2023: The Year of Uncertainty for Employment Lawyers

2023 was, well, a mixed bag. Employers are left wondering what the future state of diversity initiatives in the workplace will look like as various forms of litigation bubble their way up, perhaps again to the U.S. Supreme Court. Employers are also taking note of more aggressive federal agency action and state legislation placing further restrictions on settlement and release agreements. And in New York, employers are waiting with anticipation to see what the legal fate will be of noncompete agreements. In addition, employers in New York State and New York City are contending with a slew of new laws that took effect this year and preparing for some that will take effect in 2024. If 2023 proved anything, it is that the workplace is a heavily legislated, litigated and ever-evolving landscape that employers must work hard to keep up with. Hopefully this alert helps toward that end.

Outlawing Affirmative Action in Higher Education Made Employers Take a Hard Look in the Mirror

The U.S. Supreme Court’s June 2023 decision in Students for Fair Admissions (SFFA), which effectively held that affirmative action in higher education admissions is unconstitutional, continues to have major ripple effects for private employers despite the decision having no binding effect on them. As we discussed in a prior alert, the SFFA decision put a spotlight on diversity, equity and inclusion (DEI) initiatives in the workplace, causing employers to rethink whether their DEI initiatives on their face, or as applied to individual workers, violate Title VII of the Civil Rights Act and other antidiscrimination laws because they may favor minority members of protected classes.

The SFFA decision emboldened individuals and interest groups to challenge employer DEI practices, which they have done through a variety of legal mechanisms. For example, the American Alliance for Equal Rights (backed by Edward Blum, who was also behind the SFFA case) filed several lawsuits against law firms challenging their diversity scholarship programs for, among other reasons, the programs’ exclusion of white (and other) student applicants. After the law firms changed their application criteria, Blum dropped the suits and publicly announced that his work with law firms was done.

Others have indirectly challenged employer practices through “reverse” discrimination cases, which was happening even before the SFFA decision. For instance, in Phillips v. Starbucks Corp., No. 19-cv-19432 (D.N.J. 2019), a federal jury awarded $25.6 million to a former Starbucks employee who alleged that, following the arrests of two African Americans in her Starbucks location, she was fired because she was white. And this month, a federal jury in Philadelphia awarded a former surgeon $15 million for Jefferson Health’s violation of gender discrimination laws in the way it handled an internal rape investigation. Then there is the America First Legal organization, which has filed more than two dozen letters with the Equal Employment Opportunity Commission demanding it open investigations into some of the biggest companies in the country for their DEI practices. There have also been legal challenges to state and local statutes that seemingly favor minority groups, challenges to agency rulemaking, and shareholder activity demanding retreats from DEI.

These challenges are clearly not going away in 2024. Our advice remains as it was last June: Employers should be vigilant about evaluating their current DEI policies and strategies and determining whether alternatives should be considered to ensure equal opportunities for all workers. This analysis will help employers stay true and committed to fostering an inclusive work environment that embraces diversity in all of its forms while also ensuring they are not engaging in practices that can be challenged as discriminatory.

Noncompetes Became Even More Unpopular in 2023

Another hot topic in 2023 that will continue in 2024 is restrictive covenants prohibiting or limiting competition. Noncompetes are falling out of favor across the country and at the federal level. We reported nearly one year ago on the Federal Trade Commission’s (FTC) Jan. 5, 2023, vote to publish a proposed rule banning most noncompetes. The FTC is not expected to vote on and issue a final rule for several more months. If and when it does, legal challenges, including whether the FTC’s rulemaking powers give it the authority to promulgate such a far-reaching rule, are all but guaranteed. This is especially so because the Court will hear in January two cases that may curb (or overturn) the doctrine of Chevron deference, which is the long-standing principle that federal agencies be given latitude in their regulatory action. The National Labor Relations Board (Board) also took aim at noncompetes this year when its general counsel published a memorandum on May 30, 2023, warning that noncompetes can violate the National Labor Relations Act (NLRA) because they deny employees the ability to quit or change jobs and thereby deny access to employment opportunities, which chills employees’ Section 7 rights to engage in concerted activities for mutual aid and protection.

