OSHA’s Walkaround Reg in Effect. The Occupational Safety and Health Administration’s (OSHA) walkaround rule takes effect today, May 31, 2024. The controversial rule, which allows third parties to access employers’ private property while accompanying an OSHA official during a workplace safety inspection, is the subject of both a legal challenge and a Congressional Review Act resolution.

Senate Republican: Administration’s Labor Policies Put Politics Over People. This week, Senator Bill Cassidy (R-LA) released a report, titled, “How Biden’s Labor Agenda Puts Politics Over People: Weaponizing the Federal Government to Benefit Political Backers at the Expense of American Workers.” The report criticizes many of the administration’s policy prescriptions that should be familiar to readers of the Buzz. It argues that the U.S. Department of Labor’s (DOL) independent contractor regulation deprives workers of opportunity and flexibility, the National Labor Relations Board’s (NLRB) joint-employer rule undermines the franchise business model, and the overtime regulation “will destroy jobs and make it harder for nonprofits to provide services.” Additionally, according to the report, the administration is providing handouts to labor unions; the report cites an August 2023 Board decision, OSHA’s walkaround regulations, and the administration’s project labor agreement and Davis-Bacon Act regulations. Should a new administration occupy the White House in 2025, the report could serve as a potential roadmap for labor policy reversals.

Republican Bill Addresses College Athletes’ Employment Status. Republicans in the U.S. House of Representatives have introduced the Protecting Student Athletes’ Economic Freedom Act, which clarifies that “a student athlete may not be considered an employee of an institution, conference, or association.” The debate concerning whether graduate students and student athletes should be classified as “employees” has been going on for years at the NLRB. Most recently, in February 2024, the Board’s Boston regional office ruled that men’s basketball players at Dartmouth were “employees” under the National Labor Relations Act.

House Republicans Push Back on White House Pension Initiative. The Buzz recently discussed a White House event in which five major pension plans agreed to “encourage their portfolio companies to remain neutral when workers seek to exercise the freedom to join together in a union; and when applicable, enter into neutrality agreements with labor organizations that include voluntary or card-check recognition, reasonable timelines to first contract, and a commitment to non-interference in union organizing.” Well, Republican leaders on the House Committee on Education and the Workforce aren’t too happy with the situation and are exploring whether the funds are violating federal retirement law. Representatives Virginia Foxx (R-NC), chair of the committee, and Bob Good (R-VA) recently sent a letter to Acting Secretary of Labor Julie Su seeking “documents and information relating to the Department of Labor’s (DOL) involvement in efforts to use pension funds to promote labor union interests.” The letter argues that “diverting pension fund assets to promote collective bargaining is contrary to statutory protections for pension funds subject to the Employee Retirement Income Security Act of 1974 (ERISA).”

Foxx Wants Union Transparency. The Buzz has covered recent Republican actions on Capitol Hill to seek more accountability and transparency from labor unions. In keeping with that theme, this week Representative Foxx introduced the “Union Members Right to Know Act” (H.R. 8573). The bill would amend the Labor-Management Reporting and Disclosure Act of 1959 to require labor unions to notify members of their right to be non-members and refrain from funding union activity unrelated to collective bargaining, contract administration, and grievance adjustment. Unions would also be required to notify members of their right to seek “a reasonable accommodation, based on the religious beliefs or practices of the individual, not to pay dues or fees to the labor organization.” Various iterations of this concept have been floated in legislative form over the years but have obviously never been enacted.

The Immigration Act of 1924. One hundred years ago this week, the Immigration Act of 1924 went into effect. By banning all immigration from Asia and establishing restrictive quotas for immigrants from the rest of the world, the xenophobic law represents a dark chapter in the history of U.S. immigration policy. Feeding fears that immigrants would negatively impact the American identity and undercut jobs by providing cheaper labor, the legislation was supported by the likes of both the Ku Klux Klan and the American Federation of Labor. According to the Office of the Historian of the Department of State, “the most basic purpose of the 1924 Immigration Act was to preserve the ideal of U.S. homogeneity.” Though the act was subsequently amended by the Immigration and Nationality Act of 1952 and replaced by the Immigration and Nationality Act of 1965, some of its features remain. For example, the act established the U.S. Border Patrol (originally contained within the DOL), as well as the requirement that potential immigrants first obtain a visa at a U.S. consulate abroad before traveling to the United States.

Quick Hits

• Beginning July 1, 2024, nearly all recruiters and temporary help agencies working with businesses or candidates in Ontario will be required to have a licence, even if the recruiters and temporary help agencies are not located in Ontario.
• THAs and recruiters that apply by June 30, 2024, may continue operating past the July 1, 2024, licence deadline.
• Licences are good for one year after their issuance date.
• Businesses working with recruiters and temporary help agencies also have obligations under this program.
• Changes have been made to aspects of this licence program since it was first introduced.

Other businesses in Ontario that work with recruiters and THAs or have candidates or temporary workers in Ontario also have responsibilities under this program.

The following provides a refresher on our previous article on this subject and an update on some changes to the program.

Definitions

Under Ontario’s Employment Standards Amendment Act (Temporary Help Agencies), 2009, a temporary help agency is “an employer that employs persons for the purpose of assigning them to perform work on a temporary basis for clients of the employer.”

Ontario Regulation 99/23 defines a recruiter as “[a]ny person [which includes a corporation, partnership and individual/sole proprietorship] who, for a fee, finds, or attempts to find, employment in Ontario for prospective employees” or “[a]ny person who, for a fee, finds, or attempts to find, employees for prospective employers in Ontario.” Exceptions to the definition of “recruiter” include certain educational institutions, trade unions, and registered charities. Individual employees who carry out recruitment tasks as part of their job duties for their employer are also not included in the definition of “recruiter”, and thus do not need a licence.

THAs and recruiters that are not located in Ontario also must have a licence.

Quick Refresher on Applying for a Licence

To apply for a licence, recruiters and THAs must:

• complete an application form (which can be done on the Ontario government’s website);
• pay an application fee of $750 CAD; and
• if applicable, provide a form of security via a letter of credit or a surety bond.

THAs and recruiters that have submitted an application by June 30, 2024, may continue operating past the July 1, 2024, licence deadline.

Licensing Terms and Renewals

Licences are good for one year after their date of issuance.

To renew a licence, an entity must complete an application and pay another application fee, and top up the security as needed.

See our previous article on the recruiter and THA licence for more details about the application process and licence generally, including reasons why a licence may be denied, recordkeeping requirements, and penalties for noncompliance.

Doing Business in Ontario or Hiring in Ontario

Businesses operating in Ontario (or those hiring candidates or temporary workers in Ontario) are responsible for ensuring that the recruiters and THAs they retain are compliant with the licensing requirements. Businesses can now see the status of a recruiter or THA on the government’s licensing portal. (Note that agencies and recruiters may continue operating after July 1, 2024, without having a licence, as long as an application was submitted by the deadline.)

What’s New? Changes to the Form of Security Requirements

Initially, the government required all businesses applying for a licence to provide a security in the form of a $25,000 CAD irrevocable letter of credit. That requirement has since changed.

Now, certain recruiters are exempt, while those required to provide a security can do so with a surety bond.

Security-Exempt Recruiters

Recruiters that do not need to provide a security as a part of their application are those that:

• will not act as a recruiter for foreign nationals during the term of the licence, or

• will act as a recruiter for foreign nationals during the term of the licence but only in respect of positions with wages at or above the median hourly wage.

The government defines “foreign national” as an individual who is not a Canadian citizen or a permanent resident, and “median hourly wage” as published on the Government of Canada website at the time of the application (the median hourly wage as of April 2, 2024, is $28.39 per hour in Ontario).

As a result of this change, recruiters will also need to disclose on their application whether they will act as a recruiter for foreign nationals during the term of the licence and, if so, whether the recruitment is only in respect of positions with wages at or above the median hourly wage.

Forms of Security

If a THA or recruiter is required to provide a security to the Director, it can be either an electronic irrevocable letter of credit or a surety bond. In either case, it must be in the amount of $25,000 CAD.

A letter of credit is a promise by a bank to advance a given amount of money to the Director in case of default by the entity. The Ontario government provides a template for the letter of credit. The letter must:

• be issued to the Director of Employment Standards;
• be issued by a legislatively prescribed bank or credit union;
• state that it is being provided for the applicant’s obligations under the Employment Standards Act, 2000 or the Employment Protection for Foreign Nationals Act, 2009;
• be in the amount of $25,000 CAD;
• be irrevocable during its term;
• renew automatically when it expires, unless the bank or credit union states that it will provide a minimum of ninety days’ notice to the Director of the expiry;
• permit partial drawings without any conditions; and
• have no other conditions.

A surety bond is similar, but it generally binds an insurance company rather than a bank. Surety bonds are often easier to access and do not appear on balance sheets. Analogous requirements to the above are applicable for surety bonds, but the government has not yet provided a similar template (though the government has stated that one is forthcoming). The main difference between the requirements is that a legislatively prescribed insurance company must issue the bond, rather than a bank or credit union, as is the case for the letter of credit.

Ogletree Deakins’ Toronto office will continue to monitor developments and will publish updates on the Cross-Border blog as additional information becomes available.

Emily Cohen-Gallant is of counsel in the Toronto office of Ogletree Deakins.

Kshemani Constantinescu is an articling student in the Toronto office of Ogletree Deakins.

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Quick Hits

• Starting July 1, 2024, a new California law, SB 478, will prohibit businesses from adding automatic service charges onto consumer bills.
• Other states and federal agencies may soon restrict, or prohibit, businesses from using automatic service charges.

California Governor Gavin Newsom signed Senate Bill (SB) No. 478 into law in October 2023, and recently, the California Attorney General’s Office released a set of answers to frequently asked questions (FAQs) regarding SB 478. The FAQs confirm SB 478 outlaws the use of service charges often used by hotels and restaurants.

According to the FAQs, SB 478 applies to the sale or lease of most goods and services for a consumer’s personal use, including those provided by hotels and restaurants. The FAQs explain that SB 478 requires businesses to include mandatory fees in advertised prices. This significantly impacts employers in the hospitality industry that have historically added these automatic service fees onto customer bills at the end of the service. Consumers can bring claims against businesses that violate SB 478, which can potentially result in $1,000 per violation penalties and other damages, including attorneys’ fees. The FAQs state, in relevant part:

• “Can a business comply with this law by disclosing additional required fees before a consumer finalizes a transaction? No. The price listed to the consumer must be the full price that the consumer is required to pay.”
• “Can a business comply with this law by advertising a price that is less than what a consumer will actually have to pay, but disclosing that additional fees will be added? No. The price advertised to the consumer must be the full price that the consumer is required to pay.”
• “What about mandatory fees charged by restaurants? If a restaurant charges a mandatory fee, it must be included in the displayed price. Under the law, a restaurant cannot charge an additional surcharge on top of the price listed. Gratuity payments that are not voluntary must be included in the list price.”

Within weeks of Governor Newsom’s signing SB 478 into law, the Federal Trade Commission (FTC) announced a proposed rule similar to SB 478 that would require businesses to include all mandatory fees in the price consumers see. For example, the rule proposes to prohibit hotels from using hidden “resort fees” or “cleaning fees.” Under the rule, restaurants would have to remove service fees or fees added to large parties. The rule would also give the FTC enforcement power to seek monetary penalties against businesses that do not comply with the regulations. The comment period for the FTC’s proposed rule closed in February 2024, but the FTC has not yet issued a final rule. The upcoming November elections will likely impact whether the FTC issues a final rule.

Looking Ahead

Even if the FTC’s proposed rule dies, it is likely other states will follow California’s lead in creating more consumer protective laws. Minnesota recently enacted legislation that bans the use of service charges but permits restaurants and hotels to use mandatory charges if there is clear and conspicuous disclosure of the charge and restaurants/hotels fully distribute any such charges to employees.

SB 478 is a noteworthy new law for many industries operating in California that use mandatory service charges. While we anticipate legal challenges to SB 478 (the California Restaurant Association has already issued statements challenging SB 478, arguing the law does not apply to restaurants), impacted businesses may want to review, and potentially modify, their practices by July 1, 2024.

Ogletree Deakins will continue to monitor developments and will provide updates on the California and Hospitality blogs as additional information becomes available.

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Quick Hits

• The Maine Department of Labor issued proposed rules for the state’s Paid Family and Medical Leave Program, providing employers with initial clarification regarding covered employees, contribution amounts, substitution of private plans, and other facets of the law.
• The public comment period for the proposed rules is open through July 8, 2024.

While the department’s proposed rules answer several critical questions, revisions to the proposal are expected following the public comment period. According to the PFML Benefits Authority (the fifteen-member committee tasked with advising the department on its rulemaking process), the department will issue revised rules this fall, after reviewing and addressing public comments submitted by the July 8 deadline. Further, the department likely will provide a second comment period after issuing revised rules. The PFML Benefits Authority next meets with the department for a public hearing on June 10, 2024. The department has not addressed concerns related to the January 1, 2025, deadline for issuing final rules, which is the same day employer contributions are scheduled to begin.

Covered Employees

The proposed rules emphasize the tremendous breadth of the PFML’s coverage, defining “covered employees” as employees performing services and earning wages in Maine, including full-time, part-time, seasonal, and temporary employees, as well as self-employed individuals electing coverage. While “family” is broadly defined to include individuals with whom a covered employee has a “significant personal bond ... like a family relationship, regardless of biological or legal relationship” (an “affinity relationship”), the proposed rules limit a covered employee to only one such designated affinity relationship per benefit year. Additionally, the proposed rules do not define “child” or otherwise provide an age limit.

For PFML purposes, the proposed rules state that employees are not subject to waiting periods before utilizing PFML and are covered employees if they earned wages in Maine during the first four of the last five completed calendar quarters immediately preceding the first day of their benefit year. While the number of days an employee has worked for an employer will not impact the employee’s eligibility to take leave for a qualified reason, protections upon return to work will only be available to employees who have worked for their employers for at least 120 consecutive calendar days prior to the leave date.

While employers would be permitted to run PFML concurrently with leave provided under the federal Family and Medical Leave Act (FMLA), they would not be permitted to require employees to exhaust paid time off or other company-sponsored benefits prior to utilizing PFML. The proposed rules do not address whether employees utilizing PFML for reasons not covered by federal law or other state law will be entitled to stack these leave periods.

Notice and Undue Hardship

The proposed rules outline the minimum information employees would be required to provide to their employers, emphasizing that employers may not require written notice of the need for PFML. Additionally, the proposed rules list several actions employers would be required to take prior to asserting undue hardship, including providing a written explanation of the undue hardship and attempting in good faith to create a leave schedule that meets the employee’s needs. The department would retain authority to assess the reasonableness of an employer’s undue hardship claim and the proposed rules set forth a nonexhaustive list of factors it may consider, including the impact on the employee and the “nature and extent of attempts” made by the employee and employer to schedule the leave such that it does not cause undue hardship.

Fund Contributions

For the purposes of determining premium liability for calendar year 2025, employer size would be determined by the number of covered employees employed for the employer in Maine on October 1, 2024. This would include full-time, part-time, seasonal, and temporary employees. The proposed rules provide additional guidance related to employers’ quarterly remittance of premium amounts and contribution reports, requesting refunds of premium overpayments, exemption for employers approved for private plan substitutions, and other relevant contribution details.

Private Plans

Employers seeking to substitute “substantially equivalent” private plans would first have to obtain the department’s approval. The proposed rules list criteria that the department would use to determine whether a private fully insured or self-insured plan is substantially equivalent. Notably, while the department will accept applications for substitution plans at any time after January 1, 2025, exemptions will not be effective until April 1, 2026—this means that employers will be responsible for premium payments from January 1, 2025, through April 1, 2026. Approved substitutions would be valid for three-year periods, with the department retaining authority over employers’ ability to cancel or make changes to approved plans. Notably, leave benefits provided pursuant to employer policy would not be eligible for substitution.

