On April 29, 2024, the U.S. Equal Employment Opportunity Commission (EEOC)published its final guidance on harassment in the workplace. The guidance explains how the EEOC may enforce equal employment opportunity (EEO) laws against an employer when workplace harassment is alleged or suspected.
The EEO laws are a collection of federal laws that prohibit covered employers from discriminating against or harassing individuals based on certain characteristics. These characteristics, also known as protected traits, include race, color, religion, national origin, sex (including sexual orientation, gender identity, and pregnancy, childbirth, or related medical conditions), disability, age (40 and older) and genetic information (including family medical history).
Between 1987 and 1999, the EEOC issued several documents designed to guide agency staff members who investigate claims of harassment under EEO laws. The agency issued proposed enforcement guidance on these topics on Oct. 2,2023.
This final guidance consolidates and replaces the earlier documents.
In its final guidance, the EEOC provides several updated examples to reflect a wide range of modern scenarios and address emerging issues, such as how social media posting and other online content may contribute to a hostile work environment. It also incorporates current case law, including the U.S. Supreme Court’s 2020 decision in Bostock v. Clayton County, that discrimination on the basis of sexual orientation or gender identity constitutes sex discrimination in violation of Title VII of the Civil Rights Act of 1964 (one of the EEO laws).
The final guidance focuses on three main considerations to analyze in any workplace harassment claim:
The guidance explains that an employer may be liable for workplace harassment under several legal standards that often depend on the harasser’s relationship with the employer. The guidance also describes preventive and corrective actions an employer may take to help establish defenses against liability for workplace harassment.
Employers subject to EEO laws should familiarize themselves with the final guidance. They may also consider reviewing and revising their policies and procedures to ensure compliance with the final guidance.
On April 23, 2024, the Federal Trade Commission (FTC) voted to issue a final rule that would prohibit employers from entering into or enforcing noncompete clauses with most employees. The final rule was published in the Federal Register on May 7,2024, and is scheduled to take effect 120 days after such date on Sept. 4, 2024.
Subject to very limited exceptions, the final rule provides that:
The FTC stated that it aims to promote competition by protecting the freedom of workers to change jobs, increasing innovation and fostering new business formation.
Employers that use noncompete or similar protective clauses should familiarize themselves with the rule’s requirements and take steps now to prepare for its effective date. This Compliance Bulletin provides an overview of the key provisions of the final rule and steps employers may take to prepare for the FTC’s ban on noncompete clauses.
Employers should note, however, that at least three lawsuits (including one brought by the U.S. Chamber of Commerce)seeking to block the final rule have already been filed, so employers should monitor for additional legal challenges and prepare for potential uncertainty.
In general, a noncompete clause is a contractual term between an employer and a worker that blocks the worker from working for a competing employer or starting a competing business, typically within a certain geographic area and period of time after the worker’s employment ends. Currently, the enforceability of a noncompete clause is determined by state and local legislatures and courts. In January 2023, the FTC issued a proposed rule to govern the enforceability of noncompete clauses at the federal level and supersede any less restrictive state laws or judicial interpretations. The FTC then accepted comments on the proposed rule, which it reviewed and considered in drafting the final rule. The final rule was issued on April 23, 2024, and filed in the Federal Register on May 7, 2024. The final rule is scheduled to take effect 120 days after such filing date, on Sept. 4,2024.
The final rule states that noncompete clauses are an unfair method of competition. Therefore, the FTC has voted to ban the use of noncompete clauses in almost all circumstances and to invalidate most existing noncompete agreements. Specifically, the final rule:
The final rule applies to noncompete agreements with all current and former workers, whether full-time or part-time, including but not limited to employees, independent contractors, interns, externs and apprentices. However, employers should note that the FTC ban will only prohibit post-employment noncompetes. Employers may still restrict employees from engaging in competitive activities while employed with the employer.
The FTC defines the following key terms in the final rule:
The final rule bans noncompete clauses in virtually all circumstances. However, the final rule provides a few narrow exceptions to the ban, including:
In addition to the above exceptions, the final rule does not apply to any of the following:
The final rule states that the use of noncompete clauses in violation of the rule is considered an unfair method of competition in violation of the FTC Act. The FTC may enforce the final rule either through enforcement actions or civil litigation. Moreover, while the final rule does not contemplate a private right of action, an employee can file an action seeking court judgment that any illegal noncompete clause is unenforceable. Employers may be subject to additional actual and punitive damages if they attempt to enforce an illegal noncompete.
To prepare for the noncompete ban, employers should consider conducting an audit of existing agreements, handbooks and other policies to determine whether any such documents contain noncompete clauses. As noted above, a noncompete clause may be clearly identifiable or explicitly labeled as a noncompete. However, there may be other provisions or agreements that function as a noncompete clause, even if they are not labeled as such. Therefore, employers should carefully review any agreement or policy terms that may prevent an employee or former employee from accepting employment with another employer.
Because the final rule will not take effect until September 2024 and is already subject to legal challenges, employers may consider waiting to implement any changes to existing agreements and policies until there is more certainty as to when and if the final rule will take effect. However, after identifying any applicable agreements or policies, employers should begin preparing updated form agreements and policies that do not contain noncompete clauses or other provisions that may be considered so overbroad or burdensome that they function as noncompetes.
