Labor & Employment Archives - Page 5 of 155

Lyft Owes No Duty To Its Drivers To Do Background Checks On Riders

Al Shikha v. Lyft, Inc., 102 Cal. App. 5th 14 (2024)

While working as a Lyft driver, Abdu Lkader Al Shikra was stabbed by a passenger in a “sudden and unprovoked attack.” Al Shikra sued Lyft for negligence based on its failure to conduct criminal background checks on all passengers. The trial court granted Lyft’s motion for judgment on the pleadings, and the Court of Appeal affirmed dismissal of the complaint after concluding that conducting criminal background checks on all passengers would be “highly burdensome” to Lyft and that the type of harm Al Shikha suffered was not “highly foreseeable.”

US District Court Sets Aside the FTC’s Noncompete Ban on a Nationwide Basis

On August 20, the US District Court for the Northern District of Texas held that the Federal Trade Commission’s (FTC) final rule banning noncompetes is unlawful and “set aside” the rule. “The Rule shall not be enforced or otherwise take effect on its effective date of September 4, 2024, or thereafter.”

The district court’s decision has a nationwide effect. The FTC is very likely to appeal to the Fifth Circuit. Meanwhile, employers need not concern themselves for now with the rule’s notice obligations, and the FTC’s purported nationwide bar on noncompetes is ineffective. Employers do, however, need to remain mindful of the broader trend of increasing hostility to employee noncompetes.

The Court’s Decision

On April 23, the FTC voted 3-2 to publish a final rule with sweeping effects, purporting to bar prospectively and invalidate retroactively most employee noncompete agreements. The court’s decision addressed cross-motions for summary judgment on the propriety of the FTC’s rule. The court denied the FTC’s motion and granted the plaintiffs’ motion for two reasons.

First, the court held that the FTC lacks substantive rulemaking authority with respect to unfair methods of competition under Section 6(g) of the FTC Act. In reaching its holding, the court considered the statute’s plain language, Section 6(g)’s structure and location within the FTC Act, the absence of any penalty provisions for violations of rules promulgated under Section 6(g), and the history of the FTC Act and subsequent amendments. Because the FTC lacked substantive rulemaking authority with respect to unfair methods of competition, and hence authority to issue the final noncompete rule, the court did not consider additional arguments regarding the scope of the FTC’s statutory rulemaking authority. Notably, the court did not consider whether the final rule could overcome the major questions doctrine.

Second, the court held that the FTC’s final noncompete rule was arbitrary and capricious under the Administrative Procedure Act (APA) because it was “unreasonably overbroad without a reasonable explanation” and failed to establish “‘a rational connection between the facts found and the choice made.’” The court heavily discounted studies that the FTC had relied upon that purported to measure the impact of statewide noncompete bans because no state had ever enacted a ban as broad as the FTC’s ban: “[t]he FTC’s evidence compares different states’ approaches to enforcing non-competes based on specific factual situations — completely inapposite to the Rule’s imposition of a categorical ban.” “In sum, the Rule is based on inconsistent and flawed empirical evidence, fails to consider the positive benefits of non-compete agreements, and disregards the substantial body of evidence supporting these agreements.” The court further held that the FTC failed to sufficiently address alternatives to issuing the rule.

In terms of a remedy, the court “set aside” the FTC’s final noncompete rule. The “set aside” language is drawn verbatim from the APA. The court noted that the FTC’s argument that any relief should be limited to the named plaintiffs in the case was unsupported by the APA. Instead, the court noted that its decision has a nationwide effect, is not limited to the parties in the case, and affects all persons in all judicial districts equally.

Further Litigation

In addition to a likely FTC appeal to the Fifth Circuit, two other cases are pending that likewise challenge the FTC’s final noncompete rule. First, in ATS Tree Services v. FTC, pending in the Eastern District of Pennsylvania, the district court previously denied the plaintiff’s motion for a preliminary injunction. Second, in Properties of the Villages, Inc. v. FTC, pending in the Middle District of Florida, the court enjoined the FTC from enforcing the rule against the named plaintiffs. A final judgment in one of these cases that differs from the result in the Northern District of Texas could eventually reach the courts of appeals and potentially lead to a circuit split to be resolved by the US Supreme Court.

Takeaways for Employers

For now, the FTC’s noncompete rule has been set aside on a nationwide basis, and employers need not comply with the rule’s notice obligations. Noncompetes remain enforceable to the same extent they were before the FTC promulgated its final rule. Depending on how further litigation evolves, the rule could be revived, a temporary split in authority could arise leading to confusion where the rule is enforceable in certain jurisdictions but not in others, or the rule will remain set aside.