Enforcement

The department would be responsible for enforcement, and at present, the PFML does not appear to provide a private right of action. The proposed rules describe the department’s obligation to investigate complaints or reports of suspected fraud and set forth investigatory procedures and consequences for individuals involved in the commission of PFML fraud. Additionally, the proposed rules provide for a penalty (1 percent of an employer’s “total payroll for the quarter”) for employers that fail to timely remit quarterly premiums and contribution reports, and fines for failing to provide notice to employees.

Next Steps

Employers with workforces in Maine may want to consider reviewing and commenting on the proposed rules, particularly to the extent that ambiguities remain. Employers may also want to budget for the additional taxes and research, price out private plans, decide on the public or private option, and revisit leave policies and benefit offerings.

Ogletree Deakins’ Portland (ME) office will continue to monitor developments and will provide updates on the Leaves of Absence and Maine blogs as additional information becomes available.

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Quick Hits

• Many federal courts and litigants over the years have assumed that FLSA settlements require court approval.
• In Gilstrap v. Sushinati LLC, the U.S. District Court for the Southern District of Ohio ruled that it lacked authority to rule on the fairness or propriety of a proposed private settlement agreement resolving the plaintiff’s FLSA claims.
• In so doing, the court noted that neither the Supreme Court of the United States nor the U.S. Court of Appeals for the Sixth Circuit have held that such approval is required.
• The Gilstrap decision is relevant because it deviates from the standard practice of seeking district court approval of settlement agreements resolving claims under the FLSA.

Summary

Megan Gilstrap worked as a server for Sushinati LLC. Gilstrap sued her employer, alleging violations of the FLSA and related Ohio laws, and sought to certify an opt-in collective action class under § 16(b) of the FLSA, 29 U.S.C. § 216(b). The parties consented to conditional certification and resolved the dispute after engaging in early settlement negotiations. Gilstrap subsequently filed an unopposed motion for settlement approval.

The U.S. District Court for the Southern District of Ohio denied Gilstrap’s unopposed motion for settlement approval for four primary reasons. First, the district court held there was nothing in the FLSA’s text supporting the court approval rule. Second, the district court held there was no binding case law requiring court approval because the issue has never been addressed by the Supreme Court of the United States or the U.S. Court of Appeals for the Sixth Circuit.

Third, the district court analyzed case law supporting the court approval rule and determined it was unpersuasive. The district court specifically focused on the U.S. Court of Appeals for the Eleventh Circuit’s decision in Lynn’s Food Stores, Inc. v. United States, which provides the foundational basis for the rule. According to the district court, Lynn’s Food Stores was premised on faulty legal reasoning, and, in the court’s words, “from those humble beginnings a tsunami has followed.”

Finally, the district court observed the FLSA court approval rule conflicts with the Federal Rules of Civil Procedure (FRCP)—specifically, Federal Rule of Civil Procedure 41(a)(1)(A), which permits parties to freely dismiss lawsuits under “any applicable federal statute” without court approval by filing “a stipulation of dismissal signed by all parties.” According to the district court, the FLSA does not displace FRCP 41’s unqualified allowance of parties’ right to stipulated dismissals when all parties agree to the same.

Key Takeaways

Federal courts are increasingly questioning whether court approval is required for private agreements to settle claims asserted under the FLSA. This issue may significantly alter the process for settling claims asserted under the FLSA, but for now, federal courts remain fragmented on whether court approval is required.

Ogletree Deakins’ Wage and Hour Practice Group will continue to monitor developments and will provide updates on the Class Action, State Developments, and Wage and Hour blogs as additional information becomes available.

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Quick Hits

• Maryland’s HB 1388 imposes greater restrictions on Maryland employers entering noncompete and conflict of interest agreements with both health care and veterinary professionals.
• HB 1388 prohibits restrictions for certain employees who are required to be licensed under the Health Occupations Article and certain employees who are licensed as a veterinary practitioner or veterinary technician under Title 2, Subtitle 3 of the Agriculture Article.
• HB 1388 takes effect on June 1, 2025.

HB 1388: Restrictions, Definitions, and Effective Date

Health Occupations Article

Specifically, HB 1388 prohibits restrictions for employees who:

• Are required to be licensed under the Health Occupations Article;
  • Employed in a position that provides direct patient care; and
  • Earn equal to or less than $350,000 in total annual compensation; or
• Are licensed as a veterinary practitioner or veterinary technician under Title 2, Subtitle 3 of the Agriculture Article

Maryland’s Health Occupations Article requires licenses for a wide variety of health care professionals, including:

• audiologists, speech-language pathologists, and music therapists;
• chiropractors;
• dentists;
• dietician-nutritionists;
• massage therapists;
• morticians and funeral directors;
• nurses;
• nursing home administrators;
• occupational therapists;
• optometrists;
• pharmacists;
• physical therapists;
• physicians and physicians’ assistants;
• podiatrists;
• professional counselors and therapists;
• psychologists;
• social workers;
• residential child care program professionals;
• environmental health specialists;
• acupuncturists.

The law also sets new parameters, albeit less restrictive, on covered employees earning more than $350,000 annually. Specifically, the law states than a noncompete or conflict of interest provision agreement must:

• Not exceed one year from the last day of employment;
• Not place any geographic restriction exceeding 10 miles from the primary place of employment; or
• Permit a patient to request and receive notice of the new location where the former employee will be practicing.

For covered health care professionals, HB 1388 takes effect on June 1, 2025.

Agriculture (Veterinary) Article

Similarly, the Agriculture Article defines veterinary professionals as follows:

• “Veterinary practitioner” means a licensed and registered veterinarian engaged in the practice of veterinary medicine. Md. Agriculture Code § 2-301(13)(h)(i)
• “Veterinary technician” means a person who is registered with the Board as a veterinary technician. Md. Agriculture Code § 2-301(13)(h)(ii)

For covered veterinary professionals, HB1388 takes effect earlier, on June 1, 2024.

Next Steps for the Health Care Commission

Lastly, HB 1388 requires that the Maryland Health Care Commission contract with a private consultant to study:

1. The effect of private equity firms on the health care market in the state;
2. The payer mix for physician practices and groups with private equity ownership;
3. The impact of hospital consolidations on physician practices;
4. The acquisition of physician practices; and
5. The impact on the ability of nonprofit hospitals and health systems to maintain access to care, including the ability to hire and retain physicians.

Key Takeaways

With the enactment of this new statute, Maryland health care and veterinary employers may need to consider taking a second look at their noncompete agreements and adjust their usage accordingly.

Ogletree Deakins’ Unfair Competition and Trade Secrets and Healthcare practice groups will continue to monitor developments and will provide updates on the Unfair Competition and Trade Secrets and Healthcare blogs as additional information becomes available.

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Quick Hits

• The FTC’s final rule prohibiting most non-compete agreements involving “workers” applies to terms and conditions of employment that “prohibit[] a worker from, penalize[] a worker for, or function[] to prevent a worker” from seeking or accepting work in the United States or from operating a business.
• The exceptions to the rule pertain to existing agreements with senior executives, sale-of-business non-competes, and causes of action that accrue before the rule’s effective date of September 4, 2024.
• The rule also contains notice requirements that employers must send to their employees who have non-competes, advising the employees that the non-competes are no longer enforceable.

The rule is being challenged in two lawsuits seeking, among other things, a temporary stay of the rule’s effective date. In one case, in the U.S. District Court for the Northern District of Texas, the court has indicated it will rule on whether to issue a stay by July 3, 2024.

If a stay is not issued by August 1, 2024, employers should begin planning for the rule to take effect by September 4, 2024 (120 days from the rule’s May 7 publication date in the Federal Register).

What Does the FTC Rule Do?

The FTC rule purports to ban all non-competes for nearly all employees of for-profit employers. The FTC rule purports to preempt all state laws addressing non-competes. According to the FTC, a “non-compete” is “a term or condition of employment that prevents the worker from, penalizes a worker for, or functions to prevent a worker from” seeking or accepting work in the United States, or operating a business in the United States. A “worker” is anyone from the CEO of a company to its mail room employees, and the term includes independent contractors. Also, it appears that the FTC does not view “garden leave” provisions or other provisions that continue employment as non-competes because those employments are not post-employment restrictions.

“Non-compete” redefined. Clearly, the FTC broadened the traditional definition of “non-compete” by using the phrase “term or condition of employment,” which is expanded from the phrase “contractual term” in the proposed version of the rule. The “penalizes” and “functions to prevent” language also seems designed to expand the traditional non-compete definition. In the previous iteration of the proposed rule, as examples of provisions that may function as non-competes, the FTC identified: (1) a nondisclosure provision that is “written so broadly that it effectively precludes the worker” from working in the same position for a new employer and (2) a provision that requires a worker to repay training costs where the repayment is not “reasonably related to the costs” of the training. The FTC’s expansive definition of “non-compete” in the final rule indicates that its examples under the proposed rule remain relevant.

Non-solicits are probably “non-competes.” Given the examples from the proposed rule, the FTC’s expanded definition of non-competes likely extends to clauses that restrain the solicitation of customers if those provisions are broad enough to be construed as functioning to prevent “a worker from seeking or accepting” employment. Since non-solicits do not, textually, prohibit a worker from seeking competitive employment, this will be an area of intense litigation.

Largely retroactive effect. The FTC rule will be retroactive—invalidating non-competes that existed prior to the rule, except for existing agreements with senior executives (see below) and causes of action that accrue before the effective date of the rule. The FTC claims that it is an act of unfair competition to “enforce or attempt to enforce a non-compete clause.” Accordingly, existing non-competes, other than those with senior executives and those for which a cause of action accrues before the rule’s effective date, will be retroactively invalidated by the rule.

Senior executive exception for existing agreements. Agreements with senior executives that preexist the rule’s effective date remain in place. “Senior executives” are defined as employees in policymaking positions who have annualized compensation of over $151,164. It appears that the FTC’s definition of “policymaking authority” will be very narrow, requiring “final” policymaking authority over more than just a segment of a business. New agreements with senior executives will be prohibited after the effective date of the rule.

What Does It Mean to “Function to Prevent a Worker From Seeking or Accepting Employment”?

It is unclear whether the FTC intends this phrase to apply objectively (does the provision actually “function to prevent” the worker from seeking or accepting employment) or subjectively (based on the worker’s belief that the provision prevents her from seeking or accepting employment). The potential ambiguity here is significant and problematic. For example, even a narrowly drafted nondisclosure provision may cause an employee to reject competitive employment. And certainly, a well-drafted customer nonsolicitation provision could cause an employee to reject competitive employment. But both provisions would clearly objectively permit competitive employment.

Given its expansive approach to the definition of a non-compete, it seems most likely that the FTC will take the view that the employee’s subjective belief about what a provision prevents is part of the definition. But even if not, there is no question that certain provisions, even if applied narrowly, would prevent an employee from calling on the same relationships for a competitor that she served during her employment. These situations will likely produce litigation with the FTC as employers resist its broad definition of “non-compete.”

What About Forfeiture Provisions and Clawbacks Based on Non-Competes?

The FTC’s rule preempts previously well-settled authority holding that where an employee has a choice between competing and retaining a deferred benefit (whether money or equity), the provision in question does not prevent the employee from competing. The FTC is very likely to view these forfeiture and clawback arrangements as non-competes, since leaving money on the table “penalizes” an employee for seeking or accepting work. Where these forfeiture and/or clawback provisions are part of an Employee Retirement Income Security Act (ERISA) plan, the question becomes more interesting, since the FTC does not claim its rule preempts ERISA.

How Does the Rule Affect Trade Secret Protection?

Technically, it does not. State and federal trade secret laws remain in place and employers will retain the same rights to protect trade secrets under those laws. Practically, however, the rule may have a devastating effect on trade secret protection for a couple of reasons: (1) non-competes and similar provisions are a critical part of ensuring employees do not use trade secret information to compete unfairly—it is often hard to catch someone who has stolen trade secrets, but the enforcement of a non-compete prevents this; (2) invalidating nondisclosure provisions will likely eliminate a contractual protection for trade secret information, and for confidential information that may not rise to the level of a trade secret.

Does the FTC Possess the Power to Ban Non-Competes?

The FTC has concluded that non-competes are an “unfair method of competition.” By articulating this characterization of all non-competes, it purports to expand its own jurisdiction significantly. Because non-compete clauses are contracts, they have traditionally been governed by state—not federal—law. Consequently, different states have taken different approaches to the issue, from generally prohibiting their use (e.g., California, Minnesota, Oklahoma, etc.)—to restricting unique issues like prohibitions on non-competes with “low wage” workers (e.g., Colorado, the District of Columbia, Illinois, Washington, etc.)—to generally permitting such agreements (e.g., Florida, Missouri, Ohio, and Texas). Federal regulation by the FTC of non-compete clauses is therefore unprecedented and its “rule” purports to preempt all state laws governing non-competes.

If the federal courts permit the FTC to regulate any activity it declares to be an “unfair method of competition,” this would constitute a significant expansion of the FTC’s power. Although the Constitution grants the Congress the authority to regulate matters that affect interstate commerce, it does not grant such authority to the executive branch, of which the FTC is a part. Whether the FTC has the power to decide a “major question” that arguably is within congressional authority, rather than executive branch authority, is a question that will not be resolved quickly. That said, as noted above, there are pending requests seeking a stay of the effective date of the rule that could result in a stay until the issue reaches the Supreme Court.

What Should Employers Do Now?

Employers have several options to consider:

Do nothing. Wait and see what happens. As noted, worst case, the rule’s effective date is September 4, 2024. It is likely that the legal challenges to the rule will result in a stay of its effective date, meaning that it may be years before the rule is effective, if ever. New FTC Commissioners Holyoak and Ferguson discussed several of these issues during the Open Commission Meeting held on April 23, 2024. But even under this option, employers should narrowly tailor non-competes, nonsolicits, and/or nondisclosure covenants. If the FTC / federal efforts fail, many states are still heading in the direction of limiting the use of restrictive covenants.

Embrace the potential future. Prepare as though the rule will become effective on September 4, 2024, by rewriting template contracts to remove non-competes. Employers can retain nondisclosure and customer non-solicit provisions, but should narrow them as much as practicable. Employers should do the same with other provisions that are at risk of functioning to prevent workers from seeking new employment.

Occupy a middle ground. Retain non-competes for high-level executives and other significantly compensated employees, counting on the courts to force a modification of the FTC rule that does not treat all “workers” the same.

Obviously, there are risks and benefits associated with each of these approaches, and each employer will decide what best suits its legitimate business interests moving forward.

Ogletree Deakins’ Unfair Competition and Trade Secrets Practice Group will continue to monitor developments and will provide updates on the Unfair Competition and Trade Secrets blog as additional information becomes available.

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Quick Hits

• A new legal challenge by more than a dozen business groups seeks to overturn and enjoin the enforcement of the DOL’s new rule raising the earnings thresholds for the FLSA’s white-collar overtime exemptions.
• As in a 2016 challenge to a prior attempt by the DOL to raise the thresholds, some of the same plaintiffs are again challenging the DOL’s authority making some of the same arguments in the same U.S. district court.
• The new lawsuit alleges that the DOL acted arbitrarily and capriciously in setting the new thresholds, ignoring concerns from the business community.
• The lawsuit seeks expedited consideration to stop the first threshold increase, which is set to take effect on July 1, 2024.

The lawsuit, Plano Chamber of Commerce v. U.S. Department of Labor, was filed in the U.S. District Court for the Eastern District of Texas and alleges that the DOL “acted arbitrarily, capriciously, and otherwise not in accordance with the law” in issuing the new rule, which was released on April 23, 2024.

The lawsuit, filed by groups representing a range of industries, is the first legal challenge to the DOL’s new rule raising the earnings thresholds for the executive, administrative, or professional (EAP) and highly-compensated employee (HCE) exemptions to the FLSA’s overtime requirements by as much as 50 and 40 percent respectively.

“[T]he Department has failed to adequately justify the dramatic change in policy embodied in the Rule, failed to take into account the strong reliance interests of the regulated community, and failed to meaningfully consider reasonable alternatives, all in violation of the Administrative Procedure Act,” the suit alleges.

