If there's one thing employers can be sure of from one year to the next, it's that the laws and regulations governing their workplace and workforce are likely to change and develop, at least to some extent. Whether big or small, for better or worse, through legislation or litigation, change is inevitable, and keeping up with these ever-evolving laws is no easy task. To help employers navigate and prepare for some potential changes coming this year, below we highlight some of the major cases and legal developments employers should watch in 2023.
Non-Compete Agreements Could Face More Scrutiny with Efforts by the FTC
As we previously wrote here, the Federal Trade Commission (FTC) announced a new proposed rule on January 5, 2023 that, if enacted, will have wide-ranging implications for employers and their use of non-compete agreements. The proposed rule is still in its early stages, and understanding the implications (if any) for employers that could arise from the FTC's proposed rule will require waiting out the rulemaking process. However, when (or if) the FTC issues its final rule following the notice and comment period, it will likely be subject to legal challenges. In the meantime, companies with opinions on the issues implicated by the FTC's proposed rule should consider filing comments with the agency during the comment period, which is currently open through March 10, 2023.
Potential Changes to FLSA Overtime Requirements for Exempt Daily Rate Employees
Employers with highly compensated daily rate employees currently classified as "exempt" from the overtime provisions of the Fair Labor Standards Act (FLSA) may soon be required to reevaluate the classification of such employees once the United States Supreme Court decides Helix Energy Solutions Group, Inc., et al. v. Hewitt. On October 12, 2022, the Supreme Court heard arguments in Helix on whether a highly compensated daily rate supervisor who was classified as exempt under the "highly compensated" and "executive" employee exemptions is entitled to overtime under the FLSA. An employee is usually considered exempt from the FLSA overtime provisions when two tests are satisfied: the salary test and the duties test. To satisfy the salary test, employers must meet two requirements: (i) pay the employee a minimum per-week rate; and (ii) pay the employee on a "salary basis." For a more in-depth discussion of FLSA classification, we recommend reading our previous alert, where we explain some common mistakes that employers make when classifying employees under the FLSA.
The Supreme Court in Helix has been asked to resolve a circuit court split regarding the requirements that must be satisfied for a daily-rate employee to be exempt under the FLSA. In finding that the supervisor's daily rate pay did not satisfy the "salary basis" requirement, the Fifth Circuit held, and the parties did not dispute, that the supervisor's pay was contingent on the number of days he worked each week. However, the parties dispute the applicable test for determining whether a highly compensated daily-rate employee is paid on a "salary basis" under the highly compensated exemption. The Fifth Circuit joined the Sixth and Eighth Circuits to find that a separate provision of the FLSA, referred to as the "reasonable relationship test," applies when determining whether a daily-rate employee satisfies the "salary basis" test. This test requires that two conditions be met for such employee to be exempt: (i) guarantee of at least the minimum weekly required amount paid on a salary basis and (ii) a reasonable relationship exists between the guaranteed amount and the amount actually earned. The company, on the other hand, argues that this provision is not applicable to the highly compensated exemption, but rather, the supervisor was properly classified as exempt because his total annual compensation and weekly pay amounts exceeded the exemption's minimum amount requirements.
A ruling in the supervisor's favor could have significant implications for employers, particularly those in the energy industry, whose employees perform exempt duties but are paid a daily rate and who classify such employees as exempt. For example, such a ruling would require employers to restructure compensation for these employees to ensure they are exempt and could expose employers to claims from past and current employees for unpaid overtime.
NLRA Preemption Applied to Company's Claim for Property Damages During Labor Strike
On January 10, 2023, the United States Supreme Court heard arguments in Glacier Northwest Inc. v. International Brotherhood of Teamsters Local Union 174, on whether a Washington concrete company's claim for property damages that occurred during a 2017 labor strike is preempted by the National Labor Relations Act (NLRA). The issue before the Supreme Court—whether the NLRA protects unions from claims for property damages suffered during a labor strike—implicates one of two doctrines governing the NLRA's preemption of state and local laws. The Garmon preemption doctrine, which comes from the Supreme Court's 1959 decision in San Diego Bldg. Trades Council v. Garmon, preempts state laws that purport to regulate activities protected by or arguably subject to the NLRA. The Garmon rule is intended to preclude state interference with the National Labor Relations Board's (NLRB) interpretation and enforcement of the NLRA. Applying Garmon, the Washington Supreme Court affirmed dismissal of the company's suit, finding that the property damages at issue occurred incidental to the labor strike, and thus were at least arguably protected under the NLRA, distinguishing these damages from certain unprotected conduct, such as vandalism or violence. The company's challenge to the state Supreme Court ruling argues that its property was intentionally damaged, and thus was not protected by the NLRA.
The Supreme Court's ruling could have implications for both unions and employers. For example, a ruling in the company's favor could give employers more legal remedies for certain losses during labor disputes; this potential exposure may bring additional complications for unions when they consider whether or when to strike. On a wider scale, the issues at play could open the door for a ruling that gives state courts the power to decide labor issues historically within the NLRB's jurisdiction. Such a ruling could put the far-reaching Garmon preemption doctrine, and consequently the NLRB's goal of uniform labor rules, at risk.
Affirmative Action in Higher Education Admissions
As our colleagues previously discussed in detail here, this term the United States Supreme Court will also decide the potential fate of affirmative action plans used by institutions of higher education as part of the admissions process. The two cases before the Court, Students for Fair Admissions v. President & Fellows of Harvard and Students for Fair Admissions v. University of North Carolina et al., have the potential to reverse decades-old precedent that has permitted higher education institutions to consider race as a factor during the admissions process as a means to further diversity initiatives. Although the narrow reach of these cases is limited to admission decisions in higher education, employers would be wise to consider and prepare for the potential implications these decisions could have on a wider scale for diversity and recruiting efforts in the workplace. For a more in-depth discussion on these cases and their potential implications for higher education institutions and employers, we recommend reading our colleagues' prior alert exploring these issues.
LGBTQ Rights and Religious Freedoms
Although the question before the United States Supreme Court in 303 Creative LLC v. Elenis is not directly in the employment context, the Court's ruling could have farther-reaching ramifications for anti-discrimination policies and practices and religious exemptions in employment. This lawsuit challenges the public accommodations provision of Colorado's Anti-Discrimination Act, which prohibits the denial of services to someone based on disability, race, religion, color, sex, sexual orientation, marital status, national origin, or ancestry. The law also prohibits announcing an intent to deny services to a protected category of people. The issue before the Supreme Court is whether the law prohibits a graphic design company from denying its services to LGBTQ+ customers and announcing its intent to do so on its website, where such denial is asserted to be on religious grounds. The Colorado law was upheld by the Tenth Circuit Court of Appeals, finding that the law does not violate the company owner's First Amendment free speech rights because it is narrowly tailored to the state's interest of providing LGBTQ+ customers equal access to the company's services. If the Supreme Court issues a ruling in the owner's favor, this could have far-reaching implications for state anti-discrimination laws. Such a ruling could expand the rights of business owners, company executives, and employees to deny services to customers based on religious grounds. If this occurs, employers and company executives may need to prepare for the possibility of objections from employees to providing services to customers based on asserted religious reasons.
These cases and developments are only a sampling of what's potentially to come this year. In addition to the above, which could have far-reaching implications for employers at the federal level, many states and localities will also see changes to labor and employment laws.