An important part of the court’s decision is its rejection of the FTC’s factual findings, which were made in support of the rule, as poorly reasoned and poorly supported. As we discussed in our prior client alerts, we anticipate that employees may cite the FTC’s findings to support challenges to enforceability under state law. The court’s analysis of the FTC’s factual findings may substantially undermine the persuasive authority of the FTC’s findings.

Employers should anticipate that noncompete enforcements in the coming years will remain uncertain as courts, legislatures, and government agencies continue to erode the legal and policy justifications for employee noncompetes. This counsels in favor of a “belt and suspenders” approach for employers to protect their legitimate business interests rather than relying solely on noncompetes.

Deep in the Heart of Texas: Court Blocks FTC Non-Compete Rule

On August 20, 2024, the United States District Court for the Northern District of Texas invalidated the FTC’s rule banning most non-compete agreements. Ryan LLC et al v. Federal Trade Commission, WL 3297524 (08/20/2024). In its highly anticipated opinion, the Court determined the FTC exceeded its authority in promulgating the rule and that the rule is arbitrary and capricious. This decision was not limited to the parties before the Court and blocks the rule from becoming effective nationwide on September 4, 2024. As a result, existing non-compete agreements may still be valid and enforceable when permitted under applicable law.

Ryan, LLC (“Ryan”) filed its lawsuit on April 23, 2024, arguing the FTC did not have rulemaking authority under the Federal Trade Commission Act, that the rule is the product of an unconstitutional exercise of power, and that the FTC’s acts and findings were arbitrary and capricious. Several plaintiffs, including the U.S. Chamber of Commerce, intervened in the lawsuit to challenge the rule.

In July, the Court enjoined the FTC from implementing or enforcing the rule. That ruling, however, was limited in scope and only applied to Ryan and the intervening plaintiffs. Shortly thereafter, all parties filed motions for summary judgment. Plaintiffs asked the Court to invalidate the FTC’s rule, and the FTC sought dismissal under the theory it has express rulemaking authority under the FTC Act.

The Court first examined the FTC’s statutory rulemaking authority and determined the rulemaking provisions under the FTC Act do not expressly grant the FTC authority to promulgate substantive rules. The Court reasoned that although the Act provides some rulemaking authority, that authority is limited to “housekeeping” types of rules. The Court concluded “the text and the structure of the FTC Act reveal the FTC lacks substantive rulemaking authority with respect to unfair methods of competition…” As a result, the Court held the FTC exceeded its statutory authority in promulgating the rule.

Next, the Court considered whether the rule and the promulgation procedure was arbitrary and capricious. The Court was unconvinced by the studies and other evidence relied on by the FTC in promulgating the rule and found that the FTC failed to demonstrate a rational basis for imposing the rule. The Court also noted that the FTC was required to consider less disruptive alternatives to its near complete ban on non-compete agreements. Although the FTC argued it had “compelling justifications” to ignore potential exceptions and alternatives, the Court concluded the rule was unreasonable and the FTC failed to adequately explain alternatives to the proposed rule. Ultimately, the Court opined the rule was based on flawed evidence, that it failed to consider the positive benefits of non-compete clauses and improperly disregarded substantial evidence supporting non-compete clauses.

As a result of this ruling, the FTC’s rule will not become effective on September 4, 2024, short of any additional orders or rulings from a higher court reversing or staying the decision. For the time being, the existing laws governing non-compete agreements will remain in place. In Michigan, employers may enforce non-compete agreements that are reasonable in duration, geographical area and type of employment or line of business. In Illinois, they are regulated by the Illinois Freedom to Work Act, which imposes a stricter regulatory scheme. This should come as a relief for employers who can generally avoid—at least for now—analyzing complex issues regarding the impact that the FTC’s rule would have had on executive compensation arrangements tied to compliance with non-compete agreements, especially in the tax-exempt organization context.

by: D. Kyle Bierlein, Brian T. Gallagher, Barry P. Kaltenbach, Brian Schwartz of Miller Canfield

For more news on the Federal Court Ruling Against the FTC’s Non-compete Rule, visit the NLR Labor & Employment section.

Down to the Wire for Employers and FTC Noncompete Ban

Compliance Deadline Approaches

Employers are running out of time to comply with the FTC’s purported regulatory ban on non-competition agreements. The ban – announced on April 23, 2024 – is scheduled to take effect on September 4. 2024.

By that date, the regulation requires that employers notify all employees subject to noncompetes that the agreements will no longer be enforced. The only exceptions are existing agreements with “senior executives” who made at least $151,164 in the preceding year; these agreements are grandfathered. See our earlier alerts from April 23, May 14, and July 8 for further discussion on developments relating to the ban.

So Far, No Nationwide Injunction Against FTC’s Ban

As previously reported, a federal court in Dallas issued a preliminary injunction against the regulation on July 3, 2024. The injunction, however, only affects the parties to the lawsuit and the district in which the lawsuit was brought. When she issued that preliminary injunction, Judge Ada Brown committed to rendering a final decision on the plaintiffs’ request for a permanent injunction by August 30,2024.