The lawsuit seeks to overturn the DOL’s rule and have the court issue an injunction to block its enforcement. Under the rule, initial threshold increases are set to take effect on July 1, 2024, with the full increase on January 1, 2025.

2024 DOL Rule

The DOL’s final rule will raise the minimum weekly salary for the FLSA’s EAP exemption to $844 per week, equivalent to $43,888 per year, on July 1, 2024, and then increase again to $1,128 per week, the equivalent of a $58,656 annual salary, by January 1, 2025. The threshold is tied to the 35th percentile of salary in the lowest-wage census region (the South).

Also, the rule will raise the annual compensation for the HCE exemption to $132,964 per year on July 1, 2024, and then $151,164, equivalent to the 86th percentile of full-time salaried workers nationally, by January 1, 2025. The rule further requires that the DOL increase the earnings thresholds every three years based on up-to-date wage data.  

According to the lawsuit, the new thresholds, which “far exceed the limits of the statutory authority,” will make more than four million employees who were exempt no longer exempt under the new thresholds.

“Countless employer members of the Plaintiff associations—across many industries, job categories, and geographic areas—will suffer irreparable harm from the loss of their employees’ previously exempt status under the 2024 Rule,” the lawsuit alleges.

The lawsuit also alleges that the DOL violated the Administrative Procedure Act because it “failed to adequately justify the dramatic change in policy embodied in the Rule, failed to take into account the strong reliance interests of the regulated community, and failed to consider reasonable alternatives meaningfully.”

The lawsuit further attacks the automatic triennial increases to the thresholds, alleging “[t]here is no basis to conclude that Congress authorized” the DOL to issue such a rule and that it is unprecedented.

Prior DOL Rule Challenges

The challenge to the DOL’s 2024 rule comes after the U.S. District Court for the Eastern District of Texas in 2017 permanently enjoined a 2016 DOL rule that had sought to raise the overtime exemptions. In that case, which featured some of the same challengers as in the instant lawsuit, the court reasoned that the “significant increase would essentially make an employee’s duties, functions, or tasks irrelevant if the employee’s salary falls below the new minimum salary level.”

“Just as in 2017, the Department’s new salary threshold is so high that it is no longer a plausible proxy for delimiting which jobs fall within the statutory terms ‘executive,’ ‘administrative,’ or ‘professional,’” the new lawsuit argues. “The 2024 Overtime Rule thus contradicts the congressional requirement to exempt such individuals from the minimum wage and overtime requirements of the FLSA.”

The DOL last raised the overtime exemption thresholds overtime rule increase in 2019. Like the 2016 rule, the 2019 rule faced a legal challenge. A federal judge for the U.S. District Court for the Western District of Texas upheld the rule, finding the DOL had authority to raise the overtime exemption earnings threshold. The challenger in that case appealed that ruling to the Fifth Circuit Court of Appeals. On May 22, 2024, the Fifth Circuit denied an unopposed motion to expedite the appeal filed following the issuance of the new rule.

Key Takeaway

Given its implications for the business community, legal challenges to the new DOL rule were expected. These challenges could delay the implementation of the new rule’s threshold increases. The new lawsuit seeks expedited consideration of the case as the initial threshold increase is set to take effect on July 1, 2024.

Ogletree Deakins’ Client Portal’s FLSA White-Collar Exemption Audit Tool can help employers evaluate positions under both the existing standard and the new standard. This tool is available to Advanced and Premium Client Portal subscribers. All Ogletree Deakins clients may access additional information about this rule and state laws around exemptions in the Client Portal under our Exempt and Non-Exempt and Overtime Rules Law Summaries. Clients can sign up for the Client Portal here.

Ogletree Deakins’ Wage and Hour Practice Group will continue to monitor developments and will provide updates on the Wage and Hour blog as additional information becomes available.

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Biden Announces Nominations to NLRB. This week, President Biden announced that he would renominate Lauren McFerran, chair of the National Labor Relations Board (NLRB), for another term. (Her current term expires on December 16, 2024.) He will also nominate Joshua L. Ditelberg, a management attorney, to fill the Republican seat on the Board that has been vacant since December 2022. If McFerran is confirmed, Democrats will remain in the Board majority until at least August 2026, regardless of which presidential candidate prevails in the November elections later this year. It will be interesting to watch the nomination process unfold. Business groups have been critical of President Biden’s refusal to fill the vacant Republican seat, but if the price to pay is Democratic hegemony, the political maneuvering could become complicated.

DOL’s Overtime Rule Challenged. This week, business groups joined together to file a legal challenge to the U.S. Department of Labor’s (DOL) overtime regulations. The complaint, which was filed in the same federal court that invalidated the DOL’s 2016 overtime rule, argues that the latest rule “largely repeats the errors of the 2016 Rule and fails to address the flaws previously identified by this Court.” The complaint argues that the dramatic increase to the salary basis threshold exceeds the agency’s authority because it eviscerates the statutory exemptions to the Fair Labor Standards Act (FLSA) overtime requirements established by the U.S. Congress. Plaintiffs further argue that the automatic escalator provision of the rule violates the Administrative Procedure Act’s (APA) notice-and-comment requirements and that the DOL failed to adequately explain its change of policy. Because the first phase of the salary increase is scheduled to take effect on July 1, 2024, the complaint requests the court to conduct its review expeditiously.

OSHA Walkaround Regulation Update. This week, legislators and business groups took steps to push back on the Occupational Safety and Health Administration’s (OSHA) controversial walkaround regulation.

• Legal Challenge Filed. A coalition of business groups filed a lawsuit challenging the regulation in the U.S. District Court for the Western District of Texas. The complaint alleges that OSHA exceeded its statutory authority in promulgating the rule and violated the APA because the agency did not adequately explain its expansion of existing regulations and failed to consider alternatives. The complaint also alleges that the regulation infringes on property owners’ rights to exclude third parties and is therefore an unconstitutional taking under the Fifth Amendment of the U.S. Constitution.

• Congressional Review Act Resolution. Late last week, Republicans in the U.S. House of Representatives, led by Congresswoman Mary Miller (R-IL), introduced a Congressional Review Act (CRA) resolution to rescind the walkaround rule. The CRA allows Congress —with simple majority votes in each chamber—to rescind agency regulations. However, even if the resolution is approved in both the House and U.S. Senate (which is certainly possible, as some Democrats and Independents have been willing to join Republicans on other CRA resolutions during this Congress), President Biden is likely to veto the measure—like he did with the joint employer resolution. Even in the face of a presidential veto, the resolution is indicative of the growing controversy surrounding the rule.

CRA Clock Is Ticking. Speaking of the CRA, the statute is likely a significant reason why the administration has recently finalized a spate of regulations. This is because the CRA allows a new Congress to review “midnight regulations” that are finalized within sixty days of the adjournment of the prior Congress. Many regulatory wonks are predicting that regulations finalized after this week could fall within sixty days of adjournment of the current 118th Congress, therefore making them vulnerable to potential rescission by a Republican Congress and president in 2025. The administration obviously does want to give the 119th Congress—set to gavel in in January 2025—an opportunity to use the CRA to rescind aspects of President Biden’s regulatory agenda, so it is rushing to finalize rules sooner rather than later. This CRA look-back provision has undoubtedly been a driving force for the DOL’s recent finalization of its independent contractor rule, overtime rule, walkaround rule, and the Federal Trade Commission’s non-compete rule, among other regulations.

OSHA Finalizes Changes to HazComm Standard. On May 20, 2024, OSHA published a final rule updating its Hazard Communication Standard (HCS). The changes are intended to align the HCS—which hasn’t been updated since 2012—with 2017 changes made to the Globally Harmonized System of Classification and Labelling of Chemicals (GHS). The amendments include revised criteria for classification of certain health and physical hazards, revised provisions for labels, amendments related to the contents of safety data sheets, and new provisions relating to trade secrets. The regulation goes into effect on July 19, 2024, though phased-in compliance dates don’t begin until January 2026.

House Subcommittee Examines Union Organizing Tactics. On May 22, 2024, the U.S. House of Representatives Subcommittee on Health, Employment, Labor, and Pensions held a hearing entitled, “Big Labor Lies: Exposing Union Tactics to Undermine Free and Fair Elections.” The hearing focused on smear campaigns to bully employers into acquiescing to union demands, so-called “neutrality agreements” that prevent employers from discussing with employees the pros and cons of unionization, and union “salts”—professional union organizers who secure employment at a nonunion employer with the sole intention of organizing the workforce. Republicans used the hearing to promote legislation such as the Employee Rights Act, the SALT Act, and the Worker’s Choice Act, which would eliminate exclusive representation and allow employees who opt out of union membership to negotiate their own terms and conditions of employment. On the other hand, Democrats took the opportunity to promote the Protecting the Right to Organize (PRO) Act. All of these bills are real legislative longshots, but the hearing demonstrates the significance of the policy issues at stake during an election year.

The Homestead Act of 1862. On May 20, 1862, President Lincoln signed the Homestead Act of 1862 into law. Distribution of federal land to private owners had been a tricky problem, particularly as the United States began to expand. Many Northerners favored the practice of homesteading, in which individual farmers would own and improve their own parcels of land, while Southern slave owners wanted to acquire massive tracts of land to extend slavery to the territories. With the outbreak of the Civil War, the Southerners’ argument became moot and the Homestead Act was enacted. The act provided up to 160 acres of land to adult citizens—including women, formerly enslaved persons, and immigrants who filed an intention to become citizens—who did not fight for the South in the Civil War. Homesteaders could acquire permanent title if they remained on and improved the land for five years, which was no easy task on the American frontier of the mid-1800s. More than 270 million acres of land were distributed through the Homestead Act of 1862, which was eventually repealed by the Federal Land Policy and Management Act of 1976.

Quick Hits

• The Illinois legislature passed SB2979 to clarify that multiple alleged collections or disseminations of an individual’s biometrics constitute only a single violation of the Privacy Act and the individual is limited to only one recovery of statutory damages.
• Once signed, the bill will reverse a holding by the Illinois’s high court that had opened the door to potentially excessive damages awards against employers.
• The bill confirms that BIPA consents may be signed electronically, potentially ending efforts by BIPA class action attorneys to invalidate timely -signed consents merely because they were signed electronically.

On May 16, 2024, the Illinois House of Representatives voted to pass Senate Bill (SB) 2979, a week after the state Senate approved the bill. The General Assembly has thirty days to send the bill to Governor J.B. Pritzker, who has sixty days to sign it. It is anticipated that the bill will be sent quickly and signed immediately. The legislation will become effective when signed.

SB2979 legislatively overrules the Supreme Court of Illinois’s interpretation of what constitutes a violation of Section 15(b)’s “notice and consent” and 15(d)’s “unauthorized disclosure” requirements in Cothron v. White Castle System, Inc., and it would significantly limit recovery under the Privacy Act. Specifically, the law would reverse the court’s interpretation in Cothron that the Privacy Act is violated on each and every unlawful scan or transmission of biometric information.

Per-Scan Damages

SB2979 amends the Privacy Act’s right of action and damages provisions to clarify that when a private entity allegedly collects or disseminates the same biometric identifier or biometric information multiple times in violation of Section 15(b) of the Privacy Act’s notice and consent requirements, the entity has committed only a single violation. For instance, if an employer requires an employee to scan his or her finger to clock in and out each day without first signing a consent, that would constitute a single violation of the act no matter how many times the employee scanned his or her finger.

The amendments further limit an individual to “at most, one recovery” of $1,000 or $5,000 in statutory damages under Section 20. Statutory damages are $1,000 for negligent violations or $5,000 for intentional or reckless violations.

The amendments would be a lifeline for employers, as per-scan damages of $1,000 or $5,000 per scan can quickly accrue, often for mere technical violations, and lead to excessive or potentially catastrophic damages awards. The Illinois high court in Cothron recognized the possibility of excessive damages, but it left it to the state’s lawmakers to clarify—which they have done with SB2979.

Electronic Signatures

SB2979 explicitly recognizes that written consents may be signed electronically. The bill defines the term “electronic signature” as “an electronic sound, symbol, or process attached to or logically associated with a record and executed or adopted by a person with the intent to sign the record.”

The amendments appear intended to end attempts by BIPA class action attorneys to invalidate timely signed consents simply because they were signed electronically. It may also simplify compliance as electronically signed consents are easier to track, store, and audit. By contrast, paper consent forms may be inadvertently discarded or misplaced, leaving an employer with no evidence of its prior timely compliance.

Retroactive? Or Is This What the Legislature Always Meant?

The legislation will become effective upon signing by the governor, and it does not contain any specific language on retroactivity. However, the amendments are a direct response to the Cothron majority opinion’s call to the Illinois General Assembly to “make clear its intent regarding the assessment of damages,” should it disagree with the Supreme Court of Illinois’s construction of BIPA. If enacted, the prohibition on per-scan damages should apply to pending Privacy Act claims, because the amendments are evidence of legislative intent that a court should consider when construing a statute the state supreme court previously held was unclear.

Ogletree Deakins will continue to monitor developments and will provide updates on the Class Action, Cybersecurity and Privacy, Illinois, and Technology blogs as more information becomes available.

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A recent flurry of cases interpreting the “transportation worker exemption” expands the scope of the exemption and therefore increases the number of workers to whom the FAA does not apply. As a result, employers that have arbitration agreements with workers who may be considered within the scope of the exemption may want to update their agreements.

Quick Hits

• Recent case law expands the types of workers exempt from the FAA.
• Even if the FAA does not apply, an arbitration agreement may be enforceable under state law, but only if the agreement is worded properly.
• Employers may want to update their arbitration agreement if it will be used with workers who might be considered transportation workers.

The Latest Rulings and an Emerging Trend

Recent court rulings expand the scope of workers who may be considered transportation workers. On April 12, 2024, the Supreme Court of the United States held the exemption is not limited to workers in the transportation industry; rather, according to the Supreme Court, when determining whether a worker fits the transportation worker exemption, the proper focus is on the worker’s job duties.

Shortly thereafter, on April 22, 2024, the Supreme Court denied a request to review another transportation worker case. In Domino’s Pizza LLC v. Carmona, the Ninth Circuit Court of Appeals ruled drivers who deliver ingredients to California restaurant locations from a supply chain center also in California are transportation workers and therefore exempt from the FAA. The Supreme Court’s decision not to consider the case leaves in place the Ninth Circuit’s ruling.

In March 2024, the Ninth Circuit issued another ruling effectively expanding the scope of the transportation worker exemption, finding warehouse workers who move goods only through a warehouse are nonetheless sufficiently engaged in interstate commerce to fit the exemption. The appellate court reasoned that while such workers move goods only a relatively short distance within a single state and indeed within a single warehouse, they do so with “the direct purpose of facilitating their continued travel through an interstate supply chain.” The deadline for the employer to file its request for the Supreme Court to review the case is June 10, 2024, and to date, the employer has not done so.

Updating Arbitration Agreements in Light of the Evolving Case Law

On the one hand, if a court finds an arbitration agreement is unenforceable under the FAA, the employer is not in a materially worse position than if it had never entered the arbitration agreement in the first place. On the other hand, in order to achieve the benefits of arbitration, many employers want to try to have enforceable arbitration agreements with all workers, including any that may be considered transportation workers.

Such employers may want to consider three issues. First, even when the FAA does not apply, arbitration agreements—even those with transportation workers—may be enforceable under state law. However, some arbitration agreements provide that they are governed exclusively by the FAA, without any reference to state law applying if the FAA does not apply. A court may decline to consider the enforcement of an arbitration agreement under state law in such circumstances.

Second, state law varies wildly on the enforceability of arbitration agreements and is changing with increasing frequency. While the FAA generally preempts state anti-arbitration statutes, such state laws become more relevant when the FAA does not apply. Therefore, employers may want to evaluate whether their arbitration agreement can and should have a backup choice-of-law provision, should the FAA be held to not apply.

