Seyfarth Synopsis: With the installation of a new administration in 2021, employers saw almost immediate shifts in administrative priorities. Over the past year, the Biden Administration rolled out changes on several fronts that took shape through executive orders, legislative efforts, and agency actions. Contrary to the pro-business approach of the Trump Administration, the Biden Administration aimed for many of these changes to expand the rights, remedies, and procedural avenues available to workers. As a result, many of these changes are likely to have a cascading impact on the workplace class action landscape in several areas, as they encourage entry into the area and render potential recoveries more lucrative.
The Biden DOL, in particular, withdrew or rescinded multiple Trump-era rules often implicated in workplace class actions, including the tip credit, joint employer, and independent contractor rules promulgated by the Trump DOL. In passing the rules, the Trump DOL sought to clarify and narrow legal standards in these areas and, as a result, to bring predictability to companies struggling to comply with arguably imprecise rules open to inconsistent interpretation and application by courts. In undoing these rules, the Biden Administration has rescinded them and, in some instances, has taken steps to replace them with broader, more demanding standards that are more likely to inspire class-wide challenges.
As to the tip credit, for instance, Section 3(m) of the FLSA permits an employer to take a tip credit toward its minimum wage obligation for tipped employees. The so-called “80/20 Rule,” however, which first appeared in a DOL Field Operations Handbook in 1988, purported to require employers to pay the full minimum wage for any time spent performing non-tip-producing tasks that exceeded 20% of the workweek. Courts applied this guidance, forcing employers to separate tasks into buckets of “tip-producing” duties, “related” duties, and “unrelated” duties, with little direction as which activities fell into which bucket. This uncertainty led to waves of litigation that plagued the restaurant industry, in particular, over the past decade.
In November 2018, the Trump DOL issued an opinion letter wherein it withdrew the 80/20 Rule and, in February 2019, it amended the DOL Field Operations Handbook to replace the 20% limitation with a “reasonable time” standard, noting that “an employer of an employee who has significant non-tip related duties which are inextricably intertwined with their tipped duties should not be forced to account for the time that employee spends doing those intertwined duties.” In December 2020, the Trump DOL issued the Tip Regulations Final Rule.
In early 2021, however, the Biden DOL twice delayed the effective date of the Final Rule. Then, on October 23, 2021, the Biden DOL withdrew the Trump-era rule and introduced its own rule. In addition to resurrecting the 80/20 Rule, the Biden DOL limited the tip credit to non-tip-producing work that directly supports tip-producing work and does not exceed “a continuous period” of 30 minutes. The new DOL tipped-employee rule, which went into effect on December 31, 2021, is apt to refuel workplace litigation in this area, particularly as the hospitality industry struggles with challenges posed by tracking activities and task times.
The Trump-era joint employer and independent contractor rules met a similar fate. Effective March 16, 2020, the Trump DOL issued a new rule for determining when two or more distinct employers could be deemed to jointly employ a worker. The rule set forth a four-factor balancing test that considered whether the business: (1) hires or fires the employee; (2) supervises and controls the employee’s work schedule or conditions of employment to a substantial degree; (3) determines the employee’s rate and method of payment; and (4) maintains the employee’s employment records. 29 C.F.R. § 791.2(a)(1). The rule provided employers more clarity and arguably narrowed the circumstances under which they could be deemed joint employers for wage & hour purposes. Following the effective date, the U.S. District Court for the Southern District of New York, however, opined that portions of the rule violated the Administrative Procedure Act (“APA”). The appeal from that opinion remained pending when, on July 29, 2021, the Biden DOL announced that it would rescind the Trump DOL rule effective September 28, 2021, leaving courts to revert to their pre-Trump-Rule frameworks, which implement a variety of multi-factor tests in interpreting joint employer status.
