Sexual discrimination and harassment claims continue to dominate the types of discrimination investigated and litigated by the Equal Employment Opportunity Commission (EEOC). Retaliation is currently the most-often filed allegation with the EEOC, and employees commonly include separate claims for retaliation in discrimination lawsuits. See the discussion in 5.3 Discrimination, Harassment and Retaliation Issues. 

In December 2022, Congress and the president limited employers’ ability to secure confidentiality in the resolution of sexual assault and sexual discrimination claims in the workplace. The Speak Out Act now renders unenforceable pre-dispute non-disclosure and non-disparagement agreements associated with sexual assault disputes or sexual harassment disputes. 

Employers operating in Michigan continue on the trend of enhancing social justice, diversity and inclusion, public health (including COVID-19) and climate consciousness in their policies and environmental, social and corporate governance (ESG) initiatives. However, employers are facing increased risk of litigation and shareholder activism by organizations challenging the constitutionality of these workplace initiatives and practices. Some employers are revisiting their ESG initiatives to balance their objectives against the risk of apparent “quotas” and employment claims.

While Michigan is experiencing an uptick in First Amendment litigation filed on behalf of middle school and college students, private employers generally retain the ability to regulate or prohibit political speech by their employees through civility and other behavioral policies. Exceptions include speech specifically protected by applicable law, such as union organization or opposing discrimination in the workplace.

Michigan continues to promote public policies impacting workplace expression, including an executive order by Michigan’s governor mandating implicit bias training for all healthcare workers and state employees.

Among the most common employee claims triggered by widespread layoffs in the recession are claims for discrimination. Displaced employees challenge an employer’s selection of individuals for layoff, or the restructuring of the workplace to eliminate positions held by employees of a given protected population. Among the most common claims are those for age discrimination, which can be triggered by employers eliminating highest paid positions, failing to include Older Worker Benefit and Protection Act notices, or offering older workers severance agreement waivers that are not compliant with the Age Discrimination in Employment Act. Michigan courts give deference to selection decisions if they are supported by a documented record establishing the reasonable business-related basis for them. Failing to document selection criteria and processes increases the risk of claims.

As expected, the Biden National Labor Relations Board (NLRB) has been aggressive in its efforts to foster support for unions, both in its decisions during the past year and its rule-making initiatives.

Significant Changes

Bargaining units, protected concerted activity rights, independent contractor status

First, the NLRB overturned the Trump Board’s decision on the appropriateness of bargaining units, returning to the standard set forth by the Obama NLRB in Specialty Healthcare, which allow for “micro” bargaining units. This decision allows unions to cherry-pick small pockets of employees who may support them and then get their foot in the door of an employer by filing a petition to represent only those employees. The NLRB has also issued decisions overruling two other Trump NLRB decisions, returning to Obama era standards that protect the rights of contractors’ employees to engage in protected concerted activity on the premises of a third-party employer and to narrow the definition of independent contractor status. 

Compensation and additional remedies

The NLRB also expanded the remedies available to victims of unfair labor practice charges, ruling that such individuals must be compensated with all consequential damages, that is, all costs and expenses that “are a direct and foreseeable result” of the unlawful action. Such consequential damages may include out-of-pocket medical expenses, credit card debt, late penalties and penalties for early 401k withdrawals or other significant financial costs that were incurred as a result of the unlawful conduct. In addition, the NLRB also decided that repeated and egregious misconduct warrants additional remedies and cataloged the additional remedies that may be issued in such cases, including, among other things, requiring a reading of an explanation to employees, publicizing the notice in local publications, requiring that a notice posting be posted for longer than the required 60-day period, reimbursement of a union’s bargaining expenses or paying the lost wages of employees who attended bargaining sessions. The NLRB also decided a number of alleged “bad faith” bargaining cases where it ordered employers to bargain with unions pursuant to strict schedules and/or to submit timely and frequent progress reports on such bargaining to the NLRB.

Confidentiality and non-disparagement clauses, work rules

The NLRB also issued a number of decisions on matters commonly used by employers to manage their relationships with their employees, even when such employees are unrepresented. First, in McLaren Macomb, the NLRB found that broad confidentiality and non-disparagement clauses contained in severance agreements are unlawful in that they restrict employees’ rights to engage in protected concerted activity, that is, to discuss their wages, hours and working conditions under their former employer with others. While the NLRB has not ruled on the lawfulness of non-compete clauses, the NLRB General Counsel has stated that such are unlawful in most cases because they interfere with employees’ rights to act together to protest or change their working conditions. The NLRB also adopted a new legal standard for evaluating the lawfulness of employer work rules in both union-represented and non-represented workplaces, overruling the Trump NLRB’s 2017 decision in Boeing Co. Under the NLRB’s new standard, work rules will be deemed unlawful if an employee could reasonably interpret the rule as having a coercive meaning or as limiting the exercise of their rights under the National Labor Relations Act (NLRA). Once such is determined, the work rule can only be saved if an employer can prove that the rule advances a legitimate and substantial business interest and that the employer cannot protect this interest with a more narrowly tailored rule. In light of these decisions, employers are urged to review their handbooks, severance agreements and non-compete clauses to ensure that such are narrowly crafted to protect the employer’s legitimate business interests without interfering with employees’ rights under the Act.

“Quickie” elections and union recognition

At the end of August, 2023, the NLRB reinstated its “quickie” election regulations originally promulgated under President Obama that accelerate the union election timetable. Under the “quickie” election regulations, the average union election was generally held 24–25 days after a union representation petition was filed. Most of these accelerated timetables were rescinded or lengthened by the NLRB under former President Trump. As a result, the timetable for most union elections over the past few years has been six to seven weeks after a union representation petition is filed. With the “quickie” election timetables reinstated, most union elections are likely to be held approximately 24 days after a union representation petition is filed.

As the timeframe for responding to a union representation petition will be significantly shorter, this places a premium on quickly identifying issues and effectively communicating with employees, but the employer community has shown this can be done in the shorter time period.