The third issue for consideration involves the use of arbitration agreements with independent contractors. The Ninth Circuit recently held that the FAA’s transportation worker exemption does not apply to entities but rather only to individuals. Companies that retain as contractors individuals who may be considered transportation workers may want to evaluate whether they should insist on such individuals forming an entity and then contracting with the entity rather than the individual. In addition to possibly rendering the transportation worker exemption inapplicable, contracting with an entity would buttress the likelihood of the contractor classification being upheld.

Next Steps

It is likely that plaintiffs’ lawyers will continue to test the boundaries of the FAA’s transportation worker exemption to attempt to avoid enforcement of agreements their clients signed. It is unclear when the Supreme Court will have another opportunity to clarify the types of workers and the types of job duties that would fit the exemption. In the meantime, given the flurry of activity around the FAA’s transportation worker exemption, employers may want to reassess their arbitration agreements, particularly with any worker who might arguably be considered a transportation worker.

Ogletree Deakins’ Arbitration and Alternative Dispute Resolution Practice Group will continue to monitor developments and will provide updates on the Arbitration and Alternative Dispute Resolution blog.

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Quick Hits

• The DOL is enforcing child labor laws through two key mechanisms: (1) preventing employers from shipping or profiting from “hot goods” and (2) assessing aggregate civil money penalties.
• An August 2023 DOL field assistance bulletin advises field agents on identifying violations of “oppressive child labor” and applying the “hot goods” provision—on top of assessing civil penalties.
• In November 2023, the DOL announced it would no longer be assessing civil money penalties on a per-employee basis but rather on a per-violation basis.

The DOL launched the National Strategic Enforcement Initiative on Child Labor in February 2023 in part to look for more creative ways to turn up the heat and increase the penalties on employers that violate child labor laws. Investigators are accomplishing this goal through two key mechanisms: (1) preventing employers from shipping or profiting from “hot goods” and (2) assessing aggregate civil money penalties.

Hot Goods

In August 2023, the agency circulated a field assistance bulletin advising its field agents on identifying violations of “oppressive child labor” and applying the “hot goods” provision—on top of assessing civil penalties. The “hot goods” provision allows the DOL to seek an injunction to prevent employers, as well as others that may ship the goods, from shipping any goods produced in an establishment where child labor violations occurred within the past thirty days. The DOL may file for injunctive relief in federal court and seek its costs for the action. Beyond that, when the goods have already shipped, the DOL can seek an order for disgorgement of related profits.

In March 2024, the DOL did precisely that when it successfully obtained a federal consent judgment against a manufacturer of outdoor power equipment components, requiring disgorgement of thirty days’ profit ($1,500,000) for shipping hot goods. The disgorgement amounted to more than five times the amount of the civil penalties assessed.

Days later, on March 30, 2024, the DOL filed for injunctive relief to utilize the “hot goods” provision against a poultry processing facility and its affiliates to stop the employers from placing the goods into the stream of commerce and/or retaining profits from such “hot goods” already shipped. The court granted the injunction on April 1, 2024. On April 30, 2024, the DOL and employers reached a federal consent judgment, including $171,191 in civil penalties and $1,000,000 in disgorgement.

Given these recent enforcement actions, employers that are found to have violated child labor laws may want to prepare for investigators requesting they agree not to ship any alleged “hot goods” and to disgorge themselves of the profits for goods that have already shipped. In lieu of voluntary compliance, the DOL has already shown its willingness to seek and obtain that relief.

Aggregate Penalties

Previously, the DOL assessed civil money penalties (CMP) for child labor violations on a per-employee basis, meaning that if DOL determined two minors performed prohibited hazardous work on five occasions, the DOL would assess two penalties, one for each employee. In November 2023, the DOL announced it would no longer be assessing CMPs on a per-employee basis but rather on a per-violation basis. This means if the same violations discussed above occurred in the summer of 2024, they would result in up to ten separate penalties being assessed instead of two. The DOL has specifically stated that it will apply this same aggregate method for recordkeeping violations where an employer fails to maintain records of dates of birth for any employee under nineteen years of age. Beyond those measures, it has recently been reported that federal lawmakers are considering increased penalties for wage and hour violations, including child labor.

Preventive Measures

In light of the DOL’s increased scrutiny on child labor, and the higher costs now associated with violations, employers employing minors or preparing to hire minors for summer jobs may want to consider the following:

• reviewing the maximum hours and time-of-day restrictions applicable to minors fourteen and fifteen years of age;
• ensuring that the jobs or tasks to be assigned to minors do not fall into one of the “hazardous” occupations or tasks (additional restrictions apply to minors fourteen and fifteen years of age);
• confirming they are keeping accurate records of minor employees’ dates of birth in accordance with federal regulations;
• checking related state requirements in states where they have employees to determine whether there are additional maximum hour and time-of-day restrictions, recordkeeping requirements, or hazardous occupations that may apply; and
• conducting audits of existing child labor compliance.

The DOL’s Wage and Hour Division has also produced a child labor fact sheet for federal compliance that may be helpful for nonagricultural employers.

Ogletree Deakins will continue to monitor developments and will provide updates on the Employment Law and Wage and Hour blogs as additional information becomes available.

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Quick Hits

• With Governor Jared Polis’s signing into law SB 24-205, Colorado becomes the first U.S. state to enact comprehensive legislation regulating the use and development of AI systems.
• The law addresses, among other things, the risk of algorithmic discrimination “arising from the intended and contracted uses of ... high-risk artificial intelligence system[s].”
• The Colorado AI Act will take effect on February 1, 2026.

Colorado’s AI Act, SB 24-205, is designed to regulate the use of “high-risk” AI systems, imposing compliance obligations on both “developers” (i.e., creators) and “deployers” (i.e., users) of AI systems. Structurally, the law is similar to the European Union’s recently adopted Artificial Intelligence Act. The Colorado AI Act will become part of Colorado’s Consumer Protection Act. While the Colorado AI Act does not appear to authorize private rights of action (providing the Colorado attorney general with exclusive enforcement authority), there is some ambiguity regarding enforcement, as the legislation also provides that a violation of the act will be a deceptive trade practice under Colorado’s Consumer Protection Act—which law does allow for private rights of action.

What Employers Need to Know

Colorado’s AI Act contains different requirements and rules depending on whether an entity is a developer or a deployer. Because the employer community will largely fall into the “deployer” definition, this article highlights aspects of the law that are most pertinent to deployers/employers using AI as part of their people practices.

Colorado Employers Using Certain AI Systems Will Be Subject to the Law

The Colorado AI Act is designed to cover the employment context. Specifically, it is intended to address the use by any persons or entities in Colorado of AI systems in employment decisions and to protect any “consumers,” defined as Colorado residents. The framework provides a narrow exemption for employers with fewer than fifty employees that do not use their own data to train or further improve their AI systems.

Colorado Has Developed Its Own “Algorithmic Discrimination” Definition

The Colorado AI Act defines “algorithmic discrimination” to mean any condition in which the use of an AI system “results in an unlawful differential treatment or impact that disfavors an individual or group of individuals on the basis of their actual or perceived age, color, disability, ethnicity, genetic information, limited proficiency in the English language, national origin, race, religion, reproductive health, sex, veteran status, or other classification protected under the laws of [Colorado] or federal law.”

High-Risk AI Systems Are in the Crosshairs

As AI laws continue to be proposed, developed, and implemented throughout the world, employers are continually facing evolving and different definitions of what qualifies as a covered AI system. Colorado’s AI Act is focused on “high-risk” AI systems, defined as any AI system that “makes, or is a substantial factor in making, a consequential decision.” (Emphasis added.) Importantly, a “consequential decision”—i.e., “a decision that has a material legal or similarly significant effect” on the provision or denial to Colorado residents of a broad array of essential services, opportunities, and entitlements—includes a decision related to “employment or an employment opportunity.” A “substantial factor” means one that (1) “assists in making a consequential decision”; (2) “is capable of altering the outcome of a consequential decision”; and (3) “is generated by an artificial intelligence system.” “‘Substantial factor’ includes any use of an artificial intelligence system to generate any content, decision, prediction, or recommendation concerning a consumer that is used as a basis to make a consequential decision concerning the consumer.” There are also certain enumerated exclusions from the definition of high-risk AI systems. The current definitions leave much room for ambiguity that will hopefully be the source of refinement in future guidance.

Various New Obligations Will Exist for Deployers/Employers

Under the Colorado AI Act, deployers/employers are required to use “reasonable care” to protect consumers from any “known or reasonably foreseeable risks of algorithmic discrimination.” The law creates a rebuttable presumption of reasonable care if certain compliance steps are taken, including:

1. Risk-management policies and programs. Deployers/employers must implement a risk management policy and program meeting certain defined criteria. This risk management policy and program must be an “iterative process” that is regularly and systematically reviewed and updated. Further, the risk management policy and program must be reasonable in consideration of various listed factors, including: risk management frameworks published by the Colorado attorney general or guidance and standards issued by various identified national or international risk management frameworks for AI (such as the “Artificial Intelligence Risk Management Framework” published by the National Institute of Standards and Technology (NIST)); the size and complexity of the deployer/employer; and the nature and scope of the high-risk AI system used by the deployer/employer.

2. Impact assessments. Covered employers must also complete annual impact assessments for high-risk AI systems (or even more frequently if there is an intentional and substantial modification of the system). These impact assessments are similar to the annual bias audits required by New York City’s AI law. Among other things, an impact assessment must include:

• a statement of the purpose, use cases, and benefits of the AI system;
• an analysis of whether there are “known or reasonably foreseeable” risks of algorithmic discrimination, and, if so, the steps taken to mitigate the risks;
• a description of the categories of data processed as inputs and the outputs of the AI system;
• if the system has been customized by the deployer/employer, “an overview of the categories of data ... used to customize” the system;
• “metrics used to evaluate the performance and known limitations” of the AI system;
• a “description of any transparency measures taken concerning” the AI system, “including any measures taken” to notify Colorado consumers of the use of the system; and
• “a description of the post-deployment monitoring and user safeguards provided” relating to the AI system.

3. Notices to consumers. Colorado employers are also required to provide various notices. Among other provisions in Colorado’s AI Act is one requiring consumers to be notified that a deployer/employer has deployed a covered AI system “to make, or be a substantial factor in making, a consequential decision before the decision is made.” (Emphasis added.) Under the law, deployers/employers must also provide consumers with a statement disclosing the purpose of the covered AI system, the nature of the consequential decision, and a description of the covered AI system. Additionally, for a consumer adversely affected by an AI system, further notifications must be provided, such as a statement disclosing the principal reason(s) for the consequential decision; “an opportunity to correct any incorrect personal data” used by the covered AI system; and “an opportunity to appeal an adverse consequential decision ... which appeal must, if technically feasible, allow for human review.” An employer also must post in a “clear and readily available” manner a notice on its website containing various information regarding covered AI systems, such as the types that are currently used, how the employer manages risks of algorithmic discrimination, and “in detail, the nature, source, and extent” of data collected and used by the employer.

4. Notice to attorney general. Additionally, employers must disclose to Colorado’s attorney general the discovery of algorithmic discrimination—within ninety days after the date of the discovery—that the high-risk AI system has caused.

Colorado Has Provided Affirmative Defenses

Interestingly, the law provides for potential affirmative defenses in any enforcement action by the Colorado attorney general if a deployer/employer discovers and cures a violation as a result of (i) feedback, (ii) “adversarial testing or red teaming” (as those terms are defined by NIST), or (iii) an internal review process and the deployer/employer is otherwise in compliance with NIST’s Artificial Intelligence Risk Management Framework or another internationally recognized framework for artificial intelligence management.

What’s Next?

In addition to closely monitoring for guidance on or amendments to the Colorado AI Act, employers may want to consider the following:

• Inventorying AI uses as part of human resources practices and weighing whether any or all of the uses fall within the current definition of covered high-risk AI systems for the purposes of the act.
• Evaluating whether the organization has or should develop AI policies or frameworks to manage AI systems.
• Commissioning a cross-disciplinary team to monitor AI systems used by the organization, as well as relevant legal developments.
• Assessing whether the organization provides notices about AI systems used. The requirement of notices is a growing trend in AI laws and is also a “promising practice” recommended by the U.S. Equal Employment Opportunity Commission (EEOC).

Currently, many states are actively considering similar AI legislation and regulations. Ogletree Deakins’ Technology Practice Group will continue to monitor developments and will provide updates on the Cybersecurity and Privacy, State Developments, and Technology blogs as additional information becomes available.

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DOL Issues AI Principles for Developers and Employers. Pursuant to President Biden’s Executive Order on the Safe, Secure, and Trustworthy Development and Use of Artificial Intelligence, this week the U.S. Department of Labor (DOL) released guidance it refers to as “Artificial Intelligence and Worker Well-being: Principles for Developers and Employers.” The nonbinding principles, which took 199 days to draft, “are not intended to be an exhaustive list but instead a guiding framework for businesses.” The principles are included below verbatim:

• [North Star] Centering Worker Empowerment: Workers and their representatives, especially those from underserved communities, should be informed of and have genuine input in the design, development, testing, training, use, and oversight of AI systems for use in the workplace.
• Ethically Developing AI: AI systems should be designed, developed, and trained in a way that protects workers.
• Establishing AI Governance and Human Oversight: Organizations should have clear governance systems, procedures, human oversight, and evaluation processes for AI systems for use in the workplace.
• Ensuring Transparency in AI Use: Employers should be transparent with workers and job seekers about the AI systems that are being used in the workplace.
• Protecting Labor and Employment Rights: AI systems should not violate or undermine workers’ right to organize, health and safety rights, wage and hour rights, and anti-discrimination and anti-retaliation protections.
• Using AI to Enable Workers: AI systems should assist, complement, and enable workers, and improve job quality.
• Supporting Workers Impacted by AI: Employers should support or upskill workers during job transitions related to AI.
• Ensuring Responsible Use of Worker Data: Workers’ data collected, used, or created by AI systems should be limited in scope and location, used only to support legitimate business aims, and protected and handled responsibly.

It remains to be seen whether one or more of these principles will be the basis for more robust guidance, rulemaking, or legislation in the future.

Senate Committee Advances Bill Prohibiting Arbitration of Age Claims. Late last week, the U.S. Senate Committee on the Judiciary voted to advance the Protecting Older Americans Act of 2023 (S.1979) by a vote of 15–6. The committee held a hearing in April 2024 on the bill, which would prohibit arbitration of age-related discrimination claims. Republican Senator Lindsey Graham (SC)—who is a cosponsor of the bill—voted in favor of the legislation, as did fellow Republicans Josh Hawley (MO), Chuck Grassley (IA), and John Kennedy (LA). With four Republicans already on board, it is quite possible that the bill could pass the Senate.

OSHA Heat Standard Moves Forward. At a recent meeting, the Occupational Safety and Health Administration’s (OSHA) Advisory Committee on Construction Safety and Health “unanimously recommended OSHA move forward expeditiously on the Notice of Proposed Rulemaking” to implement a heat standard for indoor and outdoor settings. As a reminder, John D. Surma and Savannah M. Selvaggio have an analysis of a “regulatory framework” that OSHA released in 2023 that forecasts what might be included in a proposed rule. The most recent regulatory agenda does not set forth a target date for when such a proposal might be issued.

Republican Legislators Seek to Rescind DOL’s Fiduciary Rule. It was a busy week for Senator Bill Cassidy (R-LA), who, in addition to dropping the defined benefit pension plan transparency bill mentioned below, also introduced a Congressional Review Act resolution to rescind the DOL’s fiduciary rule. Republican Senators Ted Budd (NC) and Roger Marshall (KS), as well as Democratic Senator Joe Manchin (WV), are cosponsors of the resolution. Representative Rick Allen (R-GA) introduced the companion resolution in the U.S. House of Representatives. Even if the resolution passes both chambers, President Biden will likely veto the measure. In this Congress, there have been approximately fifty Congressional Review Act resolutions introduced to rescind agency rules.

