Looking toward 2025: The future of labor and employment laws and regulations

Reed Smith labor and employment partners Cindy Schmitt Minniti, John McDonald and Mark Goldstein discuss significant employment law updates, including the Department of Labor overtime rule being struck down, future expectations for non-compete agreements, anticipated reversals of National Labor Relations Board decisions and key upcoming Supreme Court cases. The partners also provide guidance on what employers should do before the end of Q1 2025.

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Transcript:

Intro: Welcome to Disputes in Perspective, a Reed Smith podcast. This podcast series will discuss disputes-related trends, hot topics, and developments occurring in the global legal landscape, and hopefully provide you with some helpful insights and practical tips. If you have any questions about any of the episodes, please feel free to contact our speakers. 

Cindy: Welcome back to Reed Smith's Disputes in Perspective podcast. Today's discussion will be around some of the key issues that will affect employers in the United States in 2025. My name is Cindy Schmitt Minniti, and I'm the global chair of Reed Smith Labor and Employment Group. I sit in New York office, and I'm joined today by two of my partners. I'll turn it over so they can introduce themselves.

John: Hi, this is John McDonald. I'm also a partner at Reed Smith. I work out of the firm's Princeton, New Jersey office principally.

Mark: Hi, everyone. Mark Goldstein, a partner in Reed Smith's New York office and also a member of our Labor and Employment Group.

Cindy: Thank you both for joining me in this discussion today. The new year always brings an opportunity to review employment practices and HR policies and usually brings a host of new laws, new regulations, and new focus for administration. And this year, I think particularly given the new administration, employers should really be mindful of some significant changes from an employment law perspective. John, what do you think employers should be most aware of?

John: Thank you, Cindy. I think one of the key things might be a slight reversal in time and looking forward after we had a very big decision out of the state of Texas, the very end of the year in 2024, which has been important for employers because they were facing another change in law that was supposed to go into effect on January 1st of 2025, which is now put off. So let me cover that briefly. As folks listening to this podcast may be aware, under the Federal Labor Standards Act, employers can pay employees via salary, and if they meet certain job duties and the salary is high enough, employers can treat those individuals as exempt from both overtime and minimum wage requirements. We often refer to the main exemptions, which are the executive, the professional and administrative exemptions, as the white-collar exemptions. Earlier in the year, the current administration through the Department of Labor, had put forth a proposed rule that raised the salary threshold for sex exemptions, first on July 1st, from where it currently sits at $35,568 per year, up to $43,888 a year. And that, again, went into effect on July 1st, even with the pendency of several legal challenges, which I'll get to in a minute. But there was supposed to be yet another increase on January 1st. Of 2025, all the way up to $58,656 a year. In November of this year, the Eastern District of Texas came out with a decision that invalidated this rule, such that even the July 1st raise that most employers had already been dealing with is now no longer the law. And the January 1st employees were expecting to the salary threshold will not go into it. So what that does is it currently means that the salary threshold for paying employees sufficient enough salary to avoid having to pay overtime provided they meet the requisite duties tests remains presently at the 2019 rule level of $35,568 per year. It was expected that these changes and these increases is we're going to sweep millions of additional employees into being subject to overtime and therefore employers are going to have to worry about budgeting. Changing, and making sure employees were keeping track of their time every day so that employers could properly play their employees overtime whenever they work more than 40 hours in a given week. So with this decision out of the Eastern District of Texas on November 15th, all that Department of Labor rules is indicated and will not go into effect. And with the new administration coming to the office, coming into office soon, it's doubtful that anything will change with regard to that, because obviously with the decision being from the Eastern District of Texas, the Department of Labor certainly has the option to file an appeal or had the option to file an appeal to the Fifth Circuit, but is expected that that will not take place with the new administration coming in. Mark, what are your thoughts about that?

