Understanding the New FLSA Overtime Rule: What Employers Need to Know

Changes to overtime rules under the Fair Labor Standards Act (FLSA) announced on April 23, 2023 affect most U.S. employers. The Final Rule substantially increases the number of employees eligible for overtime pay. It is critical that employers understand the rule and its implications for their business.

Current FLSA Overtime Regulations: The Basics

The FLSA requires employers to pay overtime pay of at least 1.5 times an employee’s standard pay rate for hours worked in excess of 40 hours per week. However, “white collar” and “highly compensated” employees are exempt from this overtime pay requirement if they meet a three-part test:

  • Salary Basis Test – an employee must be paid a predetermined and fixed salary that is not subject to reduction because of variations in the quality or quantity of work performed.
  • Salary Level Test – the amount of salary paid must meet a minimum specified amount. (Spoiler Alert: The new rules change the salary level.)
  • Duties Test – the employee’s job duties must primarily involve executive, administrative, or professional duties.

THE WHITE COLLAR EXEMPTION

The white-collar exemption applies to employees who perform primarily executive, administrative, and professional tasks. Workers who perform these tasks are considered to have more autonomous, managerial, or specialized roles justifying exemption from overtime. Therefore, if an employee’s duties are executive, administrative, and professional, and they satisfy the salary basis and salary level tests in the FLSA, they are not entitled to overtime pay under the FLSA.

HIGHLY COMPENSATED EMPLOYEES

A highly compensated employee (HCE) is someone who earns a high annual compensation (according to salary thresholds in the FLSA) and whose role includes one or more executive, administrative, or professional duties. The FLSA exempts “highly compensated employees” from the overtime pay requirement.

Key Changes to the FLSA Overtime Rules

The new rule increases the salary thresholds in the salary level test for highly compensated and white collar employees. As a result of the changes, less employees will be considered exempt and employers will be liable for significantly more overtime pay. Notably, the types of duties eligible for exemption are not impacted.

The new salary thresholds are introduced in two phases with the first increase becoming effective on July 1, 2024, and the second occurring on January 1, 2025. Importantly, the new rule also includes a mechanism for automatically updating these salary thresholds every three years based on current wage data. This means employers will need to stay vigilant for future increases.

THE NEW SALARY THRESHOLDS

In general, the minimum annual salary to qualify for the white collar exemption is increasing from $35,568 to $58,656 and the total annual compensation requirement for the highly compensated employee exemption is increased from $107,432 to $151,164. Here’s a detailed breakdown of the higher salary thresholds and their effective dates:

New FLSA Overtime Rule - The New Salary Thresholds

Why This Rule Matters: Essential Steps for Employers

This rule will have a significant impact on Pennsylvania employers, potentially reclassifying millions of currently exempt employees as non-exempt and eligible for overtime pay. Employers who fail to comply risk costly back pay, penalties, and lawsuits.

There are practical steps that employers can consider to ensure compliance with the new FLSA rule:

  • Review Current Employee Salaries, Hours, and Duties: Audit current salaries, hours, and job duties. This review will help identify which employees’ status may be affected by the new salary thresholds for exempt status under the FLSA.
  • Reclassify Employees as Non-Exempt as Necessary: Based on the review, determine which employees will need to be reclassified from exempt to non-exempt, or awarded a salary increase, to comply with the new rules. This reclassification will make them eligible for overtime pay, altering how their work hours are managed and compensated. It is advisable to consider an employee’s perception of this reclassification when taking this step.
  • Time Recording Policies and Processes: For employees who are reclassified as non-exempt, implement or update timekeeping procedures to accurately track hours worked. This may also require training employees on time-keeping systems. Effective and accurate time recording is essential for managing overtime and ensuring compliance.
  • Update Overtime Policies: Revise company overtime policies to reflect changes in employee classifications. Include clear procedures for overtime approval to manage overtime work more effectively and ensure it aligns with budget constraints and business needs.
  • Bonuses, Incentive Pay, Commissions: Evaluate how non-salary forms of compensation will factor into the new salary thresholds for exempt status. The FLSA determines how this compensation should be treated in determining total annual compensation, which could influence exemption status.
  • Remember Contractual Obligations: The FLSA is a federal law which applies to all U.S. employers. However, any additional salary commitments in an employment contract still legally bind the employer. These should not be ignored.

Despite the quickly approaching compliance date, we also anticipate legal challenges to this rule, which could delay or change the rules. For now, though, employers should proceed on that basis that the updated regulations will take effect on July 1, 2024. Preparing for this deadline ensures that employers will not be caught off guard and can avoid any potential legal and financial repercussions.

EEOC Publishes Long-Awaited Final Guidance on Workplace Harassment

On April 29, 2024, the U.S. Equal Employment Opportunity Commission (EEOC) issued the final version of new workplace harassment guidance for employers, formally updating the EEOC’s position on the legal standards and employer liability under federal antidiscrimination laws for the first time in more than two decades.

