Category: Labor & Employment

U.S. Supreme Court Raises Standard for Labor Board When Seeking 10(j) Injunctions

The U.S. Supreme Court issued a decision directing district courts to use the traditional four-part test when evaluating whether a preliminary injunction should issue at the request of the National Labor Relations Board pending litigation of a complaint under the National Labor Relations Act. No. 23-367 (June 13, 2024).

The decision settles the split among the federal circuit courts over the standard that should be applied when the Board files a motion for a “10(j)” injunction, named for the section of the Act that authorizes the Board to seek injunctive relief. Circuit courts were split on which test should apply: the traditional four-part test, a more lenient two-part test, or a hybrid of the two.

The Court’s decision raises the bar for the Board, requiring it to meet each prong of the four-part test for a court to grant an injunction. In particular, it will be more difficult for the Board to establish it is “likely to succeed on the merits,” as opposed to the more lenient standard espoused by the Board that “there is reasonable cause to believe that unfair labor practices have occurred.”

The Court vacated and remanded the case to the U.S. Court of Appeals for the Sixth Circuit to reevaluate the merits of the injunction request under the four-part test.

10(j) Injunctions

Section 10(j) of the Act allows the Board to seek preliminary injunctions before federal district courts against both employers and unions to stop alleged unfair labor practices during the pendency of the Board’s administrative processing of an unfair labor practice charge. Section 10(j) authorizes a district court “to grant to the Board such temporary relief … as it deems just and proper.”

The requests are rare; the Board has sought only 20 such injunctions since 2023, according to the Board’s website. Nonetheless, the standard a court will use in evaluating the injunction request has been determinative of whether the relief was granted.

Prior Standards

The U.S. Court of Appeals for the Sixth Circuit, as in this case, used a two-part test to assess whether the Board was entitled to an injunction. The two-part test examined whether “there is reasonable cause to believe that unfair labor practices have occurred,” and “whether injunctive relief is ‘just and proper.’” McKinney v. Ozburn-Hessey Logistics, LLC, 875 F.3d 333 (2017). The Supreme Court noted in its latest decision that the Board could establish reasonable cause “by simply showing that its ‘legal theory [was] substantial and not frivolous.’”

Conversely, other courts, such as the U.S. Court of Appeals for the Seventh and Eighth Circuits applied the four-part test used for preliminary injunctions in traditional litigation settings set forth in Winter v. Natural Resources Defense Council, 555 U.S. 7 (2008). Under the Winter framework, a party seeking injunctive relief must “make a clear showing” that:

  1. He is likely to succeed on the merits;
  2. He is likely to suffer irreparable harm in the absence of preliminary relief;
  3. The balance of equities tips in his favor; and
  4. An injunction is in the public interest.

New Standard for Labor Board

In holding that the four-part test applies to 10(j) injunction requests by the Board, the Court declined to allow Section 10(j) language “to supplant the traditional equitable principles governing injunctions.” Rather, courts should apply standard principles involved in granting injunctive relief, not 10(j)’s “discretion-inviting directive.”

The Court explained that the reasonable-cause standard in the two-part test “goes far beyond simply fine tuning the traditional criteria to the Section 10(j) context—it substantively lowers the bar for securing a preliminary injunction by requiring courts to yield to the Board’s preliminary view of the facts, law, and equities.” It noted there is a substantial difference between the “likely”-to-succeed-on-the-merits standard versus a finding that the charge was “substantial and not frivolous.” Under the “less exacting” standard, courts could evaluate injunction requests giving significant deference to the Board under even a “minimally plausible legal theory” without assessing conflicting facts or questions of law.

Accordingly, the Board must satisfy the traditional standard that requires it to make a clear showing it is likely to succeed on the merits of the claim under a valid theory of liability.

The Court’s decision to standardize 10(j) injunction requests not only raises the Board’s burden of proof, but it creates more consistency across district courts at a time employers increasingly face injunction requests by an activist Board general counsel.

Jackson Lewis P.C. © 2024

United States | New DACA Report Breaks Down the Trillion-Dollar Cost of Ending the Program

Coalition for the American Dream published a report this week detailing the projected economic and societal costs of ending the Deferred Action for Childhood Arrivals program.

