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.
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:
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.
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.
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.
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.
The upcoming FY25 H-1B cap season brings significant changes that employers and prospective H-1B beneficiaries need to be aware of. The new registration selection process by unique beneficiary aims to create a more equitable system, while increased fees like the new Asylum Program Fee add to the overall costs for employers. Start date flexibility and selection by unique beneficiary provide some welcomed improvements. However, the enhanced integrity measures and grounds for denial underscore the importance of ensuring full compliance and accuracy throughout the entire H-1B registration and petition process. As we enter the cap season and transition to the new process, employers would be wise to work closely with experienced immigration counsel to successfully navigate the complexities of the H-1B process.
]]>On January 1, 2024, a new law, SB 699, became effective, strengthening California’s Bus. & Prof. Code Section 16600, the state’s long standing non-compete ban. Under Section 16600, “every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind” is void. SB 699 expands the existing law to encompass certain out-of-state agreements as well and creates a private right of action for employees with agreements containing unlawful restrictive covenants, resulting in potential uncertainty for employers based outside of California but who have employees who may eventually find themselves based in California or working for a California company.
SB 699 adds Section 16600.5 to the existing statute. Section 16600.5 contains the following provisions relevant to out-of-state contracts:
(a) Any contract that is void under this chapter is unenforceable regardless of where and when the contract was signed.
(b) An employer or former employer shall not attempt to enforce a contract that is void under this chapter regardless of whether the contract was signed and the employment was maintained outside of California.
Courts have yet to interpret how the provisions of SB 699 will be applied to out-of-state companies and agreements entered into out-of-state with their employees. The legislative history of SB 699 states, “as the market for talent has become national and remote work has grown, California employers increasingly face the challenge of employers outside of California attempting to prevent the hiring of former employees.” This statement about employers outside of California coupled with the broad language of Section 16600.5 means that this statute could have an expansive reach on employers outside of California, even if their workforce is predominantly outside of California as well.
Employers should take caution particularly in light of the prevalence of remote and mobile workforces. In that vein, some common scenarios will pose new challenges for employers. For example, if an employee was not a California resident when the employee signed a non-compete or non-solicitation agreement but later moves to California, SB 699 likely means both are unenforceable. Likewise, where an employee located outside of California works for an employer outside of California, and is bound by a non-compete, but the employee seeks employment with a competitor in California, SB 699 may be implicated. In that instance, the former employer may not be able to enforce the non-compete against the former employee. California courts, as well as those courts outside of California engaging in a choice of law analysis are now tasked with defining the contours of the national implications of SB 699, which is likely to face challenges due to its uniquely broad reach.
Section 16600.5 also strengthens California’s already robust non-compete ban by allowing employees (including prospective employees) to bring suits based on a current, former, or prospective employer’s violation of the statute. The potential for lawsuits against employers is particularly significant given the expanded scope of the non-compete ban beyond California’s borders. Specifically, SB 699 adds the following provisions:
(e)(1) An employee, former employee, or prospective employee may bring a private action to enforce this chapter for injunctive relief or the recovery of actual damages, or both.
(2) In addition to the remedies described in paragraph (1), a prevailing employee, former employee, or prospective employee in an action based on a violation of this chapter shall be entitled to recover reasonable attorney's fees and costs.
Accordingly, as employees may now bring litigation pursuant to California’s non-compete ban, which encompasses the right to seek damages, injunctive relief, and attorneys’ fees, if successful, compliance with SB 699 is essential to avoiding liability. Moreover, an employer may find itself liable for such relief simply because its employee relocates to California. Since employees have not previously had a private right of action under the statute, it is not yet known what their damages and recovery will look like in this new frontier of litigation.
Going forward, companies should review their existing employment agreements in light of SB 699. Employers should consider alternative solutions to protect their businesses such as confidentiality and trade secret protections in employment agreements. These alternatives are particularly crucial if a non-compete provision later becomes unenforceable under California law. Employers using non-compete provisions outside of California may also consider adding an explicit disclaimer in employment agreements that such provisions are not enforceable against their employees should they become California residents in the future.
Attorneys at Kelley Drye are available to assist you in navigating SB 699.
]]>On January 9, 2024, the DOL announced the final rule on the independent contractor classification under the Fair Labor Standards Act “FLSA,” effective March 11, 2024. Whether a worker is an independent contractor or an employee determines the applicability of minimum wage and overtime requirements, among other legal obligations under the FLSA. This distinction is crucial to companies’ employment policies, business decisions, and potential liability. Against that backdrop, understanding the contours of this new final rule is essential for all employers.
The final rule largely mirrors the October 2022 proposed rule and adopts a non-exhaustive six-factor test analyzing the “economic reality” of the relationship between a potential employer and worker. The six factors are as follows:
The new rule rescinds a Trump-era independent contractor rule, which focused on two factors of the economic realities test – nature and degree of the worker’s control over the work and the worker’s opportunity for profit or loss. As we previously reported, that 2021 rule never went into effect. Under this new rule, the degree of control and the opportunity for profit or loss will not necessarily control the analysis, as no factor holds more weight than the others. Additionally, other factors not listed above but relevant to the “totality of the circumstances” may be considered. Prior to the release of the new rule, the DOL noted that the rule does not contain a so-called “ABC” worker classification test like the one used by California courts, which is a particularly employee-friendly test.
The DOL’s disavowal of an explicit “ABC” test is interesting. Under the ABC test, some form of which has been adopted in California and at least 27 other states, a worker can be classified as an independent contractor only if they meet each of the following three criteria:
A. The individual has been and will continue to be free from control or direction over the performance of work performed, both under contract of service and in fact; and
B. The work is either outside the usual course of the business for which such service is performed, or the work is performed outside of all the places of business of the enterprise for which such service is performed; and
C. The individual is customarily engaged in an independently established trade, occupation, profession or business
The “B” and “C” in “ABC” can be the killer. They mean that if a purported contractor is doing the same thing as the company that retained them does, that worker isn’t really a contractor: they’re an employee. Example: a cabinet-making company retains a carpenter to help with building cabinets. The carpenter is an employee, not an independent contractor, even if all the other common-law factors for independent contractor status (mostly resolving around true independence and lack of company control) are present.
If you have noticed a similarity between the sixth factor in the new DOL rule (“the extent to which the service rendered is an integral part of the employer’s business”) and B and C in “ABC” (the work is “outside the usual course of the business” of a company and the worker is “engaged in an independently established trade, occupation, profession or business”), then you’re paying attention. While the new DOL rule asks employers and enforcement agencies to look at all of the factors, the fact that a worker engages in the same work as the company that retains them is significant. It means that (for example) the DOL, which generally has an interest in finding that individuals are employees rather than independent contractors, will more easily find that a worker in the same trade as the company with whom they contract is an employee. In other words: the new test makes it easier for the DOL to decide that you have misclassified certain workers.