Quick Hits

  • The EEOC issued a final version of new guidance for employers clarifying its positions on the applications of federal laws prohibiting harassment and retaliation.
  • The new guidance is the first update to the EEOC’s workplace harassment guidance since 1999 and incorporates several new developments in the law and modern workforces.
  • Key to the new guidance is that it recognizes unlawful harassment against LGBTQ+ individuals and addresses workplace protections for “pregnancy, childbirth, or related medical conditions,” including “lactation.”
  • The new guidance took immediate effect upon issuance.

The new guidance, “Enforcement Guidance on Harassment in the Workplace,” clarifies the EEOC’s position on several key issues following its receipt of nearly 40,000 comments in response to its proposed guidance published on October 2, 2023.

“The EEOC’s updated guidance on harassment is a comprehensive resource that brings together best practices for preventing and remedying harassment and clarifies recent developments in the law,” EEOC Chair Charlotte Burrows said in a statement released with the new guidance.

In that regard, the final guidance aligns with the Supreme Court of the United States’ 2020 decision in Bostock v. Clayton County, Georgia—wherein the prohibition under Title VII of the Civil Rights Act of 1964 against gender discrimination was held to include claims predicated on sexual orientation and gender identification—and recognizes potentially unlawful workplace harassment against LGBTQ+ individuals. The final guidance also addresses another key area of focus, that is, workplace protections for “pregnancy, childbirth, or related medical conditions,” including “lactation” in accordance with the Pregnant Workers Fairness Act (PWFA) and Providing Urgent Maternal Protections for Nursing Mothers Act (PUMP Act), and the EEOC’s final guidance on the PWFA issued on April 15, 2024.

While claims of harassment represented more than a third of all discrimination charges filed with the EEOC between fiscal years 2016 and 2023, the Commission has not updated its guidance on harassment since 1999. The final guidance consolidates and replaces the EEOC’s five guidance documents issued from 1987 through 1999.

Significant for employers, the final guidance provides more than seventy hypothetical examples of potential unlawful harassment, including examples reflective of today’s modern workforce with both hybrid and remote workers and widespread use of electronic communication and social media.

Covered Harassment

The EEOC made several key updates to what it considers covered harassment under Title VII and other federal antidiscrimination laws.

Race and Color

The new guidance expands the EEOC’s explanation on potential harassment based on “color” under Title VII, separating it out into its own section that was not included in the proposed guidance. The guidance states that while discrimination based on color is “sometimes related to harassment based on race or national origin, color-based harassment due to an individual’s pigmentation, complexion, or skin shade or tone is independently covered by Title VII.”

The guidance provides an example of potential color-based harassment where a supervisor harasses Black employees with “darker complexions” and not Black employees with “lighter skin tones,” even though they are all of the same race or national origin.

Pregnancy, Childbirth, or Related Medical Conditions

The guidance states that harassment based on pregnancy, childbirth, or related medical conditions “can include issues such as lactation; using or not using contraception; or deciding to have, or not to have, an abortion,” if that harassment “is linked to a targeted individual’s sex.” The new guidance adds multiple hypothetical examples of such harassment not included in the proposed guidance, including a situation where employees make negative comments about a pregnant employee who is allowed to “telework up to three days per week and utilize flexible scheduling” as an accommodation for “pregnancy-related morning sickness.” Another example highlighted a situation where negative comments are directed toward a female worker who expresses milk in the lactation room at work and other inappropriate behavior, namely a male worker knocking on the door of the lactation room and feigning intent to enter the room.

Sexual Orientation and Gender Identity

The new guidance explains the EEOC’s view that discrimination based on sexual orientation or gender identity is a form of unlawful sex-based discrimination under Title VII, including epithets, physical assault, “outing” (meaning disclosing an individual’s sexual orientation or gender identity without permission), or other harassing conduct toward individuals because they do “not present in a manner that would stereotypically be associated with that person’s sex.”

Further, the guidance identifies as potential harassment the “repeated and intentional use of a name or pronoun inconsistent with the individual’s known gender identity (misgendering); or the denial of access to a bathroom or other sex-segregated facility consistent with the individual’s gender identity.” Importantly, the final guidance requires some intentional or knowing behavior, that is “repeated and intentional” misgendering based on an individual’s “known” gender identity. (Emphasis added.)

Genetic Information

The new guidance further clarifies the EEOC’s understanding of unlawful harassment under the Genetic Information Nondiscrimination Act (GINA) as applying to “harassment based on an individual’s, or an individual’s family member’s, genetic test or on the basis of an individual’s family medical history.” For instance, the guidance states that such harassment could include harassing an employee “because the employee’s mother recently experienced a severe case of norovirus, which resulted in overnight hospitalization.”

Retaliatory Harassment

The final guidance includes a new section that addresses the concept of “retaliatory harassment.” The guidance clarifies the EEOC’s position that “retaliatory harassing conduct” may still be challenged as unlawful retaliation “even if it is not sufficiently severe or pervasive to alter the terms and conditions of employment by creating a hostile work environment.” The EEOC explained that the legal standards for hostile work environment and retaliation are different as the anti-retaliation provisions proscribe a broader range of behaviors, namely, “anything that might deter a reasonable person from engaging in protected activity.”

