The new year always ushers in new legal obligations and risks for Michigan businesses, and 2023 is no exception. Here are six legal issues—in some cases, new laws—that require businesses’ attention this year. As you’ll learn, certain new laws have already taken effect, which means time is of the essence to make sure you’re compliant. Please contact us if you require additional information or assistance.
- FTC Moves to Ban Noncompete Agreements
On January 6, 2023, the Federal Trade Commission (“FTC”) proposed a new rule that would prohibit employers from imposing noncompete agreements on their employees. This rule would impact over 30 million employees nationwide. The FTC is basing the rule on a preliminary finding that noncompetes constitute an unfair method of competition and a violation of the Federal Trade Commission Act.
Some states already prohibit noncompetes (California and Oklahoma), and other states have banned using them in connection with low-wage workers. In Michigan, they are generally enforceable as long as they are reasonable in scope and duration. This rule would change that.
The rule has a sixty-day comment period, and will likely be challenged as to whether it is within the FTC’s power to regulate.
- Data Privacy
Data privacy is increasingly becoming a concern for legislatures throughout the country, with new data privacy protection laws being adopted in states such as California, Colorado, Connecticut, Utah and Virginia. These laws impact not only businesses who collect data from consumers, but also employers who store and in some cases share employee data.
Many people expect that Congress will pass a comprehensive federal data protection law in the years to come. In the meantime, Michigan businesses must grapple with a state-by-state rubric of laws, such as the California Privacy Rights Act, which went into effect this year, and may impact Michigan businesses who have operations, remote workers and/or customers in California.
The penalties for noncompliance with data privacy laws are steep, so make sure you understand your rights and responsibilities.
- Corporate Transparency Act
The Corporate Transparency Act (“CTA”) became law as part of the larger National Defense Authorization Act of 2021, pursuant to the Anti-Money Laundering Act of 2020. It’s a federal law requires certain business entities to report the “beneficial ownership” of an entity to the U.S. Department of the Treasury’s Financial Crimes Enforcement Network.
The Act is intended to deter activity such as money laundering, financing terrorism, and tax fraud, among other things. Failure to disclose the necessary information may subject businesses to significant civil and criminal penalties.
Unless an exception applies, a “reporting company” under the CTA is any company that is: (i) created by the filing of a document with a secretary of state or a similar office under the law of a state or Indian tribe, or (ii) is a foreign company registered to do business in the U.S.
Several types of entities are exempt from reporting requirements, including government entities, as well as certain financial institutions, certain nonprofits, and publicly traded companies. Entities that (i) employ 20 or more full-time employees in the United States; (ii) filed a federal income tax return showing more than $5 million in gross receipts or sales; and (iii) have an operating presence at a physical office within the United States are also exempt. These types of entities are exempt because they are, generally, already subject to state or federal supervision.
The reporting requirements for businesses under the CTA are complex, and the penalties for noncompliance are severe—failure to abide by reporting requirements could result in civil penalties of $500 per day up to $10,000, or 2 years or imprisonment. While the law doesn’t go into effect until January 1, 2024, businesses should use the next year to prepare for what’s to come.
- Minimum Wage Increase
On January 1, 2023, Michigan’s minimum wage increased from $9.87 to $10.10 per hour. Wages for tipped employees are also set to increase from $3.75 to $3.84 per hour.
However, Michigan employers should also be aware that the Michigan Court of Appeals may reinstate the original Improved Workforce Opportunity Wage Act (“IWOWA”) and Earned Sick Time Act (“ESTA”), which are currently the subject of litigation. There is a stay in place until February 19, 2023, which prevents the reinstatement of the IWOWA and ESTA.
If the stay is lifted and the IWOWA is reinstated, Michigan’s minimum wage will increase to $13.03 per hour for non-tipped workers and $11.73 per hour for tipped employees.
- “Speak Out Act” Takes Effect
The Speak Out Act is a federal law that took effect on December 7, 2022. It renders unenforceable non-disclosure and non-disparagement clauses related to allegations of sexual assault and/or sexual harassment and that are entered into “before the dispute arises.”
Under the new law, it’s likely that an employer can include enforceable non-disclosure and non-disparagement clauses in agreements resolving allegations of sexual harassment or assault, but can’t enforce blanket provisions included in agreements entered into before allegations arose.
Employers should review their current employee confidentiality agreements and revise them as necessary, keeping in mind that many state laws also limit what terms can be included in an NDA or similar agreements.
- Employee Classification
In October 2022, the U.S. Department of Labor (“DOL”) published a Notice of Proposed Rulemaking to revise the current guidance on how to determine whether an individual is an employee or an independent contractor under the Fair Labor Standards Act (“FLSA”). The proposal would rescind the current rule and implement the multi-factor, “totality of circumstances” analysis.
The DOL is expected to issue its final rule in 2023, which would impact businesses’ regulatory compliance when determining worker classification under the federal wage and hour law.
The broader issue for Michigan businesses to be aware of is that employee classification is not a straightforward issue. Federal agencies who promulgate regulations, courts, and state governments use different tests. They seem to be constantly evolving. And it’s important to know how to classify workers because misclassification can lead to fines, penalties and litigation.
It’s Time to Make Sure Your Business is Eliminating Legal Risks for 2023
The issues identified above are just a few of the things businesses should be aware of as we begin 2023. If you have any questions or require assistance with any of these or other issues, please contact Zana Tomich, co-founder of the law firm Dalton & Tomich.