Representation Process

On August 25, 2023, the NLRB issued a Final Rule expediting the representation process, which takes effect on December 26, 2023. Typically, the representation process commences with representation petitions filed by employees, unions, or employers seeking an election. The election determines whether employees wish to be represented for purposes of collective bargaining with their employer. The NLRB will review the petition and determine if an election should be conducted and will direct an election. In cases where the parties do not agree on the voting unit or other issues, the NLRB’s regional office holds a pre-election hearing to decide whether an election should be conducted. The NLRB’s recent rule expedites each step of the representation process, including the election and pre-election hearing procedures, thereby benefiting employees seeking to unionize.

How does the Final Rule Change the Election Process?

There are ten key changes to the pre-election hearing process, notifications of election information, and election process, which depart from the 2019 rule, and are set forth below.

1. Pre-election hearings will be scheduled to open eight calendar days from the service of the Notice of Hearing, altering the 2019 rule of 14 business days.
2. Regional directors will have discretion to postpone pre-election hearings for up to two business days where a party shows special circumstances and for more than two business days where a party shows extraordinary circumstances. Previously, regional directors could postpone a pre-election hearing for an unlimited amount of time if a party demonstrated good cause.
3. There is a tighter deadline for the filing of the non-petitioning party’s Statement of Position, which is seven days after service of the Notice of Hearing, rather than eight business days (or 10 calendar days) after service.
4. Regional directors will have discretion to postpone the due date of a Statement of Position for up to two business days if there are special circumstances and more than two in cases of extraordinary circumstances. Previously, regional directors could postpone the due date for an unlimited amount of time if there was good cause.
5. A petitioner shall respond orally to the non-petitioning party’s Statement of Position at the start of the pre-election hearing rather than filing a responsive written Statement of Position prior to the pre-election hearing.
6. An employer has two business days after service of the Notice of Hearing to post the Notice of Petition for Election in the workplace and electronically distribute it rather than five business days to complete these requirements.
7. Disputes concerning individuals’ eligibility to vote or inclusion in an appropriate unit are no longer allowed to be raised at the pre-election hearing. Regional directors have authority to exclude evidence from the pre-election hearing that is not relevant to whether there is a question of representation.
8. Parties may not file post-hearing briefs unless they have the special permission of the regional director or hearing officer, departing from the 2019 rule, which permitted post-hearing briefs.
9. Regional directors ordinarily should specify the election details—(the type, date(s), time(s), and location(s) of the election and the eligibility period)—in the decision and direction of election and simultaneously transmit the Notice of Election with the decision and direction of election. Previously, election details did not need to be specified in the Notice of Election.
10. Regional directors shall schedule elections for “the earliest date practicable” after issuance of a decision and direction of election. The waiting period of 20 business days between the decision and direction of election and the election is eliminated.

If employers anticipate that their employees may file a representation petitions, employers should familiarize themselves with the updated representation process and work with counsel to address any concerns.

In the event that a representation petition is filed, employers should be prepared to move quickly in complying with all procedural requirements and challenging the representation petition, if necessary. As employers’ ability to obtain additional time throughout the representation process is significantly curtailed by these changes, employers will also have less time to engage in negotiations during the election and pre-election processes and must have counsel who can capitalize on tight timelines.

Changes in Protected Activity

In Miller Plastic Products, Inc., the NLRB announced its return to a “totality of the circumstances” test for determining what constitutes protected concerted activity by employees under Section 7 of the National Labor Relations Act (the “Act”). Miller Plastic Products, Inc. involved the termination of a worker who raised concerns about COVID-19 safety protocols and the company’s decision to stay open in the beginning of the pandemic. The NLRB ruled that the company violated the Act as the worker was engaged in protected concerted activity. In Miller Plastic Products, Inc., the NLRB overruled its 2019 Alstate Maintenance, LLCdecision, which had narrowed the test for determining concerted activity using a checklist of factors and returned to the 1986 rule in Meyers Industries Inc., providing a fact-specific examination that looks at the totality of the circumstances. The NLRB also addressed the issue of whether single-worker actions constitute protected organizing activity and concluded a holistic approach evaluating whether an individual’s protests have some connection to group or concerted action is warranted.

Similarly, in American Federation for Children, Inc.,the NLRB held that federal labor law protects workers who advocate for nonemployees, such as interns, reversing a Trump-era ruling that allowed employers to penalize employees for aiding unprotected colleagues. Specifically, the NLRB overruled its 2019 Amnesty International decision, which held that the statutory concept of “mutual aid or protection” did not encompass the efforts of statutory employees to help themselves by helping others who are not statutory employees. In American Federation for Children, Inc., the NLRB concluded that the Act protects the efforts of employees who take action to support nonemployees when those actions can benefit the employees who undertake them.

After the shifts announced by Miller Plastic Products, Inc. and American Federation for Children, Inc., employers should be prepared to address employee complaints that could fall into the category of concerted activity or protected advocacy on behalf of nonemployees in a manner that complies with the Act.

The DOL’s proposed rule primarily deals with Section 13(a)(1) of the FLSA, which exempts from the minimum wage and overtime pay requirements “any employee employed in a bona fide executive, administrative, or professional capacity” (the “white-collar exemption”).

To qualify for the white-collar exemption each of the following tests must be met:

1. The salary-basis test: The employee must be paid a predetermined and fixed salary that is not subject to reduction because of variations in the quality or quantity of work performed;
2. The salary-level test: The amount of salary paid must meet a minimum specified amount (currently $684 per week, or $36,568 per year); and
3. The duties-test: The employee’s job duties must primarily involve executive, administrative, or professional duties as defined by the regulations.

The proposed rule would revise the FLSA regulations to:

• Increase the FLSA regulations’ standard salary level from $684 per week ($35,568 per year) to $1,059 per week ($55,068 per year); 
• Increase the total annual compensation requirement for highly compensated employees from $107,432 per year to $143,988 per year;
• Restore overtime protections for U.S. territories, ensuring workers in those territories where the FLSA minimum wage applies have the same overtime protections as other U.S. workers; and 
• Automatically update earnings thresholds every three years so they keep pace with changes in worker salaries, ensuring that employers could adapt more easily because they would know when salary updates would happen and how they would be calculated.

The proposed rule would, however, not make changes to the FLSA’s “duties test” for determining overtime eligibility.

In a News Release, the DOL stated that the rule would “restore and extend” overtime protections. While an increase in the salary threshold is perhaps unavoidable and even necessary, the change undoubtedly will burden employers across a wide range of industries.

We do not expect that the proposed rule will go without challenge. Notably, this proposal follows in the path of the Obama administration, which sought to raise the overtime cutoff for most salaried employees to $47,500, but was blocked by a federal judge.

Once published to the federal register, the proposed rule will be open to comment for 60 days. Given the impact to employers, we are closely monitoring this issue for any updates or changes that may arise.

We are monitoring employment law trends on Capitol Hill and across the nation. Subscribe to stay up-to-date with the legal developments that will most impact your company in the months to come. If you have any questions concerning the FLSA or the proposed rule, please contact a member of the Kelley Drye Labor and Employment team.

Last week, the U.S. Equal Employment Opportunity Commission (EEOC) introduced proposed regulations to assist covered employers in their implementation of the PWFA. The proposed regulations identify certain accommodations for pregnant and postpartum workers that must be provided regardless of the circumstances. As a result of these proposed regulations, employers throughout the nation should be preparing themselves to identify and better manage requests for accommodation from pregnant and postpartum workers.

What’s the status of the proposed regulations?

The EEOC unveiled the proposed regulations on Monday, August 7, 2023, and subsequently published these proposed regulations in the Federal Register on Friday, August 11, 2023. The public will have 60 days to comment on the proposed regulations. The EEOC has asked for input on specific areas including defining key terms and examples of what would constitute reasonable accommodations under the law.

Has the EEOC identified reasonable accommodations?

The EEOC has identified four pregnancy accommodations that should be granted in almost every circumstance. These accommodations include allowing employees to carry and drink water as needed, additional restroom breaks, standing and sitting options, and additional breaks to eat and drink.

Additionally, the EEOC identified other examples of possible reasonable accommodations that a covered employer must provide unless it can demonstrate that the accommodation would impose an undue hardship, including:

• Schedule changes, part-time work, and paid and unpaid leave
• Telework
• Closer parking spaces
• Light duty
• Making facilities accessible or modifying the work environment
• Job restructuring

What’s the interplay between the PWFA, PDA and ADA?

Historically, two federal laws have governed an employers’ obligation to pregnant and postpartum workers. The Pregnancy Discrimination Act of 1978 (PDA) prohibits discrimination on the basis of pregnancy, childbirth, or related medical conditions. By contrast, the Americans with Disabilities Act of 1990 (ADA) prohibits discrimination based on a disability, including a disability related to a pregnancy (i.e. diabetes that develops during pregnancy). The PWFA bridges the gaps between these two federal laws, both of which provide minimal guidance with regard to appropriate reasonable accommodations for pregnant and postpartum workers.

The PWFA does not replace federal, state, or local laws that are more protective of employees and applicants and the PWFA does not apply to claims of discrimination. Rather, the PWFA focuses only on a covered employer’s obligation to provide reasonable accommodations.

What can employers do now to comply with the PWFA?

The EEOC began accepting charges alleging violations of the PWFA on June 27, 2023, leaving employers in a quandary as to how to comply with the new law with very little guidance. The EEOC’s proposed regulations shed some light on what accommodations may pass muster, but what practical measures should a covered employer consider now to manage risk? Here are some tips:

• Policy Updates: While many employers may already have policies in place that comply with the PDA and ADA, covered employers should review and, if necessary, update their accommodation policies to ensure compliance with the PWFA, as well as related state laws.

• Revamp Protocols: Employers must reevaluate and/or formalize processes for managing requests for accommodation from pregnant and postpartum workers, thereby ensuring that employers consistently satisfy their obligation to engage in the interactive process pursuant to the PWFA.

• Training: Employers should consider training managers on how to identify requests for accommodation from pregnant and postpartum workers, including channeling these requests to the appropriate individual(s) within the organization who is tasked with facilitating workers’ accommodation requests.