Key Points:

  • Coalition for the American Dream published the report days ahead of the 12th anniversary of the DACA program on June 15.
  • Current DACA recipients number more than 500,000. The report finds that future long-term economic losses and costs could approach $1 trillion over the lifetimes of DACA recipients.
  • Other economic and workforce impacts include:
    • As many as 168,000 U.S. jobs in DACA-owned businesses could be lost.
    • U.S. workforce losses could include 37,000 healthcare workers, 17,000 STEM professionals and 17,000 educators.
    • Lost business training and recruitment costs for current DACA employees could reach $8 billion.

Additional Information: The report’s demographic and economic estimates and business impacts are based in part on data collected in the U.S. Census Bureau’s 2022 American Community Survey, the March 2022-2023-2024 Current Population Surveys and data from U.S. Citizenship and Immigration Services.

Coalition for the American Dream is an organization of more than 100 businesses, trade associations and other groups representing every major sector of the U.S. economy and more than half of American private sector workers. Its mission is to seek the passage of bipartisan legislation that gives Dreamers a permanent solution.

BAL Analysis: The report notes if DACA ended and work authorizations were denied renewal, 440,000 workers would be forced from the U.S. workforce over a two-year period, with the most acute impact on health, education and STEM occupations. The business community continues to show strong support for DACA and the crucial role Dreamers play in the U.S. economy. Given the uncertain environment, DACA recipients who qualify for a renewal are urged to apply for one as soon as they can.

©2024 Berry Appleman & Leiden. All Rights Reserved.
For more on the DACA, visit the NLR Immigration section.

Supreme Court Weakens NLRB’s Ability to Obtain Injunctions in Labor Cases

On June 13, 2024, the Supreme Court of the United States held that courts must assess requests for an injunction by the National Labor Relations Board (NLRB) using the traditional four-factor test for preliminary injunctions. The ruling weakens the Board’s ability to obtain quick court orders to maintain the “status quo” in favor of workers in pending labor cases.

Quick Hits

  • The Supreme Court held that federal courts must apply the traditional four-factor equitable test for preliminary injunctions when considering the NLRB’s request for a 10(j) injunction.
  • The ruling found the NRLA does not require courts to defer to the NLRB’s initial findings of a labor violation.
  • The ruling weakens the NLRB’s ability to quickly stop employer actions it alleges are unfair labor practices.

The Supreme Court held that when considering temporary injunction requests under Section 10(j) of the National Labor Relations Act (NLRA), courts must apply the traditional equitable four factors as set forth in the high court’s 2008 decision in Winter v. Natural Resources Defense Council, Inc. The decision means that courts must consider 10(j) injunction requests under the same equitable principles that they do for other preliminary injunctions without deferring to the NLRB’s determination that an unfair labor practice had occurred.

The unanimous decision comes in a labor dispute in which the trial court issued a preliminary injunction against an employer after applying a two-part test that only asked whether “there is reasonable cause to believe that unfair labor practices have occurred” and whether an injunction is “just and proper.” The injunction was later affirmed by the Sixth Circuit Court of Appeals.

The NLRA prohibits employers from engaging in certain unfair labor practices and allows workers to file a charge with the NLRB. The NLRA provides the NLRB with authority to seek a temporary injunction in federal court and Section 10(j) states that courts may “grant the Board such temporary relief … as it deems just and proper.”

However, the Supreme Court held that the NRLA does not strip courts of their equitable powers, and they must apply the traditional four-factor rule as articulated in Winter when considering a request for a 10(j) injunction. Under that rule, a plaintiff must show “he is likely to succeed on the merits, that he is likely to suffer irreparable harm in the absence of preliminary relief, that the balance of equities tips in his favor, and that an injunction is in the public interest.”

The Supreme Court rejected the NLRB’s argument that Section 10(j) informs the application of equitable principles and that courts should use a “reasonable cause” standard as applied by the Sixth Circuit in the case. The NLRB had pointed to the context that Congress has given it the authority to adjudicate unfair labor practice charges in the first instance and that courts must give deference to the NLRB’s final decisions.

