As anticipated, the Final Rule has been met with swift legal challenges attempting to block its implementation, with many questioning the FTC’s rule-making authority, and whether it would survive in the courts. To date, those legal challenges have been successful (albeit limited). On July 3, 2024, the court in Ryan LLC v. FTC 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. Importantly, the court in Ryan laid out its reasoning for why the FTC’s Final Rule is likely unlawful, effectively paving the way for future legal challenges. However, the court in Ryan did not issue a nationwide injunction (meaning the Final Rule, as it stands today, is still set to take effect on September 4, 2024, for all parties not named in the Ryan action). Even still, the FTC’s Final Rule has taken a significant beating, made worse by the United States Supreme Court’s decision in Loper Bright Enters. v. Raimondo, which overturned the old reliable Chevron deference that federal agencies, like the FTC, have come to love and rely upon heavily in issuing rules and regulations based on their interpretations of existing law. Now without Chevron in its arsenal, undoubtedly it will be more difficult for federal agencies to regulate noncompete agreements (and other rules) because courts will likely (and should) yield less to administrative agencies’ interpretations of existing law.

Currently, the Final Rule will take effect on September 4th for all employers, except for the parties in the Ryan action. While this might change, and a nationwide injunction may be issued in Ryan (or in other courts), employers must be ready to implement significant changes regarding noncompetes that, if required, will undoubtedly alter the nature of their workforce and business for the foreseeable future. In this article, we demystify the Final Rule, its implications, discuss the current legal challenges and provide practical considerations for employers as they prepare for its (possible) implementation on September 4th.

WHAT DOES THE FINAL RULE MEAN FOR EMPLOYERS?

If the Final Rule goes into effect, it will broadly prohibit employers from imposing noncompetes on workers, which includes any term or condition of employment (whether written or oral) that “prohibits,” “penalizes” or “functions to prevent” a worker from seeking or accepting work or operating a business in the U.S. after their employment ends. This prohibition applies to all new noncompete clauses between employers and workers, post-the effective date of the rule, and also renders unenforceable existing noncompete clauses other than those pre-existing noncompetes for workers defined as “senior executives” (which the rule defines as a worker earning more than $151,164 who is in a “policy-making position”). Although the Final Rule does not prohibit nondisclosure agreements, or nonsolicitation agreements, these types of agreements could fall within the rule’s ban if they are “so broad and onerous” that they have “the same functional effect as a term or condition prohibiting or penalizing a worker from seeking or accepting other work or starting a business.”

The Final Rule also requires employers to notify employees subject to the prohibited noncompete (i.e., except for “senior executives”) that existing noncompetes will not be, and cannot be, enforced. The FTC has also provided model language for the notice requirement. Absent a successful legal challenge (that applies to all employers, not just those named as parties to a given action), prohibiting its implementation, the Final Rule will take effect on September 4, 2024, 120 days after it was published in the Federal Register. As we discuss below, unless a nationwide injunction is issued, employers will be required to comply with the rule and should be preparing now to do so, even if the likelihood of it going into effect is increasingly becoming less likely.

LEGAL CHALLENGES TO THE FINAL RULE – RYAN LLC MAKES WAVES THIS SUMMER

Not surprisingly, it did not take long for legal challenges to the Final Rule to take fold. On April 23, 2024, hours after the Final Rule was passed, Ryan LLC filed the first lawsuit seeking to enjoin the Final Rule in federal court in the Northern District of Texas. That same day, the U.S. Chamber of Commerce (the nation’s largest business advocacy group) filed a similar lawsuit in the Eastern District of Texas seeking to do the same. Since then, another lawsuit was filed in the Eastern District of Pennsylvania (ATS Tree Services, LLC v. Federal Trade Commission et al.). Each of these lawsuits take similar form. They contend the FTC lacks authority to engage in rulemaking of substantive competition rules (i.e., prohibit noncompetes), and seek a declaratory judgment and injunctive relief to prevent the Final Rule from taking effect 120 days after its publication in the Federal Register, September 4th.

On July 3, 2024, Judge Ada Brown (a Trump appointee) in Ryan issued a blustering 33-page decision preliminary enjoining the Final Rule from taking effect on September 4, 2024; but, as noted, only with respect to the plaintiffs in the action (Ryan, LLC, the U.S. Chamber of Commerce, the Longview, Texas Chamber of Commerce, and two trade organizations). In finding that plaintiffs would likely succeed on the merits, there are several main takeaways. First, the court explained that, after reviewing the text, structure, and history of the relevant statute (the “FTC Act”), that it does not “expressly grant the [FTC] authority to promulgate substantive rules regarding unfair methods of competition.” This is a major blow to the FTC’s proffered argument that it is an unfair method of competition for persons to enter or enforce noncompete agreements, and that the powers entrusted to the FTC empower it to make substantive rules precluding unfair competition. On this basis alone, we anticipate that future legal challenges to the Final Rule will likely be successful (and indeed, the court in ATS has already relied upon the decision in Ryan).

Second, the court in Ryan went on to say that a categorical ban on nearly all noncompetes would likely be arbitrary and capricious because it is overly broad without any reasonable explanation and signaled that the Final Rule is unlikely to pass final judicial review on the merits. As explained above, the court in Ryan did not grant nationwide injunctive relief and limited its preliminary injunction and the stay of the Final Rule’s effective date to the plaintiffs before the court (which means that the Final Rule’s effective date still applies to all employers). However, the court explained that it intends to enter a merits disposition on the action on or before August 30, 2024, a decision likely to convert the preliminary injunction to permanent relief.

As if the state of the law could not get any more interesting, before the preliminary injunction decision in Ryan, SCOTUS issued a decision on June 28, 2024, in Loper Bright which, by itself, was a watershed moment in administrative law. The court in Loper Bright eliminated the agency deference afforded by step two of Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc. In particular, the court held that 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 a significant change in administrative law. Undoubtedly, the elimination of Chevron deference weakens the FTC’s Final Rule even further, as it deals a blow to the FTC’s broad interpretation of its rule making authority to curtail unfair competition.

But that’s not all. Before the court in Ryan enters a merits disposition on August 30th, on July 23, 2024, the court in ATS is expected to issue a decision on the plaintiff’s motion for preliminary injunction. Presiding Judge Kelley Hodge (a Biden appointee) could order a broader injunction, or a conflicting opinion to Ryan, complicating matters even further and creating more uncertainty for employers before the Final Rule’s effective date.

THE FINAL RULE’S NOTICE REQUIREMENTS

If the Final Rule stands (which it may not), it requires employers to notify non-excepted employees that existing noncompetes will not be, and cannot be, enforced. The FTC’s model language contains explicit language to this effect, and the FTC recommends that such notice be provided in multiple languages. The model language says:

A new rule enforced by the Federal Trade Commission makes it unlawful for us to enforce a non-compete clause. As of [DATE EMPLOYER CHOOSES BUT NO LATER THAN EFFECTIVE DATE OF THE FINAL RULE], [EMPLOYER NAME] will not enforce any non-compete clause against you. This means that as of [DATE EMPLOYER CHOOSES BUT NO LATER THAN EFFECTIVE DATE OF THE FINAL RULE]:

• You may seek or accept a job with any company or any person—even if they compete with [EMPLOYER NAME].

• You may run your own business—even if it competes with [EMPLOYER NAME].

• You may compete with [EMPLOYER NAME] following your employment with [EMPLOYER NAME].

As noted, the decision in Ryan (at least for now) only applies to the plaintiffs in that action, not all employers. It also remains to be seen whether a broader, or conflicting, decision will issue in ATS. While we anticipate future legal challenges will continue, employers must be ready to comply with the Final Rule if a nationwide injunction is not issued.

IF THE FINAL RULE GOES INTO EFFECT ON SEPTEMBER 4, 2024, WHAT SHOULD EMPLOYERS DO?

Assuming the Final Rule remains in effect on September 4th, employers will need to provide notice to employees of its implementation, as noted above. If that becomes the case, we recommend that employers use qualifying language in the notice to preserve its right to enforce the noncompete provisions with its employees should the Final Rule later be eliminated. An example of this language could be, as follows:

The Company is providing you with this notice to comply with the FTC’s Final Rule, to which legal challenges are pending. Should the Final Rule not remain in effect, the Company intends to enforce your noncompete provision, in accordance with applicable law.

Because the Final Rule does not require the recission of a contract with an employee, meaning that the employer would otherwise have to cancel its contract with each employee, the above language is meant to provide the employer with flexibility to enforce the noncompete provision should it be in a position to do so given the status of future legal challenges, all the while complying with existing law. Even if the Final Rule remains, there are still effective tools that employers can use to protect its confidential and proprietary information and ensure that their business interests are protected.

***

For assistance in navigating the intricacies of compliance with the FTC’s Final Rule please contact Kelley Drye’s Labor and Employment team.

