Nicholas J. Pappas

U.S. law has long prohibited the “importation of goods mined, produced or manufactured in whole or in part with forced labor.” Initiation of Section 301 Investigations of Acts, Policies, and Practices of Various Economies Related to the Failure to Impose and effectively Enforce a Prohibition on the Importation of Goods Produced with Forced Labor, 91 Fed. Reg. 12,884 (March 17, 2026). Yet, the practice of receiving work or services from people under the “menace of any penalty for its nonperformance and for which the worker does not offer himself voluntarily” persists. Id. The International Labour Organization estimates that more than twenty-seven million individuals work under conditions of forced labor worldwide. These individuals work in industries that feed, clothe, and power the consumer economy in the United States. For U.S. companies operating in high-risk sectors, addressing forced labor risk is both a matter of corporate social responsibility and a compliance obligation. U.S. government interest in forced labor enforcement is intensifying on multiple fronts. For example, the Uyghur Forced Labor Prevention Act creates a presumption that goods originating from the Xinjiang region of China are made with forced labor, and companies can face detention of shipments, civil fines, and sanctions if they cannot rebut that presumption. The law thus places the burden squarely on the U.S. importer to demonstrate that forced labor is not found in their supply chains. Most recently, the Trump administration launched forced labor investigations into dozens of countries as part of its expanded enforcement posture, signaling that exposure is no longer confined to any single geographic region or industry. Against that backdrop, plaintiffs’ lawyers have increasingly used the Trafficking Victims Protection Reauthorization Act (TVPRA), codified at 18 U.S.C. § 1595, to bring civil claims against persons or entities for their participation in, or benefit from, forced labor and human trafficking that occurs anywhere in their supply chains. Although certain industries such as textiles, critical minerals, and agriculture are particularly at risk, companies across industries can face meaningful exposure under the statute. U.S. courts have found that the TVPRA does not confine liability to those who directly participate in a violation but extends it to any commercial actor that benefited from a venture the actor “knew or should have known” was violating the law. Because plaintiffs frequently bring TVPRA claims against multiple defendants and often pursue their claims as class actions, a single lawsuit can expose a company to significant damage claims, attendant litigation costs, and reputational harm. Thus, companies should establish appropriate mechanisms to identify, address, and confirm the absence of forced labor in their supply chains. Background: 18 U.S.C. § 1595. The TVPRA extends civil liability beyond those who directly commit the offenses. Specifically, liability reaches any person or entity that (1) knowingly benefits, financially or otherwise, (2) from participation in a venture (3) that the person knew or should have known was engaged in forced labor, human trafficking, or other conduct prohibited by the statute. 18 U.S.C. § 1595. Knowledge. Courts have drawn a firm line between general awareness that a sector or region has a forced-labor problem and actual or constructive knowledge that a particular supplier or a particular facility has engaged in specific violations. The former, standing alone, does not suffice to establish knowledge of the prohibited activity. How specific that knowledge must be, however, is a question courts have answered differently. Some courts have required that defendants be shown to have constructive knowledge tied to the specific individual bringing the claim. Doe v. Red Roof Inns, Inc., 21 F.4th 714, 725 (11th Cir. 2021). Other courts have found that constructive knowledge of the venture’s general pattern of violations is sufficient. G.G. v. Salesforce.com, Inc., 76 F.4th 544, 558 (7th Cir. 2023). Participation in a Venture. Whether a company has “participated in a venture” turns on the nature and depth of its relationship with the offending entity, not just whether a commercial relationship existed. For courts to find that an entity is a venture, the offending entity does not need to be a trafficking or forced labor enterprise; a legitimate business whose operations have engaged in conduct that violates the statute can qualify as a venture. However, not every commercial relationship rises to the level of participation. For example, a company that purchases goods through a supply chain without exercising meaningful operational involvement in or control over its suppliers’ conduct has not crossed the “participation in a venture” threshold. The decision in Doe v. Apple Inc., 96 F.4th 403 (D.C. Cir. 2024) illustrates how courts have drawn the line between participation and non-participation in an offending enterprise. In that case, plaintiffs claimed that major technology companies such as Apple, Alphabet, Dell Technologies, and others were liable under the TVPRA for purchasing cobalt that was sourced by their suppliers through mining companies that used forced labor in the Democratic Republic of the Congo. The U.S. Court of Appeals for the District of Columbia Circuit affirmed the lower court’s dismissal of the case. On the venture element, the appeals court held that end-purchasers who had no direct relationship with, or operational involvement in, the mining operations where the abuses occurred had not participated in a venture within the meaning of the statute finding that they had merely bought a product at arm’s length. Apple Inc., 96 F.4th at 415–16. The appeals court went further, finding that certain facts that plaintiff relied upon to establish the defendant’s “control,” including the commercial pressure held by defendants over the supplier and the contractual rights to inspect and conduct third-party audits of supplier facilities, were insufficient to transform a commercial relationship into venture-level participation. Id. at 416. Companies can draw two primary lessons from Apple Inc. First, the case confirms that downstream purchasers who lack operational entanglement with their suppliers are not, by virtue of that commercial relationship alone, participants in a venture under the TVPRA. Second, Apple Inc. signals that companies investing in robust supplier audit programs should not fear that those efforts will be turned against them as evidence of control. The court  made clear that having the contractual right to audit differs from exercising the kind of operational control that transforms a buyer into a participant. Therefore, companies should not let fear of exposure to TVPRA liability deter them from proactively building a robust compliance program. On the contrary, as explained in the section below, requiring supplier compliance with U.S. law is an integral part of any successful compliance program, as it both reduces the likelihood of forced labor occurring in the supply chain and preserves a company’s ability to defend itself against a TVRPA claim. Framework for Reducing Exposure. Companies with different supply chain structures, vendor relationships, and operating models face different risk profiles. But the doctrinal picture that emerges from the TVPRA case law demonstrates that courts rely heavily on the facts of a case to determine liability. Therefore, companies would be wise to be proactive when building their compliance programs to ensure they are conducting necessary due diligence and implementing safeguards to prevent exposure. To achieve that objective, companies may wish to consider the following guiding principles: Understand the Supply Chain Meaningful supply chain visibility, meaning beyond Tier 1, is the best way for companies with multi layered supply chains to identify weaknesses or areas of potential risk. Knowing not just who your suppliers are, but how they operate, who they engage with, and where risk concentrates allows companies to direct due diligence resources where they matter most and to intervene before a compliance problem becomes a legal one. Conduct Supplier or Vendor Due Diligence Before engaging with a new supplier or affiliate, companies should screen such potential vendors against restricted government entity and sanctions lists, review publicly available information about the supplier’s labor history or working conditions, ask the supplier directly for documentation of its compliance programs, and retain that information. Both the Department of Homeland Security and the Department of Labor have resources outlining goods, industries, and countries where the U.S. agencies suspect forced labor to be prevalent. Companies should create a record that demonstrates its diligence efforts and outlines the reasons why they did or did not proceed with the engagement. Implement Strong Internal Policies, Monitor, and Enforce Companies should operationalize their supplier codes of conduct and anti-forced labor policies through defined procedures, consistent monitoring of supplier conduct, and clear consequences for suppliers that fail to meet the company’s stated standards. Training for procurement and sourcing personnel should equip employees with specific “red flag” indicators of forced labor and establish a clear path for raising concerns to the appropriate personnel. Include Enforceable Standards Into Vendor or Supplier Contracts Contractual provisions requiring suppliers to comply with applicable labor laws, prohibiting forced labor and granting company audit rights, serve two functions: they reduce the risk of forced labor occurring and they establish, for litigation purposes, that the company did not simply acquiesce or turn a blind eye to its suppliers’ practices. A company with a documented history of detailing and enforcing these obligations is better positioned to argue that it lacked the actual or constructive knowledge of specific violations that the statute requires. Reprinted with permission from the June 1, 2026 edition of the New York Law Journal  © 2026 ALM Global Properties, LLC. All rights reserved. Further duplication without permission is prohibited, contact 877-256-2472 or asset-and-logo-licensing@alm.com.

Sweeping amendments to New York City’s Earned Safe and Sick Time Act (“ESSTA”), N.Y. C. Admin. Code. 20-911 et seq. recently took effect on February 22, 2026.  ESSTA requires employers to provide employees in New York City with paid and unpaid time off for a variety of reasons related to health, safety, childcare, legal proceedings for public benefits and housing, and public disasters. Originally enacted in April 2014, the law has been amended several times to expand employee rights to protected time off.  Last year, the New York City Council enacted the most significant changes yet to ESSTA.  As part of these amendments, the City has also begun referring to ESSTA as the “Paid Time Off Law.”  ESSTA now requires private sector employers to provide three different forms of job-protected leave: paid safe and sick leave, unpaid sick and safe leave, and paid prenatal leave.  The recent amendments to the law provide important protections to employees, but they also impose significant new compliance obligations on employers amid an increasingly complex landscape of leave administration. Multistate employers face a growing patchwork of state and local sick leave laws across the country.  In recent years, numerous states and municipalities have passed laws mandating job-protected sick leave for private sector employees.  At least seventeen states, the District of Columbia and numerous municipalities require employers to provide job-protected sick leave to their employees.  In this article, we will summarize the new requirements imposed by ESSTA. Amendments to ESSTA In 2025, the New York City Counsel amended ESSTA to require employers to provide employees with 20 hours of paid prenatal leave, 32 hours of unpaid safe and sick leave (in addition to up to 56 hours paid safe and sick leave), and to provide for expanded uses of safe and sick leave, including to care for a minor child or attend a legal proceeding for subsistence benefits.  New York City Mayor Zohran Mamdani’s office recently issued a press release announcing an enforcement blitz by the Department of Consumer and Worker Protection (“DCWP”), the agency responsible for enforcing ESSTA.  DCWP sent out compliance warnings to more than 56,000 employers, and announced a new data-driven enforcement strategy to compare paid sick leave use in employer records with national data from the U.S. Centers for Disease Control and Prevention for evidence of likely noncompliance.[1] Scope of ESSTA.  The law applies to private sector employees who work in New York City, with the exception of certain employees covered by collective bargaining agreements and certain hourly professionals licensed by the New York State Education Department. Employers located outside of New York City must provide ESSTA leave to any of their employees who work in New York City, including employees who work remotely in New York City or who live outside of the City. Paid Safe and Sick Leave Employers with fewer than 100 employees in the U.S. must provide employees with 40 hours of paid sick and safe leave per year.  However, if an employer has fewer than five employees and a net income of less than $1 million in the previous tax year, it may provide this 40-hour allotment of safe and sick leave as unpaid time off.  Employers with 100 or more employees in the U.S. must provide employees with 56 hours of paid safe and sick leave per year. Employers may calculate safe and sick leave time based on the calendar year, a benefits year, or some other 12-month period. Paid safe and sick leave accrues at the rate of one hour for every 30 hours worked.  For purposes of accrual, most exempt employees are assumed to work 40 hours per week.  Employers have the option to frontload paid safe and sick time by making it available at the beginning of each year, rather than requiring employees to accrue it over time.  Frontloading the full amount of paid safe and sick time at the beginning of the year relieves employers of the obligation to track and note accruals on pay statements.  However, it does not relieve them of the obligation to track and note an employee’s use and balance of safe and sick leave on pay statements, as described in more detail below. Pursuant to ESSTA, employees may carryover from one year to the next up to 40 hours (for employers with fewer than 100 employees) or 56 hours (for employers with 100 or more employees) of accrued, unused paid safe and sick leave.  However, employers may cap the use of paid safe and sick leave at 40 or 56 hours per year (depending on employer size).  The ability to carryover paid safe and sick time from one year to the next is beneficial for employees who may need to use such time early in the year, before they have accrued sufficient paid leave in that year.  Employers who both frontload the full amount of paid sick and safe time at the beginning of each year and pay employees for any unused time at the end of the year do not need to permit carryover. Unpaid Safe and Sick Time All employers, regardless of size and net income, also must provide employees with 32 hours of unpaid safe and sick leave as of February 22, 2026, upon hire and on the first day of each year.  The annual 32 hours of unpaid safe and sick time may not be prorated, including for employees who commence employment mid-way through the year. Unlike paid safe and sick time, these 32 hours of unpaid leave do not accrue, and are available for immediate use on the first day of each year or upon hire.  Employers are not required to allow employees to carryover unused unpaid safe and sick leave from one year to the next.  Employers must, however, allow employees to exhaust their paid safe and sick leave before using any unpaid safe and sick time. Permitted Uses of Safe and Sick Leave Both paid and unpaid safe and sick leave may be used for a number of reasons, including (i) to care for an employee’s own health needs or that of a family member, (ii) during a business, school or daycare closure for a public health emergency, (iii) to seek assistance or take safety measures if an employee or a family member is the victim of domestic violence, unwanted sexual contact, stalking, human trafficking or workplace violence, (iv) to care for a child or for a family or household member with a disability, (v) to attend housing and public benefits appointments and hearings, and (iv) to stay home when the government declares a public disaster (e.g., fires, hurricanes, terrorist attacks). Paid Prenatal Leave In addition to safe and sick leave, ESSTA also requires employers, regardless of size and net income, to provide employees with 20 hours of paid prenatal leave.  Employers must provide employees with a separate bank of paid prenatal leave that is distinct from, and cannot be combined with, any other leave including safe and sick leave. Paid prenatal leave does not accrue and is immediately available for use upon hire and on the first day of every 52-week period.  For purposes of calculating paid prenatal leave, a 52-week period for a particular employee will begin on the first day that the employee uses paid prenatal leave.  Employees may use paid prenatal leave to receive health care during pregnancy or related to pregnancy, including fertility treatment.  Only employees who are directly receiving health care for their pregnancy may use paid prenatal leave, and such leave may not be used after childbirth. Additional Requirements ESSTA imposes several additional obligations and restrictions on employers. First, employers must note on an employee’s pay statement or other form of written documentation provided each pay period: (i) the amount of paid safe and sick time the employee has accrued during a pay period; (ii) the amount of paid and unpaid safe and sick time the employee used during a pay period; and (iii) the amount of paid and unpaid safe and sick time the employee has available for immediate use. Additionally, for each pay period in which an employee uses paid prenatal leave, an employer must note on the employee’s pay statement or in other written documentation provided to the employee, both the amount of paid prenatal leave used during the pay period and the amount of paid prenatal leave available for immediate use. Second, ESSTA only permits employers to require reasonable documentation from an employee that their use of leave was for an authorized purpose when the employee takes leave for more than three consecutive workdays.  The law also circumscribes the types of documentation that employers may require, and prohibits employers from requiring employees to disclose the nature of the employee’s or family member’s medical condition or care, or the underlying reason for using safe time. Third, employers may require reasonable advance notice of an employee’s need for leave.  When the need for leave is foreseeable, an employer may require notice up to seven days in advance.  However, when the need for leave is not foreseeable, an employer may only require notice as soon as practicable, including upon the employee’s return from leave. Fourth, employers must provide employees with a written notice of rights under ESSTA upon hire and within 30 days of any change to such rights.  Employers also must post a notice of rights in the workplace.  The DCWP published a model notice of employee rights on its website that employers may use. Finally, employers must maintain a written policy on ESSTA leave that addresses several issues including accrual, frontloading and carryover of safe and sick time,  the amount of safe and sick leave that is immediately available for use, the availability of a separate bank of paid prenatal leave, any advance notice requirements and procedures, requirements regarding written documentation of leave and consequences for failing to provide such documentation, minimum increments for use, any policy regarding misuse of leave, and a statement that the employer will not ask employees for details about the reason for use of ESSTA leave and that the employer will treat any information it receives as confidential.  Employers should update their policies as necessary to reflect the recent amendments to ESSTA. Employers who fail to comply with their obligations under ESSTA may be subject to progressive civil penalties assessed on a per employee and per instance basis as well as private rights of action by employees to recover compensatory damages, injunctive and declaratory relief, and attorneys’ fees and costs.   [1] New York City Mayor’s Office, Mayor Mandani Announces Major Expansion of Protected Time Off for 4.3 Million Workers and New Data-Driven Enforcement strategy (February 20, 2026): https://www.nyc.gov/mayors-office/news/2026/02/mayor-mamdani-announces-major-expansion-of-protected-time-off-fo; New York City Department of Consumer and Worker Protection, Benchmarks for Evaluating Compliance with NYC’s Protected Time Off Law: https://www.nyc.gov/assets/dca/downloads/pdf/media/Protected-Time-Off-Report.pdf. Reprinted with permission from the April 6, 2026 edition of the New York Law Journal © 2026 ALM Global Properties, LLC. All rights reserved. Further duplication without permission is prohibited, contact 877-256-2472 or asset-and-logo-licensing@alm.com.

Just about 20 years ago, Schlichter Bogard LLC, a prominent national plaintiffs’ law firm, filed a wave of putative ERISA class actions challenging how employers administered their 401(k) plans.  Those cases led to two decades of litigation.  Hundreds of similar cases were filed, resulting in billions in settlements and judgments.  What largely started as a challenge to a discrete issue—how 401(k) plans used revenue sharing—quickly turned into lawsuits challenging almost every aspect of how employers and fiduciaries administer 401(k) plans. Just before Christmas 2025, the Schlichter firm once again delivered an unwelcome holiday surprise to employers across the United States. On December 23, Schlichter filed four nearly identical class action lawsuits targeting co-called “voluntary benefit plans.” The complaints named as defendants United Airlines, CHS/Community Health Systems, Laboratory Corporation of America Holdings, and Universal Services of America along with their benefits consultants—Mercer, Gallagher, Willis Towers Watson, and Lockton. These lawsuits represent what may well be the opening salvo in a new wave of ERISA litigation. Plaintiffs’ lawyers hope these cases will fundamentally reshape how employers offer voluntary benefits like accident, critical illness, cancer, and hospital indemnity insurance to their employees. “Voluntary Benefits” The term “voluntary benefits” is a colloquial term referring to non-traditional benefit plan options that employers might offer to their employees.  Generally speaking, these plans offer benefits that traditional ERISA benefit plans (such as group health and disability plans) do not cover.  Common examples include insurance that covers out-of-pocket costs resulting from accidents or hospital stays, or long-term care coverage. In theory, employers do not directly fund or sponsor these plans, but instead simply give insurers the opportunity to pitch these products to employees.  Employees get the benefits of group rates along with the convenience of having premiums deducted from their paychecks. ERISA Coverage The first question raised by these cases is whether ERISA (and its fiduciary obligations) even apply.  Many employers believe their voluntary benefits fall under a Department of Labor safe harbor (29 C.F.R. § 2510.3-1(j)) that exempts such plans from ERISA coverage. To qualify for this exemption, four conditions must be met: (1) the employer cannot make any contributions to the plan (2) it must not receive more than reasonable compensation for administrative costs, (3) employee participation is completely voluntary, and (4) the employer does nothing to endorse or administer the plan beyond allowing payroll deductions. In the new wave of complaints, Schlichter argues that the employers have failed to satisfy the second and fourth requirements.  The complaints allege that the employers indirectly benefited by receiving indirect compensation from the brokers and sponsors.  The Schlichter complaints likewise argue that the employers have endorsed the plan by engaging in seemingly innocuous activities, such as notifying insurers of newly eligible employees, issuing enrollment reminders via email, or including the employer's logo on communication materials.  The complaints also allege that the employers reportedly conceded in their Form 5500 filings with the Department of Labor that their voluntary benefit plans are subject to ERISA. The Allegations The four complaints make similar allegations. Each alleges that ERISA applies to these plans, and thus the employer has a fiduciary obligation to properly administer these plans.  Each alleges that the employers breached their fiduciary duties under ERISA by failing to properly monitor and control the costs of these voluntary benefit programs. For example, the complaints contend that defendants failed to monitor premiums, failed to properly vet insurers and the plans’ loss ratios, and failed to monitor broker commissions. The complaint against United Airlines exemplifies Schlichter’s strategy.  The approximately 50-page complaint alleges that United Airlines breached its fiduciary duties with respect to its voluntary benefit plan by failing to compare premiums charged to other similarly situated plans.  It further alleges that the voluntary benefit programs allegedly adopted by United Airlines had subpar loss ratios (i.e., the amount that the plans paid out in benefits compared to the amount of premiums received).  Further, the complaint presents a comparison showing that while comparable voluntary benefit programs had broker commissions averaging between 2.1% and 19% of premiums, United's program allegedly featured commissions of 36%, raising costs to participants. The complaint further alleges claims against United Airline’s broker, Mercer Health and Benefits Administration.  The complaint alleges that Mercer became a fiduciary when it steered the employer toward more expensive, commission-rich products.  The complaint further alleges that both United and Mercer engaged in self-dealing—Mercer profited from steering employees toward more expensive, commission-rich products while United allegedly benefited from indirect services and support provided by the broker. This dynamic created a conflict of interest that the complaint characterizes as operating at the expense of plan participants. Practical Steps To avoid the expenses and distraction of litigation, employers offering voluntary benefits should consider taking the following proactive steps to minimize litigation risk: Assess ERISA Coverage Status. Employers should carefully evaluate whether their voluntary benefit programs truly meet all four requirements of the Department of Labor's safe harbor exemption. If the plan involves any employer contribution, endorsement activities, or if the employer receives benefits from brokers/sponsors (cash or otherwise), future plaintiffs may allege, rightly or wrongly, that the plan falls under ERISA's fiduciary requirements.  Employers should know that the open-ended nature of the DOL safe-harbor poses some challenges to employers seeking to comply with their duties under ERISA.  To maximize the likelihood that ERISA will not apply, at a minimum, 5500 filings should be carefully reviewed to ensure the employer is not endorsing the plan as an ERISA plan if the employer is not treating it as an ERISA plan. Ensure ERISA Fiduciary Compliance:  Even if the employer does not believe the plan is covered by ERISA, given the risks the employer should consider administering the plan as if it were governed by ERISA.  This can include soliciting competitive bids from multiple carriers, engaging in RFPs periodically, and carefully documenting the decisions the employer makes along with the reasons for such decisions. Demand Broker Transparency. Request full disclosure of all broker compensation, including base commissions, contingent commissions, bonuses, and any other forms of payment received from carriers. The Schlichter complaints emphasize the alleged failure to disclose conflicts of interest, so documenting these arrangements and evaluating whether compensation is reasonable is essential.  Consider, for example, moving to a flat fee arrangement or otherwise limiting the possibility that brokers might have a conflict of interest. Document Fiduciary Processes. Establish and follow formal procedures for selecting carriers, monitoring plan performance, and reviewing costs. Maintain detailed records of committee meetings, requests for proposals, carrier evaluations, and the rationale for decisions. Review Insurance Loss Ratios. Request and analyze loss ratio data from carriers—the percentage of premiums actually paid out in claims. Avoid Indirect Benefits:  To avoid self-dealing claims (and ensure compliance with the safe harbor), employers should ensure that they do not receive compensation from then brokers or insurers in connection with the voluntary benefit plan. Looking Ahead Interest in these lawsuits is exceptionally high given Schlichter Bogard's track record.  If history repeats itself, the four initial complaints may represent just the first batch of a much larger litigation campaign. For employers offering voluntary benefits, the message is clear: voluntary benefit plans are targets for plaintiffs’ class action firms.  Benefits consultants and brokers face similar pressures to demonstrate that their compensation is reasonable and that they are acting in plan participants' best interests rather than their own. As these cases proceed through the courts, the entire voluntary benefits industry will be watching closely to see whether Schlichter Bogard can replicate its 401(k) litigation success in this new arena. The immediate risk to unprepared employers can be significant. Taking proactive steps now to evaluate ERISA coverage, enhance oversight processes, and ensure broker arrangements serve participants' interests, can help employers avoid becoming the next target in Schlichter Bogard's litigation campaign. _____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________ "Reprinted with permission from the February 2, 2026 edition of the New York Law Journal  © 2026 ALM Global Properties, LLC. All rights reserved. Further duplication without permission is prohibited, contact 877-256-2472 or asset-and-logo-licensing@alm.com."

