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

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

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

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

Transgender Rights

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

Wage and Hour

Overtime Pay and Minimum Wage

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

Misclassification – Employee vs. Independent Contractor

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

Paid Leave

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

Organized Labor

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

Artificial Intelligence

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

Regulatory Landscape

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

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

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

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

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

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

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

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

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

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

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

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

Emerging Trends in DEI Challenges

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

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

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

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

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

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

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

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

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

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

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

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

Moving Forward with DEI

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

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

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

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

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

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

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

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

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

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

Ryan LLC v. FTC

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

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

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

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

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

What Now For Employers?

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

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

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

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

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

The Final Rule

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

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

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

Exception to the Final Rule’s Prohibition

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

Attestations

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

Among other requirements, valid attestations must include:

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

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

Notices of Privacy Practices

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

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

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

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

Certain Other Changes

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

Questions

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

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

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

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

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

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

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

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

The Takeaway

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

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

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

Starbucks v. McKinney

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

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

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

• that he is likely to succeed on the merits,

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

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

• that an injunction is in the public interest.

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

Effect of Starbucks v. McKinney

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

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

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

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

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

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

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

Okonowsky v. Garland

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

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

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

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

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

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

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

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

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

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

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

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

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

What Should Employers Do Now?

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

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

What Comes Next?

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

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

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

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

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

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

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

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

What Happened in SEC v. Jarkesy?

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

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

What Should Employers do Going Forward?

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

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

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

THE CHEVRON DOCTRINE

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

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

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

LOPER BRIGHT – A GENERATIONAL CHANGE IN LAW

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

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

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

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

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

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

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

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 blistering 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.

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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.