Top 10 Legal Challenges for Employers

1. The New Overtime Rule 

This month, the US Department of Labor (DOL) is anticipated to release the final rule raising the minimum salary required for certain categories of employees to be exempt from overtime pay under the Fair Labor Standards Act (FLSA). The final rule is expected to become effective 60 days after it is published. The current white-collar salary exemption threshold is $35,568/year, or $684/week. The new Overtime Rule is expected to raise the minimum salary requirement for an employee to be exempt from overtime pay under the FLSA to $55,068 annually ($1,059/week), although some states and localities have salary thresholds that exceed even this new substantially increased federal threshold. The exempt salary threshold under the new rule is anticipated to make 3.6 million employees eligible for overtime pay unless employers raise their salaries. If finalized in its current form, the new Overtime Rule will also automatically update the salary threshold every three years. Prior to this change, the last two salary threshold adjustments were in 2019 and 2004. Employers should begin reviewing the compensation of exempt employees who earn between $35,568 and $55,068 per year to determine whether to raise their salaries or re-classify them as non-exempt. Read more about the Proposed Rule here.

2. Noncompetition Agreements

Noncompete agreements have garnered increased attention and scrutiny at the state and federal level. To date, although many federal bills aiming to curb the use of noncompetes have been introduced, none have been successful. Current pending bills include the Workforce Mobility Act (a total ban on employee noncompete agreements), the Freedom to Compete Act (a ban on noncompete agreements with FLSA non-exempt employees), and the Ensure Vaccine Mandates Eliminate Noncompetes Act (a ban on noncompete agreements for employees terminated for noncompliance with an employer’s COVID-19 vaccine mandate).

Federal agencies have also been active in the space. In 2023, the Federal Trade Commission (FTC) and NLRB both weighed in against noncompetes. The FTC proposed a rule that would, with limited exceptions, bar employers from using noncompete agreements and require rescission of existing noncompete agreements. The proposed rule would apply broadly, not just to all employees, but also to independent contractors and any individual who works for an employer, whether paid or unpaid (e.g., externs, interns, volunteers, apprentices, or sole proprietors). The FTC is expected to vote on the proposed rule, or a revised version of the proposed rule, on April 23.

Any final rule will take effect 180 days after its publication. In the event the FTC does adopt the proposed rule or some variation of it, the rule will face significant legal challenges. The NLRB similarly issued an enforcement memorandum asserting that most post-employment noncompete agreements for non-management and nonsupervisory employees violate Section 7 of the National Labor Relations Act (NLRA). The memo states that the “proffer, maintenance, and enforcement” of noncompetition agreements “reasonably tend to chill” employees exercising their Section 7 rights by making it harder for employees to seek different employment and thus, discouraging them from engaging in conduct that might put their current employment at risk.

At the state level, the recent trend has been to impose legislation which limits, but generally does not prohibit, the use of noncompete agreements. These limitations have largely taken the form of wage thresholds and advanced notice requirements. In 2023, however, Minnesota passed a statute banning all noncompetition agreements with Minnesota residents. The statute allows for the enforcement of noncompetes in connection with the sale of a business if the restrictions are reasonable. California also passed legislation further restricting the use of noncompete agreements in the state.

This year, bills relating to noncompete agreements have been introduced in 31 states. To date, only one has passed – Washington state’s new law, which expands the scope of the state’s 2020 noncompete agreement statute, goes into effect on June 6. The new statute expands the definition of “noncompetition covenant” to include “an agreement that directly or indirectly prohibits the acceptance or transaction of business with a customer” and limits the nonsolicit exception to extend only to restrictions on soliciting current customers (not prospective customers or former customers). The Washington statute also voids any non-Washington choice of law in a noncompete agreement.

In light of the growing hostility toward noncompete agreements, an increasingly remote and far spread workforce, and the patchwork state level approach to legislation around restrictive covenants, employers should revisit their form agreements to ensure maximum enforceability. In many instances, specific forms or addenda will be required to comply with the various state requirements. Employers should also consider implementing effective trade secret protection plans and monitoring their application to create a secondary guardrail in the event their noncompete agreements come under the scrutiny of the courts.

