President Biden's initiatives include many potential changes to the laws that employers had been operating under during the last four years of the Trump administration. Below, we have highlighted a few key areas that employers should keep an eye on as the Biden presidency unfolds. These key areas include (1) the classification of workers as employees versus independent contractors; (2) greater employee protections regarding union organizing; and (3) the potential elimination of restrictive covenants nationwide.
The Classification of Workers as Independent Contractors Versus Employees
President Biden has stated his intention to enact legislation that provides a clearer, simpler, and uniform standard for classifying workers as employees for purposes of federal labor and employment and tax laws. The intended legislation is expected to make it much more difficult for hiring entities to properly classify workers as independent contractors.
The Biden administration intends to establish a test based on California's stringent "ABC Test." Under California's ABC Test, a worker is considered an employee unless the hiring entity can satisfy all three of the following requirements: (a) the worker is free from control and direction of the employer in connection with the performance of the work, both under contract of the work and in fact; (b) the worker performs work that is outside the usual course of the employer's business; and (c) the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed.
Under the Trump administration, the Department of Labor proposed a new rule for determining whether a worker is an independent contractor or an employee for purposes of the Fair Labor Standards Act. The proposed rule would change the "economic reality test" that has long been the applicable test. The proposed regulation's focus was on the level of control a hiring entity has over the worker and the worker's opportunity for profit or loss based on initiative and/or investment. The proposed rule and the current rule provide a much more flexible test than the ABC Test.
The proposed rule was scheduled to take effect in March 2021, but the Department of Labor recently announced a delay in the effective date until May 7, 2021. The Department of Labor has since proposed to rescind the rule, likely making way for establishing a federal ABC Test.
President Biden will also likely push to enact legislation to make worker misclassification a substantive violation of law under federal labor and employment and tax laws and impose additional penalties for such violations. He has also voiced his intention to take an aggressive enforcement approach to reducing worker misclassification by, among other things, funding an increase in the number of investigators in labor and employment enforcement agencies.
If the ABC Test becomes the federal standard, many independent contractors may become misclassified. Employers should review their worker classifications and consider whether some or all of their independent contractors would need to be reclassified as employees under a more stringent federal standard.
President Biden is also a strong proponent of the Protecting the Right to Organize Act (the PRO Act), which would provide employees with greater union organizing protections. Particularly, if passed into law, the PRO Act would institute financial penalties on companies that interfere with union organizing, and potentially impose personal liability on company executives who interfere with union organizing.
The PRO Act also codifies the ABC Test as the standard for determining which workers are classified as employees and covered by the National Labor Relations Act. This change would deem potentially millions more workers as employees for purposes of union organizing rights and protections.
In one notable provision of the PRO Act, employers engaging in first-contract negotiations with employees would be compelled to mediate with unions if the parties are not able to agree on terms within 90 days of beginning the collective bargaining negotiations. If mediation is unsuccessful, the matter will be decided by a three-person arbitration panel, which will bind the parties to the terms of their agreement.
The PRO Act was passed by the House earlier this month. It remains to be seen whether it will pass in the Senate.
If the PRO Act becomes law, employers will need to review the changes in the law to prevent exposure to penalties and litigation. Furthermore, many workers who previously did not have any union organizing rights will have newfound rights based on the PRO Act's implementation of the ABC Test. It is recommended that employers contact legal counsel to discuss the PRO Act's implications for their businesses if it becomes law.
Non-compete and no-poaching agreements could soon be a thing of the past under the Biden administration. Biden believes that restrictive covenants hinder the ability of employees to seek higher wages, better benefits, and better working conditions. He intends to enact legislation that would eliminate all non-compete agreements, except in very limited circumstances, and plans to implement an outright ban on all no-poaching agreements, which prohibit employees from soliciting other employees of a former employer for a period of time after employment ends.
If the intended legislation is not enacted in 2021 because of lingering costs associated with the COVID-19 pandemic, Biden may seek to eliminate or limit such agreements through regulatory action or by issuance of an executive order.
If the law changes in this area, employers should review the restrictive covenants in their agreements with employees to determine whether the agreements would violate federal law.
As the Biden administration continues to implement many key policy changes, employers are encouraged to keep an eye out for more in-depth discussions by Venable attorneys on these and other important developments. Employers are also encouraged to contact one of Venable's experienced Labor and Employment attorneys with questions regarding implementation of changes in light of any new legislation.