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April 9, 2024
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Four Ward and Smith team members delivered concise, actionable insights on projected governmental and policy changes resulting from the recent elections, the Corporate Transparency Act, the implications of the Chevron decision, and evolving topics related to labor/employment law.
The high-energy session kicked off the firm’s annual In-House Counsel seminar.
Overturning of Chevron
Justin Hill, a labor and employment attorney, shared his take on a legal change that reduced the ability of federal agencies to interpret a law, transitioning decision-making power back to the courts. In a 1984 case, Chevron v. Natural Resources Defense Council, deference was given to federal agencies in ambiguous matters yet to be addressed by Congress.
“This just meant agencies could look at a statute and make an interpretation about it, and unless it was outlandish or impermissible, it was essentially the final say. This stood for decades, but now, the courts are bringing power back to their side of the scale,” noted Hill.
With the Supreme Court decision overturning the Chevron deference, Hill anticipates more challenges to interpretations made by agencies such as the EEOC, the NLRB, OSHA, and the Department of Labor. The increase in challenges may also create inconsistencies between the courts' rulings.
“Obviously, different courts are run by different people, and they don’t make decisions the same way,” Hill said, “so this could lead to more cases going up to the Supreme Court.”
A similar case that made an impact was Corner Post v. Board of Governors. “This has already become a tool for employers to fight back since it allows them to challenge federal rules for six years, beginning on the date of injury,” Hill explained.
Prior to the decision, the six-year statute of limitations began at the time a rule was finalized. Now, it begins on the date a plaintiff was injured by a regulation.
The Supreme Court undermined the historical powers of the NLRB in another recent decision, the Securities and Exchange Commission v. Jarkesy. “It is now impermissible for the SEC to impose financial penalties through administrative law judges,” added Hill.
The Court’s decision was based on the rationale that imposing a financial penalty without providing the employer with a jury trial violated the Seventh Amendment.
On the surface, transferring an employee to a lateral position with similar pay and benefits may seem harmless. However, in Muldrow v. City of St. Louis, it was determined that it may be a violation of Title VII and, therefore, discriminatory.
E.M.D Sales, Inc. v Carrera could have significant implications, as it involves the burden of proof employers must satisfy to apply for Fair Labor Standards Act exemptions. “The Court has been hearing oral arguments on this very recently, so it’s an evolving issue,” said Hill.
Whether a former employee can sue over discrimination related to post-employment benefits under the ADA is currently being challenged in Stanley v. City of Sanford, Florida. “A few of these cases will be decided fairly soon, and we are closely monitoring them, so feel free to connect with us for article updates or let us know if you have any questions,” concluded Hill.
Election Recap and Session Preview
“The good news is there will be no more political ads, texts, or calls next year,” joked Trafton Dinwiddie, a government relations advisor who focuses on state lobbying in North Carolina. The elections are over, and Dinwiddie noted that Attorney General (AG) Josh Stein won the governor seat by a historic margin.
Congressman Jeff Jackson, also by a significant margin, took the AG spot for 2025. Lieutenant Governor-elect Rachel Hunt, daughter of North Carolina’s longest-serving Governor Jim Hunt, will lead the North Carolina Senate. The Republicans are maintaining their supermajority in 2025, and no major changes in the leadership are expected.
Insurance Commissioner Mike Causey won re-election; Attorney Luke Farley will be the new Secretary of Labor, and Elaine Marshall was re-elected as Secretary of State.
“The auditor race was interesting since neither of the two candidates had ever run for office,” noted Dinwiddie. “Also, with the passage of Senate Bill 382 just two days ago, the auditor will now be the head of the state board of elections, which is unprecedented in North Carolina.”
In a race that garnered significant media attention, Mo Green won the North Carolina Superintendent of Public Instruction position. The department has many outward-facing roles, and Green will work with a supermajority in the NC Senate. The NC House is one seat away from a supermajority.
Dinwiddie expects a similar dynamic between the House, Senate, and Governor’s Office next year, as AG Stein traveled the same path to leadership as Governor Cooper.
Both parties have indicated an interest in tightening the state budget. The smart money is that this will amount to a pursuit of new revenue sources, with a renewed interest in allowing between three and five casinos across the state.
Relief funds for the victims of Hurricane Helene are at the top of my mind. “The senate just passed another relief bill for $227 million, bringing the total to over $1 billion, but the need is unimaginable. Some estimates place the total between $40 and $50 billion,” said Dinwiddie.
Before the congressional session is over, Dinwiddie believes that $25 to $30 billion will be allocated to North Carolina for water and road infrastructure, housing, business, and economic losses. “Interstate 40 is still closed, but it could open up soon to slow down traffic,” added Dinwiddie.
In a recent update, President Biden said the government would cover 90 percent of the funds in the categories of Public Assistance, Hazard Mitigation, and Other Needs Assistance. Usually, the government only reimburses around 75 percent of these costs, so it’s being viewed as a win for recovery efforts.
