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Key Takeaways
- The election cycle and an increasingly empowered federal judiciary have resulted in a fair amount of activity on the regulatory front over the last year.
- Major regulatory actions include areas such as accommodation protections for pregnant workers, retirement planning, and banning non-compete agreements.
- The most impactful decision from the Supreme Court from a business perspective may be Loper Bright Enterprises v. Raimondo, which overturned Chevron and may result in a dramatically different regulatory framework than what we’ve seen over the last 40 years.
ARTICLE | Legal/Compliance Year In Review
The 2024/2025 term for the US Supreme begins the first Monday in October.
In the next installment of this series, we’ll cover some of the major cases that the Court is expected to hear throughout the coming term, as well as how the potential range of decisions may affect some of the issues most relevant to business, labor, insurance, and workforce management.
In the meantime, however, on the final day of the 2023/2024 term, we thought it might be beneficial to take a look back at some of the legal and regulatory issues that have shaped these topics over the last year - including Supreme Court rulings, agency rules, and beyond - as preface for the arguments that will be unfolding before the Supreme Court from tomorrow through April with decisions handed down next summer.
What follows is a collection and summary of some of the most relevant entries over the last year into our Legal/Compliance Roundup blog series, which are posted monthly here.
Noteworthy Judicial Cases & Developments
Non-Competes Banned, Then Ban Put On Hold
The FTC banned non-compete agreements last year, but shortly thereafter a federal judge in Texas issued a ruling that currently applies nationwide and overturns the FTC’s rule banning non-compete agreements.
The judge indicated that the ban is too broad and that the FTC is limited to challenging unfair competition on a case-by-case basis but lacks the authority to issue a blanket ban and the evidentiary basis to justify such a ban were it permitted.
The FTC has until the latter part of October to appeal the decision, but the non-compete ban will likely remain unenforceable in the meantime.
That said, other cases addressing the non-compete ban are working their way through other federal districts, and should one of those cases rule differently, these issues may get fast-tracked for resolution by the US Supreme Court.
Federal Tip Credit Rule Is Simplified
On August 23, 2024, the Fifth Circuit Court of Appeals overruled the Department of Labor’s 80/20/30 rule for tip credits.
As a result, employers no longer need to distinguish between tip-producing and tip-supporting work when calculating tip credits.
It is important to note that this ruling only applies to the federal DOL rule, and does not affect any state or local labor rules regarding minimum wage and/or tip credits.
You can read more about the 80/20/30 rule being vacated here.
Supreme Court Sides With Employee In Title VII Discrimination Interpretation
The case at issue involved a male employee replacing a female employee who was transferred to a new department where her pay and title remained the same but her scope of duties, schedule, and some job perks did not.
The Court held that a job transfer did not need to have caused ‘significant’ harm to an employee in order for the employer to have violated Title VII.
Supreme Court Ends Chevron Deference
The Supreme Court parted with precedent and abandoned the Chevron deference doctrine that has guided regulatory rulemaking for the last 40 years.
When Federal agencies enforce the laws that Congress writes, they often have to make judgment calls in interpreting the statutory language about how to practically go about accomplishing the intentions of the law.
For the last 40 years, those agencies have relied on Supreme Court precedent requiring courts to defer to the agencies’ judgment calls in interpreting how to enforce federal statutes so long as there was some ambiguity about what the statute intended that the agencies had interpreted in a reasonable manner.
That deference was especially relied upon when agencies were interpreting federal laws that were written a long time ago, like the Fair Labor Standards Act, which was written in the 1930s when working conditions, and American life for that matter, were very different.
With the Supreme Court’s latest decisions in the cases of Relentless v. Department of Commerce and Loper Bright Enterprises v. Raimondo, however, that deference previously afforded to federal regulators in interpreting ambiguous federal laws and filling in the gaps will now be shifted to the federal courts.
While the rulings will not overturn all previous decisions that have been based on the deference previously afforded executive agencies, of which there are thousands, those previous challenges are now ripe to be litigated, only now the government will have to justify their interpretation of the statute and their resulting authority to take a given action with persuasive reasoning, which will likely prove to be a much harder standard for federal regulators to meet.
