Enhanced Registration and a More Equitable Selection Process

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

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

New Integrity and Anti-Fraud Measures

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

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

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

A New Form I-129, Petition for Nonimmigrant Worker

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

New and Increased Fees

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

Flexible H-1B Employment Start Dates

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

Takeaways

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

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

IL PAID LEAVE FOR ALL WORKERS ACT

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

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

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

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

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

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

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

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

NEW CHICAGO PAID LEAVE AND PAID SICK AND SAFE LEAVE ORDINANCE

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

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

Who is Covered?

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

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

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

What are the Basics of the Required Leave?

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

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

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

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

What can this Chicago Leave be used for?

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

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

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

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

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

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

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

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

How much do employees get paid while on leave?

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

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

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

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

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

Do employers have to allow paid leave to rollover?

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

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

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

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

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

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

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

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

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

Final Miscellaneous Requirements of the Ordinance

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

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

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

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

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

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

We don’t think the story is that simple. While (for example) the Chair of the Federal Trade Commission has underscored the silliness of noncompetes applied to fast food workers (we agree), the reality is that high-level executives, employees whose jobs involve the creation of trade secrets, and employees at the top of customer-management hierarchies really can use information and relationships they do not “own” to their unfair competitive advantage. And what about your startup, now worth $100 million, that you sell to a private equity firm? Should you be allowed to instantly compete against the business and goodwill you just sold for a lot of money?

The blunt instrument pursued by the FTC, the National Labor Relations Board, and state legislatures—an outright, sweeping ban on “noncompetes,” which they usually define as any agreement that tends to interfere with obtaining future employment—will run into precisely these kinds of legitimate concerns. One state leading the blunt-instrument charge, New York, is facing this public-policy question now. We say it’s a “policy” question because (to put it bluntly, pun intended), it may seem great to be a progressive jurisdiction, but it starts to seem less great when businesses and the jobs they create flee to other states with less sweeping and more sensible limitations.

On June 20, 2023, the New York State legislature passed a Bill that, if signed by Governor Kathy Hochul, would effectively ban noncompetition agreements and certain other restrictive covenants throughout the state, for all employees, regardless of whether they flip burgers or own hedge funds, and without taking into account the considerations involved in the sale of a business. There are reasons Hochul’s executive pen has hovered over the Bill without signing (hint: re-read the first sentence of this paragraph). Recent gossip out of Albany suggests that the Governor may require certain amendments to the proposed law before reconsidering it. Those amendments—all likely aimed at tailoring the law to address legitimate employer concerns—might include minimum salary thresholds to enforce a noncompete, additional consideration an employer might have to pay to make a noncompete enforceable, requirements that would allow noncompetes to be enforced only if an employee had certain job duties, and carveouts for certain industries.

Translation: if you are an employer that is panicking, please take a deep breath. Think of your planned beach vacation. Manifest a future that isn’t devoid of noncompete protections. Your noncompetes aren’t unenforceable yet, and whatever form the New York “ban” will take is less likely to look like a “ban” than a series of surmountable obstacles that will force employers to deploy noncompetes more sparingly and thoughtfully. (By the way, this is something we have always advised employers to do anyway; you ultimately have to explain to courts why this restriction as applied to this employee is absolutely critical to protecting your business from unfair competition, and your argument had better sound plausible.)

The Pending Legislation in New York

The pending Bill would result in a near-total ban on noncompetition agreements in New York, regardless of compensation, job requirements or access to confidential information. The Bill does not even mention, let alone account for, noncompetes that might protect buyers in the event of the purchase of a business (though there are arguments that a seller of a business may not qualify as a “covered individual” under the law).

Although the Bill is intentionally broad, it does not affect the enforceability of (i) fixed-term employment agreements, (ii) agreements preventing solicitation of clients that the employee learned about during their employment, or (iii) agreements prohibiting the disclosure of trade secrets, confidential information, or proprietary client information. Thus, even under the new Bill’s framework, New York employers still have some means of legitimately protecting their business information and other legitimate interests.

The Bill provides a private right of action for employees to sue their employers in state court in order to void potentially unlawful agreements. Further, the Bill provides that employers who attempt to enforce unlawful agreements or have their employees sign them, may be liable for lost compensation, attorneys’ fees, and liquidated damages up to $10,000 per violation.

What to Do Now

Nothing, really. While Governor Hochul has previously expressed her support for a noncompete ban for low-wage workers, that support is a far cry from a full-throated condemnation of all noncompetes. Even the public statements of the Bill’s sponsor, State Senator Sean M. Ryan, have implied ways of narrowing the current bill without burning everything down; for example, he is on the record as saying that the ban would provide greater access to healthcare by not forcing doctors to have to leave their chosen geographic location if they leave their employer.

Ok, we see the argument when it comes to ensuring broad access to patients’ choice of healthcare professionals. And we certainly see the argument on behalf of fast-food workers. The moral argument for liberating other downtrodden employees, like impossibly wealthy portfolio managers at investment firms, seems a little less obvious.

Low-wage workers and doctors are much more sympathetic as subjects of a noncompete ban than, say, investment bankers, who may be able to use their employer’s trade secrets and non-public information to unfairly compete virtually from day one. And while the Bill would allow employers to still protect their trade secrets, the truth of the matter is that proving a violation of a confidentiality and nondisclosure obligations is a tough or undesirable position to be in: you have to wait to see the evidence of damage, unlike with a true noncompete, where you don’t have to worry as much about the damage in the first place, and where proving a violation if often a matter of a quick peek on Google or LinkedIn.

The death of the noncompete in New York and elsewhere, therefore, has already been greatly exaggerated. (It also feels a bit disrespectful to talk about what life will be like following the death of a long-honored family member when they’re actually still alive and sitting next to you in the living room.) Similar to the FTC’s and NLRB’s similar efforts to curb noncompetition agreements, the impact of New York’s latest action is a long way off from being felt, and the nature of the desired impact is likely to come up for debate again in the legislature. To be clear, the momentum against noncompetes does make it likely that New York and other jurisdictions will adopt restrictions more on the order of what Illinois has done, i.e., perhaps no outright ban, but various requirements as to minimum salary level and consideration paid in exchange for a noncompetes that will make their broad use or overuse more difficult for employers. The use of noncompetes is otherwise too embedded in legitimate protection of important company interests for their opponents’ fantasies about their disappearance to materialize in any simple, unified, dramatic way.

Our best, and admittedly simple, advice to our clients is to keep calm, carry on, and wait and see. Don’t ditch your noncompetes just yet, because you may not have to. If you have any questions regarding noncompetition agreements, restrictive covenants or other ways to protect important information, please contact a member of our Labor and Employment team.

Earlier this month, the New York City Council passed Bill INT 0209, new legislation that would add “height” and “weight” to the list of classes protected under the New York City Human Rights Law. If the mayor signs or takes no action, the bill becomes law and will take effect 180 days thereafter.

Currently, there are a number of jurisdictions with similar laws banning height and weight discrimination, including Michigan state, Washington State, Washington D.C., San Francisco and a handful of other smaller jurisdictions. Potentially marking a trend, lawmakers in New York State, New Jersey, and Massachusetts have also eyed similar legislation.

Here’s what New York City employers need to know about this likely new law:

1. The law would not apply when the employer’s action is required by federal, state, or local law or regulation.
2. The law empowers the NYC Commission on Human Rights to establish jobs or categories of jobs for which (a) a person’s height or weight could prevent the performance of the essential requisites of the job, and (b) the Commission has not found an alternative action an employer could reasonably take to allow the person to perform those requisites. Similarly, the Commission may identify jobs or categories of jobs for which consideration of height and weight is reasonably necessary for the execution of the normal operations of the jobs.
3. Finally, the law offers employers an affirmative defense. Employers may consider height and weight if they can demonstrate that these characteristics are essential qualifications for performing the job.

What should employers do to prepare?

Given that this bill is likely to become law, employers would be wise to get into compliance now. This means reviewing any existing job descriptions for potentially problematic requirements. Employers may also update any anti-discrimination and anti-harassment policies to include height and weight as protected classes. These new protected characteristics should be added to general training courses and managers should be informed of the new law.

Is more legislation like this coming?

In short, we expect it is. Lawmakers have been expanding anti-discrimination laws to afford workers greater protection and have added new classes to cover everything from cannabis use to hairstyle. This generally follows trends toward creating more inclusive and diverse workplaces. Employers are wise to stay up-to-date on the state and local laws where they operate. For more on how equal opportunity laws are changing this year, see our past post on the trends shaping 2023.

As always, subscribe to this blog to keep informed of the latest updates.

