FTC Non-Compete Rule Invalidated: What Employers Should Know

As previously reported by Erickson Sederstrom, earlier this year, the Federal Trade Commission (FTC) issued a landmark rule intended to ban non-compete agreements nationwide for employees and independent contractors. However, a federal court in Texas has now invalidated the rule, with a ruling that applies nationwide. As a result, the FTC Rule will not take effect unless a higher court overturns this decision on appeal.

A Look at the History of the FTC’s Non-Compete Rule

Non-compete agreements have long been a common tool for employers to protect trade secrets, client relationships, and other business interests. They restrict employees from joining a competitor or starting a competing business for a set period after leaving a company. While widely used, these agreements have also been criticized for limiting workers' mobility and bargaining power.

In January 2023, the FTC announced its plan to ban nearly all non-compete agreements, citing concerns that such agreements suppress wages, stifle competition, and limit entrepreneurial opportunities. The proposed rule, commonly referred to as the "FTC Rule," was part of a broader effort by the Biden administration to promote competition across various sectors of the economy.

The rule’s primary provisions included:

Prohibition on New Non-Competes: Employers, including independent contractors, would be banned from entering into non-compete agreements with workers.

Invalidation of Existing Agreements: Pre-existing non-competes would be rendered unenforceable, and employers would be required to notify affected workers.

Legal Challenges and Rulings

The FTC’s regulation immediately sparked controversy and led to legal challenges from various business groups, which argued that the agency lacked the authority to regulate non-compete agreements in this manner. Legal battles followed, with federal courts taking different approaches:

Pennsylvania: A federal court denied a motion to block the rule, indicating that the FTC might have authority over it.

Texas & Florida: Federal courts in these states ruled that the FTC Rule exceeded the agency's authority, but only applied their rulings to the plaintiffs involved in those cases.

However, the recent Texas federal court ruling invalidates the FTC Rule on a national scale. The court determined that the FTC had overstepped its regulatory power, citing statutory limits on the agency’s authority.

 Next Steps for Employers

Many employers have been actively preparing for the rule's implementation, reviewing their employment agreements, and exploring alternative approaches to protecting their business interests without relying on non-competes. Given the complexity of this situation, we encourage employers to consult legal counsel to assess the current status of their non-compete agreements and explore other options to safeguard proprietary information, customer relationships, and business strategies.

Navigating Remote Work Compliance: Key Employment Laws for Companies with Multistate Employees

As remote work reshapes the modern workplace, companies employing remote workers across multiple states face unique compliance challenges. However, by staying informed about the various laws that may apply to their remote workforce, employers can navigate these challenges with confidence. Below are several legal areas where state laws often differ and that companies should pay particular attention to when managing a multistate remote team.

1. Wage and Hour Laws

Wage and hour requirements, including minimum wage rates and overtime provisions, often differ by state and can even vary by city. Employers must comply with the laws where remote employees are physically working, not necessarily where the company is headquartered. For example, states like California have strict overtime laws and daily overtime rules that differ from federal guidelines under the Fair Labor Standards Act (FLSA). Employers must also be mindful of state-specific minimum wage rates, which may be higher than the federal minimum wage.

1. Paid Leave Requirements

Paid sick leave, family leave, and other forms of leave are governed by state and local laws, many of which have implemented more generous provisions than those mandated by federal law. For instance, states like New York, California, and Washington have comprehensive paid family and medical leave programs. Employers with remote workers must ensure compliance with the paid leave laws in each state where their employees reside.

1. Employee Classification

Misclassification of employees as independent contractors remains a common pitfall, especially in the context of remote work. States such as California have strict classification standards under laws like AB5, which uses the ABC Test to determine whether a worker is an employee or independent contractor. Other states, however, may follow different classification criteria. Employers should review the classification rules in each state where they have remote workers to avoid costly penalties.

1. Workers' Compensation Insurance

Remote employees are entitled to workers' compensation coverage in the state where they perform their work. However, the rules and requirements regarding workers' compensation vary significantly across states, including coverage thresholds and premium rates. Employers must ensure they have the proper coverage in place, even for employees working out of state.

1. State Tax Obligations

Both employees and employers may face state income tax obligations in states where remote work is performed. Several states have reciprocal tax agreements that prevent employees from being double-taxed, but not all states offer this. Additionally, some states, such as New York, have unique rules regarding remote work and taxation, such as the "convenience of the employer" rule, which could impose tax liability even if the employee works remotely outside the state.

1. Non-Compete Agreements and Restrictive Covenants

The enforceability of non-compete agreements and other restrictive covenants varies significantly by state. While some states, like California, largely ban non-competes, others may allow them under specific conditions. Companies should ensure that any restrictive covenants in employment agreements comply with the state's laws where each remote worker resides.

Employers with remote workers in multiple states face a web of legal complexities, from wage and hour laws to tax obligations and workers' compensation requirements. To navigate this ever-evolving landscape, a proactive approach, including regular legal reviews and policy updates, is crucial. Equally important is engaging legal counsel to stay on top of state-specific regulations, providing employers with the support and guidance they need.

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Elizabeth Arnold | Measuring Control and Direction under Dynamex 'ABC' Test | Insights | Berkeley Research Group. https://www.thinkbrg.com/insights/publications/measuring-control-and-direction-under-dynamex-abc-test/

Significant Changes in the Department of Labor's Overtime Rule and Their Impact on Exemptions to the Fair Labor Standards Act Overtime Exemptions

On July 1, 2024, the United States Department of Labor's final rule, Defining and delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales, and Computer Employees, took effect. This rule updates and revises the regulations issued under section 13(a)(1) of the Fair Labor Standards Act ("FLSA"). It is crucial for employers to review employee classifications and update or reclassify employees to comply with the new regulations. This article will briefly explain the FLSA and review its history, provide a short overview of the current FLSA rules and regulations, and give an overview of the changes to the exemptions.

The Fair Labor Standards Act

The Fair Labor Standards Act ("FLSA") is a federal United States labor law that creates the right to minimum pay and grants employees working overtime "time-and-a-half" pay when working over 40 hours a week. In addition, the FLSA prevents "oppressive child labor" by prohibiting the employment of minors. The Department of Labor ("DOL") is the federal agency tasked with enforcing labor laws, including the FLSA. The FLSA was originally published in 1983 and applies to all employees of enterprises having workers engaged in interstate commerce, producing goods for interstate commerce, or handling, selling, or otherwise working on goods or materials that have been moved in or produced for such commerce by any person. [1] These rules and regulations are the minimum requirements with which states must comply, however, states can provide additional protections to employees through their own state laws. [2]Employers must comply with the FLSA and the other state requirements. Make sure to check with a local attorney to ensure you are complying with state laws/requirements. The FLSA is currently codified at 29 U.S.C. §§ 201-219.

Overview of the Current FLSA Rules and Requirements

Under the current structure of the FLSA, the federal minimum wage is $7.25 per hour (as of July 2009). As stated above, states may have their own minimum wage requirements that guarantee employees a higher minimum wage than the federal minimum. In this instance, the employee is entitled to the higher minimum wage (in effect, no state can dip below the federal minimum; it can only grant a higher minimum wage).

