The U.S. Department of Labor (DOL) has issued a Final Rule on the standards for determining independent contractor status for purposes of minimum wage and overtime pay issues under the Fair Labor Standards Act (FLSA). Although the Final Rule is considered “new,” it is based on the standard that was applied prior to the 2021 enactment of the Trump Administration’s rule, which had relaxed the standard for classifying workers as independent contractors, but also provided greater certainty to employers. The Final Rule reinstates the so-called “economic realities” test, which is generally more likely to result in a finding that a worker is an “employee.”

The Final Rule takes effect on March 11, 2024. It is not yet clear how courts will apply its requirements. The various tests for determining independent contractor status are relatively similar, although greater emphasis may be placed on some factors over others.

The Trump-era Rule

Under the 2021 Trump Administration’s rule, independent contractor status turned on two so-called “core factors”: (1) the degree of the putative employer’s “control” over the worker, and (2) the worker’s ability to realize a profit or loss. The rule also added some weight to other factors such as the permanency of the relationship between the putative employer and the worker; the worker’s skill level; and whether the worker’s services were part of an integrated unit of production.

The “New” Final Rule

The Final Rule focuses on the economic realities of the relationship between the putative employer and the worker, or the extent to which the worker is economically dependent on the employer. The standard requires consideration of the following six factors:

  1. The nature and degree of control over the work being performed. This factor considers whether the putative employer exercises substantial control over the worker’s performance of the work (for example, does the employer set the worker’s schedule?). If the putative employer exerts substantial control over the worker, then this factor would weigh in favor of employee status.
  2. The worker’s opportunity for profit or loss. Earning a profit is not the same as earning compensation for a job done. If the worker has the opportunity to earn a profit or incur losses based on the worker’s exercise of managerial skill or business judgment, then this factor would weigh heavily in favor of independent contractor status.
  3. The amount of skill required for the work. To the extent that the work requires specialized training or skill that the potential employer does not provide or facilitate, this factor would weigh in favor of the worker being considered an independent contractor.
  4. Degree of permanence of the working relationship between the worker and putative employer. To the extent that the work relationship is definite in duration (a start and end date, for example), this factor would lean in favor of independent contractor status.
  5. Whether the work is part of an integrated unit of production. This factor asks whether the worker’s work is a “component of the potential employer’s integrated production process for a good or service.” This factor weighs in favor of independent contractor status if the individual’s work is separate from the production process.
  6. Additional factors. The DOL states that additional factors may be considered in making a determination, but only if those factors tend to show that the worker is in business for himself or herself, and not economically dependent on the potential employer.

In practice, it is difficult to tell how differently the Final Rule will function compared to the Trump-era Rule, but the Final Rule’s imposition of mandatory factors beyond the two core factors endorsed under the 2021 rule makes it more likely that a worker will be found to be an employee.

The Final Rule’s Effect on Independent Contractor Tests in Connecticut, New York and Massachusetts

Of course, the Final Rule will apply to worker determinations in New York, Connecticut and Massachusetts with respect to issues arising under the FLSA, but the tests used by each state in other contexts will continue to apply. Application of these tests, however, will require a consideration of the economic realities test to ensure that the classification meets all of the applicable tests. Essentially, employers will have to ensure that their classifications satisfy whatever standard is strictest.

Connecticut

Connecticut applies the “A-B-C Test” for independent contractor determinations under some of its state laws, including its wage and hour and unemployment insurance laws. Connecticut’s version of the A-B-C test considers the following factors:

  1. The worker is free from the control and direction of the potential employer in connection with the performance of the service, both under contract and in fact.
  1. The service is performed either outside the potential employer’s usual course of business or is performed outside of all the potential employer’s places of business.
  1. The individual is customarily engaged in an independently established trade occupation, profession or business of the same nature as that involved in the service being provided.

Factor A is the most important factor and focuses on the potential employer’s right to control both the results and methods of the work. This is similar to the emphasis placed on the 2021 Trump-era DOL rule and is one of the factors considered under the Final Rule.

Under its Workers’ Compensation Act, Connecticut uses a “right to control” test and not the A-B-C test. In any event, the right to control test is similar to Factor A of the A-B-C test.

