/employee status has been the topic of a great deal of litigation in recent years, so we can expect to see challenges should the rule is permitted to take effect.

EPA Under Trump May Allow for New Asbestos Use

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After bipartisan passage to improve the Toxic Substances Control Act (TSCA) in 2016, asbestos was one of several initial chemicals that would come under review again. In the face of overwhelming scientific consensus established by more than a half century of research, it was widely anticipated that the TSCA review would finally result in a ban on the use of asbestos in the United States. Two years later, and a very different result is unfolding.

EPA proposed a “significant new use rule” for asbestos

On June 1, 2018, the Environmental Protection Agency under Scott Pruitt announced a proposed “Significant New Use Rule” (SNUR) for asbestos. SNURs are a tool under the TSCA that mandate EPA approval when a chemical is used in a significantly new way. To hear former Administrator Pruitt state it, he took an unprecedented stand by requiring importers to receive EPA approval before importing or using asbestos in the manufacture of products.

A look inside the SNUR

A closer look, however, establishes a twofold problem posed by the SNUR which may undercut the EPA’s conclusions at the end of its three year TSCA review of asbestos.

First, the EPA could have used the 2016 TSCA overhaul – which began under Obama and has continued under Trump – to ban any new uses of asbestos. Instead, with the SNUR, the EPA has laid the groundwork to expressly allow new uses of asbestos after evaluation based on “risk evaluation, select studies and use of the best available science.”

Secondly, the way in which the EPA will evaluate that risk is problematic. In May 2018 , the EPA published a “Problem Formulation of the Risk Evaluation for Asbestos” which the EPA will use in evaluating these new uses of asbestos. Importantly, the problem formulation will not include information from existing, or “legacy” uses of asbestos – all of the ways in which millions of Americans have been, and will continue to be, exposed to asbestos from existing asbestos products and asbestos in place. This approach will ignore decades of scientific research establishing an overwhelming scientific consensus about the health risks from the legacy uses of asbestos such as exposure to drywall joint compound, plaster, floor tiles, pipe covering and many other existing, in place asbestos products.

This may serve to severely limit the types of exposures the EPA will include in formulating the potential risk of new asbestos uses.

As reported by the New York Times, such limits on the EPA’s review will necessarily create a flawed analysis of the threat posed by asbestos under the EPA TSCA re-evaluation. “It is ridiculous”, said Wendy Cleland-Hamnett, former EPA scientist, speaking to the New York Times. “You can’t determine if there is an unreasonable risk without doing a comprehensive risk evaluation.”

EPA may allow new asbestos use

While the EPA’s re-review of asbestos is still in the second year of the three year process, the limitations the current administration have already placed on the review will likely result in an outcome that does not protect human health – the core mission of the agency. Instead, by not considering the existing, wide-body of scientific evidence concerning asbestos, the ultimate EPA conclusion will likely find lower levels of risk and as a result impose fewer restrictions or prohibitions. Hopes for a U.S. ban on asbestos – one of the most widely recognized human carcinogens – are sadly diminishing.

Health Risks from Baby Powder Use

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Johnson & Johnson, along with other companies, were handed a jury verdict for failing to warn consumers about possible health risks from baby powder use. The plaintiffs, a couple who alleged the wife’s pleural mesothelioma was contracted from baby powder use, were awarded $25.75 million by a California jury. As a frequent bowler, the plaintiff used the powder for years on her hands and in her shoes. She also was exposed to asbestos while watching her husband work on his car.

Mesothelioma is a deadly cancer almost always caused by exposure to asbestos.

Mining of talc

Talc and various forms of asbestos are often co-located, making the mining of talc without including asbestos in the final product, a difficult task. A study published in the “International Journal of Occupational and Environmental Health,” October, 2014 showed asbestos fibers in the cosmetic talc samples tested. The types found were in various combinations of asbestiform anthophyllite, asbestiform tremolite, and chrysotile fibers. One specific, and unnamed, brand of cosmetic talcum powder was used in all tests.

“Our findings indicate that historic talcum powder exposure is a causative factor in the development of mesotheliomas and possibly lung cancers in women.”