Republican Lawmakers Want Union Transparency. Federal law allows employers to speak with employees about the pros and cons of unionization, as long as they don’t threaten employees (e.g., “we’ll fire you if you organize”) or make promises (e.g., “we’ll give you all a right if you don’t organize”). Unions, on the other hand, do not have any limitations on what they can say during union organizing drives, but two recent Republican-sponsored bills would require transparency and accountability from unions when trying to organize employees.

• Senator Bill Cassidy, the ranking member of the U.S. Senate Health, Education, Labor, and Pensions (HELP) Committee, introduced the “Making All Fund Information Available Act.” The bill would require union organizers to provide information regarding the financial health of their defined benefit pension plans to employees they represent or are attempting to organize. Previously, Senator Cassidy helped secure the return of $127 million that was incorrectly provided to the Central States Pension Fund pursuant to the American Rescue Plan Act (ARPA).
• Representative Burgess Owens (R-UT) introduced the “Start Applying Labor Transparency (SALT) Act” (H.R. 7784) to require more transparency from union salts, who are professional union organizers who seek employment at a specific employer with the sole intention of organizing the workforce. Currently, employers and their consultants are required to notify the DOL when they enter into agreements to provide assistance during a union organizing campaign, but there is no similar requirement when unions engage professionals for essentially the same purpose. The SALT Act would amend the Labor-Management Reporting and Disclosure Act of 1959 to require unions and their agents to file reports when deploying salts.

When Congress Banned Criticism of the United States. On May 16, 1918, President Woodrow Wilson signed into law the Sedition Act of 1918. Passed as amendments to the Espionage Act of 1917, the law was intended to suppress growing disapproval of the United States’ participation in World War I. The Sedition Act, in part, made it unlawful to “willfully utter, print, write, or publish any disloyal, profane, scurrilous, or abusive language about the form of government of the United States, or the Constitution of the United States, or the military or naval forces of the United States.” With the war ending just six months later in November 1918, prosecutions under the Sedition Act were few. However, Socialist Eugene V. Debs was convicted under the Sedition Act for undermining the country’s wartime draft, and he served almost two years in federal prison until President Warren G. Harding commuted his sentence in 1921. (Also note our blurb on Schenck v. United States, upholding a prosecution under the Espionage Act.) Incredibly, the constitutionality of the Sedition Act was upheld by the Supreme Court of the United States in Abrams v. United States (1919), but the law was repealed in 1920.

Quick Hits

• The Supreme Court held that Section 3 of the FAA requires federal courts to grant stays of lawsuits after claims are sent to arbitration, if a stay is requested.
• The ruling resolves a 6–4 circuit split regarding whether federal district courts must stay lawsuits pending arbitration or whether they have discretion to dismiss them.

The unanimous decision in Smith v. Spizzirri reversed and remanded a ruling by the U.S. Court of Appeals for the Ninth Circuit that had dismissed an employment lawsuit by a group of current and former delivery drivers after the drivers had conceded their claims were subject to arbitration and requested a stay.

Justice Sonia Sotomayor wrote in the Court’s opinion that the plain statutory text of Section 3 of the FAA “requires a court to stay the proceeding,” and that “staying rather than dismissing a suit comports with the supervisory role that the FAA envisions for the courts.”

The case involved the interpretation of Section 3 of the FAA, which provides that after determining that claims are subject to arbitration, courts “shall on application of one of the parties stay the trial of the action until such arbitration has been had in accordance with the terms of the agreement, providing the applicant for the stay is not in default in proceeding with such arbitration.” (Emphasis added.)

The high court rejected arguments that Section 3 means only that a court must stop parallel litigation by dismissing the suit without retaining jurisdiction. The high court found that the word “stay” refers to “the ‘temporary suspension’ of legal proceedings, not the conclusive termination of such proceedings,” and that the surrounding statutory text does not support understanding the word “stay” to mean “dismiss.”

The respondents had further argued that allowing courts to stay litigation after claims are sent to arbitration undermines the FAA’s purpose to enforce the contractual obligations of the parties to arbitrate disputes and avoid parallel litigation. They argued issuing stays rewards parties who ignore their arbitration obligations and filed lawsuits in the courts.

But the Supreme Court disagreed, finding that “the FAA’s structure and purpose confirm that a stay is required.” The high court noted that Congress made decisions to deny arbitration immediately appealable, while decisions to compel arbitration are not, and if courts are able to dismiss lawsuits “even when a party requests a stay, that dismissal triggers the right to an immediate appeal where Congress sought to forbid such an appeal.”

Key Takeaways

The Smith decision resolves a 6–4 split among the federal circuit courts as to whether Section 3 of the FAA gives district courts discretion to dismiss lawsuits after sending claims to arbitration, holding that the FAA requires courts to grant stays if requested.

The holding may affect employers’ strategies in moving to compel arbitration. Specifically, employers that prefer to file motions to vacate, modify, or confirm arbitration awards in federal court, as opposed to state court, may be assured that the same federal courts will continue to have jurisdiction over the cases following arbitration. That outcome is significant in light of the high court’s 2022 holding in Badgerow v. Walters, which narrowed the circumstances under which federal courts have jurisdiction to rule on motions to confirm, modify, or vacate arbitration awards under the FAA.

Ogletree Deakins’ Arbitration and Alternative Dispute Resolution Practice Group will continue to monitor developments and will provide updates on the Arbitration and Alternative Dispute Resolution blog as additional information becomes available.

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Quick Hits

• OSHA may look to the National Fire Protection Association’s new electrical equipment maintenance standard for interpretation of agency standards and requirements.
• The standard, NFPA 70B, requires development of a safety program addressing maintenance, inspections, servicing, and testing of electrical equipment.
• Employers can expect OSHA to begin relying on NFPA 70B as an industry standard.

One industry organization whose standards OSHA frequently adopts is the National Fire Protection Association (NFPA). For example, the recent notice of proposed rulemaking (NPRM) that would revamp the Fire Brigades Standard incorporates by reference several dozen NFPA standards. Like OSHA, states and municipalities also regularly adopt NFPA standards rendering them de facto industry standards. To that end, employers may want to keep abreast of updates to applicable NFPA standards relevant to their industry. One such important standard is NFPA 70B.

“NFPA 70B: Recommended Practice for Electrical Equipment Maintenance” was reissued as “NFPA 70B: Standard for Electrical Equipment Maintenance” in January 2023. What is the impact of the change from recommended practice to standard? NFPA 1 defines a recommended practice as, “A document that is similar in content and structure to a code or standard but that contains only nonmandatory provisions using the word “should” to indicate recommendations in the body of the text.” NFPA 1 continues and states: “An NFPA Standard, the main text of which contains only mandatory provisions using the word “shall” to indicate requirements and that is in a form generally suitable for mandatory reference by another standard or code or for adoption into law. Nonmandatory provisions are not to be considered a part of the requirements of a standard and shall be located in an appendix, annex, footnote, informational note, or other means as permitted in the NFPA Manuals of Style.”

As a result, NFPA 70B is no longer a recommendation and, instead, is now a requirement that could turn into industry standard. How quickly it will be before OSHA routinely issues citations for violations of NFPA 70B is not clear, but the standard alters considerably expectations of owners of covered electrical equipment. While OSHA never incorporated by reference NFPA 70E (Standard for Electrical Safety in the Workplace), it routinely looks to it to interpret its own standards and consistently relies on it as an industry standard. Likewise, OSHA also enforces NFPA standards when equipment manufacturers incorporate those recommendations into their installation, service, and maintenance requirements. Once the manufacturer does this, OSHA typically views the failure to comply with those requirements as a failure to engage in industry standard conduct.

At a high level, the critical elements of NFPA 70B include the following:

• Development of a safety program that includes:
  • A maintenance plan for equipment
  • Identification of personnel responsible for implementing each element of the program
• A plan of inspections, servicing, and suitable tests, including yearly infrared scans
• Electrical equipment maintenance and testing, including:
  • Equipment condition assessments to establish intervals of service and priority of equipment servicing
  • Tracking of maintenance activities and action items
  • Establishing a process to track progress and document results
• Incident investigations
• Incident energy analysis
• Personnel training
• A maintenance, equipment, and personnel documentation and records-retention policy

While many employers are compliant with NFPA 70E and already do many of these activities, there are many that do not follow NFPA 70B and it will only be a matter of time before OSHA begins holding them accountable for compliance with it.

Ogletree Deakins’ Workplace Safety and Health Practice Group will continue to monitor developments and provide updates on the Workplace Safety and Health blog as additional information becomes available.

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Quick Hits

• OFCCP released its first detailed guidance on federal contractors’ use of AI and automated systems.
• The guidance instructs federal contractors to routinely monitor whether AI and automated systems have a disparate or adverse impact on protected groups and take actions to reduce those impacts or use different tools.
• The guidance further clarifies that federal contractors are ultimately responsible for meeting nondiscrimination and affirmative action obligations regardless of whether they use third-party vendors to implement such tools.

On April 29, 2024, OFCCP published new guidance titled “Artificial Intelligence and Equal Employment Opportunity for Federal Contractors,” clarifying federal contractors’ compliance obligations with the use of AI and automated decision-making technologies. Key to the guidance are clarifications that federal contractors must monitor their use of such technology and are responsible for the impact of technology whether or not third-party vendors provide such systems.

While AI and automated systems technologies have the potential to increase efficiency and improve decision-making by federal contractors and other employers, the OFCCP guidance warns that the technologies carry risks of discrimination or bias that could potentially violate laws enforced by the OFCCP.

“AI has the potential to embed bias and discrimination into a range of employment decision-making processes,” the OFCCP guidance states. “As a result, if not designed and implemented properly, automated systems and AI can replicate or deepen inequalities already present in the workplace and may violate workers’ civil rights.”

The publication of the OFCCP’s guidance coincided with the release of similar guidance by the DOL’s Wage and Hour Division (WHD) regarding the application of the Fair Labor Standards Act (FLSA) and other federal labor standards on the use of AI and automated systems in the workplace. Both actions come six months after President Biden issued Executive Order 14110 on October 20, 2023, calling for a “coordinated, Federal Government-wide approach” to the responsible development and implementation of AI.

Level Setting

OFCCP’s AI guidance largely tracks other federal agencies’ definitions of the technologies, including guidance issued by the U.S. Equal Employment Opportunity Commission (EEOC). The guidance defines AI similarly to the National Artificial Intelligence Initiative Act of 2020, defining it 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.” The guidance also uses the EEOC’s definition of “algorithm,”: “a set of instructions that can be followed by a computer to accomplish some end.”

However, the OFCCP guidance further defines “automated systems” as “broadly describ[ing] software and algorithmic processes, including AI, that are used to automate workflows and help people complete tasks or make decisions.” The guidance points to examples of automated systems that sift through resumes and identify qualified applicants or AI that determines “which criteria to use when making employment decisions” such as “to define the parameters by which the resumes are filtered and reviewed.”

Compliance Obligations

The guidance reminds federal contractors that existing compliance obligations apply to the use of AI and automated systems.

• Production and Recordkeeping—The OFCCP guidance clarifies that federal contractors’ production and recordkeeping compliance obligations extend to their use of AI and automated systems. The guidance states that federal contractors must “[m]aintain records and ensure confidentiality of records,” such as keeping records of “resume searches, both from searches of external websites and internal resume databases, that include the substantive search criteria used.” Federal contractors must further “[c]ooperate with OFCCP by providing the necessary, requested information on their AI systems.”

• Reasonable Accommodations—The guidance clarifies that federal contractors’ obligations to provide reasonable accommodations extend to their use of AI and automated systems, including electronic job application systems.  

• Selection Procedures—The guidance clarifies that when federal contractors use AI or automated technology in selection procedures, they must “validate the system using a strategy that meets applicable OFCCP-enforced nondiscrimination laws and the Uniform Guidelines on Employee Selection Procedures (UGESP).” This includes obtaining “results of any assessment of system bias, debiasing efforts, and/or any study of system fairness.” Federal contractors must further: (1) “[c]onduct routine independent assessments for bias and/or inequitable results,” and (2) “[e]xplore potentially less discriminatory alternative selection procedures.”

Third-Party AI Vendors

The guidance clarifies that the OFCCP will hold federal contractors accountable for complying with their nondiscrimination and affirmative action obligations, regardless of whether they use an AI or automated system and regardless of whether such technologies are provided by or used by third-party vendors or contractors. The guidance states that the laws OFCCP enforces “do not impose separate obligations on vendors” and federal contractors cannot “delegate” their nondiscrimination and affirmative action obligations to third-party vendors. Instead, the compliance risks and obligations remain with the contractor utilizing the technology.

These obligations include the requirement to adequately provide “relevant, requested information and answer questions” about the use of AI during compliance reviews or investigations, including information about the design of the screening or selection system and whether alternative approaches were considered or tested. Such requirements may be burdensome for federal contractors as accessing or retrieving such information from their vendors may prove difficult. However, the guidance specifies that “a federal contractor cannot escape liability for the adverse impact of discriminatory screenings conducted by a third party, such as a staffing agency, HR software provider, or vendor.”

The guidance states that when using AI vendors, federal contracts should, among other requirements, be able to verify:

• provisions of vendor contracts requiring maintenance of necessary records consistent with OFCCP regulation requirements and access to applicable records;
• the source and quality of information collected, used as background, or analyzed by AI systems;
• “Whether the vendor documents and maintains the data used in collecting, cleaning, training, and building algorithms and the rationale for why the vendor used the data points”;
• “The vendor’s protections and privacy policy on data provided by the contractor”; and
• “Critical information about the vendor’s algorithmic decision-making employment tool, e.g., captured data, scoring system, and the basis for selection or elimination of applicants/candidates.”

Key Practices for Federal Contractors

The guidance sets forth some “promising practices” when using AI or automated systems to avoid compliance violations, including maintaining human oversight, providing notice, routinely monitoring systems, safely storing data, and ensuring vendor’s AI systems are accurate and effective.

• Human Oversight—The guidance states that federal contractors should “[n]ot rely solely on AI and automated systems to make employment decisions,” and should train staff on the appropriate use of these technologies. This aligns with the WHD’s recommendations, which centered on “responsible human oversight” of AI.

• Notification—The OFCCP guidance states that federal contractors should notify applicants, employees, and their representatives in advance that an AI or automated system is being used in the hiring process or to make employment decisions, and provide detailed information about what data will be collected and entered into an AI system. Federal contractors should further notify applicants, employees, or their representatives that they can correct such data or have it deleted. While OFCCP referenced the ability to request deletion of data, it did not indicate how contractors should prioritize this with competing recordkeeping obligations.

• Routine Monitoring—Key to the whole guidance is the clarification that federal contractors should “[r]outinely monitor and analyze” where AI or automated systems may be causing a disparate or an adverse impact on protected groups, including reproducing patterns of systemic discrimination, both before the tools are implemented and at regular intervals. If using AI or automated systems causes disparate or adverse impacts, then federal contractors should take action to reduce such impacts or use a different tool.

AI Legal Landscape

The OFCCP’s AI guidance is part of a broader effort by the federal government to reign in the use of AI and automated decision-making technologies due to concerns about the risks of discrimination, bias, fraud, and abuse. In April 2024, the DOL signed an updated joint statement with several other federal agencies that was originally released in April 2023.

Further, the Biden administration’s October 2023 executive order (EO) stated that federal agencies should balance the benefits of these emerging new technologies with risks and required the DOL, within 180 days, to “develop and publish principles and best practices for employers” on the responsible use of such technologies.

The EO followed up on the Biden administration’s “Blueprint for an AI Bill of Rights,” which outlined nonbinding recommendations for the design, use, and deployment of AI and automated decision-making systems. In addition to the DOL’s guidance, the EEOC has issued guidance clarifying the potential for AI and automated employment decision-making tools to result in a disparate impact and can create issues for individuals covered by the Americans with Disabilities Act (ADA).

Next Steps

In light of the OFCCP’s guidance and regulators’ focus on AI, federal contractors who are using AI may want to review their current use of AI or automated systems to make hiring or other employment decisions and whether third-party vendors are using such technology. Federal contractors may further want to review their contracts with vendors to ensure they have access to necessary information about the data the technology uses or collects and how the systems are designed to be able to provide such information to federal regulators.