Intraclass and Intersectional Harassment

The guidance includes examples of “intraclass” harassment where the harasser is in the same protected category as the individual being harassed. One hypothetical involves a fifty-two-year-old supervisor making derogatory comments toward a sixty-five-year-old employee as an example of harassment based on age, even though both individuals are over the age of forty. “Intersectional” harassment refers to situations where individuals are targeted based on their membership in more than one protected category. In one example, the hypothetical raises a situation where a male manager made comments to a female worker about her having a “hot flash” and being menopausal. The EEOC explained that such targeting based on “stereotypes about older women is covered as both age and sex discrimination.”

Reporting Procedures, Complaint Process, and Training

The proposed guidance outlined the “minimum” features of an effective anti-harassment policy, the “minimum” features for an effective complaint process, and the “minimum” features for effective anti-harassment training. The final guidance eliminates the “minimum” language, but the features of each are substantively the same otherwise.

As it concerns remedial measures, the Commission removed language from the proposed guidance that seemingly recognized the “fewer options” available to employers when faced with instances of harassment perpetrated by nonemployees, harassment toward employees working at client locations as is common for temporary staffing agencies, or harassment arising from off-duty conduct. In its place, the final guidance simply provides that employers have an “arsenal of incentives and sanctions” available to them to address harassment, but those options “may vary depending on who engages in the conduct and where it occurs, among other considerations.”

Next Steps

While the final guidance is likely to face legal challenges in the courts, employers may want to review their workplace policies and practices, particularly in light of potential liability for discrimination or harassment against LGBTQ+ employees. Additionally, employers may want to note differing state or local laws and state or local agency guidance that differ from Title VII and other federal laws enforced by the EEOC.

In addition to the new guidance, the EEOC published a “Summary of Key Provisions” document and a fact sheet for small businesses, with more information for employers.

Get Off the Beaten Path: Three Ways Outsourcing Can Help Firms Achieve CRM & Data Quality Success

Normally, the path most traveled is thought to be the better road as it represents the path that leads to achieving goals and success while the less traveled path leads to stressful processes and unknowns.

But for firms trying to achieve CRM success, the “beaten path” involves investing tens of thousands of dollars into the latest and greatest technology and hiring internal Data Stewards to maintain the data flowing into the system. This can take up a significant number of firm resources and there is no guarantee that CRM Success will be achieved.

Let’s face it, the traditional approach to CRM and Data Quality Success often leads to more headaches and challenges than it does to success. Without the right experience and expertise, leading a CRM implementation project or a data quality clean-up can be disastrous.

Hundreds of thousands of records flow in from departmental databases which need to be analyzed and categorized properly. Meetings need to be held with firm leadership to understand their expectations for the system, and meetings need to be coordinated with vendors to set up demonstrations along with Requests For Proposals (RFPs).

To add more fuel to the fire, meetings also need to be held with end users to understand their needs and requirements so system selection can be catered to them. In the end, firms are left with high training and implementation costs; limited staffing pools due to required expertise; and increased employee burnout due to the overwhelming nature of the work.

The Path Less Traveled: Outsourcing

Many forward-thinking firms have taken the path less traveled to CRM success and have outsourced many of their core marketing technology positions and data quality work to trusted service providers. Outsourced Marketing Technology Managers and Data Stewards can provide all the benefits of retaining these positions in-house at a cost-efficient price all while reducing managerial headaches.

The route less traveled gives you access to a pool of highly skilled professionals without the additional costs associated with hiring internally. Many outsourced Marketing Technology Managers and Data Stewards have years of industry experience working with the nation’s top firms tackling complex data quality issues and guiding implementations ensuring they are implemented and integrated effectively.

To achieve CRM and data quality success, sometimes the beaten path won’t get you there. Here are three ways taking the path less traveled can help you achieve CRM and data quality success:

1. Cost Savings

Utilizing outsourced service providers for marketing technology or data quality roles can help firms save a significant amount of money. For firms with around 250 professionals, hiring an internal CRM Manager and Data Steward can cost firms around $116,640.

For firms that have limited resources and budgets, outsourcing providers offer various pricing models for their services. From contracting their workers on an as-needed basis for short-term or long-term projects to paying-as-you-go. This allows firms to allocate more of their investments to higher-priority projects or initiatives. Depending on the rate of the service provider, firms can expect to pay up to 33% less ($77,350) when they outsource their core marketing technology and data quality work.

2. Improved Data Quality

Opposed to internal Data Stewards, outsourced data quality professionals can focus on key responsibilities and can work more efficiently than their internal counterparts who have to focus on other tasks or priorities. These outsourced professionals understand the intricacies of the professional service industry and seamlessly fit into your firm’s day-to-day processes.