Employers should review the final rule and work with counsel to determine if any independent contractors may be classified differently under the application of the new rule. The distinction between independent contractors and employees is crucial in determining whether a host of obligations under the FLSA are triggered and accordingly impacts numerous employment policies. In that vein, when drafting new employment agreements and reviewing existing agreements, employers should closely review this final rule and consult with counsel regarding its potential application.
In addition to reviewing employee classifications, agreements, and policies, employers should continue to monitor Labor Days regarding any successful challenges to the final rule, as it is likely that business-focused groups will commence litigation. Please reach out to a member of Kelley Drye’s labor and employment team for additional guidance and help.
]]>In this article we will review the changes in both laws to help Illinois employers, understand the legal requirements related to their employees’ paid leave and paid sick leave obligations.
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.
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.
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.
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.
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.
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.
PSL balances are not required to be paid out. The answer for PL depends on the size of your business.
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.
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.
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.
The ordinance requires a written paid leave and paid sick leave policy. Employers must notify a covered employee on leave that employee still must pay their share of premiums for health care benefits, if any. If the employer has facilities in City, the approved workplace notice must be posted. Employers must send a notice with first paycheck to covered employee, and again every year within 30 days of July 1st, of employee rights under the Ordinance.
Finally, employers have two options to notify employees of their leave balances. The first requires employers send employees their PL and PSL balances with each pay check (unless PL awarded monthly, then once a month), as follows:
The updated amount shall include accrued paid time off since the last notification, reduced paid time off since the last notification, and any unused paid time off available for use.
Alternatively, employers may choose a reasonable system for providing this notification, including, but not limited to, listing available paid time off on each pay stub or developing an online system where Covered Employees can access their own Paid Leave and Paid Sick Leave information.
The Ordinance provides for fines of $1000-$3000 per employer offense in addition to liability for 3-times the amount of leave improperly denied or lost, plus interest, plus reasonable attorneys’ fees. The private right of action for PSL accrues on July 1, 2024, but the private right of action for PL does not accrue until July 1, 2025.
If you have questions concerning employment leave or other workplace related questions, please contact a member of Kelley Drye’s Labor and Employment team.
The Governor’s veto strongly indicates that legitimate concerns about the protection of confidential information and customer relationships will prevent New York from “killing” all noncompetition agreements. However, the veto does not resolve the issue conclusively, and New York’s legislature will be tempted to try again. Employers should continue to monitor any new New York legislation aiming to limit the use of noncompetition agreements, particularly in light of the Governor’s statements in her veto memo and the scrutiny of these agreements on a federal level.
Governor Hochul wrote, “I have long supported limits on non-compete agreements for middle-class and low-wage workers, protecting them from unfair practices that would limit their ability to earn a living.” She further expressed that she had hoped to find a balance between protecting low-wage workers and “allowing New York’s businesses to retain highly compensated talent.” Going forward, she is “open to future legislation that achieves the right balance.”
As we previously wrote, this balance was always one that the legislature—and, for that matter, federal agencies like the Federal Trade Commission and the National Labor Relations Board—was always going to have to strike. Forcing a frontline McDonald’s employee to promise not to leave for Burger King is, in a word, silly. Asking a senior executive responsible for confidential business strategy or a high-level engineer developing trade secret tech not to take that information to a direct competitor, on the other hand, certainly seems reasonable. The Governor’s statements suggest that any newly-proposed legislation in New York will take this balance into account, particularly as lawmakers distinguish between working-class, low-wage workers and higher-level employees and job functions.
Employers should monitor new legislative updates—but don’t lose sight of the forest for the trees. In our experience, the greatest threat to successful noncompete enforcement isn’t the legislative or administrative hostility to restrictive covenants now in vogue. Rather, the threat has been employers’ failure to consider the longstanding standards that have always governed the use of noncompetes, including by using “one size fits all” agreements for every employee regardless of level or access to information and attempting to tie up employees for too long of a post-employment period. If you haven’t done so lately, it is always a good idea to get a handle on the way your company actually deploys restrictive covenants and to make sure that you can specifically defend their use based on facts that are specific to the employees you ask to sign them.
In that sense, employers should review their current agreements and focus on alternatives to noncompetition provisions, including nonsolicitation and confidentiality provision. Governor’s Hochul’s comments indicate that she would support future legislation geared towards lower income workers rather than executives and other highly compensated employees, who are most likely to harm a former employer by working for a competitor or starting a competing business.
We will continue to update you on all major legislation effecting noncompetition agreements. In the meantime, please reach out to one of our attorneys on our labor and employment law team for help with reviewing and tailoring your use of noncompetes and other restrictive covenants.
]]>All U.S. employers are required to complete a Form I-9 for every individual they hire for employment in the United States, including for U.S. citizens and noncitizens. As of November 1, 2023, Employees must use the new Form I-9 edition. The edition date is located on the lower left corner of the form. A revised Spanish Form I-9 dated “08/01/2023” is also available for use in Puerto Rico only. The new version contains improvements to the layout as well as the following significant changes:
DHS and USCIS also updated the Form I-9 instructions by including the addition of instructions for a new alternative procedure, which permits employers who participate in E-Verify in good standing to examine employee documents for employment authorization remotely. Employers must comply with several requirements in order to perform a remote examination, including conducting a live video interaction with the individual presenting the document.
Failure to comply with Form I-9 requirements can have severe consequences for employers, including civil and even criminal penalties. In recent years, U.S. Immigration and Customs Enforcement (ICE) has increased the number of investigations and enforcement actions taken against Form I-9 violators. Employers who fail to comply with Form I-9 requirements can be fined anywhere from $272 to $2,701 for each incorrect Form I-9. In 2022, the Office of the Chief Administrative Hearing Officer (“OCAHO”) issued one of the largest I-9 penalty decisions, ordering a staffing company with over 2,000 Form I-9 violations to pay penalties of $1,527,308. The amount of the fine depends upon the size and if the conduct was intentional, seriousness of the violation, individuals’ work authorization status, and the employer’s history of previous violations.
The new changes simplify and streamline the review process by reducing the length of the Form I-9 and permitting remote verification of documents. It is highly recommended that companies review Form I-9 training and procedures to ensure compliance with the latest I-9 verification rules. If you have any questions concerning Form I-9 compliance, please contact a member of Kelley Drye’s Labor and Employment Team.