3. Citizenship Discrimination Enforcement Activity

There has been increased enforcement activity by the US Department of Justice (DOJ) focused on citizenship discrimination, document abuse, and I-9 compliance, often leading to high civil penalties for employers. The federal citizenship discrimination law protects US citizens, Green Card holders, asylees, and refugees from discrimination based on their immigration and citizenship status. Although employers have no obligation to sponsor any employee for a work visa or Green Card, they must be sure not to take any adverse employment action based on an individual’s national origin, race or ethnicity. The DOJ has issued several technical assistance letters describing what employers can ask candidates pre-hire about their immigration status. Federal I-9 laws prohibit employers from suggesting to employees which documents they should present to prove their identity and work authorization to complete the I-9 form and refusing to accept documents that are on the I-9 List of Acceptable Documents. 

Here are some tips to help steer clear of discrimination and I-9 violations in your pre and post hiring practices. 

1. Review job application forms to ensure you only ask questions about work authorization and immigration status that are non-discriminatory.
2. Review job advertisements to ensure that any restrictions to the applicant pool (e.g., limiting it to US citizens or stating that the job is not eligible for work visa sponsorship) is permitted and lawful.
3. Train internal and external recruiters (and any other workers involved in the hiring process) about what they can and cannot ask a candidate about their work authorization and immigration status, and when they can ask for documents relating to these topics.
4. Train those who complete the I-9 forms on behalf of employers to understand how to properly complete the I-9 form, when it should be completed, and what documents are acceptable. 
5. If you must screen applicants for ITAR or export control purposes, keep questions and documents used for that screening separate from the I-9 process, and train screeners how to avoid national origin discrimination claims. 
6. Review government contracts to see if there is explicit language restricting permitted workers to those with specific immigration status (ex: US citizens or green card holders only).
7. Do not submit any e-verify or SSNVS requests pre-hire.
8. Conduct a proactive I-9 audit to ensure that you have all required I-9 forms, and they are properly completed. Correct all errors (in the proper manner), which will allow you to take advantage of the good faith compliance defense in the event of an audit.
9. Review your recruiting practices in Green Card cases to ensure that you are utilizing the same methods of recruitment you use for other similar job openings.

4. Paid Family and Medical Leave

For years, employers have been required to comply with federal laws requiring unpaid leaves of absences, unpaid, including the Family and Medical Leave Act (FMLA) and the Americans with Disabilities Act (ADA). More recently, there has been a trend for states to pass their own paid leave laws, which have different eligibility requirements and associated benefits. The state leave programs are filling the gaps in access for employees who may not qualify under the traditional federal leave law and build on federal practices by offering employees the right to job reinstatement, continued health insurance, and protections against discrimination or retaliation for exercising rights under the leave law. The differences among state leave laws are stark. For example, through their state leave programs, Rhode Island offers employees 85% of the statewide average weekly wage while Oregon offers 120% of the statewide average weekly wage.

These state laws have created a regulatory maze for employers, forcing companies to juggle the federal standards alongside state and sometimes even local leave laws. This is especially challenging for national employers. The following states have already passed state leave laws: California, Colorado, Connecticut, Delaware, District of Columbia (districtwide), Maine, Maryland, Massachusetts, Minnesota, New Jersey, New York, Oregon, and Rhode Island. Other states, like New Hampshire and Vermont, have taken the approach of voluntary paid leave for private sector employers/employees who choose to opt-in. Other states are expected to follow suit as more attention is being turned on Paid Family and Medical Leave.

5. Independent Contractor Misclassification 

As previously reported here, on March 11, the DOL’s final rule on “Employee or Independent Contractor Classification Under the Fair Labor Standards Act” took effect. Although the rule is the subject of legal challenges, at press time, it remains in effect.

The rule rescinds a 2021 Independent Contractor Rule that the DOL believes “is not consistent with the law and longstanding legal precedent.” The new final rule reinstates a six factor “economic reality” test to determine the worker’s degree of economic dependence. The factors are:

1. The worker’s opportunity for profit or loss depending on managerial skill.
2. Investments by the worker and the potential employer.
3. The degree of permanence of the work relationship.
4. The nature and degree of control the potential employer has over the worker.
5. The extent to which the work performed is an integral part of the potential employer’s business.
6. The worker’s use of specialized skills to perform the work and whether those skills contribute to business-like initiative.

