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FTC Proposes Rule Banning Noncompete Agreements

On January 5, 2023, the Federal Trade Commission (FTC) issued a proposed rule that would prohibit employers from using noncompete agreements with their employees or independent contractors. This proposal arises from a preliminary finding by the FTC that noncompetes constitute an unfair method of competition in violation of Section 5 of the Federal Trade Commission Act (FTC Act). It comes on the heels of the FTC’s November policy statement asserting its intention to rigorously enforce and expand the scope of Section 5 of the FTC Act’s ban on unfair methods of competition.

If adopted, this rule would make it illegal for an employer to enter into a noncompete agreement with a worker, maintain a noncompete with a worker or represent to a worker that the worker is subject to a noncompete. Employers would also be required to rescind existing noncompetes and inform workers that they are no longer enforceable.

Read more here.




Independent Contractor Rule Draws 55,000-plus Comments

A US Department of Labor proposal to toughen its independent contractor rule is generating controversy and a lot of interest. Business groups, unions, advocacy organizations and individuals seized the opportunity to comment on the proposed rule, with more than 55,000 comments received by the deadline.

The rules developed by President Biden’s administration will determine who is an independent contractor and an employee. If the government decides that a business is misclassifying workers as independent contractors, it may face fines and legal action.

Access the full article.




Welcome (But Last Minute) Relief for Prescription Drug Reporting Originally Due December 27

Section 204 of Title II of Division BB of the Consolidated Appropriations Act, 2021 amended the Internal Revenue Code, the Employee Retirement Income Security Act of 1974 and the Public Health Service Act to add rules governing prescription drug data collection (RxDC). The rules require group health plans, including plans offered to Federal Employees Health Benefits carriers, and health insurance issuers to report certain information related to prescription drug and other healthcare expenditures to the US Departments of Labor, Health and Human Services and the Treasury (collectively, the Departments). Under the statute, the first RxDC reports were due to be filed by December 27, 2021. However, in response to concerns expressed by stakeholders, enforcement was pushed back a full year to December 27, 2022.

In an FAQ issued December 23, 2022 (FAQ About Affordable Care Act and Consolidated Appropriations Act, 2021 Implementation Part 56), the Departments provided relief to group health plans and health insurance issuers who are required to report information relating to prescription drug and healthcare spending.

Read more here.




Return to Work | Managing Your Workforce During Periods of Uncertainty

How can employers manage their workforces during periods of economic uncertainty? In this McDermott webinar, Lindsay Ditlow, Cristell Fortune, Abigail Kagan and Marjorie Soto Garcia offer perspective on the following topics:

  • Communicating the transition
  • The impact on contractual and other obligations
  • WARN Act, furloughs, layoffs and salary reductions
  • Strategies for unionized workforces

Access the webinar.




The DOL Has Issued New Proposed Independent Contractor Classification Rules. What Now?

On October 11, 2022, the United States Department of Labor (DOL) issued its Notice of Proposed Rulemaking (NPRM) seeking to undo the Trump administration’s 2021 independent contractor regulations and revert to the six-factor economic realities test. While the test factors remain the same (for the most part), the DOL’s NPRM advances interpretations of the various factors that support employment status at every turn.

Read more here.




Companies with 15 or More California-based Employees Must Start Disclosing Salary Ranges in All Job Postings

California companies with more than 15 California-based employees will have to disclose hourly or annual salary ranges for all job postings by January 1, 2023. According to this HR Brew article, McDermott Partner Michelle Strowhiro said she recommends HR professionals review job descriptions with business leaders and legal counsel (preferably, under legal privilege). The goal is to identify and resolve overlap between rules and adjust salary bands accordingly.

Access the article.




IRS Announces 2023 Employee Benefit Plan Limits

The Internal Revenue Service (IRS) and the Social Security Administration announced the cost-of-living adjustments to the applicable dollar limits on various employer-sponsored retirement and welfare plans and the Social Security wage base for 2023. The table below compares the applicable dollar limits for certain employee benefit programs and the Social Security wage base for 2022 and 2023.*

