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Practice Area Articles

United States of America

February 05, 2024

By Paul Hastings Professional

Back to International Employment Law

USA

KEY DEVELOPMENTS FOR 2024

Artificial Intelligence

In our update last year, we detailed state and local efforts to regulate employers’ use of artificial intelligence (“AI”) in making employment decisions. This year, the Federal Government dove headfirst into the AI arena too. Most notably, President Biden issued an Executive Order regarding the Safe, Secure and Trustworthy Development and Use of Artificial Intelligence. In particular, he directed the U.S. Labor Secretary and U.S. Attorney General to take steps — such as issuing guidance, technical assistance, and other resources — to ensure that employers use AI in a non-discriminatory manner. Relatedly, the Equal Employment Opportunity Commission (“EEOC”) said this past year that federal laws already on the books proscribe employers’ discriminatory use of AI. The EEOC clarified that the Uniform Guidelines on Employee Selection Procedures apply to the employers’ use of AI, so employers must guard against AI that (intentionally or not) adversely impacts protected classes of applicants or employees. The EEOC also expressed that its strategic enforcement priorities over the next five years will include investigating and remediating employers’ discriminatory use of AI. Finally, several federal agencies (including the EEOC) issued a joint statement pledging to coordinate and use their “collective authorities to protect individuals’ rights regardless of whether legal violations occur through traditional means or advanced technologies.”

Given the rise of federal, state, and local legislation and regulation, employers should take stock of their AI tools, audit them for bias, and consult outside counsel as necessary.

National Labor Relations Board (NLRB) activity

The NLRB had a flurry of activity throughout 2023, issuing three landmark decisions that significantly impacted labour relations across nearly every aspect of the employment relationship. In February 2023, the NLRB issued McLaren Macomb, 372 NLRB No. 58, holding that employers violate the National Labor Relations Act (“NLRA”) by offering non-managerial employees broadly drafted non-disparagement and confidentiality provisions. NLRB General Counsel Jennifer Abruzzo subsequently issued a memorandum suggesting that the decision could be applied to “any employer communication to employees,” such as offer letters. In August 2023, the NLRB issued Stericycle, Inc., 372 NLRB No. 113, articulating a stricter standard for assessing facially neutral workplace rules. Under the new standard, a challenged rule is presumptively unlawful if it has “a reasonable tendency to chill employees from exercising their [NLRA-protected] rights.” The rule is unlawful if an employee “could reasonably interpret the [rule] to have a coercive meaning” — even if the rule is equally susceptible to a non-coercive meaning. Finally, in September 2023, the NLRB issued Cemex Construction Materials Pacific, LLC, 372 NLRB No. 130, holding that, when a union demands recognition, the employer must either (i) recognize the union based on a check of union authorization cards, or (ii) promptly petition the NLRB for an election. The employer’s failure to do either of these is unlawful. Cemex overturned more than 50 years of precedent, under which an employer could simply refuse to recognize a union claiming to represent the workforce, leaving the union to petition the NLRB for a secret-ballot election. Now, the union’s card majority is dispositive unless the employer not only petitions for an election, but also conducts a campaign for the employees’ votes. The employer’s conduct during the campaign, too, will be closely scrutinized for unfair labour practices.

Arbitration

Many employers in the United States require their employees to sign agreements to arbitrate disputes as a condition of employment. In the wake of the #MeToo movement, some states passed laws forbidding forced arbitration of claims involving sexual harassment, but federal law still allowed for those claims to be arbitrated. That changed in March 2022 when the federal Government passed the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act, which bars mandatory arbitration in cases involving sexual assault or harassment. Courts across the country also have rendered decisions curtailing mandatory arbitration of employment claims.

KEY DEVELOPMENTS FOR 2023

Pay equity: new pay transparency and salary disclosure requirements

A recent wave of pay transparency laws nationwide is prompting more cities and states to follow suit. Seventeen states now have pay transparency laws, ranging from those that permit employees to freely discuss their pay to those that require employers to provide salary ranges to candidates in job postings. Seven states require employers to provide a minimum and maximum salary range, either automatically or if the candidate asks for it.

New York City’s newly enacted wage transparency law requires that nearly all internal and external job postings include the salary range that an employer believes in good faith it is willing to pay for the job. Noncompliant employers will be subject to damages for violations. While the New York City Commission on Human Rights will not punish first-time violators, employees can still pursue claims in a private action against the employer.

The proliferation of pay transparency laws at the state and local level is creating an increasingly complex regulatory landscape for U.S. employers that should be monitored closely.

ESG: racial equity audits

Shareholders are calling for greater accountability within companies related to ESG, specifically concerning diversity and inclusion. Many companies have faced shareholder proposals calling for racial equity audits aimed at evaluating an employer’s policies, practices and outcomes to determine whether there are gaps that disproportionately affect underrepresented minorities.