What will this all mean for employers? There are challenges for sure, but with planning they are manageable. We take a look at the top trends that will shape labor and employment law in the months to come.

DISCRIMINATION AND EEO ISSUES

More enforcement

Given trends from last year and public messaging from top enforcers, we anticipate an increase in harassment and discrimination litigation, particularly for class-based claims.

In its recently released 2022 Financial Report, the EEO signaled its plan to strengthen enforcement around systemic discrimination. The Agency heralded several victories including obtaining $29.7 million in monetary benefits for victims and collecting over $28 million in damages from 10 lawsuits asserting systemic discrimination last year. Enforcers also recovered a combined $403 million from the Agency’s top 10 settlements of 2022 (nearly doubling rates from the previous year). Highlights include an $18 million settlement with Activision Blizzard over sexual harassment and pregnancy-bias claims and $8 million from Circle K stores over disability and pregnancy discrimination issues.

Even more, the EEOC’s enforcement hike has considerable support from the White House. The President’s proposed budget requests $481 million for the EEOC – a 5.7% increase over its 2023 allocations. While this money is unlikely to materialize in full, it does underscore the growing political support for anti-discrimination and harassment enforcement.

For its part, the workplace plaintiffs’ bar is also seeing historic scores. Last year, plaintiffs won nearly $2 billion combined and saw higher rates of success certifying classes in employment bias, benefits, and wage and hour cases. Top settlements included $597 million from Sterling Jewelers for sex bias claims; $118 million from Google in a pay discrimination dispute; and $185 million between the MLB and minor league players for violations of state and federal wage laws.

Expanded protections

The list of protected classes is growing – quickly. New York added discrimination based on citizenship or immigration status to its prohibitions while Illinois amended its anti-discrimination laws to include “work authorization status.” Seattle passed a first-of-its kind law banning “caste” discrimination while California joined New York in adopting protections based on an employee’s “reproductive health decision making” and off-duty cannabis use. CROWN Act legislation, which prohibits discrimination based on hairstyle and hair texture, is also making its way through the states. The Illinois version became effective most recently, on January 1, when the state joined California, New York, New Jersey, Washington D.C., and several other jurisdictions that have based similar bans. Because these classifications are jurisdiction specific, employers have an added burden of keeping up with numerous changing state and local laws to ensure compliance.

Pregnancy protections are also ramping up. In late December, the Protections for Nursing Mothers (PUMP) Act took effect, expanding protections for nursing employees under the FLSA. The new law covers both exempt and non-exempt employees, expanding its reach to nearly 9 million more employees, including teachers and nurses. Even more, the federal Pregnancy Workers Fairness Act will take effect this June, requiring employers to provide reasonable accommodations for workers with known limitations connected to pregnancy, childbirth, or related medical conditions.

Practical considerations for employers

Watch out for these “hot” areas and be wary if there is an EEOC investigator poking around your company. Be especially careful concerning potential workplace harassment or indications of systemic or ongoing infractions, requests for accommodation (including related to disability and FMLA leave), any accommodations for pregnant persons, and issues of pay disparity. All of these are examples of complaints that can lead to class actions, or large verdicts, so they should be handled carefully.

ARTIFICIAL INTELLIGENCE

Maybe it is not surprising to hear that nearly 1 in 4 organizations use artificial intelligence HR tools, according to a 2022 survey from the Society for Human Resource Management. Nearly 80 percent use AI for recruiting and hiring. This has sparked backlash from government regulators, who worry this software may run afoul of nondiscrimination laws if it illegally rejects candidates based on a protected characteristic.

In its recently proposed “Strategic Enforcement Plan,” the EEOC makes clear that it will target employers using HR software, including programs that incorporate algorithmic decision-making in recruitment, selection, or production and performance management tools. Last May, the EEOC sued three companies under the “iTutorGroup” umbrella for programming its online recruitment software to reject some older applicants. The agency sought back pay and liquidated damages for more than 200 applicants they say were illegally denied jobs based on age.

States are also taking up this cause. Illinois was the first in 2020, followed by Maryland, to regulate the use of automated decision tools in hiring interviews. New York City moved the goalpost even further with a new law that will require employers to audit certain automated tools for bias and post a number of public disclosures. While that law was set to take effect on January 1, enforcement has been postponed until April 15, 2023 to give regulators time to finalize proposed rules surrounding the law. California regulators have taken similar steps to ensure employers and vendors could face liability under state law, regardless of whether there was discriminatory intent, through a new proposed rulemaking. Even more, the California Consumer Privacy Act recently took effect, expanding data privacy law to cover employees, applicants, and others in the workplace.

Practical considerations for employers

In short, employers will likely need to contend with a growing number of state laws on this issue, compounded by complexities of advertising remote work across several jurisdictions. For businesses using AI, consult with outside counsel (yes, you can call us) to ensure compliance with this legal patchwork. For businesses not formally using AI, be sure to audit whether employees are using AI tools. Clients are increasingly beginning to monitor employee use of various AI tools and create policies around their use in the workplace. Even if a tool is not distributed by the company, it may still raise legal concerns for employers if employees are using it unlawfully for work purposes. New York City employers can read more about the city’s recently passed sweeping AI law here.

LABOR, LABOR, LABOR!

Unions are, once again, getting prime political billing in Washington while the NLRB continues its pattern of aggressive enforcement. During the State of the Union, President Biden called on Congress to pass the Protecting the Right to Organize Act and condemned companies for “breaking the law by preventing workers from organizing.” While the Act is unlikely to succeed, this does signal that unions will take center-stage in the upcoming elections.

The NLRB got a $25 million funding boost to its 2023 budget. It had originally requested more than $100 million to account for an increase in its caseload, including an uptick in union representation petitions. In the last year, the NLRB has handed down a host of pro-union decisions and overturned some key Trump-era decisions. This included requiring employers to again deduct union dues after a collective bargaining agreement expired and a major opinion on severance agreements (more on that below).

On the horizon, the NLRB’s general counsel has signaled an interest in reconsidering when an employee is an “independent contractor,” educating the workforce about their rights under federal law, and tackling captive audience meetings.

As unions spread into new, non-traditional industries and we see a general uptick in labor activism (including strikes), the NLRB will likely continue is active role in shaping the workplace.

Practical considerations for employers

Employers with unions should already be familiar with the NLRB and the requirements of the NLRA. However, be aware that unions are becoming more active, and are looking now to organize pockets of the workforce who may not be unionized yet. Employers without unionized employees should watch out for new union organizing and upcoming rulings from the NLRB impacting all employees, not just those already unionized.

PAY TRANSPARENCY

Pay transparency has become a hallmark of the Equal Pay movement. With legislatures around the country enacting a patchwork of new restrictions and obligations, this is becoming a potential landmine for multistate employers.

This started years ago when several jurisdictions enacted laws prohibiting employers from inquiring about an applicant’s salary history. Next, states began requiring employers to disclose compensation ranges to applicants upon request or when making an offer. And now, states including California and New York, are moving the ball even further with laws requiring employers to disclose salary ranges in job postings if the job could be performed in that jurisdiction, including sometimes for internal opportunities. California and Illinois also require some employers to submit their pay data to state agencies. This not only affects how employers negotiate compensation for newcomers, it could also open the door to costly lawsuits should transparency laws unearth potentially discriminatory pay disparities. Even more, some states now prohibit retaliating against an employee for discussing their own or other employees’ pay.

On the federal level, the EEOC has also established pay equity as a main enforcement priority. So as pay ranges become more common on job applications and general anti-discrimination enforcement kicks up, we expect pay transparency issues to be a major focus to come.

Practical considerations for employers

Pay transparency issues can create exposure on multiple fronts for employers, including legal liability and public scrutiny. Employers operating in California and New York should take particular note of local laws, including requirements for job postings and data reporting. This may mean conducting an internal audit, updating hiring templates, and consulting with counsel. Read more of our coverage on laws in New York and California.

EMPLOYEE PRIVACY (Looking at You, Biometrics)

Biometric data has become big business for employers. This includes a host of services that rely on fingerprints, facial scans and voice recognition to do things like verify an employee’s identity, launch automated assistants, access events, or track time. But as these types of tools became more common, regulators took notice.

Illinois was the first state to directly regulated biometric data as a consumer (and employee) privacy matter. We’ve been covering the state’s Biometric Information Privacy Act (BIPA) since it first starting making waves for employers in court. Just recently, two monuments state supreme court decisions were handed down that should give any employer operating in the jurisdiction pause. The court made clear that BIPA violations will be tallied by act, not by individual. This means a new violation could accrue every time an employee uses a biometric time clock, potentially several times per work shift, and could open even more cases on this already contentious law. We expect this will lead to even more BIPA-related cases with huge payouts for employees and the plaintiffs’ bar.