]]>As we reviewed in earlier posts, the Supreme Court’s June 2023 decision in Students for Fair Admissions, Inc. v. President and Fellows of Harvard College (SFFA) promised to be a game changer not just in education but in the employment context as well. While the SFFA decision did not directly apply to private employers, its strong language criticizing affirmative action has had the effect many argued the Court wanted it to have: it caused universities and employers to reevaluate their DEI programs. The decision further prompted potential plaintiffs and members of the plaintiff’s bar to challenge employment decisions allegedly made on the basis of a lack of membership in a group viewed as diverse and inclusive.
Now, nearly six months after the Court’s decision, we are finally starting to see the ramifications of this holding in the private sector and are better able to predict how the burgeoning legal landscape may continue to take shape.
By way of review, the SFFA decision struck down the race-conscious admissions programs of Harvard University and the University of North Carolina at Chapel Hill. The Court found that the universities violated both the Equal Protection Clause and Title VI of the Civil Rights Act by utilizing race as a stand-alone “plus” factor in admissions evaluations. Ultimately, the majority opinion concluded that the programs “lack sufficiently focused and measurable objections warranting the use of race, unavoidably employ race in a negative manner, involve racial stereotyping, and lack meaningful end points.”
While a significant development in the field, the decision remains—at least technically —restricted to the field of higher education. However, in the months since the decision, aggressive organizations and plaintiffs have been actively attacking diversity programs beyond the realm of higher education.
In the aftermath of the SFFA decision, DEI programs have been under attack, both in the court of public opinion and actual court system.
Federal courts are beginning to see a small uptick in claims that seek to challenge DEI initiatives. Critically, there appear to be two different cohorts of potential plaintiffs emerging in these litigation efforts: (1) organized, well-funded, and committed activist/political advocacy groups pursuing injunctions and non-monetary resolutions; and (2) traditional single- or multi-plaintiff efforts seeking to recover more traditional damages.
At this point in time, the first group is more actively litigious. Indeed, within just months of the SFFA decision, the American Alliance for Equal Rights—the same organization that brought suit against Harvard and the University of North Carolina in the SFFA decision—began to aggressively challenge diversity initiatives at private employers, which they argued are illegal and discriminatory. Unsurprisingly, large firms and companies with public-facing and prominently displayed DEI initiatives proved to be primarily targeted by these initial efforts. Worth noting is that these groups tend to first engage with the employer prior to filing suit, although these efforts are often accompanied by publicly-released media statements.
Interestingly, the American Alliance first targeted the legal industry and law schools, both writing to and then suing several multinational law firms. They also challenged DEI programs at large companies. The group filed lawsuits that resulted in those institutions having their scholarship and recruitment efforts publicly scrutinized via the filing of three prominent complaints. The group’s efforts seek to challenge companies that fund award programs, diversity scholarships, and grants to minority-led employees, applicants, or businesses.
The American Alliance may argue that these efforts have been largely successful. In response to the charges and lawsuits, several defendants have already opted—publicly or privately—to revise their internal policies in an effort to avoid active or threatened litigation. Many of these programs have been revised to no longer outwardly identify race as a factor in the selection of applicants for DEI fellowships and other internal programs. Indeed, in recent public comments the American Alliance has declared a brief pause in the group’s planned activities, citing the belief that many organizations revised policies that the group viewed as objectionable. For example, a recent stipulation of dismissal in one of the lawsuits identified the removal of the phrase “membership in a disadvantaged and/or historically underrepresented group in the legal profession” from the targeted DEI program.
The effect of the SFFA decision is also still being felt in the realm of higher education. In October, SFFA filed suit against both the U.S. Naval Academy in Annapolis and West Point Academy, arguing that affirmative action in its admissions processes violates the Fifth Amendment. No. 1:23-cv-02699-ABA (D. Md. Oct. 5, 2023); No. 7:23-cv-08262 (S.D.N.Y. Sept. 19, 2023). Beyond the question of admission, other institutions have been sued by aggrieved students for allegedly using race, sex, or gender preferences in selecting members for particularly prestigious organizations within the University. Doe v. New York University, No. 1:23-cv-09187 (S.D.N.Y. 2023).
In addition to the above, individual employees are pursuing legal challenges to adverse decisions that the employee believes were motivated by the employer’s desire to advance internal diversity and inclusion targets. Meyersburg v. Morgan Stanley & Co. LLC, No. 1:23-cv-07638 (S.D.N.Y. Aug. 29, 2023). Such claims are likely continuing to work their way through enforcement agencies such as the EEOC before appearing on public dockets.
Recognizing this trend is important for several reasons:
While a true “explosion” of DEI-centric litigation has not yet occurred, the current trend unmistakably indicates that companies need to be aware of their litigation risks going forward. Firms that wish to continue adopting a best-practices approach should review internal and public-facing DEI communications and avoid statements that explicitly mention protected characteristics as “plus” factors for employment decisions. In line with these recommendations, executives and other high-ranking officers should exercise care in making statements that indicate any sort of racial or ethnic preference. This is not to say that diversity programs must be abandoned—indeed, the opposite remains true—however, it is important for businesses to remain educated about the realities imposed by the current DEI climate and properly protect themselves.
In the interim, employers will continue to grapple with the potential exposure that DEI programs may create and the public relations implications that accompany litigation. Through what is likely a combination of tightening economic conditions and the specter of potential litigation, there has been a growing dearth in DEI practitioners at the management level. When DEI programs are not directly targeted for budgetary concerns, certain industries—particularly information and technology—have experienced significant turnover in DEI team leaders and other officer roles. In addition, job postings for DEI positions fell 19% in 2022, a trend that appears to have continued into 2023. In fact, since 2018, the average tenure of a DEI role within an S&P 500 company has been less than two years.
Ultimately, if and until the Supreme Court weighs in on the legality of DEI programs within the private sector, the controlling advice has not changed—employers who value diversity need not immediately abandon their initiatives. However, employers should be prepared and even expect that their programs may come under public scrutiny or even be challenged in court.
Here are some points to consider:
While such statistics are disconcerting, the SFFA decision should not ultimately be a cause for panic for private sector employers. Simple, easily replicable steps will likely allow for the majority of entities to avoid potential litigation.
If you have questions concerning your company’s DEI program, please contact a member of Kelley Drye’s Labor and Employment team.
]]>The new law provides that a release of any claim including unlawful harassment, discrimination or retaliation is not enforceable if it contains any of the following provisions:
In addition, the new law makes several key changes to Section 5-336.
Employers should carefully review any settlement agreements entered into after November 17th and any release agreements currently being drafted and negotiated, particularly if they contain nondisclosure provisions relating to the facts or circumstances of the underlying claims, a liquidated damages provision or a forfeiture provision.