In addition to the minimum wage requirements, there are overtime requirements in the FLSA. Covered nonexempt employees must receive overtime pay for hours worked over 40 per workweek. The FLSA sets the workweek at any fixed and regularly recurring period of 168 hours (i.e., seven consecutive 24-hour periods). The rate of pay for any hours worked over 40 per workweek is one and one-half times the regular rate of pay. There is no limit on the number of hours employees 16 years or older may work in any workweek as long as employees are being paid time and a half for all time worked over 40 hours per workweek. There is currently no federal requirement that employees be paid time and a half on holidays. States may add such a requirement, but the federal rules do not require time and a half on holidays. (Note: as of the writing of this article, August 30, 2024, there are only two states that require time and a half pay for employees on a holiday—Rhode Island and Massachusetts. You should check with a local attorney to ensure state requirements are being met).

As stated above, the FLSA applies to enterprises with workers engaged in interstate commerce, producing goods for interstate commerce, handling, selling, or otherwise working on goods or materials that have moved in interstate commerce. A covered enterprise performs these related activities through unified operation or common control by a person or persons for a typical business purpose and:

1. Enterprises whose annual gross volume of sales made or business done is not less than $500,000 (exclusive of excise tax that is separately stated) or

2. Engaged in the operation of a hospital or like institution; a school for the mentally ill; preschool, elementary or secondary school, or an institution of higher education; or

3. An activity of a public agent.

Certain exemptions apply to the minimum wage and overtime requirements of the FLSA. Some exemptions include minimum wage and overtime pay, exemptions from overtime pay only, and partial exemptions from overtime pay. The focus of this article is not to outline the whole of the list of exempt or partially exempt employees. Instead, the focus is to highlight the changes to one group of exemptions to both minimum wage and overtime pay:

Executive, administrative, professional, outside sales, and certain computer employees (commonly referred to as "white-collar" or executive, administrative, or professional (EAP) exemption).

The regulations implementing this exemption have generally required that each of the following tests be met:

1. The employee must be paid a predetermined and fixed salary that is not subject to reduction because of variation in the quality or quantity of work performed (the salary basis test).

2. The salary must meet a minimum specified amount (the salary level test).

3. The employee's duties must primarily involve executive, administrative, or professional duties as defined by the regulations (the duties test).

The employer bears the duty to prove the applicability of the exemption.

New Overtime Rule and How It Changes the Previous Structure.

            On April 23, 2024, the DOL unveiled a new rule that significantly raised the minimum salary threshold for certain overtime exemptions under the FLSA. This rule had a profound impact on employees' entitlement to overtime pay and the employer compensation structure. The rule was enacted on July 1, 2024, with two sections becoming applicable beginning January 1, 2025.

The new DOL rule sets compensation thresholds for the white-collar/EAP exemptions by raising the salary minimum for these exempt employees. For instance, a marketing manager who previously earned $684 per week (or $35,568 annually) and met the specific job duty criteria outlined above to qualify as exempt from FLSA overtime requirements, will now need to earn $844 per week ($43,88 annually) to maintain the exemption. The new DOL rule maintains the exact job duty requirements to exempt employees from overtime pay under the FLSA.

Further, the new DOL rule increases the annual compensation threshold for employees classified as "highly compensated." Under the previous structure, the minimum annual compensation threshold for highly compensated employees was $107,432 annually, including a weekly salary of $684 and other minimum job duty requirements, to be classified as highly compensated and, therefore, exempt from overtime requirements. The new DOL rule increases the annual salary to $132,964, with a weekly salary minimum of $844 while maintaining the same job duty criteria.

The new DOL rule will also increase the minimum requirements on January 1, 2025, as follows:

-       $1,128 per week ($58,656 annually) for white-collar employees; and

-       $151,164 annual salary with a weekly salary of $1,128 for highly compensated employees.

After this initial period and starting on July 1, 2027, the new overtime rule will raise the standard salary thresholds for the FLSA overtime exemptions using the updated methodology, tied to the 35th percentile of weekly earnings in the lowest U.S. wage region based on current wage data. This increase will occur every three years after that.

Why Is This Important For Employers And What Should They Do?

            You may be wondering why this is important for employers. The consequences of misclassifying employees and failing to pay them overtime are great. Under the FLSA, employers that have misclassified employees as exempt may be liable for all unpaid overtime owed to the employee up to three years before the employee's claim. Additionally, courts may impose liquidated damages equivalent to the unpaid overtime (in effect, doubling the amount owed to the nonexempt employee). Employers found to willfully or repeatedly misclassify employees may have a civil penalty imposed up to $1,000 per violation and may be subject to criminal prosecution, depending on the severity of the violation. For this reason, it is vital that the employer carefully review employee classifications and update or reclassify employees who now do not meet the minimum threshold requirements discussed above. Employers should communicate any change in the employee's classification and ensure that there are systems in place to periodically review employee classifications as well as ensure other compliance strategies are in place. If any employer or employee has questions regarding these changes, would like to review their current employees' classification, or would like to create and implement compliance plans/strategies, the attorneys at Erickson Sederstrom have extensive experience in this field and

[1] https://www.dol.gov/agencies/whd/compliance-assistance/handy-reference-guide-flsa#:~:text=Back%20to%20Top-,Who%20is%20Covered%3F,are%20covered%20by%20the%20FLSA.

[2] https://www.dol.gov/agencies/whd/minimum-wage

UPDATE: Nebraska Paid Sick Leave Initiative makes the November Ballot- Now What?

The petition requiring Nebraska employers to offer paid sick leave to their employees will officially appear on the November ballot. If passed, it will require employers to make some changes.

Currently, there is no federal law mandating paid sick leave for all employees. Employers' only requirement is to comply with other federal provisions that touch on sick leave found in other federal mandates (like the FFCRA or FMLA). Nebraska also does not, as of now, have a statewide paid sick leave policy. This means these policies are determined by each individual employer, and many of these employers may have to overhaul their sick leave policies to ensure compliance.

If the Initiative passes, below are some additional steps that employers can take to ensure a smooth transition.

1) Determine what category of employer you fall into. The requirements under the Initiative vary by the number of employees an employer has. There are different requirements for an employer who has 20 or more employees. If you are an employer who floats around the 20-person cutoff, be aware of any fluctuations in employee numbers to ensure continued compliance.

2) Look at policies and procedures drafted by states with similar initiatives. Many employers have been drafting their own policies surrounding sick leave, and it may not be easy to create policies that are compliant yet tailored to their business. The following states have similar laws: California, New York, New Jersey, Connecticut, Oregon, and Washington. While these states' paid sick leave laws vary and have unique requirements, their language and application can be a great starting point for any employer needing to redraft its policy.

3) Draft and post the notice of commencement. If the Initiative passes, employers will be required to give their employees written notice of the policies either when the employee begins working or by September 15, 2025, whichever is later. The notice must be provided in English and any language that is the first language spoken by at least five percent of the employer's workforce. Additionally, employees must display a poster containing the relevant information in Section 6.1 of the Initiative. Suppose an employer does not maintain a physical workspace. In that case, they are still required to provide notice either through electronic communication or a conspicuous online posting.

4) Look for notices or updates from the Department of Labor. The Department of Labor is responsible for implementing and enforcing the Initiative. In doing so, it may adopt or develop rules and regulations that it deems necessary to carry out the act. Employers must comply with these rules and regulations as well as with the Initiative generally.

If passed, employees will be entitled to paid sick time beginning October 1, 2025. Suppose an employer provides a more generous paid sick time policy than required under the Initiative. In that case, their policy will not be impacted.

For general information regarding the Nebraska Paid Sick Leave Initiative, please see Bonnie Boryca's article, which can be found here.

