Consulting the Crystal Ball — What Employers Can Anticipate in 2025

With Inauguration Day now behind us and a new presidential administration taking control, employers should expect significant changes to many aspects of the federal government’s administrative agenda under a second Donald Trump presidency. From the enforceability of restrictive covenants to decisions of the National Labor Relations Board to the regulation of artificial intelligence in employment, we expect the second Trump administration to roll back various restrictions on the way employers run their businesses and work with their employees.

Restrictive Covenants

The FTC Rule

On May 7, 2024, the Federal Trade Commission (FTC) published its final Non-Compete Clause Rule (FTC Rule), which generally would have banned the use of non-compete clauses with workers as an unfair method of competition. The FTC Rule was immediately challenged, and on Aug. 20, 2024, a Texas federal judge in Ryan LLC v. Federal Trade Commission issued a nationwide injunction rendering the FTC Rule unenforceable. The court found that (1) the FTC exceeded its statutory authority in promulgating the rule and (2) the rule was arbitrary and capricious and in violation of the Administrative Procedure Act because it was unreasonably overbroad. On Oct. 18, 2024, the FTC filed an appeal of the decision to the U.S. Court of Appeals for the Fifth Circuit, seeking to reverse the lower court’s decision.

In a separate challenge to the FTC Rule, on Aug. 14, 2024, a Florida federal district court found that the rule failed under the “major questions doctrine” — an issue not reached by the Texas court — and issued a preliminary injunction that applied only to the plaintiff. The FTC also appealed this decision, to the U.S. Court of Appeals for the Eleventh Circuit.

In a third challenge to the FTC Rule, a Pennsylvania federal court decided that the FTC acted within its authority and found the FTC Rule enforceable. The complainant in the Pennsylvania case voluntarily dismissed its lawsuit shortly after the Texas court issued the nationwide injunction. For now, the FTC Rule remains enjoined on a nationwide basis as the Fifth and Eleventh circuits consider its validity and enforceability on appeal.

On Jan. 20, 2025, Biden’s FTC chair, Lina Khan, announced her resignation; and with a new President Trump appointee, the FTC will soon be controlled by a 3-2 Republican majority. On Dec. 10, 2024, Trump announced plans to appoint current Commissioner Andrew Ferguson to serve as the FTC chair, replacing Democrat Lina Khan, and to nominate Mark Meador to fill Ferguson’s vacant seat. Trump can appoint Ferguson as agency chair immediately after his inauguration, as that position does not require Senate approval. As for Meador, it is likely that he will promptly be confirmed by the Republican-controlled Senate.

As an FTC commissioner, Ferguson has notably been opposed to several of Khan’s rulemaking efforts, including the FTC non-compete ban. Under Republican control, the FTC may well decide to withdraw the appeals in the Fifth and Eleventh circuits and abandon the FTC Rule altogether.

New York

Uncertainty regarding the pending federal injunction of the FTC Rule regarding non-competes likely will lead to renewed efforts by state and local jurisdictions to regulate non-compete provisions. In New York, in December 2023, Gov. Kathy Hochul vetoed a bill that would have banned virtually all non-compete provisions.

In 2025, we expect that New York and New York City will revisit and seriously consider legislation to significantly curb the use of non-compete provisions. However, with the FTC Rule off the table and no state or local legislation on the horizon, there is no need for employers to change their practices with respect to their use of non-compete provisions at this time.

Diversity, Equity and Inclusion

As we discussed in a prior alert, the U.S. Supreme Court’s landmark decision in two companion cases — Students for Fair Admissions (SFFA) v. Harvard and Students for Fair Admissions (SFFA) v. University of North Carolina — dramatically changed the landscape of the college admissions process by striking down the use by higher educational institutions of race as a factor in student admissions.

Though the Harvard and UNC cases were decided under the equal protection clause of the 14th Amendment to the Constitution, which does not apply to private employers, there has been increased scrutiny concerning the diversity, equity and inclusion (DEI) practices and initiatives of private employers, which are covered by Title VII.