If you have questions concerning employee settlement agreements, please contact a member of Kelley Drye’s Labor and Employment team.
]]>There are three challenges to the rule. On November 6, 2023, the Service Employees International Union (“SEIU”) filed a petition in the D.C. Circuit, seeking to further expand the scope of the new rule. Shortly after the SEIU filed, on November 9, 2023, the U.S. Chamber of Commerce and a coalition of business groups filed a suit in the Eastern District of Texas, asking the Court to block the rule. The business groups argue that the new rule violates both the common-law foundation of the joint-employer test and the National Labor Relations Act. The suit also alleges that the Biden-era NLRB violated the federal rulemaking process by replacing the current joint-employer rule without a good reason.
In addition to the pending litigation, on November 9, 2023, a bipartisan group of lawmakers introduced a resolution seeking to eliminate the new rule under the Congressional Review Act. Even if this resolution gains traction, President Biden is likely to veto the legislation if it reaches his desk.
While awaiting the effective date of this rule, employers should continue to examine their business structure to determine whether any agreements they have in place fall under the purview of the new rule, including outsourcing and staffing agency agreements. This examination is particularly important as status as a joint employer potentially gives a company a role at the bargaining table and subjects it to liability. Kelley Drye will provide an update if the NLRB alters the proposed new rule in light of these recent challenges.
]]>This amendment will permit any employee who makes less than $1300 a week (approximately $67,000 a year) to bring wage theft claims in court or before the New York Department of Labor (NYDOL). Previously, only employees who made $900 a week or less could bring such claims before the NYDOL.
Governor Hochul recently also signed Senate Bill S2832A, the Wage Theft Accountability Act, which amends the penal law to include “wage theft” in the definition of larceny, making this a felony offense encompassing nonpayment or underpayment of wages. Both bills are part of a larger initiative in New York that seeks to protect employees and their wages, resulting in potentially more severe, and even criminal penalties for noncompliant employers.
Many of you are asking: what is wage theft? I am not stealing my employees’ wages.
As background, Article 6 of the NYLL regulates how frequently employees must be paid, as well as other aspects of wage payment such as direct deposit. Employers who violate Article 6 are now technically guilty of ‘wage theft.’
For example, New York employers:
Any employer who fails to do these things is potentially guilty of wage theft. Claims for wage theft include those for unpaid wages, illegal deductions, unpaid wage supplements, minimum wage, and overtime pay.
Before the new amendment, any employee working in an executive, administrative, or professional capacity making more than $900 per week, was exempt from Article 6.
Starting March 2024, that group will be much smaller. Employees working in an executive, administrative or professional role and making $1300 per week or less, (under $67,000) are covered by Article 6. Put another way, anyone making less than $67,000 can now sue their employer for wage theft. This new law effectively expands protection to cover even more employees under Article 6, resulting in two key changes:
The ability to bring a wage theft claim increases liability for employers. For one, an employee may file a complaint at the NY Department of Labor, which can open your company up to a company-wide DOL audit.
Qualified employees may also bring civil action in state court under Article 6. If an employer is found liable for wage theft, there is a potential penalty of between $500 to $20,000 per offense, depending on the severity of the violation. And if the employer is found guilty of wage theft, the employee’s attorney can recover their legal fees. Wage theft claims are thus popular ‘add on’ causes of action, often tacked on at the end of a discrimination or wrongful termination claim.
Employers may be found guilty of wage theft, for failing to pay benefits or wage supplements to employees are now potentially guilty of a misdemeanor.
Starting in March 2024, New York employers will likely have a larger group of employees who are covered by Article 6 and who can bring wage theft claims at the NYDOL. From an administrative standpoint, employers should proactively work with their payroll, human resources, and other relevant departments to implement any necessary changes to payroll procedures before the law goes into effect. Specifically, employers should obtain written consent for direct deposit for this class of employees by providing a form during onboarding, or prior to March 2024 for current affected employees.
In addition to the payroll component, employers should work with counsel to evaluate whether the composition of their workforce puts them at risk for a potential increase in NYDOL claims. Employers may consider increasing salary for workers who are at the ‘edge’ of the exemption, to avoid a potential increase in NYDOL claims, but that decision comes at a cost, especially amidst recent increases to the New York minimum wage.
Finally, employers should recognize that the Bill concerns different thresholds than the recently-increased minimum wage and overtime thresholds under Article 19 of the NYLL, though all of these laws warrant special attention to the changing wage payment landscape in New York.
If you have questions concerning wage and hour practice and compliance, please contact a member of Kelley Drye’s Labor and Employment team.
]]>The new rule specifically provides that a company may be considered a joint employer if it has authority to control the essential terms and conditions of employment, whether or not such control is exercised. Significantly, the control may be direct or indirect. The new rule broadens the definition of “essential terms and conditions of employment” to include “work rules and directions governing the manner, means, or methods of work performance.” Essential terms and conditions of employment also include wages, hours of work, assignment and supervision of duties, discipline, hiring and firing, and working conditions.
By adopting this new standard, this rule reverts from the NRLB’s 2020 rule which had narrowed the joint-employer test to include only those situations where the company exercises direct control over the conditions of employment. The 2020 rule had reversed an employee-friendly, Obama-era decision, Browning-Ferris Industries of California, Inc., d/b/a BFI Newby Island Recyclery, 362 NLRB 1599 (2015), which held that a company could be considered a joint employer where the company indirectly controlled the essential working conditions of another company’s employer. Now, in another reversal by the NLRB, the new rule marks a return to a broad, employee-friendly standard akin to the BFI standard.
As the new rule broadens the definition of joint employer, companies should evaluate whether their business structure means they could be considered joint employers due to any “indirect” control over another company’s employers. This change is particularly important for companies who outsource staffing, employee management, or human resources or those who are considering entering into such relationships. As both traditional outsourcing and managed services providers have grown into multi-billion-dollar industries, large and small businesses often outsource to fill skill gaps, cut costs, and maintain flexibility. Common sectors for outsources include payroll, IT, cybersecurity, human resources, and customer service. Given this increasing trend of utilizing outsourcing, companies should pay special attention to the NLRB’s new rule in analyzing their business relationships. With that backdrop, companies should take a fresh look at any staffing and third party agreements to determine whether they contain reserve control provisions, which are likely probative of joint-employer status.
Companies should recognize that status as a joint employer gives them a role in the following areas:
The proposed guidance lays out in detail the legal standards applicable to harassment claims under the federal law and provides a variety of illustrative examples coupled with references to recent case law.