While not all shareholder proposals are approved, some companies voluntarily have undertaken racial equity audits. Audits proposed by shareholders may be costly and their scope indeterminate, but often shareholder activism helps spur an employer’s choice to voluntarily audit, even if a vote never occurs.

With an increase in shareholder activism related to ESG, employers can expect an increase in shareholder proposals for racial equity audits and demands for dialogue about their leadership in diversity and inclusion.

Laws governing artificial intelligence in employment selection processes

Legislatures are homing in on employers that use artificial intelligence (“AI”) tools to replace or substantially assist decision-making in hiring or promotions. Concerns that potential bias in AI might lead to a disparate impact on gender, race, or ethnicity has led to new laws aimed at regulating how employers use AI.

New York City recently passed a law requiring employers to have their AI tools undergo independent bias audits, publishing findings on their website. Illinois and Maryland have passed laws regulating employers’ use of AI tools in video interviews. California’s Fair Employment and Housing Council published draft changes that, if passed, would ban employers from using AI tools that screen or tend to screen out applicants or employees on the basis of a protected characteristic. Washington, D.C. introduced legislation that would prohibit employers from making algorithmic decisions on the basis of a protected characteristic, require employers to audit their algorithmic determination practices annually, and obtain written agreement from vendors of AI tools that the vendor has complied with the law.

In addition to states and localities, the Equal Employment Opportunity Commission and Department of Justice issued guidance to help employers comply with the Americans with Disabilities Act when using AI for hiring and other employment decisions. Employers should thus expect additional regulation and legislation in the coming years.

KEY DEVELOPMENTS FOR 2022

Pay equity enforcement

President Biden has made it a priority of his administration to advance gender and racial equity. For employers, this likely means a renewed focus on pay equity. Employers should expect their pay practices to be scrutinized, both by the Government and by private actors. This scrutiny may come in the form of investigations, lawsuits, or other enforcement mechanisms, as well as mandatory pay data reporting. Pay data may be collected in a report similar to the EEO-1 Component 2 report, or some other form.

Employers should conduct a privileged pay analysis to identify any areas of risk. They also should carefully review their privilege protocols to defend against a challenge to such a privilege designation. Employers should consider what remedial measures, if any, are warranted and be prepared to implement them.

A number of states have enacted legislation concerning pay transparency

A growing number of states and localities have enacted legislation concerning pay transparency in an effort to promote pay equity. In many jurisdictions, employers are limited in their ability to inquire about current salary in the hiring process, and required to publish pay scales for open positions.

More than 15 states have limited what employers may ask job candidates about their pay history. Rhode Island and Nevada are the latest states to do so. Nevada’s law is already in effect, while Rhode Island’s is not effective until January 1, 2023. Both laws prohibit employers from seeking the wage history of job applicants, and further require employers to provide a pay range for the position to job applicants under certain circumstances.

Local governments have also been actively legislating on this issue. For example, New York City recently enacted a salary disclosure law. Effective May 14, 2022, all New York City employers with four or more employees must include salary ranges, specifically the minimum and maximum potential salaries for the position, in all advertisements and postings for job openings, promotions, and transfer opportunities. The State of New York already has a salary history ban in place.

The State of Illinois will soon require private employers to obtain from the state an “equal pay registration certificate” by filing an application with the state and, among other things, certifying that average compensation for female and minority employee is not consistently below the average pay for male and non-minority employees with each of the EEO-1 report categories.

Employers in these jurisdictions should update their hiring practices to comply with these new requirements. They should also begin setting salary ranges for all positions within their organizations if they have not done so already, and consider undertaking a privileged pay audit to identify positions where adjustments may be warranted.

Mandated COVID-19 vaccinations

Many employers have mandatory vaccination policies, which require employees to provide proof of vaccination in order to report to work. While federal vaccine mandates for large employers and federal contractors are currently enjoined by court action, many employers are still required to implement vaccine mandates by other federal, state, and local laws. Even where not required by law, many employers have decided to mandate vaccines. Whether an employer’s vaccine mandate is a voluntary policy or one required by law, it is the employer’s responsibility to consider certain requests for accommodations from the mandate. An employee may be entitled to a disability accommodation under the Americans With Disabilities Act (“ADA”) or a religious exception under Title VII of the Civil Rights Act (“Title VII”).

Under the ADA, an employee with a disability may request accommodation from a vaccination requirement. Under Title VII, an employee may request an exception to a vaccination requirement because of a conflict between the requirement and their sincerely held religious beliefs, practices, or observances.

In both cases, employers must assess such requests on an individual basis. If the employer concludes that the employee has demonstrated a need for accommodation, it should thoroughly consider all possible reasonable accommodations, such as telework, masking, social distancing, testing, and reassignment. The employee is not entitled to an accommodation that would cause undue hardship on the employer.