Effective January 6, 2021, the Trump DOL adopted an Independent Contractor Rule that addressed the circumstances under which a worker qualified as an independent contractor. The Rule consisted of two main factors – the level of control the individual has over his or her own work and the opportunity for profit or loss due to his or her own personal investment – and provided that, if the analysis of the two main factors proved indeterminate regarding independent contractor status, companies should weigh three guiding factors, including the level of skill of the role involved, the permanence of the working relationship, and how the role in question relates to the company’s overall business operation. Overall, the Independent Contractor Rule arguably ran counter to the trend discouraging the use of independent contractors and made it easier for companies, including gig economy businesses, to utilize such arrangements. After staying enforcement of the Rule, on May 5, 2021, the Biden DOL withdrew the Independent Contractor Rule, again leaving courts to revert to their varying pre-Trump-Rule frameworks for deciding independent contractor status.
The changing tide brought by the Biden Administration reached outside the wage & hour space and into other areas likely to impact workplace class action litigation. While the DOL acted swiftly to reverse course on many fronts with the change of administrations, the EEOC continued to operate over parts of the past year with a Trump-appointed majority and, as a result, had limited latitude to pivot. President Biden quickly named two Democrats for the five-member Commission, Charlotte E. Burrows and Jocelyn Samuels, as Chair and Vice Chair, respectively. Although the Chair positions shifted with President Biden’s inauguration, however, the Commission retained a Republican-appointed majority. As a result, the major policy changes that many expected to materialize with the Biden Administration may have to wait through July 1, 2022, when former chair Janel Dhillon’s term expires, opening the door to a Democratic-appointed majority.
Major policy shifts on the employment discrimination front manifested in large part through other avenues. Upon taking office, President Biden issued Executive Order 13988, “Executive Order on Preventing and Combating Discrimination on the Basis of Gender Identity or Sexual Orientation,” the fourth Executive Order he signed on January 20, 2021. The order directed all federal agencies to review all policies that implement non-discrimination protections on the basis of sex ordered by Title VII and similar laws and to extend those protections to the categories of sexual orientation and gender identity. President Biden likewise promptly entered Executive Order 13985, “Executive Order on Advancing Racial Equity and Support for Underserved Communities Through the Federal Government” – that revoked President Trump’s Executive Order 13950, “Combating Race and Sex Stereotyping” that directed the head of each agency to ensure that agency employees did not teach, advocate, or promote in training a series of “divisive concepts” such as that one race or sex is inherently superior to another or that the United States is fundamentally racist or sexist – and replaced the directive with one requiring each agency to assess whether, and to what extent, its programs and policies perpetuate systemic barriers to opportunities and benefits for people of color and other underserved groups.
Despite these shifting policy pronouncements from the White House, the EEOC stayed largely on track as compared to the preceding year. During 2020 employers saw significant shifts in the EEOC’s enforcement agenda, including a notable shift away from litigation as a one-size-fits-all tool for combatting workplace discrimination. As the EEOC’s enforcement agenda shifted, employers experienced a marked decrease in federal complaints and a marked increase in settlements as the EEOC sought to wind down its litigation docket.
The EEOC filed a similar number of lawsuits in FY 2021 as compared to FY 2020. The EEOC filed 114 total cases in FY 2021, which included 111 merits lawsuits and 3 subpoena enforcement actions. This total number of filings landed only slightly higher than the FY 2020 total of 101 lawsuits. These totals remain substantially lower than the preceding years, where employers saw 149 filings in FY 2019, 217 filings in FY 2018, 202 filings in FY 2017, and 136 filings in FY 2016. The agency’s systemic filings over the past year followed a similar trajectory. For instance, after more than doubling its inventory of systemic filings between FY 2016 and FY 2018 (with 18 in FY 2016, 30 in FY 2017, and 37 in FY 2018), the EEOC’s systemic filings dropped to 17 in FY 2019, 13 in FY 2020, and 13 in FY 2021.
The following graphic reflects this trend.
In terms of the types of cases filed, when considered on a percentage basis, the types of cases filed in 2021 did not reflect any dramatic shift in strategic priorities. When considered on a percentage basis, the distribution of cases filed by statute remained roughly consistent compared to FY 2020 and FY 2019. Title VII cases once again made up the majority of cases filed, making up 62% of all filings (on par with the 60% in FY 2020 and 60% in FY 2019). ADA cases made up a significant percentage of the EEOC’s filings, totaling 36% in FY 2021, a moderate uptick from 30% in FY 2020. The EEOC filed only one age discrimination case in FY 2021, down seven from FY 2020.