However, she specifically declined to give her preliminary injunction nationwide effect. In its motion in support of a permanent injunction, the U.S. Chamber of Commerce and other parties are arguing that the court is required to vacate the rule, with nationwide effect, because it was adopted in violation of the Administrative Procedure Act. We cannot predict whether she will do so.

Meanwhile, since the July ruling in Texas, two other federal courts have issued rulings on requests to enjoin the ban, one in Philadelphia in favor of the FTC by denying an injunction, and the other in central Florida in favor of the employer by granting one. As with the Texas case, the Florida injunction is not nationwide. Moreover, that judge has not yet issued an opinion, so we do not yet know his rationale for the injunction.

Now What?

Where does this leave employers? In the absence of a ruling invalidating the FTC ban nationwide, there is nothing to prevent the FTC from enforcing its ban beginning September 4 anywhere outside of Dallas and mid-Florida. As far as we know, only the Northern District of Texas is able to order such a ban when it issues its final decision on or before August 30.

Even though, based on her initial ruling, it is quite likely Judge Brown will enjoin the regulation permanently, it is unclear whether she will take the additional step of giving her injunction nationwide effect.

To comply with the regulation, employers should prepare to act by September 4. We recommend creating a list of all current and former “workers” (defined as any service providers regardless of classification) subject to noncompete agreements and a written communication that meets the regulation’s notice requirements.

Unless a new order appears enjoining enforcement of the ban nationwide before September 4, employers will need to send out that communication in order to be in compliance. The requirements for sending the notice include identifying the “person who entered into the noncompete clause with the worker by name” (we don’t know if this means the individual or the entity) and hand delivering or mailing the notice to the worker’s last known mailing address, or to the last known email address or mobile phone number (by text). The full text of the rule, including a model communication from the FTC, can be found at pages 3850-06 of the May 7, 2024, Federal Register.

OSHA Proposes New, Far-Reaching Workplace Heat Safety Rule

In July 2024, the Department of Labor’s Occupational Safety and Health Administration (OSHA) announced a proposed rule (the “Proposed Rule” or “Rule”) aimed at regulating and mitigating heat-related hazards in the workplace. If enacted, the long-anticipated Rule will have far-reaching impacts on businesses with employees who work in warm climates or who are otherwise exposed to heat-related hazards.

According to OSHA, out of all hazardous weather conditions, heat is the leading cause of death in the U.S. The Proposed Rule seeks to protect employees from hazards associated with high heat in the workplace and would apply to both indoor and outdoor work settings. Among other requirements, the Proposed Rule would mandate that employers evaluate heat-related workplace hazards and implement a Heat Illness and Injury Prevention Plan (HIIPP) to address heat hazards through methods which include rest breaks, shade requirements, the provision of drinking water, acclimatization procedures, heat monitoring, and other tactics to protect workers. The proposed HIIPP requirement takes cues from state-level occupational safety and health agencies — like Cal/OSHA (California) and Oregon OSHA — which have already implemented heat safety and HIIPP requirements.

One provision of the Proposed Rule that has garnered significant attention is the paid rest break provision. As currently drafted, the Proposed Rule would require employers to provide one paid15-minute rest break every two hours on days where the heat index reaches 90° F or higher. The paid rest break provision implicates questions about the concurrent application of the Fair Labor Standards Act. For example, does this 15-minute break period count toward an employee’s “hours worked” for the purposes of calculating overtime?

Moreover, in light of the Supreme Court’s recent decision in Loper Bright Enterprises v. Raimondo — in which the court overturned the longstanding principle of deference to agency interpretations previously set out under the 1984 Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc. case — significant questions remain about whether far-reaching mandates (like the paid rest break provision) are within OSHA’s authority. Given this new administrative landscape, if the Proposed Rule is enacted, we can expect challenges stemming from Loper Bright.

The Proposed Rule has not yet been published in the Federal Register. However, when such publication occurs, the Rule will be open to commentary from the public before becoming final. When OSHA announced the Proposed Rule, it simultaneously “encourage[d] the public to participate by submitting comments when the proposed standard is officially published in the Federal Register[,]” in order to “develop a final rule that adequately protects workers, is feasible for employers, and is based on the best available evidence.”

For more information regarding how to provide comments on this Proposed Rule, visit https://www.osha.gov/laws-regs/rulemakingprocess#v-nav-tab2.

Hurricanes and Earthquakes and Wildfires, Oh My!—Key Disaster Preparedness Considerations for Employers

A rash of recent natural disasters, from hurricanes to earthquakes to wildfires, serves as a timely reminder to employers of the potential for natural disasters to disrupt their operations and cause imminent hazards in the workplace.