Outsourced Data Stewards have the ability and know-how to implement data standardization processes and protocols, minimizing the number of dirty records that may flow into the system. They also have access to industry-leading tools that can streamline and automate data management so your attorneys and professionals can worry less about maintaining their contacts and more about serving their clients.

3. Reduction In Turnover

Traditionally, hiring Data Stewards internally has been a revolving door, where firms would hire a new team member to maintain their data quality, train them, compensate them, motivate them, then, replace them. Given how outsourced service providers are not directly involved with the firm’s core services, they assume the role of finding, hiring, training, motivating and managing the data quality professional.

This frees up your marketing and business development teams to focus on growing the firm and nurturing client relationships rather than chasing down contact data from the organization’s professionals. They can help you with a wide range of data-related activities including:

  • Regularly reviewing new records
  • Enhancing records with geographical information, financial data, or who-knows-who relationships
  • Creation and management of segmented and targeted lists for marketing or business development campaigns

To achieve CRM and data quality success, sometimes the beaten path won’t get you there. So, if you are struggling with your marketing technology or data quality, don’t be afraid to explore alternate routes, like outsourcing. It can open your firm up to a pool of highly skilled professionals who have years of experience solving the same issues you may be going through. An outsourced team can provide your firm with significant cost savings, improved data quality, and a reduction in employee turnover and managerial headaches.

These operational efficiencies lead to greater productivity and returns on marketing spend – meaning greater profitability for the firm.

Justice Department has Opportunity to Revolutionize its Enforcement Efforts with Whistleblower Program

Over the past few decades, modern whistleblower award programs have radically altered the ability of numerous U.S. agencies to crack down on white-collar crime. This year, the Department of Justice (DOJ) may be joining their ranks, if it incorporates the key elements of successful whistleblower programs into the program it is developing.

On March 7, the Deputy Attorney General Lisa Monaco announced that the DOJ was launching a “90-day policy sprint” to develop “a DOJ-run whistleblower rewards program.” According to Monaco, the DOJ has taken note of the successes of the U.S.’s whistleblower award programs, such as those run by the Securities and Exchange Commission (SEC) and Internal Revenue Service (IRS), noting that they “have proven indispensable.”

Monaco understood that the SEC and IRS programs have been so successful because they “encourage individuals to report misconduct” by “rewarding whistleblowers.” But how any award program is administered is the key to whether or not the program will work. There is a nearly 50-year history of what rules need to be implemented to transform these programs into highly effective law enforcement tools. The Justice Department needs to follow these well defined rules.

The key element of all successful whistleblower award programs is very simple: If a whistleblower meets all of the requirements set forth by the government for compensation the awards must be mandatory and based on a percentage of the sanctions collected thanks to the whistleblower. A qualified whistleblower cannot be left out in the cold. Denying qualified whistleblowers compensation will destroy the trust necessary for a whistleblower program to work.

It is not the possibility of money that incentives individuals to report misconduct but the promise of money. Blowing the whistle is an immense risk and individuals are only compelled to take such a risk when there is real guarantee of an award.

This dynamic has been laid clear in recent legislative history. There is a long track record of whistleblower laws and programs failing when awards are discretionary and then becoming immensely successful once awards are made mandatory.

For example, under the 1943 version of the False Claims Act awards to whistleblowers were fully discretionary. After decades of ineffectiveness, in 1986, Congress amended the law to set a mandate that qualified whistleblowers receive awards of 15-30% of the proceeds collected by the government in the action connected with their disclosure.

The 1986 Senate Report explained why Congress was amending the law:

“The new percentages . . . create a guarantee that relators [i.e., whistleblowers] will receive at least some portion of the award if the litigation proves successful. Hearing witnesses who themselves had exposed fraud in Government contracting, expressed concern that current law fails to offer any security, financial or otherwise, to persons considering publicly exposing fraud.

“If a potential plaintiff reads the present statute and understands that in a successful case the court may arbitrarily decide to award only a tiny fraction of the proceeds to the person who brought the action, the potential plaintiff may decide it is too risky to proceed in the face of a totally unpredictable recovery.”

In the nearly four decades since awards were made mandatory, the False Claims Act has established itself as America’s premier anti-fraud law. The government has recovered over $75 billions of taxpayer money from fraudsters, the vast majority from whistleblower initiated cases based directly on the 1986 amendments making awards mandatory.

Similar transformations occurred at both the IRS and SEC where ineffective discretionary award laws were replaced by laws which mandated that qualified whistleblowers receive a set percentage of the funds collected thanks to their whistleblowing. Since these reforms, the whistleblower programs have revolutionized these agencies’ enforcement efforts, leading directly to billions of dollars in sanctions and creating a massive deterrent effect on corporate wrongdoing.

Most recently, Congress reaffirmed the importance of mandatory whistleblower awards when it reformed the anti-money laundering whistleblower law. The original version of the law, which passed in January 2021, had no set minimum amount for awards, meaning that they were fully discretionary. After the AML Whistleblower Program struggled to take off, Congress listened to the feedback from whistleblower advocates and passed the AML Whistleblower Improvement Act to mandate that qualified money laundering whistleblowers are awarded.

