APPLIES TO All For-Profit Employers and Independent Contractors

EFFECTIVE September 4, 2024

QUESTIONS? Contact HR On-Call (888) 378-2456

Quick Look The FTC voted 3-2 on April 23, 2024 to approve the final rule broadly banning almost all non-compete clauses. Employers must notify workers with non-compete clauses that the provisions are unenforceable. After the effective date, employers are prohibited from entering into new non-compete clauses for senior executives.

Discussion

Ever since January 2023, when the Federal Trade Commission (FTC) unveiled its proposed rule to ban virtually all non-compete agreements, employers have been eagerly anticipating when or if the ban would go into effect. The wait is now over as the FTC voted 3-2 on April 23, 2024 to approve the final rule which does indeed broadly ban almost all non-compete clauses. The FTC explained that non-compete clauses are unfair methods of competition in violation of Section 5 of the FTC Act. Among the negative impacts to competitive market conditions, the FTC named inhibition of new business formation and innovation, inhibit efficient matching between workers and employers, and increased market concentration and higher prices for consumers.

 

Key components of the final rule are:

Non-Compete Definition. Section 910.1 of the final rule defines a non-compete clause as a “term or condition of employment that prohibits a worker from, penalizes a worker for, or functions to prevent a worker from” seeking or accepting work after the conclusion of employment or operating a business after the conclusion of employment. The broad term “functions to prevent” could apply to non-disclosure agreements, training repayment provisions, non-solicitation agreements, or company policies that are overbroad and could be interpreted to prevent a worker from seeking or accepting work after the conclusion of employment or operating a business after the conclusion of employment.

Affected Workers. All current and former workers are covered by the final rule. This includes employees, independent contractors, externs, interns, volunteers, apprentices, or sole proprietors who provide a service to a client or customer. “Senior executives” or workers who are in a policy-making position and earning at least $151,164 annually with non-compete clauses in effect prior to the effective date of the final rule can still have their non-compete clauses enforced against them. However, after the effective date, employers are prohibited from entering into new non-compete clauses for senior executives.

Notice Requirement. Employers must notify workers with non-compete clauses that the provisions are unenforceable. The notice must be on paper and delivered by hand, mail, email, or text message but must identify the person who entered into the non-compete with the worker. Model language for the notice is included in the final rule.

Exceptions. There are only two limited exceptions to the ban in the final rule. First, the ban does not apply in the circumstances of a bona fide sale of a business entity, of a person’s ownership interest in a business entity, or of all or substantially all of a business entity’s operating assets. Second, the ban does not apply where a cause of action related to a non-compete accrued prior to the effective date. Less clear is Section 910.3(c) which states it is not an unfair method of competition for a party to enforce or attempt to enforce a non-compete where there is a good-faith basis that the final rule is inapplicable.

Effect on State Law. The final rule supersedes all state laws, regulations, orders, and interpretations that may be inconsistent with the final rule. State laws can still offer greater protections to workers than the FTC final rule.

 

What should employers do now? The guidance has not changed much from when the rule was first proposed. Employers should note the FTC’s ban follows recent trends in states moving towards either outright banning non-competes, like California, or creating additional restrictions on the applicability and enforcement of non-competes. Employers should evaluate their ability to comply if the final rule survives legal challenges and goes into effect without significant changes. If the goal of non-competes is to protect a company’s confidential information and trade secrets, other clauses can still be effectively used so long as they do not run afoul of the final rule. Carefully tailored policies and confidentiality and non-solicitation clauses are enforceable if they are not overly broad. Even the FTC acknowledged there are several alternatives to non-competes that are still enforceable and protect proprietary and other sensitive information, like non-disclosure agreements. Employers should consult with their legal counsel now to determine the extent of the impact to their business and proactively tailor their restrictive covenants to be compliant in the event the final rule goes into effect and survives legal challenges.

 

Action Items

1. Review the final rule here.
2. Determine affected workers or independent contractors who will need to be provided with notice of non-enforcement.
3. Review restrictive covenants and confidentiality agreements with legal counsel for applicable updates.

 

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Disclaimer: This document is designed to provide general information and guidance concerning employment-related issues. It is presented with the understanding that ManagEase is not engaged in rendering any legal opinions. If a legal opinion is needed, please contact the services of your own legal adviser. © 2024 ManagEase

APPLIES TO All Employers with 15+ Employees

EFFECTIVE April 17, 2024

QUESTIONS? Contact HR On-Call (888) 378-2456

Quick Look Plaintiffs do not need to demonstrate “significant harm” to state a claim of discrimination under Title VII. A showing of “some” harm is sufficient for Title VII discrimination claims.

Discussion

The Supreme Court recently decided that employees do not need to suffer “significant” harm to state a claim of discrimination under Title VII. In doing so, the Supreme Court has altered the level of proof that many lower courts typically require for plaintiffs to be successful in Title VII cases.