RETIREMENT PLAN LIMITS (guidance link) 2022 Δ 2023 Annual compensation limit $305,000 ↑ $330,000 401(k), 403(b) & 457(b) before-tax contributions $20,500 ↑ $22,500 Catch-up contributions (if age 50 or older) $6,500 ↑ $7,500 Highly compensated employee threshold $135,000 ↑ $150,000 Key employee officer compensation threshold $200,000 ↑ $215,000 Defined benefit plan annual benefit and accrual limit $245,000 ↑ $265,000 Defined contribution plan annual contribution limit $61,000 ↑ $66,000 Employee stock ownership plan (ESOP) limit for determining the lengthening of the general five-year distribution period $245,000 ↑ $265,000 ESOP limit for determining the maximum account balance subject to the general five-year distribution period $1,230,000 ↑ $1,330,000 HEALTH AND WELFARE PLAN LIMITS (guidance links here and here) 2022 Δ 2023 Health Flexible Spending Accounts Maximum salary reduction limit $2,850 ↑ $3,050 Health FSA Carryover Limit $570 ↑ $610 Dependent Care Flexible Spending Accounts± If employee is married and filing a joint return or if the employee is a single parent $5,000 = $5,000 In employee is married but filing separately $2,500 = $2,500 Excepted Benefit Health Reimbursement Arrangements (EBHRAs) $1,800 ↑ $1,950± Qualified Transportation Fringe Benefit and Qualified Parking (monthly limit) $280 ↑ $300 High Deductible Health Plans (HDHP) and Health Savings Accounts (HSA) HDHP – Maximum annual out-of-pocket limit (excluding premiums): Self-only coverage $7,050 ↑ $7,500 Family coverage $14,100 ↑ $15,000 HDHP – Minimum annual deductible: Self-only coverage $1,400 ↑ $1,500 Family coverage $2,800 ↑ $3,000 HSA – Annual contribution limit: Self-only coverage $3,650 ↑ $3,850 Family coverage $7,300 ↑ $7,750 Catch-up contributions (age 55 or older)± $1,000 ═ $1,000 SOCIAL SECURITY WAGE BASE (guidance link) 2022 Δ 2023 Social Security Maximum Taxable Earnings $147,000 ↑ $160,200

 

Plan sponsors should update payroll and plan administration systems for the 2023 cost-of-living adjustments and should incorporate the new limits in relevant participant communications, like open enrollment materials and summary plan descriptions.

For further information about applying the new employee benefit plan limits for 2023, contact your regular McDermott lawyer.

* The dollar limits are generally applied on a calendar year basis; however, certain dollar limits are applied on a plan-year, tax-year, or limitation-year basis.

± Not indexed for cost-of-living adjustments, with the exception of limited guidance issued for certain years.




The 411 on Employment Background Checks in Stock and Asset Transactions

Employment background checks help employers hire individuals with integrity whom they can trust, and who do not present a risk to the business, other employees, or the customers and clients that the business serves. Buyers in transactions may view target businesses that run background checks as lower risk for employee performance and retention issues. Background checks also constitute an important area for employment diligence in transactions because an employer or background check vendor’s failure to follow the hypertechnical disclosure and authorization requirements of the Fair Credit Reporting Act (FCRA) and other applicable state and local laws risks potentially material class action exposure and $1,000 penalties per violation. This article explores mitigation strategies that buyers may use in due diligence to identify and valuate potential FCRA exposure.

Read more here.




Cartel Corner | August 2022 (Labor Markets)

The DOJ continues its efforts to create a novel area of potential criminal liability for labor market investigations. Historically, government enforcement of alleged anticompetitive labor market practices occurred in the civil context, resulting in fines for companies and individuals found to have participated in inappropriate practices. In late 2016, the DOJ began its campaign to expand Section 1 of the Sherman Act to include naked wage-fixing and no-poach agreements. Since then, labor market criminal investigations—now under their third administration—have become a programmatic and core DOJ investigative priority. This policy shift has resulted in many investigations and more than a dozen criminal cases filed against individuals and corporations to date.

The DOJ’s first two prosecutions for alleged labor market crimes went to trial in spring 2022. The DOJ’s attempts to jam a square peg into a round hole of a per se antitrust law violation resulted in full acquittals on the charged Sherman Act conduct in both instances. Despite the lack of precedent supporting the prosecution of certain labor market practices as per se criminal violations, the DOJ in both instances asserted that the mere existence of any naked wage-fixing or no-poach agreement would constitute a crime. In United States v. Jindal, the first-ever wage-fixing case, the DOJ alleged that the defendants entered into a conspiracy to suppress competition by agreeing to fix prices to lower the pay rates of certain employees. On April 14, 2022, a Texas jury found both defendants not guilty of all Sherman Act charges but convicted one defendant of obstructing a Federal Trade Commission (FTC) investigation.

In United States v. DaVita, Inc. and Kent Thiry (McDermott represented Mr. Thiry in the investigation and trial), the DOJ indicted the defendants on three counts of criminal conspiracy to allocate the market for employees by allegedly entering into non-solicitation agreements with three other companies. This was a landmark case of first impression—the first criminal trial of its kind for liability under the Sherman Act for so-called non-solicit agreements. The court did not agree with the DOJ that a typical per se approach was appropriate. First, the judge held that not every non-solicitation, or even every no-hire, agreement would allocate the market and be subject to per se treatment. The court also required the DOJ to prove that the defendants acted with the specific intent to constrain the labor markets. Given the draconian nature of the per se standard, the court held that the DOJ would “not merely need to show that the defendants entered the non-solicitation agreement and what the terms of the agreement were. It will have to prove beyond a reasonable doubt that the defendants entered into an agreement with the purpose of allocating the market” and that the defendants “intended to allocate the market as charged in the indictment.”

There were two important jury instructions in the same matter. In one, the court instructed that the jury “may not find that a conspiracy to allocate the market for the employees existed unless you find that the alleged agreements and understandings sought to end meaningful competition for the services of [...]

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