Employers often must consider conflicting objectives when deciding whether to include arbitration provisions in their employment agreements.  On the one hand, employers may desire to arbitrate disputes with employees in a rapid, inexpensive, and confidential manner. On the other hand, employers must consider whether a court will find the arbitration provision to be enforceable under an increasingly complex and developing body of law. The Second Circuit Court of Appeals recently considered the complexities in the law governing arbitration in a case addressing an arbitration requirement contained in the Constitution of the National Football League (“NFL”).  In Flores v. N.Y. Football Giants, Inc., 150 F.4th 172 (2d Cir. 2025), the Second Circuit declined to enforce the arbitration requirement in the NFL’s Constitution, which was incorporated into an employment agreement that football coach Brian Flores entered with the New England Patriots.  Instead, the Court allowed Flores to pursue his claims of race discrimination in hiring against the Denver Broncos, the New York Giants, the Houston Texans and the NFL in federal court, though the NFL and these teams had moved to compel arbitration of these claims.  These claims arose out of the Broncos’ failure to hire Flores as its head coach in 2019 and the Giants’ and Texans’ failure to hire him to fill head coaching positions in 2022. In this article, we review the Second Circuit’s decision in Flores and analyze the need for employers to specify legally adequate arbitration procedures as a condition to the enforcement of their arbitration clauses. Background In an August 14, 2025 opinion, the Second Circuit held that Brian Flores, who has coached for multiple NFL teams, was not required to arbitrate his claims of racial discrimination in hiring against the Denver Broncos, the New York Giants, the Houston Texans, and the NFL pursuant to the NFL Constitution’s arbitration provision, to which Flores assented through an employment agreement with the New England Patriots. Flores v. N.Y. Football Giants, Inc., 150 F.4th at 182-87. Although the parties did not dispute that the NFL Constitution’s arbitration provision applied to Flores’s discrimination claims, the Second Circuit agreed with Flores that the arbitration provision lacked protections required by Federal Arbitration Act (“FAA”) and was, therefore, unenforceable.  Specifically, the Court reasoned that the arbitration clause “fail[ed] to guarantee that Flores can ‘vindicate [his] statutory cause of action in [an] arbitral forum.’” Id. at 182 (quoting Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, 473 U.S. 614, 637 (1985)). The Court found that the arbitration provision contained in the NFL’s Constitution did not meet the requirements for enforcement under the FAA because it granted the NFL Commissioner unilateral procedural and substantive discretion over the arbitration proceedings, denying Flores an independent arbitral forum for bilateral dispute resolution. Id. at 183. It also failed to specify “the procedure to be used in resolving the dispute,” meaning that there would be no way for Flores to predict how the arbitration would be conducted and that he would be at the Commissioner’s whim. Id. at 184-85. Separately, the Court found that the arbitration provision was unenforceable under “the effective vindication doctrine,” established by the Supreme Court in Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc. The Court reasoned that enforcing the arbitration clause “would require Flores to submit his statutory claims to the unilateral discretion of the executive of one of his adverse parties, without an independent arbitral forum under contract and without a process for bilateral dispute resolution.” Id. at 185-86. Accordingly, the Second Circuit affirmed the district court’s holding that the NFL would be required to litigate against Flores in federal court. In an October 2025 order, the Second Circuit declined to reconsider its decision.  Flores, No. 23-1185, ECF No. 200 (2d Cir. Oct. 6, 2025) (Order denying petition for rehearing). FAA’s Procedural Requirements One concern driving the Second Circuit’s analysis in Flores was the NFL Constitution’s creation of an arbitral tribunal within the NFL itself.  However, the larger and ultimately fatal problem with the NFL Constitution’s arbitration provision was the lack of procedural specificity needed to ensure that Flores could effectively vindicate his rights through a bilateral dispute resolution process. Arbitral tribunals within an industry, or even within the larger organization against which a party seeks to bring a claim, are not in and of themselves fatal to having an enforceable arbitration clause.  Rather, courts have held that such arbitration requirements may be enforced when the arbitration will be conducted in a manner that can be predicted based on the terms of the agreement, the proceedings are not one-sided, and they allow for substantive rights and statutory claims to be heard. See, e.g., Hooters of Am., Inc. v. Phillips, 173 F.3d 933, 938-40 (4th Cir. 1999). The Eleventh Circuit’s decision in Garcia v. Church of Scientology Flag Serv. Org., Inc., No. 18-13452, 2021 U.S. App. LEXIS 32601 (11th Cir. Nov. 2, 2021) illustrates this principle. In Garcia, former Church of Scientology members Luis and Maria Garcia brought claims for fraud, deceptive trade practices, and breach of contract against the Church. Id. at *4. The Church moved to compel arbitration pursuant to an arbitration agreement within Scientology applications signed by the Garcias providing that disputes would be resolved through “Scientology's Internal Ethics, Justice and binding religious arbitration procedures.” Id. at *6. According to the arbitration agreement, this binding religious arbitration would be conducted in accordance with established arbitration procedures of Church of Scientology International, which included “procedures for submitting a request for arbitration to the International Justice Chief of Scientology and the opposing party and for the selection of three arbitrators to hear and resolve the matter.” Id. at *6-7. Each party would designate one arbitrator, and those two arbitrators would select a third panel member, though all arbitrators had to be Scientologists in good standing, and if arbitrators were not appointed within a designated time, they would be appointed by the Scientology Justice Chief. Id. at *7. The district court held, and the Eleventh Circuit affirmed, that this arbitration agreement was enforceable—even though the very entity the Garcias were suing was conducting the arbitration—because it “included enough procedures to give the Garcias some idea of the matters to be arbitrated and the manner of effecting arbitration.” Id. at *7, 11-12, 25-27, 34-35. The predictability of the composition of the arbitration panel and the procedures the forum will follow distinguishes Garcia from Flores.  In contrast to the arbitration provision in Garcia, the arbitration provision in Flores provided “for no independent arbitral forum, no bilateral dispute resolution, and no procedure.” 150 F.4th at 183. This emphasis on procedural predictability may at first blush appear to be a departure from the Second Circuit’s prior decision regarding internal NFL arbitrations related to the Tom Brady “Deflategate” dispute. In NFL Mgmt. Council v. NFL Players Ass'n, 820 F.3d 527 (2d Cir. 2016), the Second Circuit held that the NFL’s disciplinary arbitration proceedings (which are governed by the Labor Management Relations Act (“LMRA”), not the FAA) were permissible.  In NFL Mgmt. Council, the Court reasoned that the NFL Commissioner properly exercised his authority to serve as the hearing officer for Brady’s arbitration proceedings, because the Commissioner was granted broad discretion to resolve intramural controversies between the League and players in the Collective Bargaining Agreement (the “CBA”) between the League and the NFL Players Association. 820 F.3d at 532-34. While the relevant CBA article governing arbitration may appear to be at odds with the Second Circuit’s reasoning in Flores, in Flores the Second Circuit reconciled this apparent inconsistency by noting that in NFL Mgmt. Council it had conducted only a “very limited” post-arbitration-award review that concerned contractual, not federal statutory, rights.  Flores, 150 F.4th 172, 186 n.72 (2d Cir. 2025). Although the relevant CBA article in NFL Mgmt. Council “[did] not articulate rules of procedure for the hearing, except to provide that ‘the parties shall exchange copies of any exhibits upon which they intend to rely no later than three (3) calendar days prior to the hearing,’” NFL Mgmt. Council,  820 F.3d at 537, the Court held that the NFL provided Brady sufficient notice of the prohibited conduct and potential discipline.  Brady’s only other arguments against arbitration did not refute the existence of such notice.  Rather Brady argued only that the equipment violations at issue should have been punished only with a fine under the Player Policies, that the Commissioner wrongfully analogized the “Deflategate” dispute to steroid use, and that “no NFL policy or precedent provided notice that a player could be subject to discipline for general awareness of another person's alleged misconduct” (referring to the individual who actually deflated the game balls). Id. at 538-42 (citing NFL Mgmt. Council v. NFL Players Ass'n, 125 F. Supp. 3d 449, 466 (S.D.N.Y. 2015)). The Court also disagreed that the exclusion of the NFL General Counsel’s testimony and denying Brady’s counsel access to certain investigative files amounted to fundamental unfairness. Id. at 546-47. Practical Considerations Within the Second Circuit and New York state case law, there are many examples of organization-specific and industry-specific arbitration bodies that provide for sufficient procedures and thus maximize the likelihood that a Court will find that such arbitration clauses comport with either the FAA or LMRA. These examples include arbitrations according to the Rules and Constitution of the New York Stock Exchange, e.g., Salvano v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 85 N.Y.2d 173 (1995), arbitrations under the National Association of Securities Dealers Code of Arbitration Procedure, e.g., Thomas James Assocs. v. Jameson, 102 F.3d 60 (2d Cir. 1996), and various arbitration procedures set forth in collective bargaining agreements, e.g. Germosen v. ABM Indus. Corp., No. 13-cv-1978 (ER), 2014 U.S. Dist. LEXIS 119092 (S.D.N.Y. Aug. 26, 2014). Post-Flores, employers operating within organizations or industries with arbitration requirements analogous to those of the NFL may wish to clarify the procedures that will govern their arbitrations.  For example, employers may spell out in as much detail as practicable how the arbitration will proceed such that an arbitrator can simply read the agreement and know how to manage the arbitration proceedings. To the extent feasible, employers may consider providing for an arbitration panel, rather than a single arbitrator, as was the case in Garcia. In Garcia, each party appointed an arbitrator and then the two appointed arbitrators selected the third panel member. Having a multi-arbitrator panel may mitigate allegations of arbitrator partiality such as the claims made about the NFL Commissioner in Flores. Of course, employers may seek to opt out of such organization or industry arbitration regimes and instead agree upon the procedural rules of an arbitral institution like AAA or JAMs, which have well established procedures and rules to govern arbitration. ____________________________________ Reprinted with permission from the December 8th, 2025 edition of the New York Law Journal © 2025 ALM Global Properties, LLC. All rights reserved. Further duplication without permission is prohibited, contact 877-256-2472 or asset-and-logo-licensing@alm.com

The U.S. Department of Justice (“DOJ”) and the Securities and Exchange Commission (“SEC”) have announced several changes to their whistleblower programs and rules, reflecting the federal government’s continued focus on encouraging individuals to report corporate misconduct. Specifically, on May 12, 2025, DOJ expanded its whistleblower program to prioritize additional “high impact” subject areas. On September 9, 2024, during the Biden administration, the SEC announced settled charges against seven public companies for Rule 21F-17(a) violations in connection with employment-related agreements that impeded whistleblowers from reporting potential misconduct to the SEC. As federal agencies strengthen protections for whistleblowers, employers likewise face evolving challenges. These developments not only increase the likelihood of internal concerns being brought to the attention of federal authorities but also raise the stakes for organizations that fail to comply with whistleblower protections. In this article, we examine changes in whistleblower programs and enforcement trends, including key updates to federal policies and notable enforcement actions. We also discuss the practical implications for employers navigating this complex web of legal requirements and heightened scrutiny. Finally, we offer actionable strategies to help organizations foster a culture of compliance, respond effectively to whistleblower reports, and reduce the risk of costly investigations or penalties. By understanding these new risks and proactively addressing them, employers can better protect their interests while supporting a transparent and ethical workplace. DOJ’s Whistleblower Program Expands  During the early months of the second Trump administration, the DOJ Criminal Division announced changes to the Division’s corporate and white-collar enforcement policies and priorities aimed at bringing the Division’s priorities in line with those of the new Trump administration. The head of the Criminal Division, Matthew R. Galeotti, announced those changes in a speech on May 12, 2025. Remarks at SIFMA’s Anti-Money Laundering and Financial Crimes Conference, Matthew R. Galeotti, 12 May 2025, available here. On the same day, Galeotti issued a memorandum that laid out changes to the Criminal Division. DOJ Criminal Division Memorandum: Focus, Fairness, and Efficiency in the Fight Against White-Collar Crime, Matthew R. Galeotti, 12 May 2025, available here. In the memorandum, Galeotti announced that the Criminal Division will prioritize investigating and prosecuting corporate crime in ten “high-impact” areas. To further underscore the Division’s focus on these priority areas, Galeotti simultaneously announced an expansion of the Criminal Division’s Corporate Whistleblower Awards Pilot Program (“CWAPP”) to encompass these areas. As background, the Biden administration established the CWAPP in August 2024 to encourage individuals with knowledge of specific categories of white-collar crime to come forward in exchange for potential financial compensation provided the information enables the DOJ to recover more than $1 million dollars in civil or criminal forfeiture. DOJ Press Release: Corporate Whistleblower Awards Pilot Program, available here. The potential financial compensation for DOJ whistleblowers is substantial: whistleblowers may receive up to 30 percent of the first $100 million in net proceeds forfeited, and up to 5 percent of any net proceeds forfeited between $100 million and $500 million. CWAPP does include a safe harbor provision whereby companies that voluntarily self-report within 120 days of receiving an internal whistleblower report may be eligible for a presumption of a declination under the Division’s Corporate Enforcement and Voluntary Self-Disclosure Policy. DOJ Press Release: Temporary Amendment to the Criminal Division Corporate Enforcement and Voluntary Self-Disclosure Policy, available here. In the memorandum, Galeotti announced that the CWAPP would be expanded to encompass violations committed by or through companies that reflect the Trump administration’s broader enforcement priorities, including: “Violations by corporations related to international cartels or transnational criminal organizations, including money laundering, narcotics, Controlled Substances Act, and other violations;” “Violations by corporations of federal immigration law;” “Violations by corporations involving material support of terrorism;” “Corporate sanctions offenses;” “Trade, tariff, and customs fraud by corporations;” and “Corporate procurement fraud.” Employers should take particular note of the inclusion of immigration law violations as among the administration’s enforcement priorities now eligible for CWAPP awards. This change marks a significant departure from the prior administration’s priorities. Potential corporate violations of immigration law may include knowingly employing unauthorized workers, misuse of or circumvention of visa programs, failure to properly maintain I-9 Forms for all employees, or immigration fraud. Traditionally, the Department of Homeland Security enforced corporate violations of immigration law through the Immigration and Customs Enforcement agency and its worksite enforcement program. Expanding the DOJ Criminal Division’s CWAPP to cover violations of federal immigration law—effectively placing immigration law violations in the same category as traditional white-collar crimes like money laundering and material support of terrorism—may reflect a shift towards increased criminal enforcement of these violations through the DOJ. At a minimum, whistleblowers will now have financial incentive through the CWAPP to bring information related to possible federal immigration law violations to the DOJ. To mitigate the risk of whistleblower activity and enforcement related to violations of federal immigration law, employers should thoroughly assess any vulnerabilities in their immigration policies, practices, and procedures. This should include a close examination of hiring and sponsorship practices, I-9 Form procedures, and third-party staffing contracts. Employers should also establish robust and confidential reporting channels through which employers encourage employees to report any concerns regarding immigration compliance. SEC Rule 21F-17(a) In 2010, as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”), Congress established the SEC’s whistleblower program to incentivize whistleblowers to report information about possible federal securities laws violations. Pub. L. No. 111-203, 124 Stat. 1376 (2010). Dodd-Frank authorizes the SEC to provide monetary awards to eligible individuals who come forward with information that leads to enforcement actions in which over $1 million in sanctions is ordered. Awards range between ten to thirty percent of the money collected. In 2024, the SEC granted over $255 million in whistleblower awards, underscoring the program’s robustness. SEC Office of the Whistleblower Annual Report to Congress for Fiscal Year 2024, available here. Dodd-Frank and the Sarbanes-Oxley Act, Pub. L. No. 107-204, 116 Stat. 745 (2002), afford whistleblowers certain legal protections. After Dodd-Frank, the SEC implemented rules enabling the SEC to take legal action against employers who have retaliated against whistleblowers. The SEC also promulgated a rule that prohibits any person from taking any action to “impede an individual from communicating directly with the Commission staff about a possible securities law violation.” SEC enforcement actions based on Rule 21F-17(a) “impeding” violations have recently played a more prominent role in the SEC’s enforcement strategy. During the Biden administration, there was an uptick in enforcement actions against companies for Rule 21F-17(a) violations based on employee agreements. For example, on September 9, 2024, the SEC announced settled charges against seven public companies for violations of Rule 21F-17(a) in connection with employment, separation, and other agreements that impeded whistleblowers from reporting potential misconduct to the SEC. SEC Press Release: SEC Charges Seven Public Companies with Violations of Whistleblower Protection Rule, 9 Sept. 2024, available here. More recently, on January 16, 2025, the SEC announced settled charges against an investment advisory firm for, in part, violating Rule 21F-17(a) by requiring departing employees in separation agreements to state that they had not filed a complaint with any governmental agency. Two Sigma Investments, LP, and Two Sigma Advisers, LP, Securities Exchange Act Release No. 102207 (Jan. 16, 2025), available here. The SEC found that this requirement could, in effect, identify whistleblowers and prohibit them from receiving post-separation payments and benefits, thereby constituting illegal impeding activity. Employers should remain aware and monitor the extent to which the SEC continues to focus on Rule 21F-17(a) enforcement actions during the current Trump administration. During the first Trump administration, the SEC did not prioritize Rule 21F-17(a) enforcement actions based on language in employer agreements that might potentially impede reporting. The SEC instead focused its enforcement efforts on cases where individuals were actively impeded from reporting information to the SEC by company actions. For example, on November 4, 2019, the SEC filed suit against a company alleging, among other things, that the company “took actions to impede individuals from communicating directly with SEC staff about possible securities violations, including by enforcing and threatening to enforce confidentiality agreements with respect to such communications.” Amended Complaint at ¶ 11, United States Securities and Exchange Commission v. Collector’s Coffee, Inc. (d/b/a Collectors Café), and Mykalai Kntilai, 697 F. Supp. 3d 138 (S.D.N.Y. 2023) No. 1:19-cv-04355, available here. While the SEC has not yet announced settled charges based on Rule 21F-17(a) under the current Trump administration, in April the SEC issued a press release publicizing a $6 million whistleblower award, signaling a continued commitment to the program. SEC Press Release: SEC Awards $6 Million to Joint Whistleblowers, 21 April 2025, available here. Further, in the past month the SEC announced five additional whistleblower awards. Whistleblower Award Proceeding File No. 2025-45, 28 Aug. 2025, available here; Whistleblower Award Proceeding File No. 2025-47, 2 Sept. 2025, available here; Whistleblower Award Proceeding File No. 2025-48, 2 Sept. 2025, available here; Whistleblower Award Proceeding File No. 2025-49, 3 Sept. 2025, available here; Whistleblower Award Proceeding File No. 2025-51, 4 Sept. 2025, available here. To mitigate the risk of Rule 21F-17(a) enforcement actions, employers should review all employee-related procedures, policies, and agreements to eliminate any language that reasonably could be interpreted to impede reporting to the SEC. This includes compliance manuals, ethics codes, training manuals, non-disclosure agreements, confidentiality agreements, contractor and consulting agreements, and separation agreements. For example, the SEC charged a Rule 21F-17(a) violation where a company’s compliance manual prohibited employees from initiating contact with any regulator without prior approval from the company’s legal or compliance department. Guggenheim Securities, LLC, Securities Exchange Act Release No. 92237 (June 23, 2021), available here. In another enforcement action, the SEC charged a Rule 21F-17(a) violation where a company entered into severance agreements that required departing employees to forgo any monetary recovery in connection with filing a charge or complaint with any applicable governmental administrative agency. Gaia, Inc. and Paul C. Tarell, Jr., CPA, Securities Exchange Act Release No. 97548 (May 23, 2023), available here. Additionally, if an employee, or other individual, raises concerns about securities law violations, employers should avoid taking actions against the employee, or individual, that could be seen as impeding their ability to report to the SEC, including limiting their access to company systems. David Hansen, Securities Exchange Act Release No. 94703 (April 12, 2022), available here (charging a Rule 21F-17(a) violation where a company co-founder removed an employee’s access to company computer systems after the employee raised concerns that the company was overstating its number of paying customers). ________________________ Reprinted with permission from the October 1st, 2025 edition of the New York Law Journal © 2025 ALM Global Properties, LLC. All rights reserved. Further duplication without permission is prohibited, contact 877-256-2472 or asset-and-logo-licensing@alm.com  