Non-Competes, Overtime Pay for White Collar Employees, and the NLRB
Emily Massey, a labor and employment attorney, outlined three topics that have made employers shift their favorites and reassess the strategic odds of sweeping employment law changes in 2025. “One is the ban on noncompete agreements has effectively been…banned,” laughed Massey.
The Federal Trade Commission (FTC) issued a proposal in April that would have prohibited the use of most noncompete agreements. In a nationwide injunction, a district court in Texas blocked the proposal.
“The reasoning was the rule was overly broad, so the FTC had to fold and go home. They are appealing, but it’s doubtful the appeal will go anywhere,” added Massey.
With the Trump administration in power, it is a safe bet the economic landscape in 2025 will be more business-friendly. “The FTC upped the ante when it comes to non-competition agreements; however, it simply raised awareness among employees and executives, who may be much less likely to sign them,” noted Massey.
A key takeaway is to review existing noncompete and nonsolicitation agreements. Ensuring these agreements are narrowly tailored, reasonable, and fair can help make them enforceable.
“This varies state by state, and notably, we’ve seen both red states and blue states pass laws aimed at limiting the enforcement of non-competes,” Massey commented.
Another potential game changer is the modification of white-collar exemptions for overtime pay. Under the Trump administration, the baseline for companies to avoid paying overtime to salaried exempt employees was increased to $684/week in 2020.
A rule under the Biden administration increased the threshold to $844/per week in July of 2024. It was set to increase to $1,128/per week on January 1, 2025, but Judge Sean Jordan of the US District Court for the Eastern District of Texas vacated the entire 2024 rule from the US Department of Labor.
Accordingly, the base salary test reverted to $684/week, and though Massey believes an appeal is possible, it is unlikely to go through given the change in presidential administrations. “This is not a sure thing, however, because it was the first Trump administration that increased this basis,” said Massey, “so if your company raised salaries because of the rule that went into effect in July, you’re probably ahead of the game, because we do expect to see increases to account for inflation.”
Classifications related to independent contractors may also change. “The Biden administration effected a change to the definition of independent contractors versus employees. This will likely revert to the prior rule,” added Massey.
The National Labor Relations Board (NLRB) may become more business-friendly under the Trump administration. “The General Counsel of the NLRB has been very active over the past three to four years,” Massey explained. “She has issued some very controversial memoranda, so we think these will be rolled back, and she will be politely (or maybe not politely) removed from her duties.”
This is similar to the ripple effect that the FTC created regarding non-competes, as it’s possible that employees now have more awareness of their rights. “It could, therefore, be worthwhile to review what your company’s obligations are under the National Labor Relations Act, especially as it pertains to retaliating against employees for engaging in protected concerted activities,” concluded Massey. “And as always, we’re here to help if you need it.”
Corporate Transparency Act
Ed. Note: Since the In-House Counsel Seminar, the U. S. District Court for the Eastern District of Texas (Sherman District) issued a preliminary injunction against the Corporate Transparency Act. For more information, see this article.
Matthew Jones, a business attorney, shed light on the Corporate Transparency Act. “This was created to prevent fraud and money laundering by terrorists and other bad actors,” Jones explained.
The Act requires certain private domestic and foreign entities to file beneficial ownership information with the Federal Crimes Enforcement Network (FinCEN). There are twenty-three (23) exemptions; however, the most common exemptions include:
- Certain tax-exempt entities (i.e. public charities, private foundations, social welfare organizations, etc.);
- Large companies with over 20 employees and sales exceeding $5 million; and,
- Wholly owned subsidiaries of certain exempt entities.
It is important to note that the wholly owned subsidiary exemption does not include money-transmitting businesses, pooled investment vehicles, and entities assisting tax-exempt entities. Companies such as insurance providers, utility companies, and Commodity Exchange Act registered agencies are typically exempt, as these entities already operate in heavily regulated industries.
The Act applies to entities created by filing a document with the Secretary of State or a Native American tribe. A foreign company with operations in the US will also have to report ownership information.
Under the Act, a beneficial owner is an individual who (a) directly or indirectly exercises ‘substantial control’ over a reporting company; or (b) a person who directly or indirectly controls 25 percent or more of the ‘ownership interests’ of a reporting company.
The information to report to FinCEN includes the legal name, trade name, DBA, taxpayer ID, and street address. “This is ‘eyes only’ for the government, so there’s no need to worry about it,” noted Jones.
The fines are $500 for every day a violation continues. Criminal penalties can total up to $250,000 and/or five years imprisonment. If the behavior is deemed part of a pattern of criminal activities, the penalties could spiral up to $500,000 and/or 10 years imprisonment.
The good news is that inaccurate reports can be corrected without penalty as long as they are corrected within 90 days. Negligent violations are also not penalized.
“The takeaway with filing is to be proactive,” concluded Jones, “because who wants to give the federal government the option of prosecuting?”
This article is part of a series highlighting insights from our 2024 In-House Counsel Seminar. More insights are below.
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