On April 23, 2024, the U.S. Department of Labor issued its Final Rule sharply increasing the minimum salary requirements for the Fair Labor Standards Act’s white-collar overtime exemptions.  These changes, if they ultimately take effect, will affect the overtime exemption eligibility for millions of currently exempt employees nationwide.

Background and History

The FLSA’s white-collar exemptions apply to “bona fide” executive, administrative, and professional employees and generally include both a minimum salary requirement and a duties test.  To establish that an employee is properly classified as exempt from overtime pay requirements under one of these exemptions, the employer must be able to prove that the employee is paid on a salary basis in an amount at least equal to the minimum salary requirement and meets the primary duties test for one of these exemptions.

Over the last eight years, the minimum salary requirement for these exemptions has become a legal battleground.

In 2016, the Obama Administration DOL issued new regulations that would have more than doubled the minimum weekly salary requirement for most white-collar overtime exemptions from $455 ($23,660 annually) to $913 ($47,476 annually).  A federal judge issued a nationwide preliminary injunction blocking these changes from taking effect in late 2016, and the Trump Administration DOL ultimately abandoned these regulations.

In September 2019, the Trump Administration DOL issued new regulations that increased the minimum weekly salary requirement from $455 to $684 ($35,308 annually).  Those changes took effect in January 2020.

In August 2023, the Biden Administration DOL issued a new Notice of Proposed Rulemaking, proposing its own significant increases to the minimum salary requirements.  After a notice and comment period, during which the DOL received approximately 33,000 comments, the DOL issued its Final Rule on April 23, 2024.

The New Requirements

The DOL’s new Final Rule will raise the minimum salary threshold for these exemptions to $844 per week (i.e., $43,888 annually) effective July 1, 2024.  This represents a 23% increase over the current requirements.  Then, six months later, the minimum salary requirement will rise again, this time to $1,128 per week (i.e., $58,656 annually) effective January 1, 2025.  The Final Rule also contains automatic updates (i.e., increases) every three years based on earnings data, with the first automatic update scheduled for July 1, 2027.

The Final Rule also significantly increases the minimum salary requirement for the FLSA’s highly compensated employee exemption.  However, the Pennsylvania Minimum Wage Act has no equivalent exemption, so this change is of less relevance to Pennsylvania employers.

As occurred in 2016, we expect that legal challenges will soon be filed in court in response to these new regulations.  Whether those efforts will be successful in blocking the regulations from taking effect before their effective date (as what happened in 2016) is unknown.

In the meantime, employers should identify employees currently classified as exempt under one of the white-collar exemptions who are paid a salary amount below the new minimum and consider either increasing those employees’ salaries, identifying another exemption without a minimum salary requirement that may be applicable, or converting these employees to non-exempt status for overtime pay purposes.  However, with the expected legal challenges and uncertainty they bring, employers may want to delay any responsive action driven by these new regulations until as close to July 1 as possible.

Way back in 2018, we wrote about the Supreme Court of the United States’ decision in Janus, which held that compelling public sector employees to pay “fair share fees” to unions violates the First Amendment. As a refresher, a fair share fee is a fee that non-union members must pay to the union to cover the expenses incurred by the union in representing bargaining unit employees.  For the most part, the fair share fees were paid by employees who had opted out of becoming full, dues-paying union members.

Janus made clear that fair share fees were illegal even where expressly authorized by state law.  In a nutshell, SCOTUS held that fair share fees violate public sector employees’ right to free speech as protected by the First Amendment of the Constitution, because such fees forced employees to pay to support an organization that they did not wish to support.  The end result is that public sector employees can opt out of union membership and cannot be forced to pay any fees to the union.  However, public sector unions must still represent these “free riding” employees through collective bargaining and contract administration.