One of the most frequently used tools by plaintiffs' employment attorneys in New York is a claim for unpaid wages under Article Six of the Labor Law. By alleging a violation of Article Six, a plaintiff can pursue not only the recovery of any unpaid wages but also liquidated damages for one hundred percent of the unpaid wages, along with interest and attorney’s fees. But what happens when wages are not “unpaid” at all—just paid late, in violation of the frequency of pay requirements set out in Labor Law § 191? In recent years, Plaintiffs’ attorneys increasingly have argued that an employer’s failure to pay “manual workers” on a weekly basis as required by § 191, in and of itself, triggers liability for both interest and liquidated damages equal to the amount of the delayed wages. On May 9, 2025, New York Governor Kathy Hochul signed an amendment to Labor Law § 198(1-a) that clarified this issue by changing the scope of damages available for an employer’s failure to pay wages to covered employees on a weekly basis in violation of Labor Law § 191. As one assemblywoman stated in support of the amendment, the amended law sought to end “the liquidated damage loopholes that have allowed for frequency-of-pay lawsuits to devastate small employers.” Gov. Hochul Signs FY 2026 Budget with Legislation for Education, Small Business, and Mental Health, WKTV (July 1, 2025), https://www.wktv.com/news/education/gov-hochul-signs-fy-2026-budget-with-legislation-for-education-small-business-and-mental-health/article_c9c686a5-52e7-4545-9447-c3465f395489.html (last visited July 29, 2025). In this article, we will analyze the split in authority that had arisen regarding whether delayed payment of wages allowed plaintiffs to recover liquidated damages under the Labor Law, and analyze how the recent amendment will now govern frequency of pay claims. Background Article Six of the Labor Law establishes a comprehensive framework to protect employees’ rights to timely and full payment of their wages. Its various provisions govern essential aspects of wage payment, including record-keeping, sick leave, permissible payroll deductions, and the frequency with which wages must be paid. Noncompliance can expose employers to significant civil—and in some cases, criminal—liability. For example, Labor Law § 193(1) prohibits employers from making unauthorized deductions from an employee’s wages, while § 191(3) requires that terminated employees be paid no later than the regular payday for the final pay period worked. The statute defines “wages” broadly under § 190(1) to include all earnings for labor or services rendered, whether calculated by time, piece, commission, or another method. Within this statutory scheme, recent amendments to Labor Law § 198 have significantly changed the remedies available for violations of the statute’s § 191 frequency of pay requirements. Prior to the recent amendment to § 198(1-a), courts in the First and Second Departments reached divergent conclusions regarding whether violations of the frequency of payment requirements of Article Six could form the predicate for a private right of action under § 198 In Vega v. CM and Assoc. Constr. Mgt., LLC,, 175 A.D.3d 1144 (1st Dept. 2019) plaintiff alleged that she was a “manual worker” who her employer paid on a biweekly basis in violation of § 191, which required weekly payment of wages.  The First Department affirmed the trial court’s denial of the employer’s motion to dismiss finding that plaintiff had stated a claim for liquidated damages under § 198.  The court rejected the employer’s argument that § 198 “provides remedies only in the event of nonpayment or partial payment of wages (but not in the event of late payment of wages).”  The court held that “the plain language of the statute indicates that individuals may bring suit for any ‘wage claim’ against an employer” reasoning that “[t]he remedies provided by section 198 (1-a) apply to ‘violations of article 6’. . . and section 191(1) (a) is a part of article 6.”  The court further rejected the employer’s argument that the claim under § 198 was extinguished by the employer’s late payment of the wages due, reasoning that “payment does not eviscerate the employee's statutory remedies.” In contrast to the holding in Vega, the Second Department in Grant v. Global Aircraft Dispatch Inc., 223 A.D.3d 712 (2d Dept. 2024) found that employees suing employers that paid wages at least twice a month solely for failing to pay every week, did not have a private right of action in § 198. The Grant court  disagreed with the reasoning in Vega, writing, “[t]he plain language of Labor Law § 198 (1-a) supports the conclusion that this statute is addressed to nonpayment and underpayment of wages, as distinct from the frequency of payment” and the court did “not agree that payment of full wages on the regular biweekly payday constitutes nonpayment or underpayment.” Against the backdrop of this split in authority, the Legislature amended § 198 to clarify the availability and scope of any remedies for violation of the frequency of payment requirements of Article Six. Analysis As amended, § 198 now states that employers who pay employees “on a regular payday, no less frequently than semi-monthly” will be subject to a claim for damages for their first violation of § 191(a) limited to “no more than 100% of the lost interest found to be due for the delayed payment of wages calculated using a daily interest rate” (§ 198(1-a)(i)). The amendment effectively modified the outcomes of both Vega and Grant.  The amendment modified Vega inasmuch as a first-time violator of § 191 would no longer be liable for liquidated damages equal to the amount of the wages that were paid late, but that employer could still be liable for interest and attorney’s fees. The amendment modified Grant in the sense that some liquidated damages could be sought by plaintiffs claiming that wages were not paid in conformity with § 191.  Furthermore, under the amendment where an employer “has been subject to one or more previous findings and orders for violations of [§ 191(a)]” the law now provides that a plaintiff may claim liquidated damages of “one hundred percent of the total amount of wages found to be due in violation of [§ 191(a)].” A recent decision by the U.S. District Court for the Southern District of New York illustrates how courts will now apply § 198 as amended. In Garzon v. Bldg. Servs. Inc., 2025 U.S. Dist. LEXIS 126441 (S.D.N.Y. July 2nd, 2025), a plaintiff who worked as a cleaner brought suit against her employer for a variety of Labor Law violations, including failing to pay her wages every week, as was her right as a manual worker, ultimately filing for and receiving a default judgement against the defendant employer after it failed to respond. Nonetheless, the court found that the employer was a first-time violator under the latest iteration of § 198, with no prior findings or suits against them for frequency of pay violations. As such, as damages for its frequency of pay violations the employer was required to pay only interest on payments that it had delayed paying the plaintiff, as well as any missing wages. The court did not provide plaintiff liquidated damages totaling the delayed wages because the court found that the employer was not a repeat offender who was subject to paying those heightened damages. Garzon thus confirmed that damages for first time violators were limited to the interest on an employee’s delayed wages and further confirmed that liquidated damages of one hundred percent of delayed wages would be available only in claims against repeat offenders. Practice Points Employers may find the requirement of Article Six to pay manual workers on a weekly basis to be administratively burdensome and different from the frequency of payment requirements in place for non-manual workers. For such employers, § 191(a)(ii) does provide a mechanism for employers to legally pay manual laborers biweekly wages by obtaining approval from the Commissioner of Labor.  As specified in the statute, such approval may be sought by employers that (1) either employ on average 1000+ individuals in New York or (2) for 1 year employed on average 1000+ individuals in New York and for the past three years employed 3000+ workers out of New York. In order to obtain such approval, employers must submit a written application on a form available on the New York Department of Labor’s website. In addition to considering employee size requirements, the Commissioner also will consider the following five factors in granting employers this permission: The employer’s history meeting its payroll responsibilities in New York state, or if no such history in New York state is available, other financial information; Proof of the employer’s coverage for workers’ compensation and disability; Proof that there are no outstanding warrants of the department of taxation and finance or the department of labor against the employer for failure to remit state personal income tax withholdings or unemployment insurance contributions; Proof that the employer has a computerized record keeping system for payroll which, at a minimum, specifies (i) hours worked, (ii) rate of pay, (iii) gross wages, (iv) deductions and (v) date of pay for each employee; and Consent of any labor organization that represent the employer’s manual workers. Accordingly, employers seeking permission to pay manual workers on a bi-weekly basis should ensure they can show that they satisfy these requirements. They must also carefully maintain compliance as permission can be rescinded if employers are found to no longer meet these responsibilities. __________________________________________________________________________________________________ Reprinted with permission from the August 5, 2025 edition of the New York Law Journal  © 2025 ALM Global Properties, LLC. All rights reserved. Further duplication without permission is prohibited, contact 877-256-2472 or asset-and-logo-licensing@alm.com

Since coming into office a little over four months ago, the Trump Administration has placed businesses on notice that it views certain actions intended to promote diversity, equity and inclusion (“DEI”) in the workplace as suspect and in violation of the anti-discrimination mandates of Title VII of the Civil Rights Act of 1964.  Employment lawyers have been busy helping their clients steer clear of and to prepare to defend against the Administration’s enforcement efforts.  At the same time, private plaintiffs have increased their own efforts to challenge DEI initiatives, which they allege illegally discriminate against majority groups.  Courts have grappled with such cases since long before the Trump Administration and have developed a body of case law that provides helpful guidance to employers seeking to comply with the law, while at the same time seeking to achieve equal employment opportunities for all workers. One important defense employers have against plaintiffs challenging DEI initiatives is to assert that the plaintiff lacks standing.  In this article, we examine the law of standing and cases addressing how standing principles apply in cases challenging DEI initiatives by private employers.  After analyzing some illustrative cases, we propose some measures employers may consider as they seek to comply with the law and defend against litigation by workers in majority groups. Title VII prohibits employment discrimination on the basis of race, color, religion, sex or national origin. 42 USC 2000e-2(a) & 2(d). The Supreme Court has long declared that Title VII’s protections apply to both majority and minority groups.  McDonald v. Santa Fe Trail Transp. Co., 427 US 273, 280 (1976). However, the Supreme Court has left the door open for affirmative action where the employer can point to a “conspicuous imbalance in traditionally segregated jobs.” See Johnson v. Transp. Agency, Santa Clara County, Cal., 480 US 616 (1987). According to opponents of DEI, the Supreme Court’s recent decision in Students for Fair Admissions v. President and Fellows of Harvard, 600 U.S. 181, 213, 143 S. Ct. 2141, 2166 (2023), narrowing the use of affirmative action in college admissions under Title VI, should apply with equal force to workplace DEI initiatives under Title VII. Opponents of DEI have been eager to litigate this position, as the number of anti-DEI lawsuits in 2024 was more than five times larger than the number in 2021. See https://advancingdei.meltzercenter.org/cases/ In many of these cases, standing has been an important defense for employers. To establish standing in federal court, a “plaintiff must demonstrate that an injury is ‘[(1)] concrete, particularized, and actual or imminent; [(2)] fairly traceable to the challenged action; and [(3)] redressable by a favorable ruling.’” Bolduc v. Amazon.com Inc., Civil Action No. 4:22-CV-00615, 2024 U.S. Dist. LEXIS 75524, at *10 (E.D. Tex. Apr. 25, 2024) (quoting Attala Cnty. v. Evans, 37 F.4th 1038, 1042 (5th Cir. 2022)). A key obstacle to standing in cases challenging DEI programs is the plaintiff’s ability to credibly allege both (1) that the plaintiff applied for some benefit, and (2) that the plaintiff was denied that benefit because of a protected characteristic such as age or gender. Bolduc v. Amazon.com Inc. illustrates the first requirement. While a plaintiff may object to a benefit being open only to a particular group, if the plaintiff did not apply for that benefit, the plaintiff does not have standing to sue in federal court. In Bolduc, the plaintiff sued under § 1981 of the Civil Rights Act of 1866, which prohibits discrimination on the basis of race, color, and ethnicity in the making and enforcement of contracts. 2024 U.S. Dist. LEXIS 75524 at *6. The United States District Court of the Eastern District of Texas assessed the plaintiff’s standing to sue over an Amazon.com program whereby “eligible Black/African American, Hispanic/Latinx, and Native American/Indigenous DSP owners receive a monetary stipend of $10,000 … [while] DSPs owned by Whites or Asian Americans … receive no such stipend.” Id. at 2. The plaintiff, who was white, claimed that this grant put her at a competitive disadvantage because she did not receive it. Id. at 8. The District Court ruled that the plaintiff did not have standing because her injuries were speculative. The plaintiff had not applied to Amazon’s DSP program and thus had not suffered an actual or imminent injury, nor had she alleged that applying to the DSP program would have been futile.  Id. at 11-13. Similarly, the Court in Correll v. Amazon.Com, Inc. dismissed a challenge to an Amazon program intended to benefit minorities because the plaintiff had not alleged that he was ready and able to take advantage of that program. No. 3:21-cv-01833 BTM, 2022 U.S. Dist. LEXIS 183736, at *6 (S.D. Cal. Oct. 6, 2022). In Correll, the plaintiff challenged Amazon “policies in place to promote, encourage, and incentivize minority certified sellers.” Id. at 2. The Court, however, dismissed the Plaintiff’s suit on standing grounds, noting that that he did not plead that the was “able and ready” to sell on Amazon’s website, and thus had no injury in fact. Id. When assessing legal risk, employers thus need to consider the number of applicants who actually applied for the benefit. If, for example, no non-African Americans applied for a program intended to benefit African American candidates, standing issues may render the overall potential liability to individual claimants relatively low. The Valencia Ag, LLC v. Reid case is a good illustration of the second requirement—that the plaintiff credibly allege that he or she was actually denied a benefit because of race, gender, or some other protected classification. In Valencia, the United States District Court for the Northern District of New York assessed the plaintiff’s standing to sue over New York’s Cannabis Law and regulations, which they claimed favored minority-owned and women-owned businesses. No. 5:24-CV-0116 (GTS/TWD), 2025 U.S. Dist. LEXIS 54706, at *1 (N.D.N.Y. Mar. 25, 2025). Like the plaintiff in Bolduc, the plaintiff in Valencia Ag argued that “social equity goals, including a goal that fifty-percent of licenses be given to SEE [Social and Economic Equity] applicants” put the plaintiff at a competitive disadvantage on the basis of race and sex. Id. 19. The plaintiff asserted that the Cannabis Law and regulations violated its rights under the Equal Protection Clause of the Fourteenth Amendment because they discriminate and grant preferential treatment to applicants on the basis of race and/or sex. Id. at *2. The Court, however, held that “a mere aspirational goal to have a certain percentage of licenses given to SEE applicants (a group that is not definitionally limited to only minority- and woman-based businesses) does not plausibly suggest an injury-in-fact.” Id. The Court noted that New York State’s goal does not require that a certain percentage of licenses be given to SEE applicants. In other words, the plaintiff had not plausibly alleged that the aspirational goals caused the plaintiff to be denied a benefit. Id. at *19. In contrast to Bolduc and Valencia Ag, LLC, Garnet v. GMC illustrates the type of case where the plaintiff has satisfied standing requirements by alleging that he or she did indeed apply for a benefit and that race, gender, or some other protected classification led the defendant to deny the plaintiff that benefit. 114 F. Supp. 2d 649, 656 (N.D. Ohio 2000). In Garnet, the benefit in question was an apprentice program open to the defendant’s existing employees. Id. at 650. Applicants were given interview and exam scores, and minority and female candidates were each given 7 extra points towards their total scores. The Court ruled that the plaintiff had alleged an injury in fact and thus standing to sue because “but for the addition of seven points to the scores of [other applicants] the Plaintiff would have been selected … .” Id. at 656. The Court ultimately dismissed the plaintiff’s case on other grounds.[1] As the Bolduc and Garnet cases illustrate, programs with aspirational goals rather than quotas or point systems are going to be far more difficult to challenge given the plaintiff’s inability to show that they were denied a benefit because of race, gender, or other protected classification. State courts, like federal courts, have their own standing requirements, which usually require an employee to allege an injury in fact and that the plaintiff would actually receive a benefit from the relief requested. In Washington state, for example, a party has standing to sue if he or she demonstrates a present substantial interest in the subject of the lawsuit, not a mere expectancy or future contingent interest, and demonstrates that he or she will obtain a benefit from the relief requested. Primark, Inc. v. Burien Gardens Assocs., 63 Wn. App. 900, 907, 823 P.2d 1116 (1992). Put another way, to have standing, a party must have a distinct and personal interest in the outcome of the case. Pac. Marine Ins. Co. v. Dep't of Revenue, 181 Wn. App. 730, 740, 329 P.3d 101 (2014); Erection Co. v. Dep't of Lab. & Indus., 65 Wn. App. 461, 467, 828 P.2d 657 (1992). A party who did not apply for a particular program will have difficulty making such a showing. These cases contain some lessons for employers assessing the risk of their DEI programs. First, programs with aspirational goals rather than quotas are less risky insofar as the plaintiff will have a difficult time showing that they were denied a benefit because of race, gender, or some other protected class. Second, employers should avoid programs that provide a clear numerical advantage to applicants (for jobs or for company programs) on the basis of race, gender or other protected class. Finally, employers will have defenses where no candidates outside of the preferred category apply. For example, if no white candidates apply to an internship designed to benefit minority candidates, there will be no individuals with a clear basis for standing to bring suit. Accordingly, employers will face less risk if they actively market such a program towards minority candidates, but accept applications from all otherwise qualified candidates and do not discriminate among applicants on the basis of race, gender, or other protected class. [1] The Sixth Circuit Court of Appeals has held that plaintiffs alleging “reverse discrimination” must make a showing that “background circumstances support the suspicion that the defendant is that unusual employer who discriminates against the majority.” Pierce v. Commonwealth Life Ins. Co., 40 F.3d 796, 801 (6th Cir. 1994). Following this precedent, the Court in Garnet held that there was no proof that the Defendant discriminated against white males in general, and thus the plaintiff had failed to make the required showing. Whether this additional element should be included in “reverse discrimination” cases is currently on appeal before the U.S. Supreme Court.  Ames v. Ohio Dep't of Youth Servs., 145 S. Ct. 118 (2024) (cert granted). Reprinted with permission from the June 3, 2025 edition of the New York Law Journal  © 2024 ALM Global Properties, LLC. All rights reserved. Further duplication without permission is prohibited, contact 877-256-2472 or asset-and-logo-licensing@alm.com.

