New Biden administration regulations come at worst time for small businesses

If you’re running a business, you know that 2023 is a fight. Many small businesses are already seeing a drop-off in demand as the global economy slows.

(This column originally appeared in The Hill)

Inflation is, and will remain, persistently high. A tight labor market is making it hard to find good talent. Well, here’s some more bad news: The federal government is going to throw another punch in this fight, and it’s going to land right in your face.

That’s because there are a group of regulations that will appear in 2023 that will make it harder for small businesses to stay in business.

Worker classifications are changing: As I’ve written previously here, a new worker classification rule is looming from the Department of Labor (DOL) that will have a significant impact on how businesses of all sizes determine whether a worker is an employee or an independent contractor. The definition will include many factors, but the most important will be whether a worker is “integral” to the business. This means that if an independent contractor is providing services that contribute to a company’s making and delivering of products and services, that person may have to be classified as an employee, bringing the rights, benefits and additional taxes that come along with that classification. This rule will impact countless small and mid-sized businesses.

Mandated overtime pay will increase: Since last year, the DOL has been considering a change to current overtime rules. Currently, most salaried employees who do not supervise others and perform certain administrative tasks are not entitled to overtime pay if they work more than 40 hours per week and earn $35,568 per year. The DOL could increase this salary limit to as much as $80,000 per year — although it will likely be lower. Regardless, this looming rule change will mean that your employees who are making a soon-to-be determined higher salary would be entitled to overtime pay, which will add another clerical and financial challenge to your payroll. Look for this change to happen this year.

Non-compete agreements are going away: Do your employment agreements have a clause that forbids an employee to work for a competitor within a certain geographical range if they leave your company? Although this practice has been abolished or curtailed in some states, others still allow the practice for non-hourly or highly-compensated employees.

Thanks to non-compete protection, businesses can use this arguably potent weapon for limiting an irate employee from taking a job with a competitor and taking your trade secrets and customer lists with them. Unfortunately, that weapon will soon be removed. The Federal Trade Commission has now issued a proposed rule (which is likely to become finalized this year) disallowing this practice nationally.

Severance payments are now curtailed: Want to avoid an irate or poorly performing employee that you’re terminating from talking trash about your company to their friends and following online? Up until now you could tie that person’s severance payment to their silence, ensuring that you can protect your brand against potentially unjustified criticism from an angry employee. The National Labor Relations Board (NLRB) recently ruled that tying severance payments to a terminated employee’s silence is no longer allowed. So, no matter what a displeased former worker wants to say (true or untrue), you now have less protection against a negative response.

Unions are easier to organize at your workplace: Severance payments aren’t the only thing our friends at the NLRB have been up to. Earlier this year, the Board allowed smaller groups of workers in a business to form “micro unions,” which effectively allows unions to represent a subset of workers at your place, rather than having to go and convince your entire workforce to unionize. This will likely cause business owners more grief and make it even tougher for companies with unions to collectively bargain.

But that’s not all. Besides the “micro union” rule, the Board has also deemed that employers must now compensate workers for “all direct or foreseeable” harms that result from an unfair labor practice. The Board also prohibits employers from ejecting workers involved in union-related activities from their property unless those workers “significantly interfere” with the use of the property or there’s other “legitimate business reason” for their removal. That doesn’t seem too disruptive, does it?

These aren’t the only new regulations, but you get the point. Current Labor Secretary Marty Walsh is on the way out to focus on hockey and will likely be replaced by Julie Su, pending Senate approval. Business owners should take no comfort in that. Su is a former California Labor secretary and is known to be an avid supporter of all of the above regulations and has been opposed by business groups for her enforcement of California’s AB5 legislation on worker classifications, among other positions.

Businesses this year are getting pummeled by inflation, a looming recession, a tight labor market and much uncertainty. Do these additional regulatory punches help them grow, add jobs and invest? Or will it result in them cutting back on their number of employees and compensation? To ask is to answer.

Originally published at https://thehill.com on March 9, 2023.