Relying on EFAA’s use of the word “case,” the California Court of Appeal held in two cases that none of a plaintiff’s claims can be compelled to arbitration if at least one of the claims asserted in the “case” is a sexual assault or sexual harassment claim, even if the other claims arise from conduct unrelated to the alleged sexual assault or sexual harassment. Doe v. Second Street Corp. and Liu v. Miniso Depot CA, Inc.

Doe v. Second Street Corp.

In February 2023, Doe sued her employer and two supervisors. Defendants moved to compel arbitration of the claims pursuant to the arbitration agreement and argued that the EFAA did not apply to the plaintiff’s claims because most of the alleged sexual harassment occurred prior to the EFAA taking effect.

The lower court held: 1) the EFAA applied because Doe alleged an ongoing hostile work environment that continued after the EFAA took effect; and 2) the EFAA prohibits mandating arbitration of all of plaintiff’s claims, not just those relating to the alleged sexual harassment. The appellate court affirmed.

Liu v. Miniso Depot CA, Inc.

In October 2023, Liu sued her former employer under various individual claims, including sexual harassment, misclassification, gender discrimination, and retaliation. The employer moved to compel arbitration based on the parties’ arbitration agreement. The lower court denied the employer’s motion on the ground that the plaintiff alleged sexual harassment in the same suit even it is not based on the same set of facts as her other claims. The court went even further to state that the EFAA does not require that a plaintiff sufficiently plead sexual harassment; so long as a plaintiff alleges sexual harassment, none of the claims may be compelled to arbitration. The appellate court similarly affirmed.

California’s deviation from prior federal cases

In Mera v. SA Hospitality Group, Inc., a federal case from the Southern District of New York, the plaintiff brought both individual sexual harassment claims and representative wage and hour claims. The court held that the wage and hour claims did not “relate to” the sexual harassment dispute because they were not individualized to the plaintiff, and therefore, could be sent to arbitration.

The Doe court distinguished its case from Mera on the ground that unlike Mera, Doe’s case as a whole “relates to” the underlying sexual harassment dispute in that the same plaintiff asserted all the claims against the same defendants, and all claims arose out of Doe’s employment.

The Liu court simply declined to follow Mera, finding it unpersuasive in view of the EFAA’s unambiguous language. It noted that Mera is factually distinguishable from Liu due to the Mera plaintiff’s representative claims.

The Court of Appeal left unanswered whether the EFAA bars arbitration of unrelated wage and hour class action claims asserted in the same case as the plaintiff’s individual sexual harassment claim in California.

What does this mean going forward?

Prior to Liu and Doe, employers had the option to compel arbitration of non-sexual harassment claims and request a stay of the sexual harassment claim pending arbitration. Not only is this arguably no longer an option for employers litigating in California state courts, plaintiffs potentially can avoid otherwise enforceable arbitration agreements by simply including sexual harassment claims in their complaints.

If you have questions about defending against claims subject to the EFAA or how these rulings may affect your business, please contact a member of Kelley Drye’s Labor and Employment team.

The legislation’s proponents argued that its passage would create new jobs and help the state’s lowest-paid workers survive amid a rapid rise in the cost of living. Critics argued it would instead eliminate jobs and increase the prices of everyday goods and services. Voters appeared to agree with the critics.

When minimum wage is on a state’s ballot, it rarely fails. Last week, voters in Missouri and Alaska chose to raise minimum wage to $15 per hour. According to Ballotpedia, from 1996-2023, in the United States, only two out of twenty-eight times have voters rejected a statewide minimum wage increase at ballot box. Californians’ rejection of Proposition 32 thus is significant.

California currently has the third-highest state minimum wage in the country, trailing behind Washington D.C. ($17.50 per hour) and Washington state ($16.66 per hour, effective January 1, 2025), although the Golden State will lose its bronze to Hawaii in 2028 — earlier this year, the governor of Hawaii signed a law setting the minimum wage at $18 per hour beginning in 2028.

Proposition 32 would not have impacted as large a portion of the labor force as one might think. Oxfam reported in 2024 that approximately 15.8% of workers in California earned less than $17 per hour. Since then, new state laws have increased the minimum wage for workers in certain industries, including fast food and healthcare workers.

Moreover, many cities and counties already require higher than $18 minimum wage rate. The University of California, Berkeley maintains a list of minimum wage rates across the state’s counties. West Hollywood requires a minimum wage of $19.08. San Francisco and Berkeley boast a minimum wage of $18.67. As of January 1, 2025, more than one-third of California’s counties will set a minimum wage greater than $18 per hour.

California’s minimum wage was $9 per hour in 2015. Had Proposition 32 passed, the state’s minimum wage would have doubled in less than a decade. Perhaps voters objected more to the pace of these pay raises.

Despite voters’ rejection of Proposition 32, employers should not expect minimum wage to remain stagnant. California’s minimum wage is adjusted for inflation every year. Thus, the current minimum wage of $16.00 will increase to $16.50 effective January 1, 2025.

What Should Employers Do?

Minimum wage laws must be read completely and carefully. Here are a few things to consider:

• Monitor local legislation, which is likely a strong predictor of impending state action.
• Classify employees properly. Simply noting that someone is an independent contractor does not make it so. Do not misclassify employees as exempt to avoid overtime obligations; class action lawsuits are very expensive.
• Comply with the most restrictive applicable law. Employers must comply with the law that gives the most benefit to employees.
• Pay attention to the effective dates of state and local laws. While state and federal laws typically go into effect on January 1^st of each year, local ordinances often follow their own schedule, with many of the California ordinances going into effect in July of each year.
• Communicate with employees whose wage rate will change. Employers must post a current official Minimum Wage Order in a conspicuous location frequented by employees. A new notice is required for 2025 when the state increase becomes effective.
• Coordinate operations to comply with minimum wage laws if you operate in multiple cities with overlapping legislation. Each location must comply with its own local rules. Taking the time to ensure that each location is in compliance is important. For some employers, this will mean divvying responsibilities; for others, it means ensuring those responsible for compliance work with your attorneys to stay informed about each applicable locale.
• Seek guidance from your Labor and Employment counsel to ensure up to date compliance across jurisdictions.

Domski, who had worked at BCBS for over 30 years, was an IT process specialist when the company implemented a vaccine mandate in late 2021, affecting both in-office and remote workers. As a practicing Catholic, Domski requested an exemption, citing her belief that the vaccine conflicted with her religious convictions due to its association with aborted fetal cell lines.

She argued that taking the vaccine would "harm her relationship with God" and violate her faith. However, BCBS denied her request, placed her on unpaid leave, and ultimately terminated her in January 2022.

BCBS defended its actions by claiming that Domski hadn’t participated in a follow-up interview to discuss her exemption request, which they argued was necessary to evaluate her religious beliefs. The company contended that the denial was based on the facts from this interview, in line with EEOC guidance.

The jury disagreed. After a four-day trial, they sided with Domski, finding that BCBS had discriminated against her by failing to provide a reasonable religious accommodation. The jury awarded Domski $10 million in punitive damages and $2.69 million in compensatory damages, including back and front pay.

While the employer likely has its side of the story and will likely challenge the verdict, this case serves as a warning to employers still enforcing vaccine mandates.

Key Takeaways for Employers:

• Be Flexible with Accommodations: Before denying a religious exemption, offer employees an opportunity to present their case. Make sure you have carefully considered alternatives to the vaccine, before there is discipline.
• Document the Reasons for Denial: Ensure that any denial of accommodation is based on valid, objective reasons, and that all communications are documented.
• Consider Alternatives to Termination: Especially with long-tenured employees, explore all options before resorting to termination.
• Think Carefully About Older Employees: Terminating older or long-serving employees carries additional risk, of both an age and religious discrimination claim

As the lower courts continue to grapple with the issues of religious accommodation in the wake of the Groff decision, this case highlights the ongoing complexities of this issue in the workplace, especially as vaccine mandates remain a contentious issue. Clearly, COVID is NOT over and debate over vaccines is likely to continue for years to come.

Are you ready to meet the new standards?

Who Will be Affected by New Jersey’s Pay Transparency Law?

If you’re an employer in New Jersey with 10 or more employees working at least 20 weeks in the state, this law applies to you. This includes businesses that:

• Operate in New Jersey;
• Employ people within New Jersey; or
• Take job applications from New Jersey residents.

Take note: Job placement agencies and multi-state employers with employees in New Jersey will also be covered.

Key Requirements: What Needs to Be Included in Job Postings?

Covered employers will be required to include specific pay and benefits information in their internal and external job postings.

Here’s what needs to be included:

• Salary or Hourly Rate – Employers must disclose the pay range or the specific salary/hourly wage for the job being advertised.
• Benefits & Compensation – Employers must also provide a general description of benefits and other compensation packages available for the position.

But that’s not all. The law not only covers new jobs, but promotions, which are defined as a change in job title and an increase in compensation. If your job posting includes a potential promotion, you must also make “reasonable efforts” to inform all current employees within the affected department about the promotion opportunity before making a decision.

SB2310 Compliance: Penalties and Fines

Failure to comply with SB2310 can result in fines. Here’s the breakdown:

• First violation: $300
• Subsequent violations: $600 per violation

While there’s no private right of action (i.e., employees can’t sue you directly), these penalties could add up quickly.

Key Takeaway for Employers: Start Planning Now

If you’re new to pay transparency laws, don’t panic— you still have time. But now is the time to start thinking ahead.

As you prepare for SB2310’s compliance deadline, consider the following:

• Your pay practices – Are your current salary ranges competitive? Are they clearly defined for each position?
• Your job postings – Is it time for an update? Ensure that all positions include salary ranges and benefits information as required by law.
• Your managers – Is it time for some extra training? Managers should be fully informed about the law and how to handle promotional opportunities.
• Potential pay gaps – Now is a good time to conduct an audit to ensure there are no state or federal compliance concerns. This is especially important in light of New Jersey’s broad equal pay protections under the Diane B. Allen Equal Pay Act.

With careful preparation, you’ll be ahead of the curve when the compliance deadline rolls around.

