Top 10 expected trends for US employers to know in 2023
With slim majorities in Congress, the pace of legislative action is expected to remain slow. Aggressive federal rulemaking and enforcement in areas such as wage and hour, diversity, ESG and labor rights, will likely meet with continued resistance in the form of legal challenges and congressional oversight.
Multi-state compliance is also expected to remain burdensome as remote work takes hold and states and localities enact new laws on issues ranging from pay transparency, discrimination and harassment to leave rights and new technologies in the workplace.
In this report, we identify the latest developments and offer our predictions for 2023.
1. More demands for transparency
From pay and diversity data, to discrimination and harassment claims, new laws are requiring employers to disclose more information than ever before.
Many lawmakers are prioritizing pay transparency. In 2022, various states and localities (eg, California, New York City, Washington) adopted salary posting and/or reporting requirements. Employers are watching for additional guidance and assessing compliance obligations, including for remote positions, and related risks (eg, pay discrimination claims, impact on competition for talent).
The SEC’s final rules require most public companies to report detailed, complex pay-versus-performance data starting in 2023. Additionally, the SEC adopted final rules requiring securities exchanges to compel their listed companies to implement policies to claw back erroneously awarded incentive compensation, which will likely result in changes to listing standards for companies in 2023.
While trial courts struck down both of California’s board diversity laws (both decisions are on appeal), expectations for companies to improve corporate diversity remain high. SEC disclosure rules (also being challenged in court) require Nasdaq-listed companies to disclose board-level diversity statistics, and proxy advisory firms and shareholders are keeping pressure on companies to make progress on D&I. The SEC’s 2020 human-capital disclosure requirements are eliciting more and more diversity data, which we expect to continue.
Employers are seeing more laws restricting the use of arbitration agreements and non-disclosure agreements for harassment and discrimination claims. The Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act took effect, and President Biden signed the Speak Out Act limiting the enforceability of pre-dispute nondisclosure and nondisparagement clauses for sexual assault and sexual harassment. Various states, including California, Maine, Oregon, and Washington, passed similar laws limiting the use of nondisclosure provisions.
2. Wage and hour risk remains high
Wage and hour compliance will likely remain challenging. The NLRB’s proposed standard for determining joint-employer status and the DOL’s proposed rule regarding independent contractor classification could increase the risk of joint-employer liability and misclassification claims. Meanwhile, some states are enacting more worker-friendly classification tests and worker protections (eg, Washington State’s law for rideshare drivers, Seattle’s Independent Contractor Protections Ordinance).
Exemption standards could tighten in 2023, with the DOL expected to issue a proposed rule on overtime exemptions. Employers are also reviewing the impact of state and local minimum wage hikes in 2023, including those tied to inflation.
Wage and hour litigation risks loom large, particularly for California employers. The number of Private Attorneys General Act (PAGA) notices has not dropped significantly since the US Supreme Court’s decision in Viking River Cruises, and several cases could spur continued PAGA litigation. For example, one Court of Appeal decision concluded that making seats available, without informing employees of their right to use the seats, may not be sufficient to comply with California’s wage order. Another Court of Appeal decision appears to challenge the Viking River Cruises conclusion that PAGA actions can be arbitrated on an individual basis. Yet another Court of Appeals decision (currently in draft form) is poised to conclude that PAGA plaintiffs who lose their individual claim in arbitration may still have standing to pursue a PAGA representative action. Moreover, the California Supreme Court has granted petitions raising issues related to: the authority of trial courts to ensure that claims under PAGA will be manageable at trial; whether a plaintiff in a PAGA action has the right to intervene, object to, or move to vacate, a judgment in a related PAGA action raising the same claims; and whether trial courts should stay, rather than dismiss, PAGA civil actions when an employee’s individual PAGA claim is sent to arbitration.