“Alison’s exceptional legal instincts, dogged attention to detail, and strong relationships have always been and will continue to be one of the strong points of our L&E team,” said Mark Konkel, the Chair of Kelley Drye’s Labor and Employment practice group. “Her promotion to Special Counsel is a recognition of what she has already accomplished: outstanding results and consistently excellent client service.”

Alison represents and counsels clients in all aspects of labor and employment law. She handles matters before federal and state courts and administrative agencies in defense of discrimination, retaliation, wrongful discharge, wage and hour, breach of contract, and tort claims. Alison also counsels clients on a wide array of employment matters, including developments in applicable laws, workplace accommodation requests, policy development, and she also conducts workplace investigations. Alison served as a law clerk to the Honorable Kimberly Espinales-Maloney in the Superior Court of New Jersey. She is a member of the New York and New Jersey Bars.

Ranked by Chambers USA and Legal 500 as a leading labor and employment defense team, the Kelley Drye team has a record of success in employment litigation and other disputes. For more than 60 years, our team advocated for employers in state and federal courts, before federal, state, and local agencies, as well as in arbitration and mediation. For more information, click here.

Companies seeking to protect their business with post-employment restrictions—in particular, noncompetes and non-solicitation agreements—face ever-increasing regulatory and legislative challenges. The Federal Trade Commission’s broad ban on noncompetes, slated to take effect on September 4, 2024, is surely the most dramatic and headline-grabbing of recent developments. However, even if the predictions that the rule won’t survive legal challenges are true, companies will still face a patchwork of state and local laws that significantly limit the use of restrictive covenants. With a one-size-fits-all approach no longer tenable, how can companies pursue the most effective strategy for protecting business information and relationships?

Topics include:

• Evolving legal trends
• The best compliance strategies
• Alternative approaches to the use of noncompete agreements

Whether you are a business owner, HR professional, legal counsel, or corporate executive, this webinar offers essential insights and actionable strategies to help you effectively navigate the evolving regulatory landscape surrounding noncompete agreements.

REGISTER HERE

The Impact of Wage Statement Claims Minimized

Background

In Naranjo v. Spectrum Security Services Inc., the California Supreme Court handed a win to employers when it held that employers may use a good faith defense to defend against claims for penalties under California Labor Code Section 226, the statute governing wage statement requirements. The underlying dispute was a wage and hour class action filed by a former security guard, alleging meal and rest break violations. The lower court ruled in favor of the putative class members by holding that meal and rest breaks must be reported on official time sheets.

The narrow issue before the California Supreme Court was whether employees can recover civil penalties against their employers for “knowingly and intentionally” violating the California wage statement statute, even if they have a good faith belief that they are in compliance. The Court concluded employees may not recover statutory penalties for violations that are not knowing and intentional. In reaching this decision, the Court relied on the notion that civil penalties are designed to deter and punish rather than to compensate. A good faith defense negates that a wage statement violation was “knowing and intentional” as required by the statute.

Significance to Employers

Complying with California’s complex wage statement requirements is no easy task. Adding to the risks for employers, claims for wage statement violations is a popular “add-on” cause of action to wage and hour litigations. This decision imposes a higher burden for plaintiffs seeking to recover penalties by requiring them to show that wage statement errors were done “knowingly and intentionally.” This potentially opens the door for the employers to limit liabilities in cases where Plaintiffs claim they worked off the clock, but never reported the off-the-clock work, and the employers can show that they paid according to the time records. Employers may also consider requiring employees to sign off on their timecards to bolster its good faith defense.

Outside of the litigation context, employers should work with counsel to ensure they are properly issuing wage statements.

Stock Options Are Not Wages Under California Law

Background

In Shah v. Skillz, a California Court of Appeal held that stock options are not wages under the California Labor Code. In Shah, a startup terminated an employee who then brought claims of wrongful termination and retaliation. The startup had an IPO after the former employee’s termination, and he was unable to exercise his stock options they were not available to him after his termination for cause. Disgruntled about the missed opportunity to benefit from the IPO, the former employee filed a lawsuit.

The former employee filed tort claims of retaliation and wrongful termination tort claims. These claims alleged that the company wrongfully terminated and retaliated against him for complaining about his stock options prior to termination. The former employee could only sustain those tort claims if they arose out of a protected activity, namely complaints about unpaid wages. Since the Court concluded stock options are not considered wages, the employee had no basis for those claims because he did not engage in protected activity. In reaching its decision, the Court relied on 9^th Circuit decisions explaining that stock options are not amounts or money, but rather contractual rights to buy shares of stock.

Significance to Employers

This decision significantly limits the universe of wage claims that former employees can bring, particularly startup employees who are often granted stock options in lieu of higher salaries and other compensation. Since stock options are not wages, they cannot serve as the basis for an underlying wage and hour litigation. Further, employee complaints about stock options do not constitute protected activity, foreclosing another way employees may plead retaliation claims against employers. This decision also provides employers with arguments to limit damages even when the plaintiff prevails on other claims, such as wrongful termination.

Beyond litigation, employers should work with counsel to determine whether they should alter their compensation strategies and employment agreements in light of this decision.

If you have questions about defending against wage and hour claims, please contact a member of Kelley Drye’s Labor and Employment team.

Lactation Breaks

Effective June 19, 2024, employers must provide employees who have a reasonable need to express breastmilk with 30-minute paid lactation breaks. Previously, employers were required to provide an unpaid break time and permit employees to use paid breaks to express breastmilk. The new law specifies that employees are entitled to a lactation break “each time such employee has reasonable need to express breast milk,” meaning that employees may be entitled to multiple paid breaks per day. Under the new law, employees may continue use existing paid breaks, such as a meal break, for lactation. This new requirement is particularly significant for employers with hourly workforces, as an updated lactation break policy is likely necessary to avoid potential wage and hour violations.

Prenatal Leave

Effective January 1, 2025, New York will be the first state to mandate paid prenatal leave. Specifically, employers will be required to provide pregnant employees up to 20 hours of paid leave in a 52-week period. Prenatal leave encompasses leave for healthcare services such as physical examinations, medical procedures, monitoring and testing, and discussions with a health care provider related to the pregnancy. The new law specifies that employees shall be paid for this leave at their regular rate of pay. Significantly, this leave is in addition to the paid sick and safe leave required under New York State and City laws.

COVID-19 Leave

The budget established an end date of July 31, 2025 for COVID-19 sick leave, which previously lacked an expiration date. This leave applies when employees under a mandatory or precautionary order of quarantine or isolation due to COVID-19.

New York employers or any multi-state employers with New York employees should review their existing policies and revise them to comply with these recent changes.

If you have questions concerning these new requirements or NY employment laws, please contact a member of Kelley Drye’s Labor and Employment team.

The state considers workplace violence to be any act of violence or threat of violence that occurs in a place of employment. However, lawful acts of self-defense or defense of others are not considered as workplace violence.

Workplace violence includes and is not limited to the following: “(i) The threat or use of physical force against an employee that results in, or has a high likelihood of resulting in, injury, psychological trauma, or stress, regardless of whether the employee sustains an injury. (ii) An incident involving a threat or use of a firearm or other dangerous weapon, including the use of common objects as weapons, regardless of whether the employee sustains an injury.”

A threat of violence can be verbal, written, behavioral, or physical conduct that conveys or is reasonably perceived to convey an intent to cause physical harm or instill fear of physical harm, without serving any legitimate purpose. California highlights that employers should consider that threats of violence can be via messages or posts on social media, texts, emails, IMs or any other online content.

The law defines four types of workplace violence based on the perpetrator’s relationship to the workplace and outlines specific required components for the workplace violence prevention plans.

• Type 1 violence - workplace violence committed by a person who has no legitimate business at the worksite, and includes violent acts by anyone who enters the workplace or approaches workers with the intent to commit a crime.
• Type 2 violence - workplace violence directed at employees by customers, clients, patients, students, inmates, or visitors.
• Type 3 violence - workplace violence against an employee by a present or former employee, supervisor, or manager.
• Type 4 violence - workplace violence committed in the workplace by a person who does not work there, but has or is known to have had a personal relationship with an employee.

What does the law require of affected California employers?

• The amendments to the California Labor Code require almost all employers, including contractors, in California to:
• Create a workplace violence prevention plan specific to hazards and corrective measures for each work area and operation
• Create and maintain a violent incident log for every workplace violence incident based on information solicited from employees who experienced the workplace violence, witness statements, and investigation findings. Multiemployer worksites should provide a copy of their own log to the controlling employer
• Train employees when the plan is established and annually going forward
• Provide additional training each time a new or previously unrecognized workplace violence hazard is identified or changes are made to the plan

Who will enforce this new law?