Monaco states that the DOJ has long had the discretionary authority to pay whistleblower awards to individuals who report information leading to civil or criminal forfeitures and has “used this authority here and there — but never as part of a targeted program.”

The most important step in turning an underutilized and ineffective whistleblower award law into an “indispensable” whistleblower award program has been made clear over the past decades. Qualified whistleblowers must be guaranteed an award based on a percentage of the sanctions collected in connection with their disclosure.

By administering its whistleblower program in a way that mandates award payments, the DOJ would go a long way towards creating a whistleblower program which revolutionizes its ability to fight crime. The Justice Department has taken the most important first step – recognizing the importance of whistleblowers in reporting frauds. It now must follow through during its “90-day sprint,” making sure reforming the management of the Asset Forfeiture Fund works in practice. Whistleblowers who risk their jobs and careers need real, enforceable justice.

A Paradigm Shift in Legal Practice: Enhancing Civil Litigation with Artificial Intelligence

A paradigm shift in legal practice is occurring now. The integration of artificial intelligence (AI) has emerged as a transformative force, particularly in civil litigation. No longer is AI the stuff of science fiction – it’s a real tangible power that is reshaping the manner in which the world functions and, along with it, the manner in which the lawyer practices. From complex document review processes to predicting case outcomes, AI technologies are revolutionizing the way legal professions approach and navigate litigation and redefining traditional legal practice.

Streamlining Document Discovery and Review

One of the most time-consuming tasks in civil litigation is discovery document analysis and review. Traditionally, legal teams spend countless hours sifting through documents to identify relevant evidence, often reviewing the same material multiple times, depending on the task at hand. However, AI-powered document review platforms can now significantly expedite this process. By leveraging natural language processing (NLP) and machine learning algorithms, there platforms can quickly analyze and categorize documents based on relevance, reducing the time and resources required for document review while ensuring thoroughness and accuracy. AI in the civil discovery process offers a multitude of benefits for the practitioner and cost saving advantages for the client, such as:

• Efficiency: AI powered document review significantly reduces required discovery, allowing legal teams to focus their efforts on higher value tasks and strategic analysis;

• Accuracy: By automating the initial document review process AI helps minimize potential human error and ensures a greater consistency and accuracy in identifying relevant documents and evidence;

• Cost-effectiveness: AI driven platforms offer a cost-effective alternative to traditional manual review methods, helping to lower overall litigation costs for clients

• Scalability: AI technology can easily scale to handle large volumes of data making it ideal for complex litigation cases with extensive document discovery requirements;

• Insight Generation: AI algorithms can uncover hidden patterns, trends, and relationships within the closed data bases that might not be apparent through manual review, providing valuable strategy and decision-making.

Predictive Analytics for Case Strategy

Predicting case outcomes is inherently challenging, often relying on legal expertise, jurisdictional experience of the lawyer and analysis of the claimed damage. However, AI-driven predictive analytics tools are changing the game by providing hyper-accurate data-driven insights into case strategies. By analyzing past case law, court rulings, and other relevant data points, these tools can forecast-model the likely outcome of a given case, allowing legal teams and clients to make more informed decisions regarding jurisdictionally specific settlement negotiations, trial strategy and resource allocation.

Enhanced Legal Research and Due Diligence

AI-powered legal research tools have become powerful tools for legal professionals involved in civil litigation. These tools utilize advanced algorithms to sift through vast repositories in a closed system of case law, statutes, regulations and legal precedent, delivering relevant information in a fraction of the time it would take through manual research methods. Additionally, AI can assist in due diligence processes by automatically flagging potential legal risks and identifying critical issues within contracts and other legal documents.

Improving case Management and Workflow Efficiency

Managing multiple cases simultaneously can be daunting for legal practitioners and could lead to inefficiencies and oversight. AI-driven case management systems offer a solution by providing centralized case-related information, deadlines and communications. These systems can automate routine tasks, such as scheduling document filing and client communication schedules, freeing up valuable time for attorneys to focus on legal substantive tasks and proactive case movement .

Ethical Considerations and Challenges

While the benefits of AI in civil litigation are undeniable, they also raise important ethical considerations and challenges. Issues such as data privacy, algorithmic bias, and the ethical use of AI in decision-making processes must be carefully addressed to ensure fairness and transparency in the legal system. Additionally, there is a growing need for ongoing education and training to equip legal professionals with the necessary skills to effectively leverage AI tools while maintain ethical standards and preserving the integrity of the legal profession.

Take Away

The integration of AI technologies in civil litigation represents a paradigm shift in legal practice, offering unprecedented opportunities to streamline processes, enhance decision-making and improve client satisfaction. By harnessing the power of AI-driven solutions, legal professionals can navigate complex civil disputes more efficiently and effectively, ultimately delivering better outcomes for clients and advancing the pursuit of just outcomes in our rapidly evolving legal landscape.