In Muldrow v. City of St. Louis, a female police officer sued the city police department, alleging that she was transferred from one job to another because she is a woman and that such transfer violated Title VII. Initially, the lower courts dismissed Muldrow’s claim because she had not shown that the transfer caused a “materially significant disadvantage.” The reasoning from the lower courts was based upon the fact that the transfer did not adversely affect Muldrow’s title, salary, or benefits, and had caused “only minor changes in working conditions.” This reasoning reflects the long-standing approach of many courts across the country when analyzing Title VII claims.

In reaching its decision, the Supreme Court rejected the argument that Title VII requires a showing of “significant…serious, or substantial,” harm to a plaintiff in order to be successful on a claim for discrimination. According to the Court, the plain language of the statute imposed no such burden. Instead, plaintiffs must show that they suffered “some” harm, but exactly what constitutes “some” harm was not addressed. Of note, the majority decision indicated that this new “lower” standard may not apply to retaliation claims under Title VII.

Lower courts will be left to analyze and determine what qualifies as “some” harm, sufficient enough to establish a claim of discrimination under Title VII. Employers should monitor legal decisions and interpretations accordingly.

Action Items

1. Monitor legal interpretations on standard for establishing discrimination under Title VII.
2. Consult with legal counsel regarding adverse employment actions and potential liability.

 

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Disclaimer: This document is designed to provide general information and guidance concerning employment-related issues. It is presented with the understanding that ManagEase is not engaged in rendering any legal opinions. If a legal opinion is needed, please contact the services of your own legal adviser. © 2024 ManagEase

APPLIES TO As Indicated

EFFECTIVE April 29, 2024

QUESTIONS? Contact HR On-Call (888) 378-2456

Quick Look The use of AI technology or other automated systems does not relieve employers of their compliance obligations under federal laws, including the Fair Labor Standards Act, the Family Medical Leave Act, and the Employee Polygraph Protection Act.

Discussion

The U.S. Department of Labor’s Wage and Hour Division (DOL) recently published a Field Assistance Bulletin addressing the application of the Fair Labor Standards Act (FLSA), the Family and Medical Leave Act (FMLA) and the Employee Polygraph Protection Act (EPPA) to the use of artificial intelligence and other automated systems in the workplace. Employers should keep in mind that Field Assistance Bulletins published by the DOL are not binding regulations that impose new compliance obligations. Instead, they provide DOL staff and investigators with guidance on enforcement positions and clarification of DOL policies.

Artificial Intelligence and the FLSA

The DOL outlines that the use of AI and other automated technologies for employee scheduling, timekeeping, and tracking employee locations does not relieve employers from their responsibility in ensuring that employees are properly paid for all hours worked under the FLSA. The DOL cautions employers to maintain proper human oversight when using these types of technologies to ensure proper compliance.

In the context of tracking work time, the DOL reminds employers that reliance solely on automated timekeeping and monitoring systems may create potential compliance challenges with respect to determining hours worked for purposes of federal wage and hour laws. An AI program that incorrectly categorizes time as non-compensable work hours based on its analysis of worker activity, productivity, or performance could result in a failure to pay wages for all hours actually worked.

 

Additionally, employers must ensure that employees are completely relieved of duty in order for time to be counted as unpaid break time. Automated systems that automatically deduct meal breaks and other longer break periods from an employee’s compensable work hours, even if the employee is not completely relieved from duty, may result in an FLSA violation. Without appropriate human oversight, a system that automatically deducts the break from the employee’s work hours based on the employee’s past time entries could result in the employer failing to properly record and pay the employee’s hours worked. Employers must also ensure that any automated system is accurately accounting for increments of time when an employee is waiting for their next assigned task, if applicable, as well as the time the employee takes to complete each task. This comes up mostly in the context of programs designed to auto-populate employee scheduling and task assignments.

 

Another area identified by the DOL concerned using AI location-based technology to monitor where an employee is “working.” According to the DOL, using such technology may inadvertently lead to wage and hour liability, and WHD provided the following example: “A system that records only the time the worker spent at the worksite as compensable work hours when the worker is performing work away from the worksite may fail to account for travel time between worksites or hours worked at other locations and may result in minimum wage or overtime pay violations.”

 

Lastly, when it comes to calculating wages and overtime compensation owed under the FLSA, the DOL found that some AI-driven systems have the ability to automatically recalculate and adjust a worker’s pay rate throughout the day, which may result in significantly different “regular rates” from one workweek to the next.  Similarly, some automated task assignment systems have the ability to determine the number of tasks assigned to individual workers, based on a variety of factors and metrics, and then pay workers at different rates based on tasks performed. The DOL instructs that employers who use such technologies “must ensure that the different rates are properly calculated into the regular rate of pay.”

