Employment Law Update: Elections Have Consequences

The 2024 presidential campaign has finally ended. In this edition of the newsletter, we put on our prognosticators’ hats to discuss what the new Trump 2.0 Department of Labor is likely to do, or not do, over the next four years.

Contributor: Sarah Ferguson – Parsons Behle & Latimer employment & labor shareholder, Reno office

Seeking Work/Life Balance - Paid Leave 

The United States is the only industrialized nation without a federal paid leave policy to support workers who take time off for health-related reasons like serious illnesses or the birth of a child. Overall, the U.S. spends just 0.6% of its gross domestic product (GDP) on such family benefits — on par with countries like Mexico and Turkey.

Paid family leave is a popular, bi-partisan issue that was raised on the campaign trail by both sides. It also has bi-partisan momentum in the House and Senate. The Trump campaign targeted middle class working voters, and in 2020, President Trump approved a law permitting federal employees to take 12 weeks of paid leave.

That said, following this year’s election, the total number of states with guaranteed paid sick leave is 18, plus the District of Columbia. Given that states appear to be addressing this issue at the state level, it remains to be seen whether the new administration will pursue a change at the federal level, but it would be an achievable, popular policy change if the next president decides to address it.

Employers take note: Until a federal policy is passed, employers should carefully monitor the paid leave laws in the states in which they conduct business, which vary widely by jurisdiction.

Westworld Kind of World - AI Guidance 

In October 2023, the White House issued an Executive Order on the Safe, Secure and Trustworthy Development and Use of AI. Though not itself a law, the Order created a new White House AI Council and tasked the Department of Labor with ensuring AI is not used to conduct surveillance on its workforce or take other actions violative of employees’ civil rights. It also impacted policies regarding how the government purchases its AI. This was followed by EEOC guidance on the use of AI in the employment arena.

The Trump campaign characterized the Executive Order as “dangerous” saying that it “hinders innovation…” and has largely derided concerns about the misuse of AI in hiring practices. The incoming president has promised policies that would “support AI development rooted in free speech and human flourishing” — but has not provided detail on such policies. While the new administration has yet to provide specifics on its AI policies, there is general bi-partisan support for policies that allow the United States to remain among the leaders in the development of AI. What that looks like is likely to be a topic of debate between and within both political parties. However, given the involvement of tech giants like Elon Musk in the campaign, it is likely that the Trump administration will advocate to de-regulate AI and will repeal President Biden’s Executive Order in his first days in office.

Employers Take Note: While employers can expect an immediate repeal of the Executive Order, states may take up the mantle of AI regulation. Courts are already imposing liability on employers and AI developers for discriminatory uses of AI tools. This trend is likely to continue, but do not expect any additional regulations in this arena from the federal government.

Feeling Tipsy? – No taxes on tips

On the campaign trail, both Trump and Harris stated they would support legislation to end federal income taxes on tips for hospitality workers.  Federal law requires employers to pay tipped workers a cash wage of $2.13 an hour. If workers do not earn up to $7.25 per hour (federal minimum wage) employers must make up the difference. In many states, tipped workers have higher base pay—in some cases, including Nevada, it’s the same as for non-tipped workers.

In 2023, there were four million workers in tipped jobs, comprising about 2.5% of the U.S. workforce. Proponents claim that eliminating income tax on tips would help employees take home more pay without forcing hospitality employers to increase base wages in the face of high inflation and low margins. Critics, however, say income-tax-free tips may drive base wages down, encourage customers to tip less, and, if all tips are excluded, could result in professionals claiming they’re compensated in tips to get out of paying income tax.

Nevertheless, the idea has bi-partisan support as well as support from the National Restaurant Association, and bills have been introduced in both the House and Senate to amend the Internal Revenue Code to exclude tips from taxation. We’ll stay tuned to see how federal lawmakers treat this issue now that campaigning is over.

Employers take note: If you employ tipped workers, revisit your tipping policies to ensure compliance with state and current federal law, so you know what adjustments you’ll need to make if the law changes.

A Shrinking Labor Market - Immigration

Immigration reform was front-and-center of President-elect Trump’s campaign, and he has promised it is a “day one” priority for his second term. Expect to see the Trump administration curtail the reliance on highly-skilled foreign workers by placing restrictions on the issuance of the H-1B visas. The administration is also expected to raise the bar for issuing employment-based green cards and expand penalties for employers who harbor undocumented workers.