Even more, other states are trying their hand at similar types of legislation. Texas and Washington have similar biometric laws, but do not allow for a private right of action. As of this January, Maryland and Mississippi have introduced new biometric privacy bills and other states may follow suit. We will continue to monitor major developments in this area of law as the legislative season moves forward.

Practical considerations for employers

Biometric tools can be very valuable in the workplace, but compliance with related privacy laws is also a challenge. The best advice is get good privacy counsel, as this is an area of the law which has become increasingly complex and specialized. Read more on BIPA – a monster of privacy statute – here.

RESTRICTIONS ON RESTRICTIVE COVENANTS

Noncompetes: An FTC Final Rule on … Maybe?

We’ve covered the Federal Trade Commission’s proposed rule that would ban essentially all noncompete agreements extensively (read more here) as unfair restraints of trade. From the Agency’s vantage, these common contractual provisions illegally suppress competition and employee wages. Before promulgating a final rule, the agency must accept public comment. The deadline to submit comments has been extended several times. Even if the rule is finalized, it will likely face a host of court challenges.

Practical considerations for employers

We’ve covered the FTC’s proposed rulemaking in depth (read that here), but there are some key takeaways for employers:

• Craft any restrictive covenant with caution. Restrictions on an employee’s post-employment prospects (be it their next job or their ability to “speak out” against their former employer) are increasingly disfavored.
• Restrictions should be targeted and narrowly tailored to protect an employer’s interests. In other words, try not to use boilerplate agreements, and tailor each agreement to the position or the person who is signing it.
• Carefully consider who signs a noncompete. This should be limited to senior executives or those who have access to sensitive data or information. Even more, be aware of local laws that could render restrictive convents more difficult to enforce.

Nondisclosures and Non-disparagement

The Biden administration has seemingly adopted a whole-of-government approach to restrictive covenants. Aside from the FTC’s historic rulemaking, the EEOC has identified overly broad waivers, releases, and non-disclosure and non-disparagement agreements as priorities for the Agency as barriers to access to the judicial system. And in December, Congress passed the Speak Out Act, which curtailed the use pre-dispute restrictive covenants that would prohibit employees from speaking out against sexual assault or sexual harassment.

The NLRB’s McLaren Macomb decision also took aim at the use of non-disclosure and non-disparagement clauses in severance agreements, which may apply to both union and non-union employers. (We covered that here.) And in a recent memo, the Board’s General Counsel Jennifer Abruzzo issued guidance following McLaren. Notably, it reasons that maintaining or enforcing a severance agreement with offending provisions would constitute a continuous violation and suggests employers may avoid liability by notifying former employees that certain provisions are no longer applicable in their severance agreements.

Practical considerations for employers

What to do with existing non-disclosure or non-disparagement agreements is a tricky issue, as there is no clear answer here. The “safest” option would be to look at all agreements and revise any agreement that contains a clause which may conflict with these new regulations. However, most clients are taking a “wait and see” attitude. The devil may be in enforcement of agreements in the future, and there may need to be consideration of whether an agreement should be enforced, if it contains a conflicting provision.

As the year unfolds and new laws and regulations come into view, we’ll keep you up-to-date with the major changes and issues you should be thinking about.

BIPA provides statutory damages of $1,000 per violation for negligent violations of the Act and $5,000 for willful or reckless violations. This remains true even if no biometric data was lost, sold, or compromised. The mere violation of BIPA is sufficient for liability. After Cothran, an employee who uses a biometric-based time clock twice per shift (once to clock in and out, not including unpaid breaks) and works all 260 weekdays per year, would rack up $520,000 in damages for negligent violations, plus attorneys’ fees. If the employee clocks out and back in again for lunch each shift, the damages double to $1,040,000 based on the additional use of the biometric time clock. The employer’s liability further expands if a class of employees bring a BIPA lawsuit.

The Court explicitly placed the ball back in the Illinois General Assembly’s court to clarify the legislature’s intentions under the Act if the Court’s interpretation of the legislature’s intent is incorrect. Although several attempts have been made over the years, the state legislature has not successfully enacted any amendments to BIPA, first enacted in 2008, to reduce the draconian statutory penalties. Businesses with an Illinois presence hope that changes, and soon.

In short, the Court’s ruling in Cothron has drastically increased employers’ potential exposure by many multiples and will be fertile ground for litigation. This is especially true when coupled with the Illinois Supreme Court’s confirmation that BIPA claims may be brought up to five years after an alleged violation in Tims v. Black Horse Carriers, Inc. In Tims, the Illinois Supreme Court addressed the statute of limitations (i.e. the time limit to bring a legal claim) for a BIPA claim and declared that a claim may be filed within five years of the alleged violation. Parties to BIPA litigation[1] have questioned the applicable statute of limitations since the law’s enactment in 2008. The Tims holding overturns a lower court ruling that applied varying statutes of limitation to different sections of BIPA – including limitations as short as one year for violations of privacy rights but applying a longer, five-year period for claims under other provisions of the statute.

The Court held “that applying two different limitations periods or time-bar standards to different subsections of section 15 of the Act[2] would create an unclear, inconvenient, inconsistent, and potentially unworkable regime as it pertains to the administration of justice for claims under the Act.” The five-year statute of limitations is Illinois’ “catch-all” limitations period and many claims in the state are subject to shorter limitations periods, including one year for violations of privacy rights and two years for injury claims. BIPA Defendants have argued that these shorter periods applied to foreclose claims and limit damages that already appear punitive.

These decisions continue to bring clarity regarding the requirements and limitations of BIPA, but the trend has been unfavorable to employers leveraging biometric technologies. Please refer to our recent BIPA publication for discussion of the first ever jury trial in a BIPA lawsuit and third-party liability under BIPA.

BIPA and the case law interpreting it continues to favor employees and creates significant exposure for employers even in the context of negligent non-compliance. This exposure exists even when no biometric data is lost or compromised and the plaintiffs are unable to show actual injury. Given the evolving application of BIPA, pressure on the Illinois General Assembly will increase to make the potential damages proportional to violations. Businesses of all sizes argue that the application of BIPA remains “inconvenient” and “unworkable” for those employers working to comply with BIPA while leveraging a growing array of technologies that utilize biometric data for accurate time-keeping and security.

The full opinion in Tims v. Black Horse Carriers, Inc. may be found here and Cothron v. White Castle System Inc. may be found here.

[1] Including state and federal courts nationwide who are interpreting BIPA in various jurisdictions.

[2] This is the section providing for a private right of action and outlining damages.

Webinar Invitation

Thursday, February 2, 2023 at 12:30pm ET

The Federal Trade Commission’s (“FTC”) proposed rule banning the use of non-competes with employees and workers could regulate almost all employers in the nation. If this proposal becomes final it could also prohibit non-disclosure, non-solicitation, and non-recruitment agreements that prevent employees from jumping to rivals.

Join Kelley Drye in a discussion to explore how this proposed rule may impact your company and get practical tips on how employers can prepare for a world with endangered noncompetes.

We will cover the following topics:

• What exactly would the proposed rule prohibit?
• Could a rule this sweeping become final?
• What can we expect in the next several months?
• What should employers do to prepare?

To RSVP for this webinar, please click here.

What has the FTC actually proposed? How can individual firms and industry groups alike weigh in on one of the most substantial regulatory actions facing employers right now? And what should businesses do to prepare? Here’s your deep dive.

Remind me, what exactly would the proposed rule prohibit?

Employers would be prohibited from entering into, attempting to enter into, or maintaining a noncompete agreement with an employee. While noncompetes are often associated with highly-skilled, high-wage employees like corporate executives, they are also used in some lower-paid workforces. According to the FTC, an estimated 30 million people – about one in five American workers – are currently bound to one.

The FTC proposes several additional measures to ensure compliance. Employers would be prohibited from representing to an employee that they are subject to a noncompete without a good faith basis to believe the worker is actually subject to an enforceable agreement. The rule would also prohibit de facto noncompete agreements, which includes terms (such as nondisclosure agreements or training reimbursement requirements) that effectively prohibit the employee from working for a competitor even if they are not labeled “noncompetes.”

Under the rule, employers would have an affirmative burden of notifying their current and former workers that any existing noncompete agreement is rescinded. The FTC estimates $1.02 to $1.77 billion in one-time costs associated with direct compliance with this proposed rule.

What types of employees and employers are subject to the rule?

Nearly all. Employees (“workers”) are broadly defined to include independent contractors, interns, volunteers, and others. Also, the rule would cover any employer subject to the FTC’s jurisdiction and would not distinguish between large and small employers. However, the FTC has signaled some openness to differentiating between types of employees, particularly executives and highly-skilled or paid workers, and has asked for comment on this issue. (More on that next.)

