Divided Government Equals Regulatory Nightmare for HR - American Society of Employers - Anthony Kaylin

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Divided Government Equals Regulatory Nightmare for HR

It was thought by the founders that if the government was divided, it would likely be a push towards bipartisanship and compromise – a check and balance.  But in recent times, bipartisanship on major issues has become extremely political.

The executive branch characterizes the congress as a “do nothing congress”, thus justifying increased regulatory action.  This approach to governance scratched the surface in the late 1990s and took off in the 2010s.  Yet, congress is supposed to be the legislative branch of the U.S. Government.

Federal regulatory agencies in 2021 issued 3,257 rules while congress only passed 143 laws. In 2022 regulatory agencies added another 3,168 rules in the Federal Register with only 247 laws passed by congress. That’s 13 rules from unelected agencies for every one law from elected legislators.

Regulatory costs to the economy are now reckoned to be at least $2 trillion, or roughly 8% of U.S. gross domestic product in 2021, according to Wayne Crews at the Competitive Enterprise Institute.

How does this impact HR?  Very much so.

For example, the Federal Trade Commission (FTC) is going to issue rules that negate any noncompetes.  While the issue is the overreaching approach of noncompetes from the employee level to the length of time, the FTC wants a blanket prohibition period.  Further, The National Labor Relations Board NLRB issued a decision in McLaren Macomb, 372 NLRB No. 58 (2023) that held that employers may not offer employees severance agreements that contain confidentiality or non-disparagement provisions because they impinge upon rights provided under the National Labor Relations Act (NLRA).  This decision impacts both union and nonunion employers.

Further, the NLRB is issuing regulations to promote an onerous joint-employer standard that indirect control or unexercised, contractually reserved control, could be the sole factor for joint employment, disregarding years of court precedents that an employer must exercise direct and immediate control over the essential terms and conditions of employment of another entity's employees to be a joint employer under the NLRA. 

Wage and Hour is issuing proposed regulations concerning independent contractors ignoring common law definitions and attempting to impose in disguised form the California ABC test, which essentially allows in only limited circumstances an independent contractor situation.   For those working in the gig economy, federal law may impose employee status on these workers.

There is more coming.  For example, EEO-1 Component 2, which is pay reporting, is likely to be reinstated almost immediately once a new EEOC Commissioner is confirmed by the Senate.  Instead of Box 1 it will be Box 5 of the W-2. Moreover, the Office of Contract Compliance Programs is expected to issue new regulations rewriting fully the current regulations governing federal contractors, which could also impact the method audits are conducted on multiple locations of a contractor, among other things.

Yet, there is a fight on.  The Supreme Court set the stage for employers to fight back government encroachment on their operations when they decided the West Virginia v. EPA case last June.  The case espouses the major question theory and states that if Congress either did not have it in the law or the regulations go beyond the law, the regulations are invalid.  Currently, there is a case in Texas courts on whether salary test for exempt employees can be greater than minimum wage.  The major question theory is the basis for that argument.

Furthermore, in the recent Supreme Court decision in Helix, in which the question revolved around day rate versus a set and consistent salary, Justice Kavanaugh in his dissent raised the argument that the salary basis test should possibly be struck down as contrary to the law.  “While the court did not address that issue in this decision, if that argument prevails in future litigation, it will provide more flexibility to employers on this issue,” he said. “For the time being, however, employers should be careful to comply with the salary basis rules for exempt employees.”

The current administration is pushing agencies to issue rules well before the end of the current congress so the rules would not be subject to the scrutiny of the Congressional Review Act (CRA) if Republicans control the White House and Congress in 2025.   Under the CRA, Congress has 60 legislative days to repeal a rule.  Therefore, HR should expect more burdens and regulations from the Executive Branch to ensure compliance with.  With diminishing HR teams, it is a new world stretching HR to its utmost.


Source: Wall Street Journal  2/27/23, Crowell & Moring  2/27/23


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