Legislative Updates

May 6, 2024

House Holds Hearing on Corporate Transparency Act

The implementation of the Corporate Transparency Act (CTA), a law that requires small businesses to self-report their beneficial owners’ information to the Financial Crimes Enforcement Network (FinCEN), has proven to be a compliance challenge so far, according to testimony before a Congressional committee.

The House Committee on Small Business heard from small business owners during a hearing on the law on April 30. Testimony from witnesses outlined the early issues with the law, confusion from small businesses on how they can comply with its requirements and security concerns over how FinCEN is protecting the data it collects. “Let me stress — we do not know the database is secure,” Tim Opsitnick, a member of the National Small Business Association, told the committee. “We further know that the information and/or access to the database will be shared. Every time an owner shares their information, the risk that it will be misused or lost to the dark web significantly increases. FinCEN’s own website opens with an alert about fraudulent solicitations under the CTA.”

Carol Roth, an author and small business advocate, told the committee that the U.S. Treasury has provided little or no guidance so far to help business owners understand their compliance obligations under the new law, which went into effect on Jan. 1, 2024. Additionally, she provided a record of nearly 450 statements from small business owners that said they were not aware of the CTA or familiar with FinCEN. “Your average small business owner is just trying to stay afloat, and isn’t familiar with that division of Treasury,” she said. “And when they find out they ask, ‘Why is it that the Financial Crimes Enforcement Network is asking for my information?’ So, the communication hasn’t been there.”

The hearing came just a few days after Sen. Tommy Tuberville (R-AL) and Rep. Warren Davidson (R-OH) introduced a bill to repeal the CTA. The law is also being challenged in the courts, where a federal judge in Alabama ruled it unconstitutional in March on grounds that it transcended the limits the Constitution imposes on the legislative branch.

While the matter continues to make its way through the courts and is being reconsidered by Congress, FinCEN has started taking steps to help businesses better understand the requirements. In mid-April, the agency updated an FAQ on beneficial ownership information and reporting obligations. That new FAQ can be found here.

 

April 29, 2024

U.S. Chamber Sues FTC Over Total Noncompetes Ban

Business advocacy groups are moving quickly to mount a legal challenge to the Federal Trade Commission’s (FTC) newly finalized rule banning nearly all types of noncompete clauses.

The U.S. Chamber of Commerce filed a lawsuit in the U.S. District Court for the Eastern District of Texas within hours of the FTC’s announcement on Tuesday, April 23. The lawsuit seeks an injunction from the rule going into effect and notes that the agency’s rule is not backed by any federal legislation. “Without such authorizing legislation, federal agencies have not previously sought to play a role in regulating noncompete agreements on a nationwide basis,” the lawsuit states.

The final rule effectively prohibits noncompete agreements between all businesses and their employees. Noncompetes are a common tool businesses use to protect trade secrets and competition. They are typically reserved for higher-skilled employees and often come with increased wages and benefits to compensate the employee.

The FTC claims that a blanket ban on noncompetes will lead to new businesses forming — 8,500 in the first year — and an estimated earnings increase for the average worker of $524 annually. The rule allows for existing noncompetes for senior executives to remain but prohibits employers from entering into or attempting to enforce any new noncompete agreements, even ones involving senior executives. Further, employers will be required to provide notice to workers, other than senior executives who are bound by an existing noncompete, that they will not be enforcing any such agreements.

Business groups, including the U.S. Chamber and the National Association of Wholesaler-Distributors (NAW), issued statements saying that the rule exceeded the FTC’s authority.

“Since its inception over 100 years ago, the FTC has never been granted the constitutional and statutory authority to write its own competition rules,” said Suzanne Clark, U.S. Chamber president and CEO. “Noncompete agreements are either upheld or dismissed under well-established state laws governing their use. Yet, today, three unelected commissioners have unilaterally decided they have the authority to declare what’s a legitimate business decision and what’s not by moving to ban noncompete agreements in all sectors of the economy.

“This decision sets a dangerous precedent for government micromanagement of business and can harm employers, workers, and our economy,” she continued.

Brian Wild, chief government affairs officer for NAW, called the FTC rule a “misguided attempt to micromanage private contractual arrangements,” and said it would particularly affect wholesaler-distributors.

 

April 29, 2024

DOL Finalizes Rule Expanding Overtime Pay to More Employees

The Department of Labor issued a final rule on Tuesday, April 23, that drastically expands the number of salaried employees who qualify for overtime pay.

The rule will go into effect on July 1 and will increase the minimum annual salary threshold at which workers are exempt from overtime pay requirements from $35,568 to $43,888. On Jan. 1, 2025, that threshold will rise to $58,656, and further threshold increases will occur every three years beginning in 2027. Employees who qualify for overtime pay must receive at least 1.5 percent pay for any hours worked more than 40 for a week.