Johnson & Johnson’s defense

The Johnson & Johnson company continues to assert that their products do not contain asbestos and will continue to fight in court.

Carol Goodrich, spokeswoman for Johnson & Johnson said, “We are disappointed with the verdict and we will begin the appeals process. We will continue to defend the safety of our product because it does not contain asbestos or cause mesothelioma. Over the past 50 years, multiple independent, non-litigation driven scientific evaluations have been conducted by respected academic institutions and government bodies, including the U.S. Food and Drug Administration, and none have found that the talc in Johnson’s Baby Powder contains asbestos.”

Plaintiff’s response

David Greenstone, an attorney for the plaintiff stated, “We are extremely pleased that our clients have found a measure of justice, although nothing can truly compensate them for what they have lost. Our clients are hopeful that this verdict can further bring light to this unbelievable example of corporate misconduct.” Johnson & Johnson Baby Powder “has contained asbestos for decades. People need to know about this.”

Health risks from baby powder and other talc-based products

Lobbyists and employees of companies mining or using talc in their products continue to promote the safety of their products to both the government and consumers.  However, talc may be present not only in talcum powder, but in eye shadow, blush, foundation, and many other cosmetic products to this day.

For safety’s sake, look for products marked talc free because according to the Occupational Safety and Health Administration (OSHA), “There is no ‘safe’ level of asbestos exposure for any type of asbestos fiber. Asbestos exposures as short in duration as a few days have caused mesothelioma in humans.”

Microsoft No Longer Forces Secrecy in Sexual Harassment Claims

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In December, Microsoft announced it will no longer force secrecy in sexual harassment claims through the contract clause called forced arbitration. Going forward, Microsoft’s contracts will have this section removed.

What is forced arbitration?

For too long women, and men, subjected to sexual harassment in the workplace have been unable to take the matter to trial due to this clause. This results in fewer public trials and smaller settlements for the victims as claims are mediated through a third party without the ability to go to court. Just as troubling, forced arbitration hides what may be a widespread or ongoing problem within an organization from public knowledge.

Emily Martin, general counsel and vice president for workplace justice at the National Women’s Law Center, said, “By doing this, Microsoft is saying that it’s going to take concrete steps to make its workplace culture more conducive to addressing and preventing harassment. That message is important above and beyond the impact on individuals whose contracts are about to change.”

Martin further stated, “While Microsoft apparently didn’t use these provisions across its workforce, some companies use them more indiscriminately across their workforces to bind lower-wage workers as well as higher-wage workers. By standing up and saying that it believes that these provisions aren’t fair to employees, Microsoft helps change the conversation in a way that has the potential to help a lot of people by increasing the pressure on companies to do the same.”

Will this change sexual harassment claims?

This is a step in the right direction, however approximately 60 million American workers have these arbitration clauses in their contracts, and according to a study by the Employment Rights Advocacy Institute for Law & Policy, 80% of America’s 100 largest companies use them.

While changing the clauses and culture in the large companies would make a huge impact, working in a small company may still bind employees to forced arbitration in the event of sexual harassment. These companies could be fearful of lawsuits that would put them out of business and are not nearly as visible as a company such as Microsoft. Therefore, they will probably not face media disapproval in the same way and are not willing to take their chances in a court of law just to avoid negative publicity. For them, the forced arbitration clause is an insurance policy.

Legislators see need for reform

In December 2017, a bipartisan group of lawmakers called for legislation to end forced arbitration for sexual harassment claims in the workplace. Rep. Cheri Bustos, a Democrat from Illinois sponsored two pieces of legislation: H.R.4734 and H.R.4570. Sen. Kirsten Gillibrand, Democrat from New York, also backs the bill. Sen. Lindsey Graham, Republican from South Carolina, called on the U.S. Chamber of Commerce to support the bill. Both bills were referred to the subcommittee on Regulatory Reform, Commercial and Antitrust Law.

 

Other blog post from DuBose Law Firm

Arbitration Agreements Change for Nursing Homes and Long Term Care Facilities