After Janus, Unions have worked hard to reduce the number of free riders, and to lock employees into voluntarily paying union dues.  One approach has been to obtain a voluntary, contractual agreement to make dues payments for a specific duration and to provide a complicated revocation process.  For example, a new public sector employee may be convinced to sign a dues deduction authorization, which contains an agreement to become a dues-paying union member and not withdraw union membership for the duration of the collective bargaining agreement.

When we first wrote about Janus, we indicated that there would be many questions to follow.  One of those questions was, is a contractual agreement to require union dues payment for a certain period of time enforceable?  Recently, in Barlow v. SEIU, Local 668, the Third Circuit Court of Appeals answered that question.  And the answer is a clear yes.

In Barlow v. SEIU, Local 668, some of the plaintiffs signed new union membership applications and voluntarily authorized dues deductions from their paychecks. The authorizations were valid from year to year and irrevocable, unless the plaintiff provided written notice of revocation within a specified annual window of at least ten days and not more than thirty days before the end of the yearly period.  There were other plaintiffs with different deduction authorizations in place, but you get the idea.

Essentially, the Third Circuit held that Janus did not create any new rights for employees who voluntarily elected to become union members.  Janus protected the rights of those public sector employees who had never elected to pay union dues or fees of any sort to the union.  Further, the Court noted that the First Amendment does not provide a right to reject or ignore contractual promises that would otherwise be enforced under state law. Thus, if a public sector employee promises to pay union dues for a certain period of time, Janus will not relieve those employees of that obligation.  Further, Janus will not serve as an “out” if the employee has not effectively revoked his or her authorization for dues deductions.

What are the lessons here? Public Sector employees who are asked to sign union dues deduction authorization contracts should be sure to read the fine print and understand exactly what they are signing.  In addition, public sector employers should consider provisions in collective bargaining agreements that govern dues deductions from employee paychecks, and also understand whether a collective bargaining agreement does, or does not, impact the rights of public sector employees to revoke authorization of dues deductions.

If you have questions about how this decision may impact your business, please contact a member of the McNees Labor & Employment Group

On February 21, 2024, the National Labor Relations Board (“NLRB”) issued a decision finding that Home Depot violated Section 8(a)(1) of the National Labor Relations Act (“Act”) by using Home Depot’s dress code to require an employee to remove the acronym “BLM,” an initialism for “Black Lives Matter,” from the Employee’s work uniform. The decision was the latest in a run of NLRB decisions that employers should consider when applying workplace policies.

The NLRB reversed an Administrative Law Judge (“ALJ”)’s holding that Home Depot did not violate the Act because “BLM” does not have an “objective, and sufficiently direct, relationship to terms and conditions of employment.” The Act protects employees engaging in concerted activities, which is activity taken by two or more employees for the purpose of mutual aid or protection.

For several months, employees at the Home Depot store allegedly raised concerns to management about racially discriminatory behavior in the workplace. The NLRB deemed these concerns protected concerted activity. Management informed the Employee that the BLM insignia on their orange apron violated the dress code after the Employee sent an email to management requesting a more open dialogue regarding racial issues. The dress code and apron policy stated that the work apron is “not an appropriate place to promote or display religious beliefs, causes or political messages unrelated to workplace matters.” The Employee refused to remove the insignia. After management conditioned the Employee’s return to work on removing the initials, the Employee resigned rather than accept the condition. The NLRB concluded these events amounted to a constructive discharge.

According to the NLRB, the Employee’s refusal to remove the BLM marking was a “logical outgrowth” of the employees’ protected concerted activities because the Employee had specifically linked the BLM marking to showing support for coworkers in connection with group complaints.

The NLRB did not find any special circumstances justifying Home Depot’s interference with the Employee’s right to display the BLM insignia. Such justifying circumstances might include employee safety, damage to machinery or products, exacerbation of employee dissention, or unreasonable interference with the employer’s public image.

Although there was no allegation or finding that the dress code policy limiting political messages was facially unlawful, the NLRB found that that Home Depot violated the Act “by applying its facially neutral dress code and apron policy to restrict Section 7 activity.”

