To prepare for a potential ICE workplace visit, companies should adopt a written ICE Workplace Visit Response Protocol (“Response Protocol”) that outlines steps to follow if ICE agents arrive. Employers should also have designated points of contact to administer communication with ICE agents during a visit. Employees should be trained to say, “I can’t give you permission to enter. You must speak with my employer.” Employees should provide no further information and remain silent in the event of questions or requests from ICE agents. Staying silent and asking for an attorney is the best way for workers to protect their rights especially as any information given can be used against a worker at a later time.
Companies can further protect their business and employees by designating private areas within the workplace. ICE agents cannot lawfully enter private areas without obtaining a judicial warrant signed by a state or federal judge. ICE agents will often present administrative warrants with the heading “U.S. Department of Homeland Security” as evidence of their authority to enter private areas. But administrative warrants are not issued by a court or signed by a Judge, and they do not allow immigration agents to enter private areas without the consent of the authorized employer representative. Employees should never provide consent for agents to enter private areas without a judicial warrant. Companies should label private areas of the workplace with signs stating “employees only” or keep private areas locked from public access. Doing so will ensure ICE agents cannot lawfully enter private areas of the workplace without consent.
Although ICE agents cannot enter private areas without a judicial warrant or consent, they can freely enter public areas such as parking lots, lobbies, shopping areas, or dining areas. If an agent is attempting to enter a private area, the employer’s designated ICE point of contact (“POC”) should ask to see a copy of the warrant to verify whether it is a judicial warrant, signed by a judge, and states “U.S. District Court” or the name of a state court at the top. If the agents do not present a valid judicial warrant, the employer POC should inform the agents that the employer does not consent to the agents entering private areas of the workplace.
In addition, it is highly recommended that companies provide Know Your Rights trainings to employees and staff, with a particular emphasis on the rights of employees during an ICE worksite raid or encounter. ICE agents do not always have a right to enter your workplace, stop or arrest workers, or take documents. Know Your Rights trainings can provide employees with important information about their rights and the “do’s and don’ts” during an ICE raid. These rights include the rights to remain silent, speak to a lawyer, and refuse to answer questions. Employees should also be trained not panic or try to flee during a raid because doing so could give ICE legal reason to suspect the employee is present in the United States in violation of immigration law, which would provide legal justification for ICE to arrest the employee. Staying calm and remaining silent during an ICE encounter is critical.
Company response protocols should also include guidance for documenting key information during and immediately following a raid. Key details include the number, names, and badge numbers of agents involved, their attire and visible weaponry, whether they constricted movement, and any mistreatment. Response protocols should also include a requirement to notify the employees union or representative if there is an ICE raid. If ICE arrests any employees, the company’s designated ICE POC should ask the ICE agents where they are taking the employee, because this information will assist families and attorneys to locate them.
Finally, companies should practice response protocols with employees and staff to ensure readiness for possible ICE visits. Conducting response protocol drills can ensure that employees, staff, and employer’s designated ICE POC are fully prepared in the event of an ICE raid.
Being prepared for an ICE raid can protect both your business and your employees. Kelley Drye can assist with preparation of a response protocol as well as trainings for employees and staff. For questions regarding ICE workplace visits or any other immigration related matter, contact Kelley Drye partner Matt Luzadder at [email protected] or (312) 857-2623 or senior associate Alla Taher at [email protected] or (312) 857-2720.
]]>View full article here.
]]>His most rapid actions focused on three areas: the leadership and thus focus of the EEOC, DEI policies and initiatives, and the rights of LGBTQ and transgender employees and citizens.
And, to round it out, he ordered all or most federal employees back to work, in their offices, five days per week.
New EEOC Acting Chair Andrea Lucas
As predicted in our December webinar, Andrea Lucas, the lone Republican-appointed Commissioner, was appointed the Acting Chair of the EEOC. While this appointment does not come as a surprise, its speed is notable, and is the first step in promoting the agenda that President Trump and his allies signaled in the months prior to his inauguration.
Ms. Lucas was appointed “Acting” Chair, and thus does not need Senate confirmation. This grants her some immediate powers, but leaves the door open for Trump to appoint another individual as the EEOC Chair in the future. It is entirely possible—and indeed, perhaps likely—that this individual may be handpicked without prior ties to the agency at all, as there is currently a vacancy on the Commission that Trump will almost certainly fill.