Justice Clarence Thomas, in the Court’s opinion, stated that the reasonable cause standard “substantively lowers the bar for securing a preliminary injunction by requiring courts to yield to the Board’s preliminary view of the facts, law, and equities.” Justice Thomas stated the fact that the NLRB is the body that will adjudicate unfair labor practice charges on the merits does not mean courts must defer to what amounts to be the NLRB’s initial litigating position. Section 10(j) “does not compel this watered-down approach to equity,” Justice Thomas stated.

In a partial dissent, Justice Ketanji Brown Jackson agreed that the NRLA does not strip courts of their equitable powers and that the injunction in the case should be overturned. However, Justice Jackson argued the Court should not ignore the fact that Congress, through the NRLA, granted the NLRB authority over labor disputes.

Key Takeaways

The Supreme Court’s ruling raises the bar for the NLRB to seek injunctions by requiring courts to make their own assessment of the equitable factors for issuing preliminary injunctions without deference to the NLRB’s initial findings that an unfair labor practice has occurred. Under the reasonable cause standard, the NLRB merely had to show that its legal theory was not frivolous and that an injunction was necessary to protect the “status quo” pending the NLRB’s proceedings. That standard had allowed the NLRB to quickly put a stop to employer actions that its in-house attorneys believe are labor violations during the pendency of an administrative proceeding on the merits, which could take years to resolve.

© 2024, Ogletree, Deakins, Nash, Smoak & Stewart, P.C., All Rights Reserved.
For more news on the Supreme Court NLRB Ruling, visit the NLR Labor Employment section.

Navigating Politics in the Workplace

In this election year, employees inevitably will engage in discussions of the impactful and divisive political issues that are at the forefront of our national discourse. Employers must be aware of the ways in which political discussions in the workplace have intensified and be prepared to navigate the legal and other challenges posed by these interactions. This checklist provides employers with an overview of key topics to consider when addressing issues related to political speech in the workplace.

1. First Amendment Protection. The First Amendment protects freedom of speech, but it generally applies only to governmental action. Private employers generally have latitude to restrict political speech in the workplace unless it implicates other legal protections.

2. National Labor Relations Act (NLRA). Section 7 of the NLRA protects non-supervisory employees in the private sector, regardless of whether they are members of a union. Employers generally cannot restrict covered employees’ discussions related to the terms and conditions of their employment, i.e., “protected concerted activity.” Political speech that also falls under NLRA protection must be considered carefully.

3. Anti-Discrimination and Anti-Harassment Policies. Political speech may implicate discrimination or harassment concerns when it includes topics related to protected categories or characteristics, e.g., race, gender, religion. Employers should have robust anti-discrimination and anti-harassment policies that cover these issues.

4. State Laws Protecting Political Speech. State laws may protect employees’ political activity, expression or affiliation. These laws include prohibitions against initimdation, threats, or adverse actions based on employee voting, political activities, or candidate endorsements. Employers must assess their policies and practices in each state where they have employees because the scope of these laws varies by jurisdiction.

5. Respectful Workplace and Other Policies. Employers should consider adopting policies that promote respectful behavior and prevent political discussions from escalating into conflicts. Employers also should consider dress code and other workplace policies concerning political attire or messages, and ensure consistent, content-neutral enforcement of those policies. When reports of potential policy violations are made, employers should respond promptly.

6. Train Employees. Employees should receive regular training on company policies and their rights, including the boundaries of political speech in the workplace.

Employers should tailor their policies to address political speech while respecting employees’ rights and maintaining a positive work environment. Each workplace is unique, however, and issues often require context and fact-specific solutions with the assistance of counsel.

2024 Goulston & Storrs PC.
For more news on Navigating Political Discussions in the Workplace, visit the NLR Labor & Employment section.

Summer, Baseball and H-1B Visa Filings in Full Swing

As summer and baseball season are now in full swing, so is the H-1B filing season. The U.S. Citizenship and Immigration Services (USCIS) completed its initial round of selections on April 1, prompting immigration practitioners and employers to get filings across the home plate by June 30. However, many potential employees are stuck in the dugout, so to speak, unable to get in the game, as they were not selected in the H-1B lottery.