We also previously reported on recent developments in New York regarding a bill passed by the Legislature banning virtually all noncompete agreements. The bill has been the subject of intense lobbying, and its status remains up in the air as Gov. Kathy Hochul still has not signed it and has expressed a preference to have the law apply only to individuals earning less than $250,000 per year. As we previously noted, the proposed law applies only to noncompete agreements entered into after the legislation becomes effective. If Gov. Hochul signs the bill, or some variation of it, New York will join a growing number of other states with restrictions or near total bans on noncompetes.

Once again, our advice remains the same: There is no need to change your practices based on the FTC’s proposed rule or legislation that has not been enacted. Nevertheless, employers should review their usage of noncompete provisions and similar restrictive covenants to ensure they are consistent with existing law and be ready if there are changes.

Federal Agencies Increased Their Scrutiny of Employee Agreements and Workplace Policies

In addition to the FTC, other federal agencies were also active this year. In a series of decisions, the Securities and Exchange Commission (SEC) cracked down on provisions in settlement and release agreements that the SEC viewed as having a chilling effect on whistleblowers. On Sept. 19, 2023, the SEC announced settled charges against CBRE Inc. for the use of a clause in release agreements that conditioned receiving severance on an attestation by employees that they had not filed a complaint against CBRE with a federal agency. The SEC’s rationale was that such clauses, once presented to employees, would impede them from filing a complaint before they signed the release. Ten days later, on Sept. 29, 2023, the SEC announced the settlement of similar charges against D. E. Shaw & Co. L.P. for the same type of clauses in release agreements as well as provisions that prohibited employees from disclosing confidential corporate information to third parties without explicitly excepting disclosures to the SEC. These cases emphasize that employees (and former employees) must not be induced, including financially or otherwise, or restricted from communicating with the SEC or other agencies about potential violations of law.

There were also notable decisions reached by the Board this year. In February 2023, the Board decided in McLaren Macomb that employers may not offer severance agreements that require employees to broadly waive their rights under the NLRA. Six months later, in Stericycle Inc., the NLRB adopted a new, more liberal, legal standard for evaluating the legality of general workplace policies under Section 7 of the NLRA. Under the new standard, work rules are evaluated individually and are presumptively unlawful if they have a reasonable tendency to chill employees from exercising their Section 7 rights.

The New York State Legislature and the New York City Council Were Busy in 2023

The New York State Legislature and the New York City Council did not rest this year when it came to passing new laws affecting the workplace. We published several alerts on these developments over the course of the year, which are summarized below, along with other developments that employers in New York State and New York City should be aware of.

New York State

• Updates to New York State’s Model Sexual Harassment Prevention Materials: Employers in New York State are required to maintain a written sexual harassment prevention policy and conduct annual trainings. The New York State Department of Labor (DOL) updates model documents every four years. In June 2023, the DOL released updates to New York State’s model sexual harassment prevention materials, including its model policy, training script, training video and other resources. This year, the major changes included an expansion of the definition of gender diversity, a new section on bystander intervention and the incorporation of scenarios regarding sexual harassment in the remote workplace. Employers should review their current policies and trainings in light of these changes.
  
  
• New York State Labor Law on Protections for Breastfeeding Mothers: Effective June 7, 2023, all New York State employers are required, with limited exceptions due to undue hardship, to provide employees with reasonable unpaid break time to express breast milk at work for up to three years following childbirth and provide an appropriate lactation room in which to do so. Employers are also required to maintain a written policy regarding employee rights under the law and disseminate it upon hire, annually thereafter and whenever an employee returns to work following the birth of a child. Employers in New York City with four or more employees are already subject to a similar law. And the federal Providing Urgent Maternal Protections for Nursing Mothers (PUMP) Act has similar requirements as well, though employers are only required to provide break time for up to one year and employers with fewer than 50 employees are not subject to the PUMP Act requirements if they pose an undue hardship by causing the employer significant difficulty or expense. All employers should have a lactation break and room policy that complies with applicable law.
  