Also at the end of August, the NLRB significantly altered the union representation process with its decision in Cemex Construction Materials. Based on that decision, the onus will be on the employer to essentially “challenge” the union’s majority status through the representation process and there are some landmines if the employer violates the Act during the ensuing union campaign. In a nutshell, under Cemex, an employer violates Section 8(a)(5) (bargaining in bad faith) of the NLRA by refusing to recognize, upon request, a union that has been designated as a Section 9(a) representative by the majority of employees in an appropriate unit, unless the employer promptly files what is called an RM petition seeking an election to test the union’s majority status or the appropriateness of the unit. The union’s majority status is typically demonstrated simply by having a majority of employees sign union authorization cards.

Thus, an employer confronted with a demand for recognition based on union authorization cards signed by a majority of employees must promptly file an RM petition to test the union’s majority support and/or challenge the appropriateness of the unit, or it may await the processing of a petition previously filed by the union. If an RM petition is not filed (and assuming the union doesn’t file an RC petition) and the union does have majority support (as reflected by signed authorization cards), the employer will be found to have violated federal labor law. 

In addition, if the employer commits an unfair labor practice that requires setting aside the election, the petition (whether filed by the employer or the union) will be dismissed, and the employer will be subject to a remedial bargaining order. This is a major change – a re-run election will not be ordered and the employer will simply be ordered to bargain with the union (assuming the union can demonstrate that it has majority support via signed authorization cards).

In addition, if the employer makes unilateral changes while the election is pending, and then loses the election, the NLRB will find the employer violated Section 8(a)(5) by making those changes without bargaining with the union – because the employer failed to bargain with the union when the latter had majority status.

Two big takeaways for employers are: 

• more than ever, early detection of card signing and countering union messaging in that regard is critical; and
• given the impact of potential unlawful conduct by managers or supervisors (ie, a bargaining order recognizing the union), it is more important than ever to make sure site management and frontline supervisors know the “rules of the road” regarding what they can and cannot do and say during a union election campaign.

The Cemex decision also creates a potential trap for smaller employers, without significant HR or legal support, if they delay requesting an RM election, or if their management team, perhaps unknowingly, violates the NLRA in communicating with employees about the union organizing efforts, or takes adverse action against employees. Instead of a re-run election due to violations of the NLRA, the NLRB is probably going to order that the employer recognize and bargain with the union (if the union has authorization cards signed by a majority of the employees).

Record Union Election Figures

Unions continue to successfully organize employees. According to Bloomberg Law, unions won 80% of the 827 representation elections held in the first six months of 2023, up from 77.1% of the 847 elections held in the same period in 2022. Bloomberg reported that this is the first time that the unions have broken the 80% barrier since at least 1990, when the organization began its reporting. Because of these election victories, unions have organized 58,500 new employees in the first half of 2023, 15,000 more employees than in the same period in 2022. In addition, many of these elections involved large bargaining units, with elections involving over 500 members rising 58% as compared to 2022. Many of these newly organized employees are graduate students and medical interns who elected representation by the Service Employees International Union in 2023. 

Healthcare Workers

On the medical front, healthcare workers in almost all job classifications appear to have turned to unions over complaints that they were forced to work too many hours, in unsafe conditions, for too little pay during the pandemic. And, as healthcare organizations have suffered severe financial losses as a result of the impact of the pandemic and have been forced to become more efficient in patient care service delivery and/or consolidate or cut services, healthcare employees are complaining that they are now being expected to work with even less to do more. Furthermore, healthcare professionals also appear to be turning to the unions in the hope that they can address the loss of autonomy they are experiencing in the post-pandemic mergers of numerous healthcare organizations. To prevent their employees from turning to the unions, healthcare organizations will need to communicate necessary organizational changes to their employees and seek input on such changes before implementing them, if possible. They will also have to maintain competitive wages and benefits to attract and retain individuals, especially as there continues to be a shortage of healthcare workers, caused by the thousands of individuals who permanently left the healthcare field during the pandemic.

Record Wage Increases

Not only have the unions been successful in organizing large numbers of new employees, they have also been successful at the bargaining table. For the first quarter of 2023, first-year increases in union contracts averaged 7%, the highest wage increases secured by unions in over 30 years. This was up from the 5.7% average first-year increases secured by the unions in 2023, which had been reported as the highest yearly average since 1990. However, the unions did not secure these increases quickly or without significant effort. Bloomberg reported in 2022 that the average time it was taking unions to reach first contracts with employers had increased to 465 days. Furthermore, as the unions struck in 2022 in increasingly greater numbers, with strikes up 52% in 2022 and involving 120,600 workers, it is clear that the unions did not win these wage rates without a fight. In light of this environment, employers who seek to remain union-free will need to ensure their annual wage increases and benefit offerings are competitive with what union-represented employees are winning through collective bargaining. At the same time, such employers will need to spend a substantial amount of time educating their employees about the collective bargaining process, as well as explaining the risks of collective bargaining and strikes, the lengthy timetable such can entail, and the lack of a guarantee of success from the process.

It is important that the parties agree on the terms and conditions at the outset of their relationship, and ensure that the agreement reached is consistent with applicable law.

At-Will Employment and Exceptions

The default service relationship in the US is that of employer and employee. Most states, including Michigan, are “at-will” employment jurisdictions, meaning either party (the employer or the employee) can terminate the relationship at any time and without having to provide a reason – provided, of course, that the termination decision is not otherwise prohibited by law (ie, due to discrimination or retaliation). Although Michigan is an employment-at-will jurisdiction, an employer can forfeit its at-will right to terminate an employee by promising employment for a fixed period or stating (including verbally) that employment will only be terminated under certain circumstances, such as for “good cause or reason”. Thus, any employer not taking the time to confirm their at-will employment relationship, in writing, risks litigation over whether a higher standard might apply (eg, an agreement to terminate only for cause).

An additional exception to the prevailing at-will employment status is termination of employment for reasons against public policy; namely for exercising a right conferred by well-established legislative enactment and for failing or refusing to violate the law. A carefully drafted disclaimer can help avoid these pitfalls.