The H-1B visa category provides temporary work authorization to individuals employed in a role involving a specialty occupation. Most commonly known for its restrictive numerical limitations, the H-1B visa category caps the number of new visas issued each year at 65,000, with an additional 20,000 available to graduates of U.S. master’s degree programs. While 85,000 H-1B visa holders would exceed more than twice the occupancy of the Atlanta Braves’ Truist Park, it has become increasingly difficult to obtain an H-1B visa under the current lottery system due to a high volume of submissions, the increased likelihood of fraud, and the number of submissions designed to beat the system.

While the H-1B remains a first choice among U.S. employers for the temporary employment of foreign nationals, many wonder whether it continues to be a game worth playing. Such thoughts have prompted employers to turn to other non-immigrant visa lineups, such as the H-1B1, E-3, TN, and O-1:

H-1B1, Specialty Occupation Workers from Chile or Singapore

The H-1B1 visa is a subcategory of the H-1B category, providing work authorization options to specialty occupation workers from Chile and Singapore. Current laws limit the annual number of qualifying foreign workers eligible to obtain an H-1B1 visa to 6,800, allocating 1,400 for nationals of Chile and 5,400 for those of Singapore.

The greatest advantage of this subclassification is the ability to forego the H-1B visa lottery. Further, the H-1B1 visa does not have a six-year limit. The period of employment is one year, with subsequent extensions available in one-year increments.

E-3, Specialty Occupation Workers From Australia

Applying only to nationals of Australia, the E-3 nonimmigrant visa classification provides another option for specialty occupation workers. Similar to the H-1B1, participation in the annual H-1B lottery is not a prerequisite to admission in E-3 status.

TN, Temporary Workers From Mexico and Canada

Yet another alternative to the H-1B visa is the TN visa, designated for select professionals who are citizens of Canada and Mexico. The U.S. Mexico-Canada Agreement, formerly the North American Free Trade Agreement (NAFTA), provides special economic and trade relationships for the U.S., Canada and Mexico. This classification permits qualified Canadian and Mexican citizens to work temporarily in the U.S. at a professional level. Professions on the list include accountants, engineers, lawyers, pharmacists, scientists and teachers.

Employers focused on expediency surely are interested in this nonimmigrant visa category. Not only does the TN visa forego the H-1B lottery, but it also can circumvent the Labor Condition Application requirement, which is a Department of Labor process requiring approximately seven days.

O-1, Individuals of Extraordinary Ability

The O-1 nonimmigrant visa is for the individual who possesses extraordinary ability in the sciences, arts, education, business, or athletics, or who has a demonstrated record of extraordinary achievement in the motion picture or television industry and received recognition nationally or internationally for such achievements. Those eligible for O-1A classification are individuals with an extraordinary ability in the sciences, education, business, or athletics (not including the arts, motion pictures or television industry).

The O-1B visa category is intended for individuals with an extraordinary ability in the arts or extraordinary achievement in motion picture or television industry.

Of particular importance, one of the top benefits of an O-1 visa in comparison to an H-1B is the lack of annual limits on the number of O-1 visas issued. Moreover, as numerical caps and a lottery process do not restrict the O-1 visa, the application period is not limited to a specific filing window. Further, unlike some nonimmigrant visa categories, O-1 filings are not restricted by an annual filing period, and the overall cost of the O-1 process can be significantly less.

The O-1 visa category also boasts employer flexibility as the beneficiary does not have to be directly employed by the entity for which they will work, but could work for a U.S. agent. The O-1 also provides significant relief with respect to the potential length of the visa, as this nonimmigrant visa classification offers unlimited one-year extensions of the initial three-year period.

As many potential H-1B employees have not received the call-up, these other nonimmigrant visa categories present viable alternatives.

Tieranny L. Cutler, independent contract attorney, co-authored this article.

© 2024 BARNES & THORNBURG LLP
For more information on H-1B Filings, visit the NLR Immigration section.

White House Publishes Steps to Protect Workers from the Risks of AI

Last year the White House weighed in on the use of artificial intelligence (AI) in businesses.

Since the executive order, several government entities including the Department of Labor have released guidance on the use of AI.

And now the White House published principles to protect workers when AI is used in the workplace.