As covered employers navigate these new accommodation requirements, Kelley Drye’s Labor and Employment team can assist employers in their efforts to ensure compliance with the new law, including updating policies and procedures and training Human Resources and supervisors to identify and better manage pregnant and postpartum workers’ requests for accommodation.

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The California Supreme Court’s recent decision in Adolph v. Uber Technologies, Inc. (“Adolph”) answered this yearlong question. The Court held that a plaintiff-employee subject to a mandatory arbitration agreement does not lose standing to litigate non-individual PAGA claims, thereby reopening the potential risks for employers, but with some silver linings.

ADOLPH V. UBER TECHNOLOGIES, INC.

In Adolph, Plaintiff Erik Adolph—an Uber driver—was bound by the terms of an arbitration agreement that required him to arbitrate—on an individual basis—all work-related claims he had against his employer Uber. Adolph subsequently sued Uber, asserting various individual and class action claims arising from Uber’s alleged violations of the California Labor Code. Adolph subsequently amended his complaint to add a PAGA claim seeking civil penalties for the underlying Labor Code violations. The trial court granted Uber’s motion to compel arbitration, requiring Adolph to arbitrate all of his individual claims, and dismissed Adolph’s class action.

Adolph filed a second amended complaint, eliminating his individual and class action claims against Uber, proceeding only with the PAGA representative action. Adolph’s PAGA-only lawsuit survived Uber’s second motion to compel arbitration. Uber appealed the trial court’s decision and the California Court of Appeal upheld the trial court’s ruling that Adolph’s PAGA claims were not subject to arbitration, citing to Iskanian.

In May 2022,Uber requested the California Supreme Court review the Court of Appeal’s decision. Before the California Supreme Court had a chance to weigh in, the US Supreme Court handed down its decision in Viking River, holding that an employee subject to an arbitration agreement must arbitrate his or her individual PAGA claim, leaving the California Supreme Court to determine the fate of the non-individual PAGA claim after an employee is compelled to arbitrate his or her individual claims.

Last week, the California Supreme Court handed down its long-awaited decision in Adolph, holding that “an aggrieved employee who has been compelled to arbitrate claims under PAGA maintains statutory standing to pursue ‘PAGA claims arising out of events involving other employees.’” The court stated that “where a plaintiff has brought a PAGA action comprising of individual and non-individual claims, an order compelling arbitration of the individual claims does not strip the plaintiff of standing as an aggrieved employee to litigate claims on behalf of other employees under PAGA.” So in short, employers can’t use an employee’s arbitration agreement to require the employee to abandon his or her PAGA representative action.

But the Court’s decision included two positive takeaways:

1. The Court held that PAGA representative claims should be stayed pending arbitration of the plaintiff-employee’s individual PAGA claim, saving employers from simultaneously fighting PAGA claims in two forums
2. Per the Court, if an arbitrator concludes a plaintiff was not an “aggrieved employee,” the plaintiff “could no longer prosecute his non-individual claims due to lack of standing.” Meaning if the plaintiff’s individual PAGA claim is defeated, so, too, is the plaintiff’s ability to pursue the PAGA representative action on behalf of all “aggrieved employees.”TAKEAWAYS

Here are the key takeaways post Adoph:

1. Employers should continue to use arbitration agreements with PAGA waivers as a tool to compel arbitration of individual PAGA claims with the caveat that the arbitration provisions will not necessarily keep non-individual PAGA claims out of court.
2. Employers without arbitration agreements may consider entering into arbitration agreements requiring arbitration of PAGA claims as a first line of defense, providing a hurdle to plaintiff-employee’s ability to access courts to litigate non-individual PAGA claims, potentially limiting employers’ exposure to PAGA claims asserted by their employees on a representative basis.
3. Additionally, employers should review their employment agreements with counsel to see how the California Supreme Court’s decision may impact existing arbitration provisions. Moreover, employers might see an increase in PAGA litigation. Therefore, employers should review current policies and procedures to ensure they are consistent with current Labor Code requirements to mitigate risk and exposure to said claims.

If you have any questions concerning this and other California related employment issues, please contact Kimberly Carter or other members of Kelley Drye’s Labor and Employment team.

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In the SFFA ruling, the Court struck down affirmative action programs at Harvard and the University of North Carolina, holding that the admissions programs at both universities violated the Equal Protection Clause of the 14th Amendment. On July 13, 2023, the Attorneys General (the AGs), of thirteen states – Alabama, Arkansas, Indiana, Iowa, Kansas, Kentucky, Mississippi, Missouri, Montana, Nebraska, South Carolina, Tennessee, and West Virginia – sent a letter to the CEOs of Fortune 100 companies warning that their current race-conscious hiring and promotion preferences violate the law, and citing the SFFA decision as authority. The AGs’ letter threatens that hiring and promotion quotas favoring minorities violate Title VII of the Civil Rights Act of 1964, and may further violate analogous state laws that the AGs have jurisdiction to enforce. Similar to the Supreme Court’s analysis of the affirmative action issue, the AGs argue that even if DEI hiring programs are benignly designed to “help” members of certain minority groups, they naturally do so to the detriment of others who do not meet the same protected criteria. Senator Cotton certainly takes a similar view.

Then, on July 17th, Senator Tom Cotton (R-Arkansas) sent a letter to 51 major U.S. law firms, claiming that DEI employment initiatives violate federal law and the Supreme Court’s holding in SFFA. In his summary, the Senator broadened the threat not just to the firms themselves, but to their clients as well, warning: “to the extent that your firm continues to advise clients regarding DEI programs, or operate one of your own, both you and those clients should take care to preserve relevant documents in anticipation of investigations and litigation.”

To further confuse businesses, on July 19, the Attorneys General from 21 states sent their own letters to a number of large companies stating that DEI programs are lawful. They pointed out that the SFFA decision does not apply to private businesses, and that DEI programs are still a lawful goal for companies to pursue. The pro-DEI AGs go on to encourage employers to continue to advance diversity lawfully, and to recruit and retain diverse employees. Faced with these two competing viewpoints, employers are left to pull out their hair in confusion.

Who is right: Are DEI Progress Unlawful?

First, the July 19th pro-DEI AG’s are correct: the SFFA decision does not directly apply to private employers. The decision only addressed the narrow issues of whether the admissions process of two educational institutions, both of which accept federal financial assistance, violated Title VI of the Civil Rights Act of 1964 and the Fourteenth Amendment. These laws do not apply to private employers, which are covered by statutes like Title VII, and use different legal frameworks to analyze claims of discrimination. Those legal tests were not affected by the SFFA decision at all.

Additionally, even before the SFFA decision, many of the processes which universities were allowed to follow in admissions were already illegal for a private employer – which cannot favor one race over another in employment decisions. Under Title VII, private employers are prohibited from making decisions based on race and other protected characteristics. Unlike higher education, federal law has never allowed employers to take race into consideration in making employment decisions, and employers generally are not permitted to take employment actions motivated by protected characteristics, including meeting racial- or sex-based quotas.

The EEOC’s View

Following the SFFA decision, the EEOC released a statement reiterating that the decision does not address employer efforts to foster diverse and inclusive workforces. The EEOC has made it clear that it remains lawful to implement DEI programs to ensure that workers of all backgrounds are provided with an equal opportunity in the workforce. This dichotomy between the EEOC and conservative political elements in Congress, mean that employers who choose to implement DEI programs must pay attention to the swinging political pendulum, and be ready to adapt as necessary to conform with any power changes in Washington (or, alternatively, be prepared to bear the financial costs of litigating any challenges).

The opposing view as stated by the 13 AGs’ letter to the Fortune 100 CEOs, is concerned with any progress that provides a benefit to some applicants but not others in a corporate setting. Corporate DEI hiring programs that have given a “plus” factor to some protected characteristics, may operate as “negative” factors for others, and might not hold up under greater scrutiny in future litigation. In the wake of the SFFA decision, we may see an uptick of “failure to hire” lawsuits by non‑diverse applicants, who allege that they were not fairly considered based upon an employer’s publicly-expressed DEI initiatives, which are perceived to favor minority-applicants.

Are reverse-discrimination claims on the rise?

In recent years, there has been an increase in cases where Caucasian employees have sued claiming reverse discrimination, and won. For example, in Philips v. Starbucks (Case No. 1:19-cv-19432-JHS-AMD, D.N.J. June 15, 2023), the New Jersey federal court awarded $25.6 million dollars to Philips, a White manager who was fired following an incident with a Black customer. In Philips, the jury found that the plaintiff’s termination was motivated by her race.

In another example, a conservative group filed a complaint with the EEOC against McDonald’s concerning the fast food giant’s DEI strategy. In the letter Michael Ding of America First Legal Foundation wrote, “In its 2021-2022 Global DEI Report, the corporation credited its “Global Diversity, Equity and Inclusion Strategy” as the primary cause for driving an increase in women at the Senior Director and above level from 37% in 2020 to 41% in 2021, and an increase of “Underrepresented Groups” from 29% to 30%.5 … To further incentivize managers to hire and promote employees according to these quotas, in 2022, the corporation has, among other things, expanded its quantitative metrics to hold all Vice Presidents, Senior Vice Presidents, and Managing Directors “accountable for engaging in inclusive behaviors that support talent development and building a strong diverse succession pipeline” and implemented race, sex, and national origin based preferences and quotas for hiring, promotion, and training within its legal department.”

There’s also the Netzell v. Amer. Express Co. (2:22-cv-1423-SMB, D. Az.) case, where American Express is currently being sued by a group of employees who claim that its DEI initiatives directly violate Title VII. The rise of “anti-woke” activism, particularly by conservative-aligned, non-profit organizations, will only increase this trend.

What Should Employers Do?

The SFFA decision did not change the law for private sector employers. However, it certainly signals a “shift in the winds,” which may have indirect implications for the continued trend of pushback against DEI initiatives. Now is the moment to act, before your company is targeted for a lawsuit. Take proactive steps to assess your diversity programs, and eliminate any adverse risks.