Artificial Intelligence and the FMLA

The DOL indicates that employers must comply with the FMLA regardless of whether they use AI or other automated systems to track and manage the administration of protected FMLA leave. The use of AI or automated technologies should be overseen by the employer to avoid the risk of widespread violations of FMLA rights when processing leave requests, including determining eligibility, calculating available leave entitlements, or evaluating whether leave is for a qualifying reason, as it can create potential compliance challenges. Employers are ultimately responsible for ensuring that these systems comply with the law.

AI systems used to track leave use may not be used to target FMLA leave users for retaliation or discourage the use of such leave. Employers are prohibited from using AI systems to count FMLA leave use as a negative factor in employment actions such as hiring, promotions, or disciplinary actions or assign negative attendance points to FMLA-protected absences. An employer would also violate the FMLA if an automated system fails to provide benefits to an employee on FMLA leave if the employer provides those benefits to employees who use other similar types of leave.

Artificial Intelligence and the EPPA

The Employee Polygraph Protection Act of 1988 (EPPA) generally prohibits private employers from using lie detector tests on employees or for pre-employment screening of individuals. The DOL notes that some AI technologies have the ability to use eye measurements, voice analysis, micro-expressions, or other body movements to suggest if someone is lying or detect deception. Because of this, an employer’s use of any lie detector test, including any such device that utilizes or incorporates AI technology used to detect deception, may be prohibited by the EPPA unless used in accordance with the limited exemptions provided for in the law.

 

In general, the guidance does not create or impose new obligations for employers, but emphasizes the importance of proper human oversight when using AI or other automated systems that may impact employee rights under the FLSA, FMLA, or EPPA. Employers remain responsible for any actions or inactions resulting from the use of AI technology, and therefore, should take care to ensure the responsible use of AI in order to continue to comply with the laws DOL enforces.

Action Items

1. Review any AI technologies or other automated systems used to track employee work time, calculate employee wages, track or administer employee leave, or detect employee deception to ensure compliance under applicable federal laws.
2. Consult with legal counsel regarding implementation and application of any new automated technology that impacts employee compensation, leave, or workplace policies.

 

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Disclaimer: This document is designed to provide general information and guidance concerning employment-related issues. It is presented with the understanding that ManagEase is not engaged in rendering any legal opinions. If a legal opinion is needed, please contact the services of your own legal adviser. © 2024 ManagEase

APPLIES TO All Employers

EFFECTIVE May 31, 2024

QUESTIONS? Contact HR On-Call (888) 378-2456

Quick Look Under OSHA’s walkaround rule, employees may either select another employee or a non-employee third party to serve as their representative during an OSHA inspection. Non-employee third-party representatives are no longer limited to individuals with formal credentials, such as safety engineers or industrial hygienists.

Discussion

The Occupational Safety and Health Administration (OSHA) recently published its final rule clarifying that employees may designate a non-employee third party as their representative during an OSHA inspection. The final rule is set to become effective on May 31, 2024.

Under Section 8(e) of the OSH Act, employees and employers have the right to have a representative accompany OSHA Compliance Officers (CSHOs) during physical inspections of worksites for the purpose of aiding such inspections. The final rule makes two significant changes to this regulation: (1) employees may either select another employee or a non-employee third party to serve as their representative during an inspection; and (2) the regulation no longer suggests that non-employee third-party representatives should be limited to individuals with formal credentials, such as safety engineers or industrial hygienists.  Instead, a CSHO may permit a non-employee third-party representative to join the inspection if the third-party representative will aid the CSHO in conducting “an effective and thorough physical inspection of the workplace” by virtue of their knowledge, skills, or experience. This can include, for example, technical knowledge or practical experience about the processes and hazards of the type present in the workplace, or language and communication skills that facilitate the gathering of information from employees.

Employers should note that the walkaround rule is a regulation concerning employees’ statutory right to designate a walkaround representative during a physical inspection of a workplace. It is not a safety and health standard and does not impose any compliance obligations for employers.

There was significant opposition to the rule during the rule’s proposal and commentary phase, so we anticipate legal challenges to the walkaround rule. Employes should continue to monitor for any additional developments.

Action Items

1. Review OSHA’s FAQs regarding the final rule here.
2. Monitor legal developments or challenges to the walkaround rule.
3. Ensure written policies clearly instruct management on how to receive OSHA inspectors in the workplace/worksite.
4. Consult with legal counsel about concerns regarding employee representatives during OSHA inspection, including non-employee third parties designated as the employee representative.

 

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Disclaimer: This document is designed to provide general information and guidance concerning employment-related issues. It is presented with the understanding that ManagEase is not engaged in rendering any legal opinions. If a legal opinion is needed, please contact the services of your own legal adviser. © 2024 ManagEase