Quick Hits

Natural disasters may be unpredictable and devastating, but employers can take steps to mitigate the impact of natural disasters on their businesses and workforces.
Employers may want to brush off and review their disaster-response plans and consider other legal implications for responding to natural disasters.

Tropical Storm Debby has reportedly caused at least six deaths since making landfall in Florida as a Category 1 hurricane on August 5, 2024. The storm is now progressing up the East Coast, dropping heavy rains and spawning tornadoes.

Meanwhile, on August 6, a 5.2-magnitude earthquake struck Southern California, sparking fears of another devastating major earthquake. Both come as wildfires continue to ravage the Pacific Northwest and Canada, with experts warning of the risk of more in the coming weeks due to a combination of seasonal lightning and dry forests.

Mid-August to mid-October is typically peak hurricane season, but hurricanes, earthquakes, floods, and wildfires can occur at almost any time and with little warning. Such natural disasters cause physical damage, disrupt business operations, and affect employees’ well-being.

Given these risks, employers may need to take proactive steps to ensure the safety of their workforce and the continuity of their operations. Here are some considerations for employers that need to prepare for and manage the impacts of these natural disasters on their workplaces.

A Comprehensive Disaster Plan

Many employers have already crafted well-thought-out emergency or disaster-response plans tailored to their organizations and workplaces. Employers may want to review and regularly update these plans, which may include:

Emergency Communication: A plan may establish and outline clear communication channels, ideally through multiple avenues, with employees before, during, and after an event. To be effective, an emergency communication plan relies on a current and complete roster of employees, including home addresses, cell phone numbers, and personal email addresses. Now might be a good time for employers to ensure that rosters include all personnel added since the list was created and that they account for all changes in employee data.
Evacuation Procedures: A plan may set safe evacuation routes and meeting points. The plan might also include a designated date to reenact these procedures on a recurring basis.
Employee Support: A plan may establish a check-in system to account for the status and whereabouts of all employees during and after a disaster.
Data Protection: Employers may want to ensure that important company information and data are protected, backed up, and accessible from remote locations. This aspect of the plan will likely require collaboration with a company’s IT group and may involve purchasing additional equipment or software.

Flexibility in Work Arrangements

Natural disasters may cause physical damage to workplaces, create hazards for travel or commutes, and cause other disruptions that make it difficult for some employees to be physically present in the workplace or to work their regular hours. Given these challenges, employers may want to consider implementing:

flexible work arrangements, including temporary remote work policies;
adjustments to work schedules to accommodate transportation or safety issues;
leave availability for certain employees who may be forced to deal with family or medical issues caused by a natural disaster; or
a temporary suspension of operations if possible and if safety cannot be guaranteed.

Legal and Insurance Considerations

Understanding the legal and financial aspects of managing natural disasters is critical for any employer in a disaster scenario. Employers may want to review insurance policies to understand disaster coverage and be prepared to promptly report damage from a natural disaster. Further, employers in certain regulated industries may need to contact regulatory agencies regarding the status of their operations.

Applicable Federal Laws and Regulations

Natural disasters and disruptions to employee schedules may implicate a host of federal laws and regulations, including the Worker Adjustment and Retraining Notification (WARN) Act, the Fair Labor Standards Act (FLSA), the Occupational Safety and Health (OSH) Act, and the National Labor Relations Act (NLRA).

WARN Act: Typically, the law requires employers with fifty or more employees to provide advanced notice of plant closings or mass layoffs, but the law has an exception for plant closings or natural disasters that are the direct result of natural disasters. Natural disasters are defined in the WARN Act regulations as “[f]loods, earthquakes, droughts, storms, tidal waves or tsunamis and similar effects of nature are natural disasters.” Employers are still required to provide “as much notice as is practicable, and at that time shall give a brief statement of the basis for reducing the notification period.”
FLSA: Employers are required to pay employees for all hours worked, and if time records are lost as a result of the disaster, then they must pay employees based on their regular hours or have employees self-report hours worked. The FLSA does not require employers to continue to pay nonexempt workers if they are not required to work, or are unable to work, following a disaster, but the law does require that exempt, salaried workers be paid for any workweek in which some work has been performed.
OSH Act: The law, enforced by the Occupational Safety and Health Administration (OSHA), requires employers to protect employees against “recognized hazards,” including those caused by natural disasters. Notably, employees have a right to refuse to work if they have a good-faith belief that they might be exposed to imminent danger.
NLRA: Labor protections for workers who engage in “concerted protected activity” apply to issues over working conditions impacted by natural disasters. Employers may have further obligations in cases of natural disasters under their collective bargaining agreements.
State Law: Some states, like Texas and California, prohibit employers from discharging or taking other adverse action against employees who leave work, or fail to report to work, due to their participation in an emergency evacuation order issued for the public. Specifically, the California law took effect on January 1, 2023, and prohibits employers from taking adverse action against employees “for refusing to report to, or leaving, a workplace or worksite within the affected area because the employee has a reasonable belief that the workplace or worksite is unsafe” in the event of an emergency condition.