It may take some time before major effects from this decision start being felt, but the regulatory landscape will likely look very different in the next 5 years than it has for the past 30, and at the very least there is likely to be significant confusion in the meantime.
Noteworthy Executive & Regulatory Developments
Federal Contractor Wage Determination
Back in October of 2023, The US Department of Labor began implementing a rule that updated the Davis-Bacon Act in a comprehensive way for the first time in more than 4 decades.
According to the updated regulation, if a given federal construction contract is meant to include a wage-determination calculation but that calculation is omitted within the contract, contractors are now required to reimburse any employees who may be negatively affected by the omission, and the federal agency responsible for contracting must reimburse the contractor accordingly.
You can read more about the new rule here.
Secure Act 2.0
The Secure Act 2.0 took effect at the beginning year, ushering in some sweeping changes to retirement planning and savings administration in the US, including:
- Mandatory 401k Enrollment: Most companies with more than 10 employees that have been in operation for at least 3 years will be required to automatically enroll employees into their 401k plan with between 3% and 10% automatic contributions. There’s also a tax credit available for many companies to cover the additional administrative burden of automatic enrollment.
- Starter 401ks With No Employer Match Requirement: The expense of matching employee contributions has deprived many employees over the years of the benefits of having a 401k account even in the absence of matching employer contributions, which should no longer be an issue under the new law.
- Increased Catch-up Contributions: The amount of annual contributions that employees can begin putting into their 401ks at age 50 is being increased by 50% from $6,500 to $10,000, and that limit is now indexed to inflation to ensure it keeps up with the cost of living.
- Increased Emergency Savings Account Flexibility: Despite more than 4 in 10 US workers expressing a desire to be automatically enrolled in an emergency savings account program through their employer, only about 1 in 10 employers offered such an opportunity as of 2022. The Secure Act increases the flexibility and ease with which employers can now offer such accounts via withholding as much as 3% of opting-in employees’ paychecks up to $2,500 to be placed into said emergency savings accounts, from which employees can then withdraw their money untaxed up to four times a year with no penalties whatsoever.
Defining Employees vs. Independent Contractors
In determining whether a given worker should be classified as an employee or as an independent contractor, as of March 11, 2024, the Department of Labor effectively reverted back to ‘the economic reality’ test.
The economic reality test takes into account the following 6 factors when evaluating workers' employment status and classification:
- Whether it is possible for the worker to either profit or lose money as a result of the arrangement;
- What investments have the employer and worker each made toward completing the work;
- Is the working relationship a more permanent arrangement or more temporary;
- How much control does the employer exert over the worker’s process;
- How crucial is the worker’s output to the employer’s business; and
- The levels of skill and initiative possessed by the worker.
You can find more information from the DOL on determining employee and contractor status here.
Further, the Internal Revenue Service released an information letter that clarifies the primary factors that determine whether a given worker should be properly classified as an employee or as an independent contractor for tax purposes.
When making this determination, the main consideration is how much control and autonomy does the worker have in doing the job, which can be analyzed in light of three primary factors:
- Behavioral Control: The main question to ask when assessing whether a worker is subject to the behavioral controls of a supervisor and should therefore rightly be classified as an employee is whether or not the recipient of the worker’s services has the right to control or direct how the work is done. Providing the worker with training or instructions on how to complete the required task and/or providing an evaluation of the worker’s performance or an evaluation of the work itself upon completion might all be indicative that the worker should be classified as an employee.
- Financial Control: Whether the recipient of the worker’s services has control over the financial aspects of the job is another important consideration when assessing employment status. For example, some good questions to ask are how was the method of paying the worker determined, has the worker made a significant investment in order to complete the work (as well as if/how reimbursements were involved), and is there an opportunity for the worker to profit or incur a net loss as a result of their work.
- Relationship Between Worker and Work Recipient: The relationship between the parties is not only determined by their agreements and contracts but also by their other actions with respect both to the work and to each other. How each party represents the nature of their relationship to others - including other employees and/or contractors - can also factor into the determination, in addition to whether or not the worker offers similar services more broadly to the market in general.
The IRS also noted that while it can not make determinations as to whether or not a prospective employee would properly be classified as an employee or independent contractor, the IRS will issue a letter ruling on prior employment status which can then be applied to all other workers engaged under substantially similar circumstances.