  
• Protecting Interns Against Discrimination: On Aug. 23, 2023, Gov. Hochul signed into law a bill amending the New York State Human Rights Law to provide protections for interns, specifying once and for all that they are protected from discrimination based on gender identity and gender expression. Employers should ensure that interns are specified as protected in any handbooks, policies and trainings.
  
  
• Meetings Concerning an Employer’s Political or Religious Views Cannot Be Mandatory: Effective this past September 2023, employers are prohibited from discriminating against employees for their refusal to attend employer-sponsored meetings with their employer or its representatives, or listen to a speech or view communications, where the primary purpose is to communicate the employer’s opinion concerning political or religious matters.
  
  
• Prohibitions on Invention Assignments: Also effective in September 2023, any provision in an employment agreement providing that an employee shall assign, or offer to assign, any of their rights in an invention to their employer may not apply to inventions the employee developed “entirely” on their own time without use of the employer’s facilities or information.
  
  
• Notice of Eligibility for Unemployment Benefits: Effective Nov. 13, 2023, employers must inform their employees in writing of their right to file for unemployment insurance upon any permanent or indefinite separation, as well as any reduction in hours, temporary separation or any other interruption of continued employment that results in total or partial unemployment.
  
  
• Freelance Isn’t Free Act: We reported earlier this year on the passage of a bill mandating that any hiring party in New York State that retains a freelancer’s services for at least $800 must provide such freelancer with a detailed written contract and timely full payment. Gov. Hochul signed the bill into law on Nov. 22, 2023. The new law replicates the similar labor rights contained in a New York City law, but now there is more administrative oversight and support from the DOL.
  
  
• Required Modifications to Separation and Settlement Agreements: We reported last week on amendments to New York’s General Obligations Law § 5-336 intended to strengthen protections for workers to more freely discuss allegations of harassment, discrimination and retaliation. Among other things, the new law prohibits in any agreement that includes the release of a claim, the factual circumstances for which involve unlawful discrimination, harassment or retaliation provisions: (1) imposing liquidated damages for violating a nondisclosure clause or nondisparagement clause; (2) forfeiting all or part of the consideration under the agreement in the event of a breach of a nondisclosure or nondisparagement clause; and (3) affirmatively stating that the releasor was not subject to any unlawful discrimination, harassment or retaliation.
  
  
• New York State Paid COVID-19 Vaccination Leave: Paid leave for COVID-19 vaccination under the New York Labor Law, which provided four hours of paid leave per vaccination dose, is no longer required to be provided by employers in the new year. Most New York State employers are still required to provide five or 14 days (depending on employer size) of job-protected, paid leave to employees who need to take leave because they are under a mandatory or precautionary order of quarantine or isolation due to COVID-19. New York State employers are also still required to provide job-protected leave to employees to care for their minor dependent child who is under such an order, and such employees may be eligible for New York Paid Family Leave benefits.
  
  
• Accessing Electronic Personal Accounts: Effective March 12, 2024, it will be unlawful for employers to request or require employees or applicants to disclose any username, password or other means to access their personal accounts (such as social media accounts). It also will be unlawful for employers to take adverse action against employees or applicants who refuse to disclose such access information.
  
  
• New York Clean Slate Act: Last month, Gov. Hochul signed a bill into law that will automatically seal state-level criminal convictions after a person is released from incarceration and completes a waiting period (three years for misdemeanors and eight years for felonies). The law is designed to increase the employment rates of formerly incarcerated individuals.