The principles apply to both the development and deployment of AI systems. These principles include:

  • Awareness – Workers should be informed of and have input in the design, development, testing, training, and use of AI systems in the workplace.
  • Ethical development – AI systems should be designed, developed, and trained in a way to protect workers.
  • Governance and Oversight – Organizations should have clear governance systems and oversight for AI systems.
  • Transparency – Employers should be transparent with workers and job seekers about AI systems being used.
  • Compliance with existing workplace laws – AI systems should not violate or undermine worker’s rights including the right to organize, health and safety rights, and other worker protections.
  • Enabling – AI systems should assist and improve worker’s job quality.
  • Supportive during transition – Employers support workers during job transitions related to AI.
  • Privacy and Security of Data – Worker’s data collected, used, or created by AI systems should be limited in scope and used to support legitimate business aims.
Jackson Lewis P.C. © 2024
For more on AI Risks, visit the NLR Communications, Media & Internet section,

Update on FTC Noncompete Ban: Court Challenges Begin

On April ­­23 we reported on the Federal Trade Commission’s vote to ban almost all non-competition agreements in the United States. Within hours of that vote, Ryan LLC, a global tax consulting firm headquartered in Dallas, filed a lawsuit in the U.S. District Court for the Northern District of Texas challenging the FTC’s authority to issue such a rule.

The U.S. Chamber of Commerce has been allowed to intervene in that case and will join in the challenge to the FTC ban.

Ryan’s claims are that:

  1. The FTC lacks the legal authority to promulgate such a rule.
  2. Even if Congress had granted that authority by statute, such a grant would be an unconstitutional delegation of legislative authority to the executive branch, in violation of Article 1 of the U.S. Constitution.
  3. The FTC Act is unconstitutional because it limits the president’s authority to remove subordinates (in this case, FTC Commissioners).
  4. The FTC promulgated the rule in violation of the Administrative Procedure Act because it failed to establish a factual basis for the rule.
  5. The rule is retroactive in purporting to invalidate all existing non-competition agreements, but the FTC has no authority to issue retroactive rules.

Based on our review of the pleadings filed thus far in the case, we think that the U.S. Chamber and its allies agree that these are the correct arguments and that they will file a brief supporting them.

Ryan is asking the court for two things: a stay of the effective date of the rule, and preliminary and permanent injunctions barring the FTC from enforcing it. The case is on an expedited schedule, with briefing to be completed by June 12 and a ruling expected on the pending motion by July 3.

Given that the rule’s effective date is September 4, if the court can meet that schedule, employers should have sufficient time to take the necessary steps to comply, if the court allows the rule to go into effect.

However, we would advise employers to start identifying all employees who are subject to an existing non-competition agreement, so they can move quickly to meet the notice requirements over the summer, should that become necessary.

©2024 Pierce Atwood LLP. All rights reserved.
For more on the FTC Noncompete Ban, visit the NLR Labor & Employment section.

Continuing Forward: Senate Leaders Release an AI Policy Roadmap

The US Senate’s Bipartisan AI Policy Roadmap is a highly anticipated document expected to shape the future of artificial intelligence (AI) in the United States over the next decade. This comprehensive guide, which complements the AI research, investigations, and hearings conducted by Senate committees during the 118th Congress, identifies areas of consensus that could help policymakers establish the ground rules for AI use and development across various sectors.

From intellectual property reforms and substantial funding for AI research to sector-specific rules and transparent model testing, the roadmap addresses a wide range of AI-related issues. Despite the long-awaited arrival of the AI roadmap, Sen. Chuck Schumer (D-NY), the highest-ranking Democrat in the Senate and key architect of the high-level document, is expected to strongly defer to Senate committees to continue drafting individual bills impacting the future of AI policy in the United States.

The Senate’s bipartisan roadmap is the culmination of a series of nine forums held last year by the same group, during which they gathered diverse perspectives and information on AI technology. Topics of the forums included:

  1. Inaugural Forum
  2. Supporting US Innovation in AI
  3. AI and the Workforce
  4. High Impact Uses of AI
  5. Elections and Democracy
  6. Privacy and Liability
  7. Transparency, Explainability, Intellectual Property, and Copyright
  8. Safeguarding
  9. National Security

The wide range of views and concerns expressed by over 150 experts including developers, startups, hardware and software companies, civil rights groups, and academia during these forums helped policymakers develop a thorough and inclusive document that reveals the areas of consensus and disagreement. As the 118th Congress continues, it’s expected that Sen. Schumer will reach out to his counterparts in the US House of Representatives to determine the common areas of interest. Those bipartisan and bicameral conversations will ultimately help Congress establish the foundational rules for AI use and development, potentially shaping not only the future of AI in the United States but also influencing global AI policy.