Other decisions are likely to spur continued class action litigation for those employers that don’t have arbitration agreements with class action waivers. For example, the California Supreme Court concluded that claims for failure to pay meal and rest period premiums may support derivative claims for wage statement and waiting time penalties under the California Labor Code, and the Ninth Circuit held that employee time booting up computers may be compensable under federal law. In addition, in October, a California Court of Appeal reversed summary judgment in a case involving a neutral rounding policy and invited the California Supreme Court to consider the validity of rounding in view of technological advances that allow employers to track time precisely. On a positive note, the Ninth Circuit recently held that an employer’s method of calculating the regular rate of pay when workers earn more than one hourly rate of pay in a workweek is the weighted average calculation, and that the overtime rate is one-half the regular rate, rather than 1.5 times the regular rate of pay.
The landscape could worsen in 2023. In addition to the PAGA questions above, California’s Supreme Court plans to review various working time issues (eg, whether time spent driving between a security gate and parking lot and time waiting to scan an identification badge are “hours worked”).
Many employers are reviewing pay practices, anticipating class and PAGA actions being filed separately, examining the wording of PAGA waivers and severability clauses, and considering steps to protect against mass arbitrations.
3. Permanent impacts of COVID-19 come into focus
Many employers may continue to deal with the impacts of COVID-19 in 2023, including COVID-19-related litigation, expanded state and local leave laws, long-haul COVID as a potential disability, and accommodation requests.
More broadly, COVID-19 changed how and where many people want to work and their expectations of work and employers. Multiple surveys point to new employee priorities, including flexibility, work-life balance, and health and wellness. In response, some companies are introducing remote work policies that recognize employees’ interest in working away from the city, state, or country of their original workplace. Employers are reviewing choice of law issues and putting guardrails in place (eg, limiting the duration and countries based on their risk profile).
Employers that need employees to be at the workplace are also exploring ways to offer flexibility and improve employee well-being, such as using seasonal contracts; offering flexible schedules; and providing employees with additional days off (eg, “snow days”, the last week of December). While an economic downturn may impact employee priorities and the pace of change, many companies are examining their policies and introducing new benefits to gain a competitive advantage over the long term.
4. ESG gets more challenging and politically divided
The environmental, social, and governance (ESG) landscape is expected to become more challenging and more divided along political lines.
As noted previously, diversity and pay equity are a focus of the Biden Administration and many state lawmakers.
New laws addressing human rights and supply chain integrity are set to take effect in 2023 in the US (and around the world), including laws in Virginia and New York requiring certain lodging employees to complete training on recognizing human trafficking and a California law (AB 1788) that allows civil penalties to be imposed against hotels in certain circumstances.
The SEC has proposed rules that would require extensive climate risk disclosures by public companies, including Scope 3 emissions and independent attestation requirements. The SEC also proposed enhanced ESG disclosures by registered funds and investment advisors and the so-called truth-in-advertising rule governing ESG- fund related names.
The DOL released its final rule addressing when fiduciaries can consider ESG factors when making investment decisions. ERISA plan sponsors and fiduciaries are proceeding cautiously as the regulatory and legislative landscape may change again based on political control.
Pushback against federal agency rules, including litigation and state laws against ESG investing, will continue. This pushback reflects, in part, the high expected costs of new disclosure requirements, confusion around how to assess “materiality” on ESG matters, and other uncertainties associated with new and extensive requirements. Many companies are assessing their obligations and the extent to which their business and policies are impacted by ESG and anti-ESG regulations.
Companies that operate across borders also will have to comply with obligations across their respective markets. For example, the European Council recently approved the Corporate Sustainability Reporting Directive (CSRD). Under the CSRD, certain companies (including non-EU companies above certain thresholds) will be required to publish detailed information on a broad range of ESG topics. Many new regulations will require engagement, diligence and reporting across value chains.
5. Enhanced obligations related to technologies (AI, crypto, biometrics, and privacy)
Employers are seeing more regulatory activity related to workplace technologies and privacy. In 2022, President Biden released a Blueprint for an AI Bill of Rights; the EEOC issued guidance regarding AI-related disability discrimination; the NLRB announced a focus on monitoring and algorithm-driven management; and new state laws on electronic monitoring, including in New York and New Jersey, took effect. In addition, New York City’s bill regulating employers’ use of automated employment decision tools will take effect on January 1, 2023 (but enforcement is delayed until April 15, 2023). Other AI laws are pending at the federal, state and local levels and globally (eg, EU Draft Artificial Intelligence Act). Employers are auditing their current and near-term systems based on current requirements and preparing for future regulation of currently gray areas.