The rule also allows additional factors to be considered “if they in some way indicate whether the worker is in business for themself, as opposed to being economically dependent on the potential employer for work.”

The Department estimates that there are 22.1 million workers classified as independent contractors. Although the final rule was issued under the FLSA and is primarily targeted at recovering minimum wages, overtime compensation and enforcing other FLSA protections, it also made mention of misclassified workers losing out on employer-provided fringe benefits, having to pay both the employer and employee share of FICA taxes, and not being paid bonuses and other compensation provided to employees.

It is important to note that the final rule is limited to the FLSA, and different, often more stringent tests are used under other federal and state laws. Last year, we reported on the new standard adopted by the NLRB. Moreover, California and Massachusetts have significantly stricter tests than other states. Illinois, Maryland, and New Jersey also have tests that are challenging to satisfy. Under the District of Columbia’s Human Rights Enhancement Amendment Act of 2022, an individual “working or seeking work as an independent contractor” is protected from discrimination.

If an entity classifies any workers as independent contractors, now would be a good time to conduct an audit to determine whether those classifications would pass muster under applicable federal and state laws.

6. The Continuing Expansion of Employee Rights by the NLRB 

As we have been keeping you informed since Jennifer Abruzzo was installed by the Biden Administration as General Counsel (GC) of the NLRB in 2021 and boldly announced plans to overturn approximately 50-plus longstanding NLRB precedents, she, supported by a majority of the Board itself, have taken an expansive view of broadening employee rights under the NLRA.

Most recently, in 2023, in furtherance of this plan, the GC and the Board have:

(1) In Wendt Corporation,[1] overruled a landmark case, Raytheon Network Centric Systems,[2] and narrowed an employer’s right to make discretionary changes to employment terms and conditions during either a contract hiatus or negotiations for a first contract, and, shortly thereafter, in Tecnocap, LLC,[3] further narrowed Raytheon, by holding that an employer may never justify any such discretionary changes based on a past practice predicated on an expired management-rights or other contract clause (here);

(2) Expanded its prior ruling on “standard remedies” for “bad faith” bargaining set forth in WR Reserve,[4] to require additional “double secret probation” remedies where an employer has “shown a proclivity to violate the Act or…engage in egregious or widespread misconduct” with the goal of “bringing greater consistency to the Board’s exercise of its remedial discretion,” including, but not limited to, adding an “Explanation of Rights” to the Order to inform employees “in a more comprehensive manner” of their statutory rights, allowing union agents to be present at a mandatory meeting of employees at which an employer representative may be required to read the Order, requiring the mailing of the Explanation of Rights and Notice to the employees’ homes and/or emailing of same to individual employees, and requiring the employer to reimburse the union for its bargaining expenses and reimbursing employees attending negotiations for any lost wages for such participation (here); and

(3) Rescinded the “joint employer rule” issued by the Trump Board in 2020 and replaced it with their own expanded rule published on October 27, 2023, establishing that two or more entities may be considered “joint employers” of a group of employees if each entity has a relationship with the employees and the entities “share or codetermine one or more of the employees essential terms and conditions of employment” (e.g., wages, hours assignment of duties, supervision of same, hiring, discipline, discharge and other terms and conditions of employment). On March 8, 2024, a US District Court vacated the Biden Board’s new “joint employer” rule and the GC and the Board are presently contemplating next strategic steps regarding the new rule (here).

Finally, and not surprisingly, in advance of the presidential election in November 2024, the GC has announced plans to aggressively target several additional well-established Board precedents including, but not limited to:

1. Overturning the longstanding Ex-Cell-O doctrine that prohibits the Board from seeking monetary damages from employers who are found to have engaged in “bad faith” bargaining, stating: “You need to hit employers in their pockets, and I’m not saying that this is going to be a panacea, but if you force [them] to pay for the workers’ lost opportunity to make gains in bargaining, then hopefully it will prevent at least some [of them] from actually going down that road.”
2. Pushing the Board to join the FTC, various state legislatures, the District of Columbia, and the City of New York to ban non-compete agreements that restrain worker mobility to, in the GC’s view, prevent employers from stifling the rights of “low-wage and middle-wage workers to… actually improve their [working] conditions.”
3. Attempting to ban mandatory “captive audience” meetings by employers, first approved by the NLRB in 1948 in the Babcock & Wilcox decision, in which to express their position regarding the union seeking to represent their employees, which the GC has concluded are somehow impermissibly “coercive” today.