The Division of Occupational Safety and Health (Cal/OSHA) will enforce this new law and must propose standards by December 1, 2025 along with the Occupational Safety and Health Standards board, which must propose its standards by December 31, 2026.

What are the penalties for non-compliance?

This new workplace violence prevention law becomes effective on July 1, 2024 and will apply to virtually all employers in the state. Under certain circumstances, employers who fail to create and implement an effective workplace violence prevention plan or violate the provisions in the law could face a misdemeanor (CA SB 553).

Takeaway

California’s new workplace violence prevention law will require virtually all employers in the state to implement comprehensive plans to prevent, respond to, investigate, and correct workplace violence hazards. By adopting these new standards, California will be the leading state with expanded laws on workplace violence prevention and employee security.

For assistance in navigating the intricacies of compliance with California’s new workplace violence prevention law please contact Kelley Drye’s Labor and Employment attorneys Matthew Luzadder and Judy Juang.

The decision, Christine Savage v. Township of Neptune, involved a former police officer talking about her former employer’s abusive culture on television after the parties had entered into a settlement agreement. There, the Supreme Court ruled that the non-disparagement clause in Christine Savage’s settlement agreement resolving sex discrimination, sexual harassment and retaliation claims against her former employer was against public policy and unenforceable under New Jersey’s #MeToo statute, N.J.S.A.10:5-12.8(a). This case represents the latest in the trend of states eroding employers’ use of confidentiality in settlements.

What Were the Facts of Savage v. Neptune?

Christine Savage, a former police sergeant, initially sued her employer, the Neptune Township Police Department in 2013, alleging sexual harassment, sex discrimination, and retaliation. The first lawsuit settled in 2014. Savage brought another suit in 2016, alleging violation of the settlement agreement and that the harassment, discrimination, and retaliation had increased.

The parties entered another settlement in July 2020, which contained a non-disparagement provision providing that the parties agreed not to make or cause others to make any statements “regarding the past behavior of the parties” that “would tend to disparage or impugn the reputation of any party.” The non-disparagement provision extended to “statements, written or verbal, including but not limited to, the news media, radio, television, . . . government offices or police departments or members of the public.”

After the parties entered into the settlement agreement, Savage participated in an interview as part of a television news show covering her lawsuit. During the interview, Savage made comments such as “you abused me for about 8 years” and that the police department was run under the “good ol’ boy system.”

The police department filed a motion to enforce the settlement on the grounds that Savage’s television interview violated the parties’ non-disparagement clause. The trial court granted the motion. An appellate court reviewed and reversed, ruling that while the non-disparagement clause was enforceable, Savage did not violate it.

Then, the Supreme Court went a step further and held that the non-disparagement clause did violate N.J.S.A.10:5-12.8(a), which provides in part that “[a] provision in any employment contract or settlement agreement which has the purpose or effect of concealing the details relating to a claim of discrimination, retaliation, or harassment (hereinafter referred to as a “non-disclosure provision”) shall be deemed against public policy and unenforceable against a current or former employee.”

The Supreme Court determined that whether the provision is labeled a “non-disparagement”, or “non-disclosure” provision does not control the application of the statute. Rather, the relevant determination is whether the provision has the effect of concealing the details relating to a claim of discrimination, retaliation, or harassment. The Supreme Court held that Savage’s non-disparagement provision had that effect, in violation of the #MeToo statute.

What Should Employers Do Now?

New Jersey employers should pay close attention and work with counsel to carefully craft settlement agreements for employees who have asserted claims of discrimination, harassment, or retaliation. Employers may not include any provision that has the effect of concealing the details relating to a claim, not just non-disclosure provisions. Significantly, this decision likely applies to New Jersey-based employees, so employers located outside of New Jersey may also be affected.

Further, despite having its origins in the #MeToo movement, the decision also does not limit such restrictions to agreements settling only sexual harassment claims, but also places such restrictions on agreements settling discrimination and retaliation claims as well.

Other states have similar #MeToo statutes, and we recently reported on amendments to New York’s law. Among other things, the amendments prohibit settlement agreements from requiring the complainant to pay liquidated damages or forfeit settlement payment for violating a non-disclosure or non-disparagement clause.

Unlike New Jersey, New York has not gone as far as to effectively ban restrictive non-disparagement provisions. It remains to be seen whether this New Jersey decision will serve as an impetus for changes in other states. Thus, all employers should work with counsel to track state laws and court decisions interpreting evolving #MeToo laws and their application to settlement agreements.

If you have questions concerning employee settlement agreements, please contact a member of Kelley Drye’s Labor and Employment team.

The Maryland Senate and House just approved Bill 649 (“HB 649”) to expand the reach of Maryland’s Equal Pay for Equal Work Act. In previous posts (here and here), we outlined similar wage and pay transparency requirements under the NYC Pay Transparency Law and California’s laws governing pay transparency. Maryland’s HB 649, if signed by the governor, will require Maryland employers of any size to include salary ranges in job solicitations and advertisements. Along with New York and California, the Maryland bill joins similar passed or upcoming legislation in Colorado, Hawaii, Illinois, Washington, and Washington D.C.

Maryland Equal Pay for Equal Work Act

On October 1, 2020, Maryland adopted two amendments to its Equal Pay for Equal Work Act to include new wage transparency requirements for Maryland employers of any size. The first amendment required employers, at the request of job applicants, to provide a wage range for job openings, and prohibited employers from asking job applicants about their salary history. The second amendment prohibited employers from taking adverse employment actions against employees who asked about their own wages. Previously, the Maryland Equal Pay for Equal Work Act only prohibited adverse employment actions against employees who asked about the wages of their colleagues.

Maryland HB 649

On March 29, 2024, the Maryland Senate approved the most recent proposed amendment to the Maryland Equal Pay for Equal Work Act. If approved by the governor, HB 649 would require Maryland employers of any size to disclose the following information for all public or internal job postings for a covered position: (i) the wage range, (ii) a general description of benefits and (iii) a general description of any other compensation offered for the position. Alternatively, if a job posting was not made available to an applicant, a Maryland employer must disclose the required information to the applicant before a discussion of compensation is held or at any other time as required by the job applicant.

A wage range must be determined by the employer “in good faith,” and HB 649 instructs Maryland employers to reference previously determined pay rates for the position, pay rates of comparable positions and budgeted amounts when determining the wage range. Employers are also required to maintain a record of compliance with the wage transparency requirements for at least three years after the date that a position is filed or, if the position was not filled, the date the position was initially posted.

Most notably different about the Maryland bill compared to other state pay transparency laws, a covered position under HB 649 only applies to positions that will be physically performed, at least in part, in the state of Maryland. The law, therefore, excludes fully remote positions outside the state of Maryland from the pay transparency requirements.

Employers that violate BH 639 may be subject to letters compelling compliance from the Maryland Division of Labor and Industry for a first offense and fines up to $300-$600 for each employee or application for subsequent offenses.

If employers have questions about compliance with the Maryland pay transparency law, or any other state or local law requiring pay transparency for employees or applicants, now is the time to contact employment counsel. As always, Kelley Drye attorneys are available to answer questions and to assist with compliance.

Employers beware: The Muldrow decision makes it easier for employees to assert claims of discrimination, when the only adverse action they suffered was a transfer. Prior to this new ruling, employees bringing Title VII lawsuits over a transfer in some Circuits had to show “significant harm” - that the alleged discrimination impacted material terms of employment such as pay. Now, the Supreme Court has uniformly lightened this burden for plaintiffs across all federal Circuits, as they only have to show “harm” rather than “significant harm” to allege a Title VII claim. Accordingly, this new ruling may pave the way for more employees to bring Title VII lawsuits in cases where employees are transferred and there is arguably “some harm,” but that harm is not significant. This change is crucial for employers, particularly those analyzing the risks of transferring employees, even where such transfers do not alter the employees’ pay or benefits. Employers and their counsel must now determine whether these often-routine employment changes could be construed as causing any sort of “harm” to employees under this new standard.

What were the Key Facts of Muldrow?

Sergeant Jatonya Clayborn Muldrow commenced a lawsuit against her employer, the St. Louis Police Department, alleging that she was transferred because she is a woman. Muldrow was transferred from her position as a plainclothes officer in the Intelligence Division and replaced with a male officer. In her new position, her rank and pay remained the same, while her responsibilities, perks, and schedule changed. Her new role involved supervising the day-to-day activities of the neighborhood patrol officers rather than working with high-ranking officials on the priorities of the Intelligence Division. She also lost access to an unmarked take-home vehicle and had a less regular schedule involving weekend shifts.

The lower court granted summary judgment to the Police Department, and the Eighth Circuit affirmed, concluding that Muldrow had not met her burden to show that the transfer out of the Intelligence Division constituted a significant employment disadvantage.

What are the Highlights of the Supreme Court’s decision?