How can employers and industry groups help shape or stop this proposed rule?

Under the rulemaking procedures being followed here, the FTC must seek and consider public comment before promulgating a final rule. By design, proposed rules are often broad and leave room for some winnowing and reconsidering. The FTC’s proposal contains many specific questions and Chair Lina M. Khan issued a statement encouraging a broad swath of market participants, including those with firsthand experience using noncompetes, to submit comments. For employers, areas of particular importance and potential influence include:

• Exempting senior executives or other highly paid workers. Both Chair Khan and the FTC more broadly have sought comments on whether the ban should apply to high-paid workers and senior executives with greater bargaining power and who may pose a greater risk as competitors.
• Safeguarding investments, including trade secrets and confidential information. Employers are encouraged to weigh in on whether other legal tools, including existing trade secret law and confidentiality agreements, can protect critical investments in the absence of broader noncompetes.
• A “rebuttable presumption” vs. a ban. The FTC seeks comment on whether the rule should create a rebuttable presumption that noncompetes are unlawful instead of imposing an outright ban.
• Other alternatives to the FTC’s rule. To the extent that employers can suggest other viable alternatives to the FTC’s proposal, this is the time to do so.

Beyond potentially shaping the final decision, the notice-and-comment period also provides the opportunity for interested parties to ensure that their experiences, concerns, and views are included in the record should a later challenge to the rule become necessary.

What should employers do to prepare?

The FTC’s proposal is still just that – a proposal. It may change and will take at least a few months to complete. However, the agency can still bring enforcement actions under Section 5 of the FTC Act, as shown by two it announced (against three companies and two individuals) on the eve of launching this rulemaking. In these first-of-their-kind cases, the FTC argued that the noncompete agreements at hand – including one and two-year post-employment restrictions for workers including security guards, manufacturing workers, and engineers – constituted prohibited unfair methods of competition. The companies were ordered to cease imposing the relevant restrictions and to cease enforcing (and threatening to enforce) the noncompetes. The employers were also required to notify affected employees that they were no longer bound by the existing agreement. In many ways, this order mirrors the requirements under the proposed rule with a similar focus on lower-wage employees Therefore, while the FTC rulemaking process is ongoing, prudent actions may include:

• Submitting or supporting a public comment. The comment period is currently open through March 10, 2023. Companies interested in submitting a comment, or supporting a broader industry group comment, should contact counsel for guidance quickly.
• Review your agreements, past and present. While there’s no immediate need to take action, employers should be aware of how various state laws already impact the enforceability of these agreements. This includes reviewing contracts and terms for existing employees as well as former workers who may still be subject to noncompetes or related restrictions.
• Prepare for new negotiation dynamics. The proposed rule would become effective 60 days after the rule is published but delay compliance for 180 days after publication. It also would offer a 45-day period to provide employees notice of any rescissions – if it doesn’t succumb to legal challenges. That means there are at least several months before any ban becomes effective. However, because the publicity surrounding the rulemaking is bound to affect negotiations, employers may want to consider alternative approaches such as ensuring noncompetes are not overly broad or do not target lower-wage workers.
• Consider different types of agreements. While the proposed rule would preempt state laws, noncompetes are already enforced differently across the country. Three states – California, North Dakota, and Oklahoma – do not enforce them in most instances. Some 11 other jurisdictions, including Washington D.C. and Illinois, only enforce them for specific groups of workers, often related to earnings. Still others limit their geographic scope and duration, making it a challenge for employers working in multiple states to keep up. As a result, employers may want to consider alternative agreements such as targeted nondisclosure clauses or confidentiality agreements and post-employment consulting agreements, taking care that these alternatives are justified by legitimate interests.

A rulemaking this sweeping is bound for legal scrutiny. In our next post, Kelley Drye’s former FTC officials will explore the scope of the agency’s authority to propose this ban, how to engage in the rulemaking, and what challenges we’re likely to see in the courts.

This blog is part of a collaborative series featuring insight from Kelley Drye’s Labor and Employment, Antitrust and Competition, and Advertising Law practices. Revisit our inaugural installment with insights from Kelley Drye partner and FTC veteran William MacLeod here.

William Macleod, chair of Kelley Drye’s Antitrust and Competition practice and former bureau director at the U.S. Federal Trade Commission (FTC) weighs in to address the broad implication of this proposal, the thinking behind the agency’s proposal, whether or not the agency can change course, and what will happen if a final rule emerges? Click here to read more - https://www.adlawaccess.com/2023/01/articles/ftc-proposes-to-regulate-virtually-every-labor-relationship-in-the-united-states/#more-11287

This bipartisan legislation targets and effectively prohibits the use of pre-dispute nondisclosure agreements, which would cover claims of sexual harassment or assault in the workplace. The law only prohibits enforcement of pre-dispute agreements, which means employers can still utilize NDAs in post-dispute agreements, such as settlements.

Many states, like New York, have already passed laws restricting the use of NDA’s in settlement agreements, so depending on the state where you are located, this may not be a major change. But for employment attorneys and HR professionals, this should be a signal to review all new employment contracts. In a broader sense, you may have to revisit how your company responds to workplace sexual harassment and assault allegations now that it has become more difficult to quietly resolve.

Here’s what you need to know:

What does the Speak Out Act do, exactly?

Under the Act:

• Any agreement to keep the details of any future sexual harassment or assault dispute confidential is unenforceable. This applies to all employment contracts: past, present, or future.
• Any prospective nondisparagement clause that purports to limit an employee’s ability to speak out about sexual harassment or assault is also unenforceable.
• Trade secrets and proprietary information are explicitly protected under the law and employers may use NDAs to safeguard this information.
• States may continue to enforce laws that are more protective of an employee’s right to speak publicly about sexual assault and harassment.

Throughout the #MeToo era, NDAs have come under fire for preventing victims from speaking publicly but remain commonly used in hiring, promotion, and severance contracts. In fact, approximately one third of workers have signed broader agreements not to disparage their employers or disclose details of their employment.

Despite its seemingly clear purpose, the Act’s ambiguities are likely fodder for future court challenges. For instance, the law targets only “pre-dispute” agreements but does not define the term. This means courts may interpret a “dispute” to include a narrow set of actions (such as a formal complaint or even litigation) or broader swath (say an informal HR complaint).

Also, the law does not specify what a company must do to address existing employment agreements which may contain clauses that violate the new law. We would advise leaving those agreements in place, as trying to get new agreements signed again could be impossible. Just be aware that a requirement of an NDA could be unenforceable.

The Act also looks to other federal, tribal, or state law in defining the terms “sexual assault” and “sexual harassment. ” Notably, in 2020, the Supreme Court interpreted Title VII’s sex protections to include protection against discrimination based sexual orientation and gender identity. The scope of these definitions may be contended. And while the law does not prohibit the use of NDAs in other contexts, such racial bias or disability, discrimination claims are often intersectional and contain several allegations. For now, employers may be wise to interpret the Act broadly.

How does this compare to state law trends?

The federal law creates a floor, not a ceiling. More than a dozen states have already passed legislation limiting employee NDAs, including California and New York.

California: California has severely limited NDA enforcement for all forms of workplace harassment and discrimination. The state prohibits confidentiality agreements as a condition of employment that prevent an employee from disclosing most unlawful workplace conduct. And unlike the federal law, California’s law also bans confidentiality provisions in settlement agreements that prohibit an employee from discussing the underlying facts of the case. Agreements to protect the worker’s identity or safeguard the amount paid are permitted. Again, California law applies to all forms of harassment and discrimination, including sex, religion, color, national origin, disability, familial status, gender, age and others.

New York: The Empire State has similarly outlawed agreements that prevent the employee from disclosing the underlying facts and circumstances related to an employment discrimination claim. Like California, the legislation originally applied only to sex discrimination, but was expanded in subsequent iterations. New York lawmakers have also introduced legislation that would ban most NDA and nondisparagement clauses that prevent disclosure of harassment or discrimination in employment contracts.

What should employers do now?

The Speak Out Act is hardly the first of its kind. Last March, Congress passed the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act, prohibiting enforcement of any pre-dispute arbitration agreement in these types of cases. With these trends in federal and state law, employers must take action:

• Update your new employment contracts. While the law does not prohibit broad agreements full-stop, HR departments should review new agreements and ‘form’ agreements, to ensure they will withstand legal scrutiny. You do not need to change or try to get existing agreements signed anew. Just be aware that a requirement of an NDA is likely not enforceable.
• Refresh your training materials and HR response policies. Ensure your company’s response is in compliance with federal and state laws. This includes training supervisors and updating company policies.
• Consult counsel. Speak with an attorney if you have any questions about this new federal law or your obligations under state law.