Employers Who Reject Job Applicants Due to Credit Reports Must Provide Credit Rating Agency Info
On March 20, 2024, the Consumer Protection Bureau began enforcing its rule requiring Employers that reject job applicants due to information obtained through a credit report to provide the rejected applicant with information about the credit reporting agency from which the report was obtained, including name, address, and telephone number.
This rule, which went into effect in April of 2023, is an update to 2018’s Summary of Your Rights Under The Fair Credit Reporting Act.
You can read more about the new rule, its impact, and enforcement here.
Pregnant Workers Fairness Act
The final regulations in support of the Pregnant Workers Fairness Act (PWFA) went into effect on June 18, 2024.
Some of the accommodations that the final rule presumes to be reasonable absent an especially significant justification for denying the accommodation, including allowing pregnant employees to:
- Take breaks to eat and drink;
- Keep water nearby;
- Use the restroom as needed; and
- Sit or stand as needed
The rule also places a number of limitations on when employers can require supporting documentation in order for employees to request or receive accommodations under the rule, allowing employers to request such documentation only when it is reasonable under the circumstances.
The final rule also requires accommodations for medical appointments and defines certain terms broadly enough to require accommodations for medical care involving fertility, contraception, and situations when pregnancies abruptly end whether willfully or not.
You can find the final rule here.
OSHA Hazardous Industry Electronic Submission Requirements
In addition to submitting form 300A, firms that have at least 100 employees and operate in industries that have been designated as hazardous must electronically submit data from their injury and illness logs.
You can find additional information about OSHA electronic submission requirements here.
New Notice Requirements For Enrolling and Re-enrolling Certain Policies
A new federal rule addressing short-term limited duration insurance and independent non-coordinated benefits like fixed indemnity and specific-disease or illness policies was published on April 3, 2024.
The rule is the result of a joint effort between several federal agencies and includes a requirement that the first page of any materials marketing application enrollment and re-enrollment must include notice to potential and current policyholders that the policy does not provide comprehensive benefits.
This notice requirement takes effect for applicable policies issued or renewed after January 1, 2025.
You can find that new rule here.
New FLSA Minimum Wage Poster
The Department of Labor released a new iteration of its Employee Rights Under Fair Labor And Standards Act Poster, which employers are required to display.
You can find that FLSA poster here.
Overtime/Minimum Wage Exemption Threshold Increased
The Department of Labor increased the pay thresholds for Executive, Administrative, and Professional employees (EAP) including salaried computer workers, and Highly Compensated Employees (HCEs) to remain exempt from federal minimum wage and overtime laws.
On July 1, 2024, the EAP exemption threshold increased from $35,568 to $43,888. That threshold number is also set to rise again the following year on January 1, 2025, when the EAP exemption minimum annual salary rises to $58,656, after which automatic increases will begin July 1, 2027, and every three years after that.
The increase in the minimum HEC exemption threshold follows a similar path, with the first increase up to $132,964 beginning today, before increasing again to $151,164 on January 1, 2025, and every three years after beginning on July 1, 2027.
The overtime and minimum wage exemption threshold for computer workers that are paid hourly remains at $27.63 per hour, while the threshold for computer workers paid on a salaried basis is linked with the EAP minimum.
Barring any unforeseen changes or court-initiated interventions, the first exemption-threshold increases are set to take effect in one month.
In preparation, employers and human resources professionals may want to identify all the employees who may be affected and assess whether to increase their pay in accordance with the rate increases or whether it is better to begin paying them overtime (and minimum wage if applicable) instead.
You can find more about these exemption threshold increases here.
HSA & HDHP Inflation Adjustments Announced
The IRS announced the 2025 adjustments to health savings accounts and high deductible health plans:
The self-coverage limit increased by $150 to $4,300 while the family coverage limit increased by $250 to $8,550.
- There was a $50 dollar increase on the minimum annual HDHP deductible, bringing it up to $1,650, while the family coverage deductible rose by $100 up to $3,300.
- The maximum yearly out-of-pocket expenses for single coverage HDHPs, including premiums, deductibles, and other related expenses) rose by $250, up to $8,300, while the family coverage equivalent increased by $500, up to $16,600
You can read more about the adjustments here.