As many of us review our busted brackets ahead of this weekend’s Final Four match ups, universities across the country are preparing for the imminent changes to the rules governing name, image, likeness[1] (“NIL) payments to student-athletes, including whether the immigration laws permit international student-athletes to receive such compensation. The National Collegiate Athletic Association (“NCAA”) historically has prohibited its member universities from compensating their student-athletes in order to preserve the traditions of amateurism. A series of lawsuits over the years have chipped away at the NCAA’s prohibition on paying student-athletes for use of their NIL. See O'Bannon v. NCAA, 802 F.3d 1049 (9th Cir. 2015); National Collegiate Athletic Association v. Alston, 594 U.S. 69 (2021). In 2021, the NCAA agreed to allow student-athletes to benefit from their NIL but continued to prohibit member universities from making such payments. See https://www.ncaa.org/news/2021/6/30/ncaa-adopts-interim-name-image-and-likeness-policy.aspx. As a result, NIL collectives[2] formed to facilitate payments to student-athletes for use of their NIL. In the latest development, a groundbreaking settlement agreement in a class action lawsuit slated for finalization on April 7, 2025 will require the NCAA to pay approximately $2.8 billion in back payments to Division I student-athletes going back to 2016 and create a revenue sharing pool to allow universities to directly pay student-athletes for the use of their NIL. See In re College Athlete NIL Litigation, 4:20-cv-03919, (N.D. Cal.). These changes are fast approaching at the start of the 2025-2026 academic year, which begins on July 1, 2025. See https://www.knightcommission.org/wp-content/uploads/KnightCommissionBrief_HousevNCAA_182025.pdf.  This article explores the complications arising out of making direct payments to international student-athletes in F-1 student visa classification and highlights potential alternative visa classifications that may resolve the issue. Background Because upwards of 20,000 international students participate in collegiate athletics, universities wishing to recruit top international student-athletes have had to learn about the risks associated with making NIL and revenue sharing payments to these international student-athletes. See https://generalcounsel.uoregon.edu/name-image-and-likeness-international-student-athletes. The F-1 student classification, which covers most international students during their studies in the United States, allows foreign nationals to enter the country as full-time students at an accredited college, university, and other educational institution. See 8 C.F.R. § 214.2(f). Because this classification focusses on the student’s studying, and not working, the regulations clearly limit employment options available to students in F-1 status. These international students can lawfully obtain authorization to work under limited circumstances: on-campus employment, curricular practical training (CPT), and optional practical training (OPT). See 8 C.F.R. § 214.2(f)(9)-(10). The on-campus employment option is limited to twenty hours per week when school is in session. See 8 C.F.R. § 214.2(f)(9)(i). The CPT option is intended for use during the attainment of the degree in a manner where the CPT training relates directly to the student’s major area of study. See 8 C.F.R. § 214.2(f)(10)(i). OPT is intended for use after the completion of the student’s degree program and should also be in a field related to the student’s major area of study. See 8 C.F.R. § 214.2(f)(10)(ii). As such, the employment authorization afforded by the F-1 visa classification does not allow for direct NIL and revenue sharing payments to international student-athletes. In July 2021, the Student Exchange Visitor Program (SEVP), a program within U.S. Immigration and Customs Enforcement (ICE) overseeing student visas, indicated in a Broadcast Message that it “continues to assess the issue of F and M international student-athletes receiving compensation for the use of their name, image and likeness… and will provide additional updates through Broadcast Messages, Study in the States, social media and SEVP field representatives.” See https://www.ice.gov/doclib/sevis/pdf/bcm2107-02.pdf. But to date SEVP has provided no update or guidance. Given the lack of clarity from SEVP, universities face significant risk in making payments to international student-athletes in F-1 status.  However, alternative visa classifications may allow student-athletes to seek appropriate employment authorization to accept NIL and revenue sharing payments and to engage in full-time study. NIL and Revenue Sharing Payments For NIL and revenue sharing payments to comply with immigration laws, practitioners should seek to classify the payments within the scope of one of the three forms of work authorization or classify the payments as falling outside the definition of employment under the immigration laws. USCIS examines the specific activity conducted by the foreign national and location of the foreign national, when assessing whether work authorization is required. One solution based on existing F-1 work authorization proposed by immigration practitioners is for the international student-athlete to enroll in a “Business of Sports Management”, or similar, class, or series of classes, which would enable the international student to utilize CPT to obtain work authorization. See 8 C.F.R. § 214.2(f)(10)(I). The theory is that the NIL activity, and thus payment, constitutes training and relates directly to the student’s major area of study. This CPT work authorization could allow the international student to earn NIL income, while enrolled at a university. If the payments or activities fall outside the definition of employment under the immigration laws, more options exist. First, a popular approach across universities is to ensure international students receive payment and engage in promotional activities in their home countries. See https://generalcounsel.uoregon.edu/name-image-and-likeness-international-student-athletes. Immigration agencies review work authorization compliance from a geographic perspective and are concerned with work that occurs on U.S. soil. As such, this strategy should prevent a violation of the prohibitions of employment without work authorization in F-1 status because the payments and activities will occur outside the authority of the immigration agencies. Second, NIL deals for passive income, where the student-athlete is not engaged in activities to receive payment fall outside the definition of employment. See https://generalcounsel.uoregon.edu/name-image-and-likeness-international-student-athletes. Such passive income includes, for example, licensing of an international student’s NIL to a university for use on jerseys, t-shirts, photographs from practices or games, etc. The definition of what constitutes passive income has been subject to dispute, so the university and student-athlete should review these payments closely with an immigration attorney. Another proposed solution involves classifying international students as independent contractors for the purpose of these payments. The regulations provide that employers are not required to complete Form I-9 for an independent contractor. So, universities could make these payments without being required to verify the student-athlete’s work authorization. See https://www.uscis.gov/i-9-central/form-i-9-resources/handbook-for-employers-m-274/20-who-must-complete-form-i-9. Although the regulations would support such classification, the Department of Labor may scrutinize such independent contractor classifications closely and has historically been hostile to such classifications.  If the Department of Labor does not agree with the classification, it could take the position that the student-athlete should have completed a Form I-9. Having not completed one, despite the university believing the student-athlete did not need to, would result in a Form I-9 violation. See 8 C.F.R. § 274a; https://www.uscis.gov/i-9-central/form-i-9-resources/handbook-for-employers-m-274/140-some-questions-you-may-have-about-form-i-9. Because of this risk, universities and student-athletes should proceed carefully if they choose this option. Alternative Visa Classifications One way universities may seek to avoid the risks described above is to find a visa classification that does allow for direct NIL and/or revenue sharing payments. The most commonly explored visa classifications for international student-athletes are the P-1A, internationally recognized athletes; O-1A, athletes of extraordinary ability; and J-1 exchange visitor. These visa classifications allow for full-time study at the university level, but these nonimmigrants must abide by the rules of their status and cannot extend their stay in the United States for the purposes of completing a program of study or a degree. See https://www.ice.gov/doclib/sevis/pdf/Nonimmigrant%20Class%20Who%20Can%20Study.pdf. Further, these visa classifications allow the international student-athlete’s agent or an NIL collective to serve as a petitioner, rather than the university. As such, these alternative visa classifications significantly mitigate the risks associated with accepting payments under the permissible work authorization associated with F-1 status and any attempts to work around the limitations of F-1 work authorization. The P-1A classification applies to athletes with internationally recognized reputations or those who are members of an athletic team that is internationally recognized. See 8 C.F.R. § 214.2(p)(1)(ii)(A). Further, this classification requires the university to show that the “competition is at an internationally recognized level of performance such that it requires that caliber of athlete or team to be among its participants or that some level of participation by internationally recognized athletes is required to maintain its current distinguished reputation in the sport.” See https://www.uscis.gov/policy-manual/volume-2-part-n-chapter-2.Frequently, student-athletes receiving interest from an NIL and revenue sharing perspective are internationally recognized. The O-1A applies to athletes at the very top of their field. See 8 C.F.R. § 214.2(o). Because of this exacting requirement the O-1A may not be suitable for most international student-athletes. A crucial factor here could be the strength of the collegiate athletics program that the international student will be seeking to join. The J-1 visa classification is intended for participants in educational and cultural exchange programs. See 8 C.F.R. § 214.2(j). In order for the J-1 visa to be a viable option, the international student would need to enter the United States as part of a specific exchange program through a sponsoring entity that would allow for the participation in NCAA collegiate athletics. [1] Name, image, likeness refers to a person's legal right to control how their image is used, including commercially. [2] NIL collectives are support networks for college athletes where donors pool together money to compensate athletes for their name, image and likeness. Reprinted with permission from the April 1, 2025 edition of the New York Law Journal  © 2024 ALM Global Properties, LLC. All rights reserved. Further duplication without permission is prohibited, contact 877-256-2472 or asset-and-logo-licensing@alm.com.

Businesses have long embraced the use of computer technology in the workplace as a means of improving efficiency and productivity of their operations. In recent years, businesses have incorporated artificial intelligence and other automated and algorithmic technologies into their computer systems. We will refer to these technologies as “AI Systems.”  Recent reports indicate that 99 percent of Fortune 500 companies and 70 percent of overall employers use some form of artificial intelligence to screen or rank candidates for hire.[1] For example, businesses may use video interview software to assess tone of voice, body language, speech patterns, and gestures of job candidates. Chatbots can ask job candidates questions, with pre-programmed follow-up questions which vary with the candidate’s responses. AI Systems can track work time for office workers using keystroke monitoring, eye movements or internet browsing history. Businesses may use AI Systems for scheduling and task assignment, or to track workers’ geographic locations. The number of current and future applications are limitless. Federal and state legislatures have not kept pace with the changes in technology. However, some federal government agencies previously identified the use of AI Systems as raising concerns regarding employers’ compliance with the law. Two states and one municipality have stepped into the breach and enacted laws governing the use of AI Systems in the workplace. In this article, we provide an overview of the federal regulatory guidance and the state and local rules in place so far. We then make several suggestions regarding how employers may wish to address these developments with policies and practices to reduce legal risk. Federal Guidance In recent years, the Equal Employment Opportunity Commission (EEOC) and Department of Labor (DOL) each released guidance pertaining to the use of AI Systems in the workplace.  The EEOC’s guidance addressed adverse impact in selection procedures under Title VII of the Civil Rights Act of 1964 (Title VII) and assessments of job applicants and employees under the Americans with Disabilities Act (ADA). The DOL issued its own guidance in October 2024 entitled, “Artificial Intelligence and Worker Well-Being: Principles and Best Practices for Developers and Employers” (Principles and Best Practices). Very recently, President Trump’s administration has taken steps to deregulate the development and use of AI Systems at the federal level, including by retracting the EEOC’s and DOL’s guidance, revoking former President Biden’s executive order on the “Safe, Secure, and Trustworthy Development and Use of Artificial Intelligence,” and retracting the Office of Science and Technology Policy’s “Blueprint for an AI Bill of Rights.”[2] Despite being retracted, the EEOC’s and DOL’s guidance may still offer helpful information for employers to consider in their efforts to ensure their use of AI Systems complies with the law. EEOC Guidance Under the EEOC’s Title VII guidance (issued in May 2023), the EEOC’s “Uniform Guidelines on Employee Selection Procedures” issued in 1978 (the Guidelines) apply to the use of “algorithmic decision-making tools” for a “selection procedure,” which is “any measure, combination of measures, or procedure if it is used as a basis for an employment decision.” The EEOC’s guidance makes clear that employers may use the calculations established in the Guidelines (which compare whether the selection rate for individuals in a protected group are “substantially different” than another group) as a “rule of thumb” to assess whether an algorithmic-decision making tool has an adverse impact on the basis of race, color, religion, sex, or national origin. The EEOC’s ADA guidance (issued in May 2022) warns employers that the use of algorithmic decision-making tools could violate the ADA by: (1) failing to provide applicants and employees with reasonable accommodations as necessary to be fairly and accurately assessed by the algorithm, (2) relying on an algorithmic decision-making tool that intentionally or unintentionally “screens out” an individual with a disability who could perform the essential functions of a job with a reasonable accommodation, and (3) adopting a tool that poses “disability-related inquiries” or seeks information from an applicant that qualifies as a “medical examination” before extending a conditional offer of employment. DOL Principles and Best Practices The DOL’s Principles and Best Practices provided recommendations for developing, using, and assessing AI Systems in the workplace, including that employers: allow workers “genuine input in the design, development, testing, training, use, and oversight of AI systems”; establish “clear governance systems, procedures, human oversight, and evaluation processes for AI Systems for use in the workplace”; disclose the use of AI Systems to workers and job candidates; and ensure their use of AI Systems does not “violate or undermine workers’ right to organize, health and safety rights, wage and hour rights, and anti-discrimination and anti-retaliation protections.” State and Local Laws In light of the federal shift towards deregulation of AI Systems, employers should anticipate that more states and localities will fill the void by adopting their own legislation and regulations covering the use of AI Systems in the workplace, as three have already done (New York City, Colorado, and Illinois). A common thread in current state and local legislation of the use of AI Systems in employment is the need for employers to provide employees and applicants with notices or disclosures about the use of AI Systems and, in some cases, perform and publish assessments or audits of the AI Systems for discriminatory impact. NYC Local Law 144 First among laws specifically regulating the use of AI Systems in the workplace was New York City’s Local Law 144 (effective January 1, 2023). The ordinance provides that it is unlawful for employers and employment agencies to use an “automated employment decision tool” (AEDT) to “screen a candidate or employee for an employment decision” within the city—unless the tool has been subjected to a “bias audit” within one year before use and information about the bias audit and tool are published on the employer’s or employment agency’s website prior to use. N.Y.C. Admin. Code § 28-871(a). In addition, employers and employment agencies must also provide prior notice to employees and candidates that an AEDT will be used in connection with the employment decision, the job qualifications or characteristics that the AEDT will use, and other information. Id. § 28-871(b). Colorado Anti-Discrimination in AI Law In 2024, Colorado became the first state to enact legislation comprehensively addressing “algorithmic discrimination” against consumers (including employees) residing in the state. Colorado’s Anti-Discrimination in AI statute (CADAI) takes effect on February 1, 2026. Among other things, the CADAI requires a “deployer” of a “high-risk artificial intelligence system” to “use reasonable care to protect consumers from any known or reasonably foreseeable risks of algorithmic discrimination,” which consists of “unlawful differential treatment or impact” based on a consumer’s protected characteristics caused by the use of an AI system. C.R.S. §§ 6-1-1701(1), -1703(1). “High-risk artificial intelligence systems” are ones that make, or are a substantial factor in making, “consequential decisions.” Id. § 6-1-1701(9)(a). The term “consequential decision” is defined broadly and includes a decision that has a material effect on a consumer’s “employment or an employment opportunity.” Id. § 6-1-1701(3). In addition to establishing a standard of care, the CADAI generally requires deployers of high-risk artificial intelligence systems to complete “impact assessments” at least annually and within 90 days of any “intentional and substantial” modification of the system. § 6-1-1703(3). Impact assessments must include certain disclosures, including: a statement of the “purpose, intended use cases, and deployment context of, and benefits afforded by, the high-risk artificial intelligence system”; an analysis of whether the system “poses any known or reasonably foreseeable risks of algorithmic discrimination” and the steps taken to mitigate those risks; a description of the categories of data inputs for the system and the system’s outputs; and information regarding the deployer’s evaluation and monitoring of the system. Id. Further, the CADAI imposes additional requirements on deployers of high-risk artificial intelligence systems, including to prepare “a risk management policy and program” governing the use of the system, publish information about the high-risk artificial intelligence systems used by the deployer, and provide disclosures to consumers when a high-risk artificial intelligence system is used to make or be a substantial factor in making a consequential decision concerning the consumer. Id. § 6-1-1703(2), (4), and (5). Illinois Human Rights Act Amendment Several months after Colorado passed the CADAI, Illinois enacted its own legislation amending the Illinois Human Rights Act (IHRA) in August 2024, which takes effect on January 1, 2026. Under the amended IHRA, it is a civil rights violation for an employer to “use artificial intelligence that has the effect of subjecting employees to discrimination on the basis of protected classes” or “use zip codes as a proxy for protected classes” with respect to “recruitment, hiring, promotion, renewal of employment, selection for training or apprenticeship, discharge, discipline, tenure, or the terms, privileges, or conditions of employment.” 775 ILCS 5/2-102(L). It is also a civil rights violation for an employer to “fail to provide notice to an employee that the employer is using artificial intelligence” for the purposes described in the previous provision. Id. Unlike Local Law 144 and the CADAI, the amended IHRA does not require employers to conduct bias audits or impact assessments for AI Systems used in making employment decisions or establish governance procedures for the use of AI Systems. Practice Suggestions Moving forward, employers should expect an increasingly patchwork set of state and local laws specifically covering the use of AI Systems in employment, in addition to the existing federal, state, and local employment laws that still apply to employers’ use of AI Systems. While AI-specific employment laws impose different requirements, employers would be prudent to consider implementing policies and practices that address the common legal requirements applicable to the use of AI Systems in employment, including: establishing governance structures that ensure human oversight of AI Systems and significant employment decisions; assessing the organization’s use of AI Systems (including by identifying the systems in use and sources of data, evaluating AI vendors, and performing regular audits or assessments to evaluate the systems for disparate treatment or impact); and providing notice and training to workers on the use and purpose of AI Systems (including notice that employees and applicants may request reasonable accommodations for disabilities). Of course, employers should keep a close watch on legislative and regulatory developments affecting their use of AI Systems in the workplace. [1] January 31, 2023 Testimony to EEOC of ReNika Moore, Director of the American Civil Liberty Union’s Racial Justice Program, available at https://www.eeoc.gov/meetings/meeting-january-31-2023-navigating-employment-discrimination-ai-and-automated-systems-new/moore#_ftnref79 (last visited January 28, 2025). [2] https://www.whitehouse.gov/presidential-actions/2025/01/initial-rescissions-of-harmful-executive-orders-and-actions/ (last visited January 28, 2025). Reprinted with permission from the February 5, 2025 edition of the NEW YORK LAW JOURNAL © 2024 ALM Global Properties, LLC. All rights reserved. Further duplication without permission is prohibited, contact 877-256-2472 or asset-and-logo-licensing@alm.com.

In the United States a complex interplay of federal, state, and local statutes, rules, and regulations has always shaped employment law.  Politics and elections also play an important role in influencing the enactment and enforcement of the nation’s employment laws.  With the imminent shift from the administrations of Joseph Biden to Donald Trump, employers can expect a new direction and a raft of changes to the federal government’s approach to labor and employment law and regulatory policies.  These changes undoubtedly will significantly impact the American workplace.  Unlike most changes in administration, employers can look to their actual experiences during President-elect Trump’s first term to anticipate the direction a second Trump administration might take.  President-elect Trump will likely revisit some of the labor policies he promoted during his previous tenure but will also pursue new initiatives aligned with pronouncements and economic policies he raised during the campaign.  Below, we explore some of the potential changes we expect in the enforcement of federal employment laws from the second Trump administration. Revisiting the Regulatory Rollback During Donald Trump’s first term, his administration pursued a broad deregulatory agenda.  Agencies such as the Department of Labor (DOL), the Equal Employment Opportunity Commission (EEOC), and the National Labor Relations Board (NLRB) scaled back or revised Obama-era regulations.  Trump likely will build on this agenda, further rolling back regulations he sees as burdensome to businesses. Key Focus Areas: Overtime Rule Changes: The first Trump administration scaled back Obama-era efforts to expand the availability of overtime pay.  We expect to see efforts to limit such expansions of coverage of overtime laws, or even the introduction of rollbacks. Joint Employer Standard: Trump’s NLRB previously narrowed the criteria for determining joint employer liability, favoring businesses like franchisors.  Watch for a Trump-appointed Board to solidify these changes, limiting the liability of parent companies for franchisees’ employment practices. Independent Contractor Rules: During the first Trump term, the DOL issued rules making it easier for companies to classify workers as independent contractors rather than employees, limiting access to benefits like overtime and unemployment insurance.  Biden reversed many of these changes by executive action.  Watch for new, second-wave Trump regulators to reinstate the earlier rules to expand independent contractor classification and facilitate gig economy business models. Labor Relations: Favoring Employers Over Unions President Biden touted himself the “most pro-union President in history.”  President-elect Trump will not likely try to wrest that title away.  The first Trump administration’s stance toward labor unions and collective bargaining was sometimes adversarial, reflecting a preference for reducing union influence in the workplace.  President Biden tried to bolster unions and signed an executive order promoting unionization and collective bargaining rights for federal employees.  These included restoring protections rolled back during the first Trump administration and encouraging federal agencies to actively engage with unions.  Trump’s campaign appeals to union and non-union working-class workers could signal some softening of his earlier adversarial stance.  On the other hand, we could see a return to initiatives that seek to tilt the balance in favor of employers. Potential Changes: Restrictions on Union Elections: The Trump NLRB could continue adopting rules that make it harder for workers to organize, such as requiring more disclosure from unions or restricting access to employer premises during organizing campaigns. Right-to-Work Expansion: Although traditionally a state-level issue, President-elect Trump has historically supported national right-to-work legislation, which prevents mandatory union dues as a condition of employment.  Renewed momentum for this legislation could emerge. Bargaining Obligations: Rules governing employers’ obligations during collective bargaining could be softened, limiting unions’ leverage in negotiations. Federal Procurement and Labor Preferences: President Biden issued executive orders promoting union workers and union-made products.  The Trump Administration likely may modify or rescind these preferences. Workplace Safety and OSHA Oversight The Trump administration’s previous approach to workplace safety focused on reducing penalties and inspections, favoring instead cooperative partnerships with employers, as opposed to punitive measures.  A second Trump term will likely reduce enforcement activities by the Occupational Safety and Health Administration (OSHA). Key Predictions: Reduced Inspections: Expect fewer workplace inspections, particularly in low-violation industries, as OSHA continues to prioritize voluntary compliance over enforcement. Softened COVID-19 Standards: Although the pandemic has ended, lingering workplace safety concerns related to infectious diseases remain a focus.  President-elect Trump seems likely to reverse some stricter workplace health standards adopted by the Biden administration. Deregulation in High-Risk Industries: Industries like construction, manufacturing, and energy could see reduced compliance burdens as OSHA revises or eliminates standards perceived as costly or unnecessary. Equal Employment Opportunity: A Narrower Scope Previously in President-elect Trump’s first term, the EEOC adopted a more conservative approach to enforcement of civil rights laws.  During that time, the Commission focused on individual claims over systemic investigations, and scaled back aggressive enforcement of workplace discrimination laws.  A second Trump term likely will return to similar trends in this direction. Expected Developments: Limiting Expansive Interpretations of Discrimination: The EEOC could restrict interpretations of Title VII of the Civil Rights Act that were intended to expand protections of workers from workplace discrimination. Focus on Mediation and Settlements: The new Trump EEOC might shift resources toward resolving individual claims through mediation rather than pursuing investigations or broader systemic cases. Reduced Data Collection: Expect requirements for businesses to report detailed workforce demographic data (e.g., EEO-1 Component 2) to be scaled back or even eliminated. Federal DEIA Initiatives: President Biden issued several orders directing federal agencies to prioritize diversity, equity, inclusion, and accessibility (DEIA) in hiring, promotions, and workplace culture.  President-elect Trump’s prior executive orders sought to limit training and programs which took into account protected classifications, or which focused on “critical race theory.”  We anticipate a return to the earlier approach, with President-elect Trump rescinding President Biden’s DEIA initiatives. Wage and Hour Policies: Business-Friendly Adjustments President-elect Trump’s first administration took steps to provide employers greater flexibility in complying with wage and hour laws, particularly the Fair Labor Standards Act (FLSA).  A second term likely will build on these efforts. Likely Areas of Reform: Flexible Work Arrangements: President-elect Trump’s previous administration signaled interest in modernizing the FLSA to accommodate remote work and flexible schedules.  Watch for renewed emphasis on policies that allow employers more leeway in structuring work hours. Wage Transparency Rules: Employers may see reduced requirements regarding the disclosure or pay scales or wage disparities, reversing trends under the Biden administration. Tip Policies: Revisions to tip pooling rules, allowing a broader range of employees to share in tip pools, may be enacted. Minimum Wage for Federal Contractors: President-elect Trump may abandon or reverse President Biden’s Executive Order mandating a $15 minimum wage for federal contractors, which was recently enjoined by the Ninth Circuit Court of Appeals. Immigration and Employment Law A more restrictive immigration policy is sure to play a prominent role in the next Trump administration’s approach to the workplace.  This will be particularly true for industries that rely on foreign labor, such as agriculture, technology, and hospitality.  President-elect Trump has promised to pursue stricter immigration policies, which will impact hiring practices and workforce availability. Potential Policy Directions: H-1B Visa Restrictions: The new administration likely will tighten the eligibility criteria for high-skilled foreign workers and impose heightened scrutiny of employers using the H-1B visa program. E-Verify Expansion: The Trump administration will likely seek to expand the use of E-Verify, an electronic system for verifying employment eligibility, but which is currently mandatory only for federal and some state government contractors. Crackdowns on Unauthorized Work: Expect increased workplace investigations, audits and penalties for employers found hiring undocumented Paid Leave and Workplace Benefits The first Trump administration was less aggressive than President Obama in promoting paid leave or workplace benefits reforms.  While President-elect Trump and his surrogates expressed support for parental leave during his campaign, it remains to be seen if that will translate into legislative action on the issue.  The second Trump term seems more likely to emphasize voluntary, market-driven solutions over federal mandates. Key Expectations: Parental Leave Incentives: Instead of mandating paid leave, President-elect Trump will be more likely to use tax incentives or other voluntary measures to encourage employers to offer such benefits. Opposition to Federal Mandates: Similarly, efforts to expand federally mandated sick leave, family leave, or healthcare benefits will probably stall under President-elect Trump’s leadership. Federal Judiciary and Employment Law President-elect Trump’s lasting impact on employment law could extend beyond executive actions to reach the federal judiciary.  His first administration appointed over 230 federal judges, including three Supreme Court justices, many of whom share a conservative interpretation of employment and administrative law.  A second Trump term will likely further entrench this legacy. Implications: Pro-Business Judicial Rulings: Judges appointed by President-elect Trump will likely be sympathetic to employer concerns in disputes over arbitration agreements, wage claims, or discrimination lawsuits. Judicial Appointments: Additional Trump appointments could shape the legal landscape for decades, reinforcing a business-friendly interpretation of employment statutes. Conclusion:  An Employer-Friendly Agenda with Broader Implications The second Trump administration will likely deepen the deregulatory trends of the first, to prioritize business flexibility and minimize government influence and oversight.  While such changes may reduce compliance costs for employers, workers may face greater challenges to vindicate employment law protections. Employers will need to navigate these changes carefully, balancing the increase in their regulatory freedom with the need to comply with continuing legal obligations and to attract and retain talent in a competitive labor market.  Workers and labor advocates, meanwhile, may need to look to the courts rather than government agencies as the primary way they may question employer actions and safeguard workplace rights. As with every new administration, the next administration is sure to bring some surprises.  Even with a preview of President-elect Trump’s policies from the recent past, the dynamic legal, political and workplace environments make precise prediction impossible.  As the legal and political landscape evolves, employers should keep abreast of changes and communicate effectively with company leaders and counsel. Reprinted with permission from the December 3, 2024 edition of the NEW YORK LAW JOURNAL © 2024 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited. ALMReprints.com – 877-257-3382 – reprints@alm.com.