Updates to Department of Labor Exempt Salary Status Threshold under the Fair Labor Standards Act

Pursuant to a final rule issued by the United States Department of Labor (“DOL”) on April 26, 2024, specific changes regarding minimum wage and overtime exemptions under the Fair Labor Standards Act (“FLSA”) will be going into effect on January 1, 2024.

Currently, certain executive, administrative, and professional workers are exempt from minimum wage and overtime pay requirements under the FLSA if they (1) are paid on a salary basis at a rate of not less than $884 per week and (2) perform specific duties that are exempt under the FLSA and corresponding regulations. Employees of companies who are subject to the FLSA and are not exempt under this test are required to be paid time-and-a-half for any hours worked more than forty hours in a week unless they are exempt under other regulations under the FLSA.

The weekly salary rate of $844 equates to an annual salary of $43,888. This threshold has been in effect since July 1, 2024. However, effective January 1, 2025, the threshold will increase to $1,128 per week (equivalent to a $58,656 annual salary).

The rule also increases the salary threshold for the highly compensated employees exemption from $132,964 per year (including at least $844 per week paid on a salary or fee basis) to $151,164 per year (including at least $1,128 per week paid on a salary or fee basis), effective January 1, 2025.

These thresholds will then be updated every three years, with the next update set for July 1, 2027, barring any changes to the rule in the interim.

It is important to note that these salary thresholds do not apply to all employees, including doctors, lawyers, teachers, and outside sales employees.

In preparation for setting 2025 employee compensation, employers should begin developing a plan to address these changes if they have employees who will be impacted by these threshold adjustments and perform specific duties that are exempt under the FLSA. The attorneys at Erickson Sederstrom can assist in determining how these changes will impact your business and how to address these changes when they go into effect. Employers can also stay up to date by visiting the Department of Labor website’s Wage and Hour Division Section for articles regarding rule changes, explanations, and other guidance to help employers remain compliant with the ever-changing landscape of federal regulations.

Understanding Workplace Harassment and Discrimination

Harassment and discrimination of any kind have no place in the workplace. However, workplace harassment and discrimination are significant concerns that have been present in many industries and organizations. Despite recent increases in attention to these issues, they continue to persist. As an employer, you are legally obligated to provide a work environment free from intimidation, insult, or ridicule based on race, color, religion, gender, or national origin.

What is Workplace Harassment?

Harassment is defined as verbal or physical conduct that denigrates or shows hostility or aversion toward an individual because of that person’s race, skin, color, religion, gender, national origin, age, or disability. It further serves the purpose or effect of unreasonably interfering with the individual’s work performance.

Conduct itself can take many forms, such as epithets, slurs, stereotyping, jokes, and pranks that are hostile or demeaning or written or graphic material that denigrates or shows hostility towards a particular individual or group.

What if it was just a joke?

Employees who engage in harassing conduct often will use the defense that “it was just a joke.” In situations where you are trying to determine if some conduct that has taken place is harassing conduct, the way to decide it is to use the “reasonable person” standard. In layperson’s terms, it refers to a hypothetically reasonable person with a reasonable way of interpreting and reacting to a situation of harassment. The reasonable person standard aims to avoid the potential for parties to claim they suffered harassment when most people would not find such instances offensive if they themselves were the subject of such acts. This standard includes considerations of the perspective of persons of the same race, color, religion, gender, national origin, age, or disability as the harassment victim.

Prevention and Risk Mitigation

If your company has not taken the steps to mitigate the potential for workplace harassment, this becomes an immediate priority. From a legal standpoint, the best way to reduce your liability should harassment ever occur is to have policies and procedures in place that show that you did everything you could to prevent harassment from occurring. Here are some steps that your team can use for preventing and dealing with harassment:

1. Establish a zero-tolerance, anti-harassment policy

Have a written policy stating that harassment will not be tolerated. This policy should include a clear-cut, easy-to-understand definition of harassment, a harassment prohibition statement, a

description of your complaint procedure, a description of disciplinary measures, and a statement of protection against retaliation.

2. Take immediate action

Should an incident happen, make sure that leadership immediately takes corrective action. This will help build trust and let potential harassers know that that behavior will not be tolerated.

3. Make it easy to bring harassment and discrimination to light

Set up a complaint process that is both easy to use and doesn’t embarrass or burden the victim. Often, employees will remain silent for fear of retaliation or further harassment. By establishing an easy, anonymous process, employees are more likely to come forward and seek help from their employer.

Take every complaint seriously and investigate every complaint.

4. Institute training and awareness programs for your employees

Establish a training program in which all employees must participate and schedule it regularly. This training should include what constitutes acceptable and unacceptable behavior, how to recognize when harassing conduct is taking place, and steps to take to report inappropriate behavior. This also includes management. Management must be skilled in recognizing when harassment occurs and making clear such behavior cannot be tolerated under any circumstance.

FTC Issues Rule Banning Non-Competes Nationwide – Now Subject to Pending Challenge in Lawsuit

On April 23, 2024, the Federal Trade Commission (“FTC”) issued a final rule prohibiting specific non-competition clauses (the “Rule”), which is located here. The Rule goes into effect September 4, 2024, but enforcement could be delayed pending legal challenges to the Rule.

Who does the Rule apply to?

The Rule applies to “workers,” which is defined broadly to include an “employee, independent contractor, extern, intern, volunteer, apprentice, or a sole proprietor.” “Worker” also consists of a person who works for a franchisee or franchisor but expressly excludes a franchisee in its relationship with a franchisor.

However, there is a crucial difference between “workers” and “senior executives.” “Senior executives” are defined as a worker who:

1. Was in a policy-making position; and

2. Received from a person for employment:

a. Total annual compensation of at least $151,164 in the preceding year; or

b. Total compensation of at least $151,164 when annualized in the preceding year before the worker’s departure if the worker left their employment before the preceding year and is subject to a non-competition clause.

The Rule defines “policy-making position” to specifically include a president, chief executive officer or equivalent, or anyone with policy-making authority.

What does the Rule prohibit?

The Rule prohibits employers from entering into, attempting to enter into, enforcing or attempting to enforce a non-compete clause, or representing that a worker is subject to a non-compete clause.

A “non-compete clause” is broadly defined to include a term that “prohibits a worker from, penalizes a worker for, or functions to prevent a worker from” working in the United States with a different employer post termination of prior employment or operating a business in the United States post termination of previous employment.

For “senior executives” enforceable non-compete clauses that were entered into before the Rule’s effective date (which is currently set for September 4, 2024), will remain in effect and the Rule will apply only to new non-compete clauses entered into after the effective date.

What if you have existing clauses that will violate the Rule upon the effective date?

Suppose you currently have workers who are subject to non-compete clauses that will not be enforceable upon the Rule’s effective date. In that case, you will be required to provide notice to such workers. Such notice must be clear, conspicuous, and delivered to the worker by the effective date, stating that the non-compete clause will not and cannot be enforced. The FTC has provided model notices in various languages, which can be located here.

Are there exceptions to the Rule?

The Rule is not a blanket ban on non-competes. The Rule does not apply in the context of a bona fide sale of a business, existing causes of action, or if there is a good faith basis to believe the Rule is inapplicable.

What about non-solicitation clauses?