For more information on the OFCCP’s guidance on AI and automated systems, please join us for our upcoming webinar, “OFCCP’s Guidance on AI and Automated Technologies: Insights for Federal Contractors,” which will take place on Wednesday, June 13, 2024, from 2:00 p.m. to 3:00 p.m. (EDT). The speakers, T. Scott Kelly and Lauren B. Hicks, will discuss compliance considerations for federal contractors and provide comprehensive insights into the agency’s guidance, promising practices, and practical examples related to the use of these technologies. Register here.

Ogletree Deakins will continue to monitor developments and will provide updates on the Cybersecurity and Privacy, Employment Law, OFCCP Compliance, Government Contracting, and Reporting, and Technology blogs as more information becomes available.

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Quick Hits

• The New Jersey Supreme Court invalidated an otherwise valid settlement agreement solely because the agreement contained a “non-disparagement provision,” the scope of which the court found “would bar individuals from describing an employer’s discriminatory conduct” in violation of NJLAD.
• The court held that the non-disparagement provision was broad enough to violate the NJLAD and that the defendants had used the provision to silence the plaintiff’s protected conduct.
• The court stated that “[i]n theory, parties can agree not to disparage one another by disclosing information that has nothing to do with ‘details relating to ... claim[s] of discrimination, retaliation, or harassment,” but such provisions must be “narrowly drawn.”

Background

Christine Savage, who had been employed as a police officer by Neptune Township since 1998, brought an action against the township and its police department in 2013 alleging sexual discrimination, harassment, and unlawful retaliation in violation of the NJLAD. The parties settled Savage’s claims in May 2014, but in April 2016, Savage filed a second complaint alleging continuing sex discrimination and harassment, and retaliation. On July 23, 2020, the parties executed a second settlement agreement and general release that included a broadly worded mutual non-disparagement provision barring all parties from making “any statements written or verbal ... regarding the past behavior of the parties, which statements would tend to disparage or impugn the reputation of any party.”

The Appellate Division’s Decision

As we previously reported, in September 2020, the township and police department filed a motion to enforce the settlement agreement from July 2020, arguing that Savage had violated the non-disparagement provision during a television news interview in which she made comments about the township and police department, such as “[Y]ou abused me, you abused me for about 8 years”; “I’m being financially choked out”; and “It has not changed, not for a minute. It’s not gonna change, it’s the good ol’ boy system,” among others. The trial judge granted the motion, but Savage appealed, arguing that the non-disparagement provision, as written, violated Section 12.8 of the NJLAD. Section 12.8 provides that a provision which “has the purpose or effect of concealing the details relating to a claim of discrimination, retaliation, or harassment” under the NJLAD is “against public policy and unenforceable.”

On May 31, 2022, the Appellate Division reversed the trial court, finding that, although the non-disparagement provision was enforceable, the trial judge had erred in finding that Savage violated the terms of the provision during the televised interview. In so holding, the Appellate Division relied on the explicit language of Section 12.8, which mentions only “non-disclosure provisions,” and says nothing about non-disparagement provisions.

The Supreme Court Reverses the Decision

The Supreme Court of New Jersey reversed the Appellate Division’s decision, finding that the non-disparagement provision was broad enough to violate the NJLAD and that the defendants had used the provision to silence Savage’s protected conduct. The court found that the non-disparagement provision “uses expansive language that encompasses speech about claims of discrimination, retaliation, and harassment,” and that “[t]o accuse someone of misconduct is to disparage them.” Thus, the court held that the provision’s broad language necessarily included speech protected by Section 12.8.

Notably, however, the court emphasized that “[i]n theory, parties can agree not to disparage one another by disclosing information that has nothing to do with ‘details relating to . . . claim[s] of discrimination, retaliation, or harassment.’” But the court cautioned that such provisions would need to be “narrowly drawn to ensure that details relating to the claims listed in section 12.8 could be revealed publicly.”

Even so, the court was clear that its decision applies to any provision in an employment or settlement agreement that has the purpose or effect of concealing the details relating to a claim of discrimination, retaliation, or harassment under the NJLAD, regardless of its title.

Ogletree Deakins’ Morristown office and Unfair Competition and Trade Secrets Practice Group will continue to monitor developments and will post updates on the New Jersey and Unfair Competition and Trade Secrets blogs as additional information becomes available.

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Quick Hits

• The Oregon Bureau of Labor and Industries issued a temporary administrative order addressing the fact that some employers will have approved employees take OFLA leave for reasons that, as of July 1, 2024, will no longer qualify for OFLA leave but will qualify for Paid Leave Oregon.
• Employers must notify employees no later than June 1, 2024, that their leave will no longer be protected by OFLA on or after July 1, 2024.

On May 8, 2024, the Oregon Bureau of Labor and Industries issued a temporary administrative order to address the fact that some employers will have approved employees take OFLA leave for reasons that, as of July 1, 2024, will no longer qualify for OFLA leave but that will qualify for Paid Leave Oregon.

Under the temporary administrative order, Oregon employers may rescind a designation or approval of protected leave under OFLA that is scheduled to occur on or after July 1, 2024. However, as soon as practicable, but no later than June 1, 2024, employers must notify such employees, in writing and in the language the employer typically uses to communicate with them, that their leave will no longer protected by OFLA on or after July 1, 2024.

Employers must also provide these employees with information that informs them of their ability to apply for benefits with Paid Leave Oregon or the administrator of the employer’s equivalent plan, including the relevant contact information. An employer must also provide this information in writing to an employee who provides sufficient information to allow the employer to provisionally designate leave under OFLA prior to July 1, 2024. In such cases, the information must be provided “[a]s soon as practicable but within 14 calendar days.”

Ogletree Deakins’ Portland (OR) office will continue to monitor developments and will post updates on the Leaves of Absence and Oregon blogs as additional information becomes available.

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Quick Hits

• With the upcoming Summer Olympics and D-Day celebrations, individuals planning to obtain a visa in Paris should anticipate scheduling delays and plan ahead.
• Increased demand for consular services, combined with agency closures and strained resources, are anticipated to contribute to longer wait times for visa appointments in neighboring countries and across Europe.

The U.S. embassy and consulates in France will be extremely limited in offering any type of routine services in the coming months due to increased travel to France for the eightieth anniversary of D-Day and the 2024 Summer Olympic Games. From June 1 through June 10, 2024, there will be more than one hundred events across Normandy to commemorate the Allied D-Day landings on June 6, 1944. The 2024 Summer Olympics are scheduled from July 26, 2024, through August 11, 2024, and the Paralympics are scheduled from August 28, 2024, through September 8, 2024. The uptick in U.S. citizens traveling to France during this time will create an additional strain on consular resources, as the consular staff must also address the needs of U.S. citizen visitors. Individuals intending to apply for a U.S. visa in France during this time might consider delaying travel or scheduling an appointment at a U.S. embassy or consulate in another country.

With longer wait times across Europe this summer, individuals seeking to obtain a visa anywhere in Europe in the coming months may want to begin the visa application process as soon as possible. When scheduling an appointment at the U.S. consulate or embassy, applicants should book the first available appointment and monitor the website for an earlier appointment, as new appointments are posted regularly. Up-to-date information on wait times at U.S. consulates and embassies can be found on the State Department website.

Key Takeaways

Individuals who are planning to schedule a visa appointment at a U.S. consulate or embassy in Europe this summer may want to plan ahead to avoid delays due to the 2024 Summer Olympics and commemorative events related to the eightieth anniversary of D-Day.

Ogletree Deakins’ Immigration Practice Group will continue to monitor developments and will publish updates on the Immigration blog as additional information becomes available.

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Quick Hits

• June 2, 2024, and October 1, 2024, are mandatory holidays due to federal elections in Mexico and the presidential inauguration day.
• Employees who work on mandatory holidays are entitled to two times their daily wage in addition to their normal salary for that day.
• Employers must respect and grant employees time to exercise their voting rights, in order to comply with the FLL.

Under Article 74 of the Federal Labor Law (FLL), election days as well as the presidential inauguration day are considered national holidays. Therefore, June 2, 2024, and October 1, 2024 (the day of the president’s inauguration), will be mandatory holidays.

On February 10, 2014, the Mexican Constitution was amended to shift the date of the presidential inauguration from December 1 to October 1.

Considerations if Employees Work on June 2, 2024, and October 1, 2024

Employees are not obligated to render their services on mandatory holidays.

Employers can request that employees work on a mandatory holiday. Employees who agree to work are entitled to two times their daily wage, in addition to their normal salary for that day—in other words, triple pay.

Article 132 of the Federal Labor Law protects employees’ voting rights and mandates all employers to allow them to exercise the right to vote. Employees who agree to work on June 2, 2024, must be allowed to take time off to vote or properly arrange their work schedules to allow time to vote.

Employees cannot—and should not—resign in order to exercise their right to vote, as it is a human right and not subject to any agreement between parties.

Ogletree Deakins’ Mexico City office will continue to monitor developments and will provide updates on the Cross-Border blog as additional information becomes available.

Pietro Straulino-Rodríguez is the managing partner of the Mexico City office of Ogletree Deakins.

Natalia Merino Moreno is an associate in the Mexico City office of Ogletree Deakins.

María José Bladinieres is a law clerk in the Mexico City office of Ogletree Deakins.

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Quick Hits

• On May 8, 2024, OAL issued a decision disapproving the previously submitted indoor heat illness standard citing “clarity” and “incorrect procedure,” and stating that it would send a further written decision detailing the reasons for the disapproval.
• The Standards Board immediately issued a new draft regulation that exempted correctional facilities from the regulation, clarified the use of the “heat index” chart, and removed language that allowed for the outdoor heat regulation to apply when an indoor location was not normally occupied or was only occupied for less than fifteen minutes in an hour, and was not contiguous with a normally occupied location.
• The draft regulation also clarifies acclimatization requirements when employees where closing that restricts heat removal.
• This version contains the same prior requirements for training, trigger points of 82°F and 87°F, requirements for administrative and engineering controls, procedures for the provision of water and access to cool-down areas, procedures for acclimatization, and requirements for emergency response procedures.

The Standards Board has issued a new draft regulation that is substantially similar to the previously considered regulation with a few updates. Written comments on the new regulation must be received by 5:00 p.m. on May 30, 2024, at the Occupational Safety and Health Standards Board. The earliest that the Standards Board could consider the regulation would be the June 20, 2024, meeting in Vacaville, however, the regulation is not on any agenda at this time.

Ogletree Deakins’ Workplace Safety and Health Practice Group will continue to monitor developments and will provide updates on the firm’s California and Workplace Safety and Health blogs as additional information becomes available.

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• The EB-1 and EB-2 final action dates remain unchanged for all countries of chargeability. The EB-3 final action date for India retrogressed eight days, while all other countries of chargeability remain unchanged.
• USCIS has confirmed it will accept employment-based adjustment of status applications based on the final action dates chart for the June 2024 Visa Bulletin. Family-based applications may continue to use the dates for filing chart.
• Based on high demand in the EB-2 and EB-3 preference categories, the State Department warned of future retrogression in the worldwide EB-2 and EB-3 final action dates in the July 2024 Visa Bulletin.

The June 2024 Visa Bulletin does not show any advancement in final action dates and dates for filing for all countries of chargeability in the EB-1, EB-2, EB-3, and EB-5 categories. EB-1 remains current for Mexico, the Philippines, and all other chargeability areas. It also remains unchanged for China (September 1, 2022) and India (March 1, 2021) in the EB-1 category.

On March 23, 2024, President Biden signed legislation that extended the Employment-Based Fourth Preference Certain Religious Workers (SR) category until September 30, 2024. The priority date for EB-4 Certain Religious Workers category remains unchanged at November 1, 2020, in the June 2024 Visa Bulletin for all countries of chargeability, including China, India, Mexico, and the Philippines. All SR visas issued prior to September 29, 2024, will be valid only until September 29, 2024.

U.S. Citizenship and Immigration Services (USCIS) has confirmed it will accept employment-based adjustment of status applications based on the final action dates chart for the June 2024 Visa Bulletin. Family-based applications may continue to use the dates for filing chart.

The State Department also warned that high demand in the EB-2 and EB-3 categories “will most likely necessitate a retrogression of the worldwide final action date (including Mexico and Philippines) in the next month to hold number use within the maximum allowed under the Fiscal Year 2024 annual limit.” The State Department will continually monitor the situation and make necessary adjustments accordingly.

The June 2024 Visa Bulletin’s final action dates chart for employment-based categories is shown below.

Source: U.S. Department of State, June 2024 Visa Bulletin

Ogletree Deakins’ Immigration Practice Group will continue to monitor developments with respect to these and other policy changes and will provide updates on the Immigration blog as additional information becomes available.

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A service worker may use sick time for:
1. the service worker’s or spouse’s/child’s illness, injury, or health condition;
2. the medical diagnosis, care or treatment of service worker’s or spouse’s/child’s mental or physical illness, injury, or health condition;
3. preventative medical care for the service worker or the service worker’s spouse or child;
4. the service worker’s mental health wellness day; and
5. for certain circumstances where the service worker or the service worker’s child is a victim of family violence or sexual assault, provided that the service worker is not the alleged perpetrator.

Last Week, Today. Below is a quick rundown of some significant workplace policy developments that the Buzz missed while at Workplace Strategies 2024. (We hope you can join us at next year’s Workplace Strategies seminar in Las Vegas, Nevada.)

Artificial intelligence. As the Buzz forecasted, pursuant to President Biden’s executive order on artificial intelligence (AI), the U.S. Department of Labor (DOL) has issued two guidance documents related to the use of AI in the workplace.

• OFCCP guidance on AI. The Office of Federal Contract Compliance Programs (OFCCP) has issued guidance for federal contractors and subcontractors regarding equal employment opportunity and the use of AI. The guidance warns contractors that “[a] federal contractor is responsible for its use of third-party products and services, such as tools for employment screening and selections, recordkeeping, and automated systems, including AI,” and that when using another entity’s product or service, “[a] federal contractor ... cannot delegate its nondiscrimination and affirmative action obligations.” Further, with regard to AI software, the guidance notes that “OFCCP neither endorses products nor issues compliance certificates.”

• Wage and Hour Division guidance on AI. On April 29, 2024, the DOL’s Wage and Hour Division released a field assistance bulletin (FAB), titled, “Artificial Intelligence and Automated Systems in the Workplace under the Fair Labor Standards Act and Other Federal Labor Standards.” The FAB makes the point that even when AI and other technologies are deployed in the workplace to track hours, calculate wages, and administer leave pursuant to the Family and Medical Leave Act, etc., “[e]mployers are ultimately responsible for ensuring that these systems comply with the law.” Benjamin W. Perry, Danielle Ochs, Keith E. Kopplin, and Zachary V. Zagger have the details.

EEOC harassment guidance. On April 29, 2024, the U.S. Equal Employment Opportunity Commission (EEOC) issued its updated Enforcement Guidance on Harassment in the Workplace. The guidance, which is not binding, has been updated to reflect recent developments in federal law, including the Bostock decision, the enactment of the Pregnant Workers Fairness Act, and changes to workplace culture, such as remote or hybrid work. Tiffany Cox Stacy, Nonnie L. Shivers, and Zachary V. Zagger have the details.

White House pressures pension funds to adopt union neutrality. The White House announced that five major pension funds had “committed to strong labor standards in their private equity investments.” According to the White House announcement, these principles include “guaranteeing the free and fair choice to join a union, freedom of association and the recognition of the rights to collectively bargain, equal opportunity, a safe and healthy workplace, and the elimination of forced and compulsory labor, including child labor.” The announcement continues, “[F]unds will encourage their portfolio companies to remain neutral when workers seek to exercise the freedom to join together in a union; and when applicable, enter into neutrality agreements with labor organizations that include voluntary or card-check recognition, reasonable timelines to first contract, and a commitment to non-interference in union organizing.”