The final text of this guiding document focuses on several high-level categories. Below, we highlight a handful of notable provisions:

Publicity Rights (Name, Image, and Likeness)

The roadmap encourages senators to consider whether there is a need for legislation that would protect against the unauthorized use of one’s name, image, likeness, and voice, as it relates to AI. While state laws have traditionally recognized the right of individuals to control the commercial use of their so-called “publicity rights,” federal recognition of those rights would mark a major shift in intellectual property law and make it easier for musicians, celebrities, politicians, and other prominent public figures to prevent or discourage the unauthorized use of their publicity rights in the context of AI.

Disclosure and Transparency Requirements

Noting that the “black box” nature of some AI systems can make it difficult to assess compliance with existing consumer protection and civil rights laws, the roadmap encourages lawmakers to ensure that regulators are able to access information directly relevant to enforcing those laws and, if necessary, place appropriate transparency and “explainability” requirements on “high risk” uses of AI. The working group does not offer a definition of “high risk” use cases, but suggests that systems implicating constitutional rights, public safety, or anti-discrimination laws could be forced to disclose information about their training data and factors that influence automated or algorithmic decision making. The roadmap also encourages the development of best practices for when AI users should disclose that their products utilize AI, and whether developers should be required to disclose information to the public about the data sets used to train their AI models.

The document also pushes senators to develop sector-specific rules for AI use in areas such as housing, health care, education, financial services, news and journalism, and content creation.

Increased Funding for AI Innovation

On the heels of the findings included in the National Security Commission on Artificial Intelligence’s (NSCAI) final report, the roadmap encourages Senate appropriators to provide at least $32 billion for AI research funding at federal agencies, including the US Department of Energy, the National Science Foundation, and the National Institute of Standards and Technology. This request for a substantial investment underscores the government’s commitment to advancing AI technology and seeks to position federal agencies as “AI ready.” The roadmap’s innovation agenda includes funding the CHIPS and Science Act, support for semiconductor research and development to create high-end microchips, modernizing the federal government’s information technology infrastructure, and developing in-house supercomputing and AI capacity in the US Department of Defense.

Investments in National Defense

Many members of Congress believe that creating a national framework for AI will also help the United States compete on the global stage with China. Senators who see this as the 21st century space race believe investments in the defense and intelligence community’s AI capabilities are necessary to push back against China’s head start in AI development and deployment. The working group’s national security priorities include leveraging AI’s potential to build a digital armed services workforce, enhancing and accelerating the security clearance application process, blocking large language models from leaking intelligence or reconstructing classified information, and pushing back on perceived “censorship, repression, and surveillance” by Russia and China.

Addressing AI in Political Ads

Looking ahead to the 2024 election cycle, the roadmap’s authors are already paying attention to the threats posed by AI-generated election ads. The working group encourages digital content providers to watermark any political ads made with AI and include disclaimers in any AI-generated election content. These guardrails also align with the provisions of several bipartisan election-related AI bills that passed out of the Senate Rules Committee the same day of the roadmap’s release.

Privacy and Legal Liability for AI Usage

The AI Working Group recommends the passage of a federal data privacy law to protect personal information. The AI Working Group notes that the legislation should address issues related to data minimization, data security, consumer data rights, consent and disclosure, and the role of data brokers. Support for these principles is reflected in numerous state privacy laws enacted since 2018, and in bipartisan, bicameral draft legislation (the American Privacy Rights Act) supported by Rep. McMorris Rogers (D-WA), and Sen. Maria Cantwell (D-WA).

As we await additional legislative activity later this year, it is clear that these guidelines will have far-reaching implications for the AI industry and society at large.

© 2024 ArentFox Schiff LLP
For more on AI Policy, visit the NLR Communications, Media & Internet section.

Payday: Terminated Employee Awarded $78,000 in EEOC Settlement

Employees returning to work following a hospitalization or illness can present legally nuanced issues, particularly if an employer is considering terminating an employee in close proximity to such a leave. A recent case settled by a company with the Equal Employment Opportunity Commission (EEOC) highlights some of the legal risks that can come into play.