The NLRB ordered Home Depot to, among other things, cease and desist from prohibiting employees from engaging in protected concerted activities, reinstate the employee with backpay for lost earnings and benefits as well as compensation for other direct or foreseeable pecuniary harms, and post notice of the decision at the store where the Employee had worked.

When enforcing company policies, employers should first consider whether, in light of the surrounding factual circumstances, such action might be construed as restricting employees’ engagement in concerted activities. If you have questions about how this decision might impact your business, please contact a member of the McNees Labor & Employment Group.

 

On January 9, 2024, the U.S. Department of Labor (“DOL”) issued a long-awaited Final Rule that addresses when a worker is properly classified as an independent contractor under the Fair Labor Standards Act (the “FLSA”).  Under its new Rule, independent contractors are characterized as those workers who, as a matter of economic reality, are not economically dependent on an employer for work; rather, they are in business for themselves.

The FLSA establishes, among other things, the federal minimum wage and requires covered employers to pay their employees one and one-half times the employee’s regular rate for hours worked over 40 in a workweek.  Thus, the FLSA, with its minimum wage, overtime, and other protections for employees, does not apply these protections to independent contractors.

DOL’s Final Rule – titled simply Employee or Independent Contractor Under the Fair Labor Standards Act – establishes six familiar factors to evaluate whether a worker is an independent contractor or an employee subject to the FLSA.  These factors are as follows:

  • A worker’s opportunity for profit and loss depending on managerial skill (including initiative, business acumen, or judgment)
  • Investments made by the worker and potential employer
  • Degree of permanence of the work relationship
  • Nature and degree of control (including, e.g., setting of the worker’s schedule, using technological means to supervise performance, reserving the right to supervise or discipline, controlling the price or rate for services, and marketing the services or products)
  • Extent to which the work performed is an integral part of the potential employer’s business
  • Use of a worker’s skill and initiative.

None of these factors is given any predetermined weight, as the DOL says they are considered in “the view of the economic reality of the whole activity.”  Nor do these factors represent an exhaustive list of things to be considered in determining whether the worker is an employee or independent contractor.  In other words, these non-exhaustive factors are tools to help with a totality-of-the-circumstances analysis, but the ultimate inquiry remains whether the worker depends on the company for work (an employee), or whether they are in business for themselves (an independent contractor).

The DOL stresses in its preamble to the Final Rule that this Rule will not disrupt the business of true independent contractors, self-employed individuals, and freelancers.  However, despite these assurances, the Final Rule appears to narrow the circumstances under which a worker might be properly classified as an independent contractor.

The Final Rule becomes effective on March 11, 2024.  Now is a great time for all employers to take a fresh look at their worker classifications and to evaluate whether any workers may need to be reclassified in light of these recent changes.

If you have any questions about workers classifications, please reach out to any member of the McNees Labor & Employment group.

If you are gearing up for union negotiations in 2024, do not miss the opportunity to review current and past practices that may not have been incorporated into expiring collective bargaining agreements.  Trust me, it will be worth the effort to dig up and review all of the side letters, settlements and memoranda of agreement that the parties have entered into since the last CBA was signed.  You should insist that the Union engage in that effort too, especially if you intend to propose or freshen up an integration or zipper clause.

What’s the Difference?

Last week, the National Labor Relations Board issued a decision in Twinbrook OpCo LLC, 373 NLRB No. 6, where it noted that its own General Counsel mislabeled an integration clause a zipper clause.  Although the two terms are often used interchangeably, the NLRB explained that an integration clause “’exclud[es] from coverage any external agreements not made an explicit part of the parties’ collective bargaining agreement,’” but a zipper clause states “that the parties have had the opportunity to bargain over all mandatory subjects of bargaining and that they waive their right to bargain over such matters during the term of the agreement.”  Id. at n. 4 (citations omitted).

Why does it matter?  A brief case study.

