Compliance challenges reveal opportunities despite legal uncertainty

Published: May 24, 2024 | by Robert S. Teachout, Legal Editor at Brightmine

Remaining legally compliant with ever-evolving employment laws and regulations is a constant challenge for organizations, particularly when facing multiple requirements at the federal, state and local levels. The complexity of this challenge is multiplied when legal obligations are uncertain — such as when new or amended requirements are suddenly changed or rescinded.

For example, in the past few months, federal agencies announced a new set of rules that impose major changes in the employment law landscape:

• The Department of Labor (DOL) issued a rule increasing the overtime salary threshold.
• The Federal Trade Commission (FTC) announced a rule that bans noncompete agreements.
• The Equal Employment Opportunity Commission (EEOC) issued new regulations requiring accommodations under the Pregnant Workers Fairness Act (PFWA).

Since these rules have been announced, each of them is facing legal challenges. With the outcome of the legal challenges unknown, employers must decide whether to face the prospect of expend resources to prepare to comply with a rule that may not go into effect, or to await the outcome and find themselves unprepared and noncompliant if the legal challenges fail.

Status of recently announced federal rules

Equal Employment Opportunity Commission

Rule: Requires reasonable accommodations for known limitations related to pregnancy, childbirth or related medical conditions, barring undue hardship

Effective Date: June 18, 2024

Status: State attorneys general have filed two lawsuits seeking to block the final regulations over provisions that require time off and other accommodations for abortions.

Department of Labor

Rule: Increases the overtime exemption salary threshold in a two-step approach, with future increases scheduled every three years

Effective Date: July 1, 2024, January 1, 2025

Status: A lawsuit has been filed in a Texas federal district court arguing that the salary thresholds exceed the limits of the DOL’s statutory authority, and the automatic indexing provision is unlawful.

Federal Trade Commission

Rule: Bans the use of noncompete agreements, except with very limited exceptions

Effective Date: September 4, 2024

Status: Lawsuits have been filed in Texas and Pennsylvania federal district courts arguing that the rule exceeds the FTC’s authority.

By taking a proactive approach despite the uncertainty, an organization can create opportunities that minimize compliance risk and further strategic business goals. This requires the employer to “zoom out” to see the big picture by assessing all the information available and the impact on the organization of the new requirements or of their repeal if legal challenges succeed. Then employers need to think outside the box on how to make the best of either result. This increases the organization’s ability to pivot quickly and respond effectively once legal requirements are clear.

Preparing for compliance changes

In all cases, it is important to plan and prepare for the likelihood that the new federal rules will survive their challenges and go into effect. In addition, consider other approaches to these compliance challenges that can benefit the organization, such as:

Achieve multiple goals at the same time

Some compliance changes are inevitable. For instance, even if the DOL overtime salary threshold is vacated, states have their own thresholds for exemption — some already higher than those set by the new federal rule, and employers operating in those states must comply with those requirements. Preparing and planning how to comply with the new overtime requirements also provides an opportunity to meet other goals.

1. Examine the organization’s compensation structure. Is it competitive in your market?
2. Review job descriptions to ensure they are accurate and that the duties of exempt employees meet the tests under the FLSA.
3. Take the opportunity to conduct a pay equity audit. If problems are found, they can be corrected as part of the adjustments being made to comply with the overtime requirements.

Rethink and revise your strategic approach

Facing a compliance challenge can be a good time to examine and rethink an organization’s strategic approach to some issues. Even before the FTC issued its broad ban against noncompete agreements, many states have been limiting their use. California, New York, Minnesota and Oklahoma all ban noncompete agreements, while many states restrict their use based on salary and/or occupations.

This could be a good time to review your business strategy on noncompetes. Are they being overused? Are there other options for protecting legitimate business interests? Consider using nondisclosure agreements to protect trade secrets or nonsolicitation agreements to preserve client relationships.

“Garden leave” (in which an employee remains employed and is paid their salary and benefits for a specified period, but no longer provides services except for occasional consultation if needed and does not work for a competitor) may be a good substitute for a noncompete agreement and has the benefit of allowing for a transfer of institutional knowledge to an employee’s replacement.

Consider also whether investing more in employee development and career-pathing could do more to improve retention than a legal threat if an employer goes to work for a competitor.

By revising its strategy, an organization will be in a better position to defend its practices on the use of noncompetes, even if the FTC’s rule is struck down.

Embrace the change

The goals of a federal rule may align with an organization’s values and strategic goals. The EEOC’s regulations to implement the PFWA are intended to make workplaces more supportive of pregnant employees by requiring covered employers to reasonably accommodate employees’ known limitations resulting from pregnancy, childbirth and related medical conditions.

Many employers have a goal to support and advance women in the workplace. One way to forward that goal is by providing flexibility and accommodations during pregnancy and after. Nothing precludes employers from adopting the EEOC rules voluntarily (even if vacated by legal challenges). Providing these benefits shows that an organization values women and will prioritize ensuring that they are included and supported. Adopting this approach can also increase overall employee loyalty and make the organization an employer of choice.

By addressing compliance challenges proactively, even when legal obligations are uncertain, employers can discover opportunities to minimize risk and create strategic advantages, improve operational efficiency, and foster a positive workplace culture.