Mark: Thanks, John. You know, in the next portion of today's podcast, what we want to talk about briefly is the U.S. Supreme Court and the forthcoming term or the ongoing term that started recently. And just like John outlined with some of the federal agency actions, we're likely in this term to see some substantial decisions out of the U.S. Supreme Court that will affect employers nationwide. But it's important to put any decisions forthcoming in this term in the context of where the court stands. Over the past decade or so, we've seen the court move increasingly in an employer-friendly way. Perhaps one of the most notable ways was in this past term, in June 2024, when the court issued its decision, many of you are familiar with, overturning so-called Chevron deference. And essentially what that decision did, a decision called Loper Bright, essentially what that did was reduce the deference that federal courts are required to give to federal government agencies. Any U.S. Employer will know that you'll frequently have to deal with federal agencies like the U.S. Department of Labor, the National Labor Relations Board, the EEOC, and these regulatory agencies typically will issue numerous interpretations of law and regulations. And since the Chevron decision was handed down in 1984, federal courts have generally deferred to federal agency interpretations of law, particularly where there's an ambiguity in the law. And so the decision in Loper Bright was important because it changed the standard by which federal courts are required to defer to federal agencies. And it'll be interesting to see, particularly with a new administration incoming, whether or not President-elect Trump tries to overturn certain agency rulemaking under President Biden. Specific cases that we're going to see coming up this term, there's three key ones that employers should be paying attention to. One relates precisely a topic that John was talking about, and that's exemptions under the Federal Fair Labor Standards Act. So the first case is basically not necessarily about who qualifies for an exemption and when they qualify, but the standard of proof an employer needs to show to prove that an employee does indeed qualify for an exemption. So in order to be allowed to pay an employee a fixed salary, as John said, the employee needs to meet two tests in order to qualify for an exemption to the FOSA. But the circuit courts are divided at present on the standard the employer needs to prove in order to show that an employee's role qualifies for an exemption. So in the first case that is going to be heard, the court's going to decide whether or not preponderance of the evidence standard will apply or a more rigorous, clear and convincing evidence standard. And again, the circuit courts are divided on this and it'll be interesting to see which way the court goes in that regard. If they go with the clear and convincing evidence standard, it will make it more difficult for employers in the U.S. To argue that their employees qualify for exemptions to the FOSA. Another interesting case that is going to be heard is Ames versus the Ohio Department of Abuse Services. And what's interesting about this case is it follows somewhat of a trend that we've seen since the Supreme Court's decision in the Harvard-UNC affirmative action case a few years ago relating to so-called discrimination claims brought by majority groups. And precisely that's what was that issue in Ames, is essentially a heterosexual male, white male, bringing a claim of discrimination against his employer. And the court, in that case, is being asked to grapple with whether or not somebody who's from a majority class needs to prove anything in additional, demonstrate that they've been subjected to discrimination. So in the underlying decision out of an Ohio federal court, the court determined that somebody who's in a majority protected class or protected group needs to demonstrate additional background circumstances, suggesting that the employer is the unusual employer who discriminates against the majority. So the Supreme Court now will be asked, do employees from majority protected classes, are their discrimination claims held to the same standard as all other groups? Or is there a heightened standard when an employee who's a member of a majority group is bringing claims of discrimination? And the final case that is particularly important to U.S. Employers is whether or not the Americans with Disabilities Act applies to former employees. Now, most employment laws across the country apply to job applicants, pre-employment, of course, during employment, and often post-employment. However, the ADA's language is a little bit unique, and there's a circuit divide as to whether or not the ADA applies to former employees. So in this particular case, a former city firefighter claims that certain benefits were denied to them after their employment ended, but with a discriminatory animus towards their age. So the court's going to be deciding in that circumstance, whether or not plaintiff can avail themselves of the ADA, even though they're no longer employed and are a former employee under the terms of the employer's benefits plan. I think more broadly from a judicial perspective, it'll be interesting to see how President-elect Trump, you know, makes his judicial appointees. We can expect that there will be, a move to point conservative justices district court level and at the circuit court level, as we saw with his first administration, and potentially if there becomes a vacancy as well on the US Supreme Court, replacing any of the outgoing judges with a conservative-minded judge would continue probably the trend of moving in a way towards being fairly employer-friendly.

Cindy: Thanks, Mark. A lot to be on the lookout for from the highest court, especially with all of the changes coming up. Good things to highlight. John, as we think about some of the administrative bodies, like the NLRB, what changes do you see there?