Trump has indicated an intent to end programs like Deferred Action for Childhood Arrivals (DACA) and Temporary Protected Status (TPS) for several countries. Trump has also stated he will begin the largest deportation of immigrants in U.S. history once he is installed in office. All of these actions will have a significant impact on the available workforce, with an estimated 12 million undocumented immigrants in the country and approximately 500,000+ DACA workers. 

Employers take note: Employers should closely monitor changes to immigration policies in the new year, especially employers who rely on H-1B visa programs and unskilled labor. Changes to immigration policy will make it more challenging to bring in skilled labor from overseas. Employers should also review and revise as necessary their employee eligibility verification policies to minimize the impact of mass deportations and avoid any related increased penalties that are imposed on employers. 

FTC Non-Compete Ban Unlikely to be Defended 

In April, the Federal Trade Commission (FTC) issued a rule to ban most non-compete agreements between employers and employees. In July, a Texas Court issued an order enjoining the enforcement of the rule and an appeal to the Fifth Circuit Court followed shortly thereafter. Another injunction has proceeded to the Eleventh Circuit Court of Appeals as well. Employers who have been gearing up for the enforcement of the FTC rule can likely pump the breaks. Though the new Trump administration has not issued a formal policy statement, the incoming-President’s preference for nondisclosure agreements (NDAs) and non-competes is well known. It is expected that the Department of Justice under Trump will simply withdraw these appeals and allow the lower courts’ rulings stopping the ban to stand. That said, employers would be well advised to monitor their state legislatures as several states have implemented laws narrowing or eliminating all together employers’ ability to require employees to sign non-competes. 

Employers take note: Employers would be well advised to monitor their state legislatures as several states have implemented laws narrowing or eliminating all together employers’ ability to require employees to sign non-competes.  

Contributor: Sean A. Monson – Parsons Behle & Latimer employment & labor department co-chairperson and shareholder, Salt Lake City office

Independent Contractor Classification: Back to the Future . . . Again 

This newsletter has documented the twists and turns that the Department of Labor has taken in determining classification of workers as employees or independent contractors under the Fair Labor Standards Act. As a reminder, the test traditionally focused on a variety of factors such as the extent to which the company had the right to control the work performed by the worker; the opportunity for the worker to make a profit or suffer a loss from the work performed; the extent to which the work performed is an integral part of the company’s business; investment by the worker in tools and equipment; the level of skill needed to perform the work; and the degree of permanency of the relationship. The first Trump administration promoted a rule that primarily focused on the nature and degree of a company’s control over the work and the worker's opportunity for profit or loss based on initiative and investment. Three other factors would have served as guideposts in determining employment status under the Trump rule: the amount of skill required for the work; the degree of permanence of the working relationship between the worker and the potential employer; and whether the work is part of an integrated unit of production. The Biden administration withdrew the Trump rule and implemented its own rule which focuses on determining whether the worker is dependent on the company for work.

Employers take note: In Trump 2.0, companies should expect the Department of Labor to return to the Trump-era rule.

Worker Protections Will Likely be Rolled Back 

As discussed before in this newsletter, all employers in the United States are subject to Section 7 of the National Labor Relations Act (NLRA). The National Labor Relations Board (NLRB) under the Biden administration has been aggressive in protecting the rights of workers, including through expansive interpretation and enforcement of Section 7 rights. Expect those gains to be short lived. Recall that the NLRB under the Biden administration has found that employee conduct policies, such as policies requiring employees to act professionally, violate Section 7 of the NLRA if a reasonable employee could view the policy as limiting his or her rights to speak about the terms and conditions of employment. The Biden era NLRB has severely curtailed the ability of employers to require employees to not disparage their employer or keep severance agreements confidential.

Employers take note: Under Trump 2.0, the NLRB will likely return to a standard in which facially neutral employee conduct policies are presumed to not violate Section 7 of the NLRA. It seems likely that the new NLRB will allow employers to use tighter confidentiality and non-disparagement provisions in severance agreements with employees.

Expect Recent Expansion of Overtime to be Culled Back 

As readers of this newsletter know, the salary thresholds for the executive, administrative and professional overtime exemption categories increased on July 1, 2024, and are set to increase again on Jan. 1, 2025. This means that employers have to pay a higher salary for employees they want to keep exempt from overtime pay requirements under the Fair Labor Standards Act. Lawsuits challenging the increased salary amounts have been filed in Texas. The Department of Labor under Trump 2.0 could choose to stop defending the salary increases in court, which could result in a ruling that the increases are not lawful or could implement a new regulation lowering the salary threshold requirements.

Employers take note: We expect the new salary thresholds implemented by the Biden administration to be cut back.