One of the most notable aspects of this guidance is the incorporation of the Supreme Court’s decision in Bostock v. Clayton County. In Bostock the Supreme Court ruled that Title VII’s protections extended to claims for discrimination on the basis of sexual orientation and gender identity. Although that case dealt with a discriminatory termination, and not harassment, in the proposed guidance, the EEOC has noted: “[t]he Supreme Court’s reasoning in the [Bostock] decision logically extends to claims of harassment.”
The proposed guidance unequivocally states that Title VII extends to claims for harassment on the basis of sexual orientation or gender identity, “including how that identity is expressed.” Beyond these overt protections for LGBTQ+ employees, the proposed guidance also expressly acknowledges pregnancy, childbirth, and “related medical conditions,” encompasses harassment claims based on a woman’s reproductive decisions, including those related to contraception and abortion.
The EEOC’s proposed guidance lays out a playbook for how employers can show that they have exercised “reasonable care” both to prevent and correct harassment by describing in detail features of effective anti-harassment policies, processes, and training.
But the guidance is not final just yet. It is anticipated that the guidance will be published in the Federal Register on Monday, October 2, and once published the draft guidance will be open for public comment for 30 days.
Although the guidance itself will not be legally binding, employers would be wise to review this lengthy document and understand myriad ways that employees can pursue harassment claims against employers. If anything, it is a reminder that the best defense to these kind of claims is working to foster a respectful workplace and maintaining effective policies to mitigate issues that may arise. If you have any questions concerning compliance of your business’s current harassment policies or procedures, please contact a member of Kelley Drye’s Labor and Employment team.
]]>In a recent webinar, Kelley Drye Partners, Kimberly Carter and Katherine White, and General Counsel & Deputy Comptroller for Legal Affairs, NYC Office of the Comptroller, Justina K. Rivera, explored the current AI legal and regulatory landscape in the U.S. and the opportunities and challenges associated with using AI-related technologies in the employment context. In this blog post, we summarize the high-level takeaways from the session.
AI Legal and Regulatory Landscape in the U.S.
Currently, no federal law specifically regulates the use of AI-related technologies. However, in recent years, federal regulators, including the Equal Employment Opportunity Commission (EEOC) and the Department of Justice (DOJ), have taken certain steps that demonstrate that they have been (and will remain) focused on the use of AI in the workplace.
More notably, in April 2023, the Federal Trade Commission (FTC), the Consumer Financial Protection Bureau (CFPB), the DOJ’s Civil Rights Division, and the EEOC issued a joint statement noting that existing laws apply to the use of AI-related technologies and affirming that each agency/department will use its existing statutory authority to protect against unlawful discrimination in AI systems.
Moreover, in the absence of federal legislation regulating the use of AI-related technologies, certain state and local lawmakers have enacted laws that regulate the use of such tools in the employment context.
Several other states, including California, Massachusetts, New Jersey, and Vermont, are considering legislation that would also regulate AI in the workplace.
Putting It Into Practice
As federal, state, and local lawmakers and regulators continue to respond to the proliferation of AI-related technologies, an organization that is using these tools in the employment context should take certain steps to ensure legal compliance and help avoid regulatory scrutiny, including the following:
Representation Process
On August 25, 2023, the NLRB issued a Final Rule expediting the representation process, which takes effect on December 26, 2023. Typically, the representation process commences with representation petitions filed by employees, unions, or employers seeking an election. The election determines whether employees wish to be represented for purposes of collective bargaining with their employer. The NLRB will review the petition and determine if an election should be conducted and will direct an election. In cases where the parties do not agree on the voting unit or other issues, the NLRB’s regional office holds a pre-election hearing to decide whether an election should be conducted. The NLRB’s recent rule expedites each step of the representation process, including the election and pre-election hearing procedures, thereby benefiting employees seeking to unionize.
How does the Final Rule Change the Election Process?
There are ten key changes to the pre-election hearing process, notifications of election information, and election process, which depart from the 2019 rule, and are set forth below.
If employers anticipate that their employees may file a representation petitions, employers should familiarize themselves with the updated representation process and work with counsel to address any concerns.
In the event that a representation petition is filed, employers should be prepared to move quickly in complying with all procedural requirements and challenging the representation petition, if necessary. As employers’ ability to obtain additional time throughout the representation process is significantly curtailed by these changes, employers will also have less time to engage in negotiations during the election and pre-election processes and must have counsel who can capitalize on tight timelines.
Changes in Protected Activity
In Miller Plastic Products, Inc., the NLRB announced its return to a “totality of the circumstances” test for determining what constitutes protected concerted activity by employees under Section 7 of the National Labor Relations Act (the “Act”). Miller Plastic Products, Inc. involved the termination of a worker who raised concerns about COVID-19 safety protocols and the company’s decision to stay open in the beginning of the pandemic. The NLRB ruled that the company violated the Act as the worker was engaged in protected concerted activity. In Miller Plastic Products, Inc., the NLRB overruled its 2019 Alstate Maintenance, LLCdecision, which had narrowed the test for determining concerted activity using a checklist of factors and returned to the 1986 rule in Meyers Industries Inc., providing a fact-specific examination that looks at the totality of the circumstances. The NLRB also addressed the issue of whether single-worker actions constitute protected organizing activity and concluded a holistic approach evaluating whether an individual’s protests have some connection to group or concerted action is warranted.
Similarly, in American Federation for Children, Inc.,the NLRB held that federal labor law protects workers who advocate for nonemployees, such as interns, reversing a Trump-era ruling that allowed employers to penalize employees for aiding unprotected colleagues. Specifically, the NLRB overruled its 2019 Amnesty International decision, which held that the statutory concept of “mutual aid or protection” did not encompass the efforts of statutory employees to help themselves by helping others who are not statutory employees. In American Federation for Children, Inc., the NLRB concluded that the Act protects the efforts of employees who take action to support nonemployees when those actions can benefit the employees who undertake them.
After the shifts announced by Miller Plastic Products, Inc. and American Federation for Children, Inc., employers should be prepared to address employee complaints that could fall into the category of concerted activity or protected advocacy on behalf of nonemployees in a manner that complies with the Act.
]]>The DOL’s proposed rule primarily deals with Section 13(a)(1) of the FLSA, which exempts from the minimum wage and overtime pay requirements “any employee employed in a bona fide executive, administrative, or professional capacity” (the “white-collar exemption”).
To qualify for the white-collar exemption each of the following tests must be met:
The proposed rule would revise the FLSA regulations to:
The proposed rule would, however, not make changes to the FLSA’s “duties test” for determining overtime eligibility.
In a News Release, the DOL stated that the rule would “restore and extend” overtime protections. While an increase in the salary threshold is perhaps unavoidable and even necessary, the change undoubtedly will burden employers across a wide range of industries.