Commentary on the Rule indicates that non-solicitation clauses generally are not considered non-compete clauses since they do not prevent workers from seeking or accepting other employment or starting a business following termination of their prior employment. However, if a non-solicitation clause is so broad that it “functions to prevent a worker from” seeking or accepting work or operating a business, it would satisfy the definition of a “non-compete clause” under, and thus be subject to, the Rule.

What should employers do?

Employers should monitor the status of pending legal challenges to the Rule to determine whether such challenges will succeed in reversing it. In the meantime, Employers should review their current restrictive covenants and prepare policies and procedures in case the Rule does go into effect while continuing to comply with state law. Existing restrictive covenants that are enforceable under the laws of a particular state may already be compliant with the Rule, especially if state law is more restrictive than the Rule.

Where can you get more information? For more information regarding the Rule, businesses can review the Fact Sheet and Compliance Guide for Businesses and Small Entities provided by the FTC. These helpful resources provided information regarding the Rule and ways employers can comply.

Navigating Diversity, Equity, and Inclusion Initiatives

Strategies for fostering an inclusive workplace culture while ensuring compliance with relevant laws and regulations.

The benefits of fostering a diverse work environment are undeniable: it can lead to higher productivity, greater financial success, and a better culture for employees overall. More companies are pushing policies and procedures that would increase the diversity of their workforce. However, the policies and procedures must be tailored to ensure compliance with non-discrimination laws. Below are a few strategies an employer can use to achieve the balance of fostering an inclusive environment while also adhering to legal requirements.

Understand the Legal Requirements

In order to effectively balance diversity, equity, and inclusion (“DEI”) policies that are compliant with relevant laws, it’s crucial to understand what exactly the laws require of employers. Laws impacting DEI include Equal Employment Opportunity (“EEO”) laws, anti-discrimination laws, and accessibility laws. While coming at them from different points of view, these laws each prevent various types of discrimination in the workplace, including the application/hiring process, actual employment, and termination of employees. More and more relevant statutes are being passed, so it’s empowering to stay up to date on legislation and have a clear understanding of what compliance looks like under the relevant authority.

Training and Education

Once the employer understands the legal requirements, it’s important that this knowledge is distributed throughout the organization. Providing regular training to employees and managers on not only the laws but also DEI principles will ensure compliance at each level. This step is vital for any employee at any level who participates in the hiring, promotion, or termination process. There are countless resources available to companies that provide instruction surrounding DEI compliance, including training developed by the Equal Employment Opportunity Commission (“EEOC”) with the goal of understanding, preventing, and correcting discrimination in the workplace.1

Developing Diverse Hiring Practices

One of the biggest arguments against DEI initiatives is that they promote hiring individuals based solely on their status of being in a protected class under the laws above.2 There are tangible ways to have diverse hiring practices that do not include hiring individuals solely based on their protected status. For instance, pay attention to the wording of the job posting and ensure it doesn’t use words that attract a specific type of applicant while excluding others, or take steps to ensure the job listing is put in places where diverse applicants will see it.3 There are numerous online forums dedicated to aiming jobs specifically at underrepresented groups.4 Another easy way is to celebrate the diversity that your company already has. If a potential applicant researches a company but finds the workplace lacks diversity, they are less likely to apply; studies have shown that 67% of people say that diversity in a workplace is an essential factor to them when considering a job opportunity, and failing to show that your work environment also values diversity may result in losing out on potential applicants.5

Continuing Growth

Once an employer has a policy in place, it’s important to understand that policy cannot be stagnant. Continuous growth is crucial to ensuring the ongoing fostering of a diverse environment while maintaining compliance. Employers/Companies should collect data on their workforce demographics, hiring practices, promotions, and other metrics to determine what’s working and what isn’t.4 Again, the laws surrounding this topic are constantly changing and various case laws are shaping its interpretation, so it’s important to work closely with legal experts, human resource professionals, and DEI specialists to ensure a continuing understanding of what’s required under the laws while still working towards a companies DEI goals. This collaborative approach allows for diverse perspectives and will help mitigate noncompliance or complacency risks.

Navigating DEI initiatives and relevant laws and regulations is no easy task, but by integrating DEI efforts with compliance with employment laws, organizations can mitigate legal risks and reap the benefits of a diverse and inclusive workforce, including enhanced innovation, creativity, and employee engagement. Ultimately, fostering an inclusive workplace requires a proactive and holistic approach that prioritizes both DEI goals and legal compliance.

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1 https://www.eeoc.gov/newsroom/eeoc-launches-diversity-equity-inclusion-dei-workshop-series

2 https://www.economist.com/business/2023/10/02/americas-bosses-grapple-with-threats-to-diversity-policiesutm_medium=cpc.adword.pd&utm_source=google&ppccampaignID=17210591673&ppcadID=&utm_campaign=a.22brand_pmax&utm_content=conversion.direct-response.anonymous&gad_source=1&gclid=CjwKCAjw9cCyBhBzEiwAJTUWNXvcbb8XUlETqOrO-YNGGVsjUQJrzP1hSB-EXN3d3oHYkMB16CtsSBoCjBkQAvD_BwE&gclsrc=aw.ds

3 https://ideal.com/diversity-hiring/ iv https://www.bamboohr.com/blog/how-to-recruit-a-diverse-workforce

4 Id iii.

5 https://technologyadvice.com/blog/human-resources/dei-metrics/#recruitment

Employer Liability in the Age of Social Media

As of April 2023, there are an estimated 4.8 billion social media users worldwide, representing 59.9% of the global population and 92.7% of all internet users.1 Social media has become a daily staple in most Americans' lives. Users post daily routines, provide hourly updates on their activities, and detail countless other thoughts, updates, blogs, etc. This also includes references and information regarding their employment and activities related to their job. The average time spent on social media daily is 2 hours and 24 minutes, and the world collectively spends about 11.5 billion hours on social media daily.2 In addition to employee engagement on social media, employers have also become widely involved. According to Forbes, the social media app market in 2022 was valued at $49.09 billion.3 Most major brands and companies today maintain multiple social media accounts and advertise consistently on social media platforms. In fact, the total ad spending on social media platforms is projected to reach $219.8 billion in 2024.4 These staggering numbers show that social media usage is continuing to grow despite the already massive engagement. As such, employee and employer actions on social media will continue to impact the workforce moving forward significantly. This article will discuss some critical considerations for employers and employees to keep in mind while using and interacting on the numerous social media platforms now available to the public.

Legal Impacts: Liability from Corporate Speech on Social Media

As referenced above, most major brands and companies have a social media presence today, advertising and attempting to personify their brand. These posts, however, now provide a unique situation for companies involved in legal disputes. Posts from corporate or brand social media accounts can now be considered a form of corporate

speech and have most if not the same, liability risks as other forms of corporate speech (i.e., press releases, articles, memos, etc.). As such, any post made by an official company or brand's social media account can be used against a company to support claims of libel, defamation, false advertising, etc. For example, if a social media account makes a post that makes specific negative, false, or misleading claims regarding other businesses or individuals, the company could be held liable for defamation of character or libel. Likewise, an employee could potentially be held liable for making false or misleading posts on social media platforms disparaging their employer's name.