• Evaluate your DEI initiatives. Review your voluntary DEI initiatives and programs carefully and make sure they are compliant with the law. There should never be a mandate or directives to “favor” or “target” certain groups for hiring or promotion. Avoid or eliminate direct numerical targets, such as “10% of this team must be a certain demographic”. Look closely at leadership acceleration programs or internship programs that are open only to members of underrepresented minority groups, as these may come under scrutiny under the expected wave of further litigation.
• Review Your DEI Communications. Review internal and public facing DEI communications to avoid statements that may be mischaracterized as unlawful. Take care to be clear that your company is committed to all employees, regardless of protected class. Make sure that race or ethnicity are not explicit “plus” factors in any employment decision. Also make sure that executives are careful about statements that indicate any sort of racial or ethnic preference.
• Use Other Factors to Encourage Diversity. It is important to keep in mind that DEI programs do not exist to favor certain groups of individuals over others. These programs exist because diverse, equitable, and inclusive workplaces may be more successful, agile, and equipped to fit customer and client needs. Rather than directly relying upon an individual’s race or other protected characteristic, it may be more appropriate to consider an individual’s history of overcoming adversity or economic status when making hiring decisions.
• Expand Your Recruiting Efforts. The SFFA decision is likely to have an effect on the diversity of graduating classes in higher education, which will result in decreased diversity in applicant pools coming from at least certain colleges and universities. Employers committed to ensuring a diverse applicant pool may want to reconsider what colleges and universities they recruit and hire from as part of this effort. Employers may also lawfully take steps to ensure the applicant or talent pipeline includes people of all backgrounds.
• Pay Attention to State Law Requirements. A number of states and localities have enacted their own anti-discrimination laws. More recently, a small number of states have enacted “anti-DEI” statutes that could affect your business. Employers in these jurisdictions should be cognizant of the applicable laws and consult with their counsel to ensure any DEI programs are compliant.

Of course, this all must be undertaken without any suggestions that diversity would be seen as a negative factor. You never want to suggest that hiring or promoting a diverse person would be a bad thing, everyone should be judged on merit.

Employers who value diversity do not need to immediately abandon their diversity initiatives, but do need to expect that they may be challenged, and ensure that they are compliant with the law and do not promote favorable treatment of one ethnic group over another.

If you have any questions concerning your business’s current DEI initiatives or the impact of the SFFA decision, please contact a member of Kelley Drye’s Labor and Employment team.

End of the National Emergency

As explained in our client advisory of March 3, 2021, the DOL, IRS, and Treasury announced on February 11, 2021 that employee benefit plans would be required to toll participant deadlines for exercising HIPAA special enrollment rights, electing and paying premiums for COBRA continuation coverage, filing claims for benefits, and appealing benefit claim denials until the earlier of (1) one year from the date that participants were first eligible for relief or (2) 60 days after the announced end of the COVID-19 National Emergency (the “Outbreak Period”).

For example, if a participant in an employer group health plan experiences a qualifying event for COBRA purposes and loses coverage on April 1, 2023, and is provided a COBRA election notice on May 1, 2023, the deadline for the participant to elect COBRA coverage would be 60 days after July 10, 2023, or September 8, 2023. This is because employees who lose coverage due to a qualifying event normally have 60 days from the later of (1) the date of the qualifying event or (2) the date that they receive the COBRA election notice, to elect COBRA coverage. However, since the participant in this example lost coverage during the Outbreak Period, the 60-day clock would not have started to run until the earlier of May 1, 2024 (one year from the date of receiving the COBRA election notice) or July 10, 2023 (the end of the Outbreak Period). Since July 10, 2023 is the earlier of the two dates, the deadline would be 60 days after July 10, 2023, which is September 8, 2023.

For participants who experience a qualifying event after July 10, 2023, required tolling will cease and normal timelines will resume. Plan sponsors may want to remind such participants about this resumption, in addition to updating any plan documents, summary plan descriptions, enrollment materials, COBRA notices, etc. that had previously been amended to reflect the tolling. Plan sponsors may also wish to extend the tolling on certain deadlines, as nothing in the Internal Revenue Code or ERISA prevents them from doing so. To do this, they will need to coordinate with their insurers, vendors, and third-party administrators (“TPAs”).

End of the Public Health Emergency

The end of the PHE means that private health insurance plans will no longer have to cover COVID-19 diagnostic testing and related services without imposing any cost sharing requirements (including deductibles, copayments, and coinsurance), prior authorization, or other medical management requirements, as they were required to during the PHE. It also means that they will no longer be required to cover COVID-19 vaccines and boosters from out-of-network providers without imposing cost sharing, prior authorization, or other medical management requirements. Plan sponsors should therefore consider how to inform plan participants of the changes, and whether plan documents and employee communications need to be updated accordingly. If a plan sponsor wants to continue to not impose cost sharing, prior authorization, or other medical management requirements, it will need to coordinate this with its insurance carrier (or TPA for a self-insured plan). A plan sponsor would also need to consider what impact continuing more favorable treatment of COVID-19-related services will have on high-deductible health plans.

Finally, if any changes constitute material modifications to the plan or coverage terms that would affect the content of the summary of benefits and coverage (SBC), that are not reflected in the most recently provided SBC, and that occur other than in connection with a renewal or reissuance of coverage, the plan sponsor must provide notice of the modification to participants not later than 60 days prior to the date on which the modification becomes effective (unless the plan sponsor previously notified participants that the additional benefits coverage or reduced cost sharing only applies during the PHE, or does so within a reasonable timeframe in advance of the reversal of these changes).

While it remains to be seen how the lower courts apply Groff, for employers in healthcare and transportation and hospitality with 24/7 scheduling needs, Groff could make staffing on weekends a bigger challenge than it already is.

Background

Title VII (along with all state and many local laws) has long-required employers to provide applicants and employees with a “reasonable accommodation” from any employment obligations that may conflict with their religious beliefs or practices. The key word here is “reasonable.” Employers do not need to provide accommodation if doing so creates an undue hardship for the business.

Courts, lawyers, and businesses have grappled with the meaning of these terms for decades, especially when it comes to the issue of accommodating Sabbath observance, which generally entails requests for weekend days off. Up until Groff, the Supreme Court’s decision in Trans World Airlines (TWA) v. Hardison, 432 U.S. 63 (1977) had set the standard. Hardison concerned an employee’s request for Saturdays off from work to accommodate his religious observance, which conflicted with seniority rules and other employees who also wanted that day. In Hardison, thecourt found in favor of TWA, ruling that the employer did not have to grant the accommodation, because it would have borne “more than a de minimis cost.”

Since Hardison, courts have repeatedly clashed over the definition of “undue hardship” and the threshold an employer must demonstrate in order to reject an employee’s request for religious accommodation. Many courts took this decision to mean that any religious accommodation that produces a “more than a de minimis cost” would not need to be granted. By that definition it is a relatively low bar for employers to prove, allowing more employers to deny religious accommodation so long as it they can prove minimal impact on operations. Additionally, it was generally recognized that employers did not have to violate seniority rules or a union contract in order to grant religious accommodation.

This may all now change due to the Groff decision.

Groff v. DeJoy

Groff also arose out of a dispute over time off, and concerned a U.S. Postal Service employee (Groff) who requested Sundays off from his job at a small rural Post Office to accommodate his Evangelical faith. This was not an issue until his branch partnered with Amazon and began delivering packages on Sundays. Groff then requested and received a transfer to a different branch that did not deliver on Sundays. When the second branch also partnered with Amazon Groff remained unwilling to make deliveries on Sundays. For a time the Post Office did attempt to accommodate Groff, staffing other employees to cover his shifts. Eventually however, Groff was disciplined for failing to work on Sundays, and ultimately resigned. Groff then sued the Post Office for religious discrimination on account of its unwillingness to accommodate his religious beliefs.

The lower court applied the Hardison standard and sided with the Post Office, finding that granting Groff’s accommodation would have presented more than a de minimis cost to the Post Office. The Supreme Court however, found that the lower court applied the wrong standard, and sent the case back to the lower courts to apply the new standard adopted in its opinion.

Groff’s New “Undue Hardship” Standard

Although the Supreme Court claimed that it was not directly overruling Hardison, it came very, very close, and certainly implied that ‘de minimis,’ as defined under Hardison, was no longer the operative test.

The Supreme Court criticized the way Hardison had been applied over the years, and held that many courts applying Hardison failed to invoke the fact-specific analysis and consideration of alternatives, that is required under Title VII, to evaluate a request for a religious accommodation. Implicit in the criticism was an undertone that more accommodations should have been granted.

The Court stated that in order to deny a religious accommodation (or defend any claim for failure to accommodate), the “employer must show that the burden of granting an accommodation would result in substantial increased costs in relation to the conduct of its particular business.” As part of this analysis, the Supreme Court stated that employers must consider: (i) the particular accommodations at issue, (ii) their practical impact in light of the nature, size and operating cost of an employer, and (iii) the availability of alternative means of accommodating the employee’s religious beliefs.

Interestingly, the Court stated that it did not believe that the EEOC would need to change its guidance. The Court also did not “foreclose the possibility that the (Postal Service) would prevail” under this new standard.

It will be interesting to see how the lower courts treat Mr. Groff’s claim the second time around. And whether showing the effects of Mr. Groff’s accommodation on other employees, and slowed delivery of mail in the area will be enough to show an undue hardship.

What Should Employers Do Now?

Right now – nothing is required. Assuming that you have a policy that provides for individual consideration of requests for religious accommodation, you do not need to change that policy.

However, in applying that policy, we suggest that you keep the following guidelines in mind:

1. Be more careful how you apply your religious accommodation policy, and be more cautious when denying a request for religious accommodation.
2. The standard announced by the Supreme Court is context-specific, so be sure to look at the facts of every situation. Avoid blanket rules such as ‘we never do that.’ Consider each request independently, and document your decision.
3. Be wary of questioning the bona fides of an employee’s religious belief. This is a very loose standard. You can ask for some explanation, and if appropriate, a letter from the clergy. The EEOC’s definition of a ‘sincerely held’ religious belief is quite liberal – tread carefully.
4. Be sure to train front-line managers about these issues so they do not inadvertently say yes or no to a request without knowing the legal standards. Make sure they know to contact HR when religion is raised.
5. In considering what is an ‘undue hardship’ look beyond dollars. Especially for a large employer, you may have to consider not just the total amount that an accommodation will cost, as this may not be enough to appear ‘significant.’ Consider other soft costs that may not be measurable in dollars, such as the cost to your operations, your ability to provide service, your ability to staff, etc. Document all hard and soft costs. You may not be able to deny an accommodation based on revenue lost, but there may be other costs you can cite to.
6. Engage in an interactive process of communication with every employee who makes a request, and respond to each request in writing, especially if it is a denial. Documentation is key, and may well become essential to your defense to a charge or lawsuit.

