7 Changes to Labor and Employment Legal Standards in 2023

In the first session of 2024’s Law & the Workplace webinars, labor and employment attorney Tom Cunningham reviewed 2023 legal changes for employers. He also made predictions for the coming year. Here are highlights from his client-exclusive January presentation.

 

For labor and employment law, 2023 was a year of rapid and aggressive change.

 

The National Labor Relations Board (NLRB) implemented changes that will be consequential for nonunionized workplaces. The U.S. Department of Labor (DOL) clarified rules for classifying independent contractors. It also turned greater attention to Iowa child labor laws.

 

State and federal courts also handed down decisions that change how employers handle legal issues in the workplace.

 

 

1. Individual Liability Under the Iowa Civil Rights Act

A 2023 Iowa Supreme Court decision found that individual liability cannot extend to coworkers in hostile work environment cases. 

 

In 1999, Vivian v. Madison, 601 N.W.2d 872, 872 (Iowa 1999) decided that managers, supervisors, and sometimes coworkers could be held individually liable under the Iowa Civil Rights Act (ICRA). Individual liability was in addition to the employing entity’s liability.

 

In 2021, Rumsey v. Woodgrain Millwork, Inc., 962 N.W.2d 9 (Iowa 2021) addressed the contours of individual liability. The case dealt with alleged discriminatory decision-making. It found that individual liability under the ICRA extends only to those persons who are personally involved in, and have the ability to effectuate, an adverse employment action, regardless of status as “supervisors,” e.g., those with final decision-making authority.

 

In a suit alleging a racially hostile work environment, an employee attempted to hold a coworker liable. The Iowa Supreme Court found in Valdez v. West Des Moines Cmty. Sch. Dist., 992 N.W.2d 613 (2023), that individual liability under the ICRA does not extend to a coworker in a case alleging maintenance of a hostile work environment by the employer.

 

The decision contains three elements of importance to employers:

• It recognized individual liability under the ICRA only for allegedly discriminatory decisions resulting in adverse action.
• Hostile environments are alleged to be maintained by the employer. Liability based on coworker conduct exists only when the employer knew or reasonably should have known of conduct and failed to take prompt appropriate remedial action.
• Coworkers do not have the ability to effectuate the hostile environment.

 

 

2. Iowa Child Labor Laws

The Iowa legislature made significant changes to the state’s child labor laws. Among the extensive changes is an increase in the number of hours per day and per week that 14- and 15-year-old employees can work. The legislature also expanded the kinds of activities minors can be hired to do. For example, under limited conditions, 16- and 17-year-olds may serve alcoholic beverages.

 

Many of the state child labor law changes are inconsistent with federal regulations. The best practice for employers is to follow the stricter federal law.

 

The DOL will place more scrutiny on enforcement in Iowa. A number of federal investigations into child labor issues are active. Investigations come with potentially expensive fines, penalties, and defense costs.

 

Also, it is likely the DOL will “shop” for other potential wage and hour violations as it conducts its child labor investigations.

 

 

3. Higher Employer Hurdle for Denying Religious Accommodations

In Groff v. DeJoy, 600 U.S. 447 (2023), the U.S. Supreme Court set a much higher hurdle for employers determining whether an employee’s religious accommodation request would cause an undue business burden.

 

Title VII, the point of dispute in the Groff case, was interpreted up to that point to require only a de minimus standard. In other words, only a slight increase in cost was enough for an employer to deny a religious accommodation request. The Supreme Court disagrees.

 

The decision said that federal antidiscrimination law requires an employer to show that “the burden of granting an accommodation would result in substantial increased costs in relation to the conduct of its particular business.”

 

Courts will now apply an undue burden standard that considers:

• What’s the particular accommodation?
• What’s the impact on the employer in light of their nature, size, and operating costs?

 

Employers’ best practices might be to:

• Mirror the Americans with Disabilities Act (ADA) accommodation process.
• Train managers and HR staff on how to address requests.
• Adjust policies or written materials, if needed.
• Provide written reasoning for denying a religious accommodation request.
• Document everything.

 

 

4. New Rule for Determining Interference with Employees’ Section 7 Rights

Section 7 of the National Labor Relations Act (NLRA) allows employees to engage in concerted activity in connection with their terms and conditions of employment.