The 80/20 Rule is Here: CMS Finalizes HCBS Care Worker Payment Requirements

In May 2023, the Centers for Medicare and Medicaid Services (“CMS”) proposed a series of rule changes intended to help promote the availability of home and community-based services (“HCBS”) for Medicaid beneficiaries. Chief among these proposals was a new rule that would require HCBS agencies to spend at least 80% of their Medicaid payments for homemaker, home health aide, and personal care services on direct care worker compensation (the “80/20 Rule”). Intended to help stabilize the HCBS workforce, the proposal faced immediate backlash from HCBS providers and Medicaid agencies, who expressed concern that the 80/20 rule would harm HCBS providers by mandating specific allocations to worker compensation and bogging down providers and Medicaid agencies with burdensome reporting requirements.

After reviewing thousands of comments, CMS released an advance copy of the final rule this week. Defying stakeholder anticipation that the 80/20 Rule would be relaxed, or updated to provide more flexibility for providers, CMS finalized the 80/20 Rule largely as originally proposed, including the following key requirements:

  • HCBS providers must spend at least 80% of Medicaid payments on direct care worker compensation;
  • HCBS providers will have six years (increased from four) from the effective date of the final rule to demonstrate compliance with the 80/20 Rule;
  • States must begin collecting and tracking data on direct care worker compensation within four years of the effective date of the final rule; and
  • States are permitted to establish different standards for smaller HCBS providers and to establish hardship exemptions – in both cases based on objective and transparent criteria.

Under the broad mandate of the 80/20 Rule, there are a number of key definitions that HCBS providers must consider as they evaluate these new requirements:

Direct Care Workers

Because the 80/20 Rule was adopted largely to stabilize the HCBS workforce, a key component is whose compensation qualifies for inclusion. CMS’s proposed definition encompassed almost any person with a role in providing direct care to patients (e.g., RNs, LPNs, individuals practicing under their supervision, home health aides, etc.). Under the final 80/20 Rule, CMS clarified that “direct care workers” also include those whose role is specifically tied to clinical supervision (e.g., nurse supervisors).

Compensation

Compensation of direct care workers means:“[s]alary, wages, and other remunerations as defined by the Fair Labor Standards Act and implementing regulations; [b]enefits (such as health and dental benefits, life and disability insurance, paid leave, retirement, and tuition reimbursement); and [t]he employer share of payroll taxes for direct care workers delivering services authorized under section 1915(c) of the Act.” CMS clarified that “compensation” also includes:

  1. Overtime pay;
  2. All forms of paid leave (e.g., sick leave, holidays, and vacations);
  3. Different types of retirement plans and employer contributions; and
  4. All types of benefits: CMS intentionally used the phrase “such as” to indicate the list of benefits was non-exhaustive, and indicated technical guidance to states on this subject is forthcoming.

Excluded Costs

CMS expressed concern that HCBS providers would include training costs for direct care workers as “compensation,” and that calculating compensation in this way could result in negative outcomes, such as diminished training opportunities. To address these concerns, CMS created the concept of “excluded costs,” which are excluded from the percentage calculations under the 80/20 Rule. See § 441.302(k)(1)(iii) (“costs that are not included in the calculation of the percentage of Medicaid payments to providers that are spent on compensation for direct care workers.”). Excluded costs are limited to:

  1. Costs of required direct care worker training;
  2. Direct care worker travel costs (mileage, public transportation subsidy, etc.); and
  3. Personal protective equipment costs.

Medicaid Payments

CMS largely adopted its expansive view of what qualifies as a “Medicaid Payment” for purposes of 80/20 Rule calculations. CMS clarified that the 80/20 Rule encompasses both standard and supplemental payments and applies regardless of whether HBCS services are delivered through fee-for-service or managed care delivery systems. CMS also declined to create a formal carve-out for value-based care or pay-for-performance arrangements, despite recognizing their value.

What Comes Next?

HCBS providers and state Medicaid agencies have six years to sort out their compliance with the 80/20 Rule (though data tracking and reporting begins after year three). On the provider side, this means carefully evaluating the business and economic impacts of compliance with the 80/20 Rule and monitoring CMS and state-level guidance on implementation as it develops over time. For multi-state providers, this process becomes even more complicated, as there is a high likelihood that states will choose to implement the 80/20 Rule in different, and potentially contradictory, ways.

Providers also need to work with the state agencies to address the adequacy of HCBS rates generally. CMS recognized the important role that the underlying rates play in HCBS sustainability but declined to mandate specific payment rates or methodologies. As a result, positive momentum on the rates themselves must come from state initiatives.

United States | Labor Department Posts Final H-2A Regulation

The U.S. Department of Labor announced a final H-2A regulation Friday, saying the rule was crafted to target the “vulnerability and abuses experienced by workers under the H-2A program that undermine fair labor standards for all farmworkers in the U.S.”