Ms. Lucas’s ability to act—at least in the short term—may be limited due to the fact that the remainder of the agency’s Commissioners are Democrats and will hold a majority in the agency through 2026. Commissioners currently serve five-year staggered terms.
Unsurprisingly, Ms. Lucas has been at ideological odds with the Democratic commissioners on a series of issues for some time. For instance, Ms. Lucas has opposed the agency’s rules explaining the Pregnant Workers Fairness Act. She also opposed the EEOC-issued guidance stating that “misgendering” an individual employee could be considered harassment, and disagreed with the agency’s stance on Diversity Equity & Inclusion (“DEI”) measures.
Ms. Lucas wasted no time getting out a statement, which was on the EEOC website this morning:
Consistent with the President’s Executive Orders and priorities, my priorities will include rooting out unlawful DEI-motivated race and sex discrimination; protecting American workers from anti-American national origin discrimination; defending the biological and binary reality of sex and related rights, including women’s rights to single sex spaces at work; protecting workers from religious bias and harassment, including antisemitism; and remedying other areas of recent under-enforcement.
She also stated that the EEOC would emphasize rights for all, and not just for members of certain groups:
Our employment civil rights laws are a matter of individual rights. We must reject the twin lies of identity politics: that justice is measured by group outcomes and that civil rights exist solely to remedy harms against certain groups,” Lucas said. “I intend to dispel the notion that only the ‘right sort of’ charging party is welcome through our doors and to reinforce instead the fundamental belief enshrined in the Declaration of Independence and our civil rights laws—that all people are ‘created equal.’ I am committed to ensuring equal justice under the law and to focusing on equal opportunity, merit, and colorblind equality.
Further changes to the agency’s directives are certain to follow in the coming months and years.
In fact, there is speculation that the agency’s current General Counsel, Karla Gilbride, will be replaced as well. Ms. Gilbride was nominated by President Biden in early 2023 and confirmed later that year by the Senate to a four-year term. Although her term is not up, the new President could terminate her.
Federal DEI Regulations Suspended
Donald Trump allocated a portion of his inaugural speech to a promise that he would suspend DEI initiatives at the federal level. He made good on that promise already, with the release of numerous Executive Orders. One of these orders immediately dismantled all future diversity efforts carried out by federal employees.
The Office of Personnel Management issued a memorandum requiring all DEI officials to be placed on immediate (paid) administrative leave and all DEI contractors immediately terminated. This memo further directed federal agencies to suspend all language or advertisements about their DEI initiatives and withdraw all directives that would undermine the new orders. Finally, the memorandum instructed agency heads to inform DEI officials that their offices would be closed and that employees would be questioned about whether there were any efforts that remained “in disguise” by using “coded or imprecise language.”
While the federal suspension does not impact private employers now, it was followed up with a separate Executive Order aimed at the private sector encouraging them to follow the federal government’s lead.
The Order states that DEI policies “undermine our national unity, as they deny, discredit, and undermine the traditional American values of hard work, excellence, and individual achievement in favor of an unlawful, corrosive, and pernicious identify-based spoils system.” While obviously outside direct executive control, the Executive Order directed federal agencies to investigate the compliance of private corporations and foundations with federal guidelines.
These efforts worked in tandem with the rescission of several executive orders previously signed by President Biden.
Gender Identity Executive Orders
In a series of Executive Orders also issued on Monday, Donald Trump proclaimed that it is now “the policy of the United States to recognize two sexes, male and female.”
The Order—titled “Defending Women from Gender Ideology Extremism and Restoring Biological Truth to the Federal Government”—explicitly states that “[t]hese sexes are not changeable and are grounded in fundamental and incontrovertible reality.” The Order defines “sex” as an individual’s “immutable biological classification as either male or female” and states that sex “is not a synonym for and does not include the concept of ‘gender identity.’”
The Order further imparts the following policy changes:
It remains to be seen what further efforts the Executive Branch will take to suspend gender-based protections in the workplace.
What Should Employers Do Now?