The rule has been opposed by many business groups and trade associations, who have warned that it would increase the already rising cost of labor and put the economy at risk. “This is deeply troubling, particularly amidst rampant inflation and the looming threat of recession,” Lauren Williams, associate vice president of government relations at the National Association of Wholesaler-Distributors (NAW), said in a statement. “Distributors have spent recent years adapting operations and personnel management to meet evolving workforce needs post-pandemic, the DOL’s rule would add new regulatory burdens and compliance costs to an industry already grappling with workforce shortages and excessive regulations.

“Increasing the minimum salary threshold by at least 65 percent will stifle employee growth opportunities, diminish workplace autonomy and limit flexibility,” she continued.

Williams noted that courts have previously struck down similar rules because the Department of Labor cannot impose a salary-level test that undermines the prescribed duties test, which exempts employees from overtime pay if their job involves executive, administrative or professional duties. NAW said it would exhaust all avenues, including legal resources, to prevent the updated overtime rule from being enforced.

 

April 29, 2024

Business Groups Supporting Repeal of the Corporate Transparency Act

A bill is expected to be introduced in Congress this week that would repeal the Corporate Transparency Act (CTA), a 2021 law that requires small businesses to disclose information on their owners.

Sen. Tommy Tuberville (R-AL) and Rep. Warren Davidson (R-OH) are planning to introduce the legislation in their respective chambers. FEDA joined several other business groups and trade associations in sending a letter to the congressmen supporting their efforts to repeal the bill.

The CTA has been criticized for being overly broad in its efforts to unearth financial crimes, particularly its definition of a shell company as any legal entity with 20 or fewer employees or $5 million or less in revenues — effectively encompassing every small business in the United States. The bill requires those businesses to report beneficial owners’ information to the Department of Treasury’s Financial Crimes Enforcement Network, creating an additional burden on an estimated 32.6 million businesses.

“Multiply 32 million by the number of beneficial owners per entity, and it becomes apparent that the CTA reporting regime is likely the biggest data collection regime in the history of the federal government outside of the tax code,” the letter states.

The status of the CTA is already in flux after a federal district court in Alabama ruled it unconstitutional in March, finding that it “transcends the limits imposed by the Constitution on the legislative branch.” Still, a repeal of the law would fully settle the issue.

“Your legislation would put an end to this remarkable overreach by repealing the CTA in its entirety. It would end this unnecessary reporting regime before it gets started and it would give Congress the opportunity to craft a better approach that balances our national security needs with the interests and rights of law-abiding small business owners,” the letter adds.

The full letter is available here.

 

Biden Calls for Higher Tariffs on Chinese Steel and Aluminum

President Joe Biden announced plans to triple tariffs on Chinese steel and aluminum imports to combat alleged unfair competition from Chinese companies.

There is currently a 7.5 percent tariff rate on certain steel and aluminum products under Section 301, which applies to Chinese-produced steel and aluminum. Biden is now asking the Office of the U.S. Trade Representative to consider raising the Section 301 tariffs to 25 percent. That increase would be on top of the 25 percent tariff on steel and 10 percent tariff on aluminum imposed by the Trump administration through Section 232, which covers most countries except for Canada and Mexico. While the increase on Chinese exports would be notable, the Wall Street Journal reports that it would affect only 0.6 percent of U.S. demand for steel.

“American workers continue to face unfair competition from Chinese imports of steel and aluminum products, which are among the world’s most emissions-intensive,” the White House said in a statement announcing the plan. “Chinese policies and subsidies for their domestic steel and aluminum industries mean high-quality U.S. products are undercut by artificially low-priced Chinese alternatives produced with higher emissions.”

The Biden administration further said the president was directing his senior team to work with Mexico to jointly prevent China and other countries from evading Section 301 and 232 tariffs by importing through Mexico into the United States.

Increases to steel and aluminum tariffs have been opposed by business and trade groups, including the U.S. Chamber of Commerce, and the North American Association of Food Equipment Manufacturers (NAFEM) and FEDA have advocated for the removal of Section 301 tariffs entirely. Combined, Section 232 and 301 tariffs accounted for $228.6 billion in duties paid by American businesses from 2018 through March 20, 2024, according to data from U.S. Customs and Border Protection.

Economic Optimism Up in Latest Small Business Index

More small business owners believe the economy is improving, according to the latest Small Business Index from the U.S. Chamber of Commerce and MetLife.

The index rose slightly to 62.3 from 61.3 in Q4 2023, which the U.S. Chamber noted reflected a stable business climate. One in three (32 percent) of small business owners said the U.S. economy was in good health, up 7 percent from the previous report. Further, 38 percent said their local economy was in good health, up 8 percent. Nearly two-thirds of small businesses said the overall health of their business was good and 67 percent reported being comfortable with their cash flow.

“Small businesses’ perceptions of the economy are drifting upward, with businesses reporting being comfortable with their cash flow and the health of their business,” said Tom Sullivan, vice president of small business policy at the U.S. Chamber of Commerce. “While many business owners have continued to struggle with high prices and rising wages, recent jobs reports are positive. While headwinds remain, confidence is ticking upward and small businesses are more resilient and prepared for unforeseen challenges.”