Next Steps

Natural disasters may be unpredictable and devastating, but employers can mitigate the impact on their businesses and workforces through proper planning. As such, employers may want to consider reviewing or developing disaster preparedness plans and policies to ensure they are ready to handle complications caused by any natural disaster.

Supreme Court Ruling on Affirmative Action and Impact on Companies’ DEI Programs

In June 2023, the US Supreme Court voted 6-3 in a decision that significantly changed the way colleges and universities used affirmative action in their admissions. The targets of the lawsuit were Harvard University and University of North Carolina for alleged racial discrimination in admissions.

The Ruling

The Court ruled that race conscious college admission policies aimed at maintaining racially diverse student bodies violated the Equal Protection Clause of the Fourteenth Amendment. The court, though ruling out admissions solely based on race, did state, “Nothing in the opinion should be construed as prohibiting universities from considering an applicant’s discussion of how race affected his or her life.” It should be noted that court did not impose the same ruling on military academies because of their “distinct interest” in the benefits of a diverse officer corp. Though the ruling has caused an uproar in both academic and business communities, we need to remember the ruling does not significantly impact effect corporate America, yet.

Race Based Employment

The affirmative action ruling only applies to colleges and universities admissions processes. Employers are subject to Title VII of the Civil Rights Act of 1964, which is a federal law that prohibits employment discrimination based on certain factors which include race, color, religion sex (including pregnancy, sexual orientation, and gender identity) and national origin. Further, Title VII applies to all aspects of employment, including, but not limited to recruiting, hiring, promoting training and discharge. Several states, like Massachusetts, have their own version of Title VII to protect both employers and employees. Despite these protections, employers are still cautious with implementing and maintaining diversity equity and inclusion (DEI) programs. This is probably true because most companies do not see the difference between the two. Though they are similar, Title VII protects the employer and employee, while DEI programs aim to enhance the workplace experience and to some extent maximize profits. Plus, most DEI programs go beyond race based concerns and tend to embrace various other aspects of people’s lives that may be subject to bias.

Attack on DEI

Since the ruling by the Supreme Court, several state attorney generals sent letters to Fortune 500 companies stating that race-based preferences “whether under the label of diversity, equity and inclusion or otherwise” may violate federal and state antidiscrimination laws. In addition, corporations like Amazon and Comcast have had their DEI practices challenged. Several states like Florida have proposed and passed anti-DEI legislation banning certain DEI practices in state agencies. All this fervor has created the concern that the “right case” can outright destroy DEI practices and programs. Most recently, which seems like an act out of an abundance of caution, the well-known longstanding Society for Human Resources Management (SHRM) changed their focus from Inclusion, Equity and Diversity (IE&D) to Inclusion and Diversity (I&D). The concern relating to the future of DEI is palatable.

Safety Net for DEI Programs

The DEI movement is far from defeated, we must remember DEI and Affirmative Action are not the same. DEI programs, though want to ensure that various races feel accepted in the workplace, should focus on anti-bias, inclusion of all employees from various backgrounds, allyship and the appreciation of everyone’s professional and personal life experiences. You can call your program whatever you want, but it is really the approach used by employers that will survive future legal scrutiny.

Michigan Employers Take Note: New Ruling Impacts Paid Leave and Minimum Wage

Today, July 31, 2024, the Michigan Supreme Court released a highly anticipated opinion in the case of Mothering Justice v. Nessel. This case assessed the constitutionality of the Michigan Legislature’s 2018 “adopt-and-amend” strategy under which the Legislature adopted, and then immediately changed, two ballot proposals that would otherwise have been included on the November 2018 ballot for decision by Michigan voters. The ballot proposals pertained to Michigan minimum wage and paid sick leave requirements, and were originally entitled the Earned Sick Time Act (ESTA) and Improved Workforce Opportunity and Wage Act (IWOWA). The Legislature’s “adopt-and-amend” action had narrowed the original ballot proposal language, and resulted instead in the enactment of the Michigan Paid Medical Leave Act (PMLA) and current minimum wage provisions in effect since early 2019.

After years of legal challenge, the Michigan Supreme Court reversed a 2023 decision of the Michigan Court of Appeals, and ruled that the “adopt-and-amend” approach utilized by the Michigan Legislature violated the Michigan Constitution. The Court determined both of the ballot initiatives as originally adopted by the Legislature should be reinstated in lieu of current, amended versions. In the interests of justice and equity, the Court ordered the reinstatement to occur, but only after a time period the same as that which employers would have been provided to prepare for the new laws absent their improper amendment.