John: Well, I think we're going to see a lot of changes there, and probably more promptly than anyone expected, given some recent political occurrences in the last several weeks. It was expected so that the National Labor Relations Board is made up of politically appointed board members, and they have the ability to make decisions about the application of the National Labor Relations Act. And the board is, again, made up of these political appointees, and it presently has a Democratic majority. And in the last two years, I'll limit us to two years for time, they have made a number of decisions that provide for broader protections for unions, for employees, for the ability of unions to become the collective bargaining representative at an employer's site, etc. There are six that I'll highlight really quick, and then I'll explain why it's important with regard to the recent political occurrences. So the first case I'll mention, the National Labor Relations Board reversed a number of years of precedent in a case called Siren Retail, which said that if an employer tells its employees that something simple like you will lose your direct relationship with management and with the employer if you elect a union, that this kind of statement, which was previously lawful, is invalid under the National Labor Relations Act, and employers were prohibited from making those type of statements. In the Miller Plastics case, a new test was created for what's called protected concerted activity, making it far more likely that employees who are disciplined for various actions who contend that their actions were concerted activity would be protected. In that particular case, even though concerted activity would make one think there has to be more than one person acting, the National Labor Relations Board in its current makeup decided that wasn't so. And you'd look at the totality of the circumstances and is it possible that the employee intended their action to benefit the group and that would be sufficient. In the Amazon services case. The National Labor Relations Board, again, invalidated years of precedent, went the opposite way, telling management and employers that they were not allowed to hold what's called captive audience meetings. That is, even if the messaging that management put forth to employees at such a meeting, i.e. A required meeting or a mandatory meeting, was fairly objective. That the fact that the meeting was mandatory and discussed a potential unionization effort made such a meeting invalid and such meetings had to be clearly voluntary and employees had to be given the opportunity to not go. Probably the biggest decision in the last couple of years, the CMEx construction case, which created an entire new framework for how employees can have a bargaining unit established at an employer site. Instead of requiring employees and a union to submit to the National Laboration Board for an election, the employees merely have to establish or put forth a claim that they have majority support for a union. And once that happens, the pendulum swings to the employer to petition for an election. And if they fail to do so, then it could result in a bargaining order from the National Labor Relations Board.

Mark: John, can I ask you a question? I know some employers will disregard when they hear things about the National Labor Relations Act or the board because they think it only applies to employers with unionized workforces. And some of these decisions obviously do. But can you talk briefly about how the NLRA applies potentially to private employers regardless of whether or not they've unionized employees?

John: Sure, Mark, and thanks for making that point. You're exactly correct, and some of the decisions will lend way to that. But the National Labor Relations Act applies to all employers, regardless of whether they have a union on site or any unionized employees, for that matter. In fact, employees without a union can file what are called unfair labor practice charges with the National Labor Relations Board and get damages, including restatement, even without the presence of a union. So, for example, as I was mentioning before, with regard to protected concerted activity in the Miller Plastics case, an employee does not have to be a member of a union to bring in an unfair labor practice charge contending that he or she was subject to discipline when they were participating in unprotected concerted activity, as an example. So all employers need to be aware of the National Labor Relations Board, the National Labor Relations Act, what it requires, what it prohibits, and should be focused and looking forward to what the NLRB in its new makeup might do with some of these decisions. And the last two decisions I'll quickly cover, the endurance environmental case made it more difficult for employers to take what we call unilateral action. In that case, they were installing cameras without first parting with the union. And in the McLaren-McComb case back in 2022, the National Labor Relations Board, again, something that applies, this decision applied to employees, whether there's a union or not. Invalidated broad confidentiality and non-disparagement provisions in severance agreements as potential Section 7 violations. And Section 7 is the section of the National Labor Relations Act that employers most often run afoul of or are charged with unfair labor practices for violating. So what happened recently is that the current makeup of the National Liberations Board, there are two vacancies, two Democratic appointees and one Republican appointee. But earlier in December, the current chair, Lauren McFerrin, lost a procedural vote in the Senate such that her time on the National Labor Relations Board is going to end or has already ended potentially. And so what is likely to happen is when the new administration comes into office, you're going to have three vacancies, one Democrat and one Republican member of the National Labor Relations Board, which is going to allow the new administration to appoint a majority very quickly, perhaps as January 2025, which could see, and we often see when the NLRB makeup changes to a different party majority, the immediate actions by the NLRB to invalidate the decisions of the prior administration's, NLRB. So we could see a number of these very employee-friendly decisions that I ran through get reversed in short order. Cindy?

