New Employment Laws & Developments

Independent Contractors v. Employees

Many firms look to hire independent contractors rather than employees to avoid employment and tax requirements inherent to the employer/employee relationship. Various states and the federal government have long scrutinized whether someone hired as an independent contractor has been misclassified and should in fact be designated as an employee.   Misclassification can result in the employer being liable for back wages, overtime, tax and insurance, employee benefits and employment law compliance.

Under President Trump’s first term, the U.S. Department of Labor (DOL) issued its 2021 Rule, which simplified worker classification by emphasizing two primary factors: the degree of control over work and the worker’s opportunity for profit or loss. If these core factors didn’t provide a clear classification, additional considerations—such as the skill required, the permanence of the relationship, and whether the work was integral to the employer’s production—were applied. This pro-employer framework allowed businesses greater flexibility in classifying workers as independent contractors.

Effective March 24, 2024, the DOL published a new final rule reinstates the economic reality test on how employers should analyze whom is an independent contractor,  The economic reality test has six factors that guide the analysis of a worker’s relationship with an employer to assist in determining whether the worker should be considered an employee or independent contractor:

1. The worker’s opportunity for profit or loss based on managerial skill
2. Investments made by both the worker and the employer
3. The permanence of the work relationship
4. The nature and degree of control exercised
5. The extent to which the work is integral to the employer’s business
6. The worker’s skill and initiative

However, now that we have a new Trump administration, it is uncertain what course the DOL will in coming months and years.

Non-Compete Restrictions and Agreements

On August 20, 2024, a federal judge blocked the Federal Trade Commission’s (FTC) rule banning nearly all noncompete agreements, which was set to take effect on September 4, 2024.  The FTC’s rule had sought to impose the following restrictions on employers:

1. Prohibit employers from creating or enforcing non-competes with all workers, including employees, independent contractors, volunteers, and others providing services.
2. Invalidate most existing non-competes, except for those involving senior executives.
3. Require employers to notify current and former workers (excluding senior executives) that their non-competes are no longer enforceable.

The federal judge’s decision not only prevents enforcement of the rule against any company nationwide but also concludes that the FTC lacks substantive rulemaking authority over unfair methods of competition.  It is unlikely that the FTC under the new Trump administration will take any significant steps to appeal or work around the Court’s ruling.

Enforcement Guidelines for on Harassment in the Workplace

Equal Employment Opportunity Commission (“EEOC”) issued a guidance on enforcement in 2024, entitled “Guidelines on Harassment in the Workplace” provides on the standards for harassment and employer liability applicable to claims of harassment under the EEO statutes enforced by the Commission (e.g., Title VII, ADA). The guidance highlights the EEOC’s position on “protected characteristics” and identifies workplace behaviors that rise to the level of harassment.  The foregoing is in addition to state laws and enforcement agency compliance requirements.

New State laws

New employment laws also have gone into effect in California, New York and elsewhere. These laws cover a range of topics, including increasing the state minimum wage, expanding employee leave, and strengthening anti-discrimination protections.  Some of these new state laws will likely conflict with potential Federal mandates, leading to possible court challenges.  However, in the meantime, employers must comply with such requirements.

Conclusion

The topics raised above are just a few of the many employment laws, issues, requirements and developments firms must take into consideration.  Employment laws are constantly changing and your firm should be aware of such changes and look to update employment manuals, handbooks, policies, postings and agreements accordingly.  Reach out to your legal counsel* and insurance broker for the further guidance.

*This article is brought to you by LegaLine. LegaLine’s focus is on helping smaller firms gain the practical insight they need to tackle issues without the need for immediate legal representation.  LegaLine is a valuable benefit available to AIA members and their firms, offering access to qualified professionals who can help identify and address risks, ultimately minimizing potential claims. Whether you’re dealing with clients, contractors, or employees, LegaLine helps guide you through critical decisions.   Learn more.