UPDATE: On March 9, 2021, the U.S. House of Representatives voted to pass the Protecting the Right to Organize (PRO) Act.
When Biden took office on January 20, 2021, employers anticipated that we would see widespread changes in federal policy. As we near the halfway point of Biden’s first 100 days in office, we have a clearer idea of how the Biden administration may impact employers. While many potential changes are pending in Congress, the most notable ones are a result of the Protecting the Right to Organize Act (PRO Act). The PRO Act was passed by the House of Representatives during Trump’s administration, but efforts were stopped by the then Republican-majority Senate. Now, with a 50/50 Senate split and Biden and Harris both being vocal proponents of the PRO Act, it appears that passage is likely. We have also seen the revival of the Forced Arbitration Injustice Repeal Act (FAIR Act), which would eliminate mandatory arbitration agreements in several instances, including employment. Lastly, employees should be monitoring Biden’s $1.9 trillion stimulus package as it not only is intended to lead to increased consumer demand, but also may impact minimum wage requirements. Here’s a rundown of how this pending legislation may affect employers.
The Biden Administration has been forced to scrap the $15 minimum wage proposal as introduced in the $1.9 trillion stimulus package; however, other Democrats have announced their intent to revive the effort. Additionally, the House of Representatives reintroduced the Raise the Wage Act. As with Biden’s original stimulus plan, the Raise the Wage Act would raise the federal minimum wage to $15 per hour by 2025 and would eliminate the tip credit for employees who are paid at the tipped employee minimum wage. While support for the movement is growing, a minimum wage hike still faces many hurdles. Regardless, employers with wages below $15 may want to evaluate affected positions and prepare for likely increases to minimum wage, even if that minimum wage does not reach the proposed $15 mark.
Tax Hikes for Low Wages
Following the decision that Senate Democrats could not attach a minimum wage hike to the stimulus bill, a Plan B started to appear. Some Senators who support the wage hike said they would instead seek to impose tax penalties on large corporations that fail to pay at least $15 an hour. However, it appears that attempts to draft the bill have largely failed. One of the most cited reasons is that the tax hike would allow employers to classify employees as independent contractors in order to avoid the tax implications. While this has temporarily halted these efforts, large employers may want to seriously consider if and how this proposed tax would affect them if we see the implementation of a new Independent Contractor test, defined below.
Changes to the Paycheck Protection Program
In late February, the Biden Administration announced sweeping changes to the Paycheck Protection Program (PPP) intended to direct its benefits to America’s smallest employers. Businesses with more than 20 employees have been shut out of the program, which expires at the end of this month. The Biden administration has made no comment on whether it will seek to extend the program.
A vital component of the PRO Act takes aim at the traditional test for the Independent Contractor relationship. Under the PRO Act, Independent Contractors will be assessed under a three-prong test. Under this test, an individual must be considered an employee unless: “(A) the individual is free from control and direction in connection with the performance of the service, both under the contract for the performance of service and in fact; (B) the service is performed outside the usual course of the business of the employer; and (C) the individual is customarily engaged in an independently established trade, occupation, profession, or business of the same nature as that involved in the service performed.” All three elements must be true. The highest hurdle employers face appears to be prong B, which requires that the work performed be outside the usual course of business for the employer. Similar legislation was enacted in California in 2019, and pushback resulted in numerous exemptions being added in 2020. We can expect to see the same at the federal level. Regardless, employers should work with counsel to prepare for the heightened scrutiny and the potential impact it may have on any independent contractor relationships.
Mandatory Arbitration Agreements
Mandatory arbitration agreements are common practice for many employers. They are often intended to better insulate employers from costly class and collective actions by mandating that employees individually arbitration their claims. This was particularly helpful in preventing costly class and collective action wage and hour claims. While we have seen employers’ ability to use these agreements slowly decline when it comes to sexual harassment and discrimination claims, we may soon see a federal overhaul of all mandatory arbitration agreements. Both the PRO Act and the FAIR Act take aim at mandatory arbitration agreements and are pending in Congress. If mandatory arbitration agreements are common practice, you should work with counsel to discuss how this legislation may impact any agreements currently in place.
Embedded in the PRO Act is a proposed definition of joint employer. Under the PRO Act, joint employment exists where the employer “codetermines or shares control over the employee’s essential terms and conditions of employment.” While this may not appear facially to have much of an impact, such appearance is misleading. The proposed changes in conjunction with the new definition of employee created by redefining the independent contractor test necessitate a review of the use of any leased or temporary workers. The PRO Act makes it easier to prove a joint employment relationship. This not only creates additional traditional liability but also allows for easier unionization of larger groups or multiple worksites at once. One pressing example of where these changes could have a widespread impact is in the hospitality industry, where the PRO Act could be used to unionize employees at multiple locations connected by a franchisor-franchisee relationship.
Right to Work Laws
An essential cornerstone of Biden’s campaign was his stance as a pro-union candidate. Part of the PRO Act, which appears likely to pass, would invalidate right-to-work laws, which exist in more than half of the states. This means that states would no longer be able to ban the payment of mandatory union dues for employees. If your workforce is unionized or faces the threat of unionization, you should work with your counsel to discuss how changes may impact union efforts in your workplace.
The PRO Act also contains several revisions that would give unions more strength in their efforts to unionize workforces. Unions would have better access to employees as they would be allowed to utilize employer email systems as a means of organizing communication and employers would be required to provide employees’ personal contact information (home address, home phone number, personal cell phone, and personal email address) to union organizers in advance of any election. The PRO Act also revives Obama-era “quickie elections”. Additionally, the proposed legislation denies employers’ right to opine on which employees should be eligible to vote, what unit is appropriate for bargaining, where and how the ballots will be counted, and many other issues associated with union elections. The PRO Act also impacts which employees are viewed as supervisors, which would restrict the employer’s ability to categorize these employees as management. Now, more than ever, if your workplace faces the threat of unionization, it is important that you work with counsel to understand how these changes may impact your ability to prevent unionization and communicate with your employees regarding these related issues. Burr & Forman boasts one of the nation’s strongest labor teams. For more information about how the PRO Act may impact your operations, please contact firstname.lastname@example.org.
The PRO Act would also remove the employer’s right to “permanently replace” employees who go on strike in support of their union. Under current law, employers who face employee strikes are generally able to replace employees in order to maintain business operations. However, this right will be removed and give employees a new lethal tool in their collective bargaining negotiation toolkit. The PRO Act will also allow intermittent, partial, and other types of “wildcat” strikes essentially allowing employees to “stop work” in order to demand contract terms such as higher wages or increased benefits. For more information about how the Pro-Act may impact your ability to respond to employee strikes, please contact email@example.com.
To discuss further, please contact Nafela Hojeij Helou at firstname.lastname@example.org or (404) 685-4326. You can find episodes of Burr’s Labor & Employment Podcast Series here. Check back soon for the episode released on this topic.