First, keep abreast of the news and register for our webinar on these topics, "Trump Reframes the EEO Agenda: What Does It Mean for Your Business?," which we are holding on January 30. We hope there will be more guidance issued by the agencies before then.
Second, keep your state and local laws and enforcement agencies in your sights. As was the case during the first Trump presidency, state and local laws which are more employee-friendly remain in effect, and many state and local EEO agencies will step up enforcement, especially in areas where the federal agencies may stand down or become less aggressive.
Next, train your HR Department and your managers to be mindful of employee issues. With so much talk in the news regarding employee rights, DEI, and other similar “hot button” topics, it is very possible that this news filters into your workplace. Emotions are running high, and tempers may flare, so be aware of the pulse of your workplace and on alert for employee disputes.
Finally, look to your Kelley Drye attorney for guidance. We continue to monitor developments and will provide guidance relevant to private-sector employees as the situation evolves.
]]>In conjunction with this initiative, the New Jersey Office of the Attorney General and the DCR jointly published a Guidance Memorandum to explain how the New Jersey Law Against Discrimination (“LAD”) applies in the face of an advancing technological landscape.
The message is clear: the LAD applies to the use of AI tools to the same degree as it does to human decisions. While acknowledging that AI and automated decision-making tools can serve an important function in reducing bias, the Guidance Memorandum explains that bias can nonetheless be introduced into automated decision-making tools if systemic racism, sexism, or other inequalities are not accounted for when designing, training, and deploying these tools.
Whether intended or not, implementation of AI in the workplace can result in discriminatory outcomes for employees. Critically, an employer cannot be shielded from liability by pointing to the use of an outside or third-party automated decision-making tool.
There is no question that automated tools can have a variety of beneficial outcomes when implemented appropriately by employers. However, employers should be aware that bias can be introduced into automated decision-making tools – with or without intent – and as a result unchecked use of automated tools will be subject to the same level of scrutiny as a human decision maker under the LAD.
To avoid liability, employers should carefully vet their technology vendors and familiarize themselves with the tools that they have implemented. Asking questions and maintaining human oversight over these tools will be critical to avoid discriminatory outcomes and ward off potential claims.
The Kelley Drye team will continue to monitor this important topic for any additional guidance from the state, enforcement efforts, or private litigation that sheds light on how best to navigate the use of AI and automated decision-making tools in the workplace. In the interim, please contact your Kelley Drye attorney with any questions.
]]>A number of states have enacted new laws—in effect already or soon to take effect—which will require employers to update their payment and wage classification policies, leave requirements, and protections regarding discrimination and privacy.
We focus here on new laws that took effect on January 1, 2025 in New York and California—two of the most progressive and legislatively active jurisdictions, and (for those reasons) the two known as the most potentially “dangerous” for employers.
New York
Paid Prenatal Leave: New York is the first state in the nation to mandate that employers provide employees with 20 hours of paid prenatal personal leave every calendar year.
The Paid Prenatal Leave Law covers all private-sector employers, regardless of size of the employer.
A few significant points for compliance:
The definition of ‘prenatal care’ is broad, and covers health care services received during an employee’s pregnancy or related to such pregnancy, including physical examinations, medical procedures, monitoring and testing, and “discussions with a health care provider related to the pregnancy.” The leave may also be used for time off in connection with the end or termination of a pregnancy.
Notably, the Law states that employers are prohibited from retaliating or discriminating against an employee for requesting or using paid prenatal leave, with civil remedies available to employees of up to $10,000 to $20,000.
For more information, the NY Department of Labor has published guidance for employers to assist with compliance with this new law, which can be found here https://www.ny.gov/new-york-state-paid-prenatal-leave/information-employers.
The Exempt Salary Threshold: The amount a New York employee must be paid to be classified as “exempt” from overtime is now higher:
Employers should thus review the salaries of their exempt employees in New York to ensure that they are still being paid above the updated salary exemption threshold. Also, keep in mind, that the salary exemption threshold is just one aspect of the multi-part of the tests to determine whether an employee is properly classified as exempt or non-exempt. Employees must also have certain job duties and responsibilities as required by New York law.