As 2024 unfolds, we will keep you updated on all new efforts by the GC and the Board majority to continue their plan of extensive expansion of employee rights under the NLRA.

7. The Current Climate for Union Organizing 

Again, not surprisingly, GC Abruzzo and the Board majority continue to be proactive in support of several high profile national organizing campaigns being waged by various unions against large-scale US companies.

The proactivity of the GC in this regard has included the issuance of broad-reaching unfair labor practice complaints against certain large employers during the union election campaigns and the pursuit by the GC in the US District Courts of injunctions pursuant to Section 10(j) of the NLRA designed to preserve the status quo throughout the hearing process of these complaints.

Finally, regarding the Board’s processing of union election petitions and/or the use of “card check” as a lawful substitute for same, in December of 2023, the Biden Board adopted new rules rescinding and replacing the 2019 Final Rule issued by the Trump Board, designed, in the view of NLRB Chairman, Lauren McFerran, to ensure the “removal of unnecessary delays from the election process,” including:

1. An expedited timeline for union elections, now requiring that pre-election hearings be scheduled within eight calendar days of service of the notice of hearing.
2. Ensuring that election information is disseminated to employees more quickly.
3. making pre- and post-election hearings more efficient.
4. holding that an employer presented with authorization cards signed by a majority of employees in an appropriate bargaining unit must either (a) recognize the union as majority representative based on the presented authorization cards or (b) promptly file a petition for election with the Board.

As unions continue to aggressively pursue organizing among all sizes of employers in 2024, we will keep you apprised of the new election rules, the outcome of major cases before the US Supreme Court, and the impact on the GC’s pursuit of Section 10(j) injunctions in support of union organizing efforts across the country.

8. Remote Work as a Reasonable Accommodation

Fueled by the COVID-19 pandemic, many employers have discovered the benefits of allowing employees to work remotely. Remote work allows companies to attract and retain talent by providing this cost-free benefit and having a larger footprint from which to draw talent. Technological advancements have made remote work practically seamless. 

In its Enforcement Guidance on Reasonable Accommodation and Undue Hardship Under the Americans with Disabilities Act, the Equal Employment Opportunity Commission (EEOC) has said that allowing an individual with a disability to work at home, even on an as-needed basis, may be a form of reasonable accommodation. A reasonable accommodation is any change in the work environment or in the way things are customarily done that enables an individual with a disability perform a job. The ADA does not require an employer to provide remote work as an accommodation if it causes undue hardship, which requires a significant showing by an employer and is a fact-intensive inquiry.

Not all jobs can be performed remotely and yet companies are increasingly receiving accommodation requests seeking remote work. A company’s preference for on-site work is simply not enough to deny these requests. Upon the receipt of such a request, companies must engage in the interactive process to determine, among other things, the precise limitations posed by the employee’s disability, whether the job’s essential functions can be performed remotely, and whether other forms of accommodation may be provided as an alternative to remote work. Adding to the difficulty navigating this issue is the fact that many jobs went remote during the pandemic by necessity, making it optically challenging to take the position that a job cannot be performed remotely. Due to these complexities, employers should proceed with caution, including consulting with legal counsel, when responding to requests for remote work accommodations.

9. California Hot Topics: Added Protections for Off-Duty Cannabis Use 

On September 18, 2022, Governor Newsom signed into law AB 2188, an antidiscrimination statute that updates the California Fair Employment and Housing Act (FEHA) to prohibit employers from discriminating or penalizing an employee or applicant in any way because of their off-duty, off-site cannabis use. AB 2188 protects an employee’s use of cannabis when they are away from work and off the job.