The Court rejected the Eighth Circuit’s standard for analyzing Title VII claims for transfers. The Court articulated the new standard as follows: “Muldrow need show only some injury respecting her employment terms or conditions. The transfer must have left her worse off, but it need not have left her significantly so.” While Muldrow’s rank and pay remained the same, other aspects of the transfer left her “worse off” such as being moved from a prestigious specialized division working on priority investigations and with police commanders to a role that primarily involved administrative work.

Pre-Muldrow and Post-Muldrow Analysis Under Title VII

Whether Muldrow changed the law in your circuit or not at this point does not matter; all employees now have a lower burden when suing under Title VII to challenge a transfer. We can look at jurisdictions that already had this lighter standard, akin to Muldrow, for guidance as to how Muldrow will be applied.

For example, in the Second Circuit, Courts have determined that cases where an employee is transferred and the transfer does not affect pay or benefits, the transfer can still violate Title VII as long as it alters the terms and conditions of employment in a “materially negative way.” It remains to be seen how the Second Circuit and others will distinguish “worse off” from “materially negative.”

What Do You Need to Do?

ALL employers would be well advised to take a closer look at transfers of employees and analyze whether employees can claim any type of harm from those transfers. It may be the case that even if the employee points to some kind of harm – such as an inferior schedule or more administrative work – that may be sufficient to carry a lawsuit forward under Muldrow, where before the employer may have had a shot at a dismissal.

If you have any questions about employee transfers or would like to discuss best practices in light of the Muldrow decision, please reach out to a member of Kelley Drye’s labor and employment team.

It has been fifty years since the FTC issued a competition rule, and then only as an adjunct to a conventional consumer-protection measure. The lone rule required octane disclosures on gas pumps. Since then, FTC officials disclaimed competition rulemaking authority and the agency aligned its competition policy with the larger body of antitrust law.

The current FTC reversed course on both fronts. It announced its intention to distance its competition policy from the rule of reason commonly applied in antitrust. And it criticized case-by-case enforcement as inadequate to deter competitive harms. A noncompete rule would be a climactic culmination of these ambitions.

Will the FTC succeed, and what would it mean? Clues will come in the course of the meeting. Here are some of the questions the Commission will have to answer persuasively if expects a rule to survive in the courts:

Does the Commission have the authority to promulgate competition rules?

The Supreme Court could consider this a Major Question, subject to the analysis of West Virginia v. EPA. For a preview of how that analysis might apply, see my article, Regulating Beyond the Rule of Reason, and our post, The FTC’s Proposal to Ban Noncompetes is on Shaky Legal Ground.

Did the Commission apply a proper definition of anticompetitive practices?

In the analysis supporting the proposal, the FTC noted that the weight of antitrust authority on noncompetes found them to be reasonable restraints. The analysis did not mention the cases from the FTC’s early years, when it held that soliciting or hiring employees from competitors was an unfair method of competition (cited at note 215 here).

Did the Commission adduce adequate evidence of competitive harm?

Academic studies (some collected here) generally find the aggregate evidence inconclusive, including one of the studies on which the Commission relied.

Would the rule adequately protect proprietary information?

A principal purpose of noncompete clauses is to prevent companies from poaching intellectual property and proprietary information from competitors. Some of the consequences of banning the clauses are outlined in Proposed FTC Noncompete Ban Throws Out Good With Bad.

Did the Commission reasonably exempt valuable and harmless noncompete clauses?

Some clauses would be exempt, for example those facilitating business sales and between franchisors and franchisees, which the analysis supporting the proposal considered worthwhile. Kelley Drye’s Corporate Group summarized them in The FTC Proposes Ban on Non-Competes: The Implications for M&A Transactions, and our Employment and Labor Group looked at a future without noncompetes in FTC Proposed Ban of Noncompetes: Practical Guidance For Employers.

This proceeding has the potential to transform employer-employee relations throughout the United States. But its reverberations will be more profound. As noted in my first piece on the proposal, this is the first of a host of competition rules the FTC contemplates. Others in various stages include surveillance, the right to repair, pay-for-delay pharmaceutical agreements, unfair competition in online marketplaces, occupational licensing, real-estate listing and brokerage, and unspecified industry-specific practices. The fate of the noncompete rule will either launch a new era of industrial regulation or realign the FTC with antitrust norms.

In the summer of 2021, Illinois Governor J.B. Pritzker signed into law several amendments to Illinois statutes focused on equal pay initiatives. One of those amendments requires companies with 100 or more employees in the state, who also file an EEO-1 (Annual Employer Information Report) with the Equal Employment Opportunity Commission (“EEOC”), to obtain an Equal Pay Registration Certificate (“EPRC”) from the Illinois Department of Labor (“IDOL”) and recertify on a rolling two year basis. The first EPRC Reporting deadline was March 23, 2024. The intent is to make the EPRC data – similar to that on the EEO-1 – public within 90 days of the IDOL’s receipt of the data.

While IDOL regulations state that the agency would contact every qualifying Illinois business and provide at least 120 days’ notice of the company’s compliance date for obtaining an EPRC, it is possible – even likely – that not every qualifying business heard from the IDOL or received compliance instructions.

However, employers should note that the required application materials include a current EEO-1 report and the demographic data that report entails, and an equal pay compliance certification that the average compensation of female and minority employees (as defined in the Business Enterprise for Minorities, Women, and Persons with Disabilities Act, 30 ILCS 575) is “not consistently below” the average compensation for male and non-minority employees. The company must also certify that it is in compliance with all other equal pay and anti-discrimination laws. The IDOL has an online EPRC Portal which will walk employers through the process.

Employers determine whether they have 100 or more qualifying employees by counting the number of full and part-time employees working for the business where the business’s base of operations is within Illinois. Remote employees count towards the threshold if the location from which the job done by the employee is directed or controlled is within Illinois. Remote employees who live in Illinois even if the job is directed or controlled from outside the state also count towards the qualifying threshold.

Independent contractors do not count toward the 100 employee threshold.

The IDOL FAQ’s indicate that the agency will contact employers regarding the two year recertification requirement with at least 180 days’ notice before the recertification deadline. The statute affords employers a 30 day compliance window for inadvertent failures to comply with the EPRC application requirement. Future violations of the EPRC requirements may carry a fine of up to $10,000.

If you have questions about the Illinois Equal Pay Act or other pay equity and transparency matters, please reach out to a member of Kelley Drye’s labor and employment team.

As we discussed, the Tims and Cothron decisions made BIPA an unwieldly monster for Illinois employees. The Illinois Supreme Court in Tims held that a 5 year statute of limitations applies to BIPA claims and, in Cothron, the court held that a BIPA violation accrues with each unauthorized use of a biometric device. BIPA allows statutory damages amounts of $1,000 per violation for negligent violations and $5,000 per violation for intentional or reckless violations. Applied to the Rogers case in which Judge Kennelly used the $5,000 reckless standard, the statutory damages award under the Cothron method would have multiplied considerably from the $228 million. In Rogers, the jury held that 45,600 individuals had their biometric information used in violation of the Act, but the number of distinct violations was not calculated.

However, in June 2023, Judge Kennelly vacated his $228 million damages award upon further argument of this issue. He held that the jurors should have determined the award, not the court. Judge Kennelly set the case for a second trial on the issue of damages only. On one hand, this was a tremendous victory for BNSF – the $228 million award disappeared. On the other hand, a damages trial subject to the Illinois Supreme Court’s Cothron interpretation of BIPA could subject BNSF to an even greater damages award (45,600 individuals multiplied by the number of times each individual used the biometric device, multiplied again by the amount of damages the jury could award for each violation).

Considering the legal developments of the Rogers case and the Tims and Cothron decisions in the last year and half, the BIPA landscape still presented risks for both the Rogers class action plaintiffs and BNSF. As a result, the parties agreed to a $75 million settlement in lieu of a damages trial. The settlement amount will be divided between the 46,500 class members after attorneys’ fees and costs.

Employers nationwide remain hopeful for legislative solutions to BIPA’s draconian damage regime, though none immediately materialized in the wake of Tims and Cothron. It has been reported, however, that the Illinois General Assembly is considering the way liability accrues under BIPA.

If you have any questions about BIPA, please reach out to Matthew Luzadder.

While the decision remains—at least technically—restricted to the field of higher education, we undoubtedly observed a ripple effect throughout the private sector, both in the court of public opinion and actual court system. Following the decision, organized, well-funded, committed activist/political advocacy groups started to attack DEI programs. Efforts by groups like the American Alliance for Equal Rights (AAER) and America First Legal Foundation (AFL) included urging the Equal Employment Opportunity Commission to investigate DEI initiatives at top 100 companies and challenging initiatives at law firms and airlines in federal court. As a result, Revelio Labs estimated that the amount of DEI jobs shrunk by 8% throughout early 2024.

