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Major changes may be on the horizon for noncompete clauses.

The Federal Trade Commission (FTC) is expected to pursue President Biden’s campaign promise to curtail the use of noncompete agreements more vigorously in 2023. In July 2021, President Biden signed an executive order that directed the FTC to “[t]o address agreements that may unduly limit workers’ ability to change jobs” by using the FTC’s statutory rulemaking authority “to curtail the unfair use of non-compete clauses and other clauses or agreements that may unfairly limit worker mobility.”[1] While President Biden’s executive order is not directed at specific industries or companies of a certain size, the key point of emphasis appears to be the impact of noncompete clauses on hourly or low-wage workers.

The FTC is focusing more heavily on the President’s directive following the appointment of Alvaro Bedoya as FTC Commissioner in May 2022,[2] giving the Democratic commissioners a voting majority. In June 2022, FTC Chairwoman Lina Khan publicly announced that the FTC is considering a new regulation that would aim to restrict the use of noncompete provisions.[3]

Nonetheless, there are already signs that other stakeholders are prepared to challenge such a regulation. Following President Biden’s executive order in 2021, the U.S. Chamber of Commerce submitted a letter to the FTC arguing that the FTC lacks the authority to pass such a regulation and advocating for the FTC to “combat potentially anticompetitive non-compete clauses through traditional tools” such as litigation on a case-by-case basis.[4] In the event the FTC adopts a regulation that restricts or eliminates the use of non-compete agreements for certain workers or industries, the Chamber’s letter likely foreshadows the legal arguments that stakeholders will raise in litigation related to the regulation.

Although such challenges are likely, they will take time to work their way through the courts. Employers who require employees to agree to a noncompete clause as a term of employment should therefore pay close attention to further developments in the FTC’s rulemaking process in 2023.

The EEOC is gearing up to file more discrimination lawsuits against employers.

The U.S. Equal Employment Opportunity Commission (EEOC) appears to be gearing up for an increase in discrimination lawsuits, signaling that more employers may be facing discrimination charges in 2023. Earlier this year, the EEOC reported that one of its “key fiscal [year] 2021 performance metrics” included “rebuilding the litigation program, including by filing more lawsuits.”[5]  We have already witnessed a major increase in the number of discrimination filings at the state level and the EEOC.

One of the main targets of these enforcement efforts at the end of the EEOC’s most recent fiscal year was staffing agencies, and it is likely this trend will continue with employers turning to staffing agencies to fill labor shortages.[6] Employers that utilize staffing agencies can still be held liable for discrimination claims as “joint employers” with the staffing agencies under certain circumstances. As a result, it is critical for employers to carefully review staffing agency contracts to ensure compliance with all relevant laws and regulations.

Artificial intelligence (AI) and other software tools also appear to be on the agenda for the EEOC’s 2023 enforcement efforts.[7] Earlier in 2022, the EEOC and the U.S. Department of Justice each warned employers about the potential for disability discrimination through the use of AI and other software tools to help make decisions about hiring new candidates, pay, promotions, or performance evaluations.[8] The EEOC also released technical guidance to help employers navigate the use of AI without discriminating against people with disabilities in violation of the Americans with Disabilities Act (ADA).[9]

The Department of Labor is poised to raise the salary threshold for exempt employees under the FLSA.

The Department of Labor (DOL) is expected to release a proposed new rule – which has been under consideration since at least Spring 2022[10] – to raise the salary threshold for the exemption of executive, administrative, and professional employees from minimum wage and overtime requirements under the Fair Labor Standards Act (FLSA). The DOL missed its target of releasing the proposed rule in October 2022, but the DOL has confirmed that the Wage and Hour Division is still developing a proposal to update the FLSA overtime regulations.[11] As a result, the DOL is expected to now release the proposal in 2023.