Employment Documents

Employees may also have contracts specifying the terms and conditions of their employment. Such contracts are not required in the United States, but may be warranted depending on the type of employee in question (eg, an executive). Barring a formal written contract, terms defining the relationship are typically relegated to documents such as offer letters, job descriptions, employment policies, or employment handbooks. In fact, these terms can even go so far as to reserve the sole authority to determine whether just cause for terminating employment exists. However, even if an employer defaults to the presumptive at-will employment status, individual employment agreements often address confidentiality and intellectual property, plus non-compete and non-solicitation covenants that are enforceable if reasonable in scope and duration – see 5.1 Restrictive Covenants.

Joint Employment

Joint employment is not the norm and applies only in limited circumstances, usually in a legal proceeding as a mechanism by which an employee attempts to recover damages against a third party. For a third party to be joint employer with another employer, the third party must have exerted significant control over the employee. Factors to consider in determining joint-employer status are:

• supervision of the employee’s day-to-day activities;
• authority to hire or fire the employee;
• promulgation of work rules and conditions of employment;
• issuance of work assignments; and
• issuance of operating instructions.

Independent Contractor Status

The importance of control in a relationship extends to the determination of whether a worker is an independent contractor versus an employee. Contracting is very popular in the US; the number of contractors as a percentage of the workforce has doubled since the 1990s (see GAO-15-168R Contingent Workforce). As contracting has grown in popularity, it has attracted more scrutiny from the courts, lawmakers and administrative agencies. Accordingly, simply describing a worker as an “independent contractor” is not sufficient. The law in this area is rapidly evolving and there are no rigid rules for determining whether a person is an independent contractor.

Most of the enforcement activity is at the federal level. The US government will seek unpaid income taxes, unemployment taxes, and overtime, as examples. Misclassified independent contractors can also seek benefits (health insurance and retirement) under the federal Employee Retirement Income Security Act. The federal government generally applies a common-law control test, exemplified by the six factors used by the Department of Labor (DOL):

• the degree of control that the putative employer has over the manner in which work is performed;
• the worker’s opportunities for profit or loss dependent on this managerial skill;
• the worker’s investment in equipment or material, or their employment of other workers;
• the degree of skill required for the work;
• the permanence of the working relationship; and
• the degree to which the services rendered are an integral part of the putative employer’s business.

At the state level, potential misclassification liabilities include income tax, unemployment and workers’ compensation. In Michigan, an “economic reality test” has traditionally been applied to determine if an employer/employee or an independent contractor relationship exists. That test focuses primarily on whether the work performed is an integral part of the employer’s business and if the compensation from the employer is the primary income source. Recently, the Michigan unemployment agency adopted the US Internal Revenue Service 20-factor test.

Michigan legislators have proposed the adoption of the California “ABC” test for determining independent contractor status, which requires all three of the following conditions to be satisfied in order for the worker to have independent contractor status:

• the worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact;
• the worker performs work that is outside the usual course of the hiring entity’s business; and
• the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.

This test makes it more difficult for employers to prove that those doing work for them satisfy the independent contractor requirements, and if adopted by the federal DOL, this test could soon be adopted by Michigan’s administrative agencies.

Businesses and workers are often complicit in the objective to characterize the worker as a non-employee independent contractor, as both parties save money. However, governments lose a lot of revenue and are therefore critically examining these relationships. Also, if the relationship sours or the worker is injured while working, the worker will often seek employment-related benefits, such as workers’ compensation or unemployment, and the business will have no insurance coverage in place to manage the risk for independent contractors. Best practice, at a minimum, is to be conservative in characterizing workers as independent contractors and to make sure appropriate insurance coverage is in place for non-employee independent contractors.

Unpaid Internships

Unpaid internships have been the subject of considerable scrutiny in the past few years, notably from the standpoint of whether private businesses can rely on unpaid interns. The US Department of Labor’s Wage and Hour Division has developed a test for evaluating whether an individual constitutes a “trainee” (intern) for the purposes of the Fair Labor Standards Act (FLSA) and does not require to be paid. See Fact Sheet #71: Internship Programs Under The Fair Labor Standards Act.

Michigan does not have other enforcement guidance.

Corporate Structure and Relationships

Employers are finding it increasingly difficult to sponsor foreign nationals for employment in the US. Increased scrutiny by US Citizenship and Immigration Services (USCIS) and the US Department of State (DOS) has resulted in lengthy delays in the adjudication process and greater rates of visa denials. Many local USCIS field offices have lengthy processing times due to staffing issues and a backlog. While the processing of immigration benefits by USCIS has recently improved, lengthy delays are still common. In addition, many US embassies and consulates have significant backlogs for appointments to seek visas for entry into the US.

Visa Requirements

Employers often consider the H-1B and L visas when sponsoring foreign nationals for employment in the US. However, due to increased scrutiny and changes in the immigration processes for the above visa classifications, employers may also wish to consider the H-1B1, E, and TN visas in addition to the H-1B and L.

H-1B visa

The H-1B visa is generally reserved for specialty occupations – positions requiring the theoretical and practical application of a body of highly specialized knowledge and which require the attainment of a bachelor’s degree or higher in a specific specialty or its equivalent, as a minimum for entry into the US. New H-1B petitions are sometimes subject to an annual lottery due to high demand and USCIS has conducted a lottery in recent years. In 2020, the lottery underwent a significant processing change that resulted in the implementation of an additional fee for employers. This classification has experienced increased scrutiny in recent years, resulting in lengthy processing delays and increased rates of denial.

L visa

The L visa is generally reserved for international companies seeking to transfer executives, managers or specialized workers to the US. Like the H-1B visa, the L visa has experienced heightened scrutiny, resulting in lengthy processing delays and increased rates of denial. In addition, a change in the immigration process for renewals has added to the length of time required for a renewal and increased costs. Due to the challenges of securing visa sponsorship for foreign national employees through H-1B or L visa classifications, employers are exploring alternatives to include the H-1B1, E and TN visa classifications.