On the heels of the Court’s decision in the Harvard and UNC cases, a variety of challenges to employer DEI initiatives and policies have caused employers to modify their practices. A Trump administration, backed by a conservative Congress and a majority-conservative Supreme Court, may look to further challenge and question the DEI practices of private employers. Indeed, shortly after taking the oath of office, Trump signed various executive orders terminating DEI programs and initiatives within the federal government. For instance, one executive order requires governmental agencies and departments to terminate all DEI offices and positions (including, for example, “Chief Diversity Officer” positions) and all equity action plans. Another executive order explicitly mandates that the federal government only recognize two sexes, male and female, and that one’s sex cannot be modified based on the concept of “gender identity.” In a sign of things to come in the private sector, Trump has selected lawyer Harmeet Dhillon to oversee the Justice Department’s Civil Rights Division as an assistant attorney general. Trump describes Dhillon as someone who has worked tirelessly to protect civil liberties by “suing corporations who use woke policies to discriminate against their workers.”

Relatedly, the Supreme Court is set to review in Ames v. Ohio Department of Youth Services a circuit split regarding whether members of majority groups (e.g., white, male and heterosexual individuals) who allege discrimination under Title VII must satisfy a heightened pleading standard as compared to minority plaintiffs. Today, the U.S. Courts of Appeals for the Sixth, Seventh, Eighth, Tenth and District of Columbia circuits require that plaintiffs alleging so-called “reverse” discrimination by indirect or circumstantial evidence show “background circumstances” to support the suspicion that the defendant is “that unusual employer who discriminates against the majority.” We believe the Supreme Court will eliminate this heightened burden so that the same standard will apply to all discrimination claims regardless of whether the plaintiff is a majority or minority member of a protected class.

Employers should evaluate their current DEI policies and strategies and consider how to ensure equal opportunities for all workers without running afoul of the developing law.

Fair Labor Standards Act (FLSA)

‘White Collar Exemptions’ and the DOL Final Rule

As discussed in our prior alert, a federal court recently vacated a Joe Biden-initiated U.S. Department of Labor (DOL) final overtime rule (DOL Rule) that would have expanded overtime eligibility to millions of new workers under the Fair Labor Standards Act (FLSA). The DOL Rule was set to expand protections for lower-paid salaried workers by increasing the salary thresholds required to exempt certain salaried employees under the “white collar” exemptions pursuant to the FLSA starting on July 1, 2024, with additional increases to the salary threshold planned to take effect on Jan. 1, 2025, and beyond.

A federal Texas district court, however, invalidated the DOL Rule in a November 2024 decision. The court in State of Texas v. U.S. Department of Labor reasoned that the rule constituted an unlawful exercise of the DOL’s powers. As a result, the new salary thresholds promulgated by the DOL this past year were overturned and the prior salary thresholds were reinstated.

Going forward, an appeal by the DOL is unlikely given the change in administrations. A Trump-led DOL, presumed to be more employer-friendly and an advocate for small businesses, will likely be reticent to pursue many of the Biden administration’s priorities.

Nevertheless, state and local jurisdictions may decide to increase the minimum salary thresholds for white collar workers by enacting their own legislation. Indeed, for example, employers in New York must be mindful of annual increases to the minimum salary threshold.

Potential Changes in ‘Independent Contractor’ Designations

Although the FLSA provides comprehensive protections regarding wage and hour laws to employees, those rules do not apply to independent contractors, thus making independent contractor classification an important regulatory issue for employers.

Historically, changes in presidential administrations often lead to shifts in FLSA wage and hour contractor classification regulations. For example, at the end of Trump’s first term in office, the Trump administration finalized a 2021 DOL rule that made it easier for employers to classify certain workers as independent contractors for wage and hour purposes, and thus outside the scope of the FLSA. In 2024, the Biden administration published its own 2024 DOL rule, which effectively upended the Trump-era independent contractor rule. As a result, a larger percentage of workers are now considered to be employees under the FLSA and thus entitled to certain minimum wage, overtime pay and other protections under federal law.