In the wake of Groff, many employers may see more requests for religious accommodations. Employers dealing with religious accommodation requests should tread cautiously, evaluating the totality of the circumstances behind the request, including the direct financial cost (if any), and the availability of alternatives such as voluntary schedule swaps, “floating” holidays, and flexible scheduling. Employers do not have to entirely upend practices to the detriment of other employees.

Importantly, the Supreme Court expressly avoided determining if existing EEOC regulations complied with its new standard, and directed the agency to review and revise its regulations as appropriate. Employers should watch for potential EEOC updates regarding its interpretation and enforcement efforts on this issue. Employers should also keep in mind that state and local laws are often more liberal than the federal law.

If you have any questions concerning religious accommodations under federal, state or local law, please contact your usual counsel at Kelley Drye, or a member of our Labor and Employment team.

We don’t think the story is that simple. While (for example) the Chair of the Federal Trade Commission has underscored the silliness of noncompetes applied to fast food workers (we agree), the reality is that high-level executives, employees whose jobs involve the creation of trade secrets, and employees at the top of customer-management hierarchies really can use information and relationships they do not “own” to their unfair competitive advantage. And what about your startup, now worth $100 million, that you sell to a private equity firm? Should you be allowed to instantly compete against the business and goodwill you just sold for a lot of money?

The blunt instrument pursued by the FTC, the National Labor Relations Board, and state legislatures—an outright, sweeping ban on “noncompetes,” which they usually define as any agreement that tends to interfere with obtaining future employment—will run into precisely these kinds of legitimate concerns. One state leading the blunt-instrument charge, New York, is facing this public-policy question now. We say it’s a “policy” question because (to put it bluntly, pun intended), it may seem great to be a progressive jurisdiction, but it starts to seem less great when businesses and the jobs they create flee to other states with less sweeping and more sensible limitations.

On June 20, 2023, the New York State legislature passed a Bill that, if signed by Governor Kathy Hochul, would effectively ban noncompetition agreements and certain other restrictive covenants throughout the state, for all employees, regardless of whether they flip burgers or own hedge funds, and without taking into account the considerations involved in the sale of a business. There are reasons Hochul’s executive pen has hovered over the Bill without signing (hint: re-read the first sentence of this paragraph). Recent gossip out of Albany suggests that the Governor may require certain amendments to the proposed law before reconsidering it. Those amendments—all likely aimed at tailoring the law to address legitimate employer concerns—might include minimum salary thresholds to enforce a noncompete, additional consideration an employer might have to pay to make a noncompete enforceable, requirements that would allow noncompetes to be enforced only if an employee had certain job duties, and carveouts for certain industries.

Translation: if you are an employer that is panicking, please take a deep breath. Think of your planned beach vacation. Manifest a future that isn’t devoid of noncompete protections. Your noncompetes aren’t unenforceable yet, and whatever form the New York “ban” will take is less likely to look like a “ban” than a series of surmountable obstacles that will force employers to deploy noncompetes more sparingly and thoughtfully. (By the way, this is something we have always advised employers to do anyway; you ultimately have to explain to courts why this restriction as applied to this employee is absolutely critical to protecting your business from unfair competition, and your argument had better sound plausible.)

The Pending Legislation in New York

The pending Bill would result in a near-total ban on noncompetition agreements in New York, regardless of compensation, job requirements or access to confidential information. The Bill does not even mention, let alone account for, noncompetes that might protect buyers in the event of the purchase of a business (though there are arguments that a seller of a business may not qualify as a “covered individual” under the law).

Although the Bill is intentionally broad, it does not affect the enforceability of (i) fixed-term employment agreements, (ii) agreements preventing solicitation of clients that the employee learned about during their employment, or (iii) agreements prohibiting the disclosure of trade secrets, confidential information, or proprietary client information. Thus, even under the new Bill’s framework, New York employers still have some means of legitimately protecting their business information and other legitimate interests.

The Bill provides a private right of action for employees to sue their employers in state court in order to void potentially unlawful agreements. Further, the Bill provides that employers who attempt to enforce unlawful agreements or have their employees sign them, may be liable for lost compensation, attorneys’ fees, and liquidated damages up to $10,000 per violation.

What to Do Now

Nothing, really. While Governor Hochul has previously expressed her support for a noncompete ban for low-wage workers, that support is a far cry from a full-throated condemnation of all noncompetes. Even the public statements of the Bill’s sponsor, State Senator Sean M. Ryan, have implied ways of narrowing the current bill without burning everything down; for example, he is on the record as saying that the ban would provide greater access to healthcare by not forcing doctors to have to leave their chosen geographic location if they leave their employer.

Ok, we see the argument when it comes to ensuring broad access to patients’ choice of healthcare professionals. And we certainly see the argument on behalf of fast-food workers. The moral argument for liberating other downtrodden employees, like impossibly wealthy portfolio managers at investment firms, seems a little less obvious.

Low-wage workers and doctors are much more sympathetic as subjects of a noncompete ban than, say, investment bankers, who may be able to use their employer’s trade secrets and non-public information to unfairly compete virtually from day one. And while the Bill would allow employers to still protect their trade secrets, the truth of the matter is that proving a violation of a confidentiality and nondisclosure obligations is a tough or undesirable position to be in: you have to wait to see the evidence of damage, unlike with a true noncompete, where you don’t have to worry as much about the damage in the first place, and where proving a violation if often a matter of a quick peek on Google or LinkedIn.

The death of the noncompete in New York and elsewhere, therefore, has already been greatly exaggerated. (It also feels a bit disrespectful to talk about what life will be like following the death of a long-honored family member when they’re actually still alive and sitting next to you in the living room.) Similar to the FTC’s and NLRB’s similar efforts to curb noncompetition agreements, the impact of New York’s latest action is a long way off from being felt, and the nature of the desired impact is likely to come up for debate again in the legislature. To be clear, the momentum against noncompetes does make it likely that New York and other jurisdictions will adopt restrictions more on the order of what Illinois has done, i.e., perhaps no outright ban, but various requirements as to minimum salary level and consideration paid in exchange for a noncompetes that will make their broad use or overuse more difficult for employers. The use of noncompetes is otherwise too embedded in legitimate protection of important company interests for their opponents’ fantasies about their disappearance to materialize in any simple, unified, dramatic way.

Our best, and admittedly simple, advice to our clients is to keep calm, carry on, and wait and see. Don’t ditch your noncompetes just yet, because you may not have to. If you have any questions regarding noncompetition agreements, restrictive covenants or other ways to protect important information, please contact a member of our Labor and Employment team.

Regulators have asked a legitimate question, however: what if the AI algorithm looks for characteristics that disproportionally, even if unintentionally, impact one kind of legally-protected status more than some other class? Consider this example: during a Zoom interview, AI reads facial expressions to capture information about mood, personality traits, and even honesty. (Yes, this is a thing.) What if an applicant has limited facial movement because of a stroke? Would that potentially impact AI’s assessment of a candidate’s “mood”? (Hint: yes, it would.)

It is exactly these unintended impacts that has motivated the U.S. Equal Employment Opportunity Commission’s (“EEOC”) recent guidance, published on May 18, 2023, clarifying that even if an employer is utilizing AI to make employment decisions, the protections of Title VII still apply. The EEOC previously addressed similar issues in the context of the Americans with Disabilities Act (“ADA”) in a guidance document this time last year.

The AI-related issues under Title VII and the ADA are similar in some ways, but also distinct. Title VII prohibits discrimination based upon race, color, religion, sex or national origin. The ADA prohibits discrimination based upon a person’s disability. The previous ADA guidance focused primarily on intentional and unintentional bias against disabled applicants, such as a decision-making algorithm failing to consider whether an applicant may be able to perform the role with a reasonable accommodation. In this respect, issues under the ADA may be more individualized to specific applicants and employees. For additional commentary on the previous ADA-targeted guidance and initiatives in other jurisdictions, please be sure to review our prior blog on the topic.

By contrast, the AI-related issues under Title VII are broader, and concern whether a specific tool may cause a disparate impact (or, “adverse impact”) on members of a protected class.

What Does this Mean for Employers?

Employers are free to use AI and other algorithmic-based methods to screen applicants or identify problem employees; however, this technology does not insulate the employer from discrimination claims. Employers have an obligation to reasonably understand how this technology works, and ensure that it is being used in a way that does not disparately impact any protected class without a justifiable basis.

Disparate Impact Analysis

Generally, a policy or employment decision is considered to have a disparate impact when it disproportionately excludes or targets members of a protected group. This can be true even when a policy is facially-neutral, such as requiring all applicants to have a minimal level of education.

The EEOC’s recent guidance states that if use of AI or a similar tool selects individuals in a protected group “substantially” less than individuals in another group, then the tool will violate Title VII unless the employer demonstrates that the methodology is job related and consistent with business necessity.

The EEOC also addressed what it considers to be “substantial” in terms of any disparate impact analysis. Traditionally, the EEOC has relied upon the “four-fifths rule,” which sets a baseline for whether the selection of one group over another may be disproportionate. (For example: if 60% of all White applicants are selected for a position, and 30% of all Black applicants are selected, then the process would violate the four-fifths rule, because 30 divided by 60 is less than 4/5). In the recent guidance the EEOC retreated from the four-fifths rule, stating that it is merely a “rule of thumb,” and that it may be inappropriate in some circumstances. Although this rule has been applied by courts and the EEOC in the past, the EEOC explicitly warns employers: “the EEOC might not consider compliance with the rule sufficient to show that a particular selection procedure is lawful under Title VII when the procedure is challenged in a charge of discrimination.”

It will be important for employers to consult with counsel before taking any action that may disparately impact a certain group, and reliance upon the four-fifths rule by itself may not be sufficient to mitigate any enforcement action by the EEOC.

What if a Vendor or Outside Consultant Creates and Implements the Tool?

The EEOC guidance states that an employer who uses AI or a similar tool to make employment decisions may be held responsible even if the tool was created or implemented by a third-party, such as a software vendor. The guidance emphasizes that employers have an obligation when deciding to utilize a vendor to question the vendor on whether the tool has been evaluated to ensure it does not target a specific protected group.