Therefore, significant new legal requirements will become effective February 21, 2025. These include:

The paid leave ballot proposal as initially adopted by the Legislature in 2018, in the form of the ESTA, is reinstated effective February 21, 2025, in place of the PMLA. All covered employers must amend existing paid leave policies or implement new leave policies as applicable that comply with the ESTA by February 21, 2025. Key elements of the ESTA include:
- All Michigan employers, except for the U.S. government, are covered.
- All employees of a covered employer, rather than only certain categories of employees as provided under the PMLA, are covered.
- Covered employers must accrue sick time for covered employees, at a rate of at least one hour of earned sick time for every 30 hours worked.
- Employers with 10 or more employees, as defined by the ESTA, must allow employees to use up to 72 hours of paid earned sick time per year.
- Employers with fewer than 10 employees, as defined by the ESTA, must provide up to 40 hours of earned paid sick time, and are permitted to provide remaining earned sick leave up to the required 72 hours per year on an unpaid basis, rather than paid.
- Employers may not prohibit the carryover or cap the accrual of unused earned sick time.
- Employers may limit the use of earned sick time in any year to 72 hours.
The minimum wage ballot proposal as originally adopted by the Legislature in 2018, in the form of the IWOWA, is also effective February 21, 2025, subject to a phase in of certain requirements that remains to be determined at this time. The IWOWA will replace the narrower amendments that previously were enacted and took effect in 2019. Key provisions effective February 21, 2025, include:
- The state minimum wage rate will be $10.00 plus the state treasurer’s inflation adjustment, which has yet to be calculated and released.
- Future increases will be calculated annually based on inflation as specified in the IWOWA.
- The existing “tip credit” provisions employers of tipped employees currently utilize to calculate whether they have been paid minimum wage will be phased out over a period of years and eliminated entirely by February 21, 2029.
- Employees will have expanded rights as to how they are compensated for overtime work, including “comp time” as an alternative to customary payment of overtime wages.

The above will be applicable absent further judicial, legislative, or voter-driven constitutional action that prescribes a different course. As to judicial action, opportunities for appeal or rehearing of a state Supreme Court decision are limited and discretionary. As to voter-driven constitutional action, such as a referendum, the timing of the Court’s decision may well not permit for such action to be included on the 2024 ballot, even if sufficient support for such action were shown.

In terms of any legislative action to amend, such action could only occur in a future legislative session, meaning January 2025 or later. As to the level of support required, because the ballot proposals were adopted by the Legislature rather than approved by a majority of Michigan voters in an election process, the normal requirements will apply. Had the ballot proposals been approved by a majority of Michigan voters in the election, a 75% supermajority of both houses of the Legislature would have been required for any amendment passage.

by: Luis E. Avila, Maureen Rouse-Ayoub, Stephanie R. Setterington, Elizabeth Wells Skaggs, Hannah A. Cone, and Ashleigh E. Draft of Varnum LLP

For more news on Michigan Employment Laws, visit the NLR Labor & Employment law section.

In Trio of Decisions, Supreme Court Resolves Circuit Splits on Arbitration

Three recent Supreme Court Decisions—Coinbase v. Suski, Smith v. Spizzirri, and Bissonnette v. LePage Bakeries—based on consumer and employment disputes have resolved significant circuit splits over arbitration. These cases were all decided by a unanimous Court, with Justices Jackson, Sotomayor, and Roberts authoring the three opinions.

Supreme Court Considers Arbitrability Based on Conflicting Contracts

In Coinbase v. Suski (May 23, 2024), the Supreme Court held that where there is a conflict between one or more contracts between same parties regarding the arbitrability of a dispute, a court alone (and not the arbitrator) must decide which contract governs. The appeal arose from a sweepstakes dispute wherein the official rules of the sweepstakes conflicted with the defendant’s user agreement.

After the plaintiff consumers brought a class action in California federal court, the defendant sought a motion to dismiss based on an arbitration provision in the user agreement. The district court denied the defendant’s motion based on the forum selection clause in a contract detailing the sweepstakes’ rules. The Ninth Circuit affirmed, agreeing that the forum selection clause, which gave sole jurisdiction over sweepstakes-related disputes to California courts, superseded the arbitration provision in the user agreement.

In a unanimous decision, the Supreme Court agreed with the Ninth Circuit that courts, not arbitrators, must decide the threshold question of whether a subsequent agreement supersedes an arbitration provision, dismissing concerns that the holding would invite challenges to delegation clauses that empower arbitrators to decide disputes concerning arbitrability.

Prior to the decision in Suski, there was no precedent in the First Circuit addressing the question of who resolves conflicting dispute resolution clauses. However, the Court’s decision accords with the approach of the First Circuit to related questions.