AB 2188 took effect on January 1, and made it unlawful for an employer to discriminate against a person in any term or condition of employment, based on the person’s use of cannabis off the job and away from the workplace. With the passing of AB 2188, California now joins states such as Washington, Nevada, New York, New Jersey, Connecticut, Montana, and Rhode Island in protecting an employee’s use of cannabis while off the job and away from the workplace.

Section 1 of the legislation addresses the issues that are common with most drug tests in relation to the detection of cannabis. This section states that such tests only show the presence of the non-psychoactive cannabis metabolite which does not indicate impairment. Tetrahydrocannabinol (THC) is the chemical compound in cannabis that can cause impairment and psychoactive effects in a person who has ingested the THC. However, once the THC is metabolized, it is stored in the body as a non-psychoactive cannabis metabolite which only indicates that a person has consumed cannabis in the past rather than showing current impairment. Using a drug test to detect whether an individual has consumed cannabis in past weeks has no correlation and is ineffective to determine impairment on the job.

Section 2 of the legislation adds Section 12954 to the Government Code, which amends the FEHA, making it unlawful for an employer to discriminate against an applicant or employee for using cannabis off the job and away from the workplace or for finding non-psychoactive cannabis metabolites in their hair, blood, urine, or other bodily fluids by an employer-required drug screening test. Section 2 makes it clear, however, that employees will not be allowed to possess, be impaired by, or use cannabis on the job, nor does it interfere with an employer’s right to maintain a drug-free workplace. The bill does not prohibit employers from complying with state and federal laws that require testing applicants or employees for controlled substances and employers can still refuse to hire an applicant based on scientifically valid pre-employment drug screening conducted through methods that do not screen for non-psychoactive cannabis metabolites. The bill does not cover all workers Specifically, it does not apply to an employee in the building and construction trades or to applicants and employees that are hired for positions that require certain federal background checks and clearance.

Employers should ensure that employee handbooks and policies align with the new law regarding off-duty cannabis use. Employers are advised to develop methods to document the use of cannabis or impairment in instances where an employee is suspected of using or being impaired by cannabis while working, including providing training to supervisors and managers to recognize the signs of an employee being under the influence of cannabis.

10. OSHA's New Walkaround Rule 

The Occupational Safety and Health Administration (OSHA) recently announced a significant rule change regarding workplace safety inspections, set to go into effect May 1, 2024. The new "Worker Walkaround Representative Designation Process Rule" clarifies employee rights during inspections and grants them more control over who accompanies the OSHA inspector.

The Occupational Safety and Health Act already granted employees the right to have a representative present during an OSHA inspection. This new rule now explicitly permits employees to designate a non-employee representative, such as a union representative, health and safety professional, or legal advocate. Though the rule allows for third-party representatives, OSHA inspectors retain some discretion. They can deny a representative's access if they deem it "not reasonably necessary" to conduct a thorough and effective inspection, which could occur if the representative poses a safety risk, disrupts the inspection process, or lacks relevant expertise. 

The rule emphasizes that it does not create new obligations for employers. Employers are still required to facilitate the inspection and allow employee-designated representatives to accompany the compliance officer. However, some employer groups have expressed concerns that allowing union representatives or activists could be used for organizing purposes. This change goes hand in hand with the new Memorandum of Understanding entered into by OSHA and the NLRB in October 2023, which states that “in appropriate cases and to the extent allowable under law, the agencies will determine whether to conduct coordinated investigations and inspections, where doing so would facilitate and not delay enforcement action.” Employer groups have also expressed concern that allowing third parties to accompany OSHA compliance officers will also expose employer’s confidential and proprietary business information to disclosure.

The new rule is still in its early stages, and its full impact remains to be seen. OSHA maintains it strikes a balance between employee rights and effective inspections. However, legal challenges are anticipated, and further guidance may be needed to address employer concerns and ensure a smooth implementation.

[1] Wendt Corporation, 372 NLRB No. 135 (2023).

[2] Raytheon Network Centric Systems, 365 NLRB No. 161 (2017).

[3] Tecnocap, LLC, 372 NLRB No. 136 (2023).

[4] Noah’s Ark Processors, LLC d/b/a WR Reserve, 372 NLRB No. 80 (2023).