FTC announces final rule banning noncompetes

Yesterday, the FTC released its final rule banning noncompetes (Announcement | Final Rule). Of course, we had some idea of what to expect from the proposed rule. But, as always, there were a few teaks in the final version. The final rule is 570 pages, so I haven't digested the whole thing yet, but here are some highlights:

The Gist

Employee noncompetes are an unfair method of competition and therefore unenforceable. In other words, it bans new noncompetes *and* renders existing noncompetes unenforceable. 

Effective Date

120 days after publication in the Federal Register - probably late August-ish, 

Changes from Proposed Rule

• Existing noncompetes can still be enforced against "Senior Executives" (workers earning more than $151,164 who are in a "policy-making position"), but no new noncompetes. 
• Employers are no longer required to formally rescind existing noncompetes. Instead, they can simply provide notice to the employee that the existing noncompete will not be enforced. The rule includes a model notice. 

Notable Exceptions

• A noncompete in connection with the sale of a business (note that the Final Rule drops the 25% ownership requirement from the proposed rule).
• Causes of action that accrue prior to the effective date.   

  

  Not official use. 

  
  

Alternatives 

• Non-Disclosure Agreements (NDAs);
• Non-Solictation Agreements (client and employee); and
• Training Repayment Agreement Provisions (TRAPs). 

Note that all of these come with the caveat that they must be narrowly tailored and not so broad as to effectively serve as noncompetes.

Of course, this entire thing comes with the giant caveat that there will likely be legal challenges to the FTC's authority to implement this rule. I plan as though it's happening, but wait until the last minute to actually implement (lesson learned from the salary threshold debacle of 2016).  

SCOTUS sheds light on discriminatory job transfer claims under Title VII

The Supreme Court published its opinion in Muldrow v. City of St. Louis. The syllabus succinctly describes the holding as:

An employee challenging a job transfer under Title VII must show that the transfer brought about some harm with respect to an identifiable term or condition of employment, but that harm need not be significant.

Some Circuit Courts had been applying a heightened standard, requiring "significant" harm. The facts in this case are illustrative of the kinds of close calls that will now come out in favor of the plaintiff/employee. The plaintiff was a police officer in the police department's Intelligence Division, who was transferred to a uniformed job in the Fifth District:

Justice Kagan

While Muldrow’s rank and pay remained the same in the new position, her responsibilities, perks, and schedule did not. Instead of working with high-ranking officials on the departmental priorities lodged in the Intelligence Division, Muldrow now supervised the day-to-day activities of neighborhood patrol officers. Her new duties included approving their arrests, reviewing their reports, and handling other administrative matters; she also did some patrol work herself. Because she no longer served in the Intelligence Division, she lost her FBI status and the car that came with it. And the change of jobs made Muldrow’s workweek less regular. She had worked a traditional Monday-through-Friday week in the Intelligence Division. Now she was placed on a “rotating schedule” that often involved weekend shifts.

This was sufficient to meet the Supreme Court's new "some harm" standard - as Justice Kagan notes "with room to spare."

DOL Issues Final Rule: Employee or Independent Contractor Under the FLSA

On Tuesday, the U.S. Department of Labor announced its Final Rule: Employee or Independent Contractor Under the Fair Labor Standards Act. A quick overview:

Effective Date: 

March 11, 2024

Why it matters: 

The FLSA sets a minimum wage and requires overtime pay (time and a half for hours over 40 worked in a workweek). It also imposes certain recordkeeping requirements, and prohibits retaliation for filing complaints about violations. Simply put, this all applies to employees but not independent contractors. 

Not official use.

Shut up and tell me the test!

The final rule utilizes the "economic realities test," examining the "totality of the circumstances" where "economic dependence is the ultimate inquiry." The rule provides a non-exhaustive list of six factors, none of which is dispositive on its own:

1. Opportunity for profit or loss depending on managerial skill;
2. Investments by the worker and the potential employer;
3. The degree of permanence of the work relationship; 
4. The nature and degree of control; 
5. The extent to which the work performed is an integral part of the potential employer’s business; and 
6. Skill and initiative.