H-1B1 visa

The H-1B1 visa is reserved for citizens of Chile and Singapore. Like the H-1B visa, the H-1B1 is generally restricted to specialty occupations. Similar in many respects to the H-1B visa, the H-1B1 is attractive to many employers due to the relative ease and reliability of the H-1B1 sponsorship process. This visa classification is generally a more reliable and faster option than the H-1B visa.

E visa

Another option for sponsorship of foreign national employees is the E visa. The E visa category includes treaty traders (E-1), treaty investors (E-2) and Australian specialty occupation workers (E-3). To qualify as an employee of a treaty trader or treaty investor, the employee must share the same nationality as the employer, and the employee must be engaged in the duties of an executive, manager or specialized worker. The E-3 visa applies to Australian nationals performing services in a specialty occupation similar to the H-1B visa category but more easily attainable. As with the H-1B visa, employers have generally found the E visa to be reliable, fast and cost-effective, although there is concern with timing due to the lack of visa appointments at numerous US embassies and consulates. 

TN visa

The TN (NAFTA) visa allows employers to sponsor citizens of Canada and Mexico for employment in the US in a professional capacity. While the North American Free Trade Agreement (NAFTA) has been replaced by the United States–Mexico–Canada Agreement (USMCA), the USMCA retains the TN visa classification. To be eligible for the TN classification, the profession must be noted on the treaty (list) and the foreign national employee must satisfy the qualifications for eligibility for employment in that profession. Employers have generally found this visa classification to be reliable, fast and cost-effective. Of note, an employer seeking to sponsor a Canadian citizen for employment under this visa classification may simply need to have the sponsored employee present an application package directly to a US customs and border protection agent. Unfortunately, Mexican citizens requiring a visa are generally required to attend an appointment at a US embassy or consulate.

The pre-hire and interviewing process is a significant opportunity for Michigan employers to identify and hire the strongest employment candidates. Before the employment interview, employers should consider requiring applicants to complete an employment application that accurately describes prior educational and work history, reasons for leaving prior employment, references, and any special skills.

Application Information

The employment application should include certification by the applicant that they have provided complete, accurate and truthful information on the application. The consequence for failing to do so at hire or if discovered during employment should be made clear by the employer. The application should also include an affirmation of the “at-will” nature of the employment relationship and limit any verbal or written modifications. Employers should refrain from making verbal or written assurances of “long-term” or “permanent” employment, or other statements that could adversely affect the employer’s ability to successfully assert at a later time that the employee was employed at-will. Employment applications should reflect that applicants are aware of post-offer testing and background checks, and the possibility to request reasonable accommodations, if needed.

The employment application and interview process should not ask questions or elicit information about legally protected characteristics such as age, national origin/race, religious practices, pregnancy or desire to have children, sex, sexual orientation or gender identity, or medical conditions or disabilities, and similarly should avoid questions that would elicit this type of information. However, the employment application can be used to confirm part of an employee’s contract of employment. Indeed, applications can be used to shorten the statute of limitations for certain state law claims requiring individuals to pursue claims in as little as six months. 

Background Checks and Accommodations

Criminal

Many jurisdictions “ban the box”, meaning the employer is prohibited from asking about criminal convictions on an employment application. Michigan does not have a ban-the-box statute, except for state employers. In fact, a 2018 Michigan executive order actually prohibits any restriction on private employers’ ability to inquire about an applicant’s criminal history. Local ordinances may, however, limit background checks. The background check process (criminal and credit) is also regulated by the federal Fair Credit Reporting Act.

Physical

The Americans with Disabilities Act (ADA) requires employers to provide reasonable accommodation to disabled applicants to permit them to participate equally in the hiring process.

The ADA prohibits employers from any pre-employment inquiries about an applicant’s medical conditions. Thus, the employer may not ask any questions designed to elicit medical information prior to a conditional job offer being made. 

After a conditional offer of employment has been made, the employer may then arrange a post-offer medical examination, provided that this is required of all applicants for the position. To withdraw an offer of employment, the employer must be able to demonstrate that the individual is unable to perform the essential functions of the job in question, even with reasonable accommodations.

The Genetic Information Nondiscrimination Act (GINA) similarly imposes restrictions on employers during the hiring process (and afterward), making it unlawful for employers to request genetic information with respect to employees. Because genetic information is defined broadly to include family medical history, employers should ensure that any post-offer medical examinations, even those conducted by occupational doctors, do not elicit this information.

The COVID-19 pandemic has not changed this basic process, but it has highlighted a host of new issues that might arise during the interactive process, as well as caused employers to revisit what are the essential functions of a job. For example, an applicant may have an underlying condition (asthma, diabetes) for which they seek reasonable accommodations that may not have been discussed pre-pandemic. In addition, while attendance at the workplace on a day-to-day basis has historically been recognized as an essential function of the job, the success of remote work has forced many employers to revisit whether remote work may serve as a reasonable accommodation for a particular applicant/employee. Inquiring into an applicant/employee’s vaccination status is permissible. However, the employer would still have a duty to reasonably accommodate non-vaccinated applicants/employees if they had a sincerely held religious belief that prevented them from getting vaccinated, or a disability covered by the ADA which made vaccination inadvisable.

Protected Categories

Under Michigan law, it is illegal for employers to discriminate in the hiring process based on certain protected categories, as detailed below. Moreover, Michigan’s discrimination laws apply to small employees as well, including those with less than 15 employees who are not covered by federal discrimination laws.

Michigan’s Elliott-Larsen Civil Rights Act (ELCRA), MCLS § 37.2101 et seq, prohibits job application questions about the following protected characteristics of the applicant: race, color, national origin, age, sex, height, weight, or marital status (MCLS § 37.2206(2)). Following the 2020 landmark US Supreme Court decision in Bostock v Clayton Co, the Michigan Supreme Court’s July 28, 2022 opinion in Rouch World LLC v Department of Civil Rights ruled that the words “because of sex” in the ELCRA protect discrimination based on sexual orientation (the decision did not address gender identity). MCLS § 37.2202(1)(d) prohibits hiring discrimination due to a person’s pregnancy, childbirth or related medical condition. MCLS § 37.2205(a) prohibits application questions regarding an applicant’s misdemeanor arrest, detention, or disposition that did not result in a conviction.