From a practical perspective, managers and human resources professionals overseeing these types of decisions may not understand the technical aspects of the tool, and cannot be expected to become experts in AI overnight. However, these decision makers should consult with counsel and their own information technology experts as necessary, and be sure to vet any vendors thoroughly. To the extent that management or human resources recognizes that the tool may be yielding an adverse impact on a protected group, alternative approaches should be considered as soon as possible.

Likelihood of Enforcement

The EEOC often seeks to take on novel cases in new areas of the law that are likely to create employee-friendly court rulings and maximize deterrence. Employers should expect the EEOC and similar state and local agencies to target discrimination issues based upon employers’ use of AI and other algorithmic technology for enforcement actions. The EEOC’s emphasis on disparate impact issues also means that any enforcement action could incorporate a large population of employees or applicants, inherently increasing the “dollar value” for any lawsuit or settlement (in turn, maximizing the deterrence value to the government).

This initiative from the EEOC, together with the enactment of state and local laws like New York City’s Local Law 144 (discussed here), should signal to employers that this is a hot button issue likely to gain even more attention as AI becomes a part of everyday life and decision-making. Employers utilizing AI and other advanced tools to make employment decisions can do so confidently, so long as appropriate controls are put into place to ensure compliance with existing employment laws.

For up-to-date and individualized guidance on the interaction between AI and employment laws, please contact your regular Kelley Drye & Warren LLP employment attorney.

Earlier this month, the New York City Council passed Bill INT 0209, new legislation that would add “height” and “weight” to the list of classes protected under the New York City Human Rights Law. If the mayor signs or takes no action, the bill becomes law and will take effect 180 days thereafter.

Currently, there are a number of jurisdictions with similar laws banning height and weight discrimination, including Michigan state, Washington State, Washington D.C., San Francisco and a handful of other smaller jurisdictions. Potentially marking a trend, lawmakers in New York State, New Jersey, and Massachusetts have also eyed similar legislation.

Here’s what New York City employers need to know about this likely new law:

1. The law would not apply when the employer’s action is required by federal, state, or local law or regulation.
2. The law empowers the NYC Commission on Human Rights to establish jobs or categories of jobs for which (a) a person’s height or weight could prevent the performance of the essential requisites of the job, and (b) the Commission has not found an alternative action an employer could reasonably take to allow the person to perform those requisites. Similarly, the Commission may identify jobs or categories of jobs for which consideration of height and weight is reasonably necessary for the execution of the normal operations of the jobs.
3. Finally, the law offers employers an affirmative defense. Employers may consider height and weight if they can demonstrate that these characteristics are essential qualifications for performing the job.

What should employers do to prepare?

Given that this bill is likely to become law, employers would be wise to get into compliance now. This means reviewing any existing job descriptions for potentially problematic requirements. Employers may also update any anti-discrimination and anti-harassment policies to include height and weight as protected classes. These new protected characteristics should be added to general training courses and managers should be informed of the new law.

Is more legislation like this coming?

In short, we expect it is. Lawmakers have been expanding anti-discrimination laws to afford workers greater protection and have added new classes to cover everything from cannabis use to hairstyle. This generally follows trends toward creating more inclusive and diverse workplaces. Employers are wise to stay up-to-date on the state and local laws where they operate. For more on how equal opportunity laws are changing this year, see our past post on the trends shaping 2023.

As always, subscribe to this blog to keep informed of the latest updates.

This guidance sheds fresh light on how state enforcers are thinking about sexual harassment and employer responsibilities. New York employers beware - while not a statute, the guidance signals a clear and continued shift towards employees. To emphasize the new model, the guidance provides a host of concrete examples to guide employees, companies, and courts alike in deciding when conduct crosses the line into harassment. However, whether or not the judges will adopt the same expansive views as the agencies have, remains to be seen.

Here’s what you need to know:

The Model Policy Reflects the Law’s Lowered Bar for Wrongdoing

Back in 2019, lawmakers drastically upended the standard for what constitutes sexual harassment by removing the long-standard “severe and pervasive” requirement for conduct to be considered illegal. We’ve covered this in-depth.

Now, the state makes clear that “any harassing behavior that rises above petty slights or trivial inconveniences” can be considered sexual harassment. The policy explains that “there is no single boundary” to determine whether challenged conduct is illegal and the law views wrongfulness based on the standpoint of a reasonable victim with the same protected characteristics. Even more, it instructs that generally “any behavior” where an individual is treated worse because of their actual or perceived gender, sexual orientation, or general expression is a violation. This can include actions that interfere with an individual’s work performance (regardless of intent) and employment decisions including shifts, hours, and project assignments.

Notably, the policy also states that any conduct – even one single instance – can give rise to harassment. In all, this is a much more sweeping approach than in the past.

Examples, Examples, Examples

The policy lists several examples of harassment, which include straight-forward conduct that anyone would recognize as sexual harassment (such as touching, assault, etc.), as well as examples of less overt conduct that would constitute harassment. This includes:

• Remarks about an individual’s gender expression, including remarks about wearing clothing typically associated with a different gender identity or intentionally misusing an individual’s preferred pronouns
• Asking employees to take on traditionally gendered roles, such as asking a woman to serve refreshments at a meeting
• Remarks, jokes, questions, and comments about a person’s sexuality, romantic history, or sexual experience

The policy also lists examples specifically targeting remote and hybrid workplaces, including:

• Displaying pictures, posters, reading materials, and similar items that are sexually demeaning or pornographic, including during virtual meetings
• Making comments over virtual platforms and messaging apps

A Spotlight on Gender Diversity

The new policy also signals a shift in focus to gender diversity, stating that understanding it is “essential to recognizing sexual harassment.” It states that the “gender spectrum is nuanced” and defines the most common gender identities as cisgender, transgender, and non-binary. Throughout the policy, the NYSDOL makes clear that enforcers will take harassment based on a person’s gender expression seriously.

Revamped Retaliation Standards

The new policy ramps up the retaliation section, signaling that enforcers may be eyeing these claims with more scrutiny and broadening the type of conduct employees should consider retaliatory. It lists several examples of retaliation, including reducing hours, assigning less desirable shifts, publicly releasing personnel files, labeling an employee as “difficult” and excluding them to avoid “drama,” and moving an individual’s desk to a less desirable location. It also addresses conduct that takes place outside of work hours, including disparaging comments on social media.

Focus on Bystander Intervention

One of the most substantive additions is a new section on bystander intervention. It requires supervisors and managers to report harassment when they see it, and encourages other employees to do so as well.

Notably, the policy advises that bystanders interrupt harassment by engaging the individual being harassed, ask a third party to intervene, record or take notes on the incident for future investigation, check-in with the person who has been harassed after an incident, or confront the harassers and identify the behavior as inappropriate.

Expanded References to Other Forms of Discrimination

In a similar vein, the policy also directly addresses discrimination based on all protected categories (including race, religion, immigration status, and disability). It states that the same reporting and investigation procedures outlined in the sexual harassment policy will apply to any type of discrimination.

Next Steps for Employers

This new guidance does not change the law. But, it does set forth clear examples of conduct that will no longer be tolerated. For some employers, this new guidance may mean updating company handbooks and policies. But for all, it should mean taking a close look at current training programs (particularly for managers) and protocols for dealing with sexual harassment.

Managers of New York based employees, regardless of level and or location, are now expected to know, understand, and abide by these new guidelines in the workplace.

If you have any questions about compliance with this new guidance, or any other Labor or Employment laws, please contact your Kelley Drye relationship attorney, or any partner in our L&E group.

What will this all mean for employers? There are challenges for sure, but with planning they are manageable. We take a look at the top trends that will shape labor and employment law in the months to come.

DISCRIMINATION AND EEO ISSUES

More enforcement

Given trends from last year and public messaging from top enforcers, we anticipate an increase in harassment and discrimination litigation, particularly for class-based claims.

In its recently released 2022 Financial Report, the EEO signaled its plan to strengthen enforcement around systemic discrimination. The Agency heralded several victories including obtaining $29.7 million in monetary benefits for victims and collecting over $28 million in damages from 10 lawsuits asserting systemic discrimination last year. Enforcers also recovered a combined $403 million from the Agency’s top 10 settlements of 2022 (nearly doubling rates from the previous year). Highlights include an $18 million settlement with Activision Blizzard over sexual harassment and pregnancy-bias claims and $8 million from Circle K stores over disability and pregnancy discrimination issues.

Even more, the EEOC’s enforcement hike has considerable support from the White House. The President’s proposed budget requests $481 million for the EEOC – a 5.7% increase over its 2023 allocations. While this money is unlikely to materialize in full, it does underscore the growing political support for anti-discrimination and harassment enforcement.

For its part, the workplace plaintiffs’ bar is also seeing historic scores. Last year, plaintiffs won nearly $2 billion combined and saw higher rates of success certifying classes in employment bias, benefits, and wage and hour cases. Top settlements included $597 million from Sterling Jewelers for sex bias claims; $118 million from Google in a pay discrimination dispute; and $185 million between the MLB and minor league players for violations of state and federal wage laws.

Expanded protections

The list of protected classes is growing – quickly. New York added discrimination based on citizenship or immigration status to its prohibitions while Illinois amended its anti-discrimination laws to include “work authorization status.” Seattle passed a first-of-its kind law banning “caste” discrimination while California joined New York in adopting protections based on an employee’s “reproductive health decision making” and off-duty cannabis use. CROWN Act legislation, which prohibits discrimination based on hairstyle and hair texture, is also making its way through the states. The Illinois version became effective most recently, on January 1, when the state joined California, New York, New Jersey, Washington D.C., and several other jurisdictions that have based similar bans. Because these classifications are jurisdiction specific, employers have an added burden of keeping up with numerous changing state and local laws to ensure compliance.

Pregnancy protections are also ramping up. In late December, the Protections for Nursing Mothers (PUMP) Act took effect, expanding protections for nursing employees under the FLSA. The new law covers both exempt and non-exempt employees, expanding its reach to nearly 9 million more employees, including teachers and nurses. Even more, the federal Pregnancy Workers Fairness Act will take effect this June, requiring employers to provide reasonable accommodations for workers with known limitations connected to pregnancy, childbirth, or related medical conditions.