The final rule requires employers to notify employees (other than senior executives) who have entered into noncompete clauses that the employer will not enforce such clauses against the employees. Consistent with updates to existing agreements, employers may consider waiting to issue any notices until there is more certainty as to when and if the final rule will take effect. The final rule contains model language that an employer may use to satisfy its notice requirement and asserts that employers may satisfy the notice requirement by sending such language in an email to all employees. Employers should note that the final rule requires notice to both existing and former employees. Therefore, employers should confirm that they have contact information on file for all applicable employees. ‘
Many employers rely on noncompete agreements to protect an organization’s trade secrets, proprietary and confidential information, and other competitive assets. However, employers may want to consider alternative methods to protect their business interests if the noncompete ban takes effect. Some alternatives include confidentiality, customer nonsolicitation and employee nonsolicitation agreements, as well as fixed-term employment agreements and garden leave, each of which is described in more detail below.
Employers considering any of these alternatives to noncompete clauses should note a few caveats. First, although the final rule does not categorically prohibit other restrictive agreements, such as confidentiality and nonsolicitation agreements, the FTC notes that such agreements could violate the final rule if they are so broad and onerous that they have the same functional effect as a noncompete clause. Second, states and municipalities may have additional restrictions on the use of such agreements. Therefore, employers should work with local counsel to understand the risks and enforceability of such alternatives.
A confidentiality agreement, also known as a nondisclosure agreement, proprietary information agreement or similar term, can be an effective way to protect sensitive company information without restricting an employee’s ability to seek or accept a new position. A confidentiality agreement is a binding contract or clause pursuant to which an employee agrees not to disclose specified confidential or proprietary information.
Employers that are concerned about losing customers to former employees and their new employers absent a noncompete may consider implementing customer nonsolicitation agreements. A customer nonsolicitation agreement generally prohibits former employees from soliciting business from their former employer’s customers or clients either independently or while employed by a new employer.
Employee nonsolicitation agreements, sometimes referred to as no-hire or anti-raiding agreements, can be an effective way to prevent former employees from luring current employees to a new employer. An employee nonsolicitation agreement generally prohibits a former employee from soliciting current employees of their former employer from terminating their employment or accepting new employment with another employer.
The FTC noted that employers may consider entering into fixed-term employment contracts as a method of protecting an employer’s trade secrets and investment. By entering into fixed-term employment contracts, employers can sue an employee who leaves before the end of the contract term for damages arising from the contractual breach. However, the employer cannot bar them from accepting a position with a new employer. Further, a fixed-term employment agreement may limit an employer’s ability to terminate the employee without cause prior to the end of the contract term.
The FTC confirmed that a traditional garden leave provision, where the worker remains employed and receives the same total annual compensation and benefits on a pro rata basis, would not be considered a noncompete clause under the final rule because it is not a post-employment restriction. Garden leave generally serves as a notice provision. However, unlike typical employee notices where the employee continues to actively work during the notice period, employees on garden leave are typically relieved of their duties and responsibilities yet remain employed by the employer. By offering garden leave, employers can ensure that the employee does not work for a competitor shortly after ceasing their work for the employer.
Under the final rule, employers may consider focusing on employee retention as a method of preventing employees from leaving to work for competitors. For example, employers could offer long-term incentives that require continued employment as a condition of eligibility, such as equity awards subject to time-based vesting or deferred compensation programs.
Employers may also consider offering greater compensation packages or more generous employee benefits than those offered by competitors.
While employers may begin preparing for the FTC’s ban on noncompetes now, they may want to wait to implement any final changes. The ban is already subject to multiple legal challenges—at least three lawsuits have been filed seeking to block the final rule, including one filed by the U.S. Chamber of Commerce in the U.S. District Court for the Eastern District of Texas— which may result in the ban being delayed, modified or even vacated.
Further, a number of provisions in the final rule are ambiguous as drafted. For example, the final rule bans clauses that “function to prevent” a worker from seeking or accepting work or operating a business. The FTC stated that whether a clause functions as a noncompete clause is a “fact-specific inquiry.” It is unclear how that will operate in practice and the extent to which other protective agreements, such as nonsolicitation agreements, may violate the noncompete ban. Therefore, if the ban takes effect, employers should continue to monitor for additional legal challenges or clarification regarding such ambiguous provisions.
Employers may also refer to the following resources in preparing for the FTC’s final rule banning non-competes:
Fact Sheet on the FTC’s Noncompete Rule
Business and Small Entity Compliance Guide
Even though certain Acts have been in place for a while (see list below), Colorado adopted new rules related to the Job Application Fairness Act which was adopted on May 3, 2024, and is effective July 1, 2024. This made technical updates to other rules governing employer posting and screening processes.
These rules establish the Posting, Screening, and Transparency Rules, which implement the current Acts (regulations):
The following are just some of the employment laws submitted in the legislative session and their status.
6/3 – Prescription Drug Data Collection Reporting (The Consolidated Appropriations Act, 2021) – group health plans
6/4 – EEO-1 Component 1 Filing Data Filing Deadline (Mandatory annual data collection requirement for all private sector employers with 100 or more employees)
7/31 – Form 5500 Filing Deadline (calendar year plans)
8/1 – VETS-4212 Filing Open (federal contractors)
Lighthouse HR Support (LHRS) provides practical human resource information and guidance based upon our knowledge and experience in the industry and with our clients. LHRS services are not intended to be a substitute for legal advice. LHRS services are designed to provide general information to human resources and/or business professionals regarding human resource concerns commonly encountered. Given the changing nature of federal, state and local legislation and the changing nature of court decisions, LHRS cannot and will not guarantee that the information is completely current or accurate. LHRS services do not include or constitute legal, business, international, regulatory, insurance, tax or financial advice. Use of our services, whether by phone, email or in person shall indicate your acceptance of this knowledge.