The Michigan Persons with Disabilities Civil Rights Act, MCLS 37.1101 et seq, prohibits job application questions concerning the disability of a prospective employee that are unrelated to the duties of the particular job (MCLS § 37.1206(2)(a)). The law also prohibits hiring discrimination on the basis of an applicant’s disability or genetic information unrelated to the duties of a particular job (MCLS § 37.1202(1)(a)). Employers may not refuse to hire an individual when adaptive devices or aids would enable the individual to perform the job (MCLS § 37.1202(1)(f)).

The Michigan Department of Civil Rights Pre-Employment Inquiry Guide provides practical guidance to employers regarding the legal limitations on job applications in Michigan.

The use of artificial intelligence (AI) in the hiring process has become more common for large employers. For example, Amazon and Hilton use AI to some extent to screen the thousands of applications they receive on a weekly basis.

Use of AI in Screening Candidates

AI, in its current form, does not consist of computers making hiring decisions. In reality, AI is much simpler – it is typically a series of mathematical algorithms used to screen large quantities of data. Employers have been using a type of AI for decades, albeit in a form most people now take for granted – text searching applications or resumes received. This process can now be automated with an algorithm so that a computer culls the applications by performing the text search. Certain online recruiting services, such as LinkedIn Recruiter and ZipRecruiter, also employ AI earlier in the process, using algorithms to search the social media profiles of millions of potential candidates to determine whether to advertise a job posting to a particular candidate. AI can also be employed in the interview process through the use of programmed chatbots, which automatically ask a candidate a series of pre-programmed questions intended to discern information pertinent to the organization. Finally, AI can also be used to compare the experience of different candidates and to recommend which candidates to extend offers to, and the salary range to be offered to a candidate. In a nutshell, AI is particularly useful for routine tasks that involve sifting through large quantities of data, such as applicant screening.

Potential Legal Pitfalls of AI

Although AI is sometimes viewed as a preferred vehicle for eliminating potential bias, such as during job interviews, the reality is that AI has its own set of potential legal pitfalls. Firstly, because AI is programmed by humans, the AI code developed may have the programmer’s bias (conscious or unconscious) built into it, as the programmer determines what data or parameters will be used. Courts have allowed claims to proceed under federal employment laws based on unconscious bias if the bias can be proven to have resulted in intentional discrimination against a protected classification. Similarly, Title VII of the Civil Rights Act of 1964 recognizes a legal claim for disparate impact when a selection criterion adversely impacts a protected class. In 2018, Reuters reported that Amazon had scrapped an experimental AI recruiting tool when it determined that the algorithm used by the recruiting tool had learnt to disfavor applicants using the term “women”. In May 2023, the EEOC issued guidance on the use of AI and assessing its potential adverse impact under Title VII when used in employment screening and selection procedures.

An AI-hiring practice could also implicate the Americans with Disabilities Act. In May 2022, the EEOC issued a technical assistance document on the use of AI to assess job applicants and employees. The EEOC’s guidance identified three primary ways that employers using AI may violate the ADA:

• The employer does not provide a “reasonable accommodation” that is necessary for a job applicant or employee to be rated fairly and accurately by the algorithm.
• The employer relies on an algorithmic decision-making tool that intentionally or unintentionally “screens out” an individual with a disability, even though that individual is able to do the job with a reasonable accommodation. “Screen out” occurs when a disability prevents a job applicant or employee from meeting – or lowers their performance on – a selection criterion, and the applicant or employee loses a job opportunity as a result. A disability could have this effect by, for example, reducing the accuracy of the assessment, creating special circumstances that have not been taken into account, or preventing the individual from participating in the assessment altogether.
• The employer adopts an algorithmic decision-making tool for use with its job applicants or employees that violates the ADA’s restrictions on disability-related inquiries and medical examinations. 

The guidance also identified “promising practices” for employers to reduce the likelihood of disability bias when using AI tools.

Many states have either passed or are considering legislation to protect candidates. Effective January 1, 2020, Illinois enacted the Artificial Intelligence Video Interview Act. The first-of-its-kind law imposes limitations on employers who use AI for candidate video interviews. Other states are considering legislation to limit the discriminatory use of AI, or have created task forces to study the issue. This area of law is likely to continue to evolve, as more employers turn to AI in the hiring process. Due to the newness of the technology that powers AI tools, the EEOC’s attempts to regulate it, and the lack of legal precedent to fall back on, employers should adopt and use AI tools with caution.

Promoting Competition in the US Economy

In 2023, employers’ use of restrictive covenants to limit their employees’ post-employment competitive activities has remained a volatile issue. President Biden’s administration has been critical of employers’ use of non-compete agreements, as have state legislatures, including Michigan’s legislature. While Michigan has not taken direct steps to curtail restrictive covenants yet, several federal government agencies have. 

The FTC’s Proposed Rule

On January 5, 2023, the Federal Trade Commission (FTC) proposed a new rule that would ban non-compete clauses. The proposed rule defines a non-compete clause as a “contractual term between an employer and a worker that prevents the worker from seeking or accepting employment with a person, or operating a business, after the conclusion of the worker’s employment with the employer”.

If adopted, the rule would apply to any contract which functions as a de facto non-compete, such as a non-disclosure agreement, which effectively precludes a worker from accepting employment or operating a business after the conclusion of the worker’s employment with the employer. There is only one narrow exception in the rule applying to non-compete clauses entered into by a person who is a substantial owner, member or partner in, the business entity at the time the person enters into the non-compete clause.

The proposed rule would prevent employers from entering into non-compete clauses with workers and would require employers to rescind existing non-compete clauses. If the rule is adopted, employers will have 180 days after the date of publication of the final rule to comply.

The NLRB Adopts a Similar Position

On May 30, 2023, the NLRB General Counsel Jennifer Abruzzo issued a memorandum setting forth her belief that non-compete provisions contained within employment contracts, including severance agreements, are generally unlawful under the NLRA. The memo requires that all cases involving non-compete provisions must be submitted to the Division of Advice, meaning the General Counsel is seeking to identify proper cases to litigate the issue to create binding precedent.

