Policy Matters Newsletter - March 3, 2023

Biden Officially Nominates Su To Replace Marty Walsh. This week, President Biden officially announced the nomination of Julie Su to replace Marty Walsh atop the Department of Labor. We have had numerous occasions to discuss Julie Su in this space. As we noted in the last iteration of this newsletter, “[s]hould Su be the nominee, employers should brace for somewhat of a transition from Walsh’s emphasis on labor-related matters to those more squarely within Su’s spheres of interest — enforcement of wage and hour laws and regulations.” Prior to the move to the federal government, Su served as labor secretary in California for several years, where she earned a reputation as a fierce advocate for immigrants and low-wage workers. Also, relevant is Su’s experience as an architect of AB 5 in California, a controversial law that addresses the classification of workers as independent contractors, a particularly salient topic as the federal Department of Labor is currently hyper-focused on misclassification of independent contractors.

NLRB Rules: No More Non-Disparagement In Severance Agreements. In a seemingly sea-changing decision, the NLRB has held that it is an unlawful employment practice to condition severance agreements on workers agreeing not to disparage the employer or speak to the contents of the agreement, as Seyfarth summarized here. The decision constitutes a reversal two decisions from the NLRB under the previous administration which rendered such provisions illegal only in certain specific circumstances. Notably, in this specific case, the provisions before the Board contained extremely broad restrictions and arose in the context of underlying unfair labor practices (“ULPs”) charge that included circumventing a certified bargaining representative. As such, there is still room to argue that more narrowly-tailored provisions in different circumstances may not violate federal labor law, but employers should tread carefully. Analyses of the measure range from “this is the end of confidentiality and non-disparagement in employee Settlement Agreements” to “this is much ado about nothing.” Whether or not this decision will develop into a blanket prohibition on confidentiality and non-disparagement provisions in severance agreements is yet to be seen. One major issue not addressed by the opinion is whether the NLRB will attempt to apply this ruling to agreements with employees not covered by the NLRA. Employers should devote some time to updating template severance agreements, with a focus on tailoring those provision to be more narrow. Contact your favorite Seyfarth counselor for assistance with drafting updated agreements.

Not So Fast: GOP Dual Attack On DOL’s ESG Rule. In this space, we have discussed the DOL’s laborious efforts (since at least 2020!) to pass a rule permitting — not requiring — retirement plans subject to ERISA to consider environmental, social and corporate governance factors when making investment decisions. When the rule finally became live, the GOP and some moderate democrats derogatorily labeled the rule as too “woke,” and a two-pronged strategy to take the rule down has begun. 

First, twenty-five states under a republican administration have joined to file a lawsuit asking a federal judge in Texas to enjoin the rule. The challengers argue that the rule violates ERISA by permitting consideration of non-pecuniary factors in making investments, violates the so-called major questions doctrine — recently given renewed life after the decision in West Virginia v. EPA — and is arbitrary and capricious in violation of the Administrative Procedure Act. Texas Attorney General Ken Paxton, who is leading the litigation charge, asserts that the rule “prioritizes woke Environmental, Social and Governance investing over protecting the retirement savings of approximately two-thirds of the U.S. population.” The administration counters that it is legitimate for the plans to consider climate, and other ESG-related criteria, in long-term investments (for the procedural nerds out there: the administration is seeking a change of venue to either elsewhere in Texas, or to D.C., where the DOL is headquartered).

The front line of the battle over the survival of the rule is not limited to the Courts, but has taken center stage in Congress (and in the media), and will likely lead to the President issuing his first veto. Congress— that is, despite the political divisions, both the House and the Senate — have passed H.J. Res. 30, which overturns the rule. While only one House Democrat voted in favor of the resolution, on the Senate side, it was supported by Senators Joe Manchin (D-WV) and Jon Tester (D-MT), with three democrats not voting: Feinstein (D-CA), Fetterman (D-PA), and Merkley (D-OR). The President has already signaled that he will veto the measure rendering those votes somewhat performative, but it draws a stark line in the policy debate sand box.

Regardless of the dual-pronged attack against the rule, at the end of the day, the final rule does not sway from the following, “longstanding principles”: (1) ERISA’s duties of prudence and loyalty require ERISA fiduciaries to focus on risk and return factors when investing plan assets; and (2) an ERISA fiduciary’s duty to manage plan assets includes exercising rights associated with those assets (e.g., proxy voting).

Executive Order Mandates Additional Equity And Inclusion In Federal Agencies President Biden recently signed an Executive Order on equity in the Federal government, an order with quite the broad remit. The Order establishes Agency Equity Teams at all Cabinet Departments and major agencies, headed by a designated equity official. Among other tasks, the teams “shall support continued equity training and equity leadership development for staff across all levels of the agency’s workforce”; teams should have “sufficient resources, including staffing and data collection capacity, to advance the agency’s equity goals.” Under the supervision of a White House Steering Committee on Equity, each agency head shall implement “a comprehensive equity strategy that uses the agency's policy, budgetary, programmatic, service-delivery, procurement, data-collection processes, grantmaking, public engagement, research and evaluation, and regulatory functions to enable the agency's mission and service delivery to yield equitable outcomes for all Americans, including underserved communities.” Beginning in September, agencies will be required to deliver an Equity Action Plan to the White House.