There are many real-world examples of employers and employees being sued for libel, defamation, false advertising, etc., for posts made on social media platforms. A very famous example of a lawsuit stemming from a social media post is the current lawsuit between Jimmy "MrBeast" Donaldson and Virtual Dining Concepts (from now on, "VDC"). According to Forbes, Donaldson (known online as "MrBeast) has 174 million YouTube subscribers and 86 million followers on TikTok as of August of 2023. The Donaldson entered into a contract with VDC to create his own "virtual restaurant" called "MrBeast Burgers." MrBeast Burgers only has a limited number of physical locations; primarily, the store is available for order and delivery from many popular delivery apps (e.g., DoorDash, UberEats, GrubHub, etc.). Instead, the food is made and prepared in previous existing restaurants and then picked up and delivered via the delivery apps. In June of 2023, Donaldson deleted his announcement video from the social media platform X, wherein he announced he was partnering with VDC to create MrBeast Burger. In a series of tweets on X, Donaldson explained that he believed he had signed a bad deal with VDC, as he alleged VDC was not concerned with providing high-quality products as he had planned. He further claimed VDC wouldn't let him stop his association with MrBeast Burger, although he alleged it was terrible for his brand. Due to his frustration, Donaldson filed suit against VDC, claiming, amongst other things, that VDC had breached its contract with Donaldson. In response to Donaldson's suit, VDC filed its own counterclaims against Donaldson, requesting damages for the disparaging comments made by Donaldson and seeking an injunction to preclude Donaldson from making further disparaging remarks. The case is currently being litigated in New York federal court.6 This case serves as an example of how both employer and employee can be affected by social media posts, despite the size or relative goodwill of the brand.

Privacy Concerns

In addition to the legal consequences social media posts by employees and employers may create, there are also several practical concerns. As with most online platforms, the number one concern is privacy. Social media platforms inherently require the input of personal information to create and maintain an account. Further, these companies routinely collect, track, and store personal data on user behaviors. Social media platforms use this to better target advertising to their users. They may even share this information with third-party entities. As such, it is essential to remember that when a company or brand, either employee or employer, logs onto a social media platform, it leaves behind data that the platform or third-party entities may collect.

In addition to the platform's data collection, social media also presents potential issues with hackers gaining access to the account. This can present numerous problems, such as posts made by individuals unassociated with the company, data or information leaks, potential access to company hardware and/or software, etc. Specifically, hackers gaining access to hardware containing company-sensitive data, client information, employee information, etc., is a real threat if certain precautions are not maintained. There are several examples wherein social media accounts were hacked, and negative or disparaging posts were made from the official brand's social media account. One example is Burger King's official Twitter account in February of 2013 when an individual hacked the official Twitter account of Burger King and made several disparaging posts, and changed the main page to claim a major competitor, McDonald's, was superior quality. The account was suspended and returned to Burger King the same day, but only after the brand suffered national embarrassment.7 In light of what could have happened, this was a minor impact, as no data or other information was leaked. Again, the potential danger or impact of hackers stealing information from social media is significant.

What Can You Do?

Clearly, brand and company engagement on social media platforms creates many risks for employees and employers. How, then, do employers address these risks? While avoiding the risk by avoiding social media platforms may be a simple answer, there is potential to reach unprecedented numbers of unrealized clients. Avoiding this hugely popular aspect of communication leaves money on the table. As such, all employers should have explicit social media policies regarding the type of content, engagement, advertising, etc., that can be posted on social media platforms, as well as clearly indicating which users are authorized to log on, access, and post from the employer's official account.

Further, specifying which devices can be used and working with an IT representative to ensure proper safeguards are in place regarding information and data on the authorized devices may help prevent some of the potential issues and negative impacts social media can have on employers. Furthermore, regular phishing and internet safeguard training for all employees will help prevent unintended consequences. A thorough social media policy and extensive training regimen are key for employers and employees in navigating this ever-changing online world.

---

[1] https://umaine.edu/undiscoveredmaine/small-business/resources/marketing-for-small-business/social-media-tools/social-media-statistics-details/

[2] https://www.searchenginejournal.com/social-media-statistics/480507/

[3] https://www.forbes.com/advisor/business/social-media-statistics/

[4]https://sproutsocial.com/insights/social-media-statistics/

[5]  https://www.forbes.com/sites/mollybohannon/2023/08/07/mrbeast-sued-for-100-million-over-breach-of-contract-by-company-running-his-ghost-kitchens/?sh=38d4be8a256d

[6] https://www.nbcnews.com/business/mrbeast-burger-food-delivery-service-partner-denies-allegations-rcna129383

[7] https://www.nbcnews.com/business/mrbeast-burger-food-delivery-service-partner-denies-allegations-rcna129383

Nebraska Legislature: Updates For Employers

Earlier this year, three bills were introduced to the Nebraska Legislature, which may have lasting effects on employers.

Bill 961- Non-Compete Clauses

First, Legislative Bill 961 was introduced, which would prohibit non-compete clauses for lower-wage employees. This follows the U.S. Federal Trade Commission’s 2023 proposal to ban all non-compete clauses in employment contracts. Unlike the US FTC’s proposal, LB 961 would only prohibit non-compete clauses for “lower wage -employees,” meaning employees who earn no more than one hundred thousand dollars annually.

A non-compete clause is a contractual term between an employer and an employee that forbids an employee from working for a competing employer or starting a rival company/business. Typically, this applies within a particular geographic area and for a specific period of time after the worker’s employment ends. Firms use non-compete clauses to protect their interests, including confidential information such as trade secrets and customer identities. However, many find the non-compete clauses to be an unfair method of competition.

Now, what does this mean for employers? If this bill were to pass, there could be several effects on employers who use non-compete clauses. First, employers will need to investigate the measures in place to protect sensitive data and information. Without a non-compete clause, employers will likely need to limit access to company information and bolster employees' confidentiality agreements. Employers may also expect a need to increase salaries to keep employees from “shopping around.” However, there may be positive effects for employers. If non-compete agreements become prohibited, employers have more access to top talent for hiring. Employers can look to employees at competing businesses rather than be limited to a less experienced pool of employees.

Although it is still being determined whether the bill is to pass, it would be advantageous for employers to examine their current structures and plan their response to non-compete agreements becoming unenforceable.

Bill 977- Discrimination of Military and Veteran Status

Next, Legislative Bill 977 was introduced to prohibit discrimination based on military and veteran status. As you may be aware, military veterans are a sizable social group, given that there are approximately 17.9 million veterans in the U.S. (Bureau of Labor Statistics, 2023), with many looking to join the workforce. Unfortunately, veterans often struggle to transition into the civilian workforce and find employment. Veterans are stereotyped and perceived as “damaged” from their wartime experiences.

Currently, Federal protections are in place, as the U.S. Equal Employment Opportunity Commission (EEOC) created the Uniformed Services Employment and Reemployment Rights Act (USERRA), which applies to veteran employees and those employing them.

Under USERRA, it is unlawful for employers to discriminate against service members based on their military service and expressly forbids retaliatory and related adverse discriminatory actions based on military status. Similarly, LB 977 looks to provide the state with the power to regulate, suppress, and prevent discrimination on the basis of military or veteran status.

Under the proposed bill, counties would be able to create local agencies to handle discrimination claims similar to the EEOC. These agencies would ultimately be able to order appropriate penalties and provide equitable relief for veterans found to be subject to discrimination.

Bill LB1213 - Annual Paid Leave

Lastly, LB1213 has been proposed and would require employers to provide annual paid leave for school-related activities. Specifically, employers with at least 15 employees would be required to provide a minimum of 20 hours of paid annual leave for employees to participate in activities such as parent-teacher conferences, volunteer and extra-curricular activities and athletic competitions. However, the bill excludes U.S. government employees, Indian tribes, or tax-exempt private membership clubs. LB1213 was proposed in hopes of increased parental involvement to promote better behaviors and increased student achievement.