In Biller v. S-H OpCo Greenwich Bay Manor, LLC (2020), the First Circuit held that for parties to agree to have an arbitrator decide gateway questions of arbitrability, they must do by “clear and unmistakable evidence,” safeguarding a court’s jurisdiction to decide questions of arbitrability. Similarly, in McKenzie v. Brennan (2021), the First Circuit held that the court holds the decision-making power to decide whether parties intend to arbitrate a dispute when a new contract between the parties does not contain a broad arbitration clause, but an earlier contract does.

District Courts May Not Dismiss Cases Referred to Arbitration Upon a Request to Stay

In Smith v. Spizzirri (May 16, 2024), the Supreme Court interpreted 9 U.S.C. § 3 to mean that when a district court finds that a contract compels arbitration and a party has requested a stay of court proceedings pending arbitration, the court lacks jurisdiction to dismiss the suit. Instead, the Supreme Court determined that a lower court must stay the proceedings until the dispute is resolved in arbitration or the dispute is brought back before the court.

The decision arose from a California class action alleging delivery drivers had been misclassified as independent contractors and denied required wages and paid leave. While the Ninth Circuit affirmed the lower court’s discretion to dismiss the action referred to arbitration on a motion by the defendant, the Supreme Court unanimously reversed and remanded. Spizzirri may be understood as the complement to an earlier decision also involving Coinbase, Coinbase v. Bielski (June 23, 2023) (see our prior alert here), which held that a district court must stay its proceedings while an interlocutory appeal on the question of arbitrability is ongoing.

The First Circuit (as well as the Fifth, Eighth, and Ninth Circuits) had previously held that a district court has discretion to either dismiss litigation without prejudice or stay the proceedings. Dismissal following a referral to arbitration provided plaintiffs with an opportunity to appeal that final, adverse ruling, with the Supreme Court’s decision now requiring plaintiffs to wait until the arbitration has been completed.

While the First Circuit has not yet passed a decision under following Spizzirri, a recent decision by the Rhode Island District Court may indicate how post-Spizzirri questions will be decided. In De Simone v. Citizens Bank (June 17, 2024) the court directly cited to Spizzirri to conclude that the proceedings in that case must be stayed pending arbitration. At the appellate level, the Ninth Circuit (which previously, like the First Circuit, held that courts have discretion to stay or dismiss) amended its opinion in Herrera v. Cathay Pacific Airways Ltd. (March 11, 2024; amended June, 24, 2024) to reflect the decision in Spizzirri, writing that “Spizzirri made clear that a district court does not have discretion to dismiss the action when granting a motion to compel arbitration under 9 U.S.C. § 3.”

Supreme Court Holds Workers in Any Industry May Benefit from Arbitration Exemption

In Bissonnette v. LePage Bakeries Park St. LLC (May 14, 2024), the Supreme Court unanimously held that the Federal Arbitration Act’s exemption for transportation workers at 9 U.S.C. § 1, which protects workers in foreign or interstate transportation from having their employment claims referred to mandatory arbitration, may apply to workers in any industry.

In LePage Bakeries, the defendant companies argued that baked goods delivery drivers were not protected from the exemption because they were not transportation industry employees. The district court and Second Circuit agreed, compelling arbitration of the parties’ dispute. The Supreme Court reversed, noting that the Second Circuit has created a transportation-industry requirement without any basis in the text of the statute.

The decision resolves a split among the First and Second Circuits in favor of workers seeking to bring class action claims. In two 2023 cases, Canales v. CK Sales Co. and Fraga v. Premium Retail Servs., Inc., the First Circuit explicitly rejected the Second Circuit’s reading of the Federal Arbitration Act that a worker must be employed in the transportation industry to benefit from the exemption to mandatory arbitration. Instead, the First Circuit focused on the worker’s role instead of the employer’s business, a test that the Supreme Court has now embraced. The Court’s decision follows New Prime, Inc. v. Oliveira (2019) and Southwest Airlines Co. v. Saxon (2023) wherein the Court held the exemption applies to independent contractors and airplane cargo loaders.

Recent Decisions Reflect Critical Questions on Jurisdiction Over Arbitration Disputes

The Supreme Court’s trio of unanimous arbitration decisions outline three areas in which district courts retain jurisdiction over arbitration disputes. The rulings reflect the outer limits of a multi-decade trend in which the Supreme Court has consistently issued arbitration-friendly decisions, encouraging the resolution of arbitrable matters without involving the courts.

It is likely that challenges to arbitrability based on conflicting contracts and transportation work will remain flashpoints in federal court litigation for years to come, with federal courts retaining jurisdiction over disputes referred to arbitration, hearing fewer appeals of orders compelling arbitration, and resolving matters that arise during those proceedings. The decisions serve as reminders to businesses that they should work with experienced counsel to draft and regularly review dispute resolution clauses in consumer and employment contracts to ensure that, if disputes do ultimately arise, they will be resolved via the intended procedure.