We do not expect that the proposed rule will go without challenge. Notably, this proposal follows in the path of the Obama administration, which sought to raise the overtime cutoff for most salaried employees to $47,500, but was blocked by a federal judge.
Once published to the federal register, the proposed rule will be open to comment for 60 days. Given the impact to employers, we are closely monitoring this issue for any updates or changes that may arise.
We are 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. If you have any questions concerning the FLSA or the proposed rule, please contact a member of the Kelley Drye Labor and Employment team.
]]>Last week, the U.S. Equal Employment Opportunity Commission (EEOC) introduced proposed regulations to assist covered employers in their implementation of the PWFA. The proposed regulations identify certain accommodations for pregnant and postpartum workers that must be provided regardless of the circumstances. As a result of these proposed regulations, employers throughout the nation should be preparing themselves to identify and better manage requests for accommodation from pregnant and postpartum workers.
What’s the status of the proposed regulations?
The EEOC unveiled the proposed regulations on Monday, August 7, 2023, and subsequently published these proposed regulations in the Federal Register on Friday, August 11, 2023. The public will have 60 days to comment on the proposed regulations. The EEOC has asked for input on specific areas including defining key terms and examples of what would constitute reasonable accommodations under the law.
Has the EEOC identified reasonable accommodations?
The EEOC has identified four pregnancy accommodations that should be granted in almost every circumstance. These accommodations include allowing employees to carry and drink water as needed, additional restroom breaks, standing and sitting options, and additional breaks to eat and drink.
Additionally, the EEOC identified other examples of possible reasonable accommodations that a covered employer must provide unless it can demonstrate that the accommodation would impose an undue hardship, including:
What’s the interplay between the PWFA, PDA and ADA?
Historically, two federal laws have governed an employers’ obligation to pregnant and postpartum workers. The Pregnancy Discrimination Act of 1978 (PDA) prohibits discrimination on the basis of pregnancy, childbirth, or related medical conditions. By contrast, the Americans with Disabilities Act of 1990 (ADA) prohibits discrimination based on a disability, including a disability related to a pregnancy (i.e. diabetes that develops during pregnancy). The PWFA bridges the gaps between these two federal laws, both of which provide minimal guidance with regard to appropriate reasonable accommodations for pregnant and postpartum workers.
The PWFA does not replace federal, state, or local laws that are more protective of employees and applicants and the PWFA does not apply to claims of discrimination. Rather, the PWFA focuses only on a covered employer’s obligation to provide reasonable accommodations.
What can employers do now to comply with the PWFA?
The EEOC began accepting charges alleging violations of the PWFA on June 27, 2023, leaving employers in a quandary as to how to comply with the new law with very little guidance. The EEOC’s proposed regulations shed some light on what accommodations may pass muster, but what practical measures should a covered employer consider now to manage risk? Here are some tips:
As covered employers navigate these new accommodation requirements, Kelley Drye’s Labor and Employment team can assist employers in their efforts to ensure compliance with the new law, including updating policies and procedures and training Human Resources and supervisors to identify and better manage pregnant and postpartum workers’ requests for accommodation.
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]]>The California Supreme Court’s recent decision in Adolph v. Uber Technologies, Inc. (“Adolph”) answered this yearlong question. The Court held that a plaintiff-employee subject to a mandatory arbitration agreement does not lose standing to litigate non-individual PAGA claims, thereby reopening the potential risks for employers, but with some silver linings.
ADOLPH V. UBER TECHNOLOGIES, INC.
In Adolph, Plaintiff Erik Adolph—an Uber driver—was bound by the terms of an arbitration agreement that required him to arbitrate—on an individual basis—all work-related claims he had against his employer Uber. Adolph subsequently sued Uber, asserting various individual and class action claims arising from Uber’s alleged violations of the California Labor Code. Adolph subsequently amended his complaint to add a PAGA claim seeking civil penalties for the underlying Labor Code violations. The trial court granted Uber’s motion to compel arbitration, requiring Adolph to arbitrate all of his individual claims, and dismissed Adolph’s class action.
Adolph filed a second amended complaint, eliminating his individual and class action claims against Uber, proceeding only with the PAGA representative action. Adolph’s PAGA-only lawsuit survived Uber’s second motion to compel arbitration. Uber appealed the trial court’s decision and the California Court of Appeal upheld the trial court’s ruling that Adolph’s PAGA claims were not subject to arbitration, citing to Iskanian.
In May 2022,Uber requested the California Supreme Court review the Court of Appeal’s decision. Before the California Supreme Court had a chance to weigh in, the US Supreme Court handed down its decision in Viking River, holding that an employee subject to an arbitration agreement must arbitrate his or her individual PAGA claim, leaving the California Supreme Court to determine the fate of the non-individual PAGA claim after an employee is compelled to arbitrate his or her individual claims.
Last week, the California Supreme Court handed down its long-awaited decision in Adolph, holding that “an aggrieved employee who has been compelled to arbitrate claims under PAGA maintains statutory standing to pursue ‘PAGA claims arising out of events involving other employees.’” The court stated that “where a plaintiff has brought a PAGA action comprising of individual and non-individual claims, an order compelling arbitration of the individual claims does not strip the plaintiff of standing as an aggrieved employee to litigate claims on behalf of other employees under PAGA.” So in short, employers can’t use an employee’s arbitration agreement to require the employee to abandon his or her PAGA representative action.
But the Court’s decision included two positive takeaways:
Here are the key takeaways post Adoph:
If you have any questions concerning this and other California related employment issues, please contact a member of Kelley Drye’s Labor and Employment team.
In the SFFA ruling, the Court struck down affirmative action programs at Harvard and the University of North Carolina, holding that the admissions programs at both universities violated the Equal Protection Clause of the 14th Amendment. On July 13, 2023, the Attorneys General (the AGs), of thirteen states – Alabama, Arkansas, Indiana, Iowa, Kansas, Kentucky, Mississippi, Missouri, Montana, Nebraska, South Carolina, Tennessee, and West Virginia – sent a letter to the CEOs of Fortune 100 companies warning that their current race-conscious hiring and promotion preferences violate the law, and citing the SFFA decision as authority. The AGs’ letter threatens that hiring and promotion quotas favoring minorities violate Title VII of the Civil Rights Act of 1964, and may further violate analogous state laws that the AGs have jurisdiction to enforce. Similar to the Supreme Court’s analysis of the affirmative action issue, the AGs argue that even if DEI hiring programs are benignly designed to “help” members of certain minority groups, they naturally do so to the detriment of others who do not meet the same protected criteria. Senator Cotton certainly takes a similar view.