Twinbrook OpCo purchased a skilled nursing facility and offered its employees continued employment, at their same rate of pay.  Then, Twinbrook OpCo continued the prior owner’s practice of paying bargaining unit employees a shift differential for working second or third shifts.  The company even increased the amount of that shift differential, without notifying the union that represented those employees or giving the union an opportunity to bargain over the change.  Eventually, Twinbrook OpCo and the union agreed upon terms for their own CBA, which (a) did not include any reference to a shift differential; (b) provided that no employee’s rate would be lowered; and (c) contained an integration clause that provided:

This Agreement represents the entire understanding between the parties’ and there are no agreements, conditions, or understandings, either oral or written, other than as set forth herein.  It is further agreed that no amendment, change, modification or addition to this Agreement shall be binding upon either party hereto, unless reduced to writing and signed by both of the parties.

Id.  Twinbrook OpCo paid that increased shift differential for the first pay period covered by the new CBA before discontinuing the practice entirely, without notifying the Union.

Then what happened? 

The union filed an unfair labor practice charge, asserting that the company violated Section 8(a)(1) and (5) of the National Labor Relations Act when it ceased making the shift differential payments without providing the union with notice and the opportunity to bargain.  The NLRB sided with the union, holding that (1) the CBA did not authorize the company to unilaterally eliminate shift differential payments and (2) the union did not waive its right to bargain over the termination of those payments.

In short?  The integration clause was not a clear and unmistakable waiver of the Union’s right to bargain over a change in a mandatory subject of bargaining.

So, what should my company do?

If you are on your company’s bargaining team, two things should be at the top of your list when it comes to integration clauses and zipper clauses.  First, prepare.  Second, establish a clear record of bargaining.

  • Get all of those past practices, settlements, side letters and memoranda of understanding out on the table. If both parties agree that a practice should continue, incorporate it into the CBA.
  • If the parties do not agree to incorporate a practice or agreement into the new CBA, make it very clear that the practice will cease with the expiration of the old CBA.
  • If your CBA does not already have a zipper clause and/or an integration clause, propose them.
  • If your CBA does contain these tools, make them a distinct part of the negotiations. Make it clear that the parties are starting the new CBA’s term with a clean slate; that any past practices and agreements are superseded by the terms of the new CBA; and that the parties have waived any right to negotiate over matters contained in the CBA.

Contact Jennifer Will or any member of the McNees Labor & Employment Team for assistance with labor relations or collective bargaining.

 

 

 

We wrote in August about major updates to the Davis-Bacon regulations issued by the Department of Labor.  The Final Rule updating those regulations became effective on October 23, 2023.  In the time since, contractors have been working to ensure compliance with the new requirements, including, among other things, seeking approval from the DOL before taking Davis-Bacon fringe credit for unfunded benefit plans, like PTO and holiday pay.

Recently, however, the Associated Builders and Contractors, Inc. (“ABC”), and its Texas affiliate, filed suit against the DOL (including its Acting Secretary, Julie Su, and the Wage and Hour Division), challenging the Rule on several grounds.  Below is a brief description of the lawsuit and the grounds on which the suit claims the Rule is invalid.

First, ABC alleges that the DOL’s regulation contradicts the Davis-Bacon Act and the Administrative Procedure Act for four reasons.  They are as follows:

  • ABC claims the Rule adopts a flawed definition of “prevailing,” improperly establishing as the prevailing wage any single wage paid to only 30 percent of the covered workers in a given area.
  • The lawsuit alleges the Rule’s combination of urban and rural wage rates is contrary to the Davis-Bacon Act.
  • The lawsuit claims that the Rule is unlawful because it imposes Davis-Bacon coverage on contractors simply by operation of law, even if the provisions are omitted from the construction contract.
  • The lawsuit alleges the Rule is contrary to law is because it expands Davis-Bacon coverage beyond the “site of the work.”  ABC notes that courts have repeatedly rejected past attempts by DOL to expand coverage to off-site work.

