Compliance Update: 3 Evolving Labor Laws to Watch

Congratulations! You’ve managed to stay up to date with all the new labor laws that became effective on January 1, 2023! 

Unfortunately, your work isn’t done.

Chances are, there will be more changes ahead later this year. In particular, you may want to keep these three developing federal regulations on your radar—and create some potential action plans, so you’ll be ready, if and when the time comes.

1. Proposed Employee/Independent Contractor Reclassifications

In October, 2022, the U.S. Department of Labor (DOL) proposed to modify the way workers are classified as independent contractors under the Fair Labor Standards Act (FLSA).

The proposed rule, which would replace the employer-friendly classification test enacted by the Trump administration, requires that employers weigh six factors regarding the employer-/worker relationship, the nature of the work, and the financial implications.

The proposed rule would make it more difficult for employers to classify workers as independent contractors as opposed to employees, who are protected under the FLSA.

The DOL previously indicated that a final rule would be published in May, 2023. However, in mid-February, a lobbying group representing Uber, Lyft, and other gig companies asked for a postponement, due to Secretary of Labor Marty Walsh’s resignation. To date, the DOL has not responded.

If you use gig workers, this rule may raise your labor costs and/or increase your compliance risk. Now is the time to determine if the new rule would apply to your independent contractors—and if so, weigh your options.

Status: Final Rule Pending 

2. Expected Increase to Salary Threshold for Overtime Eligibility  

Ever since the Obama administration ruled to dramatically increase the overtime threshold—a 2016 rule that was sidelined before it took effect—employers have kept an eye on this issue, which largely affects lower-wage, salaried workers.

While the Trump administration’s DOL modestly increased the overtime threshold in 2019, from annual earnings of $23,660 to $35,568, the Biden administration is now considering a substantial hike, which will benefit workers but cost employers.

The yet-to-be proposed rule is expected to be unveiled in May 2023. While the specifics remain unknown, some labor law experts speculate that it will:

• Increase the weekly threshold from $684 to $900-–$1,000 
• Modify the duties tests so more employees are classified as non-exempt, and
• Require automatic future increases to the threshold.

Take is a good time to review your payroll, identify exempt employees whose earnings fall between $684-$1,000 per week, and ensure that their job descriptions accurately reflect their duties. 

Should the rule be finalized, you may be required to either increase the affected employees’ salaries above the new threshold or change their status to non-exempt—a choice you may wish to examine now.  

Status: Initial Rule Pending 

3. Proposed Ban on Non-Compete Agreements

In January, the Federal Trade Commission (FTC) proposed a new rule that would ban employers from entering into non-compete agreements with employees and independent contractors. According to the FTC, the practice violates Section 5 of the Federal Trade Commission Act. 

Under the proposed rule, employers would be required to rescind existing non-compete contracts and actively inform workers within 180 days of the final rule’s publication.

Non-compete clauses prevent employees from working for a competitor or starting a competitive business, usually for a specified period of time following termination or within a defined geographic area. They are common in the technology world and other knowledge-based industries.

The FTC is currently accepting public comments. The comment period is currently open through mid-March 2023 and may be extended.

In addition, the FTC has indicated that it is open to alternatives to an unconditional ban, such as by incorporating salary thresholds or making targeted exceptions.

If you use non-compete contracts as a business tool, there is little to do at the moment—although you may wish to focus on positive ways to retain your employees, which is always a good idea, anyway.

Status: Initial Rule Issued; Public Comments Pending 

We’ll keep you up-to-date on these evolving employment laws and others. In the meantime, if you haven’t already, download the compliance resources you need for 2023 and give yourself the confidence you need in all things compliance.

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