Outlook: As Companies Grapple with the Future of Work, Regulatory Activity May Hinder Progress

2023 greets us with unprecedented transitions regarding workers, work and the workplace, presenting huge opportunities—and risks—for CHROs and their teams as companies evolve their cultures. Fluctuating economic, geopolitical, and health conditions add to business complexity.  As workforce demographics continue to shift, employee expectations, voice and engagement play an increasing and important part of sound business execution. These developments are challenging even the most astute executives in leading companies.

Over the past three years, vast experiments on how, where, and when to work is clearly impacting culture and employee engagement—yet exactly how is still largely unclear. These issues have the attention of your Boards, but many company innovations are too new to clearly judge their effectiveness or long-term implications for culture. Our 2023 CHRO Summit, under the theme “Creating the Workplace of Tomorrow,” will provide a forum for members to learn from each other and discuss these issues and their implications.

For large companies, the mandate to evolve is clear. In Washington, connecting the dots and explaining the context for policymakers will be key. Public policy will help pave the way or hinder the progress Americans are looking to the private sector to achieve. Case in point: today the Federal Trade Commission proposed a sweeping regulation to ban all noncompete agreements, full stop. (More on that below).

In 2023 the pace of regulatory activity will be “fast and furious,” as a glance at the landscape, and the fall regulatory agenda, reveals.  Increased Democrat control of the Senate will free the Biden administration to finally approve agency and judicial nominees, positioning itself to more aggressively execute several of its top priorities through regulation. However, razor-thin margins in both chambers of Congress and a fissured Republican House of Representatives also raises the potential for interesting opportunities for legislative compromise, despite continued gridlock on most major issues.  Below are our predictions for what is likely to unfold over the next twelve months—the good, the bad, and, in some cases, the ugly.

• Biden administration regulatory changes to drive public policy: Republican control of the House means the Biden administration will look to itself to carry the ball forward on Democratic policy priorities that directly impact member companies. For example:
  
  
  1. The Federal Trade Commission will seek to finalize a newly proposed regulation to prohibit the use of noncompete agreements for employees and independent contractors. As proposed, the rule does not exempt senior executives or employees with trade secrets and leaves open the possibility that non-disclosure agreements could be construed as an improper restraint on trade. 
     
     
  2. The SEC will continue its fast-paced rulemaking schedule, with an expansive HCM rule targeted for the spring and continued implementation of its final, complex and potentially misleading pay for performance rule, and a final clawback rule.
     
     
  3. The NLRB, which has already issued decisions expanding damages and permitting organizing through small bargaining units, will also soon issue decisions that could restrict workplace rules and policies on employee conduct, narrow the scope of independent contractor status, and permit unionization without elections, among other potentially radical changes to federal labor law.
     
     
  4. The EEOC, once a Democratic Commissioner is confirmed, will likely seek to restart collection of pay data through the EEO-1 Component 2 form. The Commission is also likely to issue rules restricting wellness program incentives and reasonable accommodation requirements for pregnant women.  
     
     
  5. The Department of Labor is expected to release its long-awaited salary threshold rule regarding overtime eligibility under the FLSA, while also issuing a final rule for independent contractor status. The DOL may also revive some form of the Obama DOL’s persuader rule, with increased employer reporting on union avoidance activities.
     
     
  6. Expect several health care regulations and guidance implementing mental health parity, drug pricing reforms, price transparency, and surprise medical billing.
     
     
  7. With the whole of government approach to labor, employment, and AI issues, we may see the administration make moves in these areas in unlikely places, similar to last year’s blacklisting effort out of the Department of Agriculture.
     
     
• The Supreme Court’s decision in the Harvard and UNC cases implicating the educational institutions’ use of race as a factor in admissions is anticipated in June. The ruling expected from the more conservative court could set the stage for challenges to employer DE&I practices, or to longstanding government policy such as President Lyndon Johnson’s Executive Order 11246, which requires federal contractors to maintain affirmative action in their hiring practices.
  
  
• Opportunity for compromise in Congress? Notwithstanding the “institution anarchy” in the House of Representatives this week, several Republicans in the Senate have indicated they are willing to consider creative solutions to decades of gridlock on labor and employment challenges, such as independent contractor status.
  
  
  1. In the House, Republican orthodoxy may be showing signs of cracking. As an example—39 Republican lawmakers voted for legislation enshrining same-sex marriage rights, 24 voted for the CHIPS and Science Act, and the year-end omnibus spending bill included the HR Policy-supported Pregnant Workers Fairness Act.
     
     
  2. Another area of potential compromise is on comprehensive consumer data privacy legislation, where (to this point) HR Policy and the business community have largely been successful in preventing unjustified limitations on the use of HR data.
     
     
  3. In health care policy, bipartisan mental health and telehealth legislation passed as part of the year-end spending bill, and more changes, including PBM transparency and modernizing HSAs, are possible in 2023. However, challenges for employer plans are likely to surface too, including network adequacy standards and stronger mental health parity enforcement.
     
     
• Both Republicans and Democrats will pressure companies through congressional hearings, as Republicans in the House are poised to scrutinize and criticize ESG-linked company practices and Senate Democrats could use newly-earned subpoena powers to publicly grill companies on labor practices, pharmaceutical costs, executive pay, and other areas.
  
  
• States will continue to drive the bus on expansive employment law changes—particularly pay transparency, a concept most leaders would have dismissed five years ago, despite appearing poised to be a majority practice in the near term. According to a recent HRPA survey, 42% of members are either considering providing pay ranges nationwide or are already doing so. Other items worth paying attention to:
  
  
  1. Just three days into this year, a privacy bill was introduced in Kentucky, with many more workplace-focused privacy and AI proposals expected.
     
     
  2. Paid leave requirements have been enacted or expanded in many states.  Absent a federal statute, we anticipate additional states to implement their own paid family leave laws.
     
     
  3. As hybrid workplace environments continue, predictive scheduling laws may become the next frontier of state and local labor and employment regulation.
     
     
• On the Global front, we expect significant changes in the employment landscape in major economies.  
  
  
  1. In the EU, focus will be on the Pay Transparency Directive the Women on Boards Directive, and the  EU’s proposed Directive on corporate due diligence, each of which will have significant global impact.
     
     
  2. In Asia, China is lifting Covid restrictions and employers will likely see an impact on workers. We also anticipate India to pass major labor reform granting more flexibility to employers.
     
     
  3. Mexico will complete the first phase of its 2019 labor reform in May 2023.

Most importantly, whether and how public policy changes occur will reinforce or change expectations among different generations of employees and ultimately impact company culture. We need your perspective and engagement. Join us this February 22-24 as we discuss the opportunities and CHRO’s role in setting expectations and making decisions to proactively meet the demands of the workplace of 2023 and beyond.