According to Abruzzo’s memorandum, non-compete provisions are unlawful because they reasonably tend to chill employees in the exercise of Section VII rights to engage in concerted activity under the NLRA:

• by undermining their bargaining power during work stoppages;
• by undermining their ability to threaten resignation; and
• to solicit former coworkers to join a competitor in efforts to organize or “salt” the workplace. 

The memo does acknowledge narrow circumstances where non-competes are not prohibited, including where the contract concerns an individual’s ownership interest in a competitor, true independent contractor relationships, or when “justified by special circumstances”.

These protections extend to all private-sector non-supervisory employees covered by the NLRA, regardless of whether the employer’s workforce is presently unionized.

Michigan’s 1985 Statute

Under current Michigan law, restrictive covenants remain generally enforceable. Prior to 1985, restrictive covenants were considered void and illegal as restraints of trade under Michigan statutory law. Some pending legislation seeks to curtail the use of restrictive covenants in Michigan, but none has been passed yet.  Current MCLA § 445.774(a), which is applicable to restrictive covenants and agreements, permits a restrictive covenant that “protects the employer’s reasonable competitive business interests” provided the restrictive covenant is “reasonable as to its duration, geographical area, and the type of employment or line of business”.

A restrictive covenant must also be supported by “sufficient consideration”. Michigan courts continue to define and evaluate “sufficient consideration”, “reasonable duration”, and “geographical area”. A Michigan Court of Appeals decision found the “[m]ere continuation of employment is sufficient consideration to support a non-compete agreement in an at-will setting”. With respect to duration, the courts have generally found a period of six months to three years to be reasonable, with one to two-year periods being the norm. The reasonableness of the geographical area will be determined by the scope of the business and the legitimate competitive business interests of the party seeking to enforce the restrictive covenant. Restrictive covenant provisions seeking to preclude an individual from working in any capacity in any location for a competitor have been found to be unreasonable.

If a Michigan court finds a restrictive covenant to be “unreasonable in any respect”, the Michigan statute permits a court to limit the agreement to render it reasonable in light of the circumstances in which it was made and specifically enforce the agreement as limited.

During the 2023 legislative session, bills have been introduced that would prohibit employers from entering into non-compete agreements with “low-wage employees”, which includes employees making less than $15 per hour, 150% of the minimum hourly wage, or $31,200 per year, whichever is more. Given recent trends and pending legislation, before enforcing restrictive covenants in Michigan, employers would be advised to check the current status of this matter.

Trade Secrets

Michigan has adopted the Michigan Uniform Trade Secrets Act (MUTSA), MCLA 445, 1901 et seq. Under MUTSA, “trade secret” means information (which includes a formula, pattern, program, device, method, technique or process) having independent economic value from not being generally known or readily ascertainable that has been subject to reasonable efforts to maintain its secrecy. The party seeking to protect a trade secret must also demonstrate that the defendant did not have express or implied consent to disclose or use the trade secret information.

Michigan’s definition of a trade secret does not protect all information a company may consider proprietary or confidential, and the courts require the party alleging a trade secret violation to specifically identify the alleged misappropriated trade secret. Examples of information that has garnered trade secret protection include information regarding specialized equipment and industrial processes, chemical processes, manufacturing methods, marketing and sales strategies, contractual details for customers, pricing lists and profit margins. Customer lists may be protected, but if such lists are compiled from personal or publicly available sources, or if the information is readily ascertainable from other channels, these lists may lose protection. Software, computer programs, data compilations and automation tools are not automatically entitled to trade secret protection and also must meet MUTSA’s requirements for such protection.

A party making a MUTSA trade secret claim must do so within three years. Remedies may include both injunctive relief and damages for the actual loss (compensatory damages) and unjust enrichment, or a reasonable royalty for the unauthorized disclosure. Attorneys’ fees may also be recovered. Other civil remedies for trade secret protection under tort and other common law theories are displaced by MUTSA’s remedies; however, a party may still pursue contractual remedies.

Because not all information may be considered a trade secret by Michigan courts and because contractual remedies are not pre-empted by MUTSA, contractual protection of information through confidentiality agreements more broadly defining proprietary and/or confidential information is a common and recommended practice. Such agreements are generally enforceable in Michigan.

The Federal Defend Trade Secrets Act of 2016 (DTSA) also creates a federal civil cause of action for trade secret misappropriation. The DTSA is similar in many respects to MUTSA, but does not pre-empt or displace MUTSA.

Privacy Protections

Privacy rights in Michigan are covered by both common law and statutory protections.

Common-law protection

The Supreme Court of Michigan has recognized four common-law privacy claims:

• intrusion upon an individuals’ seclusion, solitude or private affairs;
• public disclosure of embarrassing private facts;
• publicity that places an individual in a false light in public; and
• appropriation of an individual’s name or likeness for another’s advantage.

In some respects these claims overlap, each turning on particular facts that generally involve information that is either “highly offensive”, “unreasonable”, or “false”, and private that has been disclosed publicly or to a large number of people.

Statutory protection

Michigan also provides statutory privacy protections for certain information. Michigan has an eavesdropping statute prohibiting eavesdropping by third parties, including employers, on private conversations (MCLA 750.539a et seq). In such cases, all participants in the conversation must consent to recording the conversation. A participant may, however, record the conversation. Despite several challenges to the interpretation of this law, the Michigan Supreme Court has declined to change prior lower court precedent.

Michigan’s Polygraph Protection Act prohibits employers from requiring that applicants or employees take a polygraph (MCLA § 37.201 et seq). Michigan’s Persons with Disabilities Civil Rights Act prevents employers from performing genetic testing or requesting genetic information (MCLA 37.1101 et seq).

Michigan’s Bullard-Plawecki Right to Know Act prohibits employers from gathering or maintaining records regarding “an employee’s associations, political activities, publications, or communications of non-employment activities”, without written authorization (MCLA 423.508).