ACA Affordability Threshold Increase
Large employers with an average of 50 or more full-time employees or the equivalent are required to either offer employees minimal, affordable health coverage or they must pay a penalty in the event that an employee secures health coverage with a premium tax credit via the exchanges.
In 2025, the threshold for what qualifies as affordable coverage increases from 8.39% to 9.02%, which means that an employee’s required contribution to the plan can be no more than 9.02% of their salary in order for the plan to be considered affordable, which allows employers to avoid potentially paying the penalty.
You can read more about the affordability threshold here.
Noteworthy Policy Developments
Universal Paid Sick Leave Is Overdue
A recent piece from the Center for American Progress makes the case that universal paid sick leave leads to better outcomes for employees and employers alike.
The authors argue that a federal policy is necessary to supersede the patchwork set of rules and regulations on state and local levels in order to provide a more equitable competitive landscape among companies doing business all across the country.
Further, the benefits of universal paid sick leave wouldn’t stop with employers and their families, or even with the companies themselves who can expect to see increased productivity and reduced turnover as a result, but even public health and the US economy as a whole would see net gains from the enactment of universal paid sick leave legislation.
You can find the relevant data and analysis here.
Workplace Psychological Abuse Regulations
Supporters want to see the Workplace Psychological Safety Act become the new template across the country for how psychological abuse is reported, managed, and prevented at work.
Unlike many current laws addressing workplace harassment, the Workplace Psychological Safety Act has no requirement that ties the bullying behavior to protected status on the part of the victim, thus removing one of the major obstacles to complaint filing and dispute resolution.
The model legislation requires employers to:
- Promptly investigate complaints of workplace psychological abuse;
- Implement policies aimed at combating abuse; and
- Submit diversity metrics and abuse reports quarterly, which will then be made available via public search in an effort to increase transparency and incentivize compliance.
The model legislation also enables victims of on-the-job psychological abuse to:
- Request internal investigations by their employers in order to circumvent some of the red tape that can sometimes bog down investigations conducted by state agencies; and
- Sue employers for failing to adequately address the abuse in accordance with the law.
While the Act has yet to be enacted by any state legislature, the momentum seems to be building, with statehouse support in Rhode Island, Massachusetts, and New York.
Pre-Tax Deduction Primer
Forbes Advisor published a helpful piece that breaks down some of the key aspects involving pre-tax deductions, what is permissible, what isn’t, and how they work.
The core idea behind pre-tax deductions, of course, is that they can benefit employees directly in some way while also reducing their taxable income.
Some examples of pre-tax deductions include contributions toward health plans, insurance coverage, dependent care, and transportation benefits, all of which can be taken from employees’ gross income prior to calculating any taxes.
It’s important to keep an eye on the compliance issues involved, however, given that many types of pre-tax deductions are capped, including some retirement accounts, FSAs, and HSAs. Also, there are eligibility requirements, specific rules for specific plans, and limitations that apply exclusively to highly-compensated employees that must all be adhered to when administering these types of programs, as well.
You can read more about the issues involving pre-tax deductions here.
Mployer’s Take
For the Executive Agencies, it was business as usual for the most part, but with the greater sense of urgency that comes in the final year of a presidential term when the future of agency leadership and policy prioritization is uncertain.
The implementation of the Pregnant Workers Fairness Act and the Secure Act 2.0 were certainly significant, but perhaps the largest and most ambitious regulatory change was the Federal Trade Commission’s ban on non-compete agreements, which has since been put on hold by a federal judge as the legality of the plan is adjudicated and makes its way through the court system.
That system and the process of regulations getting challenged in federal court is likely to see a lot more activity in the coming years, as well, in the wake of the Supreme Court’s overturning of the Chevron doctrine, which puts significantly more power in the hands of judges in terms of evaluating executive agency action.
While the impacts of the Supreme Court’s decision to abandon Chevron precedent will not be immediate, the next several years may bring with them substantial upheaval of the existing regulatory framework that has been established over the last 40 years.
And although that kind of subtle, yet ground-shifting impact will be tough to match, in the next installment we’ll highlight some of the cases set to be heard and decided by the Supreme Court in the new term beginning this week, and given the Court’s activity over the last couple of years, some of those cases may be primed to have comparably significant impacts as to how business is conducted in the US, as well.
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