On November 16, 2021, the EEOC released its Agency Financial Report (“AFR”) for Fiscal Year 2021. The AFR is a data compilation regarding the EEOC’s financial health, initiatives, and guiding principles. The FY 2021 edition marked the third version of the publication, following the release of the inaugural AFR in FY 2019. As outlined in the AFR, while lawsuit filings increased slightly in 2021, especially toward the end of the fiscal year in September, the EEOC’s overall monetary recoveries dropped by $51 million, from a record-setting $534.4 million in FY 2020 to approximately $484 million in FY 2021. The FY 2021 number more closely resembled the $486 million recovered in FY 2019, as compared to $505 million in FY 2018 and $484 million in FY 2017.
The amount that the EEOC recovered through mediations, conciliations, and settlements increased from $333.2 million in FY 2020 to approximately $350.7 million in FY 2021, nearly reaching the $354 million recovered in FY 2019. The EEOC announced that it recovered the $350.7 million in FY 2021 on behalf of 11,067 alleged victims of employment discrimination in the private sector and state and local governments. The EEOC also announced that it recovered more than $100 million on behalf of 2,169 federal employees and applicants. On the litigation front, the EEOC reported recovering $34 million for 1,920 individuals as a direct result of litigation resolutions, a sharp decline from the $106 million total in FY 2020 and $39.1 million in FY 2019.
With the pandemic lingering into FY 2021, the EEOC reported a commitment to Alternative Dispute Resolution (“ADR”) programs, including virtual mediation and conciliation proceedings. According to the AFR, in FY 2021, the EEOC successfully resolved 41.1% of its conciliations (51.7% of those included claims that implicated one or more of the EEOC’s Strategic Enforcement Plan priority areas). The EEOC conducted 6,644 private sector mediations, resulting in $176.6 million in benefits to charging parties. This represents a material increase from the $156.6 million recovered in mediations during FY 2020.
Despite the reported commitment to effective conciliation proceedings, and the increase in recoveries from mediations, conciliations, and settlements in FY 2021, on June 30, 2021, President Biden signed a joint resolution narrowly passed by Congress to repeal a Trump-era rule that increased the EEOC’s information sharing during the conciliation process. On October 9, 2020, the Commission published a Notice of Proposed Rulemaking outlining proposed revisions designed to update its conciliation procedures, which it had not changed significantly since 1977. In its announcement, the EEOC acknowledged that, historically, it elected not to adopt detailed regulations relative to its conciliation efforts based on its belief that retaining flexibility over the conciliation process would “more effectively accomplish its goal of preventing and remediating employment discrimination.”6 Although the Commission stressed the importance of maintaining a flexible approach to conciliation, it acknowledged that, over the preceding several years, its conciliation efforts resolved less than half of the charges where it had made a reasonable cause finding. Specifically, between fiscal years 2016 and 2019, only 41.23% of the EEOC’s conciliations with employers were successful.7 (As noted above, in FY 2021, the EEOC successfully resolved 41.1% of its conciliations.)
On January 14, 2021, the EEOC published a final rule that, among other things, would have required the EEOC to provide an employer with a written summary of the known facts that formed the basis of the allegations, to identify known aggrieved individuals or known groups of aggrieved individuals for whom it sought relief unless such individuals requested anonymity, and to supply the calculations underlying any initial conciliation proposal for monetary relief. The White House criticized the procedures as “onerous and rigid,” and, on July 1, 2021, President Biden signed a joint resolution passed by Congress to repeal the EEOC’s final rule that would have overhauled the agency’s prelitigation settlement process.
In sum, whereas employers saw an array of business-friendly rules promulgated by the Trump Administration, the Biden Administration brought changes to these rules that are likely to continue through 2022. Employers can expect continuing shifts and realignments of rulemaking and enforcement priorities that are likely to fuel and shape the contours of workplace class action litigation in the coming year.