Employers take note. There have been several key legal developments during the past month or so. Here are the highlights:
Supreme Court Rules Job Transfer Need Not Show Substantial Harm to Support a Title VII Claim
On April 17, 2023, in a case called Muldrow v. St. Louis, the United States Supreme Court held that a lateral transfer, without any change in title, compensation, or benefits, could constitute an “adverse employment action” and form the basis of a Title VII claim. The case was brought by a female police sergeant who, against her wishes, was reassigned from a plain clothed officer in the intelligence division to a uniformed job in a different department. Her position, responsibilities, perks and schedule changed after the transfer, but her rank and pay remained the same. After the transfer, the employee no longer worked with “high-ranking officials” on most prestigious matters lodged in the Intelligence Division. She also lost access to an unmarked take-home vehicle and had a less regular schedule involving weekend shifts. She filed suit under Title VII alleging that the transfer was discriminatory based on the fact that she was a woman.
The employee lost at the lower court because she could not show that the transfer caused her a “materially significant disadvantage” where “the transfer “did not result in a diminution to her title, salary, or benefits” and had caused “only minor changes in working conditions.” The Supreme Court reversed, reasoning that such a showing was not necessary to succeed under Title VII.
The decision resolves a split among the lower federal courts about whether or not a Title VII plaintiff has to show “significant” harm or disadvantage as a result of the transfer in order to establish an “adverse employment action” that could create liability under the statute. The answered now is: no. According to the Supreme Court, an employee challenging a job transfer under Title VII in order to succeed must show that the transfer brought about merely “some harm with respect to an identifiable term or condition of employment,” but that harm need not be significant. Under this new standard, harm to one’s reputation or stature in an organization, a less desirable schedule, or work in a less prestigious department reporting to lower-level staff, may be sufficient to support a Title VII claim, even if there is no change to an employee’s pay or benefits.
DOL Final Overtime Rule Increases Salary Threshold
In another recent development in the area of employment, on April 23, 2024, the U.S. DOL announced its anticipated final overtime rule. While the numbers have changed slightly from the proposed rule discussed in an earlier article, this final rule, as expected, incrementally increases over the next 2 years the salaries that must be paid to employees in order for them to be exempt from overtime under the white collar and highly compensated employee exemptions.
Currently, in order to qualify for the bona fide executive, administrative, and professional exemptions, a worker’s salary has to be at least $684/week ($35,568 per year). The final rule increases this salary threshold to $844 per week, beginning on July 1, 2024 and to $1,128 per week, starting on January 1, 2025. This means for the period July 1, 2024 – December 31, 2024, an employee must earn at least $43,888 annually in order to be considered exempt from overtime pay. On January 1, 2025, employees will have to earn at least $58,656 annually in to be exempt from the FLSA’s overtime requirements under the white-collar exemptions. The other requirements for these exemptions remain unchanged. That means that in addition to meeting these new salary thresholds, employees will continue to have to be paid on a salary basis and meet the duties requirements set out in the FLSA regulations.
As for the highly compensated employee exemption, currently, employees who earn $107,432 per year are exempt from the overtime rules, under this exemption, irrelevant of their duties. The DOL’s final rule increases this threshold for total annual compensation to $132,964 beginning July 1, 2024 in order for this exemption to apply. On January 1, 2025, that number will increase again, so that an employee’s total annual compensation must be $151,164 in order to satisfy the highly compensated employee exemption from that date forward.
The final rule also requires automatic updates every 3 years. This means that beyond the increases in 2024 and 2025, employers can expect another increase to the appliable salary levels for white collar and highly compensated exemptions in 2027 and every 3 years afterwards. The final rule takes effect on July 1, 2024.
FTC Bans Most Non-Competes
Finally, on April 23, 2024, the Federal Trade Commission announced a final rule that essentially bans nearly all non-competes.
As background, a non-compete is a common provision used in employment contracts which restricts a departing employee from engaging in competing activity for a period of time. In most states, these provisions can be enforced so long as they protect legitimate business interests (such as proprietary and confidential information or customer goodwill) and only to the extent the restrictions are reasonable in time and geographic scope. Some states, like California, have banned them altogether, but that has not been the approach of the majority of states.
The FTC’s final rule bans these types of provisions going forward for all workers, including senior executives after the “effective date” (i.e., 120 days after publication in the federal register). It does so by defining “unfair competition” under the Federal anti-trust law, as making employment agreements with workers that include any term or condition of employment that “prohibits a worker from, penalizes a worker for, or functions to prevent a worker from” working after his or her current employment ends.
“For existing noncompetes, the final rule adopts a different approach for senior executives and allows existing noncompete to remain in force. Existing noncompete with all other workers other than senior executives are not enforceable after the effective date of the final rule.”
Other key components of the final rule – Employers also must give to all workers (other than senior executives) notice that their non-competes will not and cannot be enforced. Delivery can be in hand, by mail or text message. Notice must be given on or before the “effective date”.
The final rule also contains an exemption for non-competes entered into during certain sales of businesses, i.e. a “bona fide sale of a business entity, of the person’s ownership interest in a business entity, or of all or substantially all of a business entity’s operating assets”.
Take Aways
So, what should employers do now? When it comes to transfers, employers should be aware that a lateral move might be viewed as an “adverse employment action” that could create liability under Title VII, even if there is no change in pay, title, or benefits. Employers should do a careful analysis before making any transfer decisions to ensure that any transfer is based solely on legitimate, non-discriminatory, on-retaliatory reasons in order to manage Title VII exposure.
As far as non-competes, employers should be prepared that provisions which may have been acceptable in the past, might no longer pass legal muster if the final rule sticks. With that said, employers should take caution not to tear up those non-competes just yet. Bloomberg Law and CNBC report that business groups have already multiple suits challenging the FTC final rule, arguing that the FTC lacks the legal authority to ban noncompetes by administrative action.
As for the FLSA overtime rule, legal scholars anticipate that it will be challenged too. Both of these regulations should be stayed during the pendency of such suites. And given the conversative leanings of the current Supreme Court, it is not unreasonable to expect that portions or all of these rules are struck down before they ever take effect. As for the Title VII transfer issue, it is established law, that is until the Supreme Court decides to overturn itself.
So, as always, stay tuned.