UPDATES IN Employment Law

BY: ELLIOT KUDISCH ANDREWS MYERS, P.C.

Your workforce is your most valuable asset. It is no secret that employers in every discipline face challenging market conditions and increased costs—conditions which are aggravated by high workforce attrition. In 2021, my colleague Adam Robertson published an excellent article in GCBAA’s Earth Shaping News about using employment contracts to stabilize the construction workforce. Though employment law continues to change, the message is still the same.

Well-informed employers are better positioned to respond to tomorrow’s challenges. Below is a small collection of important changes in employment law that may affect your most valuable asset.

Labor Department Issues New Proposed Rule on Independent Contractor Classification

Last fall, the Department of Labor (“DOL”) issued a proposed rule revising the agency’s approach to evaluating independent contractor-employee status under the FLSA. The DOL’s proposed rule marks a return to using a totality of the circumstances approach to determine whether a worker is truly an independent contractor or a W-2 employee. The rule will consider the factors below in evaluating worker classifications:

• The nature and degree of the worker’s control over the work,

• The worker’s opportunity for profit or loss based on personal initiative or investment,

• Investments by the worker and the putative employer,

• The degree of permanence of the working relationship,

• The extent to which the work performed is an integral part of the putative employer’s business, and

• The degree of skill and initiative exhibited by the worker.

This multifactor “economic realities” test focuses on whether workers are economically dependent on the employer or in business for themselves. Analyzing the nature and degree of control factor will include how scheduling, supervision, pricesetting, and the ability to work for others influences the degree of control. The DOL may also consider additional factors if the circumstances suggest the workers may be in business for themselves rather than being economically dependent on an employer for work.

If a worker is found to be an independent contractor under this test, the worker must be treated as an employee for FLSA purposes, and the employer will have to pay minimum wage and overtime if the employee is non-exempt. The application of the economic realities factors is guided by the overarching principle that the FLSA should be liberally construed to provide broad coverage for workers.

The penalty for failure to pay required overtime is backpay, plus an equal amount in liquidated damages, plus attorneys’ fees and costs—not to mention a company’s own defense attorney’s fees.

The DOL has closed its comment period on the language its proposed rule and a final rule is expected in the coming months.

Employers should also keep their eyes on the FTC’s proposed rule banning noncompete agreements. You can find more information on anticipated changes in noncompete law here.

NLRB Rules Against Confidentiality and Non-Disparagement Provisions in Severance Agreements

In February, the National Labor Relations Board (“NLRB”) ruled that confidentiality and nondisparagement clauses in severance agreements violate the National Labor Relations Act (“NLRA”). The decision applies to all employers whether their employees are union members. The ruling will not affect severance agreements involving managers or supervisors, whose labor rights are not protected under the NLRA. Employers should approach rankand-file employee severance agreements with care in light of this ruling.

The NLRB explained that even offering a severance agreement to a rank-and-file employee which contains confidentiality or non-disparagement clause would interfere with an employee’s right to discuss workplace issues. The NLRB emphasized that whether an employee accepts a severance agreement is immaterial to the analysis. The NLRB held that severance agreements are unlawful if they “may chill” former employees from cooperating with NLRB investigations or discussing the terms of their former employment with current employees.

The NLRB found that the confidentiality language prohibited former employees from disclosing the terms of their severance agreements with third parties, thereby restricting their rights to engage in concerted activities under the NLRA. The agreement, therefore, would dissuade the employee from filing an unfair labor practice charge or assisting a NLRB investigation into the employer’s use of the severance agreement. A non-disparagement clause in a severance agreement also interfered with former employees’ NLRA rights to make “statements to [the] Employer’s employees or to the general public [including to the NLRB] which could disparage or harm the image of [the] Employer.”

Employers should consider the following items when drafting separation agreements under this ruling:

• Whether a saving clause carving out NLRA issues, and charges before the NLRB will be sufficient to allow including broad confidentiality and nondisparagement provisions.

• The way the NLRB applies this standard to confidentiality clauses and non-disparagement provisions that are narrower in scope compared to the broad provisions at issue.

• Whether an employee who seeks the advice and counsel of a lawyer—which is often a requirement of severance agreements—can effectively waive NLRA rights.

The NLRB’s decision may be challenged in court, and it remains to be seen whether a court would find that the mere offer of a severance agreement can be unlawfully “coercive” or conclude that an agreement that only restricts post-employment activities violates the NLRA.

The Supreme Court Clarifies ‘Salary Basis’ in Overtime Ruling

The Fair Labor Standards Act (“FLSA”) generally requires employers to pay time and a half to employees who work more than 40 hours in a week, but exempts certain executive, administrative, and professional employees from its overtime pay requirement. Under the implementing regulations, an overtime-exempt employee must be paid on a “salary basis”—meaning that they are paid on a weekly or less frequent basis and receive a predetermined amount for each pay period in which they perform any work.

The Supreme Court recently reviewed a case in which a highly compensated offshore oil rig supervisor sued for unpaid overtime under the FLSA. The supervisor worked 84-hour weeks for 28 days at a time, for which he was paid nearly $1,000 for each day he worked. In February, the Supreme Court held that the supervisor was not exempt from the FLSA’s overtime requirement because his daily rate was not a flat, predetermined amount fixed independently of the number of days he worked. The supervisor was therefore entitled to overtime because he was not paid on a “salary basis.” The Supreme Court’s opinion is available here.

The Supreme Court’s ruling shows the importance of applying the FLSA exemption criteria properly, because misclassifying someone as exempt can be costly. Employers who take creative approaches to employee compensation should review their policies and ensure compliance with the FLSA.

For more information, please contact Elliot Kudisch.

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