Despite the improvement, nearly half of respondents felt the economy was in poor health. Much of that perception is likely fueled by continuing high levels of inflation, which 52 percent of businesses cited as a top challenge. Concern for revenue also rose 7 percent, with 29 percent of small businesses now calling it a top challenge.

Although some areas of concern remain elevated, MetLife and the U.S. Chamber believed the overall numbers were trending in a positive direction. “It is encouraging to see the majority of small business owners are satisfied with their business’s health and their current cash flow, despite ongoing concerns around inflation,” said Cynthia Smith, senior vice president and head of regional business at MetLife. “These trends convey a sense of optimism for the future and, once again, underscore the adaptability and determination shown by small business owners in challenging economic environments.”

For the full Small Business Index report, please click here.

April 15, 2024

Draft Bill Would Create More Requirements forEmployers Who Operate Warehouses

A draft bill being circulated on Capitol Hill would harm wholesale distributors by creating new requirements for employers who operate warehouses and protections for employees.

Sen. Ed Markey (D-MA) is seeking cosigners for the Warehouse Worker Protection Act, a law that would require the Occupational Safety and Health Administration (OSHA) to issue a proposed standard for ergonomic program management within three to four years. Additionally, the bill would require OSHA to issue a final rule within three years that would require employers to have medical professionals at the workplace to aid injured or ill workers and to provide occupational medicine consultation services. Further, it would establish a Fairness and Transparency Officer in the Department of Labor’s Wage and House Division, whose director may issue orders or regulations as necessary.

In addition to creating new workplace rules, the bill would speed up the timeline for abatement for willful or repeat violations. Employers who fail to correct a violation designated as willful or repeated, and who are not granted a stay, would be assessed a penalty of up to $7,000 for each day while the violation continues.

The bill has not yet been introduced in the Senate, but several business groups and trade associations, including FEDA, have signed on to an opposition list that is being shared with legislators.

Covered workplaces would include warehousing and storage facilities, wholesalers or durable and nondurable goods, electronic shopping and mail-order houses, and couriers and express delivery services.

 

April 15, 2024

Senate Votes to Rescind Expanded Joint Employer Rule

The Senate passed a resolution on April 10 to repeal the National Labor Relations Board’s (NLRB) new joint employer rule, sending the matter to President Joe Biden, who previously vowed to veto the measure.

The resolution was introduced under the Congressional Review Act (CRA), which allows Congress to repeal rules implemented by federal agencies, such as the NLRB. The House approved the resolution in January on a 206-177 vote, while the Senate vote was much narrower at 50-48. Sen. Joe Manchin (D-WV) and independent senators Angus King (I-ME) and Krysten Sinema (I-AZ) joined Republicans in voting for the resolution.

Last November, the NLRB released a final rule that created a new standard for joint-employer status that significantly expanded the scope of companies that could be considered joint employers of an individual worker. Under the new rule, a joint employer is defined as “two or more common-law employers of the same employees who share or codetermine those matters governing those employees’ essential terms and conditions of employment.” The rule also requires a joint employer to bargain collectively over the terms of employment for any employee under its control.

The expansion of which companies can be considered a joint employer has been strongly opposed by business groups and trade associations. In March, the U.S. District Court for the Eastern District of Texas sided with businesses by blocking the rule, finding that the NLRB’s broad definition meant that there was effectively no situation where a company would not be considered a joint employer.

The passage of the resolution by Congress seeks to further invalidate the NLRB’s revised joint employer rule. “Yesterday’s Senate vote delivers a clear bipartisan mandate, rejecting the NLRB’s harmful joint employer rule and protecting American businesses and workers from more red tape,” said Lauren Williams, associate vice president of government relations for the National Association of Wholesaler-Distributors. “We call on President Biden to sign this CRA and firmly support small businesses. We sincerely thank Leader Mitch McConnell and Sens. Bill Cassidy and Joe Manchin for their strong leadership.”

The vote was also commended by the National Restaurant Association, as the new joint employer standard would especially affect the restaurant industry because of the prevalence of the franchise model. “At a time when it’s next to impossible to get something passed in both Houses of Congress, yesterday the Senate came together to express their support of business owners by voting to overturn the National Labor Relation Board’s overreaching joint employer rule,” said Sean Kennedy, executive vice president for public affairs at the National Restaurant Association. “This vote echoes the support of House members, and we hope President Biden will give serious consideration to signing the resolution.

“The NLRB’s 2023 joint employer rule threatens the foundation upon which nearly a third of the restaurant industry is built,” Kennedy continued. “Restaurant ownership — especially for the franchisees that will be most impacted by the rule — grew significantly under the previous rule, opening doors for people who may not otherwise have been able to become an entrepreneur.”