Additionally, although there is no statutorily required test for independent contractor determinations under employment discrimination law, such determinations are based on a version of the right to control test that considers many more factors than the right to control test that applies under the Workers’ Compensation Act.

New York

New York relies on a hodge-podge of tests depending on the applicable state law or industry. In general, New York uses a right to control test for determinations unless another law requires that a different test be applied. Under the right to control test, which applies to unemployment insurance determinations, the New York Department of Labor scrutinizes the control exercised over the result and the means for achieving the result, with the control over the means being the more important consideration.

Businesses in New York will soon be required to provide written agreements to many “freelancers” under a new law recently signed by Governor Kathy Hochul. The “Freelance Isn’t Free Act,” which will become effective on May 20, 2024, requires businesses in New York State to enter into a written agreement with any freelancer (independent contractor) who provides services with a value of at least $800.

Moreover, New York State’s Construction Industry Fair Play Act applies a presumption that a construction worker is an employee unless the potential employer can satisfy a form of the A-B-C test. Likewise, drivers of commercial vehicles are assessed under the A-B-C test. In addition, the New York State Commercial Goods Transportation Industry Fair Play Act requires the consideration of various factors for determination whether a sole proprietor, partnership, corporation or entity can be considered a separate business entity.

For purposes of the Workers’ Compensation Act, the Workers Compensation Board will consider a hybrid of the right to control and “relative nature of the work” tests. This latter test focuses on the character of the worker’s work; whether the type of work being performed is separate from the putative employer’s occupation; whether the work being performed is continuous or intermitted; the permanency of the relationship; the importance of the work in relation to the employer’s business; and whether the worker is expected to carry his or her own liability insurance coverage.

Massachusetts

Like Connecticut, Massachusetts applies the A-B-C test to determinations under the Minimum Fair Wages Law and under the Unemployment Insurance Law. In Massachusetts, a worker is presumed to be an employee unless the potential employer can satisfy the A-B-C test.

For purposes of the Workers’ Compensation Act, Massachusetts uses a set of factors that are derived from court cases. This test incorporates elements of the right to control test, economic realities test and A-B-C test.

Under Massachusetts’ employment discrimination laws, courts consider a traditional common law test of agency, which entails a multifactor inquiry that seeks to consider the potential employer’s right to control the manner and means by which the end product is accomplished.

Going Forward

Despite the similarities among the different tests governing independent contractor determinations, the A-B-C test and the Final Rule’s economic realities test are more restrictive than the right to control test. While New York employers may need to make significant adjustments to their classification practices, Connecticut and Massachusetts employers will have to contend with less of a learning curve based on their experiences with the strict A-B-C test.

We will continue to report back on further developments, including further guidance from the DOL and court cases implementing the Final Rule’s requirements.

Please feel free to reach out to Murtha Cullina’s Labor and Employment group if you have any questions.

On December 22, 2023, Governor Kathy Hochul vetoed a bill that would have imposed a ban on non-compete clauses throughout the state of New York for all employees, regardless of earnings level. We wrote about the Senate and Assembly bills that were passed in  June, here.

Many business groups and trade associations criticized the bills as overbroad and lacking common sense exceptions, such as permitting non-competes in connection with the sale of a business.

Although we did not think that the bill would be signed into law as it was drafted, we expected that the Governor and lawmakers would arrive at a compromise and include exceptions, such as banning non-competes for employees who earn below a particular threshold. Previously, Governor Hochul had proposed limiting the ban to individuals who earned in excess of $250,000 in total annual compensation. However, this agreement never materialized.

The Governor remains committed to enacting non-compete legislation and State Senator Sean Ryan (D), the bill’s sponsor, vows to reintroduce the bill in the next legislative session. For now, non-compete restrictions are alive and well in New York.

The National Labor Relations Board (NLRB) and Occupational Safety and Health Administration (OSHA) have agreed to team up to investigate and enforce protections for workers who raise safety concerns and suffer retaliation as a result.

Earlier this week (on Halloween no less), the NLRB and OSHA entered into a memorandum of understanding (“MOU”) “to facilitate interagency cooperation and coordination between the [NLRB] and [OSHA]” concerning the National Labor Relations Act (NLRA) and Occupational Safety and Health Act (OSH Act).