There remain several open questions regarding what organizations can do to protect against attacks on their DEI initiatives. On March 6, 2024, the Second Circuit presented one potential avenue to challenge the standing of organizations like the AAER or AFL. In Do No Harm v. Pfizer, Inc., the court rejected a challenge to Pfizer’s diversity fellowship program by Do No Harm (DNH), a group with the stated purpose of removing division and discrimination from healthcare professions. DNH claimed that Pfizer’s fellowship program—which seeks “to advance students and early career colleagues of Black/African American, Latino/Hispanic, and Native American descent”—discriminated against white and Asian-American applicants in violation of New York state and federal law. The court held that DNH lacked legal standing and dismissed the challenge to Pfizer’s diversity program.

The Second Circuit’s decision creates a potential roadblock for challenges levied by organizations against DEI initiatives. We will analyze the language of the opinion, evaluate the impact of the decision, and provide guidance for organizations that wish to continue to protect against attacks on their diversity, equity and inclusion initiatives.

Do No Harm v. Pfizer

In Do No Harm v. Pfizer, Inc., the Second Circuit majority held that DNH failed to establish standing to sue in the context of a motion for a preliminary injunction because it failed to identify by name any individual who was injured by Pfizer’s alleged discriminatory fellowship program. In its motion for a preliminary injunction, DNH alleged that two anonymous members met the eligibility requirements of Pfizer’s diversity fellowship, but did not apply because they identified as white and/or Asian-American. According to the allegations, the members felt that they were excluded from the fellowship because of their race and would be ready and able to apply if Pfizer eliminated its allegedly discriminatory criteria.

The Court rejected DNH’s standing to sue on behalf of the anonymous members. While the Court noted associations are allowed to sue on behalf of their members when those members would otherwise have standing to sue on their own, DNH was required to identify the actual names of the members harmed by the challenged program. The submission of two anonymous declarations was insufficient. Without actually naming members that were harmed by Pfizer’s diversity fellowship, DNH could not establish standing to sue under Article III of the Constitution. Without standing to file its motion for preliminary injunction, the Court dismissed both the motion and DNH’s complaint against Pfizer.

The Second Circuit carefully noted that it would not reach a determination of whether at the pleading stage DNH was required to identify its members to establish standing. The fact that DNH failed to establish standing for its motion for preliminary injunction was sufficient to dismiss all claims against Pfizer. But, the decision now presents a road map for companies to protect their diversity initiatives against organizations like AAER and AFL who cannot advance the interests of members shrouded in anonymity.

Impact on Other Circuit Courts

Prior to the Second Circuit’s decision in Do No Harm v. Pfizer, there were few cases tackling the issue of whether organizations need to identify their members by name to establish standing. In American Alliance for Equal Rights v. Fearless Fund Mgm’t, LLC, the Eleventh Circuit held that AAER had established standing on behalf of its members to bring forth a lawsuit against a venture capital firm focused on funding businesses that were majority-owned by Black women. Despite AAER not providing names of actual members, the Court noted it was inappropriate to require specific names at the motion to dismiss stage.

Notably, attorneys for Fearless Fund Management have already informed the Eleventh Circuit of the decision in Do No Harm v. Pfizer and noted that AAER failed to identify allegedly injured members by name. Fearless Fund Management requested that the Eleventh Circuit come to the same conclusion as the Second Circuit, and deny AAER’s standing to sue for a preliminary injunction because AAER failed to identify affected members and failed to corroborate boilerplate statements that the anonymous members are ready to apply for a grant.

The Eleventh Circuit’s decision will determine whether there is uniformity in evaluating standing issues for a preliminary injunction or whether a circuit split will have to be decided by the Supreme Court.

What Comes Next?

Do No Harm v. Pfizer presents a viable roadblock against veiled attacks by organizations seeking to challenge private sector DEI initiatives. In jurisdictions that follow the Second Circuit’s decision, companies can attack organizational standing in motions to enjoin diversity programs in an effort to dismiss the entire lawsuit. However, until the Eleventh Circuit, and potentially the Supreme Court, weighs in on the challenges to standing, there remain open questions about how reliable the defense will be. Courts will further have to opine on whether the standing challenge only applies to the enhanced requirements at the preliminary injunction stage or if the rationale can be transferred to the more lenient pleading stage analysis. For now, DEI programs are still lawful and employers who value diversity should remain diligent in checking updates to the legal landscape on how to best enact and protect their programs or initiatives.

If you have questions or would like to discuss your company’s DEI program and initiatives, please reach out to a member of Kelley Drye’s labor and employment team.

Recoveries

The EEOC recovered $665 million for employees, representing a 29.5% increase over Fiscal Year 2022. This figure includes the recovery of $440.5 million for private sector and state and local government workers and $202 million for federal employees. Recovery refers to amounts collected through litigation, mediation, conciliation, and settlement.

Litigation

The EEOC reported filing 143 new lawsuits in 2023, which constitutes an increase of more than 50% from the previous year. Specifically, the lawsuits included 86 suits on behalf of individuals, 32 non-systemic suits with multiple victims, and 25 systemic suits involving multiple victims or discriminatory policies. Through litigation, the EEOC obtained more than $22.6 million for 968 individuals while resolving 98 lawsuits and achieving favorable results in 91% of all federal district court resolutions. The breakdown of the recovery by claims is: $16.5 million for Title VII claims, $3.8 million for ADA claims, $1 million for multi-statute claims, $800,000 for ADEA claims, and $500,000 for Equal Pay Act claims.

Increased Demand

The statistics demonstrate an increase in demand for EEOC services. The EEOC received 81,055 new discrimination charges, 233,704 inquiries in field offices, more than 522,000 calls from the public through the agency contact center, and over 86,000 emails, representing respective increases of 10.3%, 6.9%, 10%, and 25% over Fiscal Year 2022. This increase signals a heightened awareness of the EEOC and corresponding likelihood of bringing a claim.

Priority Areas

The EEOC identified the following as priority areas - addressing systemic, preventing workplace harassment, advancing racial justice, preventing and remedying retaliation, advancing pay equity, advancing diversity, equity, inclusion, and accessibility (“DEIA”) in the workplace, and addressing the use of technology, including artificial intelligence, machine learning, and other automated systems in employment decisions. These priorities reflect many of the hot button topics in employment law.

PWFA

The PWFA addresses workers who face discrimination based on pregnancy, childbirth, or related medical conditions and was signed into law on December 29, 2022. As we previously reported, it requires covered employers to provide reasonable accommodations to a worker’s known limitations related to pregnancy, childbirth, or related medical conditions. The PWFA became effective June 27, 2023, and the EEOC began accepting charges arising from the PWFA on that date. As this change occurred towards the end of Fiscal Year 2023, it will be interesting to see the evolution of PWFA claims into the remainder of 2024.

Conclusion

Given the increases in charges, litigation, and demand for EEOC services, employers should continue to keep their guard up, particularly due to the increases in monetary recovery. With the upcoming presidential election, employers face the potential for the continuation of the EEOC’s aggressive agenda or a potential shift in a different direction. Below are some best practices for employers for the remainder of 2024:

• Continue to provide regular training and make sure internal complaint and investigation procedures and policies are properly followed.
• Review and update pregnancy accommodation policies to make sure they comply with the PWFA.
• Identify any potential risk areas and work with counsel to develop mitigation strategies.

Enhanced Registration and a More Equitable Selection Process

On Feb. 28, 2024, USCIS launched new online organizational accounts that will allow multiple people within a company and their legal representatives to collaborate and prepare H-1B registrations, H-1B petitions, and associated requests for premium processing. The organizational accounts significantly enhance H-1B processes by enabling users to share draft filings among attorneys, attorney staff, and company representatives, and submit filings directly to USCIS. Importantly, a new organizational account is required to participate in the H-1B Electronic Registration Process starting in March 2024.

FY24 saw a record-breaking number of 758,994 eligible registrants. The true number of registrations was much higher, as over 400,000 registrants submitted multiple eligible entries. Up until now, USCIS selected lottery winners by registration, meaning that beneficiaries with multiple registrations submitted on their behalf got more bites out of the proverbial apple. Starting this spring with FY25 registrations, USCIS will select registrations by unique beneficiary, meaning that regardless of the number of registrations submitted – each beneficiary gets just one bite out of the apple. Multiple employers can still submit requests for the same beneficiary, but the Department of Homeland Security (DHS) anticipates that selecting by unique beneficiary will reduce the chances of gaming the system.