If you have any questions about SB2310, pay transparency, or how to comply with the new law, don’t hesitate to reach out to a member of the Kelley Drye Labor and Employment team.

The Tennessee slayer statute states that “[t]he felonious and intentional killing of the decedent…[re]vokes any revocable…[d]isposition or appointment of property made by the decedent to the killer in a governing instrument.” Therefore, if Tennessee law were to govern in this case, Guy would be disqualified from collecting the proceeds of his mother’s plans. ERISA, however, “supersedes any and all State laws insofar as they…relate to any employee benefit plan,” and the court opined that since this case concerns the designation of beneficiaries, which “plainly relates to” ERISA plans, there is no reason to apply state law. It therefore turned to federal law to determine whom the plan administrator should pay. While ERISA’s text does not specifically address the slayer question, Guy argued that since ERISA mandates that employee benefit plans “be established and maintained pursuant to a written instrument” that specifies “the basis on which payments are made to and from the plan,” and that plan fiduciaries act “in accordance with the documents and instruments governing the plan,” the administrator must pay a slayer who is named as a beneficiary pursuant to the plan documents, where the plan does not specify how to handle a slayer scenario.

Although the court noted that there was some support in the case law for adhering to such a bright-line “pay-the-designated-beneficiary rule,” which allows plan administrators to avoid having to make “factually complex and subjective determinations,” it ultimately concluded that the rule is not absolute. For example, in cases of fraud or undue influence, the court has held that an administrator “must look beyond the beneficiary designation itself to determine whom to pay.” This is because in such cases, we cannot be confident that a policyholder would have designated the same beneficiary had they known the true facts, and we do not want to allow a wrongdoer to profit from their wrong. The court reasoned that the slayer scenario is much like the fraud and undue influence scenarios, because had Guy’s mother known the true facts (i.e., that her son was going to murder her), she probably would not have made him the beneficiary of her policies, and allowing Guy to receive the benefits would allow a wrongdoer to profit from his wrong.

Determining that the statutory language of ERISA did not provide an answer to the slayer scenario, the court turned to federal common law, where federal courts have long considered the slayer rule to be “universal and near axiomatic in the insurance context,” citing cases dating back to the 19^th century, and finding no indication that Congress intended for ERISA to upend this principle. There are some exceptions to the slayer rule, such as for beneficiaries who kill in self-defense or by accident. However, given that Guy was convicted of first-degree premeditated murder, the court concluded that none of the exceptions applied, and therefore, Guy was disqualified from benefitting from his mother’s ERISA plans.

While the FTC’s fight to invalidate noncompetes continues, employers still need to be thinking about the enforceability of noncompete provisions, especially because the enforceability of noncompete provisions has been and continues to be determined by state law.

A perfect reminder of that is the case of DraftKings Inc. v. Hermalyn.

DraftKings v. Hermalyn

Then-New Jersey resident Michael Hermalyn, a former executive with Massachusetts-headquartered DraftKings—an online sports betting and gambling company—quit his job with DraftKings and moved to California to join a California-based competitor, Fanatics (also a company that is engaged in the business of online sports betting). Hermalyn signed a one-year noncompete agreement with DraftKings, which had a Massachusetts choice of law provision. Massachusetts law allows the use of noncompetes, with some restrictions, while California law bans most noncompete agreements, regardless of where they are signed. And so the stage was set; if Massachusetts law applied, Hermalyn breached his noncompete; but if California law applied, Hermalyn’s noncompete would not be enforceable (hence the importance of which state’s law applies).

Seeking to preemptively invalidate his noncompete, Hermalyn sued DraftKings in California for declaratory relief. Days later, DraftKings sued Hermalyn in Massachusetts District Court and obtained a preliminary injunction to enforce the one-year noncompete agreement contained in his contract and prevent him from working for Fanatics until the expiration of the noncompete. In rendering its decision, the Massachusetts District Court sided with DraftKings and applied Massachusetts law. Hermalyn then appealed the Massachusetts District Court’s decision to the First Circuit Court of Appeals.

Hermalyn argued that California’s interest in not enforcing the noncompete was “materially greater” than Massachusetts’ interest in enforcing it. The First Circuit disagreed and affirmed the preliminary injunction, holding that Hermalyn’s noncompete agreement should be enforced regardless of his current California residence.

The court held that California’s interest in this dispute was not “materially greater” than Massachusetts, and therefore it would not disturb the choice of law provision in the noncompete agreement. The Court rejected Hermalyn’s argument that because he currently resides in California, which is where he allegedly breached the noncompete agreement, the reasoning in Oxford Global Resources, LLC v. Hernandez (2018), a Massachusetts state court case, should apply. In Oxford, the court held that California had a materially greater interest than Massachusetts in the dispute because the employee executed and performed the contract in California and committed a breach in California after he quit and joined a California-based competitor. The First Circuit, however, distinguished Oxford because Hermalyn primarily worked for DraftKings from the East Coast (traveling regularly to Massachusetts) and did not perform any of his work responsibilities for DraftKings from California. The Court therefore determined that the effect of any breach would have been felt by DraftKings in Massachusetts, not California. The court also found that Massachusetts had carefully considered the issue of enforcing noncompetes, as it had passed the Massachusetts Non-Competition Act, which limits the use of noncompetes (but not to the same degree as California). And further, Hermalyn did not show that California’s interest in pursuing its policy in regulating noncompetes was materially greater than Massachusetts’ interest in doing the same.

What Can Employers Takeaway From The DraftKings Case?

The DraftKings case is a great reminder of the importance of the impact of state law on the enforceability of noncompetes. Even if an employee moves to a state with employee-friendly noncompete laws, employees cannot necessarily avoid the enforceability of an otherwise lawful noncompete by relying upon the laws of another state. That concept is especially important given the nature of remote work and employee mobility in today’s workforce. Until the FTC is successful in enforcing a federal ban of noncompetes (a day that may not come any time soon, especially if the FTC appeals are unsuccessful), employers should be reviewing the noncompetes in their employees’ agreements and evaluating the enforceability of those noncompetes (and even before then, the necessity of having a noncompete in the first place) on a case-by-case basis.

If you have any questions on best practices to draft restrictive covenant agreements or defend the enforceability of your restrictive covenant agreements, please contact a member of the Kelley Drye Labor and Employment team.

What happened in Bailey v. San Francisco District Attorney’s Office?

The plaintiff, Twanda Bailey, sued her former employer for race-based harassment and retaliation. She alleged that a colleague with whom she shared an office called her the N-word. Plaintiff reported the incident to human resources but alleged that the human resources manager prevented her from filing a formal complaint and intimidated her. The trial court granted summary judgment for the employer, which was affirmed by the appellate court on the grounds that plaintiff had failed to sufficiently allege severe or pervasive conduct as required for a claim of harassment. The California Supreme Court reversed, finding that the plaintiff had sufficiently alleged severe or pervasive conduct.

In rendering its decision, the Supreme Court distinguished a racial slur from simple teasing, offhand comments, and isolated incidents, which prior caselaw held are insufficient to create an actionable claim of harassment. The Supreme Court stated that the “objective severity of the harassment should be judged from the perspective of a reasonable person in the plaintiff’s position.” This means that the conduct should be considered from the perspective of someone belonging to the same racial group as the plaintiff. The Supreme Court also noted that courts outside of California “have recognized that use of an unambiguous racial epithet such as the ‘N-word’ may suffice” to state a claim for hostile work environment or harassment, citing to opinions from the Fourth and Fifth Circuits.

In assessing the totality of the circumstances, the Supreme Court also rejected the distinction between a supervisor and co-workers using a racial slur. Notably, here, it was alleged that the human resources manager’s close friendship with the person who uttered the racial slur impacted the manager’s ability to effectively investigate and address the issue. The plaintiff also presented evidence that the incident impacted her work performance and resulted in her seeking mental health treatment. The Supreme Court held that these facts, under the totality of the circumstances test, were sufficient to allege severe or pervasive conduct for a harassment claim.

What Should Employers Do In Light of Bailey?

The most important takeaway is how the employer handled the employee’s use of the racial slur. Maintaining and enforcing anti-harassment policies is of paramount importance, particularly identifying a point person who will objectively apply the policy. Enforcing those policies will ultimately limit an employer’s liability. That was lacking in Bailey, serving as a reminder to update anti-harassment policies if necessary and ensure adequate training for managers.

In referencing out-of-state federal cases, the Supreme Court in Bailey reminds employers that the utterance of one racial slur may import liability on employers not just in California but in other jurisdictions. This decision serves as a reminder of the importance of diversity and anti-bias training, which can prevent this type of inappropriate workplace conduct.

If you have any questions about discrimination and harassment claims or anti-harassment policies, please contact

The Fair Credit Reporting Act and Employer Background Checks

The FCRA is sometimes considered the U.S.’s original privacy statute. Passed in 1970, it provides consumers with the right to access and dispute information in reports created by consumer reporting agencies (CRAs) that are used in making eligibility determinations, including decisions relating to employment.

The FCRA regulates information in the form of “consumer reports,” a term defined by the statute to include “any written, oral, or other communication of any information by a consumer reporting agency bearing on a consumer’s credit worthiness, credit standing, credit capacity, character, general reputation, personal characteristics, or mode of living which is used or expected to be used or collected in whole or in part for the purpose of serving as a factor in establishing the consumer’s eligibility for” certain purposes including “employment purposes.”

The FCRA imposes specific obligations on CRAs as well as employers using their services to conduct background checks. Background screening reports are a type of consumer report put together by CRAs and provided to employers to help them determine whether to hire, retain, promote, or reassign an individual. As employers well know, when consumer reports such as background checks are used for employment purposes, employees have additional rights and employers are subject to the FCRA’s notice, disclosure and consent requirements.

For example, employers must not only provide employees statutorily-required notice that they intend to obtain a consumer report, but they must also obtain written permission from the job applicant or employee before obtaining any consumer report. In addition, an employer must meet additional notice requirements if it intends to take an adverse action based entirely or in part on a consumer report supplied by a CRA, and this notice obligation arises both before and after the adverse action.