Congressional Democrats Seek to Resurrect OSHA Ergonomics Standard. Late last week, Democratic senators introduced the Warehouse Worker Protection Act (a bipartisan companion bill is expected to be introduced by members of the U.S. House of Representatives). According to a press release issued by the bill’s chief sponsor, Senator Ed Markey (D-MA), the bill “would protect warehouse workers by prohibiting dangerous work speed quotas that lead to high rates of worker injuries and requiring companies to disclose what quotas apply to workers.” The proposed legislation would establish a Fairness and Transparency Office in the Wage and Hour Division, set restrictions on the use of productivity quotas, create a “Quota Task Force” (comprised of unions, “worker advocacy organizations,” and employees, but not employers), and create a new unfair labor practice when an employer implements a “quota that significantly discourages or prevents, or is intended to significantly discourage or prevent, an employee from exercising the rights” to collectively bargain and participate in concerted activity.

Significantly, the bill would also require the Occupational Safety and Health Administration (OSHA) to promulgate a “standard for ergonomic program management.” In late 2000, OSHA issued such a standard, but the U.S. Congress voted to rescind the standard in 2001 using the Congressional Review Act (CRA) for the first time. Pursuant to the CRA, OSHA has since been prohibited from issuing a regulation that is in “substantially the same form.” The WWPA would grant OSHA the authority to overcome this bar and promulgate a new ergonomics standard. John D. Surma and Jeff T. Leslie have the details.

Joint Employer Update. There has been a fair amount of activity of late relating to the National Labor Relations Board’s (NLRB) joint-employer rule, which was finalized on October 26, 2023. Late last week, President Biden vetoed a resolution passed by Congress that sought to rescind the rule, stating that he was “proud to be the most pro-union, pro-worker President in American history.” Republicans in the U.S. House of Representatives attempted to override the veto, but the 214–191 vote fell well short of the necessary two-thirds vote requirement. Of course, it is important to remember that the joint-employer rule is not in effect because it was struck down by the U.S. District Court for the Eastern District of Texas in early March 2024. This week, the NLRB formally appealed that decision to the U.S. Court of Appeals for the Fifth Circuit.

Better Late Than Never. This week in 1992, the 27th Amendment to the U.S. Constitution was ratified. The one-sentence amendment—which is the most recent amendment to the Constitution —reads, “No law, varying the compensation for the services of the Senators and Representatives, shall take effect, until an election of Representatives shall have intervened.” Essentially, the amendment means that Congress can’t give itself a raise during its current session, and any raise has to take effect during a subsequent Congress. As the Buzz wrote previously, the amendment was originally proposed in 1789, and some states (Delaware, Kentucky, Maryland, North Carolina, South Carolina, Vermont, and Virginia) ratified it early on, but the push for ratification soon fizzled. The amendment was largely forgotten until 1982 when a nineteen-year-old student at the University of Texas at Austin wrote a paper for his government class about how the amendment could be ratified and subsequently launched a campaign to encourage its adoption. On May 5, 1992, Alabama became the thirty-eighth state to ratify the amendment and secure its addition to the Constitution. At 202 years, seven months, and ten days, the ratification period for the 27th Amendment is a record.

Quick Hits

• Comprehensive workplace safety legislation proposed in the New York State Senate would require retail employers to assess potential workplace violence hazards and develop and implement comprehensive written workplace violence plans.
• Among other requirements, retail employers with fifty or more employees nationwide would have to install panic buttons to immediately dispatch local law enforcement when pressed.
• The bill, S8358B, has a companion bill pending in the New York State Assembly.

If enacted as proposed, the Retail Worker Safety Act will require New York retail employers to assess potential workplace violence hazards and develop and implement comprehensive written workplace violence plans. While the act would apply only to “retail stores,” the term is broadly defined in the legislation. It would ultimately apply to any “store that sells consumer commodities at retail and which is not primarily engaged in the sale of food consumption on the premises.”

Assembly Bill (A) A8947B is an identical version of S8358B, currently before the Senate. Because both the Senate and Assembly must pass a bill before it is delivered to the governor for signature or veto, the “Same As” bill is an early sign of its potential success. This is a significant indication that lawmakers in each chamber support the bill. As with S8358B, A8947B has also undergone two amendments. A8947B is currently scheduled for its third and final reading before the Assembly on May 13, 2024. Once this is completed, the bill will be eligible for a vote.

The Retail Worker Safety Act is meant to be a comprehensive legislative response to the hazard of violence in the workplace. Employers would be required to prepare written programs identifying workplace specific risk factors and establish methods to prevent violence at their workplaces. S8358B would also require employers to train employees on workplace violence risks, including active shooter drills. The bill also includes a reporting requirement, obligating employers to document each incident of workplace violence in a publicly accessible state database. If an employer were to surpass a (to be determined) number of violent incidents, it would be required to employ a security guard to be present during all open hours. Perhaps one of the legislation’s most significant requirements calls for employers with fifty or more retail workers nationwide to install panic buttons within their establishments. These panic buttons will immediately dispatch local law enforcement when pressed.

With the unfortunate trend of increased workplace violence, employers across the country can expect further legislative initiatives requiring employers to address the issue. As New York is following in the footsteps of California with its own dedicated workplace violence prevention law, employers can expect a domino effect in the near future, with other states enacting similar laws or regulations aimed at preventing workplace violence.

Ogletree Deakins’ Workplace Violence Prevention Practice Group will continue to monitor developments and will provide updates on the New York, Retail, and Workplace Safety and Health blogs as additional information becomes available.

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Quick Hits

• On May 2, 2024, four Democratic senators introduced S.4260, the Warehouse Worker Protection Act (WWPA), which would limit production requirements and prohibit discipline if those expectations are above what is allowed under the act.
• The bill calls for the creation of a Fairness and Transparency Office within the DOL’s Wage and Hour Division regarding implementation of regulations related to the WWPA.
• The WWPA also would create a “Quota Task Force” that would involve labor organizations, worker advocacy organizations, and covered employees.
• The bill follows a little less than a year since OSHA issued an NEP with a focus on the warehousing and distribution center industry, and certain “high injury retail establishments.”

The bill, S.4260—the Warehouse Worker Protection Act—would cover industries that fall into the following North American Industry Classification System (NAICS) codes:

• 493, warehousing and storage
• 423, merchant wholesalers, durable goods
• 424, for merchant wholesalers, nondurable goods
• 454110, for electronic shopping and mail-order houses
• 492110, for couriers and express delivery services

The bill follows a little less than a year since the Occupational Safety and Health Administration (OSHA) issued a national emphasis program (NEP) focusing on the warehousing and distribution center industry and certain “high injury retail establishments.” The NEP, issued on July 13, 2023, included a ninety-day outreach period, to be followed by two years and nine months of enforcement activity (unless renewed the NEP expires at the end of three years). Publicly available statistics about the NEP are nonexistent, ostensibly because enforcement activity under the NEP has not reached the one-year milestone. California, New York, and Washington State have implemented similar legislation.

The bill would compel employers in the specified NAICS codes to provide, within 180 days of an employee’s commencement of employment, the employee written notice of:

• production expectations;
• discipline that could result from failing to meet those expectations;
• the method of determining production expectations;
• whether there are incentives for meeting or exceeding the production expectations;
• how productivity is confirmed; and
• a written description of and training on how to file a complaint under the WWPA.

The bill also would require covered employers to give employees an updated written description of any of the above information two business days before a change in productivity level is implemented.

In order to take disciplinary action against an employee for failing to meet productivity requirements, an employer would have to provide the employee with “a written explanation ... regarding the manner in which the covered employee failed to perform,” including a description of the productivity level and how the employee failed to meet that level in comparison to the productivity requirements. Any disciplinary action not tied to productivity would not necessarily be reduced to a written explanation under the WWPA.

If a covered employee is to be discharged due to a lack of productivity, notice has to be provided, unless the employee engaged in egregious misconduct. The WWPA does not identify how much notice is to be provided or the content of the notice. The WWPA would limit the level of productivity covered employers can require and prohibit employers from taking discipline if those expectations are above what is allowed under the WWPA.

In addition to these limitations on covered employers, the WWPA would also require covered employers to maintain records related to how they determined the appropriate productivity level, to provide covered employees access to those records, and to retain them for a three-year period. Not only would covered employees be allowed access to the records, “designated employee representatives of an individual who was a covered employee” would be able to request them.

Covered employers would have to post—“in plain language and ... in English, Spanish, and any other language that constitutes the primary language of any covered employee”—a new workplace notice that includes the following information:

• “the rights of covered employees”
• “what constitutes a permissible [productivity level]”;
• the right to request a description of productivity level expectations;
• “employee [work] speed data”;
• the right to request data concerning the productivity level; and
• “the right to make a complaint to [f]ederal authorities regarding a violation of a right under [the WWPA].”

All covered employees would be entitled to a fifteen-minute paid break after every four hours of work, paid at their regular rate of pay. Moreover, employers would be required to post notices of this requirement, including language stating that covered employers may not retaliate against covered employees “for requesting or taking such paid rest breaks.”

In addition, the WWPA would also create a “Quota Task Force” that would involve labor organizations, worker advocacy organizations, and covered employees to “develop strategies for labor organizations and worker advocacy organizations to ‘assist in the enforcement of’” the WWPA, train covered employees with respect to the WWPA-granted rights, and provide recommendations to a proposed Fairness and Transparency Office within the U.S. Department of Labor’s Wage and Hour Division regarding implementation of regulations related to the WWPA.

The proposed office would be allowed to engage in investigations of a covered employer’s “facility and all pertinent conditions, structures, machines, apparatus, devices, equipment, and materials therein, and to question privately any such covered employer, owner, operator, agent, or covered employee.” Whether counsel would be permitted to participate in the interviews of the employer, owner, or operator is unclear, but given the addition of “privately” it would not be unreasonable to assume the expectation would be that the right to counsel would be denied. In those inspections, the secretary of labor would be empowered to select representatives of labor organizations or worker advocacy organizations with specific knowledge of the industry to “aid and accompany” investigators in the investigation.

The bill would impose civil penalties for violations of 29 U.S.C. §§ 206 and 207 in amounts equal to $10,000 and $25,000. Violations of 29 U.S.C. § 8 would be subject to civil penalties in amounts not more than $76,987 per violation, or, for repeat or willful violations, in amounts not more than $769,870 per violation. The WWPA would also require the director of the Fairness and Transparency Office and the administrator of the Wage and Hour Division to jointly enter into a memorandum of understanding with the assistant secretary of labor for occupational safety and health “to encourage efficient enforcement of relevant labor laws, including ... cross-training of inspectors and investigators.”

Within a year of the enactment of the WWPA, OSHA would be required to publish a proposed standard requiring that all covered employers:

• have readily available a person “adequately trained to render first aid”; and
• provide all covered employees access to an occupational medical consultation service “through a physician who is board certified in occupational medicine.”

OSHA would also be required to publish a final standard incorporating these two requirements not later than three years after the WWPA’s enactment.

The bill also directs OSHA to publish a proposed ergonomic program management standard not later than three years after the enactment of the WWPA. The proposed standard would include requirements for:

• “hazard identification and ergonomic job evaluations for covered employees”;
• “hazard control at covered facilities, which may rely on the principles of the hierarchy of controls and may include measures such as equipment and workstation redesign, work pace reductions, or job rotation to less forceful or repetitive jobs”;
• “training for covered employees”; and
• “medical management for covered employees.”

The bill sets forth a requirement that OSHA publish a final standard not more than four years after the date of enactment of the WWPA.

OSHA would also be tasked with promulgating an ergonomics program management standard under which employers would be required to include employees or their representatives in identifying hazards and ergonomic job evaluations.

Though OSHA has attempted to implement an ergonomics standard in the past, that effort failed due to the fact that it lacked the requisite congressional authority to do so. This provision would give OSHA that needed authority.

Beyond these impacts on the covered workplace, the bill also proposes to alter the definition of retaliation or adverse employment action. The included definition of “Adverse Employment Action” includes typical things such as termination, a reduction in benefits, disciplinary action, demotion, transfer, imposition of a work schedule more burdensome to the covered employee, reduction of scheduled hours, adjustment in ability for promotion, or other modifications to compensation, terms, conditions, or privileges of employment. In what may be a first-ever proposal, the bill also considers promotion to be an adverse employment action.

Key Takeaways

The WWPA would dramatically alter the work environment in the covered workplaces, give organized labor unprecedented access to those workplaces, and create standards in those workplaces that OSHA has sought to establish for twenty-five years. While there is not yet a companion bill in the U.S. House of Representatives, it is conceivable that the legislation could become law before this fall’s federal, state, and local elections.

Ogletree Deakins’ Workplace Safety and Health Practice Group will continue to monitor developments and provide updates on the Retail, Trucking & Logistics, and Workplace Safety and Health blogs as additional information becomes available.

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Quick Hits

• The U.S. District Court for the Southern District of Indiana granted summary judgment in favor of the City of Indianapolis on the plaintiff’s FMLA interference claim because the plaintiff failed to prove she had not violated city policies and that she would have retained her job had she not taken FMLA leave.
• The court also granted summary judgment in favor of the city on the plaintiff’s FMLA retaliation claim despite the timing of her dismissal that occurred just a few weeks after her request for leave because the city’s investigation into the theft allegations against her predated her request for FMLA leave.
• The court similarly concluded that summary judgment in favor of the city was also appropriate on the Title VII claim alleging race discrimination because the plaintiff failed to establish that her dismissal was motivated by race or that similarly situated White employees were treated more favorably under the city’s policies.

Background

Mary McBeath, an African American woman, worked for the City of Indianapolis in its parks department. Her last role with the city was assistant park manager, which included responsibility for establishing and operating a food pantry at the Windsor Village Park Family Center. Her job duties included picking up donations from local stores and delivering the donations to the Windsor Village food pantry. McBeath admitted to having her husband accompany her to pick up donations in a city-owned vehicle and transporting those donations to her home, where she claimed to store donations due to a lack of storage at the food pantry.

City employees (including McBeath) are subject to the city’s policies and procedures as outlined in its employee manual, which includes a code of ethics and standards of conduct that prohibit certain unacceptable conduct such as theft and prohibit employees from using their public offices for personal gain. The city also has a policy that prohibits employees from transporting nonemployees in city-owned vehicles. Throughout her employment, McBeath had “a few” incidents of discipline for poor performance and attendance, but none of those incidents had warranted termination.

On January 24, 2022, the city received a complaint from a citizen who accused McBeath of stealing food pantry donations; the complaint included a video showing her driving a city-owned vehicle to her home and unloading donations at her residence. The complaint was turned over to the city’s human resources (HR) department, which began an investigation into the complaint. HR engaged the Indianapolis Metropolitan Police Department (IMPD), which conducted its own independent investigation into the alleged theft. On February 20, 2022, the IMPD confirmed the allegations against McBeath that she and her husband were taking donated items to her residence in a city-owned vehicle. Based on the city’s investigation and the investigation of IMPD, HR made the decision to terminate McBeath’s employment.

On February 17, 2022, McBeath submitted a request for FMLA leave to have knee replacement surgery. Her leave request was approved for February 22, 2022, through May 19, 2022. On March 4, 2022, while on FMLA leave, McBeath’s manager scheduled a virtual meeting that included HR and McBeath. McBeath was presented with the allegations of theft against her and told of the investigation and violations of city policy. At the end of the meeting, McBeath’s employment was terminated.

McBeath filed suit and asserted three claims arising from her dismissal: (1) that the city had interfered with her FMLA rights by terminating her employment while she was on leave and not returning her to the position she had held prior to leave; (2) that the termination of her employment was in retaliation for her exercise of FMLA rights; and (3) that her dismissal was motivated by her race and that she had been treated less favorably than similarly situated white employees. The city filed a motion for summary judgment as to all claims, and the court granted judgment in favor of the city as to all counts.