Under the FLSA, employers are generally required to pay employees overtime at the rate of 1.5 times the employees’ regular rate of pay for hours worked over 40 hours in a work week.[12] Certain employees are exempt from the overtime pay requirement. For employees to qualify for the administrative, executive, and professional exemptions (often referred to collectively as the “white-collar exemptions”), the employees must be paid on a salary basis, be paid at least the designated minimum weekly salary, and perform certain duties.

The current weekly salary threshold is $684 per week, which is $35,568 annualized. Under the anticipated new rule, however, the DOL is projected to increase that threshold. Previously, the Obama administration proposed an increased rate of $913 a week, but that proposal was blocked by a federal court in November 2016.[13] The Trump administration subsequently raised the weekly rate from $455 to the current threshold of $684 per week.

Although less drastic than the Obama administration’s proposal, the Trump administration’s final rule extended overtime pay eligibility to an estimated 1.3 million workers.[14] In comparison, the Obama administration’s proposed rule would have made an estimated 4.2 million employees eligible for overtime pay.[15] DOL officials under the Biden administration have made it known that they do not believe the current salary threshold is high enough. As a result, the DOL’s new proposal is anticipated to include a salary threshold closer to that previously proposed by the Obama administration.

Regardless of the exact rate, any change to the salary threshold stands to significantly impact budgets and compensation arrangements for employers. Moreover, changes in overtime eligibility requirements expose employers to a host of potential legal challenges related to compliance, which could trigger an investigation by the Wage and Hour Division. It is therefore critical for employers with exempt employees to pay careful attention to the DOL’s anticipated proposal in 2023.

Unionization momentum may slow in 2023.

Unionization efforts gained a great deal of attention – and momentum – in 2022. These efforts are anticipated to slow, however, as the realities of the collective bargaining process run up against a potential economic downturn moving. Although reports show that unions have the greatest amount of public support since 1965,[16] the Bureau of Labor Statistics reported that union membership fell from 10.8 percent in 2020 to 10.3 percent in 2021.[17] Moving in to 2023, there are a number of factors that are likely to shift the balance of power towards employers in further unionization efforts and collective bargaining negotiations.

Those unions that experienced successful elections in 2021 and 2022 are now engaged in the long process of negotiating and ratifying collective bargaining agreements.[18] There is a great deal of pressure on union negotiators to deliver significant wage increases – among other benefits – for new bargaining units entering into their first contracts.[19] However, the most active unions in organizing had to decrease spending on representational activities between 2017 and 2021.[20] These and other unions are being forced to spread existing funding and resources to negotiate a greater number of contracts, which has the potential to result in lower gains for workers during the collective bargaining process.

The looming economic downturn is also anticipated to dampen union activity and potential gains from new collective bargaining agreements. Labor shortages that resulted from the COVID-19 pandemic were a key source of momentum for unionization efforts in 2021 and 2022. Those shortages are decreasing with a slowing job market.[21] As a result, employees in existing jobs are likely to have greater concerns about job security that may dissuade them from participating in new unionization efforts. Likewise, reduced labor shortages are likely to give employers additional power in the collective bargaining process, as the tightening labor market reduces employer incentives to quickly reach an agreement with union negotiators. Nonetheless, employers must be careful to stay up to date on changes in state and federal law related to employees’ right to unionize even as unionization efforts are expected to slow in 2023.

ESG is the new norm to attract and retain talent.

The COVID-19 pandemic and continuing social justice movements have re-defined employee expectations of employers related to inclusivity and sustainability not only in the workplace, but in society. These shifting expectations are one of the driving forces behind the rapidly expanding  environmental, social, and governance (ESG) movement.[22]

ESG focuses on three key areas: environmental sustainability, diversity, equity, and inclusion (DEI), and accountability for setting and measuring progress towards sustainability and DEI objectives through organizational governance. While ESG is not limited to employment, it provides a useful starting point for employers to evaluate how their organizations center ESG principles in their daily affairs. In particular, it is important for employers to prioritize objectives related to sustainability and DEI and implement clear metrics to measure organizational progress towards those objectives.