Michigan’s Social Security Number Privacy Act, MCLA 445.81 et seq, limits how an employer may use, display or transmit an employee’s social security number, and violations may result in civil and/or criminal penalties. Among other things, this statute requires encryption if four or more consecutive numbers of a person’s social security number will be used to gain access to the internet, websites, or computer systems or networks.

Michigan’s Internet Privacy Protection Act, MCLA 37.271 et seq, generally prohibits employers from accessing personal internet or social media accounts of employees and prohibits retaliation against a person who fails to disclose such information.

An employer in Michigan can prescribe limits on an employee’s use of its data or equipment, but exceptions do apply.

The Michigan legislature has introduced legislation that, if adopted, would prohibit employers from making hiring decisions based on an applicant’s credit history.

The “Black Lives Matter”, “Me Too” and other socio-political movements continue to impact expansive EEOC priorities and employer policies and initiatives. The EEOC’s 2023 Strategic Plan prioritizes prevention and remedy for systemic unlawful discrimination by employers. Recent case filings suggest that the EEOC will continue to focus on discrimination based on race or sex, and sexual harassment, while increasing its focus on expanding protections for the LGBTQIA+ and transgender communities.

Employers should be aware, however, of the rise in individual claims alleging reverse discrimination, or preferential treatment based on an employer’s equality, diversity and inclusion (ED&I) programs. Employers must be vigilant that their ED&I programs do not suggest a preference or quota, and that their practices do not, in fact, encourage such a preference or quota.

Broadened Training

Global and national employers are on trend to expand anti-discrimination and anti-bullying policies and training to prohibit harassment or offensive conduct on the basis of gender orientation, sexual preference and transgender status. Some employers are going a step further, prohibiting harassment or discrimination on any basis, including but not limited to protected characteristics identified in Title VII or Michigan’s Elliott-Larsen Civil Rights Act (ELCRA).

Post-Pandemic Human Resources Concerns

In the aftermath of COVID-19, returning employees have expressed heightened expectations for work-life balance, and increased sensitivity to anxiety. Employee ghosting (disappearance from the workplace) and gaslighting (manipulation of circumstances) are among post-pandemic human resources trends. Employers continue to experiment with hybrid work. Employers are also broadening their behavioral policies to address micro-aggressions and micro-incivilities, which are subtle and sometimes unintended verbal expressions or behaviors that have the effect of diminishing or offending the hearer.

Public Policy and Religious Liberty

The debate between public policy and personal liberty is playing out in administrative charges and lawsuits for religious discrimination under Title VII and ELCRA. Employees required to submit to COVID-19 vaccination as a condition of new or continued employment continue to file class action lawsuits after being denied religious accommodation exempting them from employer-mandated vaccination. 

The healthcare sector has been a proving ground for religious liberty class action claims, challenging employers to balance EEOC guidelines on religious exemption with compliance with the Centers for Medicare and Medicaid Services (CMS) and other emerging public health mandates. A 2023 proposed class action settlement in Albright, et al v Ascension Michigan, et al, represents an early class action victory for hundreds of healthcare workers in recovering lost pay for suspension or dismissal after being denied religious accommodation from receiving COVID-19 vaccinations. 

Litigants are citing the Religious Freedom Restoration Act of 1993 and recent US Supreme Court cases to insulate both employers and employees from activities they establish are objectionable based on their sincerely held religious beliefs. In Groff v DeJoy, the Supreme Court reset the defense of “undue hardship” by requiring employers denying religious accommodation to show that granting the accommodation would result in substantial increased costs in relation to the conduct of its business. The Supreme Court ruled in 303 Creative LLC v Elenis that the First Amendment protects a Christian website designer’s right to decline service to gay couples.

OSHA compliance priorities are informed by the top ten most frequently cited standards: https://www.osha.gov/top10citedstandards as well as the current list of OSHA National Emphasis Programs that focus enforcement on particular hazards and high-hazard industries: https://osha.gov/enforcement/directives/nep.

OSHA multi-employer enforcement is a priority and often a source of frustration for employers. Typically viewed as applying to construction work, general industry employers often have employees of other entities on site that fall within the multi-employer enforcement rubric. All employers should have an implemented contractor safety program focused on the risk created by the contractor for its employees and steps taken to minimize that exposure and risk. On a daily basis, employers should monitor contractor compliance and document this action. Employers are also encouraged to use reputable contractors with robust safety programs. OSHA’s multi-employer enforcement guidance can be found at: https://www.osha.gov/enforcement/directives/cpl-02-00-124.

OSHA has issued its final electronic record-keeping rule taking effect January 1, 2024. Employers with over 100 employees in “high-hazard industries” must file OSHA 300 logs and 301 incident reports along with the 300A forms already required. Covered industries include food production, manufacturing, foundries, healthcare, retail, warehousing, transportation, and the performing arts. This rule will allow for public disclosure of these records.

Effective January 17, 2023, OSHA increased its maximum citation penalties as shown below:

• violations that are Serious, Other-Than-Serious and Posting Requirements – $15,625 per violation;
• Failure to Abate – $15,625 per day beyond the abatement date; and
• Willful or Repeated violations – $156,259 per violation.

Terminating an employee is one of the most difficult decisions facing employers and is also the most likely to result in litigation. As with all employment decisions, best practices dictate that there be clear and explanatory documentation of the termination decision, to include the date termination was first considered, the reasons the decision was made, and when it was communicated to the employee. 

At-Will Terminations

If the employment relationship is at-will, it means that an employee has no contractual right to continued employment. That said, employers should always explain the basis for any employment termination. In the context of a lawsuit claiming that the termination decision was unlawfully discriminatory or retaliatory, many statutes permit an employer to avoid liability where they are able to articulate a legitimate, non-discriminatory (and/or non-retaliatory) basis for making their decision.