If you're looking for more in-depth guidance on applying these factors - great news! - the final rule is 339 pages long. Sorry, too much? Check out the FAQ page for something in between this very brief overview and the full 339-page rule. 

Overtime and Noncompete Regulations to Plan for in 2024

What better way to kick off the new year than with my latest article in Pennsylvania Business Central? The article addresses Overtime and Noncompete Regulations to Plan for in 2024. Will they actually take effect? We don't know yet. But, employers should start planning just in case.

EEOC publishes proposed rule for Pregnant Workers Fairness Act

This week, the EEOC published a Notice of Proposed Rule Making (NPRM) for the Pregnant Workers Fairness Act (PWFA). The PWFA went into effect on June 27, 2023. In a nutshell:

Not official use.

The PWFA requires covered employers to provide reasonable accommodations to a worker’s known limitations related to pregnancy, childbirth, or related medical conditions, unless the accommodation will cause the employer an undue hardship.

 Employers may find the following resources helpful:

• Press Release: EEOC Issues Proposed Rule to Implement the Pregnant Workers Fairness Act;
• What You Should Know About the Pregnant Workers Fairness Act; and
• The actual NPRM.

Comments are due on or before October 23, 2023, and the Final Rule will follow sometime after that. 

NLRB swings the pendulum back on employee handbooks

Yesterday, the National Labor Relations Board (NLRB) adopted a new standard for assessing the lawfulness of work rules (press release | decision in Stericycle, Inc.). If you're stuck in the past (ya know, like two days ago), here is an overview of the overruled categorical Boeing standard (maybe bookmark it in case a Republican gets elected president). 

So, what is the "new" standard, which actually "builds on" the "old-old" (pre-Boeing) standard?

Under the new standard adopted in Stericycle, the General Counsel must prove that a challenged rule has a reasonable tendency to chill employees from exercising their rights. If the General Counsel does so, then the rule is presumptively unlawful. However, the employer may rebut the presumption by proving that the rule advances a legitimate and substantial business interest and that the employer is unable to advance that interest with a more narrowly tailored rule. If the employer proves its defense, then the work rule will be found lawful to maintain.

If you're a fan of Con Law, this sounds a lot like "strict scrutiny." Employers may wish to review their employee handbooks with the new standard in mind to avoid NLRA challenges. 
 

SCOTUS clarifies "undue hardship" standard for religious accommodation under Title VII

Awe man, how embarrassing. It turns out that some of us (by which I mean basically all of us) have been getting it wrong for 46 years! You see, Title VII requires employers to reasonably accommodate an employee's sincerely held religious beliefs unless doing so would impose an "undue hardship."

Well, apparently we've been misinterpreting a 1977 Supreme Court decision (Trans World Airlines, Inc. v. Hardison) to interpret "undue hardship" as meaning "more than a de minimis cost." In fairness to us, the Supreme Court decision in question literally says, “To require TWA to bear more than a de minimis cost in order to give Hardison Saturdays off is an undue hardship.” Or, if you like ellipses to really drive it home, "more than a de minimis cost . . . . is an undue hardship."

Justice Alito

No, no, no, says SCOTUS. Yesterday, the Supreme Court issued its opinion in Groff v. DeJoy. Now, despite my sarcasm, it has always been odd that "undue hardship," meant "more than de minimis" for religious accommodations, but something far more substantial under the ADA's disability  accommodation provisions. And, as the Court noted yesterday, "de minimis" means something far less than the plain language understanding of the phrase "undue hardship."

But, hey, the past is the past. Let's cut to the chase, what does "undue hardship" really mean in the context of a religious accommodation defense? 

• "We think it is enough to say that an 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."
• "[C]ourts must apply the test in a manner that takes into account all relevant factors in the case at hand, including the particular accommodations at issue and their practical impact in light of the nature, “size and operating cost of [an] employer.”

The fundamentals remain unchanged: An employer must reasonably accommodate an employee's sincerely held religious beliefs unless it imposes an undue hardship. Now, however, the bar has been raised for what counts as an "undue hardship."