Employers who wish to enter into non-compete agreements with their employees breathed a collective sigh of relief on August 20, 2024, when a federal district court struck down the Federal Trade Commission’s (“FTC”) new nationwide ban on non-compete agreements (the “Non-Compete Rule” or “Rule”).  Although for now the Federal Trade Commission Act does not prohibit the use of non-compete agreements, employers should be vigilant in seeking to comply with other federal laws and the laws in all fifty states which continue to govern the enforceability of non-compete agreements. In this month’s column, we will analyze the court’s decision striking down the Non-Compete Rule and provide a brief overview of the patchwork of state laws that apply to non-competes.  We will conclude by offering some practical suggestions for employers who wish to use non-compete agreements for their workers in compliance with law. Injunction of the Non-Compete Rule In Ryan, LLC v. Federal Trade Commission, Case No. 3:24-cv-00986 (N.D. Tex.), the U.S. District Court for the Northern District of Texas concluded that the FTC exceeded its statutory authority in promulgating the Non-Compete Rule and that the Rule is arbitrary and capricious.  The court set the Rule aside, preventing it from taking effect shortly before its effective date of September 4, 2024.  The Ryan decision prevents the FTC from enforcing the Non-Compete Rule against any company nationwide. The FTC estimates that one in five American Workers—or approximately 30 million workers—is subject to a non-compete agreement.  With few exceptions, the Non-Compete Rule would have prevented employers from entering into non-compete agreements with workers, and would have required employers to rescind existing non-compete agreements for all workers except senior executives.  The Rule therefore would have rescinded tens of millions of non-compete agreements.  It also would have prohibited employers from falsely representing to workers that they were subject to a non-compete clause.  The FTC classified each of these practices as “an unfair method of competition” under the Rule.  See 16 C.F.R. § 910. The court in Ryan conducted its analysis pursuant to the Administrative Procedure Act (“APA”).  As the Supreme Court recently explained in Loper Bright Enters. v. Raimondo, the APA was enacted “as a check upon administrators whose zeal might otherwise have carried them to excesses not contemplated in the legislation creating their offices.”  144 S. Ct. 2244, 2261 (2024) (quotations omitted).  The APA proscribes procedures for agency action and delineates the contours of judicial review of such action.  When reviewing an agency action, the APA requires courts to “hold unlawful and set aside agency action, findings and conclusions found to be [inter alia] . . .  arbitrary and capricious” or “in excess of” statutory authority.  5 U.S.C. § 706(2)(A)–(C). In concluding that the FTC exceeded its statutory authority in implementing the Non-Compete Rule, the court held that the FTC lacks substantive rulemaking authority with respect to unfair methods of competition under the Federal Trade Commission Act.  The court rejected the FTC’s position that Section 6(g) of the Federal Trade Commission Act empowers it to create substantive rules regarding unfair methods of competition.  The court described Section 6(g) of the Federal Trade Commission Act as a “housekeeping statute,” which authorizes the FTC to promulgate procedural, rather than substantive, rules. The court also held that the Non-Compete Rule is “unreasonably overbroad without a reasonable explanation,” rendering it arbitrary and capricious under the APA.  The court noted that the Non-Compete Rule is broader than any state law, and that the FTC failed to provide evidence or a reasonable basis to support the imposition of such a sweeping ban, rather than targeting specific, harmful non-competes.  The court also criticized the FTC for failing to sufficiently consider less disruptive alternatives to a nationwide ban on non-competes. The FTC currently is considering an appeal.  It has until October 19th to appeal the district court’s decision.  If the FTC appeals, it will face an uphill battle.  The appeal will be decided by the Court of Appeals for the Fifth Circuit and ultimately the United States Supreme Court, both of which have recently issued decisions curtailing the power of federal agencies.  Any appeal will also unfold against the backdrop of the Supreme Court’s recent decision in Loper Bright, overruling precedent under which courts afforded deference to a federal agency’s interpretation of its own power, commonly referred to as “Chevron deference.”  Thus, courts will not afford deference to the FTC when considering its legal arguments in support of the agency’s authority to promulgate the Non-Compete Rule. Although the court in Ryan set aside the Non-Compete Rule, the decision does not prevent the FTC from continuing to bring enforcement actions against employers who use non-compete agreements.  The FTC remains free to target conduct it considers to be unfair methods of competition by adjudicating the merits of individual non-compete agreements on a case-by-case basis.  Moreover, although no federal law comprehensively addresses the enforceability of employment non-compete agreements, other federal agencies, including the Department of Justice—through its Antitrust Division—and the National Labor Relations Board, have taken hostile positions towards non-compete agreements and other restrictions on employee mobility and have sought to rein in their use.  Proposed legislation to ban or limit non-compete agreements has been introduced in Congress several times in recent years, but such proposals appear to have made little progress. State Non-Compete Laws Now that a court has set aside the FTC’s Non-Compete Rule, employers should focus more of their attention on legislative and administrative actions by the states.  In recent years, states have enacted a flurry of laws limiting the use of non-compete agreements.  At least thirty-seven states and the District of Columbia have statutes in place that restrict the use of non-compete agreements.[1]  California, Oklahoma, North Dakota and Minnesota have near-total bans on non-compete agreements.  Eleven states and the District of Columbia ban non-competes for low-wage workers.  Eight states and the District of Columbia impose notice requirements that must be satisfied in order for non-compete agreements to be enforceable.  In 2022, Colorado severely restricted the use of non-compete agreements and added a criminal sanction to its statute.  Additionally, proposed legislation restricting the use of non-competes is pending in states across country. Many states restrict the use of non-competes in other ways.  State common law imposes additional restrictions on non-competes, both in states with statutory restrictions and those without any.  For example, state common law may govern issues such as the nature and adequacy of consideration, the enforceability of clauses allowing judicial reformation of overbroad agreements, and requirements that a non-compete agreement be reasonable in duration, geographic coverage and scope. A new statute restricting the use of non-competes in New York may be on the horizon.  In 2023, the New York State Legislature passed a bill that would have prohibited most non-competes in New York.  See Senate Bill S.3100-A.  The bill would also have created a private right of action for workers to sue their employers to void unlawful non-competes and allowed them to recover up to $10,000 in damages.  However, New York Governor Kathy Hochul ultimately vetoed the bill, after failing to negotiate an amendment to narrow the ban to apply to low and middle-income workers.  Nevertheless, Governor Hochul has expressed support for a ban on non-competes for middle-class and low-wage workers, leaving open the possibility that more narrowly tailored non-compete legislation may be reintroduced in the future.[2] In addition to legislative activity at the state-level, state attorneys general may bring more enforcement actions against companies that use non-compete agreements, particularly for low-wage workers.  In 2016, New York Attorney General Eric Schneiderman conducted high-profile investigations into the non-compete policies and practices of three major companies: Law360, a legal publishing company, Jimmy John’s, a gourmet sandwich chain, and Examination Management Services, a nationwide medical information services provider.  As a result of these investigations, all three companies agreed to limit their use of non-compete agreements with respect to lower-level employees.[3] Practice Considerations In light of the decision in Ryan v. Federal Trade Commission, for now employers need not worry about compliance with the Non-Compete Rule, which would have required employers to notify millions of workers that their non-compete agreements were unenforceable.  However, employers should continue to be mindful of potential government enforcement actions and compliance with state law.  Employers should review their non-compete agreements and assess whether they are necessary to protect legitimate business interests, such as confidential information or goodwill.  Employers should consider whether less restrictive means will suffice to protect their legitimate interests, including the use of garden leave (wherein an employer pays the departing employee not to compete during the restricted period), non-solicitation and confidentiality agreements, and policies and practices restricting the use and disclosure of confidential information. For multi-state employers, given the present patchwork of state laws governing non-compete agreements across the country, crafting a one-size-fits-all non-compete agreement for employees in different states is an increasingly complex task.  Employers seeking to use a single form of agreement may craft agreements imposing a lowest common denominator approach, essentially allowing the most restrictive state laws to govern all or most of their workers.  Even in such agreements, employers will often expressly exempt application to workers in states where non-competes are not enforceable, such as California.  Employers may instead choose to use several forms of agreement to take advantage of the laws in states allowing restrictions that are more favorable to the employer.  Employers using multiple forms of non-compete agreement will need to invest in training human resources and benefits professionals in charge of onboarding workers subject to non-competes on when and how the various forms of agreement should be used. Reprinted with permission from the October 3, 2024 edition of the NEW YORK LAW JOURNAL © 2024 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited. ALMReprints.com – 877-257-3382 – reprints@alm.com. [1] Economic Innovation Group, State Noncompete Law Tracker: https://eig.org/state-noncompete-map/. [2] https://www.nytimes.com/2023/12/22/nyregion/kathy-hochul-veto-noncompete.html. [3] https://ag.ny.gov/press-release/2016/ag-schneiderman-announces-settlement-jimmy-johns-stop-including-non-compete (Jimmy John’s and Law360); https://ag.ny.gov/press-release/2016/ag-schneiderman-agreement-ends-non-compete-agreements-employees-national-medical (Examination Management Services).

When an employer disciplines its employees, let’s say for unsatisfactory performance or misconduct, employees sometimes respond with accusations that the discipline illegitimately occurred in retaliation for conduct protected by law.  For example, an employee may claim that the employer imposed discipline due to the employee’s previous expression of a concern relating to the employer’s compliance with law in conducting its business.  Although the laws do not prohibit the employer from imposing discipline based on the employee’s performance or misconduct, the laws often do protect the employee’s right to express concerns about compliance with law.  Managing such claims requires employers not only to untangle the conflicting factual assertions about the underlying reason for the discipline, but often requires the employer to sort out a complex web of statutes, each with different language and varying requirements for the assertion of a retaliation claim. As of 2022, New York became one of a number of states that have sought to strengthen the protection of employees’ rights to express concerns about their employers’ compliance with law.  Under an amended New York Labor Law § 740, New York workers may now assert causes of action for alleged retaliation occurring due to complaints about a violation of a “law, rule or regulation.”  Now, a violation of § 740 provides a right to a jury trial, the possibility of punitive damages for willful violations, civil penalties, a 2-year statute of limitations, and other relief not previously available as remedies for retaliation under myriad federal and state statutes. In this article we will analyze the broadened scope of § 740, as well as several recent court decisions that have addressed the expanded definition of the term “law, rule or regulation.” We will then propose several practices employers may consider when responding to employee concerns regarding their employers’ compliance with law. Labor Law § 740 Before amendment of New York Labor Law § 740 in 2021, the statute narrowly protected an employee who “discloses, or threatens to disclose to a supervisor or to a public body an activity, policy or practice of the employer that is in violation of law, rule or regulation which violation creates and presents a substantial and specific danger to the public health or safety, or which constitutes health care fraud.”  N.Y. Lab. Law § 740(a)(2) (2021). The law required the employee to show not only that the employee disclosed concerns related to public health, safety or healthcare fraud.  It also required that the employer had actually violated the law. The 2021 amendment relaxed this standard.  Now § 740 protects an employee who:  “discloses, or threatens to disclose to a supervisor or to a public body an activity, policy or practice of the employer that the employee reasonably believes is in violation of law, rule or regulation or that the employee reasonably believes poses a substantial and specific danger to the public health or safety.”  N.Y. Lab. Law § 740(a)(2) (2024) (emphasis added). Thus, the statute now prohibits retaliation against an employee if the employee “reasonably believes” an employer activity, policy, or practice violates a law, rule or regulation or poses a danger to public health and safety. Law, Rule or Regulation Section 740 now defines “law, rule or regulation” to include “(i) any duly enacted federal, state or local statute or ordinance or executive order; (ii) any rule or regulation promulgated pursuant to such statute or ordinance or executive order; or (iii) any judicial or administrative decision, ruling or order.” N.Y. Lab. Law § 740(1)(c). This updated definition now includes within “law, rule or regulation” executive orders, judicial or administrative decisions, rulings or orders, and rules promulgated pursuant to executive orders.  A number of courts have recently interpreted the term “law, rule or regulation” and have set some boundaries employers should consider as they evaluate their policies and practices. In Pierce v. Better Holdco, Inc., 2023 U.S. Dist. LEXIS 177137 (S.D.N.Y. Sep. 29, 2023), the U.S. District Court for the Southern District of New York held that the plaintiff sufficiently alleged protected activity by raising complaints related to violations of the California and federal WARN Acts, misrepresentations regarding website traffic in a SEC filing, and misrepresentations of profitability to investors. The plaintiff, the vice president of sales, operations, and customer service, was placed on administrative leave and terminated after raising these concerns. The Court emphasized that the plaintiff did not allege that the employer did or even intended to violate the WARN Act and that § 740 no longer requires such allegations. The Court stated that the plaintiff needed to demonstrate only a reasonable belief that the WARN Act had been violated. Additionally, although the plaintiff did not explain how the SEC filing misrepresentation violated the law, the Court held that the statute still protected the employee for disclosing “a reasonable belief of a violation of law” to her supervisors. The plaintiff attempted to allege two additional acts of protected conduct related to false statements made in an email and misrepresentations made regarding the company’s platform. However, the Court held the plaintiff did not plausibly allege she reasonably believed a violation of law had occurred for either act. Another case from the Southern District of New York held that the plaintiff stated a claim for retaliation after raising concerns regarding certain legal requirements relating to a sales and consumption tax. In Collison v. WANDRD, LLC, 2024 U.S. Dist. LEXIS 110062 (S.D.N.Y. June 20, 2024), the plaintiff, a customer service 1099 employee later promoted to a financial management W-2 position, alleged that he raised concerns that his employer violated requirements related to sales and consumption tax filings on multiple occasions. Following expression of these concerns, the plaintiff faced adverse employment actions, including eventual termination of employment. The Court denied the defendants’ motion to dismiss the retaliation claim. In contrast to the outcomes in Pierce and Collision, other cases have found that the concerns expressed by an employee fell outside of the definition of “law, rule or regulation.” In Zhang v. Centene Mgmt. Co., 2023 U.S. Dist. LEXIS 68718 (E.D.N.Y. Feb. 2, 2023), the Court considered whether certain policy statements issued by the New York Department of Health’s (“DOH”) Office of Insurance Programs constituted a “law, rule or regulation” for purposes of § 740. The plaintiff was a registered nurse care manager whose employer agreed to follow Managed Long Term Care (“MLTC”) Policy 16.06 promulgated by the DOH. The plaintiff reported her employer’s noncompliance with the Policy, resulting in a DOH investigation and restorative action. The plaintiff was terminated and brought an action for retaliation under § 740.The Court determined that MLTC Policy 16.06 provided guidance on regulations related to personal care services and was not a binding rule promulgated by statute or ordinance. The Court further evaluated the Policy under the amended definition of “law, rule or regulation,” including regulations promulgated by executive order or judicial or administrative decision, ruling, or order. In doing so, the Court cited to HC2, Inc. v. Delaney, 510 F. Supp. 3d 86, 100 (S.D.N.Y. 2020), a pre-amendment case holding that COVID-19 guidances issued by the Centers for Disease Control and Prevention and the New York City Department of Health were not “mandates or dictates” promulgated pursuant to the relevant administrative procedures governing federal and city regulations, and therefore lacked the force of law to predicate § 740 claims. Applying this logic, the Zhang Court held that the Policy was merely a notice provision or “directive” that did not give rise to a § 740 whistleblower retaliation claim. Retroactive Application Another issue with which courts are grappling under § 740 is whether the expanded definition of “law, rule or regulation” applies retroactively to conduct occurring before the amendment took effect on January 26, 2022.  Courts are currently divided as to the retroactive application of the amendment. See Callahan v. HSBC Sec., 2024 U.S. Dist. LEXIS 47106 (S.D.N.Y. Mar. 18, 2024) (collecting cases). Courts allowing retroactive application point to the “remedial” nature of the amendment, finding a legislative intent to correct the “restrictive nature of the prior statutory requirements.” Id. at *17-18. Other courts find that the amendment’s broadened protections provide a new basis upon which to find relief and therefore cannot be applied retroactively. See Pisano v. Reynolds, 2023 N.Y. Misc. LEXIS 2573, at *6 (N.Y. Sup. Ct. May 23, 2023). Practice Pointers Now that the New York Legislature has expanded § 740 to cover an employee’s assertion of concerns regarding laws in addition to those related to public health, safety, or healthcare fraud, employers should consider implementing several best practices including the following: Ensure that employment policies include clearly defined channels of communication which allow employees to raise concerns to supervisory and management staff, including concerns falling outside of the scope of their specific jobs; Such policies should include “bypass procedures” which allow the employee to escalate concerns to more senior levels of management, to human resources, internal audit or compliance staff. Such bypass procedures are particularly appropriate in the event that the employee concern involves the employee’s direct supervisor or to members of senior management who may be conflicted about considering the employee’s concerns; Where the company does not have sufficient resources to create an effective bypass procedure, the company should consider whether members of the board of directors should be appropriate avenues for particular concerns; Train those in management and supervisory roles on how to document and address employee concerns effectively, or to refer such concerns to the right persons who are best able to address them; Keep management up to date regarding changes in industry regulations and employee protections, including those established by federal, state and local law, executive orders and rules promulgated under such laws; Address concerns from former employees and independent contractors, inasmuch as such persons are now within the scope of persons protected by § 740; and Understand that a lack of an actual violation of law is no longer a viable defense to a claim under § 740, and that an employee engages in protected activity if the employee “reasonably” believes that a violation of a “law, rule, or regulation” has occurred. Reprinted with permission from the August 7, 2024 edition of the NEW YORK LAW JOURNAL © 2024 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited. ALMReprints.com – 877-257-3382 – reprints@alm.com.