We’re monitoring employment law trends on Capitol Hill and across the nation. Subscribe to stay up-to-date with the legal developments that will most impact your company in the months to come.

Despite BIPA’s relatively maturity, basic questions still remain as to the scope of the statute. Most pressingly, the applicable statute of limitations for violations of the Act (how many years a plaintiff has to file a lawsuit after a violation), and the number of BIPA violations that may accrue have not been decided.

What is a Viable Claim?

In 2019, the Illinois Supreme Court decided in Rosenbach v. Six Flags that a plaintiff need not suffer any real world harm to recover under BIPA and that a bare violation of the Act was enough to maintain a viable claim. In other words, a person’s biometric data need not be lost, sold, breached, or compromised. A viable claim arises when a company fails to maintain a biometric policy and/or obtain informed consent in accordance with BIPA.

Before and after Rosenbach, the threat of substantial damages awards has driven nearly every BIPA lawsuit to settle if the defendants were unable to quickly achieve dismissal of the case. Despite the uncertainty around major parts of the Act, because BIPA awards $1,000 for each negligent violation of the Act and $5,000 for each intentional or reckless violation of the Act, plus attorneys’ fees, it has long been fertile ground for the Plaintiffs bar.

The uncertainty and risks for defendants have led global power-players like Facebook and Google to settle BIPA class actions brought against them for $300 million and $100 million, respectively. Even so, these landmark settlements were, it has now been confirmed, likely worth entering to avoid the risk of a substantial jury verdict if tried on the merits.

Statute of Limitations

The statute of limitations question is expected to be answered by the Illinois Supreme Court in the pending case, Tims v. Black Horse Carriers. The Court in Tims is tasked with determining the applicable statute of limitations for BIPA cases, i.e. whether an aggrieved person must file a lawsuit within one, two, or five years after an alleged BIPA violation. Confusingly, the appellate court decision that is under review in Tims mandates that a one-year statute of limitations applies to some sections of BIPA while a five-year statute of limitations applies to other sections. Oral arguments took place in September 2022 and practitioners eagerly await a ruling from Illinois’ highest court.

Violation Accrual

In addition to the Tims case, another case pending before the Illinois Supreme Court will also have major implications for future BIPA litigation and companies’ potential liability under BIPA. In Cothron v. White Castle System Inc., the Illinois Supreme Court has been asked to determine whether a BIPA violation accrues each time an individual’s biometric information is collected or whether each plaintiff only has one claim against a company even when biometric information is collected repeatedly. This means that the Court will decide whether, for example, an employee who uses a fingerprint time clock to “punch in” to work can collect under BIPA just once, or for every time they used the time clock in violation of BIPA – $1,000 or $5,000 per punch, possibly dozens of BIPA violations per week.

Finally, a Jury Trial

In the recent jury verdict case, Rogers, BNSF Railway used an outside company, Remprex, to install and operate security screening equipment at entrances to BNSF railyards. The security equipment used individuals’ fingerprints (biometric information protected by BIPA) to grant admission to the secure facilities. Remprex collected and stored the protected biometric data and administrated the security system. Nonetheless, Judge Kennelly ruled before trial that BNSF could still be liable for BIPA violations even if BNSF was one step removed from the biometric transaction itself, i.e. BNSF was a third-party that hired Remprex to actually collect and store the biometric information (actions Remprex took on behalf of BNSF). Judge Kennelly determined that this question was not for the court to determine as a matter of law, it was for a jury to decide at a trial. The jury held BNSF responsible to the tune of $228 million.

The Rogers case confirms that third-party liability for BIPA violations is a “question of fact” that cannot be decided by a judge prior to trial. Going forward, it appears that businesses, on whose behalf biometric data is collected or obtained by a separate company, will have to go to trial to determine whether they will be liable for the third-party’s actions.

Conclusion

After the first jury trial and verdict in BIPA’s existence, comprehensive BIPA compliance and litigation protections are more crucial than ever for employers leveraging biometric technology to manage their workforce, especially those with biometric time clocks or access systems.

Employers who use biometric equipment – including devices that conduct retina scans, fingerprint scans, hand geometry recognition, facial recognition, among others – or who hire third-parties to implement or operate this equipment for them, are reminded to:

• Have a written BIPA policy.
• Inform biometric users that their data will be collected, for how long, and purpose for collection and storage.
• Obtain written consent from each user in compliance with the BIPA statute.

Finally tested at trial, Illinois’ BIPA has materialized into the big-money threat that national legal observers feared it to be. If you have questions about compliance and other requirements of BIPA, please contact Kelley Drye’s Chicago-based labor and employment team.

Employers can access the City’s most recent and complete guidance here, but below are a few highlights:

• Employers should comply with the new requirements when advertising for positions that can or will be performed, in whole or in part, in NYC, whether from an office, in the field, or remotely from the employee’s home.
• "Good faith” means the salary range the employer honestly believes at the time they are listing the job advertisement that they are willing to pay the successful applicant(s).
• Salary includes the base annual or hourly wage or rate of pay, regardless of the frequency of payment, and does not include other forms of compensation or benefits (e.g., health insurance, severance pay, or 401(k)).
• An “advertisement” is a written description of an available job, promotion, or transfer opportunity, regardless of the medium by which the description is disseminated (e.g., internal bulletin boards, internet ads, printed flyers).

Only current employees may sue an employer directly for violations of the law, and although members of the public may file complaints, the Commission will not assess a civil penalty for the first complaint alleging a violation of the salary transparency provision, provided that the employer shows it has fixed the violation within 30 days of receiving the Commission’s notice of the violation.

To comply with the law, employers should at a minimum ensure all job postings from November 1, 2022 forward include a salary range. Since these salary ranges will become public and will likely be closely reviewed by current and prospective employees, employers would be wise to document the factors used to determine the salary range for a given position and the factors that may impact variation within the stated range, such as years of experience or education.

If employers have questions about compliance with the NYC Pay Transparency Law, or are thinking about an audit but don’t know where to begin, now is the time to contact employment counsel. As always, Kelley Drye attorneys are available to answer questions and to assist with compliance.

If you are using AI and/or AEDT, beware. Starting January 1, 2023, New York City employers will be subject to one of the most sweeping regulations governing AEDT to date.

Local Law 144 prohibits employers from using AEDT in hiring or promotion decisions unless they have taken several affirmative steps, including conducting a bias audit. This may include tools like resume-scanning software and more advanced “chatbots” and “job-fit” algorithms.

To help clarify the law’s many ambiguities, workplace regulators issued proposed regulations. The notice-and-comment period was originally set to end this week, but the city was unable to hold a virtual public hearing after too many participants joined the Zoom room and overwhelmed the system. The city rescheduled for November 4^th and will continue to accept public comments until then. In the lead up to this law, here’s what employers need to know to get into compliance:

Who does the law apply to?

The law covers employers and employment agencies that use AEDT in New York City and candidates and employees who reside in the City. However, New York is one of three jurisdictions leading the charge on employment AI legislation and is likely to seek influence beyond its borders, meaning any company hiring or promoting a New York City resident will likely be subject to aspects of the law.

How does the law define AEDT?

The law defines AEDT as “any computational process, derived from machine learning, statistical modeling, data analytics, or artificial intelligence” that issues a simplified output such as a “score, classification, or recommendation” used to “substantially assist or replace” a human’s discretion in making “employment decisions.” Those decisions include both hiring and promotions.

The proposed regulations clarify what would constitute substantially assisting or replacing human discretion, including when decisions are made based only on the system’s output with no other factors taken into consideration, that output is weighed more than any other criteria, or when it overrules or modifies decisions based on other factors.

What must employers do under the new law?

1. Complete an “independent bias audit” of their automated tools. The audit must be conducted within a year of using the tool by an independent auditor. The proposed regulations clarify that the audit must calculate a “selection rate” and “impact ratio” for specific EEOC reporting categories including race, ethnicity, sex, and job types.
2. Publish the results. The date of the most recent audit, a summary of the results, and the distribution date of the AEDT or the date the employer began using a specific AEDT must be published in a “clear and conspicuous manner” on the employer’s website.
3. Notify candidates and employees residing in New York City at least 10 business days before using the tool. Under the proposed regulations, a “candidate” is someone who has applied for a specific position by submitting, in the required format, the necessary information or items. AEDT notice can be placed on the career or jobs section of the employer’s website, in a job posting, or via email or mail. For employees, notice can be included in a written policy, procedure, or job posting or provided person, by mail, or by email.
4. Provide instructions for requesting an alternative selection or evaluation process. Despite this requirement in the law, the proposed rules state that an employer is not required to provide an alternative selection process.
5. Make information about the source and type of data collected by the tool and the employer’s data retention policy available, with some exceptions.