According to an EEOC press release: “The EEOC charged in [a lawsuit] that, in February 2022, [a company] fired a long-tenured receptionist, despite having recognized the 78-year-old employee as one of its employees of the year in January 2022. The receptionist’s termination came shortly after a brief hospitalization. The EEOC alleged that upon the receptionist’s return to work, [the company’s] general manager asked her how long she planned to continue to work, whether she needed to work, and whether she would prefer to spend her time traveling and seeing family instead of working.

Although the receptionist expressed her desire to continue working, and despite having never previously raised substantial performance concerns to the receptionist, the general manager told the receptionist that [the company] had lost confidence in her ability to work, citing her recent hospitalization. The receptionist was fired the next day and replaced by substantially younger employees.”

The EEOC alleged that these actions violated the Americans with Disabilities Act (ADA) and the Age Discrimination in Employment Act (ADEA), noting the alleged statements about “losing confidence” in the employee due to a hospitalization could be viewed as disability discrimination (the ADA defines “disability” very broadly), and the fact the employee was over the age of 40 (i.e., in the protected age group) and replaced with a younger employee could give rise to an inference of age discrimination under the ADEA.

The company elected to settle the allegations. As part of the settlement, the company agreed to pay $78,000 to the terminated employee. In addition, it entered into a two-year consent decree that also requires it to “revise its ADEA and ADA policies, post a notice in the workplace informing employees of the settlement, and train all employees and supervisors on their rights and responsibilities under both the ADEA and the ADA. Moreover, the company agreed to provide the EEOC with periodic reports regarding any future complaints of age or disability discrimination including a description of each employee’s allegations and the company’s response.”

Accordingly, this case serves as an important reminder that employee terminations should be carefully evaluated with respect to legal risks under various employment laws. Vetting such risks on the front end may mitigate pain on the back end.

© 2024 BARNES & THORNBURG LLP

The New Retirement Security Rule: Updated Fiduciary Definition Under ERISA

On April 23, 2024, the U.S. Department of Labor (the “DOL”) promulgated a final rule, titled the “Retirement Security Rule” (the “Final Rule”), updating the definition of an “investment advice fiduciary” under the Employee Retirement Income Security Act of 1974, as amended (“ERISA”). In addition, the DOL issued final amendments to several prohibited transaction class exemptions (“PTEs”) available to investment advice fiduciaries, which together with the Final Rule seek to effectuate the DOL’s goal of requiring honest investment advice from investment advice fiduciaries to retirement investors. The updated fiduciary definition under the Final Rule and the amended PTEs will become effective on September 23, 2024, with a one-year phase-in period for certain conditions of the amended PTEs.

Fiduciary Definition

The framework for determining whether a person is an investment advice fiduciary has historically required that investment advice be provided to a retirement investor on a regular basis and pursuant to a mutual agreement, arrangement, or understanding that such advice will serve as a primary basis for investment decisions.

Under the Final Rule, a person will be an investment advice fiduciary for purposes of ERISA if (1) they make a recommendation of any securities transaction or other investment transaction or any investment strategy to a retirement investor for a fee or other compensation (direct or indirect), and (2) such recommendation arises in either one of the following contexts:

  • The person either directly or indirectly (e.g., through or together with any affiliate) makes professional investment recommendations to investors on a regular basis as part of their business, and the recommendation is made under circumstances that would indicate to a reasonable investor in like circumstances that the recommendation:
    • is based on review of the retirement investor’s particular needs or individual circumstances,
    • reflects the application of professional or expert judgment to the retirement investor’s particular needs or individual circumstances, and
    • may be relied on by the retirement investor as intended to advance the retirement investor’s best interest; or
  • the person represents or acknowledges that they are acting as a fiduciary under ERISA with respect to the recommendation.

For purposes of the Final Rule, a “retirement investor” is defined as a plan, plan fiduciary, plan participant or beneficiary, IRA, IRA owner or beneficiary, or IRA fiduciary. “Recommendations” means recommendations as to:

  • the advisability of acquiring, holding, disposing of, or exchanging securities or other investment property, investment strategy, or how securities or other investment property should be invested following a rollover, transfer, or distribution from a plan or IRA;
  • the management of securities or other investment property, including, among other things, recommendations on investment policies or strategies, portfolio composition, selection of other persons to provide investment advice or investment management services, selection of investment account arrangements, or voting of proxies appurtenant to securities; or
  • rollovers, transfers, or distributions of assets from a plan or IRA, including recommendations as to whether to engage in the transaction, the amount, the form and the destination of such a rollover, transfer or distribution.