Termination of Employment by Operation of Contract

Where the employer and employee have entered into an employment agreement, that agreement will often address how and under what circumstances the employment relationship will terminate. Close attention should be paid to the language of the employment agreement, especially where there are defined terms addressing termination for “cause”, “change of control”, and other provisions. Employees are not entitled to severance pay as a result of termination unless the employer agrees to provide it according to the terms of an agreement or policy, or a discretionary decision to offer it. Many employers offer severance pay upon termination. Best practices dictate that severance or separation agreements include a release and waiver of all claims against the employer (unless release and waiver is precluded by explicit operation of law).

Separation Agreements and Releases

Waivers by employees age 40 or over are subject to special procedures to obtain a release of claims under the federal Age Discrimination in Employment Act (ADEA). In order for a waiver of claims to be valid under ADEA, the release and waiver provisions must:

• be written in plain language understandable by the average individual eligible for the severance;
• specifically refer to ADEA claims and rights;
• not cover prospective or future rights or claims;
• be in exchange for valuable consideration in addition to any benefits or pay to which the employee was already entitled;
• advise the employee, in writing, to consult with an attorney before signing;
• provide the employee 21 days to consider the agreement; and
• permit the employee to revoke the agreement within seven days after it is executed by the employee.

In the case of a group termination – ie, involving termination of two or more employees from the same decision-making process – employees have 45 days (not 21 days) to consider the agreement (again, with a seven-day revocation provision) and receive a disclosure identifying (i) the class of employees eligible to receive the severance package, their ages and the ages of all employees within the same job classification, division or organization who are not eligible or selected for participation in the termination program; and (ii) the selection criteria.

WARN Act Obligations

The Worker Adjustment Retraining and Notification Act of 1988 (the “WARN Act”) applies to any business that employs 100 or more employees (excluding part-time employees) and terminates employees under circumstances that qualify as a “plant closing” or “mass layoff”. In those instances, the employer must provide affected employees and certain government officials at least 60 days’ advance notice of the job-loss event. Employers that fail to do so may be required to pay the affected employees back pay for each day of the violation, reimburse them for any loss of benefits and medical expenses incurred, and pay civil penalties.

In addition to the federal WARN Act, Michigan has its own mini-Worker Adjustment and Retraining Notification (“mini-WARN”) law applicable only to employee-owned corporations. The Employee-Owned Corporation Act, MCL §§ 450.731–450.738, encourages (but does not require) an employer to notify the Michigan Department of Licensing and Regulatory Affairs (LARA), the affected employees, any employee organization representing them, and the affected community as soon as possible after making a decision to close a facility at which at least 25 employees work.

Alternative Dispute Resolution

The law in the United States generally favors the private adjudication of disputes.

If the employer and employee have entered into an enforceable agreement to arbitrate a dispute, and the disputed matter is the type of claim that the parties agreed to arbitrate, the courts will typically order the parties to proceed to arbitration. Arbitration can cover the full range of employment-related disputes.

Michigan law presumes that the employment relationship is at-will, with no requirement that an employment contract be entered. Either party may terminate at-will employment for any reason or no reason, provided that termination is not contrary to applicable domestic law. Employers may terminate at-will employment with or without notice.

Global employers entering the US should be aware that through their existing contracts, handbooks, policies and custom, they may undertake enforceable obligations not required by domestic law, or fail to meet local requirements. Michigan has no presumption of “just cause” termination; nor does it require “notice pay” similar to other countries. Michigan has requirements for final payment of wages including timing and payment of unused vacation or sick day benefits. Garden leave is not customary, and may complicate an employee’s claim for unemployment benefits or exercise of COBRA (Consolidated Omnibus Budget Reconciliation Act) rights.

Michigan follows the FLSA, which regulates job classifications, eligibility and calculation of overtime, and minimum wages generally. Employers entering the US market should review positions and compensation for compliance with all domestic wage and hour laws to prevent disputes leading to litigation or government investigation.

In 2023, Michigan repealed its “freedom to work” law, which prevented employees from being required to join or support a labor union. With the strengthening of collective bargaining, employers entering Michigan should consider their obligations under the NLRA and the ongoing enforcement priorities of the NLRB.

With few exceptions, the FLSA governs wage and hour claims brought by employees in Michigan. The FLSA requires that all covered, non-exempt employees be paid at least minimum wage for every hour worked, and receive overtime pay at no less than 1.5 times the regular rate of pay for all hours worked in excess of 40 within a workweek.

In the aftermath of COVID-19, employers operating in Michigan are seeing an increase in claims brought for unpaid remote work, travel or other “off-the-clock” work hours, unpaid meal periods and short breaks, and resulting unpaid overtime. Employers are also facing claims for miscalculation of overtime based on bonuses and incentives used to keep employees working. Frontline employers in healthcare and senior living sectors are experiencing an increase in collective action claims initiated by law firms outside of Michigan, utilizing the internet to market for claimants.

Employers can reduce risk of these claims by implementing, communicating and enforcing strict timekeeping policies and practices to:

• prohibit unauthorized overtime;
• require employees to report all hours worked;
• review new bonuses and premium pay for inclusion in the regular rate;
• require supervisors to promptly audit timekeeping records; and
• pay for all hours worked regardless of employee compliance.

Nearly every federal and Michigan employment law protects employees who report perceived unlawful acts, or participate in an investigation into the same. Even if it is ultimately determined that the employee’s perception is wrong, the employee will generally have “a right to complain” and will still be protected unless it is shown that the employee knew they were making a false report.

In Stegall v Resource Tech Corp, Michigan’s Supreme Court held that lawsuits brought under the Whistleblower Protection Act (WPA) for violations of public policy can be based on internal workplace reports. On remand, however, the Oakland Circuit Court held that such claims are pre-empted when there exists an adequate remedy at law under another statutory scheme, such as the Occupational Safety and Health Act.

Nonetheless, Michigan employers are seeing a marked increase in claims under the WPA for violation of public policy, in conjunction with or as an alternative to claims of retaliation under civil rights and workplace safety laws. 

Employers can reduce the risk of these claims by implementing and following personnel management procedures that are communicated, taught in training, consistently applied, and well documented. Where an employee who expresses workplace concerns is the subject of personnel management, employers should strictly segregate addressing the employee’s workplace concerns and making employment decisions impacting that employee.