Meanwhile, the first jury verdict in Illinois last year in a biometric privacy class action under the state’s law could lead to additional litigation, including over biometric timekeeping systems.
Regulators are also taking up cryptocurrency issues. In March, the DOL issued guidance (litigation is pending) advising employers to use “extreme care” before they consider adding a cryptocurrency option to a 401(k) plan’s investment menu and warning of a “investigative program.” Beyond wage and hour and tax issues, compensating employees with cryptocurrency that could be characterized as a “security” under applicable securities laws can raise significant complications.
Data security and data privacy remain top concerns for employers. Notably, the DOL has stepped up enforcement related to its cybersecurity guidance for employee retirement plans with high profile investigations, and ERISA class action lawsuits have been filed against plan sponsors, trustees and recordkeepers over alleged security breaches. On the privacy side, several laws will take effect in 2023, including the California Privacy Rights Act, which applies to HR data.
At the federal level, employers are monitoring (1) the impact of President Biden’s Executive Order aimed at reviving the invalidated Privacy Shield framework for transatlantic data transfers, (2) the prospects for the first bipartisan federal privacy bill (which would also impact companies developing AI technologies), and (3) the FTC’s next steps for its privacy rulemaking (which sought public feedback on how new trade regulation rules could address potential harms and discriminatory outcomes related to the use of AI, automated decision-making systems, and algorithms).
6. Multistate workforce compliance remains difficult
State and local governments continue to lead on new legislation across a range of workforce issues.
For instance, new leave laws and/or programs will take effect in 2023 in a number of states (eg, California, Colorado, Delaware, Illinois, Maryland, New York, Oregon, Virginia).
This year more jurisdictions (eg, California, Connecticut, District of Columbia, Rhode Island) passed laws on cannabis use, with several placing limits on employer drug testing and policies. Referendums to legalize recreational use of marijuana passed in November in Maryland and Missouri and more referendums and bills are expected in 2023.
Various jurisdictions enacted new laws to prevent discrimination and harassment. For example, Chicago expanded the definitions of sexual harassment and sexual orientation and required sexual harassment bystander training; Michigan’s Supreme Court held that state law prohibits discrimination based on sexual orientation; New York required employers to notify workers of a new statewide toll-free hotline number to report sexual harassment; and more states and cities (eg, Illinois, Massachusetts, Austin) passed CROWN Acts prohibiting discrimination on the basis of physical characteristics historically associated with race.
Employers likely can expect more state and local laws on these and other workplace issues in 2023.
7. The labor resurgence continues?
The labor movement had a resurgence in 2022: union representation petitions were up 53 percent for the fiscal year; unfair labor practice charges increased almost 20 percent; and, according to Gallop, public approval of unions is at 71 percent, the highest since 1965 (yet private sector union membership is steady at 7 percent and interest in joining a union among nonunion employees remains low).
The NLRB continues to make changes in the law to favor unions. In December, the NLRB added a new consequential damages remedy to its traditional remedies for unfair labor practices and restored an Obama-era bargaining unit test that will make it easier for unions to secure representation elections for smaller bargaining units.
Other priorities of NLRB General Counsel Jennifer Abruzzo include aggressive use of 10(j) injunctions, card-check organizing, a prohibition on captive audience meetings, a requirement to maintain annual increases in pay and benefits after a contract expires, and limits on a purchaser’s right to make changes to an existing union contract following an acquisition. In addition, in November, the NLRB issued a proposed rule on “fair choice and employee voice” that would reinstate the Board’s blocking charge policy; prevent challenges to the status of a newly recognized union; and make it harder to decertify certain construction-industry unions.
The Board’s recent and proposed changes, along with new state laws – eg, Connecticut’s ban on captive audience meetings (currently being challenged) – may limit employers’ ability to respond to union challenges.
Whether union momentum continues in 2023 may depend more on the economy than the NLRB. New laws and ballot measures could also raise obstacles to unionization (eg, Tennessee’s “right to work” constitutional amendment). Nonetheless, companies are encouraged to take steps to ensure a positive work environment.