A boon for workers rights, the FCRA’s many requirements has long presented compliance issues for employers and CRAs.

The CFPB Circular

As the FCRA's legal complexities evolve, more employers are adopting technology to track workplace productivity and aid in the hiring process. The CFPB’s recent circular raises concerns that these tools, provided by CRAs and used by employers, may effectively generate consumer reports, thus necessitating compliance with FCRA regulations.

According to the CFPB, if a tool is provided by a third party that gathers data from public records, employment history, and other relevant information and or uses information beyond the employer’s experience with an employee, the tool may be covered by the FCRA. The CFPB states that when assessing whether an employer makes decisions based on a report from a third party regulated by the FCRA, enforcers should focus on two considerations:

• Does the employer’s use of data qualify as a use for “employment purposes” under the FCRA?; and

• Is the report obtained from a “consumer reporting agency,” meaning that the report-maker “assembled” or “evaluated” consumer information to produce the report?

To illustrate this point, the CFPB cites the example of a phone app that monitors a transportation employee’s driving and provides a driving score to the employer for employment purposes. If the app was developed using data from a range of third-party sources, then it could be considered a CRA and the score it assigns to the employee, a consumer report.

For the app maker, this would necessitate compliance with the FCRA and require, among other things, that it have procedures in place to ensure maximum possible accuracy, only provide the app to those with a permissible purpose, and implement a dispute process.

For the employer, this would mean ensuring their own compliance with the FCRA, including by, among other things, providing adverse action notices if they take any action based on the score. To complicate matters, in the driving app example, if employers also provide information that is used to further develop and refine the app scores that are provided to other companies that use the app, the employers could be considered furnishers under the FCRA and would also need to implement a process by which consumers can dispute the accuracy of the information contained in the report.

Putting Employers on Notice

This circular is putting employers and makers of certain software or monitoring tools alike on notice that the CFPB plans to scrutinize performance and monitoring tools to determine if they fall within the FCRA’s ambit. The CFPB is taking a broad approach to what constitutes “assembling” and “evaluating” (key components of the FCRA’s definition of a CRA). It will carefully consider tools, especially AI tools, that use large amounts of data for their development and maintenance to determine whether the tool is providing consumer reports rendering the developer a CRA.

The circular also reflects that the CFPB is abandoning a longstanding interpretation that the FCRA does not apply to software developers. In 1997, the FTC announced that a company that sells software that allowed the purchaser to compile consumer report information from other CRAs was not itself a CRA because it did not “assemble and evaluate” information itself. The CFPB now says that this interpretation is outdated. The CFPB believes that business models where the software developer licenses software and provides ongoing customer service and maintenance are different in kind from selling software as a “point-in-time product.” Taken together, it is clear from the circular that the CFPB is focused on ensuring the objectives of the FCRA will not be outpaced by technology.

What Is Next for Employers?

Employers in particular need to take an inventory of the tools that they have implemented to analyze worker data and assess whether they may constitute consumer reports.

Based on the circular, key to these considerations will be whether or not the data is employed for “employment purposes,” and if the tools include or were developed using any data from third parties.

To accomplish this, employers should take steps to understand how the tools they have implemented were developed. This may include reviewing vendor services agreements and require consulting with vendors.

Ultimately, whether a monitoring or performance tool qualifies as a consumer report will depend on a close consideration of the particular facts of its development, maintenance, and use. Employers in particular should consider engaging counsel to audit for any potential compliance concerns.

***

Although at this stage the CFPB’s circular raises more questions than it answers, the Kelley Drye team will continue to monitor for any additional guidance, enforcement efforts, or private litigation that sheds light on the breadth of the FCRA’s sweep over these tools.

Recently, California enacted PAGA reform through AB 2288 and SB 92, applying to California lawsuits filed after June 19, 2024. This reform is crucial for employers as it affects the standing, statute of limitations period, manageability principle, cure provisions, and various issues relating to penalties under the law.

WHAT ARE THE KEY CHANGES IN THE PAGA REFORM?

There are now stricter rules regarding the scope of the PAGA lawsuit

Standing – a PAGA plaintiff must have personally suffered the alleged violations.

Under the prior version of PAGA, an employee could sue an employer for violations they did not suffer. This meant that an employee who suffered a single violation (such as a meal break violation) could bring claims for any other labor violations allegedly suffered by other employees (i.e., overtime violation) even though the plaintiff did not suffer those violations. Now, a plaintiff must have “personally suffered” the alleged violation. This change limits the universe of claims a PAGA plaintiff can bring, curtailing one of the most damaging aspects of the previous iteration of the law.

Statute of Limitations – One year and 65 days, period.

PAGA reform clarifies the applicable statute of limitations – one year and 65 days before the claim is filed. While the statute of limitations was technically the same as before, following the Court of Appeals decision in Johnson v. Maxim Healthcare Services, Inc. interpreting the prior statute, several courts found that aggrieved employees continued to suffer violations long after the PAGA plaintiff stopped working for the employer. This meant that employees could extend the statute of limitations period by making a “continuing violation” argument. Together with the stricter standing rule, PAGA reform arguably forecloses the possibility that an employee who is terminated more than one year and 65 days prior to the lawsuit may bring a suit against the employer.

Penalty Reform – Lower Default Maximum Penalties

The new law provides that courts “may limit the evidence to be presented at trial or otherwise limit the scope of any claim filed pursuant to this part to ensure that the claim can be effectively tried” based on the decision in Woodworth v. Loma Linda Univ. Med. Ctr., 93 Cal. App. 5th 1038, 1070 (2023). This change likely revives the debate over the court’s authority to decide questions of manageability, arguably permitting case management orders limiting the scope of claims before trial.

Employers can now cure more violations to avoid PAGA litigation

Cure Provisions

Employers may now “cure” more violations including Failure to Provide Meal Periods and Rest Breaks / Pay Premiums, Minimum Wage Violations, Overtime Violations, Expense Reimbursements, and Wage Statement Violations by correcting the underlying conduct and making employees “whole.”

To make employees “whole,” employers must pay employees, in full, an amount sufficient to recover any owed unpaid wages due for the prior 3 years, pay 7% interest, pay any liquidated damages required by statute, and pay reasonable lodestar attorney’s fees and costs.

Beginning October 1, 2024, smaller employers (<100 employees) have 33 days from the date of receipt of a PAGA notice to submit to the Labor & Workforce Development Agency (LWDA) a confidential proposal to cure the alleged violations. Larger employers, starting immediately, may request an early evaluation and a stay of proceedings.

While this may offer employers an option to resolve employment lawsuits, the cost to make employees whole is likely very high.

Employers may avoid or reduce PAGA penalties

Avoiding PAGA Penalties

The PAGA reform codifies the holding of Naranjo v. Spectrum Sec. Services, Inc., an employer-friendly case concerning penalties for PAGA violations on which we previously reported. Under the new law, employers may avoid penalties for certain violations by arguing that the alleged violations were not willful or intentional. There is now a higher bar placed on plaintiffs to obtain penalties.

Additionally, courts may now reduce “stacked” penalties for the following violations arising from the same policy/payroll: failure to timely pay wages upon separation and during employment and derivative wage statement violations.

Reduction of Penalties

Previously, if the Labor Code did not provide a penalty for a particular violation, the maximum penalty was $100 per pay period for an “initial” violation and $200 for a “subsequent” violation. This allowed Plaintiffs to argue that a subsequent violation means any violation after the first violations.

The PAGA reform clarifies that the default penalty is $100 per violation unless one of the following two applies: (1) a court or the labor commissioner found in the last five years that the employer’s policy or practice giving rise to the violation was unlawful, or (2) the court determines that the employer’s conduct was “malicious, fraudulent, or oppressive.” If one of those two scenarios applies, the maximum penalty increases to $200 per pay period.

The PAGA reform also results in lower default maximum penalties for certain violations, as long as the heightened default penalty does not apply:

• $25 per pay period for violations of the requirement to accurately list the employer's name and address, if the employee would not be confused or misled about identity of employer;

• $25 per pay period for other wage statement violations if the employee could promptly and easily determine the accurate information from the wage statement alone; and

• $50 per pay period if the violation resulted from an isolated, nonrecurring event that did not extend beyond the lesser of 30 consecutive days or four consecutive pay periods.

If employers show they have taken “all reasonable steps” to comply with the law under two scenarios, there may be caps on PAGA penalties.

• Before Employer Receives a PAGA Notice: If an employer shows they took “all reasonable steps” to comply with the law before either: (1) receiving a PAGA notice; or (2) receiving a request for personnel records, PAGA penalties are capped at 15%.

• After Employer Receives a PAGA Notice: If an employer shows they took “all reasonable steps” to comply with the law within 60 days after receiving a PAGA notice, PAGA penalties are capped at 30%. However, a court may exceed the 30% cap if adhering to the cap would result in an unjust or arbitrary award.

“Reasonable steps” includes, but is not limited to: payroll audits and taking action in response to the audit results, distributing lawful written policies to employees, conducting supervisor training on applicable labor law compliance, or taking corrective action with respect to supervisors. Whether the steps were reasonable depends on the totality of the circumstances, size and resources of the employer, the nature, severity, and duration of the alleged violations. The caps do not apply if the court finds the employer acted “maliciously, fraudulently, or oppressively” or the employer’s policy was found to be unlawful by a court or the labor commissioner within the last 5 years.

WHAT DOES THIS MEAN FOR EMPLOYERS

Overall, the PAGA reform potentially makes a PAGA suit less expensive to litigate. With the requirement that a PAGA plaintiff must suffered the alleged violation to bring a PAGA suit, an employer who has an arbitration agreement with a PAGA plaintiff may consider taking the case through arbitration to make the plaintiff prove that he or she has suffered the alleged violation. Although the cure provision sounds useful, many smaller employers likely will not be able to implement a plan within the 33 day window to submit a cure proposal. For larger employers, however, the opportunity for early evaluation can delay litigation and potentially help with any settlement discussion, which oftentimes is less costly than litigating the case itself.

Nonetheless, curing violations in accordance with the PAGA reform may be expensive for employers. Alternatively, employers may consider taking steps to cap potential penalties should a lawsuit arise through proactive measures, such as conducting periodic audits, increasing supervisor trainings, and taking corrective actions against supervisors for known violations. These steps may also bolster the employers’ good faith defense should they face PAGA lawsuits.

While uncertainty remains about who will win, there will be significant changes to workplace law.

If Vice President Harris wins, even though a Democratic administration will remain, her presidency will still involve change. And if the Democrats can take control of Congress, we are likely to see a more emboldened, worker-friendly agenda. However, if former President Trump wins, we are likely to see a sea change and total roll back of many of the Biden-era regulations and policy initiatives.

Either way, the new occupant of the Oval Office will set their own priorities for Congress and for administrative agencies. While it may take some time for any changes to take effect, now is the time for employers to be proactive, take stock of how the pendulum might swing, and plan accordingly to ensure a smooth landing for the evolving needs of their business and workforce.

Below are some predictions for possible labor and employment law changes that employers should be on the lookout for.

Transgender Rights

Harris has pledged to fight to pass the Equality Act to provide anti-discrimination protections for LGBTQ+ Americans under existing civil rights law in terms of health care, housing, education, and the workplace. Trump, who opposed the Equality Act in his first term and sought to undo LGBTQ+ protections from the Obama era, will likely seek to roll back transgender rights, such as the U.S. Department of Education’s expansion of Title IX federal civil rights rules, which include anti-discrimination protections for students on the basis of sexual orientation and gender identity.

Wage and Hour

Overtime Pay and Minimum Wage

A win for Harris would almost certainly mean that her administration would continue to support the overtime rule put into place during the Biden era that increased the minimum salary threshold to $43,888 on July 1, 2024, and then to $58,656 on January 1, 2025, which is currently being challenged in courts. By contrast, Trump may abandon the new overtime rule all together or issue a new overtime rule, erasing the progress of the Biden administration. At stake is the number of workers who may be eligible to receive overtime pay and the associated costs to employers. As for the minimum wage, Harris has generally supported increasing the federal minimum wage, while Trump’s position is not clear. Regardless, states and localities have been implementing their own wage hikes well above the federal minimum wage of $7.25 per hour.

Misclassification – Employee vs. Independent Contractor

The Biden administration has made it more difficult for employers to classify workers as independent contractors, rescinding the DOL’s final rule that was introduced at the end of Trump’s presidency (which, not surprisingly, would have made it easier for employers to classify workers as independent contractors). A Harris victory would likely mean a continuation of the present agenda, while a Trump victory would likely mean a reversal of the same. A Trump win would also likely mean a new Secretary of Labor to carry out Trump’s policy agenda. At stake is whether employers will bear the significant costs associated with a worker being classified as an employee.

Paid Leave

Paid leave is front and center in this election cycle. Harris outwardly supports federal paid leave and has repeatedly called for a paid leave program, which is not surprising given that the Biden administration proposed a 12-week program and Tim Walz signed a Minnesota paid leave bill into law earlier this year. While the Trump campaign has stayed silent on this issue, it is possible that a divided Congress would block any federal paid leave legislation. Even if legislation falls through, paid leave is prominent and expanding on the state and local level and is an area that employers will need to continue grappling with.

Organized Labor

Under Biden, labor policies have been extraordinarily ​“pro-union,” meaning it has been easier for workers to collectively bargain with their employers. We anticipate this trend to continue in the event of a Harris victory, who (with Biden) reversed numerous Trump-era policies. In particular, Harris has pledged to sign the Protecting the Right to Organize (PRO) Act if it reaches her desk, which would effectively make it easier for unions to organize and tip the power scales to the employee. Of course, it may not reach Harris’ desk, even if she wins, if Congress remains divided (however, a Democratic sweep in Congress would change that). Trump would likely veto the PRO Act and limit the role of unions. It is also likely that a Trump win would usher in a new general counsel of the NLRB, along with a management-leaning majority, to pursue Trump’s labor relations agenda. In the case of either a blue or red wave, there could be significant changes to the NLRA.

Artificial Intelligence

The future of AI priorities and regulation is also in flux. Harris would likely continue and build upon the Biden administration’s AI executive order, which sets forth a roadmap for protecting workers from privacy, discrimination, and other potential harms presented by AI. In particular, it prompts federal agencies to take action and has set an agenda that sheds a spotlight on employee and labor rights as AI continues to make waves in the workplace. Trump has vowed to repeal Biden’s executive order and would likely aim to limit regulations surrounding AI. Trump may also, as indicated by the executive orders in his first term, focus his domestic-focused AI regulations on the federal government but not private sector employers (unlike Harris).

Regulatory Landscape

Whether Harris or Trump, the winner of this year’s election will set the policy agendas of administrative agencies. Under Harris, administrative agencies (such as EEOC, DOL, and NLRB) may be more aggressive in interpreting federal legislation and implementing rules, which would likely be worker-friendly. By contrast, a Trump win would likely usher in an era of deregulation. This landscape is particularly important given the recent decision in Loper Bright, which eliminated agency deference. In the case of a Harris presidency, it may mean that it will be more difficult for agencies to defend challenges to regulations, even if they are more aggressively pursued.

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So, what is the takeaway? Employers can expect that a Harris administration will be much more worker-friendly (in tune with the Biden administration) and will make a significant effort to further push the Biden-era agenda (perhaps taking aim at areas that stalled under Biden). However, the success of that agenda will depend on the party composition of the House and Senate. Without a Democratic majority in the House and Senate (or vice versa), don’t expect any groundbreaking labor and employment legislation.

The Trump administration will likely seek to roll back the Biden-era agenda, vis-à-vis executive orders, policy changes at the agency level, and to the extent possible, through Congress. Again, changes to labor and employment laws typically do not change overnight. Even still, it is now more important than ever for employers to take stock in the ​“what if.” As for what may actually happen next, check back with us in January 2025.

• A QSLP is a payment made by an employee in repayment of a qualified education loan incurred by the employee to pay qualified higher education expenses (which may include tuition, fees, books, supplies, transportation, or room and board). This payment can be made on behalf of the employee’s spouse or dependent. However, for a qualified loan to be treated as “incurred by the employee,” the employee must have a legal obligation to make the payment under the terms of the loan (e.g., as a cosigner or, if the primary borrower defaults, as a guarantor).
• For purposes of the match, both QSLPs and elective deferrals are subject to the Code Section 402(g) annual limit ($23,000 for 2024), which means that QSLPs made during a plan year can only be matched to the extent that they do not exceed the annual limit minus any elective deferrals made by the employee during the same plan year.
• If a plan offers QSLP matches, they must be made available to all employees who are eligible for elective deferral matches. Employees may not be excluded from QSLP matches based on their employing entity, business unit, division, location, or other similar basis (although collectively bargained employees may be excluded). Furthermore, the employer may not limit QSLP matches to only certain qualified education loans, such as for a particular degree program or school, and may not exclude loan repayments on behalf of spouses or dependents from the match.
• To receive the match, employees must certify that the loan payment satisfies the requirements to be a QSLP by providing the following information to the plan (or to a third-party service provider acting on behalf of the plan):

1. The amount of the loan payment;
2. The date of the loan payment;
3. That the payment was made by the employee;
4. That the loan being repaid is a qualified education loan and was used to pay for qualified higher education expenses of the employee, the employee’s spouse, or the employee’s dependent; and
5. That the loan was incurred by the employee.

• Any of the items above may be satisfied through affirmative certification by the employee (which for items 4 and 5 can be through loan registration, whereby an employee provides the information to the plan before the first loan payment). Alternatively, the first three items may be satisfied through independent verification by the employer or passive certification by the employee. Independent verification means that the plan must be able to validate the accuracy of the items (for example, the first three items are independently verified if an employer allows an employee to make qualified education loan payments through payroll deduction). Passive certification means that items 1 and 2 are provided from the lender to the plan, the plan notifies the employee of the information (including a statement that the employer assumes that item 3 has been satisfied), and the employee is given a reasonable period to correct the information included in the employee notice. If the employee does not correct the information within the reasonable period, they are treated as certifying the information.
• QSLP matches can be contributed at a different frequency than elective deferral matches, as long as they are made at least annually.
• A plan may establish a single QSLP match claim deadline for a plan year or multiple deadlines, provided that each deadline is reasonable, as determined by all relevant facts and circumstances, including whether employees have a reasonable opportunity to collect and furnish claim submission documentation.
• The interim guidance permits multiple ways for a plan to pass nondiscrimination testing, in order to ensure that the plan is not penalized if employees who make both QSLPs and elective deferrals include different proportions of HCEs and NHCEs, or if the HCEs and NHCEs have different deferral percentages. A plan may either apply a single ADP test for all employees or apply a separate test for employees who receive QSLP matches. If applying a separate test, the elective deferrals of employees who make both QSLPs and elective deferrals can either be taken into account in performing the separate test and excluded from the main test, or vice versa.

Employers that provide matching contributions on elective deferrals may want to consider whether they would like to implement the QSLP matching feature, which determination would likely depend on the composition of its workforce and current rate of employee deferral participation in the retirement plan. If so, they must discuss how to administer the feature with their third-party administrators. They will also need to amend the plan for the new feature.

These concerns were validated when lawsuits and threats were lodged against a wide range of employers in 2023. Plaintiffs targeted law firms, universities, non-profits, and prominent companies, arguing that their DEI initiatives were now illegal under SFFA. We’ve been monitoring these legal challenges closely; you can find more details here and here.

Watching as these challenges played out, many legal advisors urged clients to tread carefully when developing and implementing diversity initiatives. While striving for a diverse workforce and dismantling systemic barriers is an admirable goal, the risk of litigation and adverse publicity loomed large in today’s socio-political landscape.

As time went on, these cases began to settle, leading to a lull in litigation by early 2024. This raised an important question: is the wave of DEI challenges over? As we look ahead to 2025, many employers are left uncertain about their next steps. In our practice, we frequently receive inquiries about whether the challenges to DEI programs have subsided and whether we can revert to pre-SFFA practices.

Unfortunately, the answer is no. Although the frequency of legal challenges has decreased, they are still occurring. Recent settlements continue to influence DEI programs, as evidenced by the Fearless Fund’s settlement on September 11, 2024. This Atlanta-based venture capital firm, which supports women of color entrepreneurs, resolved a lawsuit that challenged its grant program.

Given this context, employers must remain vigilant, ensuring all initiatives comply with legal standards.

Emerging Trends in DEI Challenges

In the wake of the SFFA decision, we observed organized, well-funded activist groups launching attacks on DEI programs, both in public discourse and through litigation. Some of these efforts, like the one against the Fearless Fund, have achieved notable success.

As a further example, Lowe's recently scaled back its DEI commitments after facing scrutiny from conservative activists. Similarly, Williams-Sonoma was sued by America First Legal for allegedly engaging in unlawful discrimination through its DEI hiring practices.

Just this week, King & Spaulding, a national law firm, sought to dismiss a discrimination claim from a white applicant who argued she was discouraged from applying to its diversity summer program due to her race. The firm contends that the applicant lacked standing, as she never actually applied.

Alongside organized challenges, there have also been individual lawsuits alleging “reverse discrimination” tied to DEI initiatives. The Meltzer Center for Diversity, Inclusion, and Belonging tracks these cases, revealing 24 workplace discrimination suits to date. Although somewhat numerous, their overall impact has been less severe than anticipated, and outcomes have varied.

In the Bradley v. Gannett case, for example, a class of employees challenged a company policy aimed at achieving racial and gender parity. Critically—in reviewing the company’s motion to dismiss—the District Court was quick to point out that it was not actually clear if such an explicit policy actually existed that could be interpreted to establish a formal or informal “caste system” that placed employees and applicants in a supposed preference hierarchy based on a mix of factors including race, color, ethnicity, and national origin.

The company moved to dismiss and strike the class allegations, arguing that there was no “policy” in effect at all. The Court agreed—noting that no evidence of such a policy could be uncovered that:

1. defined specific racial hiring, promotion, or retention quotas for any specific position or the workforce overall;
2. referred to any “caste” system designating a “hierarchical preference” for certain groups over others; or
3. provided specific plans for how its diversity goals are to be achieved.

Indeed, as opposed to a concrete policy put in place, it appeared as though the employer’s initiatives were aspirational in nature. The Court also noted that the plaintiffs’ pleadings failed to properly identify a policy at all, and sometimes referred to a “2020 Inclusion Report” as the policy at issue, while concurrently describing the operative “policy” as an entirely different system in effect.

After reviewing each individual plaintiff’s claims, the Court concluded that each employee would be seeking relief based on different theories of recovery. Indeed, these individuals were largely located in different positions within separate divisions and subsidiary groups throughout the country that involved dissimilar decisionmakers. Ultimately, the Court opted to dismiss the plaintiffs’ claims of discrimination for failure to state a claim without prejudice and ordered the class allegations stricken.

This skepticism toward DEI challenges appears to be a growing trend in some federal courts. For instance, the Seventh Circuit recently upheld summary judgment in Vavra v. Honeywell, where the plaintiff claimed he was discriminated against for refusing to engage in a training session addressing unconscious bias. The court found he could not reasonably believe the training was discriminatory since he had not watched the training materials and failed to show a retaliatory motive linking his complaints to his termination.

While these cases illustrate a trend toward skepticism in court, they do not signify a fundamental shift in legal principles. The most significant change in law came with the Second Circuit’s Do No Harm decision earlier this year. The outcomes of Vavra and Bradley support the idea that courts may be growing more discerning regarding DEI-related claims, but they do not indicate a clear trend.

The Fearless Fund settlement exemplifies how DEI challenges can yield some success for its opponents. But, at the same time, a DEI program can survive. After facing legal action in 2023, the Fund opted to settle rather than risk setting a harmful precedent, allowing it to refocus on its mission to support under-resourced entrepreneurs.

Moving Forward with DEI

The positive takeaway is that organizations like the Fearless Fund can return to their mission, and similarly, employers should feel empowered to pursue diversity initiatives. However, they must ensure that specific grants, offers, or benefits are not exclusively reserved for particular groups. Anyone selected for a position or grant should be the best candidate, with all groups given equal opportunity to participate.

Despite the challenges, DEI programs remain in use, and the goals of diversity and inclusion remain a focal point for many organizations. If you are considering launching or updating a diversity initiative, consult with employment counsel to ensure compliance with legal standards.

The case alleged that plan sponsor Colgate-Palmolive Company (“Colgate”) and its plan recordkeeper, Alight Solutions (“Alight”), breached their fiduciary duties when more than $750,000 was stolen from a former Colgate employee’s 401(k) account. (The court granted a motion to dismiss by a third defendant, the plan’s custodian, Bank of New York Mellon (“BNY Mellon”), on the grounds that the plaintiff did not plead a link between any actions of BNY Mellon and the fraudulent conduct alleged in the complaint, and therefore did not establish that BNY Mellon acted as a fiduciary.) The plaintiff in the suit claimed in her complaint that a fraudster pretending to be her duped Alight, changed her contact information and bank account information, and requested an immediate cash distribution of her entire plan account. The complaint accuses the defendants of violating ERISA by ignoring numerous significant red flags (such as the fact that the fraudster changed the plaintiff’s contact information such that the phone number and email address were from one country and the mailing address was from another), failing to follow their own procedures (such as waiting 14 days after an address change before processing and distributing a participant’s account), and failing to implement reasonable procedures to detect and prevent fraud and theft of plan assets.

Since the suit was filed in July 2022, employee benefits attorneys have been awaiting the court’s decision, as a verdict in the plaintiff’s favor would have meant a substantial increase in risk for retirement plan sponsors (or recordkeepers, or both), who would potentially be on the hook for plan participant losses resulting from incidents like the one in the Colgate suit. Now that the parties have settled, it appears that there will not be a final word on the matter from the court after all.

Especially because there is no definitive ruling on the issue, plan sponsors and recordkeepers should be sure to have processes and controls in place to ensure that they are in compliance with their fiduciary duties with respect to account security. For example, they should consider the following:

• Limit access to participant account information to designated employees.
• Conduct periodic security awareness training for their employees.
• Implement strong access control procedures (such as multi-factor authentication) to ensure that plan participants are who they say they are.
• Continue to follow the Department of Labor’s cybersecurity guidelines issued in 2021.

Finally, plan sponsors should exercise prudence in selecting and managing third-party service providers. For example, they should examine whether their service agreements require their service providers to do the following:

• Have robust information security policies and procedures in place to protect confidential information against unauthorized access and use.
• Obtain annual outside audits to confirm compliance with information security policies and procedures.
• Have insurance policies that would cover losses caused by security and identity theft breaches.
• Indemnify the plan sponsor for financial losses resulting from security and identity theft breaches.
• In the event of a security or identity theft breach, immediately notify the plan sponsor and affected plan participants, and cooperate with the plan sponsor to investigate and address the cause of the breach.

In a previous article, we outlined the FTC’s Final Rule and the swift legal challenges attempting to block its implementation. In particular, we looked at a July 3, 2024 decision in Ryan LLC v. FTC, where a Texas federal court granted a motion for a preliminary injunction against the FTC’s Final Rule, and temporarily enjoined the noncompete ban from going into effect against the named plaintiff/intervenors. Although, in its initial preliminary injunction ruling, the court only blocked the September 4, 2024 implementation of the Final Rule against the plaintiff, Ryan, LLC, our article posited that the court in Ryan could issue a broader nationwide block of the FTC rule in the future.

That predication came true this past week. On August 20, 2024, the Ryan Court granted the plaintiff’s motion for summary judgment and held that the FTC’s Final Rule should not be enforced or otherwise take effect on September 4, 2024 or thereafter. With the scales of justice seemingly tipping back and forth over the legality of noncompetition clauses, we will analyze what the Ryan court said and the impact on employers moving forward.

Ryan LLC v. FTC

Following the Ryan court’s grant of a preliminary injunction, both parties submitted motions for summary judgment regarding the propriety of the FTC’s Final Rule. In the cross-summary judgment motions, the main issues in front of the court were:

(i) whether the FTC was permitted to create substantive rules regarding unfair methods of competition, and

(ii) whether the Final Rule’s sweeping prohibition was arbitrary and capricious.

With the first issue, the court focused on the statutory text of Sections 6(g) and 18 of the FTC Act, which grant the FTC some rulemaking power with respect to unfair methods of competition. In analyzing the text, the court recognized that the relevant statutory provisions lacked any language regarding the legal consequences or “penalties” for failure to confirm to the FTC’s regulations. As such, the court held that the FTC’s authority under Sections 6(g) and 18 is merely confined to “interpretive or procedural rules” and not substantive rulemaking powers (i.e., not a nationwide ban of noncompetition agreements).

The court next looked at whether the FTC’s Final Rule is arbitrary and capricious. In rejecting the Final Rule, the court highlighted the FTC’s “lack of evidence as to why they chose to impose such a sweeping prohibition—that prohibits entering or enforcing virtually all non-competes—instead of targeting specific, harmful non-competes[.]” The court noted that the FTC failed to show why such a “categorical ban” was necessary based on the evidence of how different states approached non-compete enforcement in different factual situations. The court also emphasized that the FTC outright ignored some of the benefits of noncompetition restrictions. In total, the court held that the FTC exceeded its statutory power in promulgating its Final Rule on noncompetition agreements. The court ruled that the Final Rule should not be enforced or otherwise take effect against all employers in the United States.

What Now For Employers?

The big headline from the Ryan decision is that employers no longer need to scramble by September 4, 2024 to ensure compliance with the FTC’s noncompete ban. While litigation over the FTC’s Final Rule may not be over, as challenges may continue in other jurisdictions, employers can rely on the decision in Ryan to argue that their noncompetition restrictions are not per se unenforceable.

Additionally, the legal avenues to challenge the FTC’s rule that was upheld in Texas is similar to several Supreme Court and federal court decisions undoing the Chevron Doctrine. To learn more about the growing skepticism federal courts put on administrative rulemaking and adjudicative power please see the links to our other articles below.

