Clark Hill 2023 Automotive & Manufacturing Industry Outlook: Labor & Employment
Now that the mid-term elections are behind us, 2023 is shaping up to have many changes in store for employers. While there are many changes, we think the top 5 that may have a significant impact on manufactures this year include the following:
FTC Proposed a Rule Banning Non-Compete Agreements. On Thursday, January 5, 2023, Federal Trade Commission Chair Lina Khan held a press conference announcing a proposed rule that would ban employers nationwide from both entering into new non-compete agreements with and enforcing existing non-compete agreements against their workers. A copy of the proposed rule is available here. A helpful fact sheet is also available here.
The FTC will accept public comments on the proposed rule for 60 days from today’s date and consider these public comments before it issues the final rule. If adopted in its current form, the proposed rule would have the following impact on all employers regardless of size:
- Employers will be barred from entering into new non-compete agreements with “workers,” which the proposed rule defines as “a natural person who works, whether paid or unpaid, for an employer.” Importantly, this definition encompasses not just employees, but also individuals classified as independent contractors.
- Employers will be barred from enforcing existing non-compete agreements with workers.
- Employers will have to rescind all existing non-compete agreements with current and former workers within 180 days of the final rule. Employers will also have to provide individualized written notice to workers that their agreements have been rescinded within 45 days of the rescission.
Importantly, the proposed rule would also apply to de facto non-compete agreements. However, the FTC’s Notice of Proposed Rulemaking, notes that “the definition of non-compete clause would generally not include . . . client or customer non-solicitation agreements” because these agreements do not generally prevent workers from competing with their employer altogether. To learn more about this proposed rule, visit Vincent C. Sallan’s article, Federal Trade Commission Proposes a Nationwide Ban on Non-Compete Agreements. The Clark Hill Automotive and Manufacturing Industry Team is happy to assist employers in preparing comments on the proposed rule.
- Stiffer Penalties for Unfair Labor Practices and other Continued Labor Friendly Decisions. In December 2022, the National Labor Relations Board expanded its “make-whole” remedies to include compensation for “all direct or foreseeable” harms incurred by a charging party arising out of an employer’s unfair labor practice. In Thryv, Inc., the Board made it clear that this standard for determining an appropriate remedy is to be employed in all unfair labor practice cases, not just the most egregious. This is a considerable departure from the Board’s prior practice. In the Thryv decision, the Board provided the following examples of “make-whole” remedies: out-of-pocket medical expenses incurred by the charging party, “search for work” and new job expenses, compensation for any tax effect of a lump-sum back-pay award, pre-judgment interest, late fees on credit cards, investment losses from early withdrawal from retirement accounts, increased transportation costs due to a loss of a car, or, possibly, losses incurred as a result of a loss of a home through mortgage foreclosure. The Board was not any more specific in its definition of direct or foreseeable losses incurred. To learn more, see Daniel V. Kinsella and Renee Fell’s article NLRB Decision Significantly Expands Menu of Available “Make-Whole” Remedies Against Employers.
Bigger picture, Democrats now have a 3-1 edge on the National Labor Relations Board, with Republican John Ring’s term officially over in December 2022. Ring’s seat is not expected to be filled for the time being, so the current 3-1 makeup will likely mean more pro-union decisions at a quicker rate (because it will take less time to issue decisions with only 1 likely dissent). The Board will likely act against civility rules that impact concerted protected activity and education meetings during union organizing drives, broaden the definition of employee, and expand organizer’s access to employer locations via email or otherwise.
- Retirement Plan Amendments are Required. President Biden signed the $1.7 trillion Fiscal Year 2023 Omnibus Spending Bill on December 29, which included the SECURE 2.0 Act of 2022 (“Secure 2.0”). SECURE 2.0 includes numerous changes to the Internal Revenue Code of 1986, as amended (the “Code”) and the Employee Retirement Income Security Act of 1974, as amended (“ERISA”) designed to enhance individual retirement goals. What follows is a summary of key provisions of SECURE 2.0 impacting employers in 2023. Many of the changes will, or would if implemented by an employer, require plan amendments.
- Required Minimum Distributions. Starting January 1, 2023, the required minimum distribution age, upon which qualified retirement plan distributions must commence, is increased to 73 for individuals who turn 72 after December 31, 2022. In 10 years, the minimum distribution age will increase again, to age 75, but only for individuals who turn 74 after December 31, 2032. Also starting in 2024, Roth accounts in employer-sponsored plans are no longer required to make required minimum distributions while the participant is alive.