For decades employers have sought to promote diversity in their workforces.  In recent years, employers have expanded these efforts by establishing policies and practices commonly referred to as diversity, equity and inclusion (“DEI”) programs. Employers have multiple objectives for adopting and maintaining DEI programs.  Some do so in connection with their obligations as government contractors to pursue the goals of affirmative action.  Other employers do so voluntarily and to pursue equal employment opportunity for members of historically disadvantaged groups.  Many employers enhanced their DEI programs as part of their racial justice initiatives following the murder of George Floyd in 2020. Last year, the Supreme Court decided a case that may affect how employers administer and talk about their DEI programs.  In Students for Fair Admissions, Inc. v. President & Fellows of Harvard College and Students for Fair Admissions, Inc. v. University of North Carolina (collectively, the “SFFA decision”), 600 U.S. 181 (2023), the Supreme Court ruled that Harvard and the University of North Carolina violated Title VI of the Civil Rights Act of 1964 and the U.S. Constitution in their use of race in their admissions processes. Because Title VII of the Civil Rights Act of 1964, which governs private employers’ employment practices, holds important similarities to Title VI, many employment lawyers questioned how the SFFA decision applies to employers’ consideration of race in the employment context. A year later, media reports indicate that a number of employers have changed their DEI programs to avoid claims of discrimination by members of majority groups.[1] In this article we analyze cases decided both before and after the SFFA decision to illustrate how employers and the courts have considered race in implementing and assessing the legality of various diversity initiatives.  We then propose several questions employers may consider to ensure legal compliance while also promoting their diversity objectives. Background Title VII provides that “[i]t shall be an unlawful employment practice for an employer (1) to fail or refuse to hire or to discharge any individual, or otherwise to discriminate against any individual with respect to his compensation, terms, conditions, or privileges of employment, because of such individual’s race, color, religion, sex, or national origin;” or “(2) to limit, segregate, or classify his employees or applicants for employment in any way which would deprive or tend to deprive any individual of employment opportunities or otherwise adversely affect his status as an employee, because of such individual’s race, color, religion, sex, or national origin.”  42 U.S.C. § 2000e-2(a). These prohibitions apply to members of both majority and non-majority groups. McDonald v. Santa Fe Trail Transp. Co., 427 U.S. 273, 280 (1976). Despite Title VII’s prohibitions, in certain circumstances an employee’s membership in a protected class can be a basis for an employment decision. In United Steelworkers of Am. v. Weber, 443 U.S. 193 (1979), an employer operated a training program that reserved 50-percent of openings in the program to Black employees until the racial composition of the workforce was commensurate with demographics in the local labor force. Brian Weber, a White employee, applied for the program but was denied admission. Weber alleged that he would have been entitled to a spot in the program but for his employer’s affirmative action plan, because he had more seniority than several admitted Black participants. Weber alleged he was subjected to race discrimination in violation of Title VII. The Supreme Court rejected Weber’s theory of Title VII liability. Acknowledging the potential for dissonance in finding that a statute enacted to eradicate employment discrimination prohibited employers from taking voluntary steps to ameliorate segregation in the workforce, the Court nevertheless acknowledged that such actions may run afoul of the text and purpose of Title VII. The Court adopted a three-part test. To be permissible under Title VII, the employer’s voluntary plan must (1) advance the statutory purpose of Title VII by “break[ing] down old patterns of racial segregation in hierarchy” in “occupations which have been traditionally closed to” individuals protected by the statute, (2) not “unnecessarily trammel the interests of [W]hite employees,” and (3) be “a temporary measure [that] . . . is not intended to maintain racial balance, but simply to eliminate a manifest racial imbalance.” 443 U.S. at 208. Revisiting the topic of affirmative action plans in Johnson v. Transp. Agency, Santa Clara Co., Cal., 480 U.S. 616 (1987), the Supreme Court clarified its analysis of Weber. Santa Clara County adopted a voluntary affirmative action plan that permitted individuals making hiring decisions to “consider as one factor” the sex of an otherwise qualified applicant when filling a position in a role where “women have been significantly underrepresented[.]” 480 U.S. at 620–21. The plan also provided diversity-related targets and explained how the County would continually monitor and adjust its plan. Paul Johnson, an employee who was passed over for an internal promotion in favor of a woman, brought a claim that the plan and the decision not to select him for the promotion violated Title VII. The Supreme Court upheld the plan, affirming the County’s attempts to correct the “manifest imbalance” in positions that were historically unavailable to women. The Court clarified that a “manifest imbalance” need not be so extreme as to constitute a prima facie case of discrimination. Moreover, the Court determined that the plan did not unnecessarily trammel on the rights of majority group employees because plaintiff had no “absolute right” to a promotion, he retained his job, and because “the sex of Joyce was but one of numerous factors [the hiring manager] took into account in arriving at his decision.” 480 U.S. at 638. Finally, the Court determined the non-permanent nature of the plan supported its validity: “the [County’s] plan was intended to attain a balanced work force, not to maintain one.” Id. at 639. DEI Programs DEI programs take many forms. These programs generally seek to create an environment of respect and fairness and to promote a more positive experience for all workers.  Examples of DEI initiatives include conducting outreach to diverse students at college recruitment events, developing inclusive job descriptions and advertisements, establishing mentorship programs, creating summer fellowships, adopting executive compensation incentives, promoting affinity groups, improving diversity training, bolstering anti-discrimination policies and more robust dispute resolution processes. The purposes of such DEI programs bear many similarities to the purposes of the affirmative action plans addressed in Weber and Johnson where employers sought to reduce a “conspicuous . . . imbalance in traditionally segregated job categories.”  While employers always may pursue such objectives, employers also should consider lessons from recent litigation involving challenges to DEI initiatives. For example, in Young v. Colorado Dep’t of Corr., 2024 U.S. App. Lexis 5814 (10th Cir. Mar. 11, 2024), the Tenth Circuit affirmed the dismissal of a former White employee’s hostile work environment claim because a single instance of subjectively offensive DEI training was not, on the pleadings, severe or pervasive. Although the employer prevailed, the court criticized the employer’s DEI training materials as “troubling on many levels.” The plaintiff alleged, among other things, that the training materials stated that “all whites are racist, that white individuals created the concept of race in order to justify the oppression of people of color, and that ‘whiteness’ and ‘white supremacy’ affect all ‘people of color within a U.S. context.’” Plaintiff also alleged that the training materials stated “white individuals are triggered by feelings of guilt and fear when confronted with ‘information about racial inequality and injustice,’ ” a “phenomenon” labeled as “white fragility.” The court observed that the messaging in these training materials “could promote racial discrimination and stereotypes within the workplace” and “encourage racial preferences in hiring, firing, and promotion decisions.” In De Piero v. Pennsylvania State Univ., 2024 U.S. Dist. LEXIS 5768 (E.D. Penn. Jan. 11, 2024), a district court found that allegations about certain of Penn State’s DEI initiatives sufficed to allege a racially hostile work environment. In that case the plaintiff, a writing professor, alleged among other things, that he was required to watch a “training video called ‘White Teachers Are a Problem,’” and a “’presentation and dialogue about critical race theory and antiracism’ that attacked ‘race neutrality, equal opportunity, objectivity, colorblindness, and merit’ and condemned ‘white self-interest.’” When the plaintiff raised concerns regarding such race-based statements to his supervisor, he was told that “[t]here is a problem with the [W]hite race” and that he should “broaden [his] perspective.” The court found that Plaintiff’s allegations were sufficiently specific and pervasive to establish a plausible claim for Title VII relief because the pleadings contained allegations of conduct which, if taken as true, showed race-based decisionmaking, stereotyping, and harassment. In ruling for the plaintiff, the court expressed the importance of caution when implementing DEI policies: “Training on concepts such as ‘white privilege,’ ‘white fragility,’ implicit bias, or critical race theory can contribute positively to nuanced, important conversations about how to form a healthy and inclusive working environment. . . But the way these conversations are carried out in the workplace matters: When employers talk about race—any race—with a constant drumbeat of essentialist, deterministic, and negative language, they risk liability under federal law.” Practice Pointers Employers should consider Weber, Johnson, Young and De Piero in assessing whether their DEI practices comply with Title VII.  Specifically, employers should consider the following questions: Is the practice remedial? Is the employer seeking to correct manifest imbalances in the labor force among jobs that have been traditionally segregated? Will the practice unnecessarily trammel the rights of non-minorities? How will the employer ensure protection of the rights of non-minority employees? Who has access to the program or initiative? Are training and other opportunities available to individuals regardless of protected class? Does the initiative use negative language or stereotypes? Do training materials refer to protected characteristics with “essentialist, determinist, and negative language?” Will any members in a protected class be singled out? Has the practice been audited? Many employers now schedule annual or as-needed audits of employment policies and practices to ensure legal compliance and consistency with other employment policies. How will the employer document compliance with Title VII?  What data will the employer collect to assess its processes, and when and how will the employer make those assessments? _________________________ [1] See Alexandra Olson et al., DEI backlash has companies quietly changing their programs to avoid wave of lawsuits alleging discrimination, Fortune, Jan. 15, 2024, DEI backlash has companies quietly changing their programs to avoid wave of lawsuits alleging discrimination | Fortune (last visited Mar 20, 2024).  See also Max Abelson et al., Wall Street’s DEI Retreat Has Officially Begun, Bloomberg, Mar. 3, 2024, Goldman, JPMorgan Cut DEI Efforts Over Lawsuit Threats - Bloomberg (last visited Mar. 18, 2024); Simone Foxman, Business is Booming for DEI Lawyers as Corporate America Asks ‘What’s Legal?’, Bloomberg, Mar. 5, 2024, Business Is Booming for DEI Lawyers as Corporate America Asks ‘What’s Legal?’ - Bloomberg (last visited Mar. 18, 2024). Reprinted with permission from the April 2, 2024 edition of the NEW YORK LAW JOURNAL © 2024 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited. ALMReprints.com – 877-257-3382 – reprints@alm.com.

Winter weather brings renewed attention to seasonal vaccines—and to employers’ interest in encouraging employees to remain healthy and productive, including potentially through efforts to require or incentivize workers to be vaccinated. While not as widespread today as they were during the pandemic, such rules and incentives trigger legal obligations to provide reasonable accommodations to employees who assert that vaccinations contravene a sincerely held religious belief or are inadvisable—even harmful—given a pre-existing disability. This article explains the current legal landscape employers face in evaluating requests for accommodations on the basis of religion or disability. It begins by explaining the recently announced standards for assessing requests for religious accommodations and summarizing the longstanding standards for assessing requests for disability-related accommodations. This article then surveys three recent court decisions applying accommodation standards in cases involving vaccines, explaining the legal standards applied by the deciding courts; and concludes with best practices for employers evaluating requests for religious and disability accommodations in light of current law, both in the context of vaccines and otherwise. Religious Accommodations under Title VII Title VII of the Civil Rights Act of 1964 (“Title VII”) prohibits covered employers from discriminating against employees and applicants on the basis of religion (as well as race, color, sex, and national origin). See 42 U.S.C. § 2000e-2(a). Prohibited discrimination on the basis of religion does not occur, however, in situations where the employer “demonstrates [it] is unable to reasonably accommodate an employee’s or prospective employee’s religious observance or practice without undue hardship on the conduct of the employer’s business.” See 42 U.S.C. §§ 2000e(j), 2000e-2(a). Title VII does not define “undue hardship” or “conduct of the business,” which instead have been interpreted by the courts. The current standard for evaluating religious accommodation requests was set on June 29, 2023, when the United States Supreme Court decided Groff v. DeJoy. 600 U.S. 447; 143 S. Ct. 2279 (2023). The Groff case involved an employee, Gerald Groff, who asked to be excused from Sunday work shifts that conflicted with his religious views of the Sabbath. 143 S. Ct. at 2286. When his requests were denied, Groff continued to decline to report to work, which led to ongoing discipline and his eventual resignation. Id. at 2287. Groff later sued, alleging that the Postal Service violated Title VII by failing to accommodate his religious practice and belief regarding the Sabbath. Id. The district court and Third Circuit ruled for the Postal Service, finding that exempting Groff from Sunday work caused an undue hardship on his employer under the then-applicable standard, which was that any burden on an employer that was “more than . . . de minimis” constituted “undue hardship” such that an accommodation could be denied. Id. Under that then-applicable standard, the circuit court’s reasoning was that changing Groff’s schedule would violate an agreement between the Postal Service and the union that represented Groff and unfairly burden other employees who would need to work his shifts. See id. The courts also indicated that Groff’s absences “imposed on his coworkers, disrupted the workplace and workflow, and diminished employee morale.” See id. The Supreme Court reversed. In a unanimous opinion authored by Justice Samuel Alito, the Court in Groff emphasized that Title VII focuses on “hardship,” a word choice that does not mean any mere burden. Id. at 2294. The Court further reasoned that the requirement that any hardship must be “undue” under Title VII indicated Congress’s intent that employers may have to bear meaningful costs to accommodate a religious employee. Id. Accordingly, the Court held, Title VII requires an employer seeking to deny an accommodation to demonstrate that the accommodation will substantially increase costs to its business—a significant change from the earlier standard, under which employers were effectively authorized to deny accommodations that required more than minimal cost of compliance. Id. at 2294-97. The Court then remanded the case for the lower courts to apply the standard set forth in the decision. Id. at 2297. Groff instructs lower courts to apply its standard on a case-by-case basis and assess proposed accommodations in a “common-sense manner,” with an eye on the “practical impact” of the accommodation in light of the size and nature of the employer’s business and all other facts on hand. The Court also clarified that employers may take into account the burdens an accommodation imposes on other employees as part of its assessment of the extent to which the accommodation affects the “conduct” of the employer’s business, id. at 2298 (Sotomayor, J., concurring), as long as those burdens affect the employer’s operations. Accommodations under the ADA The Supreme Court assessed the standard for reasonable accommodations related to disabilities under the Americans with Disabilities Act (“ADA”) more than 20 years ago, in US Airways, Inc. v. Barnett, 535 U.S. 391, 402 (2002). Barnett dealt with the conflict between an employer’s seniority system and an employee’s request to be assigned to a vacant position before other coworkers who had greater seniority, and thus greater entitlement to the position. 535 U.S. at 394. Under Barnett, once an employee shows that a requested accommodation is “possible,” the burden shifts to the defendant employer to “show special (typically case-specific) circumstances that demonstrate undue hardship in the particular circumstances.” Barnett, 535 U.S. at 402. Under the ADA, unlawful employment discrimination is defined to include the failure to make reasonable accommodations to the disability-related limitations of an otherwise qualified employee or job applicant, “unless [the employer] can demonstrate that the accommodation would impose an undue hardship on the operation of [its] business . . . .” 42 U.S.C. § 12112. The Equal Employment Opportunity Commission (“EEOC”) has stated that “undue hardship” under the ADA “means significant difficulty or expense and focuses on the resources and circumstances of the particular employer in relationship to the cost or difficulty of providing a specific accommodation.” Enforcement Guidance on Reasonable Accommodation and Undue Hardship under the ADA, https://www.eeoc.gov/laws/guidance/enforcement-guidance-reasonable-accommodation-and-undue-hardship-under-ada (EEOC Notice 915.002, October 17, 2002). “Undue hardship” refers not only to financial difficulty, but to reasonable accommodations that are unduly extensive, substantial, or disruptive, or those that would fundamentally alter the nature or operation of the business.” Id. Decisions Applying Groff in Vaccine Litigation Despite the similarities in the language of the “undue hardship” standards of the ADA and of Title VII, in Groff the Supreme Court rejected a request to use ADA cases in evaluating religious accommodations. Groff, 143 S. Ct. at 2295-96. The Court also declined to ratify EEOC guidance regarding religious accommodations, given that it was issued “without the benefit of the clarification we adopt today.” Id. at 2296. The Court did, however, refer favorably to the previously issued EEOC guidance regarding religious accommodations, stating that the justices expected “little, if any, change in the agency’s guidance explaining why no undue hardship is imposed by temporary costs, voluntary shift swapping, occasional shift swapping, or administrative costs” if needed to provide a religious accommodation. Id. Groff was cited 50 times by federal courts across the country through November 28, 2023, including approximately 30 cases that addressed COVID-19 vaccine mandates. Among these, the following three cases are instructive to employers assessing the legality of vaccine policies. Bordeaux v. Lions Gate Ent., Inc., No. 2:22-cv-04244-SVW-PLA, 2023 U.S. Dist. LEXIS 209626 (C.D. Cal. Nov. 21, 2023). In this case, the Central District of California expressly deferred deciding the employer’s motion for summary judgment on a Title VII religious-discrimination claim until after the Supreme Court decided Groff. 2023 U.S. Dist. LEXIS 209626, at *2-3. With supplemental briefing on Groff, the court granted the motion for summary judgment, finding that the actor’s requested exemption from a COVID-19 vaccine requirement created an undue hardship on the production company that did not re-hire her for a second season of a television program. Id., at *47-48. Focusing on the nature of the actor’s role on the program, the court concluded that her close, unmasked contact with other performers and crew members would expose those coworkers to a greater risk of COVID-19 infection and determined” “In and of itself, this safety risk constitutes an undue hardship.” Id., at *35-36. D’Cunha v. Northwell Health Sys., No. 23-476-cv, 2023 U.S. App. LEXIS 30612 (2d Cir. Nov. 17, 2023). This decision is the most recent federal appellate decision to apply Groff as of November 21, 2023. As with many cases surveyed since Groff, the plaintiff alleged both a religious-discrimination claim under Title VII and a disability-discrimination claim under the ADA, as she asked for a religious exemption from a COVID-19 vaccine mandate—and then a medical exemption after the religious exemption was denied. 2023 U.S. App. LEXIS 30612, at *3. The Second Circuit affirmed the dismissal of both the Title VII and the ADA claims. Id., at *8, 12. Applying Groff, the court noted that granting the requested exemption would have placed the hospital defendant in violation of New York State’s then-applicable 2021 mandate that all medically-eligible hospital personnel receive a COVID-19 vaccination and thereby exposed itself to potential penalties—which, in turn, would have been a burden “both ‘excessive’ and ‘unjustifiable.’” Id., at *8 (citing Groff, 143 S. Ct. at 2294). Lee v. Seasons Hospice, No. 22-CV-1593 (PJS/DJF), 2023 U.S. Dist. LEXIS 174927 (D. Minn. Sep. 29, 2023). Here, the  district court denied the private hospice defendant’s motion under Rule 12(b)(6) of the Federal Rules of Civil Procedure to dismiss two plaintiffs’ claims alleging failures to accommodate their religious beliefs and failures to accommodate their disabilities. 2023 U.S. Dist. LEXIS 174927, at *11-12, 31. Applying Groff to the religious accommodation claim, the court found that its inquiry into defendant’s claims of undue hardship was necessarily fact-intensive—and so would require a factual record to decide, which was not available at the motion-to-dismiss stage of the case. Id., at *11-12. Best Practices for Employers Several best practices for employers responding to requests for accommodations arise from the Groff decision and those applying it, including: Assess requests for accommodations on a case-by-case basis. Employers should evaluate every employee’s request for an accommodation on its own merits, in light of the employee’s responsibilities and essential job functions. Consider alternatives. Determining that a requested accommodation poses an undue hardship does not end the analysis. If a requested accommodation is not feasible, employers reduce risk by working with the employee to determine if other, less burdensome accommodations would be effective from the employee’s perspective. Document factors that support decisions. As courts require employers to assess specific facts at issue with every employee’s request, employers should be ready to show that they have done such an assessment—through accurate documentation and recordkeeping. Reprinted with permission from the December 5, 2023 edition of the NEW YORK LAW JOURNAL © 2023 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited. ALMReprints.com – 877-257-3382 – reprints@alm.com.