Although not the first time the NLRB and OSHA have agreed to work together, the recently signed MOU reflects a more formal process for collaborating and results in potentially greater NLRB involvement in matters of workplace safety traditionally handled by OSHA. There is no doubt that this collaboration is intended to result in an increase of unfair labor practices complaints filed with the NLRB.

According to the MOU, if OSHA comes across “potential victims of unfair labor practices” during one of its investigations or through other sources, it will refer them to the NLRB to file a complaint. In addition, if a worker files a complaint with OSHA that is beyond the 30-day time limit, OSHA will advise the worker to file the complaint with the NLRB, which provides for a six-month limitations period. Likewise, the NLRB will refer to OSHA information relating to workers who have complained about health or safety hazards so that the NLRB and OSHA can pursue the employer on different tracks.

The recent MOU is the latest attempt by the NLRB’s General Counsel to expand the NLRB’s reach in support of its aggressive pro-worker positions. Earlier this year, the NLRB’s General Counsel issued guidance on the illegality of confidentiality and non-disparagement clauses, and separately opined that employee non-compete agreements violate the NLRA. In addition, in August 2023, the NLRB adopted a new standard for assessing whether workplace rules contained in employee handbooks violate section 7 of the NLRA.  

We will continue to monitor developments in this and other areas. Please feel free to reach out to Murtha Cullina’s Labor and Employment group if you have any questions.

Today, the U.S. Department of Labor announced a proposal to increase the Fair Labor Standards Act’s (FLSA) salary-level threshold from $35,568 to $55,068, which would result in many more employees being entitled to overtime pay for hours worked in excess of 40 in a workweek. So, even if an employee is performing otherwise “exempt” duties associated with the Executive, Administrative, Professional, Outside Sales and Computer Employees exemptions, they will still be entitled to overtime for hours worked over 40 unless they are paid at least a salary of $1,059 per week.

The FLSA’s salary-level threshold was last increased in 2019, from $455 to the current $684 per week. This earlier increase reflected the 20th percentile of weekly earnings of full-time salaried employees in the lowest wage Census Region (the South) and in the retail industry nationally.

For New York employers, this increase will have no effect on their New York-based employees, because New York’s salary threshold is already higher than the proposed increase under the FLSA. As of December 21, 2022, New York’s annual salary threshold was $58,500 for New York City, Long Island and Westchester employees, and $55,341 for employees in the rest of the state. (New York’s salary-level threshold will likely increase in 2024 in line with planned minimum wage increases that will take effect on January 1.)

Connecticut and Massachusetts employers, however, would experience a significant increase in the salary-level threshold should the Department of Labor’s increase become final. Currently, the salary-level threshold in Connecticut and Massachusetts is $35,568 (or $684 per week).

The Department of Labor will consider written comments on its proposal over the next 60 days. It seems likely that the salary-level threshold will increase, although it is too soon to say whether it will increase by the proposed amount.

Key Takeaways

  1. Significant Proposed Increase: The U.S. Department of Labor intends to boost the FLSA salary-level threshold from $35,568 to $55,068. This marks a substantial change affecting the weekly salary required for overtime eligibility.
  2. Overtime Implications: With the new proposal, even employees with “exempt” duties would be entitled to overtime if they work over 40 hours and earn less than $1,059 per week.
  3. State-Specific Impact: New York clients are unaffected due to already higher thresholds. However, Connecticut and Massachusetts, currently at the same threshold as the current FLSA rate, would feel a significant impact if the new increase goes into effect.
  4. Timelines and Feedback: The Department of Labor is accepting comments to its proposed rule for the next 60 days. It points towards the potential of an increase in the salary-level threshold, but the exact rise remains uncertain.
  5. The “Duties Test”: The proposed rule does not modify the exempt duties tests for the white-collar exemptions. Remember, in order to be exempt from overtime, an employee must be performing exempt duties under one of the white-collar exemptions, and paid at least a weekly salary that satisfies the salary-level threshold.

Please feel free to reach out to Murtha Cullina LLP’s Labor & Employment group if you have any questions.