Under the Trump administration, this trend likely will continue as the new administration will enact rules to make it easier for businesses to classify workers as independent contractors and thus reduce the number of workers protected by the FLSA.

National Labor Relations Board

The Biden-Era NLRB

The Biden-era National Labor Relations Board (NLRB or Board) has aggressively sought to champion employee rights. With the new administration, we expect to see a dramatic rollback of many of the Biden-era NLRB rules, guidance and decisions that were issued over the past four years. The key legal and policy decisions that characterized the Biden-era NLRB include:

• GC Memo 23-02, which offered guidance on unlawful electronic surveillance and automated management practices in the workplace. General Counsel Jennifer Abruzzo advocated protections for employees who engage in concerted activity and encouraged the NLRB to adopt new policies that ensure employers do not infringe on employee rights through the use of “omnipresent surveillance and other algorithmic-management tools.”

• GC Memo 23-08, which argued that non-competes generally are unlawful under the National Labor Relations Act (NLRA).

• GC Memo 23-05 and the Board’s McLaren Macomb decision, which ruled that severance agreements with broad confidentiality and nondisparagement clauses violate the NLRA by limiting employees’ Section 7 rights to engage in “concerted activities.”

• GC Memo 25-01, which set forth proposed remedies for unlawful non-compete provisions and contended that employers should be held liable for financial repercussions incurred by employees affected by mandatory stay-or-pay employment contracts.

• NLRB 2023 Joint Employer Rule, which established a new standard for determining whether two employers should be considered joint employers of particular employees under the NLRA. The rule provided guidance to employers regarding their rights and responsibilities when more than one statutory employer possesses the authority to control or exercises the power to control particular employees’ essential terms and conditions of employment. Under the final rule, an entity was deemed to be a joint employer of another employer’s employees if the two shared or co-determined the employees, essential terms and conditions of employment. This rule was struck down by a Texas federal court in Chamber of Commerce et al. v. NLRB et al, No. 23-cv-00553 (Mar. 8, 2024), and subsequently abandoned by the NLRB.

• The Lion Elastomers decision, which overruled the prior Board’s decision in General Motors LLC, 369 NLRB No. 127 (2020), and made it more difficult for employers to discipline employees for “abusive behavior” deemed to be protected activity during ongoing labor disputes.

• The Stericycle Inc. decision, which created a new standard for evaluating neutral employer work rules challenged as facially unlawful under the NLRA. The NLRB rejected the prior Board’s standard, which focused on an employer’s reasonableness in implementing the challenged rule along with the employer’s legitimate business justifications. The new standard gave more weight to employee interests, holding neutral employment rules unlawful when viewed “from the perspective of an employee who is subject to the rule and economically dependent on the employer, and who also contemplates engaging in protected concerted activity.” Consistent with this perspective, the employer’s underlying intent in establishing the rule was deemed irrelevant.

The NLRB Under a Second Trump Term

Under the new Trump administration, Abruzzo will likely be removed and a new Trump-appointed general counsel likely will rescind many Biden-era policy memoranda and other guidance viewed as pro-employee.

We expect the Board to have a Republican majority early in Trump’s administration, although it is unclear precisely when that will occur. The Board is comprised of five members who serve five-year staggered terms, and the current Board makeup is comprised of a 2-1 Democratic majority — though that will soon change. Trump recently announced his decision to appoint Marvin Kaplan, the NLRB’s sole Republican member, as chair of the Board. We expect Trump to nominate two new Republican members in short order, so the Democratic majority on the Board will soon cease to exist.