• How Recent Changes to Administrative Law May Alter Labor and Employment Law as We Know It: NLRB
• How Recent Changes to Administrative Law May Alter Labor and Employment Law as We Know It
• So Long, Chevron: What The Elimination Of Agency Deference Means For Employers And The Future Of Labor And Employment Law
• Not Dead Yet: Noncompetes Survive, the FTC Rule Doesn't (For Now)

Lastly, even with this win for employers, there are still several state law and state court restrictions on noncompetition restrictions that employers must be aware of. Several states have set wage limits on when an employer can restrict an employee’s ability to compete (i.e., Colorado, Illinois, Washington, Washington D.C.), and other states have outright banned non-compete restrictions in employment agreements (i.e., California, Minnesota, North Dakota and Oklahoma).

If you have any questions on best practices to draft restrictive covenant agreements or defend the enforceability of your restrictive covenant agreements, please contact a member of the Kelley Drye Labor and Employment team.

The Final Rule

The Final Rule expands existing prohibitions on the use or disclosure of protected health information (“PHI”) related to reproductive health care. In particular, the Final Rule prohibits the use or disclosure of reproductive health care PHI to:

• Conduct a criminal, civil, or administrative investigation into any person for the mere act of seeking, obtaining, providing, or facilitating reproductive health care;
• Impose criminal, civil, or administrative liability on any person for the mere act of seeking, obtaining, providing, or facilitating reproductive health care; or
• Identify any person for any purpose described above.

The Final Rule defines ​“reproductive health care” broadly, so as to include all health care of an individual that affects matters relating to the reproductive system and its functions and processes.

Exception to the Final Rule’s Prohibition

A covered entity or business associate may be permitted to use or disclose reproductive PHI if it has actual knowledge or factual information indicating that the underlying reproductive health care was unlawful. Although the Final Rule allows covered entities and business associates to presume that most reproductive health care is lawful, the Final Rule does not protect PHI in connection with reproductive health care that the covered entity or business associate knows is unlawful. Thus, in each instance, covered entities and business associates will be required to determine whether the underlying reproductive health care was (i) lawful at the state level or (ii) protected, required, or authorized at the Federal level. Covered entities and business associates will need to consider putting in place procedures to facilitate compliance with these provisions of the Final Rule before their December 23, 2024 compliance date.

Attestations

In connection with the prohibition on the use of reproductive health care PHI for certain purposes, covered entities and business associates are required to obtain a signed attestation that the use or disclosure of protected reproductive health care information is not for a prohibited purpose. The attestation process also makes the requesting person potentially liable for criminal or civil penalties for requests for reproductive health care PHI in violation of the Final Rule. Covered entities and business associates may comply with requests for reproductive health care PHI in connection with certain health oversight activities, judicial or administrative proceedings, law enforcement purposes, and coroners’ or medical examiners’ purposes when accompanied by a valid attestation.

Among other requirements, valid attestations must include:

• A specific description of the requested information;
• A clear statement that the use or disclosure is not for a prohibited purpose;
• A statement that a person may be subject to criminal penalties for knowingly obtaining or disclosing individually identifiable PHI in violation of HIPAA;
• The name of individuals, or a description of the class, whose PHI is sought;
• The name or other identification of any person or class requested to make the use or disclosure;
• The name or other identification of any person or class to whom the covered entity is to make the use or disclosure; and
• The signature of the person requesting the PHI.

The HHS recently provided a model attestation for use by covered entities and business associates receiving requests for the use or disclosure of PHI potentially related to reproductive health care.

Notices of Privacy Practices

Covered entities’ NPPs will need to be updated to include the following:

• Description of the types of uses and disclosures of reproductive health PHI prohibited under the Final Rule and an example of a prohibited use or disclosure;
• Description of the types of uses and disclosures of reproductive health PHI for which an attestation is required under the Final Rule, and an example of a use or disclosure for which is attestation is required; and
• Statement regarding the possibility that PHI disclosed to another person or entity may be redisclosed by that person or entity to other persons and entities.

Covered entities in possession of certain substance abuse disorder treatment records are subject to additional detailed notice requirements under the Final Rule, including that an individual may elect that a covered entity not use the individual’s substance abuse disorder records in connection with the individual receiving fundraising communications.

The NPP provisions of the Final Rule require compliance by February 16, 2026. Covered entities should take care to put in place procedures to facilitate compliance with the Final Rule before that compliance date and may need to consider sending the updated NPP with open enrollment materials.

Certain Other Changes

Other changes implemented by the Final Rule include a new standard for assessing personal representatives. Under the Final Rule’s new standard regarding personal representatives, covered entities may not use the provision or facilitation of reproductive health care as a reason to disregard an individual’s personal representative’s directives. Similarly, the Final Rule does not allow covered entities to use the provision or facilitation of reproductive health care as a justification for a report of abuse, neglect, or domestic violence that would otherwise allow the covered entity to use or disclose reproductive PHI without the individual’s consent.

Questions

If you have any questions regarding this new rule or other HIPAA compliance issues, please contact a member of Kelley Drye’s Employee Benefits and Executive Compensation Practice Group.

Since Colorado started the proverbial ball rolling in 2019, nearly half of U.S. states have active or pending pay disclosure laws on the books. In joining this effort, the Massachusetts law requires employers with 25 or more employees to disclosure pay ranges to both prospective and current employees upon request. The law also requires a disclosure of this information to employees who are offered promotions, transfers, or laterals to new positions with differing job responsibilities.

Massachusetts’ recent legislative efforts to codify pay transparency were recently signed into law on July 31 by Governor Maura Healey. Demarcated as H.4890, the law is set to take effect on July 31, 2025. In keeping with our previous observations (here and here), that employers should expect to see a continuing push towards removing a significant portion of the guesswork from the employment application process for its citizens, Massachusetts is the most recent state to join in the chorus.

The Massachusetts law generally works like other state pay transparency laws. As an added wrinkle, however—and fairly unique among such laws—the new law is set to be enforced in tandem with Massachusetts’ exacting equal pay law.

The oldest of its kind in the nation, Massachusetts’ equal pay law is one of the strictest on the books because it eliminates a key catch-all defense known as the “factor other than sex” test. Under the Federal Equal Pay Act—and many state corollaries—employers may escape liability if they can demonstrate that a pay differential between colleagues of the opposite sex is justified by seniority, merit, production output, or “any other factor other than sex.” Given its status as a catch-all protection and the relatively vague nature of the definition, the “any other factor other than sex” defense has divided federal circuit courts on matters of interpretation and enforcement. In an effort to avoid this morass, the Massachusetts equal pay law simply eliminates that defense and requires an employer to prove—if a disparity does exist—that it be explainable by factors including seniority, production, education or experience, merit, travel obligations or location.

From an employer and management perspective, the new equal pay law requires a slight change in recruitment strategy. Given that the stated goals of the new transparency laws are to provide applicants with more information during the search process, employers must be mindful of keeping compensation competitive. By adopting a proactive approach with these requirements in mind, talent recruitment professionals can now look at the position first in a holistic manner and work to match talented applicants accordingly.

One key distinction worth noting is that the new Massachusetts law does not require disclosure of benefit information beyond merely a salary band. Certain states have gone above and beyond to require disclosures of all position incentives such as bonuses, stock options, profit-sharing opportunities, and commissions. By limiting such disclosures, Massachusetts has not entirely lifted the veil on all recruitment efforts.

Employers who violate the new requirements are subject to progressive penalties. A first offense merits a warning, with additional offenses carrying a fine of up to $500, $1,000, and for a fourth offense and beyond, enforcement actions brought under Massachusetts General Laws, chapter 149, section 27C.

The Takeaway

While all state transparency laws work in broadly similar ways, they are all different: some require notice upon request, others (most of them) require notice without request, and many differ on what must be disclosed. You can thank our system of federalism for this, but that creates a familiar situation in which an employer operating in multiple states can’t easily fashion a one-size-fits-all approach to compliance.

So what to do? First, be familiar with the specific disclosure requirements of each statute. Next, figure out whether you want to take a very tailored approach, using different employment practices in each state, or whether instead you want to comply with the “highest common denominator”—that is, the law that puts the biggest burden on you—as a way of ensuring compliance with all the relevant laws and reducing the chances of making a mistake in a specific state. And finally, you may want to get advice from your employment law counsel. None of the laws in themselves are hard to understand. Understanding how to comply with all of them simultaneously, however, can be far trickier.

If you have questions about pay equity and transparency matters, please reach out to a member of Kelley Drye’s labor and employment team.

Starbucks v. McKinney

Loper threw out the Court’s long-standing ​“Chevron deference” doctrine and Jarskesy, while applies only to the SEC and the particular enforcement proceeding at issue in that case, logically applies to any administrative proceeding before any federal agency empowered to issue fines. Starbucks v. McKinney takes this a step further. There, the Supreme Court clarified that the Board is subject to the same four-factor test used for any court ordered action when seeking injunctions under Section 10(j) of the National Labor Relations Act (NLRA).

After several Starbucks employees announced plans to unionize, they invited a news crew from a local television station to visit the store after hours to promote their unionizing effort. Starbucks fired multiple employees involved with the media event for violating company policy. The Board filed an administrative complaint against Starbucks alleging that it had engaged in unfair labor practices. The Board’s regional Director then filed a petition under Section 10(j) seeking a preliminary injunction for the duration of the administrative proceedings that would, among other things, require Starbucks to reinstate the fired employees. Applying a two-part test that asks only whether “there is reasonable cause to believe that unfair labor practices have occurred,” and whether injunctive relief is “just and proper,” the district court granted the injunction, and the Sixth Circuit affirmed.

The Supreme Court, resolving the Circuit split, held that district courts must apply the traditional four factor test when considering the Board’s requests for a preliminary injunction under §10(j)—that a plaintiff seeking a preliminary injunction must make a clear showing:

• that he is likely to succeed on the merits,

• that he is likely to suffer irreparable harm in the absence of Preliminary relief,

• that the balance of equities tips in his favor, and

• that an injunction is in the public interest.