On August 2, 2023, the National Labor Relations Board (NLRB) adopted a new standard for assessing whether workplace rules, including policies found in handbooks, infringe upon employees’ rights under Section 7 of the National Labor Relations Act (NLRA), in violation of Section 8(a)(1) of the NLRA.

This new burden-shifting framework, which was announced in the NLRB’s Stericycle, Inc., 372 NLRB No. 113 decision and applies to both union and non-union workplaces, focuses on whether a challenged rule has a “reasonable tendency” to chill employees’ Section 7 activity.

Section 7 expressly guarantees the right to self-organization; to form, join or assist labor organizations; to bargain collectively through representatives of their choosing; “and to engage in other concerted activities for the purpose of… other mutual aid or protection.” As a result of the broad language regarding “concerted activities,” Section 7 also applies to non-union workplaces. Stericyle addresses “facially neutral” workplace rules that may discourage employees from exercising those rights.

The Stericycle decision overturns previous precedent in which the NLRB had crafted a balancing test to evaluate such workplace rules and had held that certain types of policies were inherently lawful under Section 7, regardless of the precise language utilized in the policy.

Under the new standard, the NLRB’s general counsel is to evaluate an employer’s workplace policy or rule on a case-by-case basis from the perspective of a reasonable employee. If an employee could reasonably interpret the rule as “coercive,” the general counsel will have met its initial burden of establishing that the rule violates Section 7, regardless of the employer’s intent behind the policy.

An employer can rebut the presumption of an “unlawful” work rule by proving that (1) the rule advanced a “legitimate and substantial” business interest, and (2) the employer is unable to advance that interest with a more narrowly tailored rule.

Under the facts in Stericycle, the administrative law judge ultimately found that the employer violated the NLRA by maintaining employee rules that prohibited: personal conduct that would harm the employer’s business reputation; conflicts of interest that adversely affect the employer; required confidentiality in the investigation and resolution of harassment complaints; and camera and video use policies that require employees to refrain from using cameras during break time.

The NLRB’s decision is significant in light of the fact that these types of policies, which are common in workplaces, were previously deemed lawful. The NLRB’s case-by-case scrutiny of workplace rules requires employers to carefully consider whether policy objectives can be met with more narrowly targeted rules.

In light of this decision, employers should take the opportunity to review their employee handbooks and other sources of workplace rules to determine whether any rules or policies may tend to chill employees’ exercise of their Section 7 rights under the new standard and, at the very least, consider revisions that would narrow the scope of such rules.  

The NLRB did not provide guidance on what “business interest” it would consider sufficiently “legitimate and substantial” to overcome the presumption of illegality, nor has it addressed the sufficiency of Section 7 disclaimer provisions in employee handbooks stating that nothing in the employer’s policies or rules is intended to infringe upon employees’ rights.

The labor and employment attorneys at Murtha Cullina will continue to monitor NLRB activity on this issue, including whether its decision in Stericycle will be appealed.

On June 20, the New York State Assembly passed Bill A1278B, which, together with New York State Senate’s passage of identical legislation, Bill 3100A earlier this month, would render all non-compete agreements signed or modified after the effective date unlawful. All that stands in the way of these bills becoming law is Governor Kathy Hochul’s signature.

Definitions

The proposed legislation defines “non-compete agreement” as “any agreement, or  clause contained in any agreement, between an employer and a covered individual that prohibits or restricts such covered individual from obtaining employment, after the conclusion of employment with the employer included as a party to the agreement.”

“Covered individual” means “any other person who, whether or not employed under a contract of employment, performs work or services for another person on such terms and conditions that they are, in relation to that other person, in a position of economic dependence on, and under an obligation to perform duties for, that other person.” This language extends the bar to non-compete agreements with independent contractors.

Prohibitions

According to the bills, “[e]very contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.” Further, no employer or its agent, or the officer or agent of any corporation, partnership, limited liability company, or other entity “shall seek, require, demand or accept a noncompete agreement from any covered individual.” Not only does the law bar such clauses, but requesting that a covered individual agree to one would also violate the law.

Exceptions

It should be noted that the legislation does not cover certain other types of restrictive covenants, so long as the agreements do not “otherwise restrict competition,” which is sufficiently vague to prompt litigation over what this exactly means.