The H-2A program allows employers to hire temporary agricultural workers when there is a lack of “able, willing and qualified” U.S. workers. The new rule includes sections:

  • Adding new protections for worker self-advocacy.
  • Clarifying “for cause” termination.
  • Making foreign labor recruitment more transparent.
  • Ensuring timely wage changes for H-2A workers.
  • Improving transportation safety.
  • Preventing labor exploitation and human trafficking.
  • Ensuring employer accountability.

The final rule is scheduled to take effect on June 28; however, H-2A applications filed before Aug. 28, will be processed according to federal regulations as is in effect as of June 27. Applications submitted on or after Aug. 29, 2024, will be processed in accordance with the provisions of the new rule.

Additional Information: The 600-page rule is scheduled to be published in the Federal Register on Monday, April 29. A pre-publication version is available here.

FTC Moves to Strike Most Noncompetes: Considerations for Cannabis Companies

As Bradley previously reported, the Federal Trade Commission at the beginning of last year issued a notice of proposed rulemaking to effectively ban employee noncompete provisions as an unfair method of competition in violation of Section 5 of the FTC Act. Following a 16-month administrative process that drew more than 26,000 public comments, the FTC on April 23, 2024, issued its final rule that will, according to the FTC, “promote competition by banning noncompetes nationwide, protecting the fundamental freedom of workers to change jobs, increasing innovation, and fostering new business formation.”

Key Features of the Final Rule

Key features of the final rule include:

  • Defining “noncompete clauses” as a term or condition of employment that either “prohibits” a worker from, “penalizes” a worker for, or “functions to prevent” a worker from (a) seeking or accepting work in the United States with a different person where such work would begin after the conclusion of the employment that includes the term or condition; or (b) operating a business in the United States after the conclusion of the employment that includes the term or condition.
  • Treating existing noncompetes differently depending on the category of worker.
    • For “senior executives,” existing noncompetes may remain in force. The term “senior executive” refers to workers earning more than $151,164 who are in a “policy-making position.” As so defined, the FTC estimates that senior executives represent less than 0.75% of all workers.
    • For all other categories of workers, existing noncompetes will be unenforceable following the effective date (i.e., 120 days following its publication on the Federal Register).
  • Banning new noncompetes for all workers following the effective date.
  • Requiring employers to provide “clear and conspicuous notice” to workers who are not senior executives and are subject to existing noncompetes that such provisions are no longer enforceable. The FTC included model language in the final rule that satisfies the notice requirements.
  • Excluding banks but not bank affiliates. Because the FTC does not have regulatory authority over banks, it does not apply to banks. The rule does apply to bank affiliates however as those entities are within FTC jurisdiction.
  • Excluding nonprofit entities. The final rule does not apply to nonprofit entities, such as nonprofit hospitals, as they fall outside of the jurisdiction of the FTC Act. The FTC notes, however, that not all entities that claim tax-exempt status in their tax filings are automatically outside of the scope of the final rule. Rather, the FTC applies a two-part test to determine whether the purported nonprofit is within the scope of the FTC Act, focusing on the source of the entity’s income and the destination of the income.
  • Excluding noncompetes in the sale of business context. The final rule generally does not apply to business owners upon the “bona fide” sale of a business. The final rule expanded the sale of business exception found in the proposed rule.
  • The final rule does not apply where a cause of action related to a noncompete accrued prior to the effective date of the final rule.

What Does the New Rule Mean for the Cannabis Industry in Particular?

The FTC contends that the final rule will benefit the U.S. economy by, among other things, increasing worker earnings, reducing healthcare costs, spurring new business formation, and enhancing innovation. But what will it mean for the U.S. cannabis industry specifically?

As we’ve written about before, there’s a significant amount of proprietary information that may give players in the cannabis space a competitive edge – e.g., customer lists, grow processes, or unique cannabinoid extracts, plants, and products. Because marijuana is still a Schedule I substance under the Controlled Substance Act, however, there are open questions about whether an entity engaged in marijuana-related commercial activity can avail itself of federal law protections, such as U.S. patent and trademark laws. If an entity cannot avail itself of those federal law protections, the ability to turn to state contract law becomes even more important to protect its investments. That’s where noncompetes could come in — going a long way to protect an individual from taking and utilizing a company’s or individual’s investments. The FTC final rule largely would put an end to the ability to use noncompete protections, save for the exceptions outlined above. That may be an even bigger blow to the cannabis industry as compared to other industries who can readily utilize federal law protections. On the other hand, the cannabis industry is largely transient and collaborative, and many cannabis companies and individuals in the industry may be willing to take the good with the bad when it comes to the absence of noncompete rules.

What’s Next?

First, the final rule is not yet in effect. It will go into effect 120 days after its publication in the Federal Register.

Second, we expect there will be significant legal challenges and efforts to halt the implementation of the rule.

The final rule was issued following a 3-2 vote by the commissioners, with the two newly appointed Republican commissioners – Melissa Holyoak and Andrew Ferguson – voting against the rule. In their prepared remarks, the dissenting commissioners questioned the FTC’s legal authority to take such sweeping action.