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Thank you to firm summer associate Jonathan Tucker for his contribution to this post.

Opposing Decisions – Does the FTC Have the Authority to Ban Non-Compete Clauses?

In April, the Federal Trade Commission (FTC) promulgated a new rule banning non-competes (the Rule); the FTC adopted the Rule to prohibit employers from entering into or enforcing non-compete clauses with workers and senior executives. Several lawsuits were quickly filed challenging the rules. Separate parties filed in Texas (in which cases were consolidated), and ATS Tree Services, LLC, filed an action in Pennsylvania.

On July 23, 2024, the U.S. District Court for the Eastern District of Pennsylvania issued a ruling denying ATS Tree Services’ motion for a stay and a preliminary injunction against the Rule. ATS Tree Services, LLC v FTC, No: 2:24-cv-01743-KBH, at p.18 (E.D. Pa. July 23, 2024). The Court held that ATS had not demonstrated the irreparable harm necessary to justify the issuance of a preliminary injunction and also held that ATS failed to establish a reasonable likelihood of success on the merits of its action.

The ruling is diametrically opposed to the July 3, 2024, ruling from the U.S. District Court for the Northern District of Texas, which preliminarily enjoined the Rule and postponed its effective date in Ryan, LLC v. U.S., No. 3:24-CV-00986-E, 2024 (N.D. Tex. July 3, 2024). However, the district court declined to issue a universal injunction, making its ruling applicable only to the Ryan plaintiffs.

The Decisions

In ATS Tree Services, the court first held that nonrecoverable costs of compliance do not rise to the level of irreparable harm, in that “monetary loss and business expenses alone are insufficient bases for injunctive relief.” ATS Tree Services at p.18. Additionally, the court held that the claimed loss of contractual benefits was too speculative. Id. 20-21.

Even though the court found that ATS failed to establish irreparable harm, it added an analysis of ATS’s likelihood of success on the merits, spending the majority of its decision assessing (just as the Ryan Court had) whether “[s]ection 6(g) empowers the FTC with the authority to make substantive rules related to unfair methods of competition in or affecting commerce, or whether the rulemaking authority therein is limited to procedural rules relating to adjudications of unfair methods of competition in or affecting commerce.” ATS Tree Services, at p.8. Notably, the Court relied upon the Supreme Court’s recent decision in Loper Bright Enterprises v. Raimondo, 144 S. Ct. 2244, 2263 (2024) to “independently interpret the statute and effectuate the will of Congress subject to constitutional limits.” Id. at 25. In doing so, the Court harmonized sections 5 and 6 of the FTC Act, concluding:

When taken in the context of the goal of the Act and the FTC’s purpose, the Court finds it clear that the FTC is empowered to make both procedural and substantive rules as is necessary to prevent unfair methods of competition. Thus, the Court rejects ATS’s argument that it should read the word “procedural” but not the word “substantive” into the statutory text defining the FTC’s rulemaking authority. This argument is inherently inconsistent and therefore untenable. Id. at 26.

This was directly contrary to the Ryan decision where the court found under section 6(g) that the FTC lacks the authority to create substantive rules because the Act is only a “housekeeping statute” that allows the FTC to promulgate general “rules of agency organization procedure or practice,” not “substantive rules.” Ryan at *15 (citing Chrysler Corp. v. Brown, 441 U.S. 281, 310 (1979)).

The court in ATS Tree Services went on to address the FTC’s mandate to “prevent prohibited ‘unfair methods of competition’” under section 5, thereby acknowledging Congress’s terms were “intended to act prophylactically to stop ‘incipient’ threats of unfair methods of competition, not solely responsively through adjudications, as courts interpreting the statute have confirmed.” ATS Tree Services, at p. 28. In addition, the court found that the FTC’s rulemaking authority had been confirmed by other circuit courts. Finally, in the rest of the decision, the Court disposed of the other alternative challenges made by ATS. This was contrary to the Ryan decision, where the Texas court had held that the FTC acted arbitrarily and capriciously, because the Rule was “unreasonably broad without a reasonable explanation” and did not sufficiently address alternatives to issuing the Rule.

Key Takeaways

The two courts have issued opinions with conflicting analyses. While Texas has issued a preliminary injunction specific to the Ryan plaintiffs, the court did indicate it intends to make a final determination on the merits by August 30, 2024, prior to the Rule’s effective date. The Ryan Court will have the opportunity to vacate the Rule in its entirety as unlawful and issue a permanent injunction, with the scope of the relief ordered yet to be decided. This new ruling sets up the potential for an appeal to the U.S. Court of Appeals for the Fifth Circuit and possibly seek direct relief from the U.S. Supreme Court.

*This post was co-authored by Lily Denslow, legal intern at Robinson+Cole. Lily is not admitted to practice law.

Category: Labor & Employment

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