In Count II of the lawsuit, ABC challenges the Rule’s purported application of Davis-Bacon coverage to off-site facilities dedicated “entirely, or nearly entirely to the construction of one or more ‘significant portions’ of a particular public building or work.”  ABC also challenges the Rule’s expanded coverage to workers located off-site, such as flaggers, as well as the Rule’s expansion of coverage to include certain material suppliers.  In particular, the lawsuit challenges the narrowed test for exemption as a material supplier, alleging the Rule requires Davis-Bacon coverage for material suppliers who have historically been exempted from Davis-Bacon requirements, and who have structured their operations accordingly.

The lawsuit alleges that the Rule unlawfully restricts and discriminates against non-union fringe benefit plans.  Specifically, ABC claims that the Rule makes the provision of certain fringe benefits more burdensome, and challenges the Rule’s requirement that contractors seek pre-approval of self-funded insurance plans.  ABC asserts there is no justification for imposing an advance approval requirement on insurance plans that meet DOL’s criteria for bona fide fringe benefits.  These requirements, the lawsuit alleges, are “new, burdensome, and unjustified.”

ABC has asked the court to declare the Rule invalid in its entirety.  According to ABC, the Rule sets out a “comprehensive scheme,” so the invalid portions can’t be severed from the whole.  ABC also asks the court to permanently enjoin DOL from implementing or enforcing the Rule. DOL has not yet responded to the lawsuit.

Stay tuned for further developments in this litigation.  If you have any questions about this Rule or contractor obligations under Davis-Bacon generally, please contact the McNees Labor and Employment Group.

On August 31, 2023, the National Labor Relations Board issued a decision in Miller Plastic Products, Inc. that will make it easier for a single worker’s action to be considered “concerted” under the National Labor Relations Act. In a 3-1 decision, the Board overruled its 2019 decision in Alstate Maintenance, which had narrowed the circumstances in which the Board considered solo protests to be concerted activity and, thus, protected activity under the NLRA.

For reference, in Alstate Maintenance, an employee working at JFK International Airport was terminated for a comment he made about not receiving a tip. Specifically, the employee in Alstate Maintenance made his comment about poor tips to a manager with colleagues nearby. In determining whether the employee’s solo action constituted concerted activity, the Board found that he was raising a “purely personal grievance” as opposed to a group complaint. As such, the comment did not reflect a group complaint nor an intent to initiate a group action. The Board in Alstate Maintenance listed several relevant factors to determine if a solo action constituted concerted activity, including whether the employee protested a change in job terms in a formal meeting and whether there was an actual objection as opposed to a question about a change.

The Board in Miller Plastic rejected the Alstate Maintenance decision, finding that it “imposed significant and unwarranted restrictions on what constitutes concerted activity.” The Board in Miller Plastic held that Alstate Maintenance had adopted an unduly restrictive test for defining concerted activity by introducing a rigid checklist of factors in place of the Board’s more holistic approach that was applied in the past. Indeed, the Board in Miller Plastic has effectively reaffirmed the principle originally announced in Meyers Industries, which held that “the question of whether an employee has engaged in concerted activity is a factual one based on the totality of the record evidence.” Applying these principles, the Board in Miller Plastic held that the employer violated the Act when it fired an employee for blurting out during a March 2020 meeting that he and his co-workers “shouldn’t be working amid the exploding COVID-19 crisis.”

Moving forward, an employee’s conduct will be considered protected activity based on the “totality of the record evidence,” which will include all relevant facts and circumstances. Chairman of the NLRB, Lauren McFerran, sees its return to the “holistic” approach as beneficial to employees, as she stated, “[b]y returning to the Board’s traditional approach, we better protect employees who seek to improve their working conditions.”

In keeping with its recent trend of employee-friendly decisions, the Board’s recent decision in Miller Plastic could lead to more decisions where an employee’s solo action, such as voicing a complaint during a work meeting, is considered protected activity under the NLRA. This decision will also make it more difficult to predict what solo actions are considered protected activity and which are merely personal gripes, as each case will be fact-specific.