Minimum Wage: Effective January 1, 2025, the minimum wage in New York City, Long Island and Westchester County increased to $16.50 an hour. The minimum wage in the rest of the state increased to $15.50 an hour.
On January 1, 2026, the minimum wage in New York City, Long Island and Westchester County will increase to $17 an hour. The minimum wage elsewhere in the state will increase to $16 an hour. Moreover, the minimum wage for tipped service employees and home care aides will also increase.
California
There are several updates that came into effect on January 1, 2025 that employers in California must be aware of. We will focus on three unique updates to put on California employers’ radars.
Expansion of the Definition of “Race”: First, under California’s Unruh Civil Rights Act, the definition of “race” will be updated to include traits typically associated with race. The Unruh Civil Rights Act protects against discrimination by all business establishments in California. The updated law defines traits associated with race to include hair texture and protective hairstyles. The act further defines “protective hairstyles” as “braids, locs, and twists.” These types of protections for traits associated with race are consistent with several other state and local laws we have seen broadening the definition of race.
Prohibition on “Digital Replicas”: A provision will be added to the California Labor Code that would make an employment agreement unenforceable if there is a provision that allows for the creation and use of a digital replica of the employee’s voice or likeness in place of work that the employee would otherwise perform in person. A “digital replica” includes “computer-generated, highly realistic electronic representation that is readily identifiable as the voice or visual likeness of an individual that is embodied in a sound recording, image, audiovisual work, or transmission in which the actual individual either did not actually perform or appear, or the actual individual did perform or appear, but the fundamental character of the performance or appearance has been materially altered.” There are some exceptions which employers should review, if a licensing agreement was negotiated.
This law is one of several we expect to see where states attempt to strike a delicate balance of protecting employee rights while allowing employers to take advantage of the technological advances in artificial intelligence.
The Freelance Worker Protection Act: This act grants freelance workers protections related to the timing of compensation and retention of independent contractor agreements. Under the act, a freelance worker is defined as an individual, whether acting as an individual or part of an organization, that is engaged to provide professional services in exchange for an amount greater than or equal to $250.
The Freelance Act requires that freelance workers be paid either on or the day before the compensation is due pursuant to a contract, or, if the contract does not specify, no later than 30 days after the completion of work. The act also requires the hiring party to retain the contract between the hiring party and the freelance worker for a period of no less than 4 years.
No Mandatory Employer Meetings: On January 1, California joined Illinois, Connecticut, Hawaii, New York, and Oregon to prohibit “captive audience” (that is, mandatory) meetings, on religious or political matters, including a labor organization. The so-called “captive audience” speech has long been a tool used by employers facing union organizing efforts to get employees in a room and tell them about the disadvantages of unionizing in an effort to affect the outcome of a union vote. Business groups immediately filed a federal lawsuit challenging the new law’s constitutionality on free speech and equal protection grounds. While litigation is pending, employers will have to make a decision: do they defer to the new laws and make the meetings voluntary?
What Should Employers Do?
As we always say: familiarize yourself with the requirements of these laws, update your policies, and train your managers. We are also watching for further compliance guidance from the agencies, so keep checking in with LaborDaysBlog.com. From our perspective, the biggest risk associated with all the new legislation is that the laws touch on entirely new areas, so employers and HR professionals can’t rely on familiar instincts to navigate compliance.
If you have any questions on best practices to update employment policies or need assistance with updates in any jurisdiction in the United States, please contact a member of the Kelley Drye Labor and Employment team.
]]>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.
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.
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.
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.
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.
Minimum wage laws must be read completely and carefully. Here are a few things to consider:
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.
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?
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:
Take note: Job placement agencies and multi-state employers with employees in New Jersey will also be covered.
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:
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.
Failure to comply with SB2310 can result in fines. Here’s the breakdown:
While there’s no private right of action (i.e., employees can’t sue you directly), these penalties could add up quickly.
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:
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 19th 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.
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.
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.
]]>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.
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 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.
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:
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.
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.
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.
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.
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.
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:
If employers show they have taken “all reasonable steps” to comply with the law under two scenarios, there may be caps on PAGA penalties.
“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.
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.
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.
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 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.
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.
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).
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.
]]>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.
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:
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.
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:
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:
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.
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.
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.
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:
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:
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:
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.
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