Failing to comply with this law could be costly. Penalties range from $500 to $1,500 for each violation and may accumulate quickly. Each day an AEDT is used in violation of the law is treated as a separate violation. Even more, failure to provide notice to candidates and employees is also counted as a separate infraction. Given the law’s disclosure requirements, employers should also be aware of potential liability under local, state, and federal anti-discrimination laws should bias audits reveal potential discrimination.

What remains unclear?

Despite the proposed rules, aspects of the law remain uncertain including exact tools the law will cover, the precise requirements for bias audits, who can act as an independent auditor, and how this law will impact out-of-city employers and applicants.

What should employers do to prepare?

1. Immediately assess the automated tools you are using to make hiring and promotion decisions. If any may fall within the law, speak with counsel to ensure you are in compliance.
2. Review vendor contracts. Employers cannot deflect liability to their third-party vendors if those vendors run afoul of the law. Instead, government agencies will likely simply seek to hold both the employer and the third-party vendor liable.
3. Monitor New York City’s law and the proposed guidance to understand your obligations starting in January of 2023.
4. Train your HR professionals and others involved in hiring and promotions to ensure compliance with the law’s notice and disclosure requirements.

On September 27, 2022, California Governor Gavin Newsom signed SB 1162, which broadens the state’s pay transparency laws by requiring employers to provide pay scale information and expanding pay data reporting obligations for certain employers.

The earliest of the law’s changes go into effect on January 1, 2023, but employers should now begin the process of updating their existing organizational policies and procedures to ensure timely compliance with the new regulation when it takes effect. Here’s a brief overview of existing law and the new requirements set forth in SB 1162.

Pay Transparency

Prior to the enactment of SB 1162, under the current law, employers are required to provide an applicant for employment with the pay scale information for the position the applicant is seeking, upon reasonable request. Current law does not require employers to provide existing employees pay scale information for their current positions. SB 1162 now affords California employees the right to request pay scale information and adds the additional mandate that employers must include pay scale information in job postings. The term “pay scale” is defined as “the salary or hourly wage range that the employer reasonably expects to pay for the position.” Effective January 1, 2023, California employers must comply with the following requirements:

• Employers must provide their employees with pay scale information for their current positions, when the information is requested.
• Employers with 15 or more employees must include in any job posting the pay scale information for the position sought to be filled; and
• Employers must maintain records of a job title and wage rate history for each employee for the duration of his or her employment, plus 3 years after the end of the employment in order for the Labor Commissioner to determine if there is a pattern of wage discrepancy.

Pay Data Reporting

SB 1162 also expands the state’s existing pay data reporting obligations.

Under current law, an employer that has 100 or more employees and is required to file an Employer Information Report (EEO-1) is also mandated to submit a pay data report to the California Civil Rights Department which includes information regarding the number of employees by race, ethnicity, and sex in specified job categories.

Pursuant to SB 1162, all California employers, regardless of EEO-1 filing status, must comply with the following new requirements:

• Employers are required to file a pay data report, which includes the median and mean hourly rate for each combination of race, ethnicity, and sex for each job category, for both traditional employees and those hired through labor contractors.
• Employers must submit a separate pay data report for employees hired through a labor contractor (defined as an entity that supplies a client employer with workers), including the disclosure of the ownership names of all labor contractors used to supply employees;
• Pay Data reports are now due annually on the second Wednesday of May each year, with the first such report due on May 10, 2023, based on calendar year 2022 pay data.

SB 1162 still requires employers with multiple establishments to provide a report for each establishment, but removes the requirement to submit a consolidated report. SB 1162 deletes the provision in existing law that authorizes an employer to submit an EEO-1 in lieu of a pay data report.

Under SB 1162, if an employer does not provide the required report to the California Civil Rights Department, a court may impose a civil penalty of up to $100 per employee for an initial failure and up to $200 per employee for any subsequent failure.

What’s Next?

There are many unanswered questions regarding the new law and how it applies in practice to California employers (i.e., Does the new pay transparency law apply to employers that have less than 15 employees working in California, but more than 15 employees company-wide?). While we expect additional clarifying guidance from the state on these issues, employers can begin taking steps now to timely comply with the law.

As a starting point, California employers must assess, confirm, and document salary ranges for all positions that are based in the state.

Employers can also begin creating templates for job postings that will be posted after January 1, 2023, to include pay scale information. If employers utilize a third party vendor to manage job postings, these employers should begin to communicate with their vendors to ensure compliance with California’s new pay transparency laws.

It is fair to expect that the new law will stir up requests from current employees about salary ranges; therefore, employers should also start to think about training supervisors and human resources personnel about how to respond.

Finally, employers can consider whether now is the time to engage counsel and conduct a privileged pay equity audit before salary range information becomes public on January 1, 2023.

Like the CVA, the ASA revives otherwise time-barred claims based on both intentional and negligence theories of relief. This means that companies that formerly employed abusers may be sued and held liable under vicarious liability theories – such as negligent hiring, training and retention – even where the employer had no direct knowledge or involvement in the abuse.

Nearly 11,000 lawsuits were filed under the CVA during its revival window, originally set for one year, and later extended to two. A large percentage of those lawsuits were against organizations that had extensive involvement with children, such as churches, youth organizations and foster care agencies. Even aside from the substantive damages arising from such suits, the financial impact of merely defending against these lawsuits has been staggering, and many organizations have been driven into bankruptcy.

The ASA promises to have an equally broad impact on a much wider range of organizations and industries, such as entertainment, hospitality, healthcare, or any other industry involving extensive interactions with adults. As the #MeToo movement has shown, many women who were previously reluctant to speak of their abuse are now willing to come forward. Such claims – which may have been barred by statutes of limitations – will become actionable on November 24.

The impact of the ASA cannot be overstated: a whole variety of long-dead claims based on alleged harassment or other abuse are now actionable, and employers should anticipate a flood of new claims based on old conduct. It is therefore critical that New York employers understand the far-reaching effect of this law and take action now to prepare for claims enabled by the ASA.

Insurance May Cover Revised Abuse Claims

Insurance may provide coverage for revived abuse claims, but policyholders likely will have to look to older policies that were in effect at the time the alleged abuse occurred. This is because the policies most likely to cover sexual abuse claims are general liability (or CGL) insurance policies, which typically cover injuries that occurred during a one-year “policy period” starting on the date the policy was issued. Thus, a lawsuit alleging that an employee sexually assaulted a customer in 1979 could be covered by the CGL policy the employer purchased that year.

In addition, coverage is more likely for significantly older claims, dating to the 1980s or earlier. Starting in the mid-1980’s, sexual abuse exclusions became commonplace in CGL policies. Prior to that time, CGL policies generally did not have such exclusions. It is well-established under New York law that the standard CGL policy language from that era generally covers vicarious liability claims against employers based on sexual abuse.

In contrast occurrence-based CGL policies, “claims made” policies – such as directors and officers (“D&O”) or employment practices liability insurance (“EPLI”) apply to new claims that are made (or lawsuits that are filed) during the policy period, regardless of when the conduct occurred. Thus, if coverage is available under these policies, it will be under the policies that are currently in effect, or that will be in effect during the one-year ASA revival window.

Although modern CGL and claims-made policies are much more likely to contain sexual abuse exclusions than older CGL policies, the possibility of coverage should not be discounted until the policy has been carefully reviewed and compared against the lawsuit’s allegations.

The Challenges of Locating Historic Insurance Policies

Employers should take immediate action to identify and locate their older insurance policies which may respond to new ASA claims alleging abuse in the distant past. All insurance policies require the policyholder to notify the insurer of new claims in a timely manner. Late notice can be grounds for the insurer to deny coverage altogether. When a new lawsuit alleges abuse that occurred decades earlier, the policyholder cannot provide notice if it does not know which carrier was insuring it at the time in question. In the CVA context, many insurers have refused to excuse delays in notice even where the policyholder has promptly undertaken a search to identify the correct insurer.

Locating historic insurance policies may be challenging. Old policies may be stuffed away in storage closets or off-site records facilities in poorly organized file systems. In many cases, a time-consuming manual review of old files may be necessary to determine what evidence of coverage is available. Often, policies have been lost or destroyed. Some companies have a records retention policy of only six years. When policies are missing, there are a number of steps that policyholders can take to locate evidence of historic coverage. Policyholders can contact the insurance brokers who sold their insurance over the years. Brokers often maintain records of policies dating back many years or decades. In addition, organizations may have been required to provide proof of insurance to municipalities in the past, and those records may be discoverable through Freedom of Information Law (“FOIL”) requests. In some cases, court records from previous personal injury lawsuits against an employer may identify the name of an insurer covering the loss. Even where a complete copy of the insurance policy cannot be located, it is still possible for policyholder to establish the existence of coverage through the use of extrinsic evidence.