Employers should provide employees and job applicants with information about the procedures for requesting reasonable accommodations. Employers should also ensure the individuals tasked with assessing such requests are properly trained and informed of the latest guidance from the Equal Employment Opportunity Commission.

KEY DEVELOPMENTS FOR 2020

Legislation enacted to limit the use of non-disclosure agreements

In the wake of the #MeToo movement, critics have taken aim at the use of non-disclosure provisions in settlement agreements that prevented victims from later divulging the facts and circumstances of those attacks. As a result, some states and cities have sought to limit employers' use of non-disclosure agreements in settlements of harassment and other claims. For example, New York recently enacted legislation that prohibits New York employers from requiring non-disclosure of the underlying facts and circumstances of any claim of discrimination unless non-disclosure is the complainant's preference. New York's law sets forth a number of procedural requirements to establish whether non-disclosure is the complainant's preference, including that the provision must be provided to the complainant in writing in the complainant's primary language, and that the complainant must be given 21 days to consider the provision and seven days to revoke their agreement to it.

Joint Employer rules

On 26 February 2020, the National Labour Relations Board announced its new final rule governing joint-employer status under the National Labour Relations Act. The new formulation of the joint-employer standard requires a company to exercise "substantial direct and immediate" control over one or more "essential terms and conditions of employment “in order to be considered a worker's employer. The final rule defines these key terms in detail, effectively restoring the joint employer standard that was applied for decades prior to the 2015 Browning-Ferris decision, but with greater guidance. The final rule came into effect on 27 April 2020.

The Department of Labor ("DOL") has introduced a new rule redefining joint employer status, which came into effect on 16 March 2020. The rule provides that an entity will be considered a joint employer a joint employer "if that entity is acting directly or indirectly in the interest of the employer in relation to the employee". To determine whether an entity meets the joint employer requirement, the DOL will apply a four-factor balancing test analysing whether the potential joint employer: (i) hires or fires the employee; (ii) supervises and controls the employee's work schedules or conditions of employment to a substantial degree; (iii) determines the employee's rate and method of payment; and (iv) maintains the employee's employment records. The DOL also provides for joint employer liability in the circumstances of indirect control, which the DOL explains as mandatory directions given by the purported joint employer to the employer that directly controls the employee. It is anticipated the Equal Employment Opportunity Commission ("EEOC") will also be releasing a new rule according to the EEOC's agenda released in 2019.

Title VII recognises discrimination on the basis of sexual orientation and gender identity

On 15 June 2020, the United States Supreme Court issued a ruling in Bostock v Clayton County, consolidating three cases where, in each situation, an employee claimed that their employer violated Title VII by firing them because of their sexual orientation or transgender status. The question before the Court was whether Title VII's prohibition on discrimination "because of … sex" covered sexual orientation and gender identity. Gerald Bostock, the case's namesake, was fired from his nearly decade long role with the county court system for "conduct unbecoming of a county employee" only months after he joined a gay softball league. Skydiving instructor, Donald Zarda, was fired after he had told a customer that he was gay, for the stated reason of failing to provide an enjoyable experience for the customer. Finally, Aimee Stephens was fired two weeks after telling her employer that she would be transitioning to female after having been hired as male-presenting, for the express reason of her transition.

In this ground-breaking decision, the Supreme Court held that both sexual orientation and gender identity are "inextricably bound up with sex . . . because to discriminate on these grounds requires an employer to intentionally treat individual employees differently because of their sex." The majority leaves open the possibility that Title VII's now-clarified protections for LGBTQ people may be superseded by religious liberty claims brought under Title VII's ministerial exception or the Religious Freedom Restoration Act. These claims were not before the Court in Bostock. Finally, the Bostock decision may affect interpretation of the numerous other federal statutes prohibiting discrimination because of sex, but these implications are yet to be seen.

KEY DEVELOPMENTS FOR 2019

Sexual harassment and #MeToo

In response to the #MeToo movement that surfaced in 2017, many states and cities have enacted or proposed legislation to address sexual harassment in the workplace. For example, New York State now requires employers to provide anti-harassment training on an annual basis, and to adopt investigation procedures for handling complaints of harassment. New York employers are no longer authorized to require that the underlying facts and circumstances of a sexual harassment claim be kept confidential as part of a settlement of such a claim. New York employers not covered by the Federal Arbitration Act can no longer require pre-dispute arbitration agreements covering such claims. The #MeToo movement has also prompted some employers voluntarily to discontinue arbitration as a means of resolving certain employee disputes.