As members of the Millennial and Gen-Z generations continue to represent a greater share of the workforce, these workers’ concerns for environmental and social justice will raise employee expectations of their employers’ commitment to DEI and sustainability. To recruit and retain top talent in 2023, employers will be expected to prioritize transparency and accountability related to ESG objectives.

These five trends are just a sample of what employers can expect to see in 2023. The legal landscape for employers is constantly shifting, which is why it is important for employers to keep up with the latest changes in state and federal law. Brennan, Manna & Diamond’s Labor and Employment group is here to meet your organization’s needs from compliance efforts to litigation matters.

[1] https://www.whitehouse.gov/briefing-room/presidential-actions/2021/07/09/executive-order-on-promoting-competition-in-the-american-economy/.

[2] https://www.ftc.gov/news-events/news/press-releases/2022/05/alvaro-bedoya-sworn-ftc-commissioner.

[3] https://www.wsj.com/articles/ftc-considers-restricting-the-use-of-noncompete-clauses-by-companies-11654747203.

[4] https://s.wsj.net/public/resources/documents/chambercommentsnoncompeteclauses.pdf.

[5] https://www.eeoc.gov/newsroom/eeoc-releases-fiscal-year-2021-performance-report-and-fiscal-year-2023-budget

[6] https://news.bloomberglaw.com/daily-labor-report/staffing-agencies-accused-of-biased-hiring-grab-eeocs-attention.

[7] https://news.bloomberglaw.com/bloomberg-law-analysis/analysis-algorithmic-bias-is-no-longer-under-regulators-radar.

[8] https://www.eeoc.gov/newsroom/us-eeoc-and-us-department-justice-warn-against-disability-discrimination

[9] https://www.eeoc.gov/laws/guidance/americans-disabilities-act-and-use-software-algorithms-and-artificial-intelligence.

[10] https://www.reginfo.gov/public/do/eAgendaViewRule?pubId=202204&RIN=1235-AA39.

[11] https://www.hrdive.com/news/dol-flsa-overtime-rule-delayed/635864/.

[12] https://www.federalregister.gov/documents/2019/09/27/2019-20353/defining-and-delimiting-the-exemptions-for-executive-administrative-professional-outside-sales-and.

[13] https://www.npr.org/sections/thetwo-way/2016/11/22/503081151/federal-judge-blocks-obama-administrations-overtime-pay-rule.

[14] https://www.npr.org/sections/thetwo-way/2016/11/22/503081151/federal-judge-blocks-obama-administrations-overtime-pay-rule.

[15] https://www.federalregister.gov/documents/2019/09/27/2019-20353/defining-and-delimiting-the-exemptions-for-executive-administrative-professional-outside-sales-and.

[16] https://www.washingtonpost.com/business/2022/10/24/unions-amazon-recession-economy/.

[17] https://www.bls.gov/news.release/pdf/union2.pdf.

[18] https://news.bloomberglaw.com/bloomberg-law-analysis/analysis-why-unionization-efforts-may-run-out-of-steam-in-2023.

[19] https://news.bloomberglaw.com/bloomberg-law-analysis/analysis-why-unionization-efforts-may-run-out-of-steam-in-2023.

[20] https://news.bloomberglaw.com/bloomberg-law-analysis/analysis-why-unionization-efforts-may-run-out-of-steam-in-2023.

[21] https://www.washingtonpost.com/business/2022/10/24/unions-amazon-recession-economy/.

[22] https://www.forbes.com/sites/rebeccahenderson/2022/11/09/workforce-engagement-is-falling-here-are-3-ways-an-esg-strategy-can-help-reverse-the-trend/?sh=289f51411df1.

If you have any questions about anything discussed in this Client Alert, or labor & employment, generally, please do not hesitate to contact one of the following members of the Brennan, Manna & Diamond’s Labor & Employment Team:  Adam D. Fuller at (330) 374-6737, or Bryan E. Meek at (330) 253-5586. Contributing author, labor & employment attorney Hayley E. Kick.