Coverage Issues

Just as employers will be scrambling to secure coverage for the flood of ASA claims that previously were barred by the statute of limitations, insurers will seek to limit their own exposure by pushing back on claims and raising defenses to coverage wherever possible.

Employers should not accept denials of coverage at face value. Insurance policies must be closely examined to determine the scope of coverage. A threshold question will be to determine whether the policies cover sexual abuse claims at all, or whether such claims are excluded. In the CVA context, insurers have raised many other defenses to coverage, even where the policy does not expressly exclude sexual abuse.

Even where the insurer agrees to provide coverage for a lawsuit, many questions can arise as to the scope of that coverage, particularly where the claim involves multiple instances of alleged abuse, or when the allegations span multiple years and/or multiple policies. In that situation, policyholders should engage competent coverage counsel to navigate these complicated issues.

Conclusion

Kelley Drye lawyers have extensive experience defending employers in sexual abuse cases under revival statutes such as the CVA and ASA, and in assisting employers in securing insurance coverage for such claims, including identifying historic policies of insurance.

The rise of single-click job application programs like “Easy Apply” on LinkedIn or “1 Click Apply” on ZipRecruiter has made it extraordinarily easy for applicants to submit job applications. But as any recruiting manager knows, the task of filtering resumes and job applications for hundreds of applicants per position ranges from difficult to almost impossible. So how does a hiring manager make a “rough cut” from the piles of electronically-submitted resumes and job applications? Happily, AI offers a powerful tool for making that rough cut; unhappily, AI can result in employment decisions, literally without human intervention, that may violate anti-discrimination laws—or at least, that’s the regulatory concern, as an increasing number of jurisdictions have articulated it.

The idea of using AI in making hiring decisions is simple: machine-based algorithms can identify certain objectively desirable characteristics or experience in candidates, and in theory, those algorithms (precisely because they are supposedly objective) actually reduce the opportunity for human bias. The principal concern of regulators is that, at least so far, AI technology is a black box. To date, there has been little to no meaningful transparency in exactly what the technology is considering and evaluating in that algorithmic process of making the rough cut. The plethora of new regulation is aimed at exactly this perceived lack of transparency.

REGULATORS TAKE NOTICE

The concern with transparency in automatic hiring technologies has resulted in a flurry of new regulation and legislation. In October 2021, Charlotte Burrows, the Chair of the U.S. Equal Employment Opportunity Commission (“EEOC”) announced a new focus at the EEOC on ensuring that that use of AI does not run afoul anti-discrimination laws. As part of that initiative, in May 2022, the EEOC issued guidance, “The Americans with Disabilities Act and the Use of Software, Algorithms, and Artificial Intelligence to Assess Job Applicants and Employees,” which creates guidelines and standards for the use of AI in hiring decisions that avoid intentional or unintentional bias against disabled applicants. This is likely to be just the first of many guidance documents issued by the EEOC concerning the intersection of AI and the various laws the EEOC enforces.

Of course, in the U.S. the EEOC is not the last—or in this case, even the first—authority to regulate the use of AI in hiring decisions. Employers operating in multiple jurisdictions are accustomed to this complexity, but the novelty of AI regulation makes compliance in multiple jurisdictions that much more complex and difficult.

Illinois was first to the scene when, in 2020, it enacted the Artificial Intelligence Video Interview Act, regulating the interview process for jobs that are “based” in Illinois. The Illinois law applies to employers who use AI to analyze video interviews by job candidates. If the employer uses AI in this manner, it must notify the applicant in advance of the interview, explain how the AI is used, and obtain consent from the candidate. The employer must also limit distribution of the video and destroy the video within 30 days. Illinois later amended the law to include a demographic reporting requirement on behalf of the employer, requiring employers who rely solely upon an AI analysis of a video interview to collect and report the race and ethnicity of applicants who are (or are not) given an in-person interview, and who are ultimately hired.

New York City has also legislated in the area of the use of AI in hiring decisions, with a new law becoming effective on January 1, 2023. Unlike the Illinois law, which focuses solely on video interviews, New York City’s law is far broader and applies to all automated decision tools that are used to assist with hiring or promotion decisions. The new law prohibits the use of automated decision tools unless the tool has been subject to an annual independent bias audit (which the law does not define), and the employer (or third-party agency) makes the results of this audit publicly available. In addition, employers using automated decision tools must notify employees or candidates of their use of the decision tool (and allow the candidate to request an alternative process or accommodation), and must explain the job qualifications or characteristics that the tool uses to assess the candidate.

Finally, following suit with its peers, in March 2022, California’s Department of Fair Employment and Housing (“DFEH”) issued proposed regulations regarding the use of automated decision tools in the employment sphere. Specifically, these proposed regulations would make it “unlawful for an employer or a covered entity to use qualification standards, employment tests, automated decision systems, or other selection criteria that screen out or tend to screen out an applicant or employee or a class of applicants or employees on the basis of a characteristic protected by this [law], unless the standards, tests, or other selection criteria, as used by the covered entity, are shown to be job-related for the position in question and are consistent with business necessity.” (Cal. Code Reg. § 11009 (proposed)). These regulations are not final, but employers in California should prepare for these regulations to be implemented in one form or another in the coming months.

These new laws and regulations are not the last word on AI regulation—other jurisdictions are considering similar legislation. For example, the “Stop Discrimination in Algorithms Act,” pending legislation in Washington, D.C., would prohibit employers from using certain types of data in algorithmic decision-making technology that would tend to result in discrimination. Similarly, New Jersey is considering the “New Jersey Algorithmic Accountability Act,” which would require certain businesses to reduce the use of “high-risk” automated decision systems in their everyday business. Significantly, the New Jersey law would require the business using AI to record any racial or other bias that the technology creates in practice. Similar laws in other jurisdictions are sure to follow.

WHAT SHOULD EMPLOYERS DO?

It’s no coincidence that the three jurisdictions leading the charge on AI in the employment context are New York City, Illinois, and California—three places with strong ties to the international business community. In passing these laws, these three jurisdictions likely seek to influence policy beyond their borders, knowing that any employer that wants to hire individuals in that jurisdiction will have to abide by these requirements, and hoping the employer will adopt the requirements in a broader scope due to administrative ease. In fact, New York City’s law will ostensibly ensure that any automated decision tool that an employer uses will pass the required bias audit, since it’s unlikely an employer will choose to use a different set of automated decision tools in New York City than they would in other locations.

Employers operating in these jurisdictions should immediately assess whether they are using AI that would be covered by these laws. If so, they should engage with counsel to ensure they are in compliance, and if they engage third-party vendors to provide this AI, they must ensure the vendors are in compliance as well.

Of critical importance, employers will not be able to deflect liability to their third-party vendors if those vendors run afoul of the law. Instead, government agencies will likely simply seek to hold both the employer and the third-party vendor liable. To that end, employers must carefully review their vendor contracts to ensure they are protected from liability by ensuring there is appropriate indemnification by their vendor in case of non-compliance, and that their vendors are representing and warranting they are in compliance with all laws. In the case of an investigation by a government agency, this documentation will be significant.

Finally, employers should monitor AI legislation in all of the jurisdictions where they have employees. If the pending legislation discussed above is any indication, the regulatory landscape regarding AI will become far more difficult before it becomes easier. As always, employers should consult with their counsel regarding these issues.

Tuesday, September 13, 2022 at 12:30pm ET Pay Equity & Transparency: Rising Workplace Trends

New York, which has over 9.3 million workers and counting, will soon join other jurisdictions in a growing trend of state and local pay transparency requirements for employers across the country. Currently there are 17 states (and numerous cities) that have laws requiring pay transparency and/or prohibit salary inquiries by current/prospective employers. Additionally, the recent focus on pay equity laws, both state and federal, has served as a catalyst for increased scrutiny by government agencies and resulted in an uptick in related class action lawsuits in recent years. While transparency is generally a virtue, compliance with the ever-evolving pay transparency and pay equity laws across multiple jurisdictions can create a quagmire of issues in attracting and retaining talent—not to mention the HR and legal landmines.