New Integrity and Anti-Fraud Measures

This year and beyond, the registration process requires that registrations include the beneficiary’s valid passport or travel document number while prohibiting a beneficiary from registering under more than one passport or travel document. See 8 CFR § 214.2(h)(8)(iii)(A). In order to further combat fraud, DHS is incorporating into code USCIS’ authority to deny H-1B petitions or revoke approved petitions for certain reasons, including where:

• there is a mismatch or change in the beneficiary’s identifying information between the registration and actual petition;
• the registration contained a false or invalid attestation,
• the registration fee was invalid; or
• the H-1B cap petition was not based on a valid registration.

See 8 CFR § 214.2(h)(8)(iii)(A) and (D). Even more, USCIS can deny an H-1B petition or revoke an approved petition in cases where inaccurate, invalid, fraudulent or misrepresented statements on the H-1B petition, labor condition application (LCA), or temporary labor certification (TLC) are determined to be false. See 8 CFR § 214.2(h)(10) and (11). These safeguards and expanded grounds for petition denial or revocation underscore the importance for companies to retain qualified attorneys who will ensure compliance with H-1B process rules.

A New Form I-129, Petition for Nonimmigrant Worker

Once, and if, a beneficiary receives the thrilling news that their H-1B registration has been selected, they are able to choose which employer can file form I-129 Petition for a Nonimmigrant Worker on their behalf, if they have multiple offers of employment. In April 2024, USCIS will release a new edition of the form I-129. A preview is available on their website. Applications postmarked on or after April 1, 2024 must be in the new edition. Employers or their representatives can also file the form I-129 through USCIS’ online portal starting on April 1, 2024. Paper filed forms will no longer be accepted at USCIS service centers and must be filed instead at lockbox addresses, which will be posted to USCIS’ website (here) late March 2024. Applications that do not include the proper fees, incorporating the recent fee schedule changes, will be rejected.

New and Increased Fees

Speaking of fees, for the first time since 2016, DHS issued a separate final rule on January 31, 2024 adjusting certain immigration and naturalization benefit request fees, some of which affect the H-1B registration and petition process. First, USCIS announced a new “Asylum Program Fee” that will be charged to employers filing an I-129 Petition for Nonimmigrant Worker (as well as an I-140 Immigrant Petition for Alien Worker), effective April 1, 2024. The Asylum Program Fee will be $600 for employers with 26 or more full time employees (FTE), $300 for employers with 25 or fewer FTEs, and $0 for nonprofits. The Asylum Program Fee will join the existing statutory fees for employers filing I-129 petitions on behalf of prospective H-1B employees. Second, also effective April 1, 2024, in addition to the Asylum Program Fee, the filing fee for the I-129 petition itself will increase by 70%, from $460 to $780. Finally, effective March 2025 for the FY26 cap season and beyond, the H-1B registration fee is increasing from $10 to $215 per registration, a 2050% increase. Luckily, the registration fee remains $10 through this H-1B cap season.

Flexible H-1B Employment Start Dates

Starting this year, certain H-1B cap subject petitions will be allowed to select start dates within the relevant fiscal year that are after October 1. The added flexibility enables H-1B beneficiaries to choose more relevant start dates. The start date flexibility is particularly beneficial in circumstances where there are multiple selection rounds pushing the petition filing window past October 1, or where an employee is in the United States with legal status valid beyond October 1. However, other restrictions on the petition start date remain such as the requirement that the petition may not be filed sooner than 6 months before the start date. For a start date of October 1, the earliest a petition may be filed is April.

Takeaways

The upcoming FY25 H-1B cap season brings significant changes that employers and prospective H-1B beneficiaries need to be aware of. The new registration selection process by unique beneficiary aims to create a more equitable system, while increased fees like the new Asylum Program Fee add to the overall costs for employers. Start date flexibility and selection by unique beneficiary provide some welcomed improvements. However, the enhanced integrity measures and grounds for denial underscore the importance of ensuring full compliance and accuracy throughout the entire H-1B registration and petition process. As we enter the cap season and transition to the new process, employers would be wise to work closely with experienced immigration counsel to successfully navigate the complexities of the H-1B process.

On January 1, 2024, a new law, SB 699, became effective, strengthening California’s Bus. & Prof. Code Section 16600, the state’s long standing non-compete ban. Under Section 16600, “every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind” is void. SB 699 expands the existing law to encompass certain out-of-state agreements as well and creates a private right of action for employees with agreements containing unlawful restrictive covenants, resulting in potential uncertainty for employers based outside of California but who have employees who may eventually find themselves based in California or working for a California company.

Out-of-State Reach

SB 699 adds Section 16600.5 to the existing statute. Section 16600.5 contains the following provisions relevant to out-of-state contracts:

(a) Any contract that is void under this chapter is unenforceable regardless of where and when the contract was signed.

(b) An employer or former employer shall not attempt to enforce a contract that is void under this chapter regardless of whether the contract was signed and the employment was maintained outside of California.

Courts have yet to interpret how the provisions of SB 699 will be applied to out-of-state companies and agreements entered into out-of-state with their employees. The legislative history of SB 699 states, “as the market for talent has become national and remote work has grown, California employers increasingly face the challenge of employers outside of California attempting to prevent the hiring of former employees.” This statement about employers outside of California coupled with the broad language of Section 16600.5 means that this statute could have an expansive reach on employers outside of California, even if their workforce is predominantly outside of California as well.

Employers should take caution particularly in light of the prevalence of remote and mobile workforces. In that vein, some common scenarios will pose new challenges for employers. For example, if an employee was not a California resident when the employee signed a non-compete or non-solicitation agreement but later moves to California, SB 699 likely means both are unenforceable. Likewise, where an employee located outside of California works for an employer outside of California, and is bound by a non-compete, but the employee seeks employment with a competitor in California, SB 699 may be implicated. In that instance, the former employer may not be able to enforce the non-compete against the former employee. California courts, as well as those courts outside of California engaging in a choice of law analysis are now tasked with defining the contours of the national implications of SB 699, which is likely to face challenges due to its uniquely broad reach.

Private Right of Action

Section 16600.5 also strengthens California’s already robust non-compete ban by allowing employees (including prospective employees) to bring suits based on a current, former, or prospective employer’s violation of the statute. The potential for lawsuits against employers is particularly significant given the expanded scope of the non-compete ban beyond California’s borders. Specifically, SB 699 adds the following provisions:

(e)(1) An employee, former employee, or prospective employee may bring a private action to enforce this chapter for injunctive relief or the recovery of actual damages, or both.

(2) In addition to the remedies described in paragraph (1), a prevailing employee, former employee, or prospective employee in an action based on a violation of this chapter shall be entitled to recover reasonable attorney's fees and costs.

Accordingly, as employees may now bring litigation pursuant to California’s non-compete ban, which encompasses the right to seek damages, injunctive relief, and attorneys’ fees, if successful, compliance with SB 699 is essential to avoiding liability. Moreover, an employer may find itself liable for such relief simply because its employee relocates to California. Since employees have not previously had a private right of action under the statute, it is not yet known what their damages and recovery will look like in this new frontier of litigation.

Going forward, companies should review their existing employment agreements in light of SB 699. Employers should consider alternative solutions to protect their businesses such as confidentiality and trade secret protections in employment agreements. These alternatives are particularly crucial if a non-compete provision later becomes unenforceable under California law. Employers using non-compete provisions outside of California may also consider adding an explicit disclaimer in employment agreements that such provisions are not enforceable against their employees should they become California residents in the future.

Attorneys at Kelley Drye are available to assist you in navigating SB 699.

On January 9, 2024, the DOL announced the final rule on the independent contractor classification under the Fair Labor Standards Act “FLSA,” effective March 11, 2024. Whether a worker is an independent contractor or an employee determines the applicability of minimum wage and overtime requirements, among other legal obligations under the FLSA. This distinction is crucial to companies’ employment policies, business decisions, and potential liability. Against that backdrop, understanding the contours of this new final rule is essential for all employers.

What Test Does the Final Rule Use?

The final rule largely mirrors the October 2022 proposed rule and adopts a non-exhaustive six-factor test analyzing the “economic reality” of the relationship between a potential employer and worker. The six factors are as follows:

1. The degree to which the employer controls how the work is done.
2. The worker’s opportunity for profit or loss.
3. The amount of skill and initiative required for the work.
4. The degree of permanence of the working relationship.
5. The worker’s investment in equipment or materials required for the task.
6. The extent to which the service rendered is an integral part of the employer’s business.

The new rule rescinds a Trump-era independent contractor rule, which focused on two factors of the economic realities test – nature and degree of the worker’s control over the work and the worker’s opportunity for profit or loss. As we previously reported, that 2021 rule never went into effect. Under this new rule, the degree of control and the opportunity for profit or loss will not necessarily control the analysis, as no factor holds more weight than the others. Additionally, other factors not listed above but relevant to the “totality of the circumstances” may be considered. Prior to the release of the new rule, the DOL noted that the rule does not contain a so-called “ABC” worker classification test like the one used by California courts, which is a particularly employee-friendly test.