Then, on July 17th, Senator Tom Cotton (R-Arkansas) sent a letter to 51 major U.S. law firms, claiming that DEI employment initiatives violate federal law and the Supreme Court’s holding in SFFA. In his summary, the Senator broadened the threat not just to the firms themselves, but to their clients as well, warning: “to the extent that your firm continues to advise clients regarding DEI programs, or operate one of your own, both you and those clients should take care to preserve relevant documents in anticipation of investigations and litigation.”
To further confuse businesses, on July 19, the Attorneys General from 21 states sent their own letters to a number of large companies stating that DEI programs are lawful. They pointed out that the SFFA decision does not apply to private businesses, and that DEI programs are still a lawful goal for companies to pursue. The pro-DEI AGs go on to encourage employers to continue to advance diversity lawfully, and to recruit and retain diverse employees. Faced with these two competing viewpoints, employers are left to pull out their hair in confusion.
Who is right: Are DEI Progress Unlawful?
First, the July 19th pro-DEI AG’s are correct: the SFFA decision does not directly apply to private employers. The decision only addressed the narrow issues of whether the admissions process of two educational institutions, both of which accept federal financial assistance, violated Title VI of the Civil Rights Act of 1964 and the Fourteenth Amendment. These laws do not apply to private employers, which are covered by statutes like Title VII, and use different legal frameworks to analyze claims of discrimination. Those legal tests were not affected by the SFFA decision at all.
Additionally, even before the SFFA decision, many of the processes which universities were allowed to follow in admissions were already illegal for a private employer – which cannot favor one race over another in employment decisions. Under Title VII, private employers are prohibited from making decisions based on race and other protected characteristics. Unlike higher education, federal law has never allowed employers to take race into consideration in making employment decisions, and employers generally are not permitted to take employment actions motivated by protected characteristics, including meeting racial- or sex-based quotas.
The EEOC’s View
Following the SFFA decision, the EEOC released a statement reiterating that the decision does not address employer efforts to foster diverse and inclusive workforces. The EEOC has made it clear that it remains lawful to implement DEI programs to ensure that workers of all backgrounds are provided with an equal opportunity in the workforce. This dichotomy between the EEOC and conservative political elements in Congress, mean that employers who choose to implement DEI programs must pay attention to the swinging political pendulum, and be ready to adapt as necessary to conform with any power changes in Washington (or, alternatively, be prepared to bear the financial costs of litigating any challenges).
The opposing view as stated by the 13 AGs’ letter to the Fortune 100 CEOs, is concerned with any progress that provides a benefit to some applicants but not others in a corporate setting. Corporate DEI hiring programs that have given a “plus” factor to some protected characteristics, may operate as “negative” factors for others, and might not hold up under greater scrutiny in future litigation. In the wake of the SFFA decision, we may see an uptick of “failure to hire” lawsuits by non‑diverse applicants, who allege that they were not fairly considered based upon an employer’s publicly-expressed DEI initiatives, which are perceived to favor minority-applicants.
Are reverse-discrimination claims on the rise?
In recent years, there has been an increase in cases where Caucasian employees have sued claiming reverse discrimination, and won. For example, in Philips v. Starbucks (Case No. 1:19-cv-19432-JHS-AMD, D.N.J. June 15, 2023), the New Jersey federal court awarded $25.6 million dollars to Philips, a White manager who was fired following an incident with a Black customer. In Philips, the jury found that the plaintiff’s termination was motivated by her race.
In another example, a conservative group filed a complaint with the EEOC against McDonald’s concerning the fast food giant’s DEI strategy. In the letter Michael Ding of America First Legal Foundation wrote, “In its 2021-2022 Global DEI Report, the corporation credited its “Global Diversity, Equity and Inclusion Strategy” as the primary cause for driving an increase in women at the Senior Director and above level from 37% in 2020 to 41% in 2021, and an increase of “Underrepresented Groups” from 29% to 30%.5 … To further incentivize managers to hire and promote employees according to these quotas, in 2022, the corporation has, among other things, expanded its quantitative metrics to hold all Vice Presidents, Senior Vice Presidents, and Managing Directors “accountable for engaging in inclusive behaviors that support talent development and building a strong diverse succession pipeline” and implemented race, sex, and national origin based preferences and quotas for hiring, promotion, and training within its legal department.”
There’s also the Netzell v. Amer. Express Co. (2:22-cv-1423-SMB, D. Az.) case, where American Express is currently being sued by a group of employees who claim that its DEI initiatives directly violate Title VII. The rise of “anti-woke” activism, particularly by conservative-aligned, non-profit organizations, will only increase this trend.
What Should Employers Do?
The SFFA decision did not change the law for private sector employers. However, it certainly signals a “shift in the winds,” which may have indirect implications for the continued trend of pushback against DEI initiatives. Now is the moment to act, before your company is targeted for a lawsuit. Take proactive steps to assess your diversity programs, and eliminate any adverse risks.
Of course, this all must be undertaken without any suggestions that diversity would be seen as a negative factor. You never want to suggest that hiring or promoting a diverse person would be a bad thing, everyone should be judged on merit.
Employers who value diversity do not need to immediately abandon their diversity initiatives, but do need to expect that they may be challenged, and ensure that they are compliant with the law and do not promote favorable treatment of one ethnic group over another.
If you have any questions concerning your business’s current DEI initiatives or the impact of the SFFA decision, please contact a member of Kelley Drye’s Labor and Employment team.
]]>As explained in our client advisory of March 3, 2021, the DOL, IRS, and Treasury announced on February 11, 2021 that employee benefit plans would be required to toll participant deadlines for exercising HIPAA special enrollment rights, electing and paying premiums for COBRA continuation coverage, filing claims for benefits, and appealing benefit claim denials until the earlier of (1) one year from the date that participants were first eligible for relief or (2) 60 days after the announced end of the COVID-19 National Emergency (the “Outbreak Period”).
For example, if a participant in an employer group health plan experiences a qualifying event for COBRA purposes and loses coverage on April 1, 2023, and is provided a COBRA election notice on May 1, 2023, the deadline for the participant to elect COBRA coverage would be 60 days after July 10, 2023, or September 8, 2023. This is because employees who lose coverage due to a qualifying event normally have 60 days from the later of (1) the date of the qualifying event or (2) the date that they receive the COBRA election notice, to elect COBRA coverage. However, since the participant in this example lost coverage during the Outbreak Period, the 60-day clock would not have started to run until the earlier of May 1, 2024 (one year from the date of receiving the COBRA election notice) or July 10, 2023 (the end of the Outbreak Period). Since July 10, 2023 is the earlier of the two dates, the deadline would be 60 days after July 10, 2023, which is September 8, 2023.