 

In Stericycle, Inc., 372 NLRB No. 113 (Aug. 2, 2023), the NLRB set a new standard to determine whether workplace rules unlawfully interfere with employees’ Section 7 rights. The rule focuses on employee handbooks and policies.

 

Work rules may be unlawful when they indirectly “chill” Section 7
activities. Under the NLRB’s new standard for determining when such chilling occurs, the NLRB’s general counsel may show a work rule is presumptively unlawful by establishing that “an employee could [not would] reasonably interpret a rule to restrict or prohibit Section 7 activity …,” according to Stericycle, 372 NLRB at 9 (emphasis and bracketed material supplied).

 

An employer may rebut the presumption only by proving both “[1] that the rule advances a legitimate and substantial business interest and [2] that the employer is unable to advance that interest with a more narrowly tailored rule.” Id. at 10. While the first element provides an evidentiary avenue for an employer to establish its justification for the rule, and may not be a heavy burden to carry, the second element by definition applies a strict scrutiny review that will likely make it difficult for any rule, no matter how carefully written, to survive.

 

Under the previous standard, the NLRB only considered the legitimacy of a rule. Under Stericycle, the employer must also prove that the degree of the interest is “substantial.” Common synonyms for “substantial” include “important” and “material.” Whether the NLRB will in the future find an employer has not satisfied the first element of the rebuttal because the subject matter of a rule is not sufficiently important remains to be seen.

 

Yet the truly difficult prong of the employer’s rebuttal is the showing that the employer is unable to advance its interest with a more narrowly tailored rule. This prong effectively requires the employer to show that the rule is drafted as narrowly as possible to avoid chilling Section 7 rights.

 

The language “narrowly tailored” is reflective of the strict scrutiny standard applied by courts in constitutional law cases upon a showing of infringement of a person’s fundamental rights, such as rights to free speech, marriage, procreation, and privacy. Simply stated, Stericycle requires the employer’s rule to be the least restrictive alternative available for the employer to vindicate its legitimate and substantial business interest.

 

The new standard will be applied retroactively to invalidate existing workplace rules—even those deemed valid under the prior standard. Many employee handbooks and policies may need to be reviewed and revised.

 

The Stericycle decision, which is being appealed, encourages the use of language that explicitly states the rules do not prohibit Section 7 activity. One broad disclaimer may not be enough. Look to legal counsel for help.

 

 

5. Limits on the Use of Confidentiality and Non-Disparagement Clauses

The McLaren Macomb, 372 NLRB No. 58 (Feb. 21, 2023), decision effectively prohibits employers’ use of confidentiality and non-disparagement provisions in severance agreements with employees covered by Section 7 of the NLRA. The NLRB labeled it an unfair labor practice.

 

The NLRA applies only to nonsupervisory employees. Managers and supervisors, independent contractors, public sector employees, and certain agricultural workers are not covered by Section 7. No legal impediment exists to use these provisions in those contexts.

 

The McLaren decision does not mention the use of disclaimers or whether a disclaimer could have salvaged these provisions. McLaren is under appeal at the Sixth Circuit Court of Appeals.

 

Revisit the use of confidentiality and non-disparagement clauses in severance agreements with your legal counsel.

 

 

6. Redefined Standard for Joint Employer Status

The joint employer standard effective in 2020 said a company may be considered a joint employer of another entity’s employees only if the two share or codetermine the employees’ essential terms and conditions of employment. Those conditions include hiring, firing, supervision, discipline, direction, wages, benefits, and similar decisions.

 

Under that rule, a joint employer “must possess and actually exercise substantial direct and immediate control over.” Control exercised on a sporadic, isolated, or minimal basis is not deemed “substantial.”

 

On September 6, 2022, the NLRB announced proposed rule-making to return to the pre-2020 standard.

 

Under the proposed rule, one company is deemed the joint employer of a second company’s employees not only where it directly or immediately exercises control over the second company’s workforce, but where the first company’s putative control is indirect or even simply reserved but not actually exercised.

 

Two or more employers will be held to be joint employers where they share or codetermine those matters governing employees’ essential terms and conditions of employment—broadly defined.

