United States: Back to business – Trump’s second term and the four major shifts employers should expect

In brief

US employers can expect material changes to employment laws under the Trump administration, with impacts felt across their business operations. President-elect Trump’s first term, his campaign platform, and the typical shifts in a Democratic to Republican transition provide clues about what’s to come: federal agencies, policies and rules will become more business-centered and many of the Biden-era worker-focused protections will be rolled back.

Contents

1. In depth
   1. 1. Significant shifts in DOL policy
   2. 2. Bye-bye for now, Federal Trade Commission (FTC) noncompete prohibition
   3. 3. Increased scrutiny of workplace ID&E programs and initiatives
   4. 4. A course-reversal at the National Labor Relations Board
2. Next Steps for US Employers

Looking at our crystal ball, we predict:

1. Significant shifts in DOL policy

• The end of the DOL’s 2024 final overtime rule. On 15 November 2024, a federal judge in Texas blocked implementation of the DOL’s final rule in its entirety, thereby preventing the agency from instituting increases to the salary thresholds for the “white collar” overtime exemptions under the Fair Labor Standards Act. While the government may appeal the judge’s order before the change in administration, any such appeal is likely to be short-lived come January 2025.
  Accordingly, employers can halt plans to change their compensation levels or exempt classifications in response to the now-blocked rule. If such changes have already been made, employers should consult with counsel on how best to unwind undesirable changes, if any.
• A lower burden for employers to classify workers as independent contractors under federal law. Trump will likely reverse Biden’s worker-friendly contractor classification efforts, making it easier for businesses to classify workers as independent contractors, and pivoting away from the Biden administration’s 2024 DOL independent contractor rule.
  Notwithstanding this easing at the federal level, employers must remember that, under US and state law, there is no single test for independent contractor classification. Many states have their own tests, which are often more stringent than federal law and that apply to state wage and hour claims. Moreover, even within the same states, different tests will apply to unemployment claims, workers’ compensation, wage and hour, and taxation.
  Therefore, while the federal standard may be lowered during Trump’s second term, employers must nevertheless comply with applicable state and local laws regarding worker classification in order to avoid legal liability. Read more here. Additionally, the failure to properly classify workers as employees will still expose employers to significant tax liabilities resulting from the failure to pay the employer share of social taxes and other contributions and to withhold from the employee income taxes and the employee share of social taxes. We have seen no indication that the IRS (and certainly not the state revenue departments) that they intend to curtail payroll tax audit activity on worker misclassification issues.
• A probable return to the 2021 Fair Labor Standards Act (FLSA) joint employer rule (which the Biden DOL rescinded and did not replace). The Trump-era FLSA joint employer rule set a higher bar for a joint employer finding, requiring companies to exercise actual control over hiring and termination, supervision and scheduling, maintenance of employment records, or setting of pay rates to be deemed a joint employer. Currently, whether an employer is a joint employer under the FLSA is determined by a multifactor economic realities test that varies by judicial circuits. Employers should prepare to reevaluate application of the joint employer rule.
• The end of the Department of Labor’s (DOL) ESG-related regulations. President-elect Trump is expected to roll back the DOL’s 2022 final rule permitting retirement plan fiduciaries to consider environmental, social and governance factors, including climate change, when choosing investment options and exercising shareholder rights. The rule, which is mainly geared towards 401k and other ERISA-governed retirement plans, replaced a Trump-era rule that made it more difficult to include sustainable investments in investment plans. Accordingly, employers should prepare to revisit the feasibility of including ESG considerations in setting plan investment options.

2. Bye-bye for now, Federal Trade Commission (FTC) noncompete prohibition

It is highly unlikely that the Trump administration will pursue the recent appeals of the federal court decisions setting aside the FTC’s noncompete ban. Instead, we anticipate that any major changes to the noncompete landscape in the US will come from state and city regulation. Notably, state restrictions on noncompetes are found in traditionally “red” states (e.g., Oklahoma and North Dakota) and traditionally “blue” states (e.g., California and Minnesota). We will continue monitoring developments in this space.

3. Increased scrutiny of workplace ID&E programs and initiatives

We may see: (re)issuance of anti-ID&E executive orders (e.g., restrictions on workplace diversity training); agency enforcement actions against organizations that promote “quotas” or discuss “critical race theory;” repeal of pay equity-inspired regulations (e.g., the Equal Employment Opportunity Commission’s (EEOC) pay data collection (so-called “Component 2” data) regulations); and limits on new protections for covered employees under the Pregnant Workers’ Fairness Act, among other things.

• A changing of the guard at the Equal Employment Opportunity Commission. The current Democratic majority of the five-seat EEOC could last until at least 2026, and even if the one Republican member (Andrea Lucas) is made the new chair, it is unlikely she will put any serious issues to vote until Republicans can secure a majority in the agency. If/when Republicans have the majority, we may see the EEOC take a more receptive approach to the growing pressure from anti-ID&E activists to take on cases challenging corporate ID&E policies.
• Notwithstanding these potential shifts, many components of workplace ID&E will remain lawful, including expanding outreach to broaden candidate pools, creating mentorship and coaching programs that are open to all, conducting employee training and education, and auditing evaluation, compensation, and promotion processes to remove bias.

Our 3-pronged approach to advancing ID&E while mitigating risk is discussed here: Is The Risk Calculus Related To Workplace DEI Shifting For US Employers This Election Year? We regularly work with US-multinationals to de-risk workplace ID&E programs; please contact your Baker McKenzie attorney for more information.

4. A course-reversal at the National Labor Relations Board

A new Board is likely to reconsider some of the Biden Administration’s more labor-friendly decisions like:

• McLaren Macomb, in which the Board restricted the use of confidentiality and non-disparagement provisions in employee severance agreements.
• Stericycle, in which the Board adopted an employee-friendly standard for assessing whether an employer’s facially-neutral work rules and policies unlawfully “chill” an employee’s Section 7 rights.
• Cemex, in which the NLRB made it easier for unions to establish representation.
• Atlanta Opera, Inc., in which the Board returned to an employee-friendly test for purposes of independent contractor classification.

States already have tried, and are likely to continue trying, to counter the more business-friendly approach expected under the Trump administration. We are on the lookout for new state legislation in the following key areas:

• Minimum wage hikes (though California voters just rejected a ballot measure to increase the state’s minimum wage
• Pay transparency (including salary and wage disclosures in job postings and increased reporting requirements for employers)
• Expansion of paid leave laws
• New AI laws regulating the use of AI tools in HR and
• Post-termination noncompetes (as mentioned above).

Please reach out to your Baker McKenzie attorney to set your course for 2025 taking these significant shifts into account and tune into our upcoming webinars for CLE and learning.