For participants who experience a qualifying event after July 10, 2023, required tolling will cease and normal timelines will resume. Plan sponsors may want to remind such participants about this resumption, in addition to updating any plan documents, summary plan descriptions, enrollment materials, COBRA notices, etc. that had previously been amended to reflect the tolling. Plan sponsors may also wish to extend the tolling on certain deadlines, as nothing in the Internal Revenue Code or ERISA prevents them from doing so. To do this, they will need to coordinate with their insurers, vendors, and third-party administrators (“TPAs”).
The end of the PHE means that private health insurance plans will no longer have to cover COVID-19 diagnostic testing and related services without imposing any cost sharing requirements (including deductibles, copayments, and coinsurance), prior authorization, or other medical management requirements, as they were required to during the PHE. It also means that they will no longer be required to cover COVID-19 vaccines and boosters from out-of-network providers without imposing cost sharing, prior authorization, or other medical management requirements. Plan sponsors should therefore consider how to inform plan participants of the changes, and whether plan documents and employee communications need to be updated accordingly. If a plan sponsor wants to continue to not impose cost sharing, prior authorization, or other medical management requirements, it will need to coordinate this with its insurance carrier (or TPA for a self-insured plan). A plan sponsor would also need to consider what impact continuing more favorable treatment of COVID-19-related services will have on high-deductible health plans.
Finally, if any changes constitute material modifications to the plan or coverage terms that would affect the content of the summary of benefits and coverage (SBC), that are not reflected in the most recently provided SBC, and that occur other than in connection with a renewal or reissuance of coverage, the plan sponsor must provide notice of the modification to participants not later than 60 days prior to the date on which the modification becomes effective (unless the plan sponsor previously notified participants that the additional benefits coverage or reduced cost sharing only applies during the PHE, or does so within a reasonable timeframe in advance of the reversal of these changes).
]]>While it remains to be seen how the lower courts apply Groff, for employers in healthcare and transportation and hospitality with 24/7 scheduling needs, Groff could make staffing on weekends a bigger challenge than it already is.
Background
Title VII (along with all state and many local laws) has long-required employers to provide applicants and employees with a “reasonable accommodation” from any employment obligations that may conflict with their religious beliefs or practices. The key word here is “reasonable.” Employers do not need to provide accommodation if doing so creates an undue hardship for the business.
Courts, lawyers, and businesses have grappled with the meaning of these terms for decades, especially when it comes to the issue of accommodating Sabbath observance, which generally entails requests for weekend days off. Up until Groff, the Supreme Court’s decision in Trans World Airlines (TWA) v. Hardison, 432 U.S. 63 (1977) had set the standard. Hardison concerned an employee’s request for Saturdays off from work to accommodate his religious observance, which conflicted with seniority rules and other employees who also wanted that day. In Hardison, thecourt found in favor of TWA, ruling that the employer did not have to grant the accommodation, because it would have borne “more than a de minimis cost.”
Since Hardison, courts have repeatedly clashed over the definition of “undue hardship” and the threshold an employer must demonstrate in order to reject an employee’s request for religious accommodation. Many courts took this decision to mean that any religious accommodation that produces a “more than a de minimis cost” would not need to be granted. By that definition it is a relatively low bar for employers to prove, allowing more employers to deny religious accommodation so long as it they can prove minimal impact on operations. Additionally, it was generally recognized that employers did not have to violate seniority rules or a union contract in order to grant religious accommodation.
This may all now change due to the Groff decision.
Groff v. DeJoy
Groff also arose out of a dispute over time off, and concerned a U.S. Postal Service employee (Groff) who requested Sundays off from his job at a small rural Post Office to accommodate his Evangelical faith. This was not an issue until his branch partnered with Amazon and began delivering packages on Sundays. Groff then requested and received a transfer to a different branch that did not deliver on Sundays. When the second branch also partnered with Amazon Groff remained unwilling to make deliveries on Sundays. For a time the Post Office did attempt to accommodate Groff, staffing other employees to cover his shifts. Eventually however, Groff was disciplined for failing to work on Sundays, and ultimately resigned. Groff then sued the Post Office for religious discrimination on account of its unwillingness to accommodate his religious beliefs.
The lower court applied the Hardison standard and sided with the Post Office, finding that granting Groff’s accommodation would have presented more than a de minimis cost to the Post Office. The Supreme Court however, found that the lower court applied the wrong standard, and sent the case back to the lower courts to apply the new standard adopted in its opinion.
Groff’s New “Undue Hardship” Standard
Although the Supreme Court claimed that it was not directly overruling Hardison, it came very, very close, and certainly implied that ‘de minimis,’ as defined under Hardison, was no longer the operative test.
The Supreme Court criticized the way Hardison had been applied over the years, and held that many courts applying Hardison failed to invoke the fact-specific analysis and consideration of alternatives, that is required under Title VII, to evaluate a request for a religious accommodation. Implicit in the criticism was an undertone that more accommodations should have been granted.
The Court stated that in order to deny a religious accommodation (or defend any claim for failure to accommodate), the “employer must show that the burden of granting an accommodation would result in substantial increased costs in relation to the conduct of its particular business.” As part of this analysis, the Supreme Court stated that employers must consider: (i) the particular accommodations at issue, (ii) their practical impact in light of the nature, size and operating cost of an employer, and (iii) the availability of alternative means of accommodating the employee’s religious beliefs.
Interestingly, the Court stated that it did not believe that the EEOC would need to change its guidance. The Court also did not “foreclose the possibility that the (Postal Service) would prevail” under this new standard.
It will be interesting to see how the lower courts treat Mr. Groff’s claim the second time around. And whether showing the effects of Mr. Groff’s accommodation on other employees, and slowed delivery of mail in the area will be enough to show an undue hardship.
What Should Employers Do Now?
Right now – nothing is required. Assuming that you have a policy that provides for individual consideration of requests for religious accommodation, you do not need to change that policy.
However, in applying that policy, we suggest that you keep the following guidelines in mind:
In the wake of Groff, many employers may see more requests for religious accommodations. Employers dealing with religious accommodation requests should tread cautiously, evaluating the totality of the circumstances behind the request, including the direct financial cost (if any), and the availability of alternatives such as voluntary schedule swaps, “floating” holidays, and flexible scheduling. Employers do not have to entirely upend practices to the detriment of other employees.
Importantly, the Supreme Court expressly avoided determining if existing EEOC regulations complied with its new standard, and directed the agency to review and revise its regulations as appropriate. Employers should watch for potential EEOC updates regarding its interpretation and enforcement efforts on this issue. Employers should also keep in mind that state and local laws are often more liberal than the federal law.
If you have any questions concerning religious accommodations under federal, state or local law, please contact your usual counsel at Kelley Drye, or a member of our Labor and Employment team.
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