The Supreme Court rejected the Board’s interpretation that Section 10(j) favors the two-factor test, stating that even though the NLRA grants the Board this injunctive power, it does not mean it is entitled to a more lenient standard than parties seeking injunctions in other contexts.

Effect of Starbucks v. McKinney

Starbucks v. McKinney again calls into question how much district courts should defer to an agency’s interpretation of the very federal statute it is empowered to enforce. Employers may now have an easier path to challenge the Board’s rulemaking ability - such as the Board’s 2023 joint-employer rule (which was vacated by a Texas district court in March) and the Board’s new rule rolling back Trump-era changes to union election procedures, restoring policies against blocking union representation, and loosening the bar for voluntary recognition (likely to take effect September 30, 2024).

One case to monitor post Loper, Jarkesy, and Starbucks is Cemex Construction Materials Pacific, which is currently being challenged in the Ninth Circuit. Cemex involved alleged unfair labor practices (ULPs) by the employer before, during, and after the critical period of an election campaign, when the union had signed authorization cards from a majority of the bargaining unit. There, the Board lowered the threshold for the Board to issue a bargaining order rather than re-run the election when it finds the employer committed ULPs during the critical period.

Following Loper, Jarkesy, and Starbucks decisions, the district court may more freely overrule the Board’s Cemex framework. To be clear, an employer is not (now or ever) free to violate workers’ rights during a union campaign. But, if an employer is being forced to bargain with a union following baseless or unproven violations, it is prudent to seek guidance on how to best utilize the decisions against administrative agency deference in such labor proceedings.

We continue to see a shift in the judicial enforcement of labor relations. For questions and guidance about the impact of Loper, Jarkesy, Starbucks, and Cemex or administrative proceedings in federal labor and employment law, please contact a member of Kelley Drye’s Labor and Employment team.

It should be no surprise that social media has become a major factor in numerous employment disputes. What are employees sharing? Are their posts causing offense? Are they defaming the company or engaging in online discrimination or harassment?

The main challenge with these issues is how an employer can manage conduct that frequently occurs off-site and outside of work hours. Should employers attempt to regulate such behavior? Can they control what employees say without breaching legal boundaries? What if a post qualifies as protected concerted activity under the National Labor Relations Act, or is considered protected activity or political speech? These are complex questions with no straightforward answers.

Social media is again making legal headlines with a new decision out of the influential 9^th Circuit, Okonowsky v. Garland, which held a corrections lieutenant’s posts on social media about another employee, all occurring outside the workplace, could constitute unlawful harassment under Title VII. Given the frightening implications for employers – who now have to worry about what their employees are doing off duty – we did a deep dive into Okonowsky, to understand why this result was reached and what employers need to learn from this new decision.

Okonowsky v. Garland

In Okonowsky, the 9^th Circuit reviewed and reversed a district court’s grant of summary judgment in favor of the employer. The 9^th Circuit held that there was clearly a triable issue of material fact whether the employee was subjected to a hostile work environment due to another worker’s social media posts about her.

The core issue in Okonowsky centered on a series of inappropriate and insulting Instagram posts by a corrections lieutenant (Stephen Hellman) at a federal prison, several of which were directed at a subordinate employee in a different division of the prison (Lindsay Okonowsky). Hellman maintained a personal Instagram account that had many followers who were also employees at the prison, including members of the human resources department and supervisors tasked with investigating harassment claims. Among several troublesome posts, Hellman made comments about sexual and physical violence directed at Okonowsky, including “a crude joke depicting a cowboy figure holding two guns pointing in opposite directions, with text suggesting he would shoot both the SHU psychologist [i.e., Okonowsky] and a particular inmate” and a post suggesting that male custody officers “gang bang” Okonowsky at her home. Even after Okonowsky complained about Hellman’s Instagram activity, he continued to mock Okonowsky on social media for lodging complaints about the online harassment.

When Okonowsky raised concerns about the account and his posts, no real action was taken. Okonowsky was told either that management had not seen the account, that the account was funny or that leadership did not see a problem with the account.

Because of the ongoing harassment and seemingly indifference to her complaints, Okonowsky transferred to a different facility in Texas and filed a claim against the prison for discrimination on the basis of sex.

The district court initially granted summary judgment in favor of the prison, highlighting that the social media conduct “occurred outside of the workplace.” Relevant to the district court’s decision, Hellman’s social media posts were from a personal account, never sent directly to Okonowsky, and never displayed in the workplace. As the conduct was separate and unrelated to the workplace, the district court held that no reasonable jury could find that the social media activity created a hostile working environment.

How did the Social Media Posts Create an Objectively Hostile Work Environment?

On appeal, the 9^th Circuit faced the issue of whether a series of posts, all occurring outside of work, could create an objectively hostile work environment.

In answering yes, the 9^th Circuit considered a number of factors:

• The Court considered Hellman’s status as a lieutenant at the prison, someone in a leadership role. While Hellman was not a direct supervisor of Okonowsky, he was responsible for the safety of inmates and staff, including Okonowsky, and oversaw the corrections officers who worked in Okonowsky’s unit.

• The Court considered the permeating nature of social media, which creates such a wide viewing audience for online posts, even those occurring outside the workplace. The Court noted “posts are permanently and infinitely viewable and re-viewable by any person with access to the page or site on which the post appears. No matter where Hellman was or what he was doing when he made his posts, [prison] employees who followed the page were free to, and did, view, ‘like,’ comment, share, screenshot, print, and otherwise engage with or perceive his abusive posts from anywhere.”

• The Court also considered that the Instagram posts were directed at, and all but named, Okonowsky.

• Finally, the Court considered the fact that nearly half of Hellman’s followers were fellow employees. The clear access by supervisors, managers and co-workers to such inappropriate and demeaning social media conduct even led the prison to eventually find Hellman’s conduct violated the prison’s anti-harassment policy.

Given all of these factors, including such a clear record of hostile and abusive conduct, the Court concluded that the social posts and online interaction clearly could impact Okonowsky’s working conditions, even if such conduct occurred outside of work. The “ubiquity” of social media and the overwhelming factual support led to the conclusion that conduct occurring both inside and outside the workplace, including on someone’s personal social media, could be actionable as creating a hostile work environment under Title VII.

What Should Employers Do Now?

Okonowsky v. Garland involved particularly bad facts and a clear failure to take sufficient remedial efforts. Therefore, employers should take note of the errors in this case to prevent similar issues in the future.

1. TRAIN YOUR LEADERS - Someone in a leadership or management role should not be posting derogatory or hateful comments about any employee – period, full stop.
2. ACT ON COMPLAINTS - It does not take an HR expert to know that when an employee like Ostronsky makes a complaint, the employer must take immediate and corrective action in response to harassment allegations that the employer knew or should have known. In Okonowsky v. Garland, the Ninth Circuit enumerated the prison’s failure to take immediate and corrective action, including conducting a bare investigation involving only a portion of the social media posts and looking the other way in relation to Okonowsky’s complaints. Alternatively, employers should be prepared to investigate the entire range of inside and outside workplace conduct, including allegedly hostile social media posts, and promptly assure employees that their complaints are being taken seriously, not that they need to toughen up.
3. UPDATE YOUR POLICIES - Employers should also consider adding or updating their social media policies to include language regarding abusive or harassing behavior both inside and outside the workplace. Be clear: conduct or posting that is outside of work can violate the policy and subject you to discipline, if offensive to co-workers, subordinates, independent contractors, clients and/or customers. An updated social media policy, combined with social media training, is a good step forward to limit potential liability.
   1. Also, enforce your social media polices. If there is conduct outside of work or on social media which is offensive, consider whether the employee can or should be disciplined. In so doing, be careful to consider whether this was ‘protected speech’ under state or federal law.
4. BE CAREFUL OF YOUR ONLINE PRESENCE - Any employee but certainly any manager should be careful as to how they personally interact with employees on social media. The 9^th Circuit took particular offense to the fact that several decision-makers followed, and sometimes even endorsed, Hellman’s abusive posts, without coming to Okonowsky’s aid. Employers do not need to refrain from having social media connections with employees outside of work. But, the way employers communicate, like, comment or share on social media may be relevant to whether it took prompt and thorough action to remediate claims of harassment.

What Comes Next?

Courts will likely continue to evaluate the impact of social media on discrimination and sexual harassment claims under state and federal law. While the issues in Okonowsky v. Garland appeared clear-cut, courts will be asked to consider less obvious uses of social media that may or may not constitute objective hostile work environments. For example, consider the fact pattern in Okonowsky v. Garland, but:

• What if no co-workers or superiors followed, liked and commented on the social media account posting potentially hostile or abusive content?
• What if the content of the social media posts was not directed at a single co-worker, but still offended a single co-worker or group of co-workers?
• What if the two employees were friends outside of work, the social media posts started as “jokes,” but eventually went too far?

If you have any questions about these hypotheticals, social media use in employment law or how this ruling may affect your business, please contact a member of Kelley Drye’s Labor and Employment team.

This sea change comes in two parts. Many readers will already be familiar with the groundbreaking Loper Bright Enterprises, Inc. v. Raimondo decision, which threw out the Court’s long-standing “Chevron deference” doctrine. Chevron required courts to pay special deference to a federal administrative agency’s interpretation of applicable law within its enforcement purview on the theory that an agency specializing in, say, environmental regulation has a special expertise in the environmental laws it enforces. That rule is gone: now, the agency might be right, but so might be any other litigant opposing it.

The real “sleeper,” however, is actually the combined effect of Loper and another decision, SEC v. Jarkesy, issued by the Court just before Loper. In Jarkesy, the Supreme Court held that when the Securities and Exchange Commission (SEC) seeks civil penalties against a defendant in a securities enforcement action, the Seventh Amendment entitles a defendant to a jury trial: it must bring the case in federal court as opposed to before administrative law judges in the SEC’s in-house forum. While Jarskesy applies on its face only to the SEC and the particular enforcement proceeding at issue in that case, there is no real reason its logic would not apply to any administrative proceeding before any federal agency empowered to issue fines.