- Roth Contributions. Employers may allow participants to designate the employer’s matching or nonelective contributions as Roth contributions. Only contributions that are fully vested when made may be subject to this election. This option to allow participants to designate future matching or nonelective contributions as Roth contributions is effective on date of enactment, so employers may want to review its applicability and possible implementation immediately.
- Automatic Enrollment and Automatic Escalation. For plan years beginning after December 31, 2024, 401(k) established after SECURE 2.0’s December 29, 2022, date of enactment will be required to use what is called an eligible automatic contribution arrangement or “EACA” to automatically enroll participants at 3% or more of their compensation, increasing the amount 1% annually until the contribution rate reaches at least 10% (but not more than 15%). EACAs allow new participants who do not want to participate to opt-out within 90 days. After that time, elections can be changed just like in most other 401(k) plans.
The new requirements for automatic enrollment and automatic escalation do not apply to plans established before SECURE 2.0’s date of enactments
- Distributions on Account of FEMA-Declared Disasters. For disasters on or after January 26, 2020, there will not be a 10% excise tax on distributions of up to $22,000 if they relate to a qualified disaster (or recovery from a qualified disaster). These disaster distributions can also be repaid within a three-year period.
- De Minimis Incentives to Participate. Employers are now permitted to provide employees with de minimis (small) financial incentives to participate in the employer’s 401(k) retirement plan. What is de minimis has not yet been defined and is likely to be a small amount of taxable cash or personal property. These de minimis incentives cannot be paid out of plan assets.
Coordination with service providers and benefits counsel will be important and should be done promptly as some provisions are immediately effective. Our benefits team is ready to assist with any questions or in implementing SECURE 2.0. To learn about more changes effective in 2024 and beyond, see SECURE Act 2.0 Finally Here Article, authored by Charles M. Russman.
Expanded Protections for Working Mothers. Also on December 29, President Biden signed two important pieces of legislation for working mothers: (1) the Pregnant Workers Fairness Act, which creates a federal right to reasonable accommodation for pregnancy, childbirth, and related conditions; and (2) the PUMP for Nursing Mothers Act, which expands existing rights to lactation accommodation.
Employers with 15 or more employees must comply with the Pregnant Workers Fairness Act beginning on June 27, 2023. The Act requires employers to reasonably accommodate applicants and employees who have a known temporary limitation on their ability to perform the essential functions of their jobs based on a physical or mental condition related to pregnancy, childbirth, and related conditions. Just like with the Americans with Disabilities Act, employers do not need to accommodate if doing so would create an undue burden (which is difficult to establish) and do not need to grant the accommodation of the employee or applicant’s choice so long as the accommodation provided enables them to perform the essential functions of their job.
The PUMP for Nursing Mothers Act expands current employer requirements under the FLSA to provide an employee with reasonable break time shielded from view and intrusion (and not a bathroom) to express breast milk for one year after their child’s birth. The following changes were effective under this Act on December 29, 2022:
- All workers are now covered, not just non-exempt employees.
- The break must be paid if the employee is still performing work while expressing milk (e.g., emails, typing, etc.), and if the employee is using her paid break time to express milk.
- The law now generally requires employees to provide notice of an alleged violation and a 10-day cure period.
- Expected Increased Salary Threshold for Exempt Employees. The Department of Labor (“DOL”) was predicted to unveil its proposed increase to the salary threshold, which currently stands at $684/week, in the Spring of 2022. While this did not occur, the DOL is now expected to disclose its proposed increase this Spring. It is predicted that the increase may raise the rate as high as $1,000/week, although, most agree the increase will likely be lower to withstand litigation challenges. The DOL salary threshold is the minimum weekly salary level that must be paid on a salary basis for most employees who perform exempt duties to remain classified as exempt from overtime pay under the Fair Labor Standards Act. We recommend auditing your job classifications now so that any required changes can be implemented along with the further expected changes needed due to an increased salary threshold.
The views and opinions expressed in the article represent the view of the authors and not necessarily the official view of Clark Hill PLC. Nothing in this article constitutes professional legal advice nor is it intended to be a substitute for professional legal advice.
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