Practical considerations for employers

Watch out for these “hot” areas and be wary if there is an EEOC investigator poking around your company. Be especially careful concerning potential workplace harassment or indications of systemic or ongoing infractions, requests for accommodation (including related to disability and FMLA leave), any accommodations for pregnant persons, and issues of pay disparity. All of these are examples of complaints that can lead to class actions, or large verdicts, so they should be handled carefully.

ARTIFICIAL INTELLIGENCE

Maybe it is not surprising to hear that nearly 1 in 4 organizations use artificial intelligence HR tools, according to a 2022 survey from the Society for Human Resource Management. Nearly 80 percent use AI for recruiting and hiring. This has sparked backlash from government regulators, who worry this software may run afoul of nondiscrimination laws if it illegally rejects candidates based on a protected characteristic.

In its recently proposed “Strategic Enforcement Plan,” the EEOC makes clear that it will target employers using HR software, including programs that incorporate algorithmic decision-making in recruitment, selection, or production and performance management tools. Last May, the EEOC sued three companies under the “iTutorGroup” umbrella for programming its online recruitment software to reject some older applicants. The agency sought back pay and liquidated damages for more than 200 applicants they say were illegally denied jobs based on age.

States are also taking up this cause. Illinois was the first in 2020, followed by Maryland, to regulate the use of automated decision tools in hiring interviews. New York City moved the goalpost even further with a new law that will require employers to audit certain automated tools for bias and post a number of public disclosures. While that law was set to take effect on January 1, enforcement has been postponed until April 15, 2023 to give regulators time to finalize proposed rules surrounding the law. California regulators have taken similar steps to ensure employers and vendors could face liability under state law, regardless of whether there was discriminatory intent, through a new proposed rulemaking. Even more, the California Consumer Privacy Act recently took effect, expanding data privacy law to cover employees, applicants, and others in the workplace.

Practical considerations for employers

In short, employers will likely need to contend with a growing number of state laws on this issue, compounded by complexities of advertising remote work across several jurisdictions. For businesses using AI, consult with outside counsel (yes, you can call us) to ensure compliance with this legal patchwork. For businesses not formally using AI, be sure to audit whether employees are using AI tools. Clients are increasingly beginning to monitor employee use of various AI tools and create policies around their use in the workplace. Even if a tool is not distributed by the company, it may still raise legal concerns for employers if employees are using it unlawfully for work purposes. New York City employers can read more about the city’s recently passed sweeping AI law here.

LABOR, LABOR, LABOR!

Unions are, once again, getting prime political billing in Washington while the NLRB continues its pattern of aggressive enforcement. During the State of the Union, President Biden called on Congress to pass the Protecting the Right to Organize Act and condemned companies for “breaking the law by preventing workers from organizing.” While the Act is unlikely to succeed, this does signal that unions will take center-stage in the upcoming elections.

The NLRB got a $25 million funding boost to its 2023 budget. It had originally requested more than $100 million to account for an increase in its caseload, including an uptick in union representation petitions. In the last year, the NLRB has handed down a host of pro-union decisions and overturned some key Trump-era decisions. This included requiring employers to again deduct union dues after a collective bargaining agreement expired and a major opinion on severance agreements (more on that below).

On the horizon, the NLRB’s general counsel has signaled an interest in reconsidering when an employee is an “independent contractor,” educating the workforce about their rights under federal law, and tackling captive audience meetings.

As unions spread into new, non-traditional industries and we see a general uptick in labor activism (including strikes), the NLRB will likely continue is active role in shaping the workplace.

Practical considerations for employers

Employers with unions should already be familiar with the NLRB and the requirements of the NLRA. However, be aware that unions are becoming more active, and are looking now to organize pockets of the workforce who may not be unionized yet. Employers without unionized employees should watch out for new union organizing and upcoming rulings from the NLRB impacting all employees, not just those already unionized.

PAY TRANSPARENCY

Pay transparency has become a hallmark of the Equal Pay movement. With legislatures around the country enacting a patchwork of new restrictions and obligations, this is becoming a potential landmine for multistate employers.

This started years ago when several jurisdictions enacted laws prohibiting employers from inquiring about an applicant’s salary history. Next, states began requiring employers to disclose compensation ranges to applicants upon request or when making an offer. And now, states including California and New York, are moving the ball even further with laws requiring employers to disclose salary ranges in job postings if the job could be performed in that jurisdiction, including sometimes for internal opportunities. California and Illinois also require some employers to submit their pay data to state agencies. This not only affects how employers negotiate compensation for newcomers, it could also open the door to costly lawsuits should transparency laws unearth potentially discriminatory pay disparities. Even more, some states now prohibit retaliating against an employee for discussing their own or other employees’ pay.

On the federal level, the EEOC has also established pay equity as a main enforcement priority. So as pay ranges become more common on job applications and general anti-discrimination enforcement kicks up, we expect pay transparency issues to be a major focus to come.

Practical considerations for employers

Pay transparency issues can create exposure on multiple fronts for employers, including legal liability and public scrutiny. Employers operating in California and New York should take particular note of local laws, including requirements for job postings and data reporting. This may mean conducting an internal audit, updating hiring templates, and consulting with counsel. Read more of our coverage on laws in New York and California.

EMPLOYEE PRIVACY (Looking at You, Biometrics)

Biometric data has become big business for employers. This includes a host of services that rely on fingerprints, facial scans and voice recognition to do things like verify an employee’s identity, launch automated assistants, access events, or track time. But as these types of tools became more common, regulators took notice.

Illinois was the first state to directly regulated biometric data as a consumer (and employee) privacy matter. We’ve been covering the state’s Biometric Information Privacy Act (BIPA) since it first starting making waves for employers in court. Just recently, two monuments state supreme court decisions were handed down that should give any employer operating in the jurisdiction pause. The court made clear that BIPA violations will be tallied by act, not by individual. This means a new violation could accrue every time an employee uses a biometric time clock, potentially several times per work shift, and could open even more cases on this already contentious law. We expect this will lead to even more BIPA-related cases with huge payouts for employees and the plaintiffs’ bar.

Even more, other states are trying their hand at similar types of legislation. Texas and Washington have similar biometric laws, but do not allow for a private right of action. As of this January, Maryland and Mississippi have introduced new biometric privacy bills and other states may follow suit. We will continue to monitor major developments in this area of law as the legislative season moves forward.

Practical considerations for employers

Biometric tools can be very valuable in the workplace, but compliance with related privacy laws is also a challenge. The best advice is get good privacy counsel, as this is an area of the law which has become increasingly complex and specialized. Read more on BIPA – a monster of privacy statute – here.

RESTRICTIONS ON RESTRICTIVE COVENANTS

Noncompetes: An FTC Final Rule on … Maybe?

We’ve covered the Federal Trade Commission’s proposed rule that would ban essentially all noncompete agreements extensively (read more here) as unfair restraints of trade. From the Agency’s vantage, these common contractual provisions illegally suppress competition and employee wages. Before promulgating a final rule, the agency must accept public comment. The deadline to submit comments has been extended several times. Even if the rule is finalized, it will likely face a host of court challenges.

Practical considerations for employers

We’ve covered the FTC’s proposed rulemaking in depth (read that here), but there are some key takeaways for employers:

• Craft any restrictive covenant with caution. Restrictions on an employee’s post-employment prospects (be it their next job or their ability to “speak out” against their former employer) are increasingly disfavored.
• Restrictions should be targeted and narrowly tailored to protect an employer’s interests. In other words, try not to use boilerplate agreements, and tailor each agreement to the position or the person who is signing it.
• Carefully consider who signs a noncompete. This should be limited to senior executives or those who have access to sensitive data or information. Even more, be aware of local laws that could render restrictive convents more difficult to enforce.

Nondisclosures and Non-disparagement

The Biden administration has seemingly adopted a whole-of-government approach to restrictive covenants. Aside from the FTC’s historic rulemaking, the EEOC has identified overly broad waivers, releases, and non-disclosure and non-disparagement agreements as priorities for the Agency as barriers to access to the judicial system. And in December, Congress passed the Speak Out Act, which curtailed the use pre-dispute restrictive covenants that would prohibit employees from speaking out against sexual assault or sexual harassment.

The NLRB’s McLaren Macomb decision also took aim at the use of non-disclosure and non-disparagement clauses in severance agreements, which may apply to both union and non-union employers. (We covered that here.) And in a recent memo, the Board’s General Counsel Jennifer Abruzzo issued guidance following McLaren. Notably, it reasons that maintaining or enforcing a severance agreement with offending provisions would constitute a continuous violation and suggests employers may avoid liability by notifying former employees that certain provisions are no longer applicable in their severance agreements.

Practical considerations for employers

What to do with existing non-disclosure or non-disparagement agreements is a tricky issue, as there is no clear answer here. The “safest” option would be to look at all agreements and revise any agreement that contains a clause which may conflict with these new regulations. However, most clients are taking a “wait and see” attitude. The devil may be in enforcement of agreements in the future, and there may need to be consideration of whether an agreement should be enforced, if it contains a conflicting provision.

As the year unfolds and new laws and regulations come into view, we’ll keep you up-to-date with the major changes and issues you should be thinking about.

During the Trump administration, the NLRB issued a set of rulings that generally allowed employers to include confidentiality and non-disparagement clauses in severance agreements. These provisions are used to protect an employer’s reputation from disgruntled former staff while safeguarding the more sensitive details of the agreement (such as compensation) from public view. Last week, the Board wiped the deck with these Trump-era decisions. Now, any such clause may be deemed unlawful if it too broadly restricts a worker’s rights, including to speak out against their former employer.

What does this mean for severance agreements past and future? We take a look.

The highlights of the NLRB’s recent decision in McClaren Macomb.

McLaren Macomb, a unionized teaching hospital, was forced to furlough eleven workers during the COVID pandemic. The employees’ severance agreements included standard confidentiality and non-disclosure provisions used by almost all employers in this type of situation. Generally speaking, the workers were barred from disclosing the details of the agreement to others (including their coworkers) and from making public statements disparaging the hospital.

Under Trump-era NLRB rules, these provisions would have been on solid ground. The Board had given employers wide latitude in enacting severance agreements, essentially permitting them unless the employer had committed a separate unfair labor practice. However, when hospital workers filed charges, the new Board got an opportunity to change course. And, in keeping with recent Board trends, it did.