In fact, Jarskesy is very similar to the Court’s recent decision in Starbucks v. McKinney, where the Supreme Court held that the National Labor Relations Board (NLRB) must adhere to the same test as other parties when seeking a preliminary injunction, as opposed to a more relaxed test that seemed biased in favor of an agency just because it was the enforcer.

So think about that: first, federal agencies’ opinions about what the law means aren’t entitled to any special deference (Loper); and second, federal agencies have to duke it out in court rather than in their own in-house quasi-tribunals that offer fewer procedural safeguards to the party against whom enforcement is sought (Jarskesy). Loper Bright, Jarkesy, and McKinney are all suggestive of a critical trend that ultimately favors employers, not the agencies that are so often perceived as their adversaries in all but name.

Here’s why this matters for employers. Administrative trials are very common in labor and employment law. The kinds of safeguards employers can leverage in real litigation—discovery, evidentiary rules, the right of appeal, and the list goes on—are very much stunted in administrative tribunals, if not entirely absent. If the Supreme Court applies the logic of Loper and Jarskesy to administrative agencies generally, including the EEOC, NLRB, OSHA, and DOL, to name a few—then we are in a whole new landscape, one that afford employers not only a fairer chance to fight in real litigation, but to argue persuasively for interpretations of applicable law that aren’t as likely to be shot down just because a federal agency disagrees.

What Happened in SEC v. Jarkesy?

In 2013, the SEC filed an administrative action against hedge fund manager, George Jarkesy and his company, Patriot28. The administrative judge found that Jarkesy violated the anti-fraud provisions of federal securities law. After Jarkesy appealed, the SEC ordered Jarkesy to pay a civil penalty of $300,000 in addition to other equitable relief. Jarkesy and his company appealed to the Fifth Circuit, which ruled in their favor. The Fifth Circuit held that the use of administrative law judge’s violated Jarkesy’s right to a jury trial. The SEC sought Supreme Court review of the Fifth Circuit’s decision, and the Court granted certiorari.

The Supreme Court agreed with the Fifth Circuit and held that the use of the administrative proceeding where civil penalties were at stake is unconstitutional. The Court’s reasoning was rooted in the Seventh Amendment’s guarantee of the right to a jury trial in suits at common law, including claims where a party seeks monetary relief designed to punish or deter conduct. The Court also concluded that the SEC’s anti-fraud provisions replicate common law fraud claims. In Jarskesy, the SEC sought civil penalties for alleged fraud, implicating the Seventh Amendment right to a jury trial. The Court also reasoned that the “public rights” exception does not apply, which is an exception allowing Congress to assign the matter to an agency without a jury. Thus, since the SEC fraud claim and civil penalties fell within the purview of the Seventh Amendment, the defendant, and now defendants going forward, are entitled to jury trials as opposed to proceedings before the in-house administrative law judge

What Should Employers do Going Forward?

As of now, the impact of Jarkesy combined with Loper Bright remains to be seen. However, with the in-house administrative proceedings under scrutiny, employers should be paying attention to any future cases involving challenges to federal labor and employment law agency actions, particularly those challenging administrative proceedings. Since federal labor and employment law involves administrative proceedings before bodies such as the NLRB and OSHA, any future decisions curtailing the use of those proceedings would alter the landscape of labor and employment law, benefiting employers.

For questions and guidance about the impact of Jarkesy or administrative proceedings in federal labor and employment law, please contact a member of Kelley Drye’s Labor and Employment team.

On June 28, 2024, the U.S. Supreme Court overruled Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984) (Chevron). The end of Chevron means the end of decades of deference given by courts to federal agencies when an agency’s interpretation of ambiguous or silent text in a federal statute was challenged. That is a big deal. With the ushering in of Loper Bright, courts ​“may not defer to an agency interpretation of law simply because a statute is ambiguous” because courts, rather than agencies, have sole competency to resolve statutory ambiguity. Because countless statutes task federal agencies with administering and enforcing laws, issuing rules and regulations, and deciding disputes—often requiring an agency to fill in a gap or construe statutory text—the end of Chevron deference is truly a once in a generation change in law. No longer will federal agencies waltz into court with the upper hand, expecting to rely upon Chevron to carry the day. Instead, they will need to have another plan.

THE CHEVRON DOCTRINE

Since the Chevron decision in 1984, arguably one of the most influential U.S. Supreme Court decisions in history, federal agencies were given considerable latitude to interpret statutes, and challenges to those agency interpretations were difficult to prevail upon. In short, courts deferred broadly to agency expertise, and did so mechanically as a matter of course. Not surprisingly, over time, federal agencies—for example, the U.S. Equal Employment Opportunity Commission (EEOC), National Labor Relations Board (NLRB), Occupational Health and Safety Administration (OSHA), and U.S. Department of Labor (DOL)—have gotten comfortable regularly invoking the Chevron doctrine, and with great success.

Under the old Chevron guard, a challenge to an existing agency action or interpretation of law played out as follows. When an agency’s action and interpretation of a law (for example, a final rule issued by that agency) was challenged in court, the court followed a two-step analysis.

• First, the court determined ​“whether Congress has directly spoken to the precise question at issue.” If the answer was no—meaning the governing statute was ambiguous or silent—then the court would proceed to step two of the analysis: ​“whether the agency’s answer is based on a permissible construction of the statute,” later formulated as a ​“reasonableness” standard (even if the court would have reached a different conclusion). This standard made it very difficult for challenges to agency actions to prevail. Under the first step, the challenging party would have to prove that the governing statute was ​“unambiguous,” which often was not the case (for example, think about how Title VII has evolved since it was passed in 1964 and did not contemplate the nuances of a modern, evolving workplace). In other words, statutes are often ambiguous, and sometimes purposefully so.
• Moving to step two, the court would then determine ​whether the agency’s interpretation was​ ​“reasonable.” In practice, this meant that agency interpretations of law (even if they pushed the envelope of ​“reasonableness”) were typically upheld, as agencies almost always won on step two. As you can imagine, this further emboldened agencies and shaped their litigation strategies over time, as agencies knew they had a leg up in court.

LOPER BRIGHT – A GENERATIONAL CHANGE IN LAW

Then came Loper Bright, much to the chagrin of federal agencies. In a 6-3 decision across party lines, the U.S. Supreme Court held that the Administrative Procedure Act (APA) requires courts to exercise their independent judgment in deciding whether an agency has acted within its statutory authority, and courts may not defer to an agency interpretation of the law simply because a statute is ambiguous. Agencies, according to the Court, ​“have no special competence at resolving statutory ambiguities. Courts do.” Going forward, courts must do what they do best and ​“use every tool at their disposal to determine the best reading of the statute and resolve the ambiguity.” Without Chevron, no longer will courts ​“mechanically afford binding deference to agency interpretations,” bucking the decades-old trend.

The Court noted that prior decisions relying on the Chevron framework are not overturned, providing some continuity for prior holdings based on Chevron. Of course, it’s not that simple. Shortly after Loper Bright, the U.S. Supreme Court in Corner Post, Inc. v. Bd. of Governors of the Federal Reserve System, No. 22-1008 (July 1, 2024) (Corner Post) issued a decision addressing when claims brought under the APA accrue for purposes of the general six-year statute of limitations under federal law. The Court held that the limitations period for APA claims runs from the time of a plaintiff’s injury. Previously, most circuit courts had held that the limitations period for APA challenges instead began on the date of the final agency action (that is, when a regulation was issued) and without regard to when a plaintiff was injured. Now, Corner Post has breathed (even more) life into an opportunity to file challenges to agency regulations, which, as Justice Ketanji Brown Jackson noted, could cause a ​“tsunami of lawsuits.”

WHAT DOES THE END OF CHEVRON MEAN FOR EMPLOYERS, AND THE FUTURE OF LABOR AND EMPLOYMENT LAW?

What does the death of Chevron by Loper Bright mean? In its simplest form, the decision means that it will be more difficult for federal agencies to defend challenges to their regulations going forward. Agencies will increasingly be taken to task for an interpretation of law, or agency action, that strays too far from the statutory language (i.e., agencies will likely be playing defense, not offense). Now, without Chevron to fall back on, agencies will need to carefully consider the positions they take with respect to the statutes they are empowered to interpret and enforce. Undoubtedly, challengers to agency actions will point to the absence of Chevron in support of their position that an agency’s interpretation of law is unfounded (and indeed, already have).

The absence of Chevron will also likely lead to inconsistent results, as challenges to agency actions will be made across jurisdictions, with some federal courts upholding agency interpretations and others rejecting them. This will further complicate matters and pave the way for litigation to funnel to the U.S. Supreme Court. In fact, there are already a number of pending challenges to agency decisions underway, which will likely be affected by the post-Chevron world (such as the FTC’s noncompete ban, the DOL’s overtime rule, the EEOC’s final rule involving accommodations under the Pregnant Workers Fairness Act, and more). Loper Bright also comes at a time when notable changes to federal labor and employment laws are already happening, such as limits on the use of administrative proceedings (see SEC v. Jarkesy), the standard for requesting an injunction under the NLRA (see Starbucks v. McKinney), and a new framework for when employers are required to bargain with a union (see Cemex Construction Materials Pacific, LLC v. NLRB). More on these cases later.

What does the Loper Bright decision itself mean for employers? Today, nothing. Employers do not need to modify their existing policies or implement any changes to their workforce (as they would need to if the FTC’s non-compete ban goes into effect on September 4, 2024). Loper Bright was not even a case that involved labor and employment law. However, with Chevron deference eliminated, employers should be paying attention to decisions involving challenges to federal labor and employment law agency actions and thinking creatively about how Loper Bright can be an asset. Whether an employer finds itself in an administrative proceeding involving a law that is being challenged in the same (or even in a different, non-binding) jurisdiction, or a litigation in which arguments are being framed around existing agency interpretations of law, Loper Bright (and more simply, the elimination of Chevron deference that makes it more likely that an agency action or interpretation will not stand) is an important tool in the toolkit. It’s one that should not be overlooked.

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For questions and guidance about the impact of Loper Bright, please contact a member of Kelley Drye’s Labor and Employment team.