THE GROWING USE OF AI: The Benefits and Risks Employers Should Consider.

Advancements in technology, specifically advancement in computer systems and their capabilities, have been key in driving and improving productivity in the workplace and are a vital reason we as a society have advanced so much in the past couple of decades. Artificial intelligence (AI) is a newer development in this area. Many people have preconceived notions of what AI is but have yet to learn how it works or the practical use of AI. In this article, we will explain what AI is, how it works, how it can be used in the workplace, and the dangers of using AI, specifically focusing on the benefits and risks AI poses to an employer.

WHAT IS AI AND HOW DOES IT WORK?

IBM defines AI as technology that enables computers and machines to simulate human intelligence and problem-solving capabilities.[1] This technology has recently been used to create artificial intelligence programs that generate dialogue when given prompts. One such example of this technology is Chat GPT, an AI chatbot that uses machine learning algorithms to process and analyze large amounts of data.[2] Chat GPT was created and released in 2022 by Open AI—a US company headquartered in San Francisco, California. Open AI was initially founded as a nonprofit company but restructured into a “capped profit” company in 2019, with the original non-profit entity controlling the new for-profit subsidiary.[3] Open AI states they are an “AI research and development company” with the mission to ensure that “artificial general intelligence benefits all of humanity.”[4]

Chat GPT allows users to have a conversation with the program and can specifically cater responses based on in-depth prompts given by the user. Chat GPT uses its enormous and extensive database to cater responses to the prompts the user provides. Chat GPT’s answers sound almost human, and the tone can be changed when requested. Chat GPT can now even analyze and understand images, create its own images when given a prompt, understand vocal prompts, and respond with a voice of its own, according to Open AI’s website.[5]

HOW CAN CHAT GPT OR OTHER AI CHATBOTS BE USED IN THE WORKPLACE?

Because Chat GPT has such an expansive database, Chat GPT can be used in almost any way imaginable. On the most basic level, employees can use Chat GPT to write reports, analyze data, fix code, draft articles, summarize documents, reply to customers, draft press releases or speeches, and the list goes on and on. The possibilities with Chat GPT and other AI chatbots are seemingly endless. Some websites have even incorporated similar AI chatbots in their websites to analyze and respond to customer service requests (e.g., the “chatbox” attached to many cell phone and internet provider websites). Some more advanced examples of the use of Chat GPT or similar AI chatbots include stock traders' and asset managers' use of AI to analyze and predict stock market trends and company data and make recommendations based on such predictions. In terms of the workplace, Chat GPT can do all of these things quicker and more efficiently than humans thereby greatly improving work productivity.  With the wide application and use of Chat GPT and other AI chatbots, what is the downfall or risk of using such technology?

RISKS ASSOCIATED WITH AI AND HOW TO COMBAT:

While Chat GPT and other AI technologies have seemingly infinite uses that may greatly improve work productivity and efficiency, some significant risks and issues can greatly affect society as a whole and, more specifically, employers whose employees are freely using AI.

One of the biggest opponents of unchecked and unsafeguarded AI is the famous businessman and billionaire, Elon Musk. Elon Musk takes issue with the fact that AI, according to him, is on pace and may soon take over human’s level of intelligence.[6] Elon Musk believes that certain safeguards need to be in place to prevent AI from surpassing human intelligence, namely open-sourcing AI so that any one person or corporation does not control AI and to tie the bots closely to humans so that it is “an extension of the will of individuals, rather than systems that could go rouge and develop their own goals and intentions.”[7] Musk, an original founder and backer of Open AI, has recently sued Open AI for allegedly breaching their contractual agreements by pursuing profits in a San Francisco court.[8]

In addition to these fundamental and thought-provoking issues raised by Elon Musk, AI also poses specific risks to employers/employees as well. First, and maybe most important, is the risk of bias. AI (as of now) is programmed and maintained by humans. If those controlling AI wanted, they could efficiently train data or design the algorithms of these chatbots to incorporate bias or push an agenda. Often, these chatbots make statements as if they were facts as well. Without understanding such bias, AI can potentially push a biased agenda and cloak it as fact.

Another primary concern is privacy. AI technologies generally utilize large amounts of data, specifically personal data, to operate correctly. A breach, leak, sale, or other transmittal (voluntary or involuntary) of the data both used by AI and given to AI in prompts could greatly harm individuals and corporations, especially if the information provided to such technologies is unregulated and unchecked. For this reason, employers must incorporate their own guidelines and procedures to prevent the uncontrolled relay of their own or their client’s information to AI technologies.

Finally, plagiarism, misinformation, and other incorrect bases of information present significant issues for AI. AI uses large amounts of data to generate the information asked of it. Similar to bias, if false information is used or fed to the technology, the entire work product of the AI technology could be flawed. A recent case out of the United States District Court for the Southern District of New York proved this fear to be well-founded. Specifically, in Roberto Mata v. Avianca, Inc., (Case No. CI 22-cv-1461 (PKC)), attorneys who submitted a brief written by Chat GPT were sanctioned.[9] The brief included citations to opinions and cases that were non-existent and even included fake quotes from the non-existent cases and opinions.[10] The presiding judge issued the attorneys a $5,000 fine because they failed to fulfill their gatekeeping role and ensure their filings’ accuracy.[11] Clearly, when Chat GPT gives false, misleading, or even non-existent information, citation, quotes, etc. as fact, this can mislead employees and cause them to submit, file, represent, etc. false information that could harm their employer legally, financially, and reputationally.

WHAT CAN EMPLOYERS DO?

Considering the above risks, how, then, can employers protect themselves? The seemingly simple and most obvious answer is to ban AI from being used by employees. However, this is probably not the answer because your employees are likely already using AI and may continue to use it. Further, AI technologies like Chat GPT have their specific benefits. They can increase work productivity in many ways (e.g., reviewing great amounts of data quickly, producing in-depth summaries of long documents, using past data to predict future outcomes, etc.). This can save employers time and money. For these reasons, having a clear set of guidelines and specific training for employees on how employees are permitted to use AI can help both prevent instances of damage caused by AI. It can shield employers against potential third parties or clients who may claim the company harmed them through the use of AI.

[1] https://www.ibm.com/topics/artificial-intelligence 

[2] https://uca.edu/cetal/chat-gpt/

[3] https://openai.com/our-structure

[4] https://openai.com/about

[5] https://openai.com/chatgpt

[6] https://time.com/6310076/elon-musk-ai-walter-isaacson-biography/

[7] Id.

[8] https://www.courthousenews.com/elon-musk-sues-openai-over-ai-threat/

[9] https://www.cnbc.com/2023/06/22/judge-sanctions-lawyers-whose-ai-written-filing-contained-fake-citations.html

[10] Id.

[11] Id.

WHAT IS A “REASONABLE” ACCOMMODATION UNDER THE ADA?

Employers who employ more than 15 individuals are legally obligated to provide reasonable accommodations for an employee with a qualifying disability. However, many employers are often left wondering what a “reasonable accommodation” is. According to the EEOC, a reasonable accommodation is “any change or adjustment to a job or work environment that permits a qualified applicant or employee with a disability to participate in the job application process to perform the essential functions of a job or to enjoy benefits and privileges of employment equal to those enjoyed by employees without disabilities.”[1] What this looks like will depend on multiple factors, such as the job requirements and the required level of accommodations. An employer is not required to provide a reasonable accommodation if it would cause an undue hardship. An undue hardship occurs when an accommodation is unduly costly, extensive, substantial or disruptive, or would fundamentally alter the operation of the business. Whether or not something amounts to an undue hardship will also depend on multiple factors, such as the accommodation cost, the employer’s size, and the employer’s financial resources.