The bills do not prevent employers from entering into (1) agreements with a prospective or current covered individual that establishes a fixed term of service; (2) agreements prohibiting disclosure of trade secrets, of confidential and proprietary client information; or (3) agreements prohibiting solicitation of clients of the employer that the covered individual learned about during employment. Again, these agreements would not be barred provided that they would not effectively restrict competition.

Right of Action

If signed into law, the proposed legislation would create a private right of action for employees and contractors, allowing them to sue an employer within two years of (i) the signing of the non-compete; (ii) the date the employee or contractor learns of the non-compete agreement; (iii) the date employment or the contractual relationship is terminated; or (iv) the date the employer takes any step to enforce the non-compete agreement.

The court may void any such non-compete agreement and order all appropriate relief, including injunctive relief, damages for lost compensation, attorney’s fees and costs, and liquidated damages up to $10,000.

This law signals a profound change to New York, which would be among a handful of states barring non-compete agreements. The labor and employment attorneys at Murtha Cullina will monitor the status of this pending litigation and report updates as we receive them.

Connecticut’s legislature has amended the state’s physician noncompete law to provide for additional restrictions on physician noncompete agreements. (Public Act No. 23-97). In addition, Connecticut has extended noncompete restrictions to advanced practice registered nurses (nurse practitioners) and physician assistants. Governor Lamont is expected to sign the amendment, but has not yet done so.

Further Restrictions on Physician Noncompetes

In 2016, Connecticut significantly limited the use of physician noncompete agreements by requiring that such agreements entered, amended, extended or renewed after July 1, 2016, be rendered void if (i) the noncompete period exceeded one year; and (ii) it contained a geographical scope exceeding 15 miles from the physician’s “primary site” of practice. In addition, the 2016 law rendered physician noncompetes unenforceable if the employer terminated the physician without cause, or if a noncompete agreement expired and the employer did not offer to renew the noncompete upon the “same or similar conditions” unless the agreement was entered in contemplation of partnership or ownership.

The new amendment imposes additional requirements on physician noncompetes. A noncompete agreement that is entered into, amended, extended or renewed on or after October 1, 2023, shall be void if (i) the physician does not agree to a proposed material change to the compensation terms prior to or at the time of extension or renewal; and (ii) the contract expires and is not renewed by the employer or the employment or the contractual relationship is terminated by the employer, unless such employment or contractual relationship is terminated by the employer for cause. These new restrictions on physician noncompetes do not apply to physician groups of 35 or fewer physicians that have majority ownership comprising physicians.

In addition, the amendment requires that the noncompete agreement define the primary site of practice for purposes of the geographical restriction. This should result in fewer disputes concerning a physician’s primary practice site, but will result in less flexibility for employers that at some point during the relationship require physicians to work at other sites that were not contemplated upon signing.

Nurse Practitioners and Physician Assistants Now Covered by Connecticut Noncompete Law

As of October 1, 2023, agreements with nurse practitioners and physician assistants will be covered by the noncompete law in the same manner as agreements with physicians. However, unlike the small physician group exception that applies to the newest restrictions on physician noncompetes, all employers, regardless of size and composition, are required to comply with all of the new noncompete restrictions for nurse practitioners and physician assistants. Consequently, the requirement relating to the need to agree to a proposed material change to compensation prior to or at the time of extension or renewal is applicable to all employers of nurse practitioners and physician assistants, even small physician group employers.

Takeaway

The amendment reflects a significant change to Connecticut law, particularly because it adds nurse practitioners and physician assistants to those covered by the law. Moreover, it appears that the “proposed material change to the compensation terms” language is intended to clarify that compensation makes all the difference when making a renewal proposal, and that it is not enough that the proposed renewal terms result in the “same or similar conditions” when viewed in their totality.

Under the “material change to the compensation terms” standard, a noncompete may not be enforceable where an employer offered significantly better non-monetary terms and conditions in exchange for materially less compensation; while such a proposal might render the conditions of employment to be the same or similar, the noncompete apparently would not survive under the new amendment. Further case law developments should clarify this language, and what would result in a “material change” to compensation.

Our Health Care and Labor and Employment practice groups are monitoring these developments closely and will continue to provide updates. In the meantime, our attorneys are available to assist you with reviewing your existing noncompete agreements and preparing for the new amendment’s effective date.