New York City

• Automated Employment Decision Tool Regulations: On July 5, 2023, the New York City Department of Consumer and Work Protection (DCWP) began enforcing a new law that regulates employers’ use of automated employment decision tools (AEDTs). AEDTs are tools that use machine learning, artificial intelligence and other processes to assist employers in making employment decisions, which can include hiring and promotion decisions. The law is meant to ensure AEDTs do not produce biased results by requiring employers (and employment agencies) to conduct audits and give notice to employees and applicants that AEDTs will be used.
  
  
• Amendments to New York City Safe and Sick Time Regulations: On Sept. 13, 2023, the DCWP adopted changes to its regulations regarding New York City’s Earned Safe and Sick Time Act (ESSTA). The changes are numerous and employers should carefully review their leave policies to ensure compliance. One important clarification is that workers who only perform work while physically located outside of New York City (such as remote workers) are not covered under the law even if they work for an employer in New York City. In contrast, employees with a primary work location outside of New York City may still be covered by ESSTA if they regularly perform or are expected to regularly perform work in New York City. Another important clarification under the amended regulations is that covered employers are determined by their number of employees nationwide by counting the highest total number of employees currently employed at any point during the calendar year. The changes also provide more pointed guidance on when employers can require advance notice of an employee’s need to take leave and what documentation employers can request.
  
  
• Amendments to the New York City Human Rights Law Protecting Against Height and Weight Discrimination: Effective Nov. 22, 2023, it is unlawful in New York City for an employer to discriminate against any person because of their height or weight. An exception to the law regarding height and weight discrimination exists when an employer (1) has conflicting requirements under federal, state or local law or regulation; (2) is permitted by regulation adopted by the New York City Commission on Human Rights (Commission) that identifies particular jobs or categories of jobs for which a person’s height or weight could prevent them from performing the essential requisites of the job and the Commission has not identified alternative action that employers could reasonably take to allow the person to perform the essential requisites of the job; or (3) is permitted by regulation adopted by the Commission identifying particular jobs or categories of jobs for which consideration of height or weight criteria is reasonably necessary for the execution of the employer’s normal operations. Similarly, employers have an affirmative defense under the law when (a) a person’s height or weight prevents that person from performing the essential requisites of the job and there is no alternative; or (b) the employer’s decision based on height or weight is reasonably necessary for the execution of the employer’s normal operations.
  
  
• New York City Workers’ Bill of Rights: On Nov. 2, 2023, the New York City Council passed a bill that amends the New York City Administrative Code requiring employers to provide and post a Workers’ Bill of Rights developed by the city. The Workers’ Bill of Rights will include information about workers’ rights under relevant federal, state and local laws that apply to employees, applicants and independent contractors and will indicate which rights apply to workers regardless of their immigration status. It will also include information about the right to organize and form a union. A final draft of the Workers’ Bill of Rights notice will be posted on the city’s website no later than March 1, 2024, and employers will have until July 1, 2024 to provide it to current employees and new hires. Employers will also be required to conspicuously post the notice in the workplace and make it available online in English and any language spoken as a primary language by at least 5% of employees so long as the notice is available in that language. Employers will be allowed time to take corrective action after a first-time violation, but thereafter, the law provides a civil penalty of $500 for failure to comply.
  
  
• Victims of Gender-Motivated Violence Protection Law: This law allows survivors of gender-motivated violence (defined under the law as a “crime of violence motivated by gender”) in New York City to bring a civil action against perpetrators as well as anyone who directs, enables, participates in or conspires in the commission of the crime, which would include private institutions such as employers. Importantly, survivors have until March 1, 2025, to institute actions regarding gender-motivated violence regardless of when it occurred. This lookback window is similar to the one that just ended in November 2023 under the New York Adult Survivor’s Act.

We wish everyone a happy holiday season and a happy new year. For questions or concerns regarding any of the issues raised in this alert, please contact a member of Kramer Levin’s Employment Law Department.