The DOL’s disavowal of an explicit “ABC” test is interesting. Under the ABC test, some form of which has been adopted in California and at least 27 other states, a worker can be classified as an independent contractor only if they meet each of the following three criteria:

A. The individual has been and will continue to be free from control or direction over the performance of work performed, both under contract of service and in fact; and

B. The work is either outside the usual course of the business for which such service is performed, or the work is performed outside of all the places of business of the enterprise for which such service is performed; and

C. The individual is customarily engaged in an independently established trade, occupation, profession or business

The “B” and “C” in “ABC” can be the killer. They mean that if a purported contractor is doing the same thing as the company that retained them does, that worker isn’t really a contractor: they’re an employee. Example: a cabinet-making company retains a carpenter to help with building cabinets. The carpenter is an employee, not an independent contractor, even if all the other common-law factors for independent contractor status (mostly resolving around true independence and lack of company control) are present.

If you have noticed a similarity between the sixth factor in the new DOL rule (“the extent to which the service rendered is an integral part of the employer’s business”) and B and C in “ABC” (the work is “outside the usual course of the business” of a company and the worker is “engaged in an independently established trade, occupation, profession or business”), then you’re paying attention. While the new DOL rule asks employers and enforcement agencies to look at all of the factors, the fact that a worker engages in the same work as the company that retains them is significant. It means that (for example) the DOL, which generally has an interest in finding that individuals are employees rather than independent contractors, will more easily find that a worker in the same trade as the company with whom they contract is an employee. In other words: the new test makes it easier for the DOL to decide that you have misclassified certain workers.

What Should Employers Do?

Employers should review the final rule and work with counsel to determine if any independent contractors may be classified differently under the application of the new rule. The distinction between independent contractors and employees is crucial in determining whether a host of obligations under the FLSA are triggered and accordingly impacts numerous employment policies. In that vein, when drafting new employment agreements and reviewing existing agreements, employers should closely review this final rule and consult with counsel regarding its potential application.

In addition to reviewing employee classifications, agreements, and policies, employers should continue to monitor Labor Days regarding any successful challenges to the final rule, as it is likely that business-focused groups will commence litigation. Please reach out to a member of Kelley Drye’s labor and employment team for additional guidance and help.

In this article we will review the changes in both laws to help Illinois employers, understand the legal requirements related to their employees’ paid leave and paid sick leave obligations.

IL PAID LEAVE FOR ALL WORKERS ACT

Already in effect, the Illinois Paid Leave for All Workers Act (“The Act”) requires all employers to allow employees in the state of Illinois to earn and use at least 40 hours of paid leave per 12-month period for any purpose. The paid leave accrues at a rate of one hour of leave per 40 hours worked. Exempt employees are considered to work 40 hours each workweek for determining leave accrual, unless their regular workweek is less than 40 hours. Employers may not require documentation in support of an employee’s leave.

The Act does not apply to employees covered by collective bargaining agreements already in force on January 1, 2024, and unionized employees may waive the requirements of the Act in future CBAs.

Employers may set a minimum interval to use the leave of no more than two hours. Employers must allow rollover of accrued, but unused, leave from year to year, but may cap employees’ paid leave use to 40 hours per 12-month period.

Employers may also make all leave available to the employee on the first day of employment or coverage. Under such a policy, employers are not required to allow carryover of paid leave from one 12-month period to the next, and may enact a “use it or lose it” policy. The employer may set the 12-month period as desired, but must notify the employee at the time of hire of the 12-month period.

Employees must be allowed to use the paid leave 90 days after commencement and employees shall be paid their hourly rate. Tipped employees must be paid at least the full minimum wage in the applicable jurisdiction.

Employers may require up to seven days’ of notice if the reason for the leave is reasonably foreseeable.

Payout of accrued unused leave is not required on separation. Insurance coverage must be maintained during periods of leave taken by employees, and employers must notify employees taking leave that they will be subject to paying for their share of the premiums while on leave.

The Act does not apply to employers covered by other municipal or county paid sick leave ordinances, aka those in Cook County and the City of Chicago.

NEW CHICAGO PAID LEAVE AND PAID SICK AND SAFE LEAVE ORDINANCE

In November 2023, the City of Chicago passed its new Chicago Paid Leave and Paid Sick and Safe Leave Ordinance, requiring ALL employers with employees working in Chicago to provide paid sick leave and general paid leave. For purposes of this article, we will refer to the Chicago Paid Leave and Paid Sick and Safe Leave Ordinance as the “Ordinance” (though I prefer the “CPLPSSLO” -- the mandates of the Ordinance are as convoluted as the acronym itself.) I will refer to Paid Sick Leave as “PSL” and general Paid Leave as “PL.”

In short, the Ordinance provides that covered employees are entitled to take up to 40 hours of paid sick leave per year and another 40 hours of general paid leave to use for any reason. Unfortunately, failure to comply may lead to fines for violations by the Department of Business Affairs and Consumer Protection and or private action by aggrieved employees.

Who is Covered?

The most current definition of a “covered employee” is a non-union exempt or non-exempt employee who works at least 80 hours within any 120-day period within the geographic boundaries of the City of Chicago. The 80-hour trigger includes compensated travel time in or through the City but excludes non-compensated travel time. Once a covered employee, a person remains a covered employee for as long as they work for the employer.

The Ordinance does not apply to construction industry employees covered by a collective bargaining agreement (“CBA”), and non-construction industry employees covered by a CBA are excluded from coverage during the term of current CBAs and can waive the requirements of the ordinance in future CBAs, but must do so clearly and unambiguously.

The point at which a covered employee is hired or an employee becomes a “covered employee” begins the relevant 12-month period. Note: This mandates a 12-month period unique to each covered employee, requiring administration of the policy based on anniversary date rather than a calendar year or other uniform basis.

What are the Basics of the Required Leave?

Starting on July 1, 2024, or the first day of employment thereafter, a covered employee’s leave begins to accrue.

Paid Leave and Paid Sick Leave accrue at 1 hour each for every 35 hours worked. PL and PSL accrue in whole hour increments only. Exempt employees are assumed to work 40 hours a week for purposes of accrual, unless actual normal workweek is less, then the actual workweek should be used. PSL can be used no later than 30th day after covered employee starts employment. PL can be used no later than 90th day after covered employee starts employment

Employers may cap each type of leave at 40 accrued hours of per 12-month period. The applicable 12-month period must be rolling from when leave began to accrue for the covered employee.

Note: The City of Chicago Department of Business Affairs and Consumer Protection issued proposed regulations interpreting the Ordinance, they are not final or in-force. The proposed regulations provide that only hours worked in City boundaries count towards PL and PSL accrual. This provision could greatly affect the accrual of PL and PSL under the Ordinance. We will need to remain attentive to the final regulations whenever they are promulgated.

What can this Chicago Leave be used for?

• PAID LEAVE (PL): Employees may use Paid Leave for any reason of employee’s choosing. An employer may not require employee provide a reason or documentation for time off of work while using PL. The employer’s policy for PL may require employee to give reasonable notice (maximum 7 days), or obtain preapproval for the purpose of maintaining continuity of employer operations.

• PAID SICK LEAVE (PSL): Employees may use Paid Sick Leave for:

• the employee’s or employee’s family member’s illness, injury, or medical care;

• when the employee or employee’s family member is the victim of domestic violence;

• when employee’s place of business is closed by public official for public health emergency, or when employee needs to care for family member whose school, class, or place of care has been closed; or

• when ordered by healthcare provider or public official to stay home to minimize transmission of disease/quarantine.

The employer’s policy may require up to 7 days notice if the need for PSL is reasonably foreseeable. If a covered employee is absent more than three consecutive work days, the employer may require certification for use of PSL (e.g. a signed doctor’s note).

Employers may set a reasonable minimum use increment of four hours per day. Employers may not use qualifying PL or PSL time off as absences that trigger discipline under an absence policy.

How much do employees get paid while on leave?

The pay rate for non-exempt covered employees while using PL or PSL is calculated by:

This calculation should not include overtime pay, premium pay, gratuities, or commissions. But the pay rate must be at least the full applicable minimum wage (even for tipped employees, i.e. not the tipped minimum wage). Leave time must be paid with same benefits as hours worked.

Do paid leave balances get paid out on separation from employment?

PSL balances are not required to be paid out. The answer for PL depends on the size of your business.

• SMALL EMPLOYERS: 50 or fewer covered employees. No payout of PL on an employee’s separation or transfer away from City (where they cease to be a covered employee).
• MEDIUM EMPLOYERS: 51-100 covered employees. Must payout the value of an employee’s accrued but unused PL at the final rate of pay upon separation or transfer away from the City. However, the payout is limited to 16 hours of PL until July 1, 2025. Thereafter, medium employers must pay out all accrued unused PL.
• EMPLOYERS With 101+ EMPLOYEES: Upon separation or upon ceasing to be a covered employee because of transfer out of the City, the employer must pay out all accrued unused PL at the final rate of pay.