Watch a recent webinar on healthcare noncompetes featuring Stephanie Sprague Sobkowiak and Salvatore Gangemi.

On May 18, 2023, the U.S. Equal Employment Opportunity Commission (“EEOC”) issued a non-binding “technical assistance” document that offers employers guidance on the applicability of Title VII to the use of artificial intelligence (“AI”) in employment selection procedures such as hiring, promoting and firing. The guidance comes as the EEOC continues to prioritize its consideration of potential discriminatory policies and practices that incorporate AI, as we previously discussed in a February 2023 blog post.

The document—entitled “Assessing Adverse Impact in Software, Algorithms, under Title VII of the Civil Rights Act of 1964” – defines “artificial intelligence” as a “machine-based system that can, for a given set of human-defined objectives, make predictions, recommendations or decisions influencing real or virtual environments.”

In the employment selection context, such increasingly common AI tools may include resume screening software, employee monitoring software, virtual assistants and video interviewing software that evaluates a candidate’s facial expressions and speech patterns. Notably, this particular EEOC guidance is focused solely on the potential disparate or adverse impact on Title VII-protected categories resulting from the use of facially neutral AI tools, i.e., it does not address issues of intentional discrimination via the use of AI.

To assist an employer in deciding whether their AI tests and selection procedures impact adversely on a protected category, the document relies on the Uniform Selection Guidelines on Employee Selection Procedures (the “Guidelines”), a set of guidelines that were developed to determine adverse impact several decades ago, and confirms that the Guidelines apply equally to AI-based selection tools. Although the scope of the EEOC’s guidance is limited, it does include the following key points for employers:

  • If the use of a selection tool causes a selection rate for individuals within a protected category that is substantially lower (less than 80%, i.e., the “Four-Fifths Rule of Thumb”) than that of the most selected group, a preliminary finding of adverse impact is likely and the employer must examine the AI tool to determine if it, in fact, has an adverse impact. If it does, the employer must show that either the use of the AI tool is job-related and consistent with business necessity pursuant to Title VII, or that the “Four-Fifths” assessment was in error.
  • Where an AI selection tool results in disparate impact, an employer may be liable even if the test was developed or administered by an outside vendor. The EEOC recommends that the employer consider asking the vendor what steps it has taken to evaluate the tool for potential adverse impact.
  • Employers should self-audit AI selection tools on an ongoing basis to determine whether they have an adverse impact on protected categories and, where it does, consider altering the tool to minimize such impact.

Employers using or considering the use of AI-based tools in selecting candidates and employees are urged to keep a close eye on developments in this ever-changing area. The Labor and Employment attorneys at Murtha Cullina will continue reporting on these developments as well.

The U.S. Department of Labor has announced that the Occupational Safety and Health Administration (OSHA) has initiated a National Emphasis Program (NEP) to prevent falls in the workplace, which OSHA states is the leading cause of workplace injuries and fatalities, ahead of violations of OSHA’s respiratory protection standard. Although most of the citations involving fall protection occur in the construction industry, the NEP applies to all industries.

OSHA regulations impose an obligation on employers to provide fall protection systems. OSHA requires that such protections be provided at elevations of four feet in general industry workplaces, five feet in shipyard employment, six feet in construction, and eight feet in longshoring. Such fall protection must be provided regardless of height for employees working over dangerous equipment. Fall protection systems comprise utilizing guardrails, safety nets, safe work practices, and appropriate training.

According to OSHA, this NEP establishes guidance for locating and inspecting fall hazards. Inspections may be opened whenever OSHA representatives observe anyone working at heights.

Murtha Cullina’s Labor and Employment Group is prepared to assist employers in addressing these issues and will continue to report on further activity involving this NEP.

On April 6, 2023, the New York City Department of Consumer and Worker Protection (“DCWP”) issued a Final Rule to provide guidance regarding the City’s Automated Employment Decision Tool (“AEDT”) Law, which we covered in more detail here. The Final Rule generally clarifies employer obligations under the AEDT Law, which will be enforced beginning July 5, 2023. Here are the most notable provisions of the Final Rule:

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