Cindy: Thanks, John. I think it's really important that employers stay aware of this because, like you said, with the change in the makeup of the NLRB, I think we are going to see a lot of activity. And like Mark said, for non-union employers may not be as aware that this can impact their workforce. So more to come on that. You know, when I think about last year, there was a ton of buzz about the future of non-compete agreements. And, you know, we all know that the Biden administration tasked the Federal Trade Commission with reviewing non-compete agreements. After review and comment, the FTC issued a rule that potentially banned almost all of the non-compete agreements, which caused quite a buzz for employers. It's now since been stayed through litigation. I think an interesting turn with the new administration is Andrew Ferguson was announced as the next chair of the Federal Trade Commission. What's noteworthy about that is that back in April, he gave a lengthy statement dissenting from the FTC's proposed rule, an actual rule, really saying that the FTC didn't have the appropriate authority to change a very longstanding business practice. He went on to say that such a rule would nullify 30 million existing contracts and redistribute half a trillion dollars worth of wealth. So I think it's safe to say in his new role, he likely will not support an FTC, you know, stepping in on this issue or revisiting anything in that front. So I think we're clear on a national ban, at least coming from the FTC. But what's interesting, and I think we need to be on the lookout, is that there's really been a lot of change in state and local non-compete and restrictive governance over the last few years. And I know when I'm talking with employers, there's a little. With how to have a one-size-fits-all non-compete that will comply with all of the different state requirements that we currently have. So some states have total bans. Some states have more of a focus on the type of job and the compensation level. Other states have different technical requirements. So I think it's really important, while we might not see on a federal level, I think employers really need to look at non-competes, restrictive covenants, what they currently have in place and really stay attuned to the new changes and changes that are coming so that if they do have restrictive covenants and non-competes as part of their business, that they're making sure that they are complying. So while not as big of a change as we looked at for the last year, I do think that's something that I want to make sure that employers are well aware of and looking at as we look to 2025. So Mark, John, what other things should U.S. employers be thinking about? Anything else, Mark? I know there's a lot of changes in New York state and local laws. Anything we should be particularly concerned about?

Mark: Yeah, I think to your point about the patchwork of state and local laws regarding restricting covenants, that's what we have across the U.S. In terms of all sorts of employment laws. And whereas a decade or two ago, most of the pertinent employment laws were really at the federal level, what's developed over the past five to 10 years is this patchwork where you have different laws based on state or county or city, and whether it's a non-compete agreement, whether it's paid sick leave policy, you have to be aware of where your employees are based and then tailor the document, whether it's an employee handbook or some sort of agreement as appropriate. And come January 2025, a whole host of new laws will be taking effect across the country, including in California and New York State. So I think there's, you know, now is a good time to make sure for employers, you know, especially those with multi-jurisdictional operations, to take a look at their policies and their handbooks, to make sure they align with those forthcoming changes, whether it's a minimum wage change, change in a restrictive covenant law, change in some sort of leave of absence law. There continues to be dozens of changes every year. And again, it's not just the state level, but there are cities, counties, and other localities getting into the act as well. So if you have an employee in San Francisco or New York City, you might be subject to three or four levels of laws potentially and need to make sure that your policies and your agreements adequately reflect that.

Cindy: Mark, just to jump in on that for a second, I think you raise such a great point, because not only do we need to make sure that we're compliant with the local level of where someone's working, and we may have different laws that are intersecting, but with so much remote work still happening and hybrid work, it's not just the locations of where we have physical offices. So a couple of years ago, we had to look at handbooks and policies in the specific office locations for the companies. But since the work from home and remote work and hybrid work has taken over, we really have to be mindful of where the employee is working. So to your point of looking at state and local jurisdictions, we have to know where our employees are and where they're actually performing services. So great point.