Arbitration

The U.S. Supreme Court continues to make decisions rejecting efforts to invalidate employers’ pre-dispute arbitration agreements. In May 2018, the Court held in a 5-4 majority decision that arbitration agreements must be enforced as written, and that class- and collective-action waivers in employment arbitration agreements are permissible under the National Labor Relations Act. In reaction to the Supreme Court’s decision, some lawmakers have introduced bills to forbid class and collective-action waivers in employment arbitration agreements, and some major employers have indicated that they will no longer require employees to sign arbitration agreements.

New test for determining whether a worker is an employee

In May 2018, in the case of Dynamex Operations West, Inc. v. Superior Court, the California Supreme Court replaced the old test for determining whether a worker is an employee or an independent contractor with the three-part “ABC” test. The “ABC” test requires the employer to establish the following:

that the worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract and in fact;
that the worker performs work that is outside the usual course of the hiring entity's business; and
that the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed.

As a result, many businesses in California will need to examine their use of independent contractors, including any independent contractor agreements, to ensure compliance with the new California “ABC” test.

KEY DEVELOPMENTS FOR 2018

U.S. Supreme Court to Rule on Class Action Waivers in Employment Arbitration Agreements

The U.S. Supreme Court is expected to rule in the first quarter of 2018 on whether employers may lawfully include class action waivers in arbitration agreements with employees. The effects of the decision will be widespread, particularly for employers with class action waiver arbitration programs currently in place.

Salary History Bans Enacted to Address Pay Equity

In response to a growing concern that pay inequity among men and women is in large part due to systemic disparities, many states and localities have enacted laws that prohibit employers from inquiring about prior compensation as part of the recruitment process. Some laws prohibit prior salary history being relied on as a factor in setting compensation for a new hire, while others make it an unlawful employment practice to inquire about prior salary.

#Metoo and Increased Focus on Sex Discrimination

The “me too” movement will continue into 2018. 2017 will be remembered as the year in which prominent men in the media, politics and other industries have been accused of sexual harassment and even assault, resulting in the termination of their employment and, in some cases, lawsuits. This movement has, however, had an impact broader than just an uptick in claims. Tax reform legislation eliminates the deductibility of confidential settlements of sex harassment or abuse claims. Multiple bills are pending in Congress that would preclude employers from using pre-dispute arbitration agreements for sex discrimination claims under Title VII and one would effectively preclude pre-dispute arbitration agreements in the employment setting altogether. This movement has also driven a continued focus at the federal, state and local level on the enforcement of pay discrimination laws.

KEY DEVELOPMENTS FOR 2017

President Trump’s election spells big changes

President Trump campaigned on overturning the Affordable Care Act, cancelling President Obama’s Executive Orders, and rolling back federal regulations. Details on such policies remain pending. Of note, two of President Obama’s policies hang in the balance. First, a Department of Labor final rule increasing the threshold salary for the white collar exception to the Fair Labor Standard Act’s minimum wage and overtime pay protections was supposed to go into effect last November but is currently stayed by a federal court. Second, President Obama’s Fair Pay and Safe Workplaces Executive Order requiring prospective federal contractors to report labor law violations and pay transparency data was supposed to be operational last October but is currently stayed by a federal court. It is not yet known how President Trump will proceed with either litigation or the regulations generally. President Trump will have the opportunity to appoint members to the National Labor Relations Board and the Equal Employment Opportunity Commission in 2017.

Pay equity laws implemented in many states

Various states have enacted laws prohibiting employers from paying employees wage rates that are less than what they pay employees of the opposite sex for “substantially similar” work. Many states have increased reporting requirements and record retention requirements. In 2017, states and cities will also be considering wage inquiry bills that would prohibit an employer from asking a prospective employee about her prior earnings.

States are raising minimum wages

The California and New York legislatures have enacted legislation to raise the minimum wage. On election day, voters approved ballot measures that will raise state minimum wages beginning on January 1, 2017 in Arizona, Colorado, Maine, and Washington.

KEY DEVELOPMENTS FOR 2016

The Dodd-Frank Whistleblower Program of the SEC offered huge awards to whistleblowers this year

The Dodd-Frank Whistleblower Program awarded multi-million dollar awards to individuals who voluntarily provided original information about possible violations of federal securities laws.

Restroom access for transgender workers

Under President Obama, various federal agencies required, or recommended, that bathroom access be provided to match an employee’s stated gender identity. Six states have laws requiring that employees have the right to use facilities consistent with their gender identities. In contrast, eleven states sued the federal government over similar guidelines for public school facilities.

The Defend Trade Secrets Act is in effect

The Defend Trade Secrets Act provides trade secrets with the type of protection afforded to other types of intellectual property. Wrongful acquisition or wrongful use or disclosure of trade secrets violates the law.

The Act contains whistleblower protections. Employers must provide notice of the immunity in any new or updated agreements that govern trade secrets or confidential information.