8. A loaded Supreme Court docket
Employers and plan sponsors are monitoring developments in the wake of several Supreme Court decisions in 2022 and the Court’s current docket.
Lawsuits testing the edges of what is and isn’t considered prudent management are likely to continue in the wake of the US Supreme Court’s decision in Hughes v. Northwestern University, where the justices addressed the duty of fiduciaries to monitor a plan’s investment options. Employers are taking steps to ensure they document their procedural prudence on the initial selection of any investment options.
Many employers are also addressing ongoing issues related to the Supreme Court’s decision in Dobbs. Employers that opted to provide benefits for employees to obtain lawful reproductive services in another state are focused on how to protect those benefits and monitoring enforcement activity. In particular, employers are reviewing data disclosure obligations, defenses to subpoenas, and negative consent provisions in third-party administrator (TPA) and carrier agreements in anticipation of potential efforts by law enforcement agencies to obtain employee plan participant data to detect the performance of a possibly unlawful abortion. Employers are also monitoring reports of commissioner charges brought against several companies by one EEOC Commissioner alleging that programs providing travel for reproductive services violate federal anti-discrimination laws.
A number of US Supreme Court decisions expected in 2023 may impact employers. In October, the Supreme Court heard oral argument in two high-profile cases involving race-conscious college admissions practices with the potential to reshape the affirmative action legal landscape and employers’ diversity and inclusion initiatives.
The Supreme Court is also expected to issue its decision in Mallory v. Norfolk Southern Railway Co., a case asking whether the due process clause of the 14th Amendment prohibits a state from requiring a corporation to consent to general personal jurisdiction – and thus potentially to being sued for any cause of action, even if the litigation has no relation to the state – to do business in the state. There, the petitioner, a Virginia resident, brought suit alleging that he was exposed to harmful carcinogens while working for his employer (a Virginia-incorporated company then headquartered in Virginia) in Virginia and Ohio.
Other issues before the Court include whether a highly paid worker paid by the day is entitled to overtime under the FLSA, whether the NLRA preempts a state tort claim against a union for intentionally destroying an employer’s property in the course of a labor dispute, the extent to which attorney-client privilege applies to communications made for both legal and non-legal purposes; and whether an appeal of a denial of a motion to compel arbitration ousts a district court’s jurisdiction to proceed with litigation pending appeal.
9. Continued focus on employee safety, health and well-being
Even as COVID-19 measures fade, many employers are continuing to monitor developments related to worker health, safety and wellness. According to Bloomberg Law, the number of OSHA inspectors grew 19 percent in fiscal year 2022, and the number of OSHA whistleblower investigators was up by 37 percent. OSHA is also pursuing national and regional emphasis programs, and recently expanded its Severe Violator Enforcement Program.
The DOL is focused on enforcement of the Mental Health Parity and Addiction Equity Act (MHPAEA). Meanwhile, employers are monitoring for potential healthcare changes, including civil monetary penalties for mental health parity violations and an extension of a telehealth provision in the CARES Act that allows employers to offer pre-deductible coverage of telehealth for high deductible health plans. The Ninth Circuit may also revisit its decision in Wit v. United Behavioral Health holding that UBH’s internal coverage guidelines for mental health and substance use disorder treatment were more restrictive than generally accepted standards of care.
A bill to address workers’ long-term financial wellbeing, the SECURE Act 2.0, could finally become law.
Employers are also seeing new laws at the state and local levels, including protections for pregnant and breastfeeding employees and expanded leave rights for various reasons such as sickness, family and medical, bereavement, and domestic violence.
10. Contraction and expansion amid economic and geopolitical
In response to economic challenges like inflationary pressures, slowing growth, disruptions in the capital markets and rising interest rates, some companies are considering cost-saving measures, including reductions in force (RIFs). Local laws vary widely, however, making it critical for global employers to take care when assessing and implementing such measures.
Other companies are moving forward with expansion plans, taking into account evolving geopolitical risks (eg, the war in Ukraine) and legal frameworks, including new export control rules.
Employers will want to continually monitor these issues. To learn more about the implications of these development for your business, please reach out to any member of DLA Piper’s Employment group or your DLA Piper relationship attorney. You may also contact: