Four New Year’s Resolutions for Employers
Wednesday, January 31, 2024

New Year’s resolutions are common. Many people attempt a “dry” January. Others a dry February, because there are less days in the month. As we close out the first month of 2024 here are four proposed New Year’s resolutions for employers that can minimize the risk of exposure and reputational damage in this ever-changing legal landscape:

  1. Invest in prevention;
  2. Prioritize training;
  3. Go back to school on accommodations, and
  4. Upgrade technology in a smart and safe manner.

Resolution #1: Invest in prevention

There have been a lot of recent changes in labor and employment laws at the state and federal level, and more changes are on the horizon. A calculated, and privileged, audit process is a great investment and helps companies avoid the monetary and reputational damage from running afoul of the changing, and often contradictory, requirements.

Wage and hour litigation continues to be the No. 1 exposure area for business. With mandatory attorneys’ fees and liquidated (i.e., double) damages, even minor errors can prove extremely costly. When a former employee sits down with an attorney to complain about their termination, the attorney almost immediately pivots to asking them how they are paid. Many companies have positions where the classification (exempt or non-exempt) was set several years ago without a true focus on the nature of the position. And jobs evolve over time, as does the law. A classification and wage audit is not only a good prevention practice but it can provide an affirmative legal defense against liquidated damages should there ever be a formal dispute. This is especially true in defending collective or class action claims brought by a group of employees for unpaid wages and overtime.

As we near the end of the Biden administration’s first term, federal agencies are being very aggressive. The NLRB is challenging confidentiality and non-disparagement clauses in various agreements, including separation agreements. The NLRB and FTC are pursuing actions against the use of noncompetition clause and other post-employment restrictions. April 2024 is the target month for the FTC to issue its final proposed rule banning noncompetition clauses, as well as when the DOL intends to issue its final rule updating the salary requirements for exempt positions. With the issuance of these rules only months away, and implementation dates to follow shortly thereafter, now is the time to seek guidance and ensure your organization is ready. All of these federal agencies, along with the EEOC, enacted information-sharing protocols and memorandums of understanding in 2022 and 2023. Thus, for example, if the EEOC receives information in connection with investigating a charge of discrimination that could be of interest to the FTC, DOL, or NLRB (or numerous other agencies), it is safe to assume that the information will be shared and possibly used against you.

State laws represent another changing and challenging environment. California has a new noncompete law that went into effect in 2024. Minnesota, North Dakota, Oklahoma, and Washington, D.C., are just a handful of other jurisdictions with similar restrictions. Paid leave and pay equity laws are also on the rise, and all of these laws can vary by state and even by city. With a patchwork of diverging and often conflicting state laws, employers must pay particular attention to the locations of their workforce. Indeed, with the expansion of remote work, individuals working across state lines — or even national borders — could frustrate the enforceability of certain restrictions. Companies may seek to rely on certain contractual provisions, such as choice of law or “Made In” clauses to take advantage of a certain state’s law, but enforcement can still be a problem. Many of these laws prohibit the use of choice-of-law clauses to apply the law of another state. Even without statutory prohibitions, most states will not honor a parties’ choice of law if application of the law would be contrary to the public policy interests of the state. Determining what state’s law governs a dispute is often a fact-intensive inquiry, and relevant factors include, but are not limited to, (1) where an individual is located at the time of contract execution or negotiation, (2) where an individual worked, (3) where an individual worked at the time of separation, (4) the reasons for the relocation (determined by the business or individual), and (5) the proportion of the individual’s business based in the state of relocation.

Resolution #2: Prioritize training

Compliant policies are a great start, but a company’s true exposure often rests on the discretion exercised by its management in enforcing those policies. Training is critical to success. An exempt job position, for example, may be correctly classified based on the job description and intent of the company. But if the individual’s supervisor micro-manages the position and does not allow the individual to exercise his or her own judgment on issues of importance, the company can face exposure to claims of misclassification. Many middle managers do not even know the factors that are considered by courts in assessing whether an individual is properly classified as exempt.

Another training area of importance is diversity. Companies have made tremendous strides in recent years to expand diversity and inclusion in their workforce. But diversity, equity and inclusion (DEI) initiatives are now under heavy attack. Following the Supreme Court’s decisions striking down affirmative action programs at Harvard and the University of North Carolina, activist groups have begun targeting companies over their DEI initiatives. While some companies may have programs that are indeed exclusive to certain groups, or involve specific quotas, many DEI initiatives are perfectly compliant with state and federal law. However, recruiting managers or others responsible for implementing the initiatives may not be properly trained on the policy or the law. A company may not have a policy to give preferences to certain groups in the hiring process, but if a manager believes that the goals of diversity require tiebreaking decisions he or she could create unnecessary liability for the company. It is better to learn that now, so it can be corrected, rather than have it revealed after litigation has already begun.

Resolution #3: Go back to school on accommodations

One of the most challenging issues for employers is dealing with the accommodation process. This is a high priority for the government and remains an area where mistakes continue to be made. With increased awareness of mental health issues, along with a similar increase in awareness by employees of their potential rights to accommodations, the number of accommodation requests (along with litigation over such requests) is growing.

This is another area where training can help. Do supervisors know how to recognize whether or not someone may need an accommodation? The knowledge of supervisors will typically be imputed to the organization, and companies have certain responsibilities to engage in the interactive process as part of their compliance obligations under the Americans with Disabilities Act. Exposure can often be created from the best of intentions. A manager, for example, may relieve an individual of certain job responsibilities to assist them during a time of need and not ever involve HR. Then in the future, a different manager in a different location faced with a similar request might not extend the same assistance. Sometimes, the change in position on offering similar accommodation occurs in the same location. Even if the company has a valid reason not to grant that kind of accommodation, the prior practice could make the decision more difficult to defend. And, in any event, such an issue would likely raise the monetary cost of resolving any dispute.

Vaccination requirements during the pandemic unleashed a wave of requests for religious accommodations, and now employees — and special interest groups — are relying more on religious accommodations to challenge business requirements such as working on certain days or participating in certain trainings that do not align with their professed religious beliefs. In fact, the tension between the need to accommodate religious beliefs and the need to prevent discrimination creates a minefield for companies similar to battles over DEI initiatives.

Resolution #4: Upgrade technology in a smart and safe manner

Every new year brings new gadgets and developments, and 2024 coincides with the explosion of artificial intelligence technology in every sector and industry with little to no regulation in place. In response, states and the federal government are hastily enacting guidance and restrictions that companies will need to follow.

The potential benefits of the technology, including enhanced productivity and decision-making, make it imperative for companies to consider how they can take advantage of the tools that are out there. There is also grave risk. Companies are already reporting how employees have uploaded confidential and proprietary business information — both that of the company and its clients — into third-party systems where it can never be retrieved. The public disclosure of such information could forfeit its protected status overnight and threaten key intellectual property assets of an organization. If companies do not have policies and procedures in place, they need to do so quickly. And, as with the other areas discussed above, training on these policies is critical — particularly with new technology and legal regimes that are constantly changing.

Does your organization use AI tools for recruiting and hiring candidates? Or use a vendor that might use such technology? If the technology screens out certain types of applicants at a higher rate than others, the company could be faced with significant litigation risk unless the technology is specifically validated for use with the positions in question. Under the EEOC’s Uniform Guidelines on Employee Selection Procedures, 29 C.F.R. pt. 1607, any screening devices with adverse impact must be job related and consistent with business necessity. Employers are required under the Uniform Guidelines to maintain validation data — typically in the form of a content, construct, or criterion validity study supporting the reliability of the procedure. Check with such vendors to ensure they have a validation study supporting the use of the technology. Ensure your contract with them has adequate indemnification and insurance requirements. Confer with counsel about the laws of where your employees work or applicants are screened as states and cities are enacting laws that may limit or even prohibit the use of certain technology.

The solution, however, may not be simply avoiding the technology. The growth of AI tools to limit bias in the hiring process may arguably create an obligation to use such tools. After all, if the alternative to such tools is a recruiter or hiring manager that simply scans resumes for a few seconds in order to determine who to interview, that selection procedure may have a greater adverse impact on protected groups and may be even less valid than the alternative.

 

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