If you have questions about the Miller Plastic decision or wish to discuss how it may impact your business, please contact a member of the McNees Labor & Employment Group.

On August 2, 2023, the National Labor Relations Board reversed precedent on the issue of work rules that proscribe employee personal conduct. In Stericycle, the Board reversed and remanded an ALJ’s decision that found the employer violated Section 8(a)(1) by maintaining work rules addressing personal conduct, conflict of interest, and confidentiality of harassment complaints. In ruling against the employer, the ALJ had applied the standard established in Boeing Co 365 NLRB No. 154 (2017). The Boeing rule required the evaluation and balancing of two factors: 1) the extent of the potential impact on NLRA rights; and 2) legitimate justifications associated with the rule. The current Board determined that the Boeing balancing test gave too much weight to the employer’s interest.

Under the new rule, the General Counsel bears the burden of determining the rule is presumptively unlawful. The employer then bears the burden of proving that the rule advances a legitimate and substantial business interest and that the employer is unable to advance that interest with a more narrowly tailored policy.

The Stericycle rule is open to very broad application. Many employers have expressed concern that their handbooks need to be substantially revised. This practitioner views the issue differently. It is true that the Board’s use of the term “employee personal conduct” is likely to encompass the vast majority of your policies that could lead to employee discipline. An employer could decide to add a business justification to each of its policies, but doing so would not necessarily solve the problem. The current NLRB General Counsel has proven to be quite the pro-union activist. Placing the business rationale in your policies will likely give her more ammunition to find a policy presumptively unlawful. In addition, it may constrain an employer’s ability to rebut the presumption of illegality by limiting the arguments used for making a business case for the rule to those stated in the policy.

So, what is an employer to do? We recommend you consider the business case for the rules you have in place and consider eliminating those policies that have no business purpose. The Board may offer guidance on how or if policies should be modified. Until then, employers should exercise caution on issuing discipline based on any rule that may be affected by the Stericycle decision. Seek advice of counsel before issuing discipline to employees, especially in instances where employer is facing a union organizing campaign.

Some examples of policies that will likely need to be reviewed are as follows:

  • Restricting employee’s use of social media
  • Restricting criticisms, negative comments, and disparagement of the company’s management, products or services.
  • Promoting civility
  • Prohibiting insubordination
  • Requiring confidentiality of investigation of complaints
  • Restricting behaviors such as using cameras or recording devices in the workplace
  • Outlining rules for safety complaints
  • Restructuring the use of company communications resources such as email
  • Limiting the recordings or the use of smart phones or other devices
  • Restricting meetings with co-workers or the circulation of petitions
  • Limiting comments to the media or government agencies

These are simply examples of rules that might be affected by this recent decision. It remains to be seen how broadly the Board will apply the Stericycle rule.  If you have questions, please contact a member of the McNees Labor & Employment group.

On August 30, 2023, the U.S. Department of Labor issued proposed regulations that would sharply increase the minimum salary requirements for the Fair Labor Standards Act’s white-collar overtime exemptions.  These proposed regulations, if they take effect, would impact millions of currently exempt employees and create significant compliance issues for many employers.

Background and History

The FLSA’s white-collar exemptions are applicable to “bona fide” executive, administrative, and professional employees and generally include both a minimum salary requirement and a duties test.  To establish that an employee is properly classified as exempt from overtime pay requirements under one of these exemptions, the employer must be able to prove that the employee is paid on a salary basis in an amount at least equal to the minimum salary requirement and meets the primary duties test for one of these exemptions.

Over the last eight years, the minimum salary requirement for these exemptions has become a battleground.