Mark: And that's an excellent point because when a lot of companies, clients come to us and ask us questions about applicable law. The law can say, hey, we're headquartered here, or Jane remote employee is assigned to a particular office in a different state. But oftentimes, the applicable law at issue is simply the law of the jurisdiction where the person works, which might be totally different from the headquarters or the office that they're assigned to. So incredibly important to undertake that analysis. And of course, with remote employees, you'll also want to factor in whether that triggers any sort of licensing or tax requirements. So in addition to taking a look at reviewing handbooks and policies, really getting a handle on the operative laws in the jurisdictions within which you operate, the other thing I would just note is that there's going to be a continued focus certainly from federal regulators. States are getting in on the action as well. In addition to locality, we saw this New York City having been the first jurisdiction to pass a law regarding AI in the workplace, but now we've seen Colorado Illinois, and a whole host of other jurisdictions, is that federal and state legislators and regulators are getting in on the act, trying to figure out how to properly regulate the use of AI in the workplace. Particularly to the extent it's used in the hiring process to ensure that there isn't any sort of disproportionate or disparate impact on a particularly protected class of employees. So I think that's something, especially for employers who are considering or actually using AI to any extent, whether it's to automate benefits, plans, or policies, HR protocols. Interview questions, or review resumes, make sure that you're complying with the laws because in many jurisdictions, there are pretty substantial requirements, including requirements to have an independent audit, an independent bias audit of any AI materials and platforms that you're using. So this is definitely an issue that's going to gain more traction over the coming year.

Cindy: Mark, I want to jump in on that. I think the regulation on AI is really important and it's changing and we need to be focused on that. I think that's probably one of the biggest challenges for employers on the go forward basis. What I'm noticing a lot also is just the individual policies from the employer's perspective. It's kind of like how we saw social media, you know, several years ago, is the first policy that comes out is sort of banning the use. And then as it becomes more of our, you know, integrated in day to day activities, now people's jobs are to deal with AI and are to work with AI. So it may no longer make sense to have, you know, a supervisor approving every time you use AI for part of your job, like it may have, you know, been a couple of years ago. So I think from a compliance perspective, as well as from a practical policy perspective, it's good to look for, you know, to look at that and how that's going to impact the workforce.

John: And I like that you talked, you brought up AI in terms of recruitment. And I just want to jump in. In addition to the state getting involved in AI, you know, how employers deal with prospective, prospective or prospective employees is really starting to become something that the states are getting involved in, in legislating. So what you're going to see and what you have seen in recent years is laws on what questions can be asked during interviews, as was just noted, as well as what background checks can be performed on potential candidates. Limits on drug testing in various states across the country, and of course our pay transparency laws. For example, New Jersey is joining the number of states and localities that have pay transparency laws. And then New Jersey's law goes into effect in June 2025, June 1st. You're going to continue to see the states legislate not only how employees treat their employees, but how they advertise, hire for and recruit new employees. Which again rolls into what Cindy was mentioning a moment ago about our hybrid workforce. Because just because a person doesn't live in a state that has a pay transparency law, for example, if that employer is going to recruit from outside of its boundaries, as New Jersey employers often do to the surrounding states, and even individual candidates in those other states outside of New Jersey may have rights under New Jersey's pay transparency law or a neighboring state's pay transparency law, for example.

Cindy: Excellent. Well, I think we are getting short on time right now. Any final thoughts, Mark or John, on things that employers should be aware of in 2025 or things that they should be doing now to prepare for changes or things that might be coming up in 2025?

Mark: I would just say it's always best to be proactive. Consult with your HR team, your internal or external counsel, ask questions to make sure that you're in compliance. Always better to get ahead of a potential problem, whether that's on a restrictive covenant matter, non-compliance potentially with the National Labor Relations Board decision, potential overtime exemption classification issue. Better to be proactive, ask the questions. You'll have an opportunity potentially then to take steps rather than to have to play defense So. You know, use particularly the year end and the first quarter of 2025 to try to make sure that you're in compliance with those key items that could potentially result in liability.

John: I just agree and echo that. I think proactivity is the name of the game. We have the flip of the new year and it's time to focus on compliance going forward. If you have to react to a government agency asking questions or a plaintiff's lawyer knocking on your door with a potential complaint or an auditor coming by and wanting access to your files, You want to make sure that you're already fully in compliance as opposed to trying to explain why you have not yet come into compliance. So meet with your internal legal and HR resources. Speak to your outside counsel for potential recommendations of things that you might want to look to review and potentially alter to come within compliance before it becomes a problem or a claim.

Cindy: Well, thank you both for your great insights and your thoughts. There's a lot to be on the lookout for, and I thank all of you for listening. Please join us again next time. Thank you.

Outro: Disputes in Perspective is a Reed Smith production. Our producers are Ali McCardell and Shannon Ryan. For more information about Reed Smith's litigation and dispute resolution practice, please email disputesinperspective@reedsmith.com. You can find our podcast on podcast streaming platforms, reedsmith.com, and our social media accounts at Reed Smith LLP. 

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