The McLaren ruling expressly overruled previous decisions in Baylor University and International Game Technology, which were handed down during the Trump administration. For their part, those decisions had also reversed longstanding precedent. Essentially, this new decision reverts back to an old standard. A severance agreement will violate the National Labor Relations Act if its terms have a “reasonable tendency” to interfere with, restrain, or coerce employees in exercising their Section 7 rights.

What does the NLRB’s decision mean for employers?

Employers must proceed with caution. The NLRB used this decision to reinforce its view that an employee’s right to speak about their employment covers a “wide range” of third parties, including judicial, legislative, and political forums as well as news and social media platforms. The boundary of that right? When the communication is “not so disloyal, reckless, or maliciously untrue as to lose” protection.

The Board here takes a decidedly pro-employee stance, describing its “duty to protect” the Act’s “broad grant of rights” and reasoning that any such agreement has inherent coercive potential. To that end, the Board reasoned that even offering such an agreement may constitute an unfair labor practice, regardless of whether the employer seeks to enforce it.

Does this mean confidentiality and non-disparagement clauses are banned entirely?

No. The Board did not suggest that all confidentiality or non-disparagement clauses are per se unlawful. McClaren dealt with broadly drafted clauses restricting a wide range of activity. In striking down the employer’s non-disparagement clause, the Board reasoned that the clause prohibited “any statement” that could include labor issues and disputes or the terms and conditions of employment. The language could also chill efforts to assist other employees, including cooperating with future Board investigations.

Similarly, the confidentiality provision at issue in McClaren was broad and prohibited even disclosures about the existence of the agreement, which the Board reasoned could also interfere with future charges or prevent the employee from assisting a future NLRB investigation. Even more, the Board cautioned that the clause would prohibit employees from discussing severance terms with former coworkers who may be offered similar agreements or with union representatives or others attempting to unionize. The severance agreement in McClaren did not include carve-out language stating that nothing in the agreement should be construed to interfere with or restrict the employees’ Section 7 rights.

It is also worth noting that managers and supervisors are not afforded Section 7 rights under the NLRA. Therefore, the McClaren decision should not have any impact on provisions in separation agreements with managers and supervisors.

What should employers do now?

Employers should review and narrowly tailor any confidentiality and non-disparagement clauses in their existing agreements and ensure the employees’ Section 7 rights are protected. This may include affirmative exemptions for participation in protected activities and for assisting others in doing so, including cooperating with any Board investigative process. It may be prudent to:

• Scrutinize your agreements. An employer relying on broad, sweeping clauses like those in the McClaren case should consider affirmative corrective steps discussed above.
• Consult counsel. If you have concerns about existing provisions, consult an attorney to ensure your agreements are lawful and you are protected from any future legal liability.
• Stay tuned. With an active and more progressive Board, there is more to come. We will keep you updated on all major NLRB actions in the days and months ahead.

BIPA provides statutory damages of $1,000 per violation for negligent violations of the Act and $5,000 for willful or reckless violations. This remains true even if no biometric data was lost, sold, or compromised. The mere violation of BIPA is sufficient for liability. After Cothran, an employee who uses a biometric-based time clock twice per shift (once to clock in and out, not including unpaid breaks) and works all 260 weekdays per year, would rack up $520,000 in damages for negligent violations, plus attorneys’ fees. If the employee clocks out and back in again for lunch each shift, the damages double to $1,040,000 based on the additional use of the biometric time clock. The employer’s liability further expands if a class of employees bring a BIPA lawsuit.

The Court explicitly placed the ball back in the Illinois General Assembly’s court to clarify the legislature’s intentions under the Act if the Court’s interpretation of the legislature’s intent is incorrect. Although several attempts have been made over the years, the state legislature has not successfully enacted any amendments to BIPA, first enacted in 2008, to reduce the draconian statutory penalties. Businesses with an Illinois presence hope that changes, and soon.

In short, the Court’s ruling in Cothron has drastically increased employers’ potential exposure by many multiples and will be fertile ground for litigation. This is especially true when coupled with the Illinois Supreme Court’s confirmation that BIPA claims may be brought up to five years after an alleged violation in Tims v. Black Horse Carriers, Inc. In Tims, the Illinois Supreme Court addressed the statute of limitations (i.e. the time limit to bring a legal claim) for a BIPA claim and declared that a claim may be filed within five years of the alleged violation. Parties to BIPA litigation[1] have questioned the applicable statute of limitations since the law’s enactment in 2008. The Tims holding overturns a lower court ruling that applied varying statutes of limitation to different sections of BIPA – including limitations as short as one year for violations of privacy rights but applying a longer, five-year period for claims under other provisions of the statute.

The Court held “that applying two different limitations periods or time-bar standards to different subsections of section 15 of the Act[2] would create an unclear, inconvenient, inconsistent, and potentially unworkable regime as it pertains to the administration of justice for claims under the Act.” The five-year statute of limitations is Illinois’ “catch-all” limitations period and many claims in the state are subject to shorter limitations periods, including one year for violations of privacy rights and two years for injury claims. BIPA Defendants have argued that these shorter periods applied to foreclose claims and limit damages that already appear punitive.

These decisions continue to bring clarity regarding the requirements and limitations of BIPA, but the trend has been unfavorable to employers leveraging biometric technologies. Please refer to our recent BIPA publication for discussion of the first ever jury trial in a BIPA lawsuit and third-party liability under BIPA.

BIPA and the case law interpreting it continues to favor employees and creates significant exposure for employers even in the context of negligent non-compliance. This exposure exists even when no biometric data is lost or compromised and the plaintiffs are unable to show actual injury. Given the evolving application of BIPA, pressure on the Illinois General Assembly will increase to make the potential damages proportional to violations. Businesses of all sizes argue that the application of BIPA remains “inconvenient” and “unworkable” for those employers working to comply with BIPA while leveraging a growing array of technologies that utilize biometric data for accurate time-keeping and security.

The full opinion in Tims v. Black Horse Carriers, Inc. may be found here and Cothron v. White Castle System Inc. may be found here.

[1] Including state and federal courts nationwide who are interpreting BIPA in various jurisdictions.

[2] This is the section providing for a private right of action and outlining damages.

Webinar Invitation

Thursday, February 2, 2023 at 12:30pm ET

The Federal Trade Commission’s (“FTC”) proposed rule banning the use of non-competes with employees and workers could regulate almost all employers in the nation. If this proposal becomes final it could also prohibit non-disclosure, non-solicitation, and non-recruitment agreements that prevent employees from jumping to rivals.

Join Kelley Drye in a discussion to explore how this proposed rule may impact your company and get practical tips on how employers can prepare for a world with endangered noncompetes.

We will cover the following topics:

• What exactly would the proposed rule prohibit?
• Could a rule this sweeping become final?
• What can we expect in the next several months?
• What should employers do to prepare?

To RSVP for this webinar, please click here.

What has the FTC actually proposed? How can individual firms and industry groups alike weigh in on one of the most substantial regulatory actions facing employers right now? And what should businesses do to prepare? Here’s your deep dive.

Remind me, what exactly would the proposed rule prohibit?

Employers would be prohibited from entering into, attempting to enter into, or maintaining a noncompete agreement with an employee. While noncompetes are often associated with highly-skilled, high-wage employees like corporate executives, they are also used in some lower-paid workforces. According to the FTC, an estimated 30 million people – about one in five American workers – are currently bound to one.

The FTC proposes several additional measures to ensure compliance. Employers would be prohibited from representing to an employee that they are subject to a noncompete without a good faith basis to believe the worker is actually subject to an enforceable agreement. The rule would also prohibit de facto noncompete agreements, which includes terms (such as nondisclosure agreements or training reimbursement requirements) that effectively prohibit the employee from working for a competitor even if they are not labeled “noncompetes.”

Under the rule, employers would have an affirmative burden of notifying their current and former workers that any existing noncompete agreement is rescinded. The FTC estimates $1.02 to $1.77 billion in one-time costs associated with direct compliance with this proposed rule.

What types of employees and employers are subject to the rule?

Nearly all. Employees (“workers”) are broadly defined to include independent contractors, interns, volunteers, and others. Also, the rule would cover any employer subject to the FTC’s jurisdiction and would not distinguish between large and small employers. However, the FTC has signaled some openness to differentiating between types of employees, particularly executives and highly-skilled or paid workers, and has asked for comment on this issue. (More on that next.)

How can employers and industry groups help shape or stop this proposed rule?

Under the rulemaking procedures being followed here, the FTC must seek and consider public comment before promulgating a final rule. By design, proposed rules are often broad and leave room for some winnowing and reconsidering. The FTC’s proposal contains many specific questions and Chair Lina M. Khan issued a statement encouraging a broad swath of market participants, including those with firsthand experience using noncompetes, to submit comments. For employers, areas of particular importance and potential influence include:

• Exempting senior executives or other highly paid workers. Both Chair Khan and the FTC more broadly have sought comments on whether the ban should apply to high-paid workers and senior executives with greater bargaining power and who may pose a greater risk as competitors.
• Safeguarding investments, including trade secrets and confidential information. Employers are encouraged to weigh in on whether other legal tools, including existing trade secret law and confidentiality agreements, can protect critical investments in the absence of broader noncompetes.
• A “rebuttable presumption” vs. a ban. The FTC seeks comment on whether the rule should create a rebuttable presumption that noncompetes are unlawful instead of imposing an outright ban.
• Other alternatives to the FTC’s rule. To the extent that employers can suggest other viable alternatives to the FTC’s proposal, this is the time to do so.

Beyond potentially shaping the final decision, the notice-and-comment period also provides the opportunity for interested parties to ensure that their experiences, concerns, and views are included in the record should a later challenge to the rule become necessary.

What should employers do to prepare?