The Court’s Decision

The court addressed each of McBeath’s claims separately and viewed all of the evidence in a light most favorable to her position (noting in the decision that “the facts stated [in the order] are not necessarily objectively true”). The court recounted that the FMLA makes it unlawful for an employer to “interfere with, restrain, or deny the exercise of or attempt to exercise, any right provided under [the] [FMLA].” The court focused on whether McBeath was denied any benefits afforded by the FMLA, particularly whether she was denied the right to take FMLA leave or the right to return from leave to the position she had held prior to going out on leave. As a preliminary matter, the court concluded that McBeath had not been denied the benefit of taking FMLA leave because she had been approved for and was on FMLA leave at the time of her dismissal. Thus, the court’s focus shifted to whether she was denied the right to return to her job following FMLA leave.

Quoting a 2009 opinion from the U.S. Court of Appeals for the Seventh Circuit, the district court wrote, “An employee’s right to return to work after taking leave is not unlimited; he is not entitled to ‘any right, benefit, or position of employment other than any right, benefit, or position to which the employee would have been entitled had the employee not taken leave.’” The court emphasized that an employee is not entitled to any greater benefits or protection than if the employee had remained continuously employed during the FMLA leave period. In other words, if the employee had not taken leave, would her employment have been terminated under the same set of circumstances? The court concluded that the city had put forth substantial evidence showing that McBeath’s employment had been terminated for committing theft in violation of the city’s employee manual—and that she would have been discharged regardless of her request for FMLA leave. Because McBeath failed to put forth any evidence that she had not violated the city’s manual, the court concluded that no reasonable trier of fact could find that she would have retained her job if she had not taken FMLA leave. On this basis, the court determined that the city was entitled to judgment as a matter of law on the FMLA interference claim.

For the FMLA retaliation claim, the court began by noting that retaliation claims can be proven by circumstantial evidence that includes a “convincing mosaic” of evidence that may include “suspicious timing, ambiguous statements from which a retaliatory intent can be drawn, evidence of similar employees being treated differently, or evidence that the employer offered a pretextual reason for the termination.” McBeath argued that the timing of the dismissal was suspicious because it came just a few weeks after she went on FMLA leave.

Instead of focusing on the date the termination decision was communicated to McBeath, the court instead focused on the date the investigation into the allegations of theft against McBeath was initiated. The court noted that the citizen complaint was received on January 24, 2022, and the investigation began a few days later, both of which predated McBeath’s request for FMLA leave on February 17, 2022. The court concluded that, based on the evidence presented by both parties, a reasonable juror could find the city’s proffered reason for discharging McBeath was honest.

Finally, the court granted summary judgment on the Title VII claim for racial discrimination because the court determined that McBeath had not established she was meeting the city’s legitimate job expectations and she failed to demonstrate that similarly situated white employees were treated more favorably. The court found that the evidence supported the city’s position that the termination decision was due to McBeath’s violations of the city’s employee manual, and that she had failed to put forth any evidence that the termination had been motivated by a discriminatory reason, such as her race.

Key Takeaways

The court’s decision affirms that the FMLA will not shield employees from the repercussions of misconduct, and exercising rights afforded by the FMLA does not immunize an employee from the consequences of conduct that warrants disciplinary action or termination of employment. The FMLA does not afford employees any greater protection than they would have had if they had not requested FMLA leave. Employers may be able to defeat an FMLA interference claim based on a termination that occurred during FMLA leave by showing that the employee would have been fired even if he or she had not taken FMLA leave. Similarly, employers may be able to overcome claims of FMLA retaliation based on the timing of the discharge by establishing that the investigatory process that culminated in the termination predated the employee’s exercise of FMLA rights.

Ogletree Deakins’ Leaves of Absence / Reasonable Accommodation Practice Group will continue to monitor developments and will provide updates on the Leaves of Absence blog as additional information becomes available.

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Quick Hits

• The Supreme Court of California concluded that an employer’s objectively reasonable, good faith belief that it has provided employees with adequate wage statements precludes an award of penalties under California Labor Code section 226.
• The ruling means that employers that  reasonably and in good faith believe, albeit mistakenly, that they have complied with the wage statement requirements do not fail to comply knowingly and intentionally.
• The decision may have an impact on the assessment of civil penalties against employers under PAGA.

The unanimous California supreme court decision in Naranjo v. Spectrum Security Services, Inc., resolved the issue over penalties for wage statement violations under section 226(e)(1) of the California Labor Code, which allows employees to recover up to $4,000 in statutory penalties for “knowing and intentional failure by an employer” to furnish accurate wage statements.

The California supreme court affirmed the appellate court, finding that “an employer’s objectively reasonable, good faith belief that it has provided employees with adequate wage statements precludes an award of penalties under section 226.”

“An employer that believes reasonably and in good faith, albeit mistakenly, that it has complied with wage statement requirements does not fail to comply with those requirements knowingly and intentionally,” the decision stated.

Background

The ruling is the latest in a long-running case first filed in 2007 by security guard Gustavo Naranjo against his former employer Spectrum Security Services. The putative class action alleged Spectrum violated California labor law by failing to provide meal breaks and premium pay for days in which a meal period is not provided. The suit further alleged Spectrum failed to timely pay meal period premium pay and report it in employees’ wage statements. Spectrum argued it was exempt from California meal break requirements as a federal contractor, and that it had valid meal period waivers for its employees.

At first, the trial court granted summary judgment for Spectrum. That decision was reversed on appeal.

At the subsequent trial, the trial court granted a directed verdict in plaintiffs’ favor on their meal break claims. With respect to waiting-time penalties, the trial court ruled in Spectrum’s favor, finding that, although it had rejected Spectrum’s defenses to the underlying claims, Spectrum had acted in good faith and its defenses were not unreasonable. With respect to penalties for inaccurate itemized wage statements, however, the trial court found Spectrum liable because its failure to report premium pay for missed meal breaks was “‘knowing and intentional and not inadvertent.’” Both sides appealed.

The appeals court reversed in part, holding that the trial court properly awarded the employees premium wages based on their being required to take on-duty meal breaks; however, the employees’ entitlement to premium wages under Labor Code section 226.7 did not entitle them to waiting time and itemized wage statement penalties.

The California supreme court reversed in part, holding that the appeals court erred in concluding that premium wages were not wages that trigger waiting time and wage statement penalties.

On remand, the appeals court affirmed the trial court’s conclusion that Spectrum’s failure to timely pay meal period premiums was not “willful,” and therefore did not support imposition of penalties under section 203. However, the appeals court held that the trial court erred in finding that Spectrum’s failure to report meal premiums on wage statements was “knowing and intentional.” The appeals court reasoned that section 203’s “willfulness” requirement and section 226’s requirement of a “knowing and intentional” violation to impose penalties are substantially identical such that the same finding of good faith that precluded an award of penalties under section 203 should also preclude an award of penalties under section 226.

Decision

In a straightforward application of statutory language, the California supreme court held that “if an employer reasonably and in good faith believe[s] it [was] providing a complete and accurate wage statement in compliance with the requirements of section 226, then it has not knowingly and intentionally failed to comply with the wage statement law.”

In other words, the good faith defense that is written into the statute does in fact apply to Labor Code section 226, and it is not limited to circumstances involving clerical error or inadvertence. Accordingly, when an employer establishes that it “reasonably and in good faith, albeit mistakenly, believed that it complied with section 226, subdivision (a), [the] employer’s failure to comply with wage statement requirements is not ‘knowing and intentional,’” and the employer is not subject to penalties under section 226. The court also reaffirmed the good faith defense to claims for penalties for late payment of final wages under section 203.

Implications for Employers

While the language of the statute has always stated that penalties may be recovered for “knowing and intentional” violations, there was a split of authority regarding the meaning of that language. Now, the California supreme court has provided a clear interpretation of the statutory language. Employers may avoid liability for penalties under Labor Code section 226 if they can demonstrate an objectively reasonable and good faith belief in the accuracy of their wage statements.

This decision represents a significant victory for California’s employers facing claims for derivative wage-statement violations predicated on other alleged violations of the Labor Code. If an employer has a good faith belief that, for example, meal period premium wages are not owed  to employees based on a reasonable interpretation of then-existing law, they may also escape penalties under Labor Code section 226 for not having listed such disputed wages on wage statements.

Because a good-faith defense based on a misunderstanding of law under section 226 is available only “where the employer’s obligations are genuinely uncertain,” the defense will not be available to companies that do not comply with well-established law. But in cases where the law is unsettled, employers can fairly benefit from that uncertainty as a defense to section 226 penalties.

Potential Impact on PAGA

The California Court of Appeal, Fourth District has previously held that Labor Code section 2699(e)(2), which provides that “a court may award a lesser amount than the maximum penalty amount specified...,” gives courts discretion to limit penalties in PAGA actions when the maximum penalty would be unjust under the facts and circumstances. The Naranjo case provides another arrow in the quiver for employers trying to avoid or limit PAGA penalties.

The California supreme court noted that its holding was consistent with other provisions of the Labor Code that do not allow for statutory penalties where employers reasonably and in good faith believe that they are complying with the law. The supreme court refers to section 226 penalties as “civil penalties” and quotes from several other cases supporting the conclusion that civil penalties are (1) intended to deter intentional conduct, and (2) should not be awarded if the alleged violator acted in good faith. Based on that reasoning, PAGA penalties, which have similarly been defined as “noncompensatory” penalties to deter bad intentional conduct by employers, should not be imposed for good faith conduct that unintentionally violates the Labor Code based on a reasonable interpretation of the law.

The question becomes, will the Naranjo decision be applied in that fashion, or limited by the trial courts to Labor Code section 226 cases. Employers may seek a broader application of this case, while employees and plaintiffs’ counsel may argue for the latter.

Ogletree Deakins’ California Class Action and PAGA Practice Group will continue to monitor developments and will provide updates on the California, Class Action, and Wage and Hour blogs as more information becomes available.

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Quick Hits

• The DOL’s Wage and Hour Division published new field assistance guiding its field staff on the implications of employers’ increasing use of automated systems and AI technologies.
• The guidance cautions that while such technologies have workplace benefits, human oversight is necessary to avoid results that violate federal labor laws.
• The guidance comes after President Biden issued an executive order (EO) calling on federal agencies to coordinate their approach to the development of AI and similar technologies.

The new Field Assistance Bulletin No. 2024-1, titled “Artificial Intelligence and Automated Systems in the Workplace under the Fair Labor Standards Act and Other Federal Labor Standards,” provides guidance to the WHD’s field staff “regarding the application of the Fair Labor Standards Act (FLSA) and other federal labor standards” to the growing use of automated systems and AI in the workplace.

Such technologies can track employees’ work hours, productivity, performance, and geographic location, as well as assign tasks, manage projects, or administer leave. However, the guidance cautions that “responsible human oversight” is necessary to ensure they do not result in potential violations of federal labor laws and pose the additional risk of “creating systemic violations across the workforce.”

The field assistance guidance comes six months after President Biden issued Executive Order 14110 on October 20, 2023, calling for a “coordinated, Federal Government-wide approach” to the responsible development and implementation of AI. The WHD’s release further coincides with the release of similar guidance by the DOL’s Office of Federal Contract Compliance Programs (OFCCP) concerning the use of automated systems and AI.

Compliance Obligations

The WHD field guidance emphasized several key areas of federal labor laws that may be implicated by employers’ use of automated systems or AI.

Hours Worked

The guidance clarifies that employers must ensure that any automated systems or AI used to track work time, breaks, or geographic location, are accurately accounting for all hours worked and “paid in accordance with federal minimum wage, overtime, and other wage requirements, even when those wage rates vary substantially due to a host of inputs.” Such technologies “may undercount hours worked,” which could lead to violations.

Further, the guidance notes that the hours worked does not turn on the employees’ level of productivity, stating technologies that track “keystrokes, eye movements, internet browsing, or other activity to measure productivity are not determinative of whether an employee is performing ‘hours worked’ under the FLSA” and does “not substitute for the analysis” for determining “hours worked.”

Rather, employers are obligated “to exercise reasonable diligence” to ascertain employees’ hours worked, which can include, for example, “certain time spent waiting and breaks of short duration.” This includes adequate oversight and review of AI systems that create “smart” entries for hours worked, which can auto-populate time entry predictions based on a combination of prior predictive data, to ensure that predictive entries are accurate representations of the time actually worked.

Calculating Wages

The guidance explains that the importance of exercising human oversight to ensure that automated systems and AI used to calculate wage rates “pay employees the applicable minimum wage and accurately calculate and pay an employee’s regular rate and overtime premium” under the FLSA and other applicable laws.

The guidance identifies systems that may use AI to calculate workers’ pay rates based upon various data such as “fluctuating supply and demand, customer traffic, geographic location, worker efficiency or performance, or the type of task performed by the employee,” or that have the ability to recalculate and adjust workers’ pay throughout the day based upon a variety of factors. Where such systems are used, employers are expected to ensure proper oversight to maintain compliance with applicable minimum wage and overtime laws.

Administering Leaves

The guidance states that automated systems or AI used by employers used to process leave requests or certify leave must account for time as required by the FMLA and must not ask employees to provide more information to the employer than the FMLA allows. The guidance notes while such issues can occur due to human error, “the use of AI or other automated systems could result in violations across the entire workforce.”

Nursing Employees

The guidance cautions that automated timekeeping or scheduling systems may violate the FLSA’s and Providing Urgent Maternal Protections for Nursing Mothers Act’s (PUMP Act) requirements to provide reasonable break time for employees who need to express breast milk for a nursing child. Further, the guidance states that automated systems used to track productivity or monitor employees that “penalize a worker for failing to meet productivity standards or quotas due to the worker having taken pump breaks would violate the FLSA.”

Lie Detectors

Some AI technologies use “eye measurements, voice analysis, micro-expressions, or other body movements” to detect if someone is lying. The guidance cautions that use of such technology by employers may violate the Employee Polygraph Protection Act (EPPA) of 1988, which generally prohibits private employers from using lie detector tests on employees and job applicants.

Retaliation

The guidance states that the use of new technologies to take adverse actions against workers for engaging in activity protected by federal labor laws may result in prohibited retaliation. Such retaliation could occur, for example, if such technologies are used to generate “pretextual reasons to penalize or discipline an employee for engaging in protected activity could constitute unlawful retaliation,” according to the guidance. Further, use of such technologies to surveil employees to determine who might have filed a complaint with WHD could constitute retaliation, the guidance states.

Evolving Legal Landscape

The Biden administration has made promoting the responsible use of automated systems and AI a priority. According to the October 2023 EO, the administration is focused on balancing the benefits of new technology with risks that with irresponsible use could lead to “fraud, discrimination, bias, and disinformation.”

The EO was released a year after the October 2022 publication of the “Blueprint for an AI Bill of Rights,” which outlined nonbinding recommendations for the design, use, and deployment of AI and automated decision-making systems. Further, the U.S. Equal Employment Opportunity Commission (EEOC) has issued guidance on the potential disparate impact and Americans with Disabilities Act (ADA) compliance concerns from the use of such technologies to make employment decisions.

In addition to the WHD’s guidance, the OFCCP released guidance, titled “Artificial Intelligence and Equal Employment Opportunity for Federal Contractors,” which noted “the use of AI systems ... has the potential to perpetuate unlawful bias and automate unlawful discrimination.”

Next Steps

Automated systems, AI, and similar technologies have the potential to increase efficiency and productivity in the workplace, but employers may want to take note of guidance from the various regulatory agencies in using such technologies.

In its latest guidance, the WHD takes the position that it considers employers responsible when automated systems or AI result in a violation of federal labor laws or when such technologies are used by employers to facilitate results that would otherwise violate federal labor laws.

The WHD guidance underscores that AI remains front and center for state and federal regulators in 2024 as California continues to work toward finalizing its proposed automated decision-making regulations under the California Consumer Privacy Act. Additionally, at least ten other states have AI or automated decision-making-specific laws in various stages of the legislative process.

Ogletree Deakins will continue to monitor developments and will provide updates on the Cybersecurity and Privacy, Employment Law, OFCCP Compliance, Government Contracting, and Reporting, Technology, and Wage and Hour blogs as more information becomes available.

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