The final rule has already prompted a legal challenge. Shortly after the FTC’s public meeting approving the final rule, the U.S. Chamber of Commerce released a statement indicating its intent to “sue the FTC to block this unnecessary and unlawful rule and put other agencies on notice that such overreach will not go unchecked.” True to its word, the Chamber filed yesterday a Complaint for Declaratory Judgment and Injunctive Relief in U.S. District Court for the Eastern District of Texas (Chamber of Commerce of the United States of America v. Federal Trade Commission, Case No. 6:24-cv-00148 (E.D.Tex. filed April 24, 2024)). The lawsuit mounts a number of legal challenges to the final rule.

Protect Yourself: Action Steps Following the Largest-Ever IRS Data Breach

On January 29, 2024, Charles E. Littlejohn was sentenced to five years in prison for committing one of the largest heists in the history of the federal government. Littlejohn did not steal gold or cash, but rather, confidential data held by the Internal Revenue Service (IRS) concerning the United States’ wealthiest individuals and families.

Last week, more than four years after Littlejohn committed his crime, the IRS began notifying affected taxpayers that their personal data had been compromised. If you received a notice from the IRS, it means you are a victim of the data breach and should take proactive steps to protect yourself from fraud.

IN DEPTH


Littlejohn’s crime is the largest known data theft in the history of the IRS. He pulled it off while working for the IRS in 2020, using his access to IRS computer systems to illegally copy tax returns (and documents attached to those tax returns) filed by thousands of the wealthiest individuals in the United States and entities in which they have an interest. Upon obtaining these returns, Littlejohn sent them to ProPublica, an online nonprofit newsroom, which published more than 50 stories using the data.

Under federal law, the IRS was required to notify each taxpayer affected by the data breach “as soon as practicable.” However, the IRS did not send notifications to the affected taxpayers until April 12, 2024 – more than four years after the data breach occurred, and months after Littlejohn’s sentencing hearing.

TAKE ACTION

If you received a letter from the IRS (Letter 6613-A) enclosing a copy of the criminal charges against Littlejohn, it means you were a victim of his illegal actions. To protect yourself from this unprecedented breach of the public trust, we recommend the following actions:

  1. Consider Applying for an Identity Protection PIN. A common crime following data theft involves using a taxpayer’s social security number to file fraudulent tax returns requesting large refunds. An Identity Protection PIN (IP PIN) can help protect you from this scheme. After you obtain an IP PIN, criminals cannot file an income tax return under your name without knowing your identification number, which changes annually. Learn more and apply for an IP PIN here.
  2. Request and Review Your Tax Transcript. The IRS maintains a transcript of all your tax-related matters, including filings, payments, refunds, extensions and official notices. Regularly reviewing your tax transcript (e.g., every six to 12 months) can reveal fraudulent activity while there is still time to take remedial action. Request a copy of your tax transcript here. If you have questions about your transcript or need help obtaining it, we are available to assist you.
  3. Obtain Identity Protection Monitoring Services. Applying for an IP PIN and regularly reviewing your tax transcript will help protect you from tax fraud, but it will not protect you from other criminal activities, such as fraudulent loan applications. To protect yourself from these other risks, you should obtain identity protection monitoring services from a reputable provider.
  4. Evaluate Legal Action. Data breach victims should consider taking legal action against Littlejohn, the IRS and anyone else complicit in his wrongdoing. Justifiably, most victims will not want to suffer the cost, aggravation and publicity of litigation, but for those concerned with the public tax system’s integrity, litigation is an option.

In fact, litigation against the IRS is already underway. On December 13, 2022, Kenneth Griffin, the founder and CEO of Citadel, filed a lawsuit against the IRS in the US District Court for the Southern District of Florida after discovering his personal tax information was unlawfully disclosed to ProPublica. In his complaint, Griffin alleges that the IRS willfully failed to establish adequate safeguards over confidential tax return information – notwithstanding repeated warnings from the Treasury Inspector General for Tax Administration and the US Government Accountability Office that the IRS’s existing systems were wholly inadequate. Griffin is seeking an order directing the IRS “to formulate, adopt, and implement a data security plan” to protect taxpayer information.

The future of Griffin’s lawsuit is uncertain. Recently, the judge in his case dismissed one of his two claims and cast doubt on the theories underpinning his remaining claim. It could be years before a final decision is entered.

Although Griffin is leading the charge, joining the fight would bolster his efforts and promote the goal of ensuring the public tax system’s integrity. A final order in Griffin’s case will be appealable to the US Court of Appeals for the Eleventh Circuit. A decision there will be binding on both the IRS and taxpayers who live in Alabama, Florida and Georgia. However, the IRS could also be bound by orders entered by other federal courts arising from lawsuits filed by taxpayers who live elsewhere. Because other courts may disagree with the Eleventh Circuit, taxpayers living in other states could file their own lawsuits against the IRS in case Griffin does not prevail.

Victims of the IRS data breach who are interested in taking legal action should act quickly. Under the Internal Revenue Code, a lawsuit must be filed within two years after the date the taxpayer discovered the data breach.