Major Proposed Hike in Salary-Level Threshold Affecting Overtime Exemptions What Employers Need to Know

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.

NLRB Issues New Standard for Scrutinizing Employers’ Workplace Rules

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.

New York Poised to Ban Non-compete Clauses in Employment

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.

EEOC Issues New Guidance on Use of Artificial Intelligence in Employment Selection Procedures

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:

Continue Reading NYC Department of Consumer and Worker Protection Issues Guidance on Automated Employment Decision Tool Law

On March 22, 2023, the National Labor Relations Board’s (“NLRB”) General Counsel Jennifer Abruzzo issued Memorandum GC 23-05 (the “Memo”), which provides additional guidance on the recent NLRB decision in McLaren Macomb, 372 NLRB No. 58 (2023).

As we recently reported, McLaren held that employers violate the National Labor Relations Act (“NLRA”) when they merely offer non-supervisory/management employees, both union and non-union, severance agreements that contain overly broad confidentiality and/or non-disparagement provisions.

The Memo, which was issued to “assist Regions [of NLRB offices] in responding to inquiries from workers, employers, labor organizations and the public about implications stemming from that case,” responds to some common inquiries regarding the impact of the McLaren decision. Among other things, the Memo makes clear the following:

  • Severance agreements are not banned outright.
  • Whether or not the employee actually signed the severance agreement is irrelevant for purposes of finding a violation under the Act since the proffer itself is inherently coercive.
  • While supervisors generally are not protected by the NLRA, it would be violative for an employer to retaliate against a supervisor who refuses to proffer to an employee an unlawful separation agreement.
  • McLaren applies retroactively to agreements proffered before February 21, 2023.
  • Agreements generally should not be found to be void in their entirety because they include unlawful provisions, even if the agreement does not include a severability clause.
  • Disclaimer language regarding rights afforded under the NLRA in the agreement may not necessarily cure overly broad provisions.
  • Confidentiality and non-disparagement provisions that are narrowly tailored may be found lawful. 

While the Memo provides Abruzzo’s opinion on many frequently asked questions, others remain. Employers should review the Memo, found here, in order to educate themselves on how the NLRB is going to apply and interpret McLaren going forward (in the absence of an appeal and further direction from the courts, which may be yet to come).

Murtha Cullina attorneys are available to assist you with revising your severance agreements in accordance with the new rules and will continue to follow and report on any further developments regarding this decision.

New York State’s Pay Transparency Law is set to take effect on September 17, 2023. The law was amended on March 3, 2023, well in advance of its effective date, to clarify, limit and expand various employer obligations. New York joins New York City, California, Rhode Island and Washington, D.C. in passing pay transparency legislation that requires covered employers to list compensation ranges for all job advertisements and postings.   

Here are some of the new law’s basic requirements:

  • The law applies to all private employers with at least four employees. 
  • Covered employers must include a minimum and maximum annual salary or hourly compensation range in all advertisements for a job, promotion or transfer opportunity that will be performed, at least in part, in New York. Although when first enacted the law seemed to apply to remote out-of-state workers, the amendment restricts the new law’s application to jobs that are physically performed in New York, so it would not apply to remote out-of-state workers, unless (and that’s a big unless) the out-of-state worker reports to a supervisor or work location that is located in New York.
  • Pay transparency requirements apply to internal and external job postings.
  • Covered employers must believe in good faith at the time of the posting that the salary range is accurate. 
  • For commission-based jobs, a general statement that compensation is based on commission satisfies an employer’s obligation to disclose a salary range in the posting.
  • The new law also imposes a record-keeping obligation on employers.  Covered employers are now required to keep and maintain records showing compliance with the new law. Although the amendment removed the requirement that employers maintain a history of compensation ranges for each job, practically speaking it would be best if employers did, in fact, maintain such information.  

The New York State Department of Labor has regulatory authority over the new law and, hopefully, will issue guidance before the effective date. Any individual claiming to be aggrieved by an employer’s violation of the new law may file a complaint with the Commissioner of Labor. 

New York City employers must still comply with New York City’s Pay Transparency Law, which was passed on November 1, 2022, and covered here. The New York State Pay Transparency Law explicitly states that it does not preempt local ordinances, so New York City employers need to comply with both laws.

New York employers should review their job postings and advertisements to ensure compliance with all pay transparency laws. Further, New York employers should review their recordkeeping procedures and, if not already done, maintain a record of compensation for posted positions. As always, the attorneys in Murtha Cullina’s Labor & Employment Group remain ready to advise on these and other issues.

On February 21, 2023, the National Labor Relations Board (the “Board”) issued a decision that returns to previous precedent, holding that employers may not offer employees severance agreements that require employees to broadly waive their rights under the National Labor Relations Act (“NLRA”).

Under the Board’s new rule issued in McLaren Macomb, 372 NLRB No. 58 (2023), which applies to union and non-union employees alike, the “mere proffer” of a severance agreement that conditions receipt of benefits on the “forfeiture of statutory rights”—like the acceptance of overbroad confidentiality and non-disparagement provisions—“plainly has a reasonable tendency to interfere with, restrain, or coerce the exercise of those rights [afforded under Section 7 of the NLRA]” in violation of Section 8(a)(1) of the NLRA. Prior to this, two of the Board’s 2020 decisions in Baylor University Medical Center and IGT d/b/a International Game Technology held that it was not unlawful, by itself, for an employer to offer similar severance agreements with such clauses in return for severance payments.

The decision joins a wider landscape of protective measures in recent years that are aimed at discouraging or prohibiting confidentiality and/or non-disparagement provisions in settlements or other agreements. For instance, the Speak Out Act passed by Congress last year and signed into law by President Biden on December 7, 2022, makes void any nondisclosure or non-disparagement clause that attempts to preemptively prohibit employees from talking about potential future instances of sexual harassment or assault in the workplace. Previously, other similar federal laws prohibited forced arbitration in sexual assault and sexual harassment disputes, as well as eliminated an employer’s ability to make tax deductions for settlements, payouts, and attorney’s fees in cases related to sexual harassment or abuse if such payments were subject to a nondisclosure agreement.

While McLaren involved language the current Board deemed overbroad, the question is still open as to whether employers can maintain lawful confidentiality and non-disparagement provisions if they are narrowly tailored to mitigate the concerns contained in the decision. Employers should review any non-disparagement and confidentiality provisions they are proffering to employees or potential employees, regardless of the type of document in which the clauses are incorporated. Moreover, a well-drafted “severability” provision may help save the rest of an agreement if certain provisions are found to be unlawful or unenforceable.

Murtha Cullina will closely follow and report on any federal court appeal of the McLaren decision, as well as any related decisions and/or legislation concerning confidentiality and non-disparagement clauses.

Contact the authors of this alert Emily McDonough Souza, Salvatore Gangemi and Patricia Reilly to learn more about how this decision can impact your business.