A first-in-the-nation law that creates new legal protections for temporary workers recently took full-effect in New Jersey, despite opposition from the business community, a conditional veto by the governor and a legal challenge in federal court.  The New Jersey Temporary Workers’ Bill of Rights (the “Act”) provides new protections for temporary workers in certain occupations and enhanced administrative oversight and regulation of temporary staffing agencies, referred to in the Act as “temporary help service firms” (“Firms”), and the companies at which their temporary workers are placed, the “third party clients.”  N.J. Stat. § 34:8D-1—34:8D-13.  The Act seeks to promote pay equity by requiring equal pay and benefits (or the cash equivalent thereof) for covered temporary workers relative to similarly situated direct-hire employees.  The Act, however, imposes substantial obligations and costs on Firms and their third party clients.  While the Act’s full impact on the temporary staffing industry remains to be seen, it may foreshadow things to come as other states consider new pay equity laws and other worker protections.  A similar law has already gone into effect in Illinois.  See 2023 Ill. HB 2862, ILL. P.A. 437. The Act took full effect on August 5, 2023.  The legislature originally drafted the Act to apply to all temporary workers in New Jersey.  However, Governor Murphy conditionally vetoed that version and recommended several changes.  See Conditional Veto Statement, A.1474 (First Reprint), N.J. LEG. 3 (Sept. 22, 2022).  While expressing support for the Act’s objectives, he recommended limiting its application to “those positions in the workforce at greatest risk of exploitation” in order to “ease the compliance burdens placed on the temporary help service industry, while ensuring that laborers in certain occupations subject to more extreme hardships receive due protection and consideration in enforcement.”  The legislature accepted his recommendations, and Governor Murphy signed the Act into law on February 6, 2023. New Jersey’s Department of Labor and Workforce Development issued proposed regulations implementing certain sections of the Act on July 21, 2023.  See N.J.A.C. 12:72-1–10.  The agency may further amend these regulations following a 60-day public comment period.  The Division of Consumer Affairs will enforce sections of the Act concerning the certification of Firms, and will be promulgate its own rules to implement those sections. Scope of the Act.  Consistent with Governor Murphy’s recommendations, the Act applies only to “temporary laborers,” which comprise a subset of the over 127,000 temporary workers in New Jersey.  See N.J. Stat. § 34:8D-1–8D-2.  The Act defines a “temporary laborer” as “a person who contracts for employment in a designated classification placement with a temporary help service firm.”  Id. § 34:8D-2.  A “designated classification placement,” in turn, is the assignment by a Firm of a temporary laborer to perform work in specified occupational categories as defined by the federal Bureau of Labor Statistics.  These occupational categories include: (i) certain protective service occupations (e.g., security guards, lifeguards); (ii) food preparation and service; (iii) building and grounds cleaning and maintenance; (iv) personal care and service (e.g., hairdressers, childcare workers, concierges); (v) construction; (vi) construction trades (e.g., electricians, carpenters); (vii) installation maintenance and repair; (viii) production (e.g., butchers, metal workers, drycleaners); and (iv) transportation and logistics. The proposed rules clarify that the Act applies to each Firm that “is located, operates, or transacts business within New Jersey.”  N.J.A.C. § 12:72-1.1.  They further specify that the Act applies to each temporary laborer who is employed by a covered Firm who either: (1) has been assigned to work in a designated classification placement in New Jersey; or (2) has been assigned to work in a designated classification placement outside of New Jersey, but who has his or her primary residence in New Jersey.  The Act also applies to third party clients with whom Firms make designated classification placements. Pay equity.  The Act requires that Firms pay temporary laborers no less than the average rate of pay and cost of benefits, or the cash equivalent thereof, as direct-hire employees of the third-party client, who perform the same or substantially similar work on jobs that require equal skill, effort and responsibility and that are performed under similar working conditions, i.e., “comparator employees.”  See N.J. Stat. § 34:8D-7; N.J.A.C. § 12:72-2.1. The proposed rules add significant detail to the Act’s pay equity provision.  See N.J.A.C. § 12:72-7.  A Third party client must identify comparator employees from its own staff for each temporary laborer it uses, and supply the Firm with a list of the hourly rate of pay and cost of benefits for each one.  The proposed rules provide detailed instructions for calculating the average rate of pay and cost of benefits.  To calculate the cost per hour of benefits, the annual cost to the third party client of benefits for a direct-hire employee is divided by 2,080 hours. The Firm then uses this information to determine the hourly wage rate and value of benefits it must pay the temporary laborer, pursuant to a calculation method set forth in the proposed rules. The regulations define “benefits” to include health insurance, life insurance, disability insurance, paid time off, training and pension, that an employer provides in excess of what is required by law.  N.J.A.C. § 12:72-2.1. The proposed rules list 12 principles for third-party clients to apply to determine whether a temporary laborer and a third party client employee are performing substantially similar work.  N.J.A.C. 12:72-6.2.  They provide that substantially similar work “should be viewed as a composite of skill, effort and responsibility performed under similar working conditions.”  While job titles and job descriptions are relevant, the analysis should focus on the actual job duties performed.  Experience, ability, education and training required to perform a job are relevant factors; but, the number of years of service (i.e., seniority) of a third party client employee and a third party client’s use of a merit system for compensation are not. Post-Employment Restrictions.  Firms may not restrict a temporary laborer from accepting a “permanent position” with a third party client to which the Firm has assigned the laborer to work, or from accepting a “permanent position for any other employment.”  See N.J. Stat. § 34:8D-7.  Although Firms may not prohibit third party clients from directly hiring their temporary laborers, they may charge third party clients a placement fee.  The proposed rules set forth the method to use to determine the maximum placement fee that may be charged.  N.J.A.C. 12:72-6.2. Certification.  In recognition of the “large, though unknown, number of unlicensed temporary help service firms that operate outside the purview of law enforcement,” N.J. Stat. § 34:8D-1(a), the Act requires all Firms who make designated classification placements to obtain certification to do so from the New Jersey Division of Consumer Affairs.  Id. § 34:8D-8. Anti-retaliation.  Under the Act, a rebuttable presumption of retaliation arises if a Firm terminates or imposes disciplinary action on a temporary laborer within 90 days of the temporary laborer’s exercise of rights protected under the Act.  N.J. Stat. § 34:8D-10. Enforcement.  The Act authorizes the commissioner to issue penalties for non-compliance.  It also allows temporary laborers to bring individual or class action lawsuits against Firms for violations of this Act.  The Act imposes joint and several liability on Firms and third party clients for the violation of multiple provisions. New Hire Notice and Recordkeeping Requirements.  Whenever a Firm agrees to send a temporary laborer to work in a designated classification placement, it must provide that worker with a new hire notice at the time of dispatch.  N.J. Stat. § 34:8D-3.  The new hire notice must contain detailed information, including, among other things, the name of the temporary laborer; the name and contact information for the Firm, its workers’ compensation carrier, the third party client and the Department; the nature of the work to be performed; the wages offered; the length of the assignment, if known; whether any special clothing, protective equipment, or training are required and who will bear such the costs, and whether a meal or equipment will be provided and their costs, if any. Firms also must keep detailed records for each designated classification placement they make.  Third party clients must remit time records for temporary laborers to Firms to enable them to satisfy their recordkeeping requirements.  N.J. Stat. § 34:8D-4. Payment of Wages and Itemized Wage Statements.  Firms must provide temporary laborers detailed itemized wage statements either on the laborer’s paycheck stub or a form approved by the commissioner.  N.J. Stat. § 34:8D-6.  The wage statement must contain the name and address of each third party client for whom the temporary laborer performed work, information on the number of hours worked, the rate of pay for each hour, the total pay period earnings, the amount and purpose of each deduction made, and the maximum placement fee the Firm may charge a third party client for directly hiring the temporary laborer. The Act also imposes several regulations on the payment of wages to temporary laborers, including with respect to the method and frequency of payments.  It prohibits deductions for cash-checking fees, criminal background checks, consumer credit reports and drug tests, and regulates the amount of deductions for meals and equipment.  N.J. Stat. § 34:8D-6.  It also requires a Firm to pay a temporary laborer who is contracted to work at a third party client, but is not used by the third party client, a minimum of four hours at the agreed upon rate of pay, or a minimum of two hours if the temporary laborer is contracted to work at another location during the same shift. Transportation.  Firms and third party clients may not charge a fee for transportation they provide to temporary laborers to transport them to or from a worksite.  N.J. Stat. § 34:8D-5.  A Firm may not require a temporary laborer to use transportation the firm provides, and if it does provide transportation, it must adhere to basic safety requirements. Public Policy Objectives:  The “findings and declarations” section of the Act states that the share of Black and Latino temporary workers far outstrips their proportion in the workforce and that they are heavily concentrated in low-wage occupations.  See N.J. Stat. § 34:8D-1.  Further, full-time temporary workers earn 41% less than direct-hire employees, and are far less likely to receive employer-sponsored retirement and health benefits.  Although the Act seeks to address these societal problems, it also disincentivizes companies from using temporary laborers due to increased regulatory burdens and costs.  In  apparent recognition of the negative financial impact the Act may have on Firms, the Department also identified a countervailing effect on the creation of more permanent jobs, anticipating that some third-party clients will determine that it is now more advantageous for them to hire permanent employees rather than continuing to use temporary labor. _________________________ Reprinted with permission from the October 3, 2023 edition of the NEW YORK LAW JOURNAL © 2023 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited. ALMReprints.com – 877-257-3382 – reprints@alm.com.

In recent years, courts have ruled upon a growing number of cases arising from delivery of and payment for gender affirming care. At the same time, state legislatures have passed a variety of laws aimed at such services. Some states enacted affirmative legal protections for patients and providers (e.g., Colorado, Illinois, and Minnesota) while others sought to restrict or prohibit services available in their states (e.g., Alabama, Arkansas, and Florida). Within the past two years alone, more than 30 states have enacted legislation regarding gender affirming care. Litigants continue to challenge many of these laws in court. The law governing restrictions placed on the delivery of gender affirming care will continue to develop as litigants’ challenges work their way through the legal system. But even now, federal courts have provided guidance for the prudent employer and third-party administrator to evaluate their own policies regarding health care plan coverage for gender affirming care. Because a number of courts have held that a health care benefit plan’s denial of coverage for gender affirming care discriminates against individuals on the basis of sex when physicians opine that those treatments are medically necessary, health plan sponsors should consider whether to prophylactically eliminate plan provisions that unconditionally exclude coverage for transgender benefits. In this article, we provide an overview of the law governing the availability of gender affirming care, we discuss how the law affects benefit plans, and we offer practical suggestions for employers as they evaluate how to structure their health care benefit plans. Terms Gender affirming care means the provision of health care to transgender people in an effort to align their gender expression (external characteristics and behaviors) with their gender identity (innate, psychological sense of gender). Gender affirming care may include mental health counseling and additional medical interventions such as puberty blockers, cross-sex hormones, or surgery. Gender affirming care treats gender dysphoria, i.e., the distress caused by the discrepancy between a person’s gender expression and their gender identity. The Diagnostic and Statistical Manual of Mental Disorders, Fifth Edition, recognizes gender dysphoria as a mental health condition. Gender dysphoria can cause anxiety, depression, and suicidal ideation. Accordingly, the American Academy of Pediatrics, American Academy of Child and Adolescent Psychiatry, American College of Physicians, American Medical Association, and American Psychiatric Association have expressed support for treatment of gender dysphoria with gender affirming care. Legislative Background Although many in the medical community have expressed support for gender affirming care, a number of states have sought to restrict the practice, particularly for minors. In 2021, Arkansas became the first state in the country to ban gender affirming care for transgender minors. Since then, at least 12 other states have restricted gender affirming care for minors and/or adults, and at least 30 states have introduced similar legislation in 2023. Should they become law, states may enforce these restrictions through a variety of means, including criminal, civil, and/or professional penalties for clinicians who provide services, and in some instances, penalties for parents of children who support their children’s access to services. Patients, parents, and physicians have challenged these recent legislative efforts in court. Plaintiffs commonly argue that governmental bans on gender affirming care discriminate on the basis of sex and therefore violate their equal protection and due process rights. The federal courts have generally treated these arguments favorably by either partially or permanently blocking state laws in Alabama, Arkansas, Florida, Indiana, and Kentucky. But see L.W. v. Skrmetti, 2023 U.S. App. LEXIS 17234 (6th Cir. July 8, 2023) (refusing to block Tennessee’s ban on gender affirming care while Sixth Circuit considers an expedited appeal). For example, in Doe v. Ladapo, plaintiffs challenged Florida’s statute and rules that sought to prohibit transgender minors from receiving puberty blockers and cross-sex hormones. 2023 U.S. Dist. LEXIS 99603 (N.D. Fla. June 6, 2023). Plaintiffs argued that the laws discriminated on the basis of sex because the same treatments were legal in other contexts, e.g., treating a natal male adolescent with testosterone. The court agreed with plaintiffs’ arguments, reasoning “[g]ender identity is real,” “[t]he widely accepted standard of care calls for evaluation and treatment [of gender dysphoria],” and Florida’s purported justifications for the challenged legislation “are largely pretextual.” Insurance Background Lawsuits involving gender affirming care extend beyond the recent challenges to state legislation. A number of transgender individuals and/or their parents/guardians have sued employers and third-party administrators related to health insurance policies that exclude coverage for transgender benefits, either categorically or by excluding specific treatments for gender dysphoria (e.g., limiting or excluding surgical benefits). Plaintiffs commonly allege violations of the Affordable Care Act and Title VII of the Civil Rights Act of 1964. The Affordable Care Act (Section 1557) includes broad civil rights protections in health care, barring discrimination based on race, color, national origin, sex, age, or disability. The Obama administration interpreted Section 1557’s ban on sex discrimination to bar discrimination based on gender identity. In 2020, the Trump administration reversed course. But in 2021, the Biden administration restored the Obama administration’s interpretation in Executive Order 13988, bolstered by the U.S. Supreme Court decision in Bostock v. Clayton County, Georgia, 140 S. Ct. 1731 (2020), in which the Court recognized that Title VII’s prohibition of discrimination in employment on the basis of sex includes discrimination on the basis of gender identity. Like Title VII, Section 1557 prohibits discrimination on the basis of sex and extends that prohibition to health programs or activities that receive federal funding. The phrase “health program or activity” includes federally funded contracts of insurance; Section 1557 therefore prohibits sex discrimination in certain health insurance contracts. Schmitt v. Kaiser Found. Health Plan of Washington, 965 F.3d 945, 951 (9th Cir. 2020); but see Religious Sisters of Mercy v. Azar, 513 F. Supp. 3d 1113, 1136 (D.N.D. 2021) (holding that health insurers are subject to Section 1557 only for the parts of their operations that receive federal funding). Increasing Litigation Since 2017, several federal courts have found that blanket exclusions for gender affirming care violate federal law. One such case is C.P. v. Blue Cross Blue Shield, 2022 U.S. Dist. LEXIS 227832 (W.D. Wash. Dec. 19, 2022). In C.P. v. Blue Cross Blue Shield, plaintiffs—a transgender boy of 17 and his mother—argued that Blue Cross violated Section 1557 when it administered a self-funded health care plan, governed by the Employee Retirement Income Security Act of 1974, 29 U.S.C. § 1001 et seq., that categorically excluded from coverage transgender benefits. Plaintiff C.P. had gender dysphoria and sought hormone therapy treatment, and later, chest reconstruction surgery. Blue Cross initially covered the hormone therapy by mistake; it later notified plaintiff C.P. that subsequent treatment would not be covered. The relevant exclusionary language provided: “Transgender Reassignment Surgery Not Covered: Benefits shall not be provided for treatment, drugs, therapy, counseling services and supplies for, or leading to, gender reassignment surgery.” Importantly, the plan at issue generally covered care for hormone therapy, mastectomies, and chest reconstruction if that care was considered medically necessary for diagnoses other than for gender affirming care. In granting plaintiffs’ motion for summary judgment, the court relied on Bostock and Ninth Circuit precedent to conclude that the plan discriminated on the basis of sex in violation of Section 1557. The trigger for denial of coverage was a diagnosis of gender dysphoria; according to the court, gender dysphoria cannot be understood without reference to sex.1 The court also determined that Blue Cross’s arguments regarding the purported lack of medical consensus for gender affirming care were “immaterial” because (1) “[Blue Cross] did not base the decision to deny care on medical necessity but on [plaintiff] C.P.’s . . . transgender status,” and (2) the treatment at issue would be considered medically necessary under Blue Cross’ own medical necessity policy. In Fain v. Crouch, 618 F. Supp. 3d 313 (S.D. Va. 2022), plaintiffs—transgender individuals who received healthcare through the West Virginia Medicaid Program—also challenged the plan’s exclusion of surgical treatment for gender dysphoria. Unlike the plan in C.P. v. Blue Cross Blue Shield, the plan here covered some treatments for gender affirming care, such as mental health counseling and hormone therapy. Plaintiffs brought equal protection and Section 1557 claims. The court granted plaintiffs’ motion for summary judgment because the challenged exclusion denied medically necessary surgeries for transgender people that the same plan covered for reasons other than gender dysphoria. The court was not persuaded that the plan’s coverage of some transgender benefits, like hormone therapy, was a defense to plaintiffs’ claims. Relying on Bostock, the court stated: “Simply because the [plan] does not discriminate in all aspects does not permit it to discriminate narrowly against transgender surgical care.” Id. at 326. Practice Pointers Although the rules applicable to the provision of and payment for gender affirming care continue to develop, employers should assess how recent cases may be instructive to them. As noted above, a number of federal courts have recognized that categorical denial of coverage for transgender benefits constitutes discrimination on the basis of sex that triggers the protections of Section 1557 and federal anti-discrimination laws. Employers, therefore, should consider on a prophylactic basis whether to eliminate from their group health plans categorical exclusions of transgender benefits. Similarly, employers should think carefully about policies that label gender affirming care as “cosmetic” or “elective,” descriptions of the medical treatments which result in exclusion of the care from coverage. In particular factual circumstances where the care was considered medically necessary, some courts have considered such practices discriminatory. See, e.g., Hicklin v. Precynthe, 2018 U.S. Dist. LEXIS 21516 (E.D. Mo. Feb. 9, 2018) (summarizing case law in which courts determined transgender benefits were not merely cosmetic treatments, but, instead, medically necessary treatments to address serious medical disease). Employers also should think carefully about excluding coverage for specific services to treat gender dysphoria if those same services are covered in other contexts, e.g., if a plan excludes coverage for medically necessary mastectomies to treat gender dysphoria while covering the same procedure for non-gender dysphoria related diagnoses. See, e.g., Fain v. Crouch, 618 F. Supp. 3d at 326. Finally, employers should monitor developments in the state laws. In stark contrast to recent federal jurisprudence, states such as Indiana, Kentucky, Missouri, and Oklahoma have pending bills that affirmatively bar insurers from offering coverage for gender affirming care. Texas, Wyoming, and New Hampshire have pending bills that categorize gender affirming care as child abuse under state law. 1The plan at issue was the Catholic Health Initiatives Medical Plan. Accordingly, Blue Cross also argued that it was protected by the Religious Freedom Restoration Act (“RFRA”) because the plan was based on sincerely-held religious beliefs. The court rejected Blue Cross’s defense on the ground that the RFRA is inapplicable in cases where the government is not a party. But see Religious Sisters of Mercy, 513 F. Supp. 3d at 1122 (granting coalition of Catholic entities permanent injunctive relief pursuant to RFRA from provision or coverage of gender affirming care). Reprinted with permission from the August 2, 2023 edition of the NEW YORK LAW JOURNAL © 2023 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited. ALMReprints.com – 877-257-3382 – reprints@alm.com.

Following the Federal Reserve’s interest rate increases and the resulting volatility in the stock markets, economists and government officials continue to debate whether the country will experience a hard or soft landing, or no landing at all. While some sectors of the economy remain strong, others have begun to see layoffs. In the face of this uncertainty, employers facing the prospect of downsizing would be wise to take steps now to minimize the financial risks from litigation by workers who suffer loss of employment. Employers planning reductions-in-force frequently seek to reduce their exposure to employment litigation by offering affected workers severance benefits in exchange for waivers of their employment litigation claims. While some businesses maintain formal policies governing their severance pay practices, others choose to provide discretionary severance benefits on a case-by-case basis. Employers in this latter group often are surprised to learn that offering workers severance pay on an ad hoc basis can itself lead to claims for additional severance benefits. Employees frequently have argued in litigation that an employer’s informal severance practice actually created a welfare benefit plan under the Employee Retirement Income Security Act of 1974, 29 U.S.C. § 1001 et seq. (“ERISA”). In this article we discuss the legal standards courts apply in deciding whether an employer’s past practice of providing severance pay establishes an ERISA plan, and we offer practical suggestions for employers considering layoffs to mitigate the risk of unexpected liability for severance. Background Congress enacted ERISA in 1974 to set the standard for most retirement and welfare benefit plans established by private employers. Id. at § 1002(3). By enacting ERISA Congress sought to protect the interests of participants and their beneficiaries in receiving promised benefits. For this reason, ERISA empowers a participant or beneficiary of an employee benefit plan to bring a civil action to recover benefits due. 29 U.S.C. § 1132. ERISA defines an employee welfare benefit plan as (1) any plan, fund, or program, (2) established or maintained (3) by an employer or by an employee organization, or by both, (4) for one of the purposes enumerated, (5) for participants or their beneficiaries. 29 U.S.C. §1002(1). Factors (2) through (5) generally can be satisfied with respect to an ongoing informal severance pay practice. Courts, however, have struggled in determining whether Congress intended the words “plan, fund or program” to include an ongoing, informal severance pay practice. In Donovan v. Dillingham, 688 F.2d 1367, 1372-73 (11th Cir. 1982) the Eleventh Circuit held that an employer established an ERISA plan if a reasonable person would be able to ascertain (1) the intended benefits, (2) the intended beneficiaries, (3) the source of financing and (4) the procedures for receiving benefits. In the years immediately after Donovan, the Supreme Court decided two cases that clarified the situations where employers established ERISA plans by making certain types of payments to employees upon termination of employment. In Massachusetts v. Morash, 490 U.S. 107, 119, (1989) the Supreme Court acknowledged that states traditionally regulated payment of wages, and therefore held that the vacation pay practice in that case did not fall within the scope of ERISA. In Ft. Halifax Packing Co. v. Coyne, 482 U.S. 1, 12 (1987) the Supreme Court held that a severance payment made as a “one-time, lump-sum” did not create the need for an administrative operation and thus did not constitute an ERISA plan. Following Morash and Ft. Halifax, courts nevertheless have continued to cite to Donovan in analyzing whether an informal practice to offer severance pay constituted an ERISA plan. See, e.g., Grimo v. Blue Cross/Blue Shield, 34 F.3d 148, 151 (2d Cir. 1994) (applying Donovan); Baldo v. Zippo Mfg. Co., 48 Fed. Appx. 10, *11 (2d Cir. Oct. 4, 2002) (same). Administrative Scheme Courts in the Second Circuit have moved away from a strict application of the Donovan factors, focusing more on the frequency and “past practice” of making severance payments and the existence of an ongoing administrative scheme. In Okun v. Montefiore Med. Ctr., 793 F.3d 277, 279 (2d Cir. 2015) the Second Circuit identified the following considerations to help courts determine whether there is an ongoing administrative scheme: whether there is managerial discretion in the plan administration; whether a reasonable employee would perceive an ongoing commitment by the employer to provide benefits; and whether the employer was required to analyze the circumstances of each employee's termination separately. In Wimberly v. Automotivemastermind Inc., 2021 U.S. Dist. LEXIS 12344, 2021 WL 230299, at *7-8 (S.D.N.Y. Jan. 22, 2021), the U.S. District Court for the Southern District of New York applied these factors to find that an offer of a lump sum amount to one employee as severance pay did not establish an ERISA plan. Wimberly arose out of the discharge of an employee who billed expenses to other persons’ rooms while attending a sales conference for his employer Automotivemastermind Inc. (“aM”). When confronted about the hotel charges, the plaintiff refused to sign his warning and commenced a petition for pre-action discovery (“Petition”) to discover the identity of his accusers and clear his name. Shortly after plaintiff filed his Petition, aM terminated his employment. aM offered the employee six weeks of severance pay in exchange for dismissal of his Petition and his execution of a waiver and release of claims. The plaintiff refused, and instead claimed aM owed him severance under a “plan” which aM denied. The Wimberly plaintiff asserted that aM had a plan within the meaning of ERISA because two former aM employees allegedly received offers of severance upon termination of their employment. Unpersuaded the Wimberly court reasoned that this fact alone does not establish an ongoing administrative program because aM's offers of severance, to the plaintiff and the two other employees were based on a simple arithmetical calculation, obviating any need for managerial discretion or ongoing administrative efforts. Then relying on Ft. Halifax, the Wimberly court found that there was no ongoing commitment to provide benefits considering the one-time nature of the severance offer. Moreover, the complaint allegations supported that aM and its managers made an ad hoc determination that a severance payment in exchange for the release of all claims would facilitate a speedy dissolution of their relationship with the plaintiff and his pending Petition. Employment Agreements In contrast with Wimberly, other courts have held that arrangements affecting only one employee may establish an ERISA plan. For example, in Thomas v. Command Alkon Inc., 2023 U.S. Dist. LEXIS 89149, *9 (E.D. Pa. May 22, 2023) the court found that an employment agreement providing severance if the employee resigned for good reason was an employee benefit plan with an administrative scheme subject to ERISA. In Thompson, the employee worked with Libra Systems, Inc. which was purchased by Command Alkon in November 2020. During the sale negotiations, Libra’s owners insisted that Command Alkon enter into an employment agreement with Thompson for a fixed period. Command Alkon agreed to that offer. The employment agreement also provided Thompson severance pay if her employment ended prior to the fixed period for good reason. Before the end of the fixed period, Thompson asserted that she had good reason to terminate her employment. Thompson sought severance pay, but the employment agreement provided for severance pay only if she executed a waiver and release of claims. Thompson did not execute a waiver and release, but still claimed entitlement to severance in the amount of $467,424.62. The Thompson court reasoned that there was an administrative scheme, because Thompson’s eligibility to collect severance pay was set forth in the employment agreement, which turned on whether she resigned with good reason, and Command Alkon exercised managerial discretion in categorizing the circumstances of the termination of the employment agreement. Although the employment agreement applied only to Thompson, the court cited various cases in sister circuits which support the proposition that contracts with one employee can constitute an ERISA plan, provided that an “administrative scheme” is established. Tips to Avoid Liability Employers should consider whether their past practices for paying severance inadvertently has crossed the legal threshold for the creation of an ERISA plan. If the past practice has established an ERISA plan, employers may have unwittingly subjected themselves to ERISA’s reporting and disclosure obligations which come with penalties for non-compliance. For example, ERISA requires that the plan be in writing, 29 U.S.C. § 1102(a)(1), that participants be given summary plan descriptions, Id., § 1024(b)(1); 29 C.F.R. §§ 2520.102-2, 25.20.102-3, that a claims procedure be established, 29 U.S.C. § 1133(1); 29 C.F.R. § 2560.503-1(b), that a plan administrator make certain documents available for examination by plan participants and beneficiaries, 29 U.S.C. § 1024(a)(1); 29 C.F.R. § 2520.104(b)(1), and that the administrator file a Form 5500 with the U.S. Department of Labor. Id.; see also 29 C.F.R. § 2520.103-1. An employer's failure to file a Form 5500 may result in a civil penalty of up to $1,000 per day from the date of noncompliance. 29 U.S.C. § 1132(c)(1). If a violation of ERISA's reporting and disclosure requirements is deemed willful, the employer may be subject to criminal liability, including a fine of not more than $5,000 for an individual or $100,000 for non-individuals and up to one-year imprisonment. Id. at § 1132(c)(2); see also 29 U.S.C. § 1131. An employer with an ongoing practice of paying severance to terminated workers and which thereby risks subjecting itself to ERISA should consider implementing a written plan and otherwise complying with ERISA’s requirements. First and foremost, such an employer demonstrates its adherence to and respect for the law. Further, such an employer avoids the risk of incurring penalties and costly enforcement actions by the U.S. Department of Labor which enforces ERISA’s requirements. Similarly, by having a written plan an employer may improve its employee relations by awarding of benefits to workers who experience loss of employment. An employer with a written plan also may control the circumstances when severance will be paid through careful drafting. For example, employers can preclude an award of severance pay if the employer terminates employment upon a sale of the business or upon outsourcing a business unit, where the buyer or a contractor offers comparable employment to the worker following termination. An employer may preclude or reduce an award of severance where the employer provides its workers pay in lieu of notice under the WARN Act or similar state laws. An employer also can preclude the employees with individual employment agreements from “double dipping” so that they do not receive severance both under the plan and under their individual agreements. A plan may preclude severance pay for employees terminated “for cause” or who voluntarily resign. Finally, a plan may require as a condition to an award of severance that the employee first sign a release of all claims against the employer. Armed with a written plan, employers also benefit from ERISA’s preemption of state law. Thus, employers can avoid claims for liquidated damages under state wage payment statutes, or for punitive damages under the common law. ERISA also allows employers to draft clauses according them broad discretion in interpreting their plans, and courts have upheld such clauses absent interpretations deemed arbitrary and capricious. Reprinted with permission from the June 6, 2023 edition of the NEW YORK LAW JOURNAL © 2023 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited. ALMReprints.com – 877-257-3382 – reprints@alm.com.