Do employers have to allow paid leave to rollover?

Employers with a non-complying leave paid sick leave policy prior to July 1, 2024 that allows for paid leave time rollover, must allow employee to roll over their accrued but unused time under the old policy as PSL under this Ordinance.

Reminder: employers may cap the accrual for each type of leave at 40 hours of PL and 40 hours of PSL per 12-month period. The maximum amount of leave the employee may rollover from one 12-month period to the next is 16 hours of PL and 80 hours of PSL. This effectively sets the maximum amount of paid leave a covered employee may possess at 56 PL hours and 120 PSL hours per 12-month period.

The Ordinance does not explicitly contemplate employers capping the use of accrued leave time during a 12-month period. However, see the options for “frontloading” leave below where PL is effectively capped at 40 PL hours rather than 56 PL hours.

Are there alternative compliance options for employers? (i.e. is there an easy way out?)

• FRONTLOADING: an employer may grant 40 hours of PSL or PL, or both, on the covered employee’s first day of employment or 12-month accrual period. If PL is front loaded, then there is no required rollover of PL time (PSL still must be allowed to rollover up to 80 hours per 12-month period).
• UNLIMITED PTO: an employer may utilize an unlimited PTO policy if the unlimited PTO is awarded on first day of employment or of the 12-month period. If such a policy is used, carryover of PL and PSL is not required. Payout on separation for unlimited PTO policies is calculated by taking 40 hours of PL or PSL minus the amount of each type of leave used by the employee in the 12 months before the date of separation. If the covered employee used more than 40 hours of the unlimited paid leave in the prior 12 months, the payout is $0.

Employers may not contract around the Ordinance or contract for employees to waive their rights to PL or PSL, or to waive their right to payout on separation.

What do employers with “qualifying employees” need to do next?

Employers with employees who work within the City of Chicago for at least two hours every two weeks need to quickly assess their leave policies and consider several factors as they consider changes to come into compliance with the Ordinance.

First, employers should determine how many employees or what percentage of the workforce will be “covered employees” under the Ordinance. Next, employers should determine if the employer’s current paid sick leave and paid time off policies are compliant with the Ordinance. If the current policies are not compliant, based on the answer to the first consideration, employers must determine whether it makes sense to administer more than one paid leave policy for covered employees and non-covered employees. Finally, employers need to modify their paid leave policies to come into compliance.

Final Miscellaneous Requirements of the Ordinance

The ordinance requires a written paid leave and paid sick leave policy. Employers must notify a covered employee on leave that employee still must pay their share of premiums for health care benefits, if any. If the employer has facilities in City, the approved workplace notice must be posted. Employers must send a notice with first paycheck to covered employee, and again every year within 30 days of July 1st, of employee rights under the Ordinance.

Finally, employers have two options to notify employees of their leave balances. The first requires employers send employees their PL and PSL balances with each pay check (unless PL awarded monthly, then once a month), as follows:

The updated amount shall include accrued paid time off since the last notification, reduced paid time off since the last notification, and any unused paid time off available for use.

Alternatively, employers may choose a reasonable system for providing this notification, including, but not limited to, listing available paid time off on each pay stub or developing an online system where Covered Employees can access their own Paid Leave and Paid Sick Leave information.

The Ordinance provides for fines of $1000-$3000 per employer offense in addition to liability for 3-times the amount of leave improperly denied or lost, plus interest, plus reasonable attorneys’ fees. The private right of action for PSL accrues on July 1, 2024, but the private right of action for PL does not accrue until July 1, 2025.

If you have questions concerning employment leave or other workplace related questions, please contact a member of Kelley Drye’s Labor and Employment team.

The Governor’s veto strongly indicates that legitimate concerns about the protection of confidential information and customer relationships will prevent New York from “killing” all noncompetition agreements. However, the veto does not resolve the issue conclusively, and New York’s legislature will be tempted to try again. Employers should continue to monitor any new New York legislation aiming to limit the use of noncompetition agreements, particularly in light of the Governor’s statements in her veto memo and the scrutiny of these agreements on a federal level.

Key Takeaways from the Veto Memo

Governor Hochul wrote, “I have long supported limits on non-compete agreements for middle-class and low-wage workers, protecting them from unfair practices that would limit their ability to earn a living.” She further expressed that she had hoped to find a balance between protecting low-wage workers and “allowing New York’s businesses to retain highly compensated talent.” Going forward, she is “open to future legislation that achieves the right balance.”

As we previously wrote, this balance was always one that the legislature—and, for that matter, federal agencies like the Federal Trade Commission and the National Labor Relations Board—was always going to have to strike. Forcing a frontline McDonald’s employee to promise not to leave for Burger King is, in a word, silly. Asking a senior executive responsible for confidential business strategy or a high-level engineer developing trade secret tech not to take that information to a direct competitor, on the other hand, certainly seems reasonable. The Governor’s statements suggest that any newly-proposed legislation in New York will take this balance into account, particularly as lawmakers distinguish between working-class, low-wage workers and higher-level employees and job functions.

What Should Employers Do?

Employers should monitor new legislative updates—but don’t lose sight of the forest for the trees. In our experience, the greatest threat to successful noncompete enforcement isn’t the legislative or administrative hostility to restrictive covenants now in vogue. Rather, the threat has been employers’ failure to consider the longstanding standards that have always governed the use of noncompetes, including by using “one size fits all” agreements for every employee regardless of level or access to information and attempting to tie up employees for too long of a post-employment period. If you haven’t done so lately, it is always a good idea to get a handle on the way your company actually deploys restrictive covenants and to make sure that you can specifically defend their use based on facts that are specific to the employees you ask to sign them.

In that sense, employers should review their current agreements and focus on alternatives to noncompetition provisions, including nonsolicitation and confidentiality provision. Governor’s Hochul’s comments indicate that she would support future legislation geared towards lower income workers rather than executives and other highly compensated employees, who are most likely to harm a former employer by working for a competitor or starting a competing business.

We will continue to update you on all major legislation effecting noncompetition agreements. In the meantime, please reach out to one of our attorneys on our labor and employment law team for help with reviewing and tailoring your use of noncompetes and other restrictive covenants.

All U.S. employers are required to complete a Form I-9 for every individual they hire for employment in the United States, including for U.S. citizens and noncitizens. As of November 1, 2023, Employees must use the new Form I-9 edition. The edition date is located on the lower left corner of the form. A revised Spanish Form I-9 dated “08/01/2023” is also available for use in Puerto Rico only. The new version contains improvements to the layout as well as the following significant changes:

• Moved Section 3, “Reverification and Rehire,” to a standalone Supplement B that employers can use as needed for rehire or reverification. This supplement provides four areas for current and subsequent reverifications. Employers may attach additional supplements as needed.
• Removed use of “alien authorized to work” in Section 1 and replaced it with “noncitizen authorized to work,” and clarified the difference between “noncitizen national” and “noncitizen authorized to work.”
• Ensured the form can be filled out on tablets and mobile devices by downloading it onto the device and opening it in the free Adobe Acrobat Reader app.
• Improved guidance to the “Lists of Acceptable Documents” to include some acceptable receipts, guidance, and links to information on automatic extensions of employment authorization documentation.
• Added a checkbox for E-Verify employers to indicate when they have remotely examined Form I-9 documents.

DHS and USCIS also updated the Form I-9 instructions by including the addition of instructions for a new alternative procedure, which permits employers who participate in E-Verify in good standing to examine employee documents for employment authorization remotely. Employers must comply with several requirements in order to perform a remote examination, including conducting a live video interaction with the individual presenting the document.

Failure to comply with Form I-9 requirements can have severe consequences for employers, including civil and even criminal penalties. In recent years, U.S. Immigration and Customs Enforcement (ICE) has increased the number of investigations and enforcement actions taken against Form I-9 violators. Employers who fail to comply with Form I-9 requirements can be fined anywhere from $272 to $2,701 for each incorrect Form I-9. In 2022, the Office of the Chief Administrative Hearing Officer (“OCAHO”) issued one of the largest I-9 penalty decisions, ordering a staffing company with over 2,000 Form I-9 violations to pay penalties of $1,527,308. The amount of the fine depends upon the size and if the conduct was intentional, seriousness of the violation, individuals’ work authorization status, and the employer’s history of previous violations.

The new changes simplify and streamline the review process by reducing the length of the Form I-9 and permitting remote verification of documents. It is highly recommended that companies review Form I-9 training and procedures to ensure compliance with the latest I-9 verification rules. If you have any questions concerning Form I-9 compliance, please contact a member of Kelley Drye’s Labor and Employment Team.