This webinar will cover:

• New pay transparency laws
• Review of pay equity and salary history ban laws
• Insights on compliance
• Practical implications for talent acquisition and retention

Tuesday, October 11, 2022 at 12:30pm ET Wake-up Call: The Resurgence of Unions

The death of union representation was probably not exaggerated—that is, before the pandemic. Now, with employers desperate to recruit and retain employees in a robust labor market, wages seeing the highest percentage increases in years, and a sense of worker-side empowerment not seen for years, unions are more powerful and relevant than at any time in decades.

This webinar will explore recent trends, strikes, organizing activity, and strategies to mitigate union-related risks and disruptions to your business.

This webinar will cover:

• The resurgence in union activity across all industries
• Changes at the NLRB that affect your everyday business operations
• Taking the temperature of your workforce

Tuesday, November 8, 2022 at 12:30pm ET Protecting Your (Human) Resources: Fighting Business Email Compromise and Ransomware

HR employees are, willingly or not, the guardians of the company’s most sensitive collection of data—its employee’s personal information. Cybercriminals often perceive the human resources department as the perfect gateway into a company’s employee data goldmine. Many scams and information theft are perpetrated through social engineering. Cybercriminals posing as job applicants, recruiters or new vendors prey on the fact that human resource employees often receive emails and attachments from unknown sources. Conversely, because of the central role that HR plays in employees’ lives, many employees reflexively open emails and attachments that appear to be sent from the HR department. Employees are just one click away from granting fraudsters the access they need to install ransomware or steal login credentials, potentially exposing employees’ sensitive and valuable personal information, and resulting in significant losses and legal exposure for your company.

This webinar will cover:

• Weapons and techniques fraudsters use to infiltrate company systems and current scam trends
• Proactive best practices for fraud and information theft prevention
• E! true HR stories: theft, lawsuits, and the one simple move that would have stopped it all
• What to do when the perpetrators are in-house

BACKGROUND

Historically, California employees could avoid their arbitration clauses in part by asserting claims brought under California’s Private Attorney General Act (“PAGA”). PAGA allows employees to stand in the shoes of the State of California to enforce particular Labor Code violations that were – before the enactment of PAGA – only enforceable by the California Labor Workforce Development Agency.

PAGA authorizes aggrieved employees to file lawsuits to recover civil penalties on behalf of themselves, other employees, and the State of California for Labor Code violations. The aggregation of PAGA civil penalties can create substantial financial liabilities for employers and, until the Court’s recent decision last week, employers could do little to minimize this exposure by virtue of well-crafted arbitration clauses.

The California Supreme Court in Iskanian previously held that an arbitration clause cannot force an employee to waive a representative action under the PAGA and any such arbitration provision was contrary to California public policy and unenforceable under state law. The Iskanian Court also held that this public policy rule did not run afoul of the Federal Arbitration Act (“FAA”) because the FAA was limited to arbitration agreements between private parties, such as employers and employees, but PAGA claims exist between the State of California and employers, and thus individual employees are without authority to waive or modify the State of California’s rights under PAGA.

VIKING RIVER CRUISES, INC. V. MORIANA

On June 15, 2022, the United States Supreme Court decided Viking River Cruises, Inc. v. Moriana (“Viking River Cruises”), No. 20-1573, 2022 WL 2135491 (U.S. June 15, 2022). The case stemmed from an arbitration agreement between the plaintiff-employee Angie Moriana and her employer, Viking River Cruises, Inc. Viking River Cruises, Inc. sought to enforce the arbitration agreement which purported to waive “representative” actions, including Moriana’s PAGA claim.

The U.S. Supreme Court ruled that the arbitration agreement required the arbitration of Moriana’s individual PAGA claims. In so ruling, the Court held that “[the] FAA preempts the rule of Iskanian insofar as it precludes division of PAGA actions into individual and non-individual claims through an agreement to arbitrate.” In short, Viking River Cruises was entitled to enforce the parties’ arbitration agreement to the extent that it mandated arbitration of Moriana’s individual PAGA claim.

TAKEAWAYS

The Supreme Court recognized that its decision left other questions unaddressed. The Court explicitly acknowledged that “[t]he remaining question is what the lower courts should have done with Moriana's non-individual claims.” The Court noted that its holding would not require such representative claims to be dismissed. PAGA, however, does not appear to leave any “mechanism to enable a court to adjudicate non-individual PAGA claims once an individual claim has been committed to a separate proceeding” because PAGA limits statutory standing to only those individuals who are contemporaneously maintaining an individual PAGA claim.

The Court’s remedy to this quandary was simple. Although its decision does not require the dismissal of Moriana’s non-individual PAGA claims, the limits of statutory standing under PAGA do, in fact, demand the dismissal of non-individual PAGA claims. Therefore, unless and until the California legislature modifies the limits of statutory standing under PAGA, well-drafted arbitration clauses can likely (in effect) force employees to waive their statutory right to bring PAGA claims for violations unrelated to themselves, and otherwise compel the arbitration of their individual PAGA claims.

The Court also appeared to leave unaddressed the question of whether an employee can even agree to arbitrate PAGA claims on a pre-dispute basis. Indeed, Viking River Cruises overturned Iskanian only “insofar as it precludes division of PAGA actions into individual and non-individual claims through an agreement to arbitrate.” Viking River Cruises appeared to leave all other aspects of Iskanian intact.

Viking River Cruises is an overall victory for employers hoping to minimize their exposure to PAGA penalties. This decision will allow employers to limit the cost and risk that is inherent in any PAGA representative action. Employers should consult with employment counsel to update the scope of their arbitration agreements to compel arbitration of individual PAGA claims. Employers without arbitration agreements may consider entering into arbitration agreements that limit their exposure to PAGA claims asserted by their employees on a representative basis. Additionally, employers with existing arbitration agreements containing representative action waivers should consider the implication of Viking River Cruises on any pending lawsuits brought by an employee who voluntarily entered into arbitration agreements that required arbitration of representative actions, such as PAGA claims.

Who needs to keep reading?

The Ordinance applies to any business, partnership, entity, or person that employs at least one employee in the City of Chicago in the current or preceding calendar year (in 2021 or 2022), and is subject to City licensing requirements or maintains a business facility within the City limits.

An employee under the Ordinance means anyone who is engaged to work within the City limits for monetary or other valuable consideration.

What is new?

• Employers will be required to have a written sexual harassment policy.
• The definition of sexual harassment will expand.
• Employers will be required to provide increased sexual harassment training.
• Longer notification and reporting periods.
• Longer recordkeeping requirements.
• Penalties will increase tenfold.

What should covered employers do before July 1?

• Review and revise your existing sexual harassment policy to include the following, newly required language. The policy must be provided to employees in their primary language.

• 1. A statement that sexual harassment is illegal in Chicago.
  2. The new definition of sexual harassment: any (i) unwelcome sexual advances or unwelcome conduct of a sexual nature; or (ii) requests for sexual favors or conduct of a sexual nature when (1) submission to such conduct is made either explicitly or implicitly a term or condition of an individual’s employments, or (2) submission to or rejection of such conduct by an individual is used as the basis for any employment decision affecting the individual or, (3) such conduct has the purpose or effect of substantially interfering with an individual's work performance or creating an intimidating, hostile or offensive working environment; or (iii) sexual misconduct, which means any behavior of a sexual nature which also involves coercion, abuse of authority, or misuse of an individual’s employment position.
  3. A description of new requirements for sexual harassment training for all employees (provided below).
  4. Examples of conduct prohibited under the policy (i.e. examples of sexual harassment).
  5. The procedure for how employees should report sexual harassment, including the employer’s confidential reporting mechanism and including legal services available to those who may be victims.
  6. A statement noting that retaliation for reports of sexual harassment is illegal in Chicago.
  7. A model policy is expected to be made available on the City’s website.

• Provide required annual sexual harassment training to all employees. At least one hour of sexual harassment prevention training is required for all employees, supervisors and managers must receive two hours of such training each year. In addition, one hour of bystander training is required for all employees annually. Templates for such trainings are expected to be available on the City’s website.
• Understand that employees now have 365 days (increased from 300 days) from the alleged violation to report discrimination or harassment to the Chicago Commission on Human Relations (the “Commission”). Understand further that the Commission now has to notify the employer of a sexual harassment complaint within 30 days (compared to only 10 days for other forms of discrimination).
• Amend recordkeeping policies and procedures to reflect that employers must retain written records regarding compliance with the Ordinance for 5 years, longer if there is a pending legal claim or investigation.
• Be compliant. Employers may now be penalized $5,000 - $10,000 per violation of the sexual harassment provisions of the Ordinance, a 10X increase from the previous penalty structure.

Contact Kelley Drye’s Chicago-based employment lawyer, Matt Luzadder, before July 1^st with any questions or concerns you may have about this Ordinance.