When we take a closer look at what constitutes a “reasonable accommodation,” we can break them down into categories: (1) modifications or adjustments to a job application process, (2) modifications or adjustments to the work environment, or (3) modifications or adjustments that enable a covered entity’s employee with a disability to enjoy equal benefits and privileges of employment as enjoyed by other similarly situated employees without a disability.[2]  No matter what category the accommodation falls under, the modification or adjustment is reasonable if it appears reasonable on its face or is “feasible” or “plausible.” [3]

 Given that the above is primarily subjective, providing a few rules highlighting what is not considered a reasonable accommodation may be helpful. First, an employer is not required to eliminate an essential function of the job.[4] An employer is also not required to lower production standards.[5] Additionally, an employer does not need to provide personal use items needed for activities on and off the job, nor any personal use item that is not offered to employees without disabilities.[6]

What is clear from all the definitions above is that the level of reasonableness for every accommodation request will be unique to that circumstance. This is becoming increasingly apparent as employers attempt to navigate an accommodation that has become more popular in the last five years: allowing employees to work from home. 

Although increasing in popularity as an accommodation request since 2020, the conversation surrounding work from home as a reasonable accommodation stretches back well before COVID-19 and was addressed as early as 1999 in the Enforcement Guidance on Reasonable Accommodation and Undue Hardship Under the Americans with Disabilities Act.[7] Even over two decades ago, depending on the circumstances, working from home could be considered a reasonable accommodation. If the job cannot be performed from home, then no further analysis needs to be done and it’s not a reasonable accommodation. Still, if the job can be performed at home, an individual’s disability prevents them from performing the job on-site, then it will be viewed as a reasonable accommodation, barring any significant disability or expense. [8] This can be true even if the employer doesn’t currently have a work-from-home program; if no offered alternative is practical, an employer may be required to start a program to accommodate the individual.[9] Since the outbreak of COVID-19, the rate of employers winning in lawsuits where work-from-home requests were denied has decreased by ten percent.[10]

Suppose it’s determined that an employee working from home cannot complete all essential job functions. In that case, a reasonable accommodation may include allowing a hybrid work schedule- or some on-site and some at-home work. What amount of time should be allotted for each will be unique to each circumstance and should be determined by talking with the employee to coordinate their needs with the employers to accomplish their assigned tasks. Ultimately, an employer is only required to allow an employee to work from home to the extent the employee’s disability necessitates it.[11]

Whether it’s a request to work from home or any other requested accommodation, what is considered a “reasonable accommodation” is clearly never cut and dry. It will depend highly on the employee’s disability and what job that individual has been hired to perform. The best way to ensure that the accommodation being provided is reasonable is to use an interactive process between the employee and the employer to ensure that both party’s needs are being met.

[1] https://www.eeoc.gov/publications/ada-your-responsibilities-employer#:~:text=Reasonable%20accommodation%20is%20any%20change,equal%20to%20those%20enjoyed%20by

[2] https://www.eeoc.gov/laws/guidance/enforcement-guidance-reasonable-accommodation-and-undue-hardship-under-ada#intro

[3] US Airways, Inc. v. Barnett, 535 U.S., 122 S. Ct. 1516, 1523 (2002).

[4] If an accommodation requires that an essential function of the job be eliminated, the individual with a disability is not “qualified” under the ADA and reasonable accommodation is not required. See Sec 12111(8) https://www.eeoc.gov/statutes/titles-i-and-v-americans-disabilities-act-1990-ada

[5]  Supra at 2.

[6] Id.

[7] https://www.eeoc.gov/laws/guidance/enforcement-guidance-reasonable-accommodation-and-undue-hardship-under-ada

[8] https://www.eeoc.gov/laws/guidance/work-hometelework-reasonable-accommodation

[9] Id.

[10] Employers have prevailed in 60% of federal court rulings in the past 2 years as opposed to a 70% win rate pre-pandemic. See https://news.bloomberglaw.com/daily-labor-report/covids-remote-work-experience-is-slowly-changing-disability-law

[11] Id.

What Makes an Independent Contractor?

The United States Department of Labor (the “Department”) has published a final rule regarding the analysis of who constitutes an employee or independent contractor under the Fair Labor Standards Act (“FLSA”), which goes into effect on March 11, 2024 (the “Rule”). The Rule rescinds the Department’s 2021 rule titled “Independent Contractor Status Under the Fair Labor Standards Act” (the “2021 Rule”).

Background

Generally, the FLSA establishes standards for the treatment of employees, including wage requirements, overtime pay, recordkeeping, prohibitions against retaliation, and youth employment standards. The protections of the FLSA do not apply to independent contractors and its requirements only apply to “covered employers.” For more information on the FLSA, you can visit the Department’s website here.

The main inquiry in analyzing whether a worker is an employee or an independent contractor is one of economic dependence, which means that a worker is an independent contractor if that worker is in business for themselves as a matter of economic reality. The Rule provides six factors to be weighed in making that determination: (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. As opposed to the 2021 Rule, which gave certain factors more weight than others, the Rule provides for a totality-of-the-circumstances analysis, which means that all factors are given full consideration.

 Analysis of the Factors

1.  Opportunity for profit or loss depending on managerial skill

   • The Rule provides that the following facts are relevant in analyzing this factor:

whether the worker determines or can meaningfully negotiate the charge or pay for the work provided; whether the worker accepts or declines jobs or chooses the order and/or time in which the jobs are performed; whether the worker engages in marketing, advertising, or other efforts to expand their business or secure more work; and whether the worker makes decisions to hire others, purchase materials and equipment, and/or rent space.

If a worker does not have an opportunity for a profit or loss dependent on managerial skill, then this factor would lean towards a finding that the worker is an employee.

• Investments by the worker and the potential employer

The overarching inquiry under this factor is whether the worker’s investments are capital or entrepreneurial in nature. Investments that are capital or entrepreneurial in nature include investments that “support a business-like function, such as increasing the worker’s ability to do different types of or more work, reducing costs, or extending market reach.”

The analysis under this factor includes determining whether the investments by the worker generally support an independent business, such as a worker supplying their own tools, renting space, and spending money on marketing their services. Facts such as these would weigh in favor of an independent contractor relationship because they allow the worker to do more work and find new clients.

• The degree of permanence of the work relationship

 The Rule provides that if the nature of the relationship between the worker and potential employee is “indefinite in duration, continuous, or exclusive of work for other employers,” then this factor will weigh in favor of the worker being an employer. However, this factor will generally weigh in favor of determining whether the worker is an independent contractor if the relationship is “definite in duration, non-exclusive, project-based, or sporadic based on the worker being in business for themselves and marketing their services or labor to multiple entities.”

• Nature of degree of control

  • The Rule provides the following facts to consider under this factor:

whether the potential employer sets the worker's schedule, supervises the performance of the work, or explicitly limits the worker's ability to work for others . . . whether the potential employer uses technological means to supervise the performance of the work (such as by means of a device or electronically), reserves the right to supervise or discipline workers, or places demands or restrictions on workers that do not allow them to work for others or work when they choose. Whether the potential employer controls economic aspects of the working relationship . . . including control over prices or rates for services and the marketing of the services or products provided by the worker.