Significant Changes

The investment advice fiduciary standard in the Final Rule has become narrower than initially anticipated:

  • The DOL clarified that with respect to a person who becomes an investment advice fiduciary due to their representing or acknowledging that they are acting as a fiduciary under ERISA with respect to a recommendation, fiduciary status would apply only with respect to that recommendation and not with respect to every future interaction with the same retirement investor regardless of the circumstances.
  • The Final Rule includes a paragraph specifically confirming that sales pitches and investment education can be provided without triggering ERISA fiduciary status. A key component of this consideration is whether a sales pitch is individualized to a retirement investor’s particular needs and circumstances.

Amendment to Exemption for Transactions Involving Investment Advice (PTE 2020-02)

PTE 2020-02 generally permits parties providing fiduciary investment advice to retirement investors to receive reasonable compensation in exchange for their services, which would otherwise be prohibited in the absence of an exemption. The final amendment to PTE 2020-02 broadens the exemption to cover additional transactions and revises certain conditions, including conditions relating to disclosure, recordkeeping, and ineligibility.

The amended PTE 2020-02 applies to covered transactions on or after September 23, 2024; however, there is a one-year phase-in period beginning on September 23, 2024. During this phase-in period, investment professionals may receive reasonable compensation if they comply with the Impartial Conduct Standards and the fiduciary acknowledgement requirement.

Required Disclosure and Fiduciary Acknowledgement

The amended PTE 2020-02 requires investment advisers to provide a written acknowledgement that the institution and the investment professional are providing fiduciary advice and are fiduciaries under ERISA. Furthermore, the amended PTE 2020-02 requires investment advisers to make certain additional disclosures regarding fees, scope of services, and conflicts of interest.

Impartial Conduct Standard

The amended PTE 2020-02 replaces the “best interest standard” for determining impartial conduct with the “Care Obligation” and the “Loyalty Obligation,” which, according to the DOL, are more consistent with the Securities and Exchange Commission’s Regulation Best Interest. Under the Care Obligation, advice must reflect the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent person acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims, based on the investment objectives, risk tolerance, financial circumstances, and needs of the retirement investor. Under the Loyalty Obligation, the investment professional must not place the financial or other interests of the professional, their affiliate or related entity, or other party ahead of the interests of the retirement investor or subordinate the retirement investor’s interests to those of the professional, their affiliate, or related entity.

Policies and Procedures

Each investment adviser must establish, maintain, and enforce written policies and procedures prudently designed to ensure that the investment adviser and its investment professionals comply with the Impartial Conduct Standards and other exemption conditions. The policies must mitigate conflict of interests.

Specifically, investment advisers may not use quotas, appraisals, bonuses, special awards, differential compensation, or other similar actions in a manner that is intended, or that a reasonable person would conclude are likely, to result in recommendations that do not meet the Care Obligation or Loyalty Obligation. The investment adviser must provide their complete policies and procedures to the DOL within 30 days of a request.

Additionally, the investment adviser must continue to conduct a retrospective review at least annually that is reasonably designed to detect and prevent violations of and achieve compliance with the conditions of this exemption. The investment adviser must maintain records demonstrating compliance with PTE 2020-02 for a period of six years after the covered transaction.

Penalties

The amended PTE 2020-02 broadens the disqualification provisions to include convictions of certain affiliated entities and foreign convictions. Previously, an investment adviser or an investment professional was ineligible only upon a conviction for “crimes arising out of such person’s provision of investment advice” to retirement investors. Under the amended PTE 2020-02, however, a relevant conviction or final judgment that occurs on or after September 23, 2024, with respect to an entity in the same controlled group as an investment adviser would result in such investment adviser’s becoming ineligible to rely on PTE 2020-02 for a 10-year period.

The DOL’s Retirement Security Rule has broad implications for financial institutions, including investment advisers.

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