Employers using automated decision-making systems, including artificial intelligence, algorithms, machine learning, and other tools (collectively, “ADMs”), in connection with employment decisions are on the precipice of a drastically changed landscape concerning such use. The Equal Employment Opportunity Commission (“EEOC”) is preparing to issue its final strategic enforcement plan addressing the use of ADMs in employment. Additionally, states and localities are enacting or introducing their own legislation and regulation on the subject. New York City has announced that it will begin enforcing Local Law 144 of 2021 (“Local Law 144”) imminently, on April 15, 2023. Meanwhile, the EEOC and private litigants increasingly are commencing lawsuits alleging discrimination in the use of ADMs in employment. Considering the legal developments covering the use of ADMs in employment, employers should prepare for the coming changes and recognize how the ADMs they are using may leave them vulnerable to claims of employment discrimination. EEOC Enforcement and Guidance On January 10, 2023, the EEOC issued a Draft Strategic Enforcement Plan (“Draft SEP”), which places elimination of employment discrimination in the use of ADMs at the top of its strategic priorities list. The EEOC signaled that it will use investigations and litigation to “eliminat[e] barriers in recruitment and hiring” arising out of “the use of automated systems, including artificial intelligence or machine learning, to target job advertisements, recruit applicants, or make or assist in hiring decisions where such systems intentionally exclude or adversely impact protected groups.” The EEOC held a public hearing on January 31, 2023, addressing the use of ADMs in employment. Much of the testimony urged the EEOC to issue additional guidance establishing best practices for employers to ensure that their use of ADMs complies with employment discrimination laws. The EEOC is considering the public feedback it received and may issue the final strategic enforcement plan at any time. The EEOC previously issued guidance in May 2022 focusing on unique issues pertaining to the use of ADMs as to individuals with disabilities. The guidance identifies potential violations of the Americans with Disabilities Act (“ADA”) where: (1) an employer using ADMs does not provide reasonable accommodations to applicants and employees with disabilities to ensure fair assessment; (2) the employer’s ADMs—intentionally or unintentionally—screen out individuals with disabilities who could perform the essential functions of a job with reasonable accommodations; and (3) the employer’s ADMs violate ADA restrictions on disability-related inquiries and medical examinations. Litigants may seek to hold employers responsible for ADA violations resulting from the use of ADMs, even when third-party vendors develop and administer them. Local Law 144 Meanwhile, New York City enacted Local Law 144, effective January 1, 2023, the first law attempting directly and comprehensively to regulate the use of ADMs in the workplace. The ordinance provides that it is unlawful for employers and employment agencies to use an “automated employment decision tool” (“AEDT”) to “screen a candidate or employee for an employment decision” within the city—unless the tool has been subjected to a “bias audit” within one year before the tool’s use, information about the bias audit and tool are published, and required notices are given to employees and candidates residing in the city. N.Y.C. Admin. Code § 28-871. The ordinance defines a “bias audit” as “an impartial evaluation by an independent auditor” that includes testing of the disparate impact on component 1 categories (i.e., sex and race/ethnicity) required to be reported by employers covered by Title VII of the Civil Rights Act of 1964 (“Title VII”). Id. § 28-870. In December 2022, the New York City Department of Consumer and Worker Protection (“DCWP”) announced that it would not begin enforcing the ordinance until April 15, 2023, and issued a revised set of proposed regulations seeking to clarify the ordinance.[1] Among other things, the proposed rules would refine the ordinance’s requirement that an AEDT is a tool used “to substantially assist or replace discretionary decision making” to mean that the AEDT’s “simplified output” must be relied on solely to make an employment decision; given greater weight than other criteria when making an employment decision; or used to overrule conclusions derived from other factors, including human decision-making. The proposed rules also would clarify that an “independent auditor” must be “capable of exercising objective and impartial judgment” and must not have been involved in using, developing, or distributing the AEDT or have an employment relationship or financial interest with the employer, employment agency, or vendor whose AEDT is being audited. Further, the DCWP’s proposed rules specify the calculations required for the bias audit. Essentially, when an AEDT is used to select or score applicants (or employees for promotion), the bias audit must calculate the “selection rate” or “scoring rate” and “impact ratio” for sex and race/ethnicity categories and “intersectional categories” of sex, ethnicity, and race (as well as the median score for the full sample of applicants for a scoring rate calculation).[2] The proposed rules include exemplar calculations required for a bias audit. The DCWP received additional public comments and held a hearing on the revised proposed rules on January 23, 2023. The DCWP is finalizing the rules but has not provided a date by which the final rules will be issued or extended the enforcement timeline. Other States and Localities Employers should be aware of pending developments relevant to the use of ADMs in employment in other states and localities. For example, New York and New Jersey are considering new legislation regarding ADMs used in employment. New York 2023 Leg., 246th Sess. (Jan. 9, 2023); New Jersey 220th Leg., A.B. 4909 (Dec. 5, 2022). In California, legislation specific to the use of ADMs for employment decisions stalled out in 2022. But the California Privacy Rights Act (“CPRA”), which amended and expanded the California Consumer Privacy Act (“CCPA”), became operative on January 1, 2023, resulting in the expiration of previous exemptions pertaining to the collection and use of employment-related personal information—which may be collected and used by ADMs. The California Privacy Protection Agency is currently in the rulemaking process and considering regulations specific to ADMs. Enforcement is set to begin on July 1, 2023. A detailed discussion of these developments is beyond the scope of this article. Increasing Litigation Beyond the changing legislative landscape, employers using ADMs and vendors of ADMs are encountering increasing litigation from the EEOC and private litigants. On May 5, 2022, the EEOC filed its first lawsuit addressing employers’ use of ADMs. In Equal Employment Opportunity Commission v. iTutorGroup, Inc., et al., Case No. 1:22-cv-02565 (E.D.N.Y.), the EEOC alleges that the defendants provide English-language tutoring services and discriminated against more than 200 tutor applicants by programming their application software to reject female applicants over the age of 55 and male applicants over the age of 60. The charging party allegedly applied and was rejected because she was older than 55 but applied a second time the next day using a more recent date of birth and was offered an interview. The EEOC seeks injunctive and monetary relief. Recently, on February 21, 2023, an individual filed a putative class action against Workday, Inc., alleging that it provides an algorithm-based screening system that disproportionately denies employment opportunities to applicants based on race, age, and disability. Mobley v. Workday, Inc., Case No. 4:23-cv-00770 (N.D. Cal.). Specifically, Mr. Mobley alleges that Workday’s screening tools enable customers to select candidates based, at least in part, upon their protected classifications or lack thereof. Mr. Mobley seeks class certification and injunctive and monetary relief. Criticisms of ADMs ADMs offer great benefits to employers of cost and time savings in hiring and managing employees.  However, commentators have pointed out that ADMs may introduce into employment decisions unintended bias or discriminatory impact on members of protected classes. For instance, at the EEOC’s hearing on the Draft SEP, ReNika Moore (Director of the American Civil Liberty Union’s Racial Justice Program) testified[3] (among other things) that: Racial and ethnic minority groups are overrepresented in data containing negative information (such as criminal records, evictions, and poor credit records) that may be considered by ADMs and lead them to be disproportionately excluded from employment opportunities. ADMs may be trained with data drawn from pools of individuals who are not representative of the group to which the ADMs will be applied, rendering the tool “less accurate for people in the underrepresented group.” Algorithms used to assess whether employees are meeting or candidates are likely to meet performance targets are trained with historical data, which may cause the algorithm to carry forward discriminatory impact from the past. ADMs may use certain data as “proxies” for protected characteristics (such as zip codes, names, or educational institutions). ADMs that continually learn may experience a “feedback loop” and reinforce their own discriminatory impact. As one example of an ADM that may introduce bias into the process of recruiting employees, Ms. Moore testified that tools which target job advertisements based on individuals’ personal information can exclude members of protected classes from receiving the advertisements.  Such exclusion may occur, for example, where employers select the characteristics of their desired audience or where they upload individuals’ data to “lookalike” tools that target recipients by their similarities to such individuals.  Either process may select a group of recipients of job advertisements that is not representative of the applicable population. Practice Pointers In light of the evolving legal landscape focusing on bias in the use of ADMs, employers may wish to prepare for the patchwork laws that will soon apply to their use of ADMs. Among other things, employers may wish to ascertain whether they are using technology covered by new and pending laws on the subject. Further, even employers outside of New York City may wish to establish processes consistent with the requirements of Local Law 144 (or other new laws), such as conducting bias audits, publishing audit results, and issuing notices to candidates or employees of the use of ADMs. Of course, employers should always ensure their use of ADMs complies with existing employment discrimination laws, such as by providing reasonable accommodations to individuals with disabilities. Reprinted with permission from the April 4, 2023 edition of the NEW YORK LAW JOURNAL © 2023 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited. ALMReprints.com – 877-257-3382 – reprints@alm.com. [1] See https://rules.cityofnewyork.us/wp-content/uploads/2022/12/DCWP-NOH-AEDTs-1.pdf (last visited March 23, 2023). [2] The “selection rate” is equal to the number of employees or candidates in a given category who were selected divided by the total number of employees or candidates in such category. The “scoring rate” is the rate at which individuals in a category receive a score above the full sample’s median score. The “impact ratio” is equal to the selection rate or scoring rate for a category divided by the selection rate or scoring rate of the most selected or highest scoring category. [3] See https://www.eeoc.gov/meetings/meeting-january-31-2023-navigating-employment-discrimination-ai-and-automated-systems-new/moore#_ftnref48 (last visited March 23, 2023).

Buyers of all or parts of another business often seek to protect the value of their investments by entering into non-compete agreements with their sellers.  Courts typically favor enforcement of such sale-of-business non-compete agreements in order to protect buyers from unfair competition from sellers, and to protect the business’s goodwill for which the seller has paid as part of the purchase price.  Courts regularly enforce sale-of-business non-compete agreements, either as an exception to a general legal prohibition on agreements restraining trade or by applying a more lenient standard for enforceability.  The public policy favoring enforcement of sale-of-business non-compete agreements stands in stark contrast to non-competes between employers and their employees triggered by termination of employment.  Courts in most states generally will enforce narrowly drafted and reasonable post-employment non-competes in accordance with a patchwork of state laws.  However, courts in several states, notably California, North Dakota and Oklahoma, broadly refuse to enforce post-employment non-competes. Although California law prohibits post-employment non-compete agreements, California law allows parties to enter into non-compete agreements in the context of a sale of business in accordance with certain detailed statutory requirements. Because of the size of the California economy, and the willingness of California courts to enforce appropriate sale-of-business non-compete agreements, buyers of businesses both inside and outside of California frequently seek to maximize compliance with California law.  One of the key issues such buyers need to consider in drafting sale-of-business non-compete agreements is whether the ownership interest being sold will suffice to trigger California’s sale-of-business exception.  In this article, we discuss California law governing sale-of-business non-competes and the case law addressing the nature of the ownership interest that the seller must transfer for the sale-of-business rules to apply. We also analyze the Federal Trade Commission’s (FTC) recently published proposed rule banning post-employment non-competes.  Like the California prohibition on employment non-compete agreements, the FTC’s proposed rule also includes a sale-of-business exception which buyers should consider in structuring their transactions. California’s Sale-of-Business Exception California generally invalidates non-compete agreements by making “void” “every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind.” Cal. Bus. & Prof. Code § 16600. However, Section 16601 of the Business and Professions Code carves out a limited exception for buyers and sellers of businesses.[1]  Under Section 16601, any of the following persons “may agree with the buyer to refrain from carrying on a similar business within a specified geographical area in which the business is sold, or that of the business entity, division, or subsidiary has been carried on, so long as the buyer, or any person deriving title to the goodwill or ownership interest from the buyer carries on a like business therein”: (1) “any person who sells the goodwill of a business”; (2) “any owner of a business entity selling or otherwise disposing of all of his or her ownership interest in the business entity”; or (3) “any owner of a business entity that sells (a) all or substantially all of its operating assets together with the goodwill of the business entity, (b) all or substantially all of the operating assets of a division or a subsidiary of the business entity together with the goodwill of that division or subsidiary, or (c) all of the ownership interest of any subsidiary.” Cal. Bus. & Prof. Code § 16601. Courts construe Section 16601 to protect the buyer’s purchase of the intangible goodwill from actions by the seller that would undermine the value of the goodwill acquired.  “Goodwill” is defined as the “expectation of continued public patronage.” Cal. Bus & Prof. Code § 14100; see also Alliant Ins. Services, Inc. v. Gaddy, 72 Cal. Rptr. 3rd 259, 277 (2008). In determining whether a party has transferred goodwill, “there must be a clear indication that in the sales transaction, the parties valued or considered goodwill as a component of the sales price.” Hill Medical Corp. v. Wycoff, 103 Cal. Rptr. 2d 779, 785 (2021). In the context of selling shares of company stock, the Court in Hill Medical Corp. recognized that “[s]imply selling shares to an individual vendee or back to the corporation does not necessarily demonstrate that goodwill is part of the agreement.” Id. All aspects of the sales arrangement must be evaluated, including the shares transferred and the fractional interest involved, the entire structure of the transaction and the sales price, such as whether fair market value is paid for the shares. Id. In Vacco Industries v. Van Den Berg, 6 Cal. Rptr. 2d 602, 609 (1992), a California court enforced a sale-of-business non-compete agreement against a shareholder who sold all of his stock in the company, which amounted to less than 3% of the company’s stock. Vacco, a machinery manufacturing company, entered into an agreement with Emerson Electric Co. in which Emerson agreed to purchase all of Vacco’s stock. In conjunction with the sale, Vacco entered into employment contracts and separate non-competition agreements with 12 major shareholders. Van Den Berg, an operations manager and officer of Vacco, was one of them. The non-compete agreement specified that he “would not carry on any business competitive with the business of Vacco for the lesser of (1) five years from the date of the agreement or (2) so long as Vacco conducts the Business within the territory.” Id. The court enforced the noncompete agreement because Van Den Berg was the 9th largest shareholder and held a substantial interest in the company. By contrast, in Bosley Medical Group v. Abramson, 207 Cal. Rptr. 477, 481 (1984), another California court refused to enforce a non-compete agreement contained in a stock purchase agreement based on a finding that the transaction was a “sham” to circumvent state policy prohibiting non-competes.  In Bosley, a medical group engaged a doctor in its practice of hair transplantation and male pattern reduction surgery.  As a condition to engaging the doctor in the practice, the medical group required the doctor to sign both an independent contractor agreement and a stock purchase agreement.  The stock purchase agreement required the doctor to purchase nine shares of the medical corporation for $10,000, which shares represented 9% of the shares of the corporation.  The agreement also allowed the medical group to repurchase the shares upon termination of the doctor’s engagement as an independent contractor by either party at an agreed upon amount equal to the purchase price plus 10% of such purchase price per year of the doctor’s ownership of the shares.  The doctor purchased the shares with the proceeds of a promissory note.  The purchase agreement contained a provision which prohibited him from engaging in a similar medical practice within certain counties for three years after leaving the medical group. The court concluded that the non-compete agreement was “a sham” because the doctor was required, not permitted, to purchase the shares and because he did not benefit from the value of the stock he purchased.  The court further observed that the doctor could not benefit from the payment of dividends or a capital gain on the value of the stock, because the interest he paid on the promissory note exceeded the dividend that was paid.  The court also referred to the small amount represented by the purchase price plus only 10% of the purchase price per year that he received under the stock purchase agreement when he left the group. The court concluded based on these facts that the real purpose of the stock purchase agreement was to prevent the doctor from leaving the medical group and opening a competitive practice.  The court also stated that Section 16601 applied “only in situations in which the transfer of ‘all’ of the owner’s shares involves a substantial interest in the corporation so that the owner, in transferring ‘all’ of his shares, can be said to transfer the goodwill of the corporation.”  Id. at 481. The FTC’s Proposed Rule The Federal Trade Commission recently proposed to ban most non-compete clauses for American workers based on its view that such clauses are an “unfair method of competition” and, therefore, prohibited under Section 5 of the Federal Trade Commission Act.  See FTC Proposed Rule, 88 Fed. Reg. 3482 (Jan. 19, 2023). The proposed rule carves out from this prohibition “a non-compete clause that is entered into by a person who is selling a business entity or otherwise disposing of all of the person's ownership interest in the business entity, or by a person who is selling all or substantially all of a business entity's operating assets, when the person restricted by the non-compete clause is a substantial owner of, or substantial member or substantial partner in, the business entity at the time the person enters into the non-compete clause.”  Id. § 910.3.  The proposed rule defines “substantial owner, substantial member, and substantial partner” as “an owner, member, or partner holding at least a 25 percent ownership interest in a business entity.” Id. § 910.1(e). Therefore, if the person is an owner, member or a partner owning less than 25 percent of a business entity, the proposed rule would prohibit that person from entering into a non-compete agreement with a buyer. Takeaways Business buyers seeking to enter into non-compete covenants with their sellers that satisfy California’s sale-of-business exception should consider taking the following precautions: First, buyers should confirm that the purchase involves the seller’s transfer of a substantial interest in the business, and not appear to be a sham to avoid compliance with public policy prohibiting employment non-competes. Second, buyers should keep in mind that the business owner must sell “all of his or her ownership interest in the business entity.” Third, buyers should ensure that goodwill is a part of the consideration for the sale of business. Finally, buyers should be aware that the FTC is seeking to make sweeping changes to override the non-compete laws in all fifty states.  Accordingly, buyers should keep in mind the possibility that the sale-of-business non-competes previously viewed as lawful under state law may in the future be significantly restricted, and take these new realities into account in negotiating their purchase agreements. Reprinted with permission from the February 1, 2023 edition of the NEW YORK LAW JOURNAL © 2023 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited. ALMReprints.com – 877-257-3382 – reprints@alm.com. [1] This article does not address two other exceptions to California’s prohibition of non-compete agreements.  Section 16602 of the Business and Professions Code allows partnerships to enforce non-compete provisions against a partner upon dissolution of the partnership or the partner’s dissociation from the partnership.  Further, Section 16602.5 provides that any member in an LLC may agree in anticipation of the termination of his or her interest in the LLC that he or she will not carry on a similar business within a specified geographic area where the LLC business has been transacted, so long as any member or any person deriving title to the business or its goodwill