The FTC’s proposal is still just that – a proposal. It may change and will take at least a few months to complete. However, the agency can still bring enforcement actions under Section 5 of the FTC Act, as shown by two it announced (against three companies and two individuals) on the eve of launching this rulemaking. In these first-of-their-kind cases, the FTC argued that the noncompete agreements at hand – including one and two-year post-employment restrictions for workers including security guards, manufacturing workers, and engineers – constituted prohibited unfair methods of competition. The companies were ordered to cease imposing the relevant restrictions and to cease enforcing (and threatening to enforce) the noncompetes. The employers were also required to notify affected employees that they were no longer bound by the existing agreement. In many ways, this order mirrors the requirements under the proposed rule with a similar focus on lower-wage employees Therefore, while the FTC rulemaking process is ongoing, prudent actions may include:

• Submitting or supporting a public comment. The comment period is currently open through March 10, 2023. Companies interested in submitting a comment, or supporting a broader industry group comment, should contact counsel for guidance quickly.
• Review your agreements, past and present. While there’s no immediate need to take action, employers should be aware of how various state laws already impact the enforceability of these agreements. This includes reviewing contracts and terms for existing employees as well as former workers who may still be subject to noncompetes or related restrictions.
• Prepare for new negotiation dynamics. The proposed rule would become effective 60 days after the rule is published but delay compliance for 180 days after publication. It also would offer a 45-day period to provide employees notice of any rescissions – if it doesn’t succumb to legal challenges. That means there are at least several months before any ban becomes effective. However, because the publicity surrounding the rulemaking is bound to affect negotiations, employers may want to consider alternative approaches such as ensuring noncompetes are not overly broad or do not target lower-wage workers.
• Consider different types of agreements. While the proposed rule would preempt state laws, noncompetes are already enforced differently across the country. Three states – California, North Dakota, and Oklahoma – do not enforce them in most instances. Some 11 other jurisdictions, including Washington D.C. and Illinois, only enforce them for specific groups of workers, often related to earnings. Still others limit their geographic scope and duration, making it a challenge for employers working in multiple states to keep up. As a result, employers may want to consider alternative agreements such as targeted nondisclosure clauses or confidentiality agreements and post-employment consulting agreements, taking care that these alternatives are justified by legitimate interests.

A rulemaking this sweeping is bound for legal scrutiny. In our next post, Kelley Drye’s former FTC officials will explore the scope of the agency’s authority to propose this ban, how to engage in the rulemaking, and what challenges we’re likely to see in the courts.

This blog is part of a collaborative series featuring insight from Kelley Drye’s Labor and Employment, Antitrust and Competition, and Advertising Law practices. Revisit our inaugural installment with insights from Kelley Drye partner and FTC veteran William MacLeod here.

William Macleod, chair of Kelley Drye’s Antitrust and Competition practice and former bureau director at the U.S. Federal Trade Commission (FTC) weighs in to address the broad implication of this proposal, the thinking behind the agency’s proposal, whether or not the agency can change course, and what will happen if a final rule emerges? Click here to read more - https://www.adlawaccess.com/2023/01/articles/ftc-proposes-to-regulate-virtually-every-labor-relationship-in-the-united-states/#more-11287

Who Needs to Keep Reading?

Any employer nationwide preparing for, concerned about, or currently involved in union organizing activity within their workforce. This decision will likely affect the strategies taken to combat organizing efforts and to contest them before the NLRB.

What Happened?

In the recent decision American Steel Construction Inc. v. International Association of Bridge, Structural, Ornamental and Reinforcing Iron Workers, AFL-CIO (the union commonly known as the “Ironworkers”), the NLRB held that employers who wish to broaden a proposed bargaining unit beyond the union’s desired complement (usually to defeat organizing efforts) must demonstrate the excluded employees have an “overwhelming community of interest” with the union’s narrower proposed group.

The essential ruling in this NLRB decision effectively switched the burden when determining the applicable bargaining unit from the union to the employer. Now, if the employer wishes to contest a proposed bargaining unit, it has the burden to show the union’s proposed unit is improperly narrow under the new “overwhelming” standard. Before the American Steel decision, it was the duty of the union to demonstrate that workers who were included and excluded from a proposed bargaining unit had “sufficiently distinct” interests from one another. As the prior standard was favorable to employers seeking to defeat union organizing efforts or at least minimize the number of unions involved with their workforce, the new standard is overwhelmingly beneficial to labor unions’ ability to organize a bargaining unit in a manner of their choosing. Accordingly, unions will be able to organize a workforce in piecemeal and/or in groups of employees sized to ensure winning union certification elections.

In all, the NLRB will use the following factors when determining whether to approve a petition for a bargaining unit “subdivision”: whether the petitioned-for unit (1) shares an internal community of interest; (2) is readily identifiable as a group based on job classifications, departments, functions, work locations, skills, or similar factors; and (3) is sufficiently distinct. If an employer challenges a union’s subdivision petition, the NLRB will apply community-of-interest factors to determine whether there is an “overwhelming community of interest” between the petitioned-for and excluded employees.

What Are The Probable Impacts of the Ruling?

For more than a decade, employers have been able to combat bargaining unit subdivisions where not all of a location’s employee complement is part of the same (or any) union (what some call “micro bargaining units”) due to the prior standard that the union make a showing that a proposed unit subdivision was “sufficiently distinct” from excluded employees. It is likely that unions will increase their attempts, and their success rate, at creating bargaining unit subdivisions within workforces. A subdivision comprised of employees in more similar circumstances will have a higher likelihood of being ratified by the proposed bargaining unit. This is in part because the union can more easily design the bargaining unit to exclude workers that are against unionization.

In all, and depending on the number of years this change remains the NLRB standard, employers campaigning against unionization will have to be prepared with evidence to meet the “overwhelming community of interest” standard to expand a proposed bargaining sub-unit. If employers can meet the standard, they theoretically expand the likelihood of defeating the unionization vote and decreasing the number of unions or bargaining units in a single workforce.

Haven’t We Been Here Before?

Yes. In this decision, the NLRB explicitly reinstated what is known as the Specialty Healthcare standard implemented in 2011 under the Obama administration. In the most recent republican administration, Specialty Healthcare was overturned in favor of the pro-employer standards articulated in the PCC Structurals (2017) and Boeing (2019) decisions. In the Biden-led administration, in which the majority of the NLRB again leans Democratic, collective bargaining determinations return, in part, to an Obama-era standard.

This bipartisan legislation targets and effectively prohibits the use of pre-dispute nondisclosure agreements, which would cover claims of sexual harassment or assault in the workplace. The law only prohibits enforcement of pre-dispute agreements, which means employers can still utilize NDAs in post-dispute agreements, such as settlements.

Many states, like New York, have already passed laws restricting the use of NDA’s in settlement agreements, so depending on the state where you are located, this may not be a major change. But for employment attorneys and HR professionals, this should be a signal to review all new employment contracts. In a broader sense, you may have to revisit how your company responds to workplace sexual harassment and assault allegations now that it has become more difficult to quietly resolve.

Here’s what you need to know:

What does the Speak Out Act do, exactly?

Under the Act:

• Any agreement to keep the details of any future sexual harassment or assault dispute confidential is unenforceable. This applies to all employment contracts: past, present, or future.
• Any prospective nondisparagement clause that purports to limit an employee’s ability to speak out about sexual harassment or assault is also unenforceable.
• Trade secrets and proprietary information are explicitly protected under the law and employers may use NDAs to safeguard this information.
• States may continue to enforce laws that are more protective of an employee’s right to speak publicly about sexual assault and harassment.

Throughout the #MeToo era, NDAs have come under fire for preventing victims from speaking publicly but remain commonly used in hiring, promotion, and severance contracts. In fact, approximately one third of workers have signed broader agreements not to disparage their employers or disclose details of their employment.

Despite its seemingly clear purpose, the Act’s ambiguities are likely fodder for future court challenges. For instance, the law targets only “pre-dispute” agreements but does not define the term. This means courts may interpret a “dispute” to include a narrow set of actions (such as a formal complaint or even litigation) or broader swath (say an informal HR complaint).

Also, the law does not specify what a company must do to address existing employment agreements which may contain clauses that violate the new law. We would advise leaving those agreements in place, as trying to get new agreements signed again could be impossible. Just be aware that a requirement of an NDA could be unenforceable.

The Act also looks to other federal, tribal, or state law in defining the terms “sexual assault” and “sexual harassment. ” Notably, in 2020, the Supreme Court interpreted Title VII’s sex protections to include protection against discrimination based sexual orientation and gender identity. The scope of these definitions may be contended. And while the law does not prohibit the use of NDAs in other contexts, such racial bias or disability, discrimination claims are often intersectional and contain several allegations. For now, employers may be wise to interpret the Act broadly.

How does this compare to state law trends?

The federal law creates a floor, not a ceiling. More than a dozen states have already passed legislation limiting employee NDAs, including California and New York.

California: California has severely limited NDA enforcement for all forms of workplace harassment and discrimination. The state prohibits confidentiality agreements as a condition of employment that prevent an employee from disclosing most unlawful workplace conduct. And unlike the federal law, California’s law also bans confidentiality provisions in settlement agreements that prohibit an employee from discussing the underlying facts of the case. Agreements to protect the worker’s identity or safeguard the amount paid are permitted. Again, California law applies to all forms of harassment and discrimination, including sex, religion, color, national origin, disability, familial status, gender, age and others.

New York: The Empire State has similarly outlawed agreements that prevent the employee from disclosing the underlying facts and circumstances related to an employment discrimination claim. Like California, the legislation originally applied only to sex discrimination, but was expanded in subsequent iterations. New York lawmakers have also introduced legislation that would ban most NDA and nondisparagement clauses that prevent disclosure of harassment or discrimination in employment contracts.

What should employers do now?

The Speak Out Act is hardly the first of its kind. Last March, Congress passed the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act, prohibiting enforcement of any pre-dispute arbitration agreement in these types of cases. With these trends in federal and state law, employers must take action:

• Update your new employment contracts. While the law does not prohibit broad agreements full-stop, HR departments should review new agreements and ‘form’ agreements, to ensure they will withstand legal scrutiny. You do not need to change or try to get existing agreements signed anew. Just be aware that a requirement of an NDA is likely not enforceable.
• Refresh your training materials and HR response policies. Ensure your company’s response is in compliance with federal and state laws. This includes training supervisors and updating company policies.
• Consult counsel. Speak with an attorney if you have any questions about this new federal law or your obligations under state law.

We’re monitoring employment law trends on Capitol Hill and across the nation. Subscribe to stay up-to-date with the legal developments that will most impact your company in the months to come.