We expect the Republican-controlled NLRB to materially alter many of the policies proffered by Biden’s NLRB. Notably, the NLRB under a second Trump term will likely: 

• Roll back the McLaren Macomb decision and permit broader confidentiality and nondisparagement provisions in severance and employment agreements 

• Rescind the general counsel memoranda related to non-competes and stay-or-pay contracts 

• Reverse the employee-friendly standards articulated in Lion Elastomers and Stericycle and restore Trump-era precedent that focused more on an employer’s legitimate business reasons for enforcing work rules

Artificial Intelligence

Biden-Era Guidance on the Use of AI in the Workplace

With the expanding use of artificial intelligence (AI), the Biden administration issued a wide-ranging executive order in 2023 directing the development of standards for the “safe, secure, and trustworthy” use of AI. The executive order addressed the emergence of AI and directed various federal agencies to develop principles and best practices designed to address the risks faced by workers with respect to AI.

Noting AI’s effects on jobs and workplaces, the Biden White House acknowledged the benefits of improved productivity while also recognizing the potential danger of increased workplace surveillance, bias in hiring and job displacement. The executive order expressed that “[i]n the workplace itself, AI should not be deployed in ways that undermine rights, worsen job quality, encourage undue worker surveillance, lessen market competition, introduce new health and safety risks, or cause harmful labor-force disruptions.”

Building off Biden’s 2023 guidance, the DOL announced AI principles and best practices that employers should be aware of when deploying AI technology. In its guidance, the DOL’s main principles focused on:

• Worker collaboration designed to allow input in the development, testing, training, use and oversight of AI

• Establishing AI governance and oversight procedures for the use of AI in the workplace

• Protecting labor and employment rights that do not violate or undermine workers’ rights to organize, health and safety rights, wage and hour rights, and other antidiscrimination and antiretaliation protections

• Using AI to assist workers and improve job quality

• Supporting workers by teaching them new skills during job transitions related to AI

• Ensuring the responsible use of worker data that is limited in scope and location and only used to support legitimate business needs 

The Use of AI Under a Trump Administration

We expect the Trump administration to focus on promoting innovation and the use of AI in the workplace. Indeed, likely foreshadowing things to come, Trump has appointed David Sacks, a Silicon Valley venture capitalist, as the White House AI and crypto czar. While it is not clear how much influence this role will have, we expect Trump’s team to take a hands-off approach with respect to regulating the AI industry.

On a federal level, the Biden administration’s policies and guidance regarding the use of AI in hiring and in the workplace will likely be rolled back. That said, there are still a variety of laws currently in effect that apply to an employer’s use of AI in the workplace. For instance, employers must ensure that any use of AI for hiring, promotion or other employment-related decisions does not discriminate against an applicant or employee (either directly or indirectly) on the basis of a protected characteristic.

The Landscape Surrounding State and Local AI Laws

Even without federal action at the agency level, there may be increased focus on state and municipal initiatives that address AI issues in the workplace. Several states and New York City have passed legislation in recent years that regulate the use of AI in employment decisions. The main thrust of these laws requires (1) the mandatory disclosure of AI use in employee screening processes and (2) audit requirements when automated tools replace non-AI discretionary decision-making procedures.

Certain state and city laws that regulate the use of AI in the workplace include: 

• New York City (Int. No. 1894-A), which specified that employers that wish to use automated employment decision tools ensure such tools are analyzed by a “bias audit conducted no more than one year prior to the use of such tool” 

• Colorado Senate Bill 24-205, which mandated that employers adopt certain risk management policies, provide for annual impact assessments, disclose the use of AI to workers and applicants, and otherwise exercise “reasonable care to protect consumers from any known or reasonably foreseeable risk of algorithmic discrimination” in their use of AI technology 

• Illinois Public Act 101-0260 (Artificial Intelligence Interview Act), which required employers that record video interviews and use AI technology to inform applicants of their use of AI, provide written disclosure of how AI will be used during the interview process and obtain prior consent from the applicant before using such technology. 

• Maryland HB1202, which prohibited employers from using certain facial recognition services during interviews unless the applicant consents 

We expect additional state and local legislation to be enacted regulating the use of AI in the workplace.

***

We will continue to monitor developments under the new administration and will provide updates as additional information becomes available.

For questions or concerns regarding any of the issues raised in this alert, please contact a member of Kramer Levin’s Employment Law Department.