 

A joint employer may be:

• required to bargain with a union representing jointly employed workers;
• subject to joint and several liability for unfair labor practices committed by the other employer;
• subject to labor picketing that would otherwise be unlawful.

 

The rule may have profound consequences for employers who use temporary workers. 

 

The new NLRB joint employer rule 29 CFR § 103.40 passed in October 2023 and is scheduled to be effective February 26, 2024. Legislative efforts may block it.

 

 

7. New NLRB and DOL Independent Contractor Rules

Both the NLRB and the DOL revised tests and rules for defining independent contractor relationships.

 

In The Atlanta Opera, Inc., 372 NLRB No. 95 (June 13, 2023), the NLRB returned to a previous test. It put primary emphasis on whether the workers were economically dependent on the organization. The test ignores whether a contractor had the opportunity to seek additional economic gain, such as by contracting to provide services to multiple companies.

 

The decision narrowed the scope of the entrepreneurial opportunity. It effectively made it very difficult for employers to establish. The NLRB will “give weight only to actual (not merely theoretical) entrepreneurial opportunity.” The board will “evaluate the constraints imposed by a company on the individual's ability to pursue this opportunity.”

 

Under the new standard, NLRB also will consider whether the worker has:

• a realistic ability to work for other companies;
• proprietary or ownership interest in their work;
• control over important business decisions, such as the scheduling of performance; the hiring, selection, and assignment of employees; the purchase and use of equipment; and the commitment of capital.

 

The Atlanta Opera decision has implications for gig companies and staffing providers. Workers for any business that deploys independent contractors as part of its workforce may claim union rights.

 

The DOL also published an independent contractor rule under the Fair Labor Standards Act. Scheduled to go into effect March 11, 2024, the new section (29 CFR §§ 795.100 -.115):

• Clarifies the standards and tests to be used in determining whether a worker is an employee or an independent contractor under the FLSA.
• Uses an “economic reality” test to evaluate whether a worker is in business for themselves or is economically dependent on an employer.

 

The final regulations identify two core factors when determining whether someone is an employee or independent contractor:

• The nature and degree of control over the work by the alleged employer.
• The worker’s ability to generate profit or loss based on how the work is performed.

 

The final rule also looks to additional factors:

• The amount of skill and initiative required.
• The duration of the working relationship between the worker and alleged employer.
• Whether the work in question is part of an “integrated unit” of production.
• Investments by worker and potential employer.

 

There is significant potential for litigation under the new rules.

 

 

What’s Next for Labor and Employment Law in 2024?

Already in the works is a new DOL overtime rule on the exempt salary level. On August 30, 2023, the DOL announced that it intends to significantly raise the exempt salary threshold. Employers might want to start planning for compliance now:

• Review pay practices and create a list of employees who might be affected.
• Think about who will need to be converted to nonexempt status.
• Ensure exempt employees meet the duties test.
• Develop a training plan for managers and newly nonexempt employees regarding scheduled hours and tracking time.

 

Other possible 2024 developments:

• Federal action on AI. Guidance may be issued but probably not regulations.
• Noncompete agreements. If the FTC does not invalidate non-compete agreements, the NLRB likely will. An exception to protect trade secrets likely will be very narrow.
• Greater federal enforcement of child labor laws in Iowa. As noted, Iowa’s looser child labor laws have generated attention.
• Compensatory damages in unfair labor practices cases. The NLRB hasn’t awarded damages yet but will likely start.
• Attempts to nullify class and collective action waivers in arbitration agreements by the DOL and NLRB.
• U.S. Supreme Court will overturn the “Chevron deference.” The decision would reduce the deference courts apply to federal agencies’ interpretation of their statutes.
• OSHA will begin referring significant workplace safety matters to federal and state criminal prosecutors. OSHA has been building a database of willful and repeat offenders.
• Revised race/ethnicity reporting. The Equal Employment Opportunity Commission (EEOC) and the Office of Federal Contract Compliance Programs (OFCCP) may include a category for those of Middle Eastern descent. They are currently categorized and reported as White/Caucasian.

 

As legal trends emerge, Nyemaster Labor & Employment attorneys analyze the impacts on employers. For questions about labor and employment issues, contact your attorney.