In 2016, the Obama Administration DOL issued new regulations that would have more than doubled the minimum weekly salary requirement for most white-collar overtime exemptions from $455 ($23,660 annually) to $913 ($47,476 annually).  A federal judge issued a nationwide preliminary injunction blocking these changes from taking effect in late 2016, and the Trump Administration DOL ultimately abandoned these regulations.

In September 2019, the Trump Administration DOL issued new regulations that increased the minimum weekly salary requirement from $455 to $684 ($35,308 annually).  Those changes took effect in January 2020.

The 2023 Proposed Regulations

On August 30, the Biden Administration DOL issued a new Notice of Proposed Rulemaking on this issue.  The proposed regulations would make the minimum salary requirement equal to the 35th percentile of weekly earnings of full-time salaried workers in the lowest-wage U.S. Census region, which currently is the southern U.S.  Based on 2022 data, this number would be $1,059 per week ($55,068 annually).  However, the DOL indicated that it will use the most recent data available when it issues the final regulations, which likely will result in a significantly higher threshold.  The DOL projects that the minimum weekly salary threshold could be as high as $1,140 ($59,285 annually) by the final quarter of 2023.

In addition, the DOL proposes tying the minimal annual compensation threshold for the FLSA’s highly compensated employee exemption to the 85th percentile of salaried workers nationally.  Again, based on the 2022 data (which is less than what the final number likely will be), this change would increase this annual compensation threshold from $107,432 currently to a number likely in excess of $143,988.

The DOL projects that 3.6 million currently exempt workers would be affected by these changes in the first year after the proposed regulations are implemented.

That’s not all.  The proposed regulations include automatic updates (i.e., increases) every three years to these minimum salary levels, using the same methodology for calculating the threshold numbers based on the statistical data.

The proposed regulations do not include any changes to the white-collar exemptions’ duties test.

What’s Next?

The public will be able submit comments on the proposed regulations for 60 days after their publication in the Federal Register.  After the comment period closes, the DOL stated that it will consider the comments submitted before issuing final regulations.  When those final regulations will be issued is unknown, but we likely will see final regulations in 2024 before the next presidential election.

It is safe to assume that legal challenges will be filed in response to any final regulations that are ultimately issued.  Whether those legal challenges will be successful in blocking any final regulations (like what happened in 2016) is unknown.

In the meantime, employers should monitor developments and begin the process of identifying employees currently classified as exempt under one of the white-collar exemptions who are paid a salary amount below the projected new minimums.  If these proposed regulations take effect, employers will need to consider either increasing those employees’ salaries, identifying another exemption without a minimum salary requirement that may be applicable, or converting those employees to non-exempt status for overtime pay purposes.

More to come.

This post was co-authored by Christian M. Wolgemuth, an attorney in McNees’ Privacy & Data Security and Litigation practice groups.

In our rapidly evolving technological landscape, the use of artificial intelligence (AI) has become more prevalent, touching virtually every aspect of our lives. From smart assistants that streamline our tasks to advanced data analytics that drive business decisions, AI is transforming industries across the globe. However, with this transformation comes important questions about ethics, fairness, and potential biases, particularly when it comes to AI in the employment context. The U.S. Equal Employment Opportunity Commission (EEOC) recently issued new guidance to address them.

The Intersection of AI and Employment

The employment sector has witnessed the integration of AI in various processes, including recruitment, candidate screening, employee evaluations, and even talent development. While AI offers great potential in making these processes more efficient and objective, it also brings with it significant challenges and legal risks.

One of the primary concerns is the potential for AI algorithms to inadvertently perpetuate or even amplify biases that exist in society. These biases may be based on race, gender, age, or other protected characteristics, and their unintended reinforcement can lead to discriminatory outcomes. The EEOC’s guidance seeks to address these challenges and provide a framework for employers to ensure that their use of AI remains compliant with the anti-discrimination laws.