The more control exhibited by the potential employer, the more likely this factor will weigh in favor of a determination that the worker is an employee and the more control exhibited by the worker, the more likely this factor will weigh in favor of a determination that the worker is an independent contractor.

• The extent to which the work performed is an integral part of the potential employer’s business

     This factor hinges on whether the work performed by the worker is “critical, necessary, or central” to the principal business of the potential employer. If it is, this factor will weigh in favor of a finding that the worker is an employee, and if not, it will weigh in favor of a finding that the worker is an independent contractor.

• Skill and initiative

If a worker does not utilize specialized skills in providing the services to the potential employer, this factor will weigh in favor of a finding of an employment relationship. However, merely utilizing specialized skills does not necessarily mean that this factor will weigh in favor of a finding of an independent contractor relationship. These specialized skills must contribute to “business-like initiative,” including marketing these skills to generate new business for the worker.

These factors are not an exhaustive list, and additional factors may be considered when analyzing whether a worker is an employee or independent contractor and determining whether the worker is protected under the FLSA.

What should Businesses do?

Businesses that rely on the services of independent contractors should review their relationships with current independent contractors and their policies and procedures going forward for new independent contractors, including a review of their independent contractor agreements, to ensure that their relationships with their workers are truly independent contractor relations.

Additional Resources

For more information regarding the Rule, businesses and workers can visit the Frequently Asked Questions and Small Entity Compliance Guide pages of the Department’s website. These helpful resources provide guidance regarding the new Rule, including examples of the factors addressed herein.

Risk Avoidance and Risk Reduction for Employee Claims

Managing risks is a crucial aspect of running any successful business. Although it's impossible to eliminate all risks, creating a well-crafted risk management plan can help minimize them. The first step is to identify potential risks to design a suitable risk management plan for your business. You should take some time to reflect on the circumstances that could negatively impact your workplace and lead to liability exposure- These situations are your risks.

After identifying the risks, the next step is to assess the likelihood of each risk causing an incident or injury. The probability of an incident or injury occurring will vary depending on your business. Consider the potential consequences of each incident or injury, such as sexual harassment, discrimination, bodily injury, or property damage. The goal is to protect your business from devastating lawsuits while running it successfully.

Risk management can be divided into two categories: risk avoidance and risk reduction. Risk avoidance involves eliminating the circumstances or conditions that could lead to liability exposure. On the other hand, risk reduction involves taking actions to mitigate risks. When deciding on how to mitigate risks, consider a cost-benefit analysis. For example, investing in safe equipment for your employees is a risk reduction method. Work with your human resources department and legal team to identify feasible risk management techniques and establish clear policies and procedures to enforce them. Monitor the results of these policies and procedures regularly and adjust them as necessary.

New EEOC Proposed Guidance On Workplace Harassment

New EEOC Proposed Guidance outlines fundamental elements of harassment in the workplace and provides clarification via hypothetical scenarios. It also incorporates recent changes in case law and topical social issues.

Guidance Updates for Anti-Harassment Policy Requirements

The Proposed Guidance clarifies, based on recent case law, that an effective anti-harassment policy should be “comprehensible to workers, including those who the employer has reason to believe might have barriers to comprehension” (e.g., limited English proficiency), and should include:

1. A definition of prohibited conduct;

2. A requirement that supervisors report harassment;

3. A statement that “[c]learly identifies accessible points of contact” for reporting purposes, including contact information; and

4. Explain the complaint process, including “adequate” anti-retaliation and confidentiality

Guidance for Effective Anti-Harassment Training

The Proposed Guidance includes a “non-exhaustive” list of elements of effective training that includes: an overview of the employer’s anti-harassment policy and complaint process; examples of prohibited conduct that, “if left unchecked,” could rise to the level of harassment; information on rights for those who witness, experience, or report harassment; and information for supervisors and managers on how to “prevent, identify, stop, report, and correct harassment.” Training should be “tailored” to the employer’s workplace and workforce, provided regularly to all employees in a “clear, easy-to-understand style and format.”

Clarification: Scope of Sex Discrimination or Harassment

The Proposed Guidance reminds employers that discrimination and harassment based on “sex” includes harassment based on pregnancy, childbirth, and “related medical conditions.” Taking this one step further, the EEOC states that “related medical conditions” include employees’ decisions related to contraception and abortion.

Guidance on Harassment in Remote Work Environment

The Proposed Guidance clarifies that conduct in a virtual work environment, including electronic communications using private phones, computers, or social media accounts, can contribute to a hostile work environment if they impact the workplace. As an example, the EEOC adds that an employee who is the subject of ethnic epithets posted on a coworker’s personal social media page could be subjected to a hostile work environment if the employee is directly exposed to the post or other coworkers see the post and discuss it at work.

Department of Labor Proposed Changes to Exempt Salary Status Threshold

On August 30, 2023, the United States Department of Labor (the “DOL”) announced a notice of proposed rulemaking to increase the minimum salary requirements for executive, administrative, and professional workers from the minimum wage and overtime pay requirements under the Fair Labor Standards Act (the “FLSA”).

Currently, certain executive, administrative, and professional workers are exempt from minimum wage and overtime pay requirements under the FLSA if they (1) are paid on a salary basis at a rate of not less than $684 per week and (2) perform specific duties that are exempt under the FLSA and corresponding regulations. Employees who are not exempt under this test are required to be paid time-and-a-half for any hours worked more than forty hours in a week.

The proposed rule raises the salary basis threshold from $684 per week, an annual salary of approximately $35,500, to $1,059 per week, an annual salary of $55,068. The proposed rule also increases the salary threshold for the highly compensated employees exemption to $143,988 annually. Further, the rule proposes an automatic update of the salary thresholds every three years in an effort to reflect current earnings statistics.

According to the news release issued by the DOL, this change would extend overtime protections to an additional 3.6 million salaried workers.

Employers should review the salaries of their current employees and begin developing a plan to address these changes if they have employees whom this rule change will impact. The attorneys at Erickson Sederstrom can assist in determining how these rules will impact your business and how to address this new rule when it goes into effect.

Risk Management for Performance Evaluations

As the end of the year approaches, many companies are preparing for their annual performance evaluations. Many employers find these evaluations as an opportunity to provide adequate feedback to each person on his or her own performance and to serve as a basis for modifying or changing behavior toward more effective working habits. While these evaluations may seem like a positive tool to increase an employee’s performance, employers must understand that legal risks can arise as a result of the evaluations, such as claims of discrimination.

To reduce the legal risks of performance evaluations, employers should implement the following best practices:

1. Selecting the reviewer: The evaluator should not have a personal or family relationship with the employees being reviewed and should evaluate only those workers in their direct line of supervision.

2. Frequency: all employees in the same job classification should be evaluated on the same time cycle.

3. Objective criteria: Employees should be evaluated on objective/measurable factors.

4. Wording: employers should be cautious about the wording used in evaluations. Always maintain a professional tone and constructively highlight both the positive and negative.

5. Self-assessments: employees should assess themselves as a part of their review process. If both the evaluator and the employee agree on improvement areas, it is easier to set performance goals.

6. Transparency: Employers should have a written document explaining the procedures for performance reviews. The document should describe the criteria used, how often reviews are done, and who will conduct the evaluations.

7. Audits: Employers should conduct audits on the results to determine whether the evaluation system is fair.