Notably, the Order also seeks to prevent “algorithmic discrimination” in Federal activities and provides that “[w]hen designing, developing, acquiring, and using artificial intelligence and automated systems in the Federal Government” agencies do so “in a manner that advances equity.” Artificial Intelligence has reared itself as a formidable issue in labor and employment law, as we discussed in this podcast.

The Order also focuses on using Federal resources to “build community wealth” in rural America (including “good, high-paying union jobs in rural areas”) and underserved urban areas. Finally, the Order sets a 15 percent goal for Federal procurement dollars “awarded to small businesses owned and controlled by socially and economically disadvantaged individuals” and will set an intermediate goal for Fiscal Year 2024 to “expand procurement opportunities for SDBs” in funding under the Infrastructure Investment and Jobs Act and the Inflation Reduction Act.

DOL Releases Its Agenda. The Department of Labor recently released its Semiannual Agenda of Regulations, which proposes two regulations on controversial employment issues: (1) exemptions from overtime classifications, and (2) worker classification issues. As we previously reported here, employers can expect to see an increase in the minimum salary for exempt status — currently $684 per week, which annualizes to $35,568.

Per the agenda, the DOL is also planning revisions to regulations on H-2B visas for temporary non-agricultural workers and on temporary agricultural employment. The Occupational Health and Safety Administration is also planning a revised rule on chemical accidents and, of course, the ETS for healthcare workers, which has the subject of much talk, but not much action.  Note that a revision to the DoL Joint Employer rule which was contained in previous Agenda was not included in the latest version.

The EEOC Targets Construction Industry For Heightened Enforcement. As Seyfarth recently reported here, on January 10, 2023, the EEOC released for public comment its draft 2023-2027 Strategic Enforcement Plan (“SEP”). As we discussed here, the EEOC’s prior Strategic Plan described how it would pursue its enforcement goals. The Strategic Enforcement Plan, on the other hand, describes what the EEOC’s enforcement priorities will be. Earlier actions by the EEOC suggested that it might be turning its attention to the construction industry, however, in the SEP, the EEOC makes its intentions explicit, putting the construction industry—and especially those receiving federal funding—squarely in its sights.

The EEOC included the following statement: “The lack of diversity in certain industries and workplaces (such as construction and high tech, among others), especially in growth industries and industries that benefit from substantial federal investment, are also areas of particular concern. Although this priority typically involves systemic cases, a claim by an individual or small group may qualify if it raises a policy, practice, or pattern of discrimination.” As such, construction industry employers should expect that the EEOC will continue to make good on its promise to litigate large-scale, high-impact, and high-profile investigations and cases that address the issues identified as its enforcement priorities and areas of focus.

Some Highly-Compensated Employees Still Must Meet Reasonable Relationship Test. In Helix Energy Solutions Group, Inc. v. Hewitt, a decision that was issued on February 23, 2023, the Supreme Court held that highly-compensated employees paid solely on a day rate, as opposed to a weekly payment, must meet the so-called “reasonable relationship test” to satisfy the salary basis requirement for exemption from overtime requirements under the FLSA. As Seyfarth reported here, SCOTUS considered whether a day-rate employee earning at least $963 per day and over $200,000 annually was paid on a “salary basis” under the highly-compensated employee exemption to the overtime requirements of the Fair Labor Standards Act.  In a 6-3 opinion, the Court held that the plaintiff was not exempt because, although he was highly compensated, he was not guaranteed a weekly amount. Accordingly, employers who pay their exempt workers daily should consider assessing their pay practices to ensure continued compliance. This ruling is a lesson in statutory interpretation: while exempting this highly-compensated employee furthers the spirit of the law, the text of the statute does not permit for exemptions for employees paid solely on day rate.

Despite Legislative Efforts, Arbitration Alive and Well in California. As we reported here, recent efforts at limiting arbitration in California have been unfruitful as the Ninth Circuit Court of Appeals recently held that the Federal Arbitration Act preempts a California law prohibiting employers from requiring job applicants or workers to sign arbitration pacts. There are still many legislative efforts levied against arbitration, including a recent California bill––S.B. 365­­–– that would eliminate the typical “stay” on litigation while a petition to compel arbitration is being appealed. Employers can expect ongoing challenges to arbitration in California throughout the year both in the courts and legislature, but for now the recent appellate decision requires California to respect the right of private enterprises to require employees to waive their right to go to court over most disputes arising out of employment.