Key Points from the EEOC’s Guidance

  1. Transparency: Employers should ensure that the AI systems they use are transparent and explainable. This means that the decision-making process of the AI should be understandable to human operators, and the factors leading to particular decisions should be clear.
  2. Bias Mitigation: Employers should actively assess the potential for bias in their AI systems. This includes regularly reviewing the data used to train the AI and evaluating the outcomes to detect any discriminatory patterns. If biases are detected, steps must be taken to correct them.
  3. Human Oversight: While AI can be a powerful tool, it should not replace human judgment entirely. Human oversight is essential to ensure that AI systems are not making decisions that have a disparate impact on protected groups.
  4. Fairness and Consistency: Employers must ensure that the use of AI does not result in unfair or inconsistent treatment of different groups of employees or job applicants. The guidance emphasizes the importance of conducting regular audits to identify and address any disparities.

The above points largely amount to ensuring that employers avoid “adverse impacts” through their use of AI tools. The EEOC defines an “adverse impact” as when the selection rate of a protected group is “substantially” less than the selection rate of those in another group. This analysis involves various mathematical calculations regarding the data pool and selection rate which should be utilized during regular internal audits. For questions regarding adverse impact calculations, reach out to any of the McNees Labor & Employment team.

Be Mindful of State Privacy Laws

The rapid adoption of state consumer privacy laws also impacts businesses’ and employers’ use of AI in decision making.  California, for example, as the state which has been leading the trend of adopting novel privacy laws, provides its residents with the right to request that businesses limit the use of California residents’ “sensitive personal information.”  California privacy law defines “sensitive personal information” to include information about the individual’s racial or ethnic origin, religious or philosophical beliefs, union membership, personal health, and sex life or sexual orientation.  When California consumers exercise this right, the business (or in this case, the potential or current employer) is prohibited from using sensitive personal information in any way that would not be reasonably expected by an average person.  And because an average person does not expect this type of sensitive personal information to be factored into an employment decision, employers must confirm that it is not being used in any AI decision-making processes.

California’s consumer privacy laws, including the California Consumer Privacy Act of 2018 and the California Privacy Rights Act of 2020, do not exclude employee and job applicant data.  This means that employers and businesses that are required to honor the statutory privacy rights requests of California consumers must also honor the privacy rights of their California employees and applicants when they request to limit the use of their sensitive personal information.  Additionally, California’s privacy laws grant consumers the right to be free from discrimination or retribution when they exercise their privacy rights.  This means that an employee’s or applicant’s choice to restrict the use of their sensitive personal information cannot be held against them when considering any potential employment decisions.

Currently, California is the only state to expand the scope of its consumer privacy laws to include employees and applicants.  However, and as the trends have shown, where California goes others are likely to follow.  Virginia has created additional consumer privacy rights for its residents, including the right to opt out of the processing of personal information for the purposes of “profiling in furtherance of decisions that produce legal or similarly significant effects concerning the consumer.”  As of right now, this right is not available to individuals in the employment context, but as state privacy laws become more consumer-friendly, we should expect these types of privacy rights to proliferate and be available to employees and job applicants.

As discussed above, employers should already be working to remove bias from screening and hiring practices using AI.  However, the rights granted to job applicants and employees in California – and likely the residents of more states in the future – create an additional prohibition against the use of personal information that could create bias or an adverse impact against certain individuals.

A Call for Responsible AI Implementation

The EEOC’s recent guidance is a significant step toward addressing the complex issues surrounding the use of AI in the employment context. It highlights the need for employers to approach AI with responsibility, diligence, and a commitment to equal opportunity.

By incorporating these guidelines into their AI practices, employers can harness the benefits of AI technology while minimizing the risk of discrimination. This not only protects the rights of employees and job seekers but also contributes to a more inclusive and diverse workplace.

In this era of AI-driven innovation, the EEOC’s guidance serves as a reminder that while technology advances, the importance of upholding ethical standards and safeguarding equal opportunities remains paramount. By staying informed about these guidelines and working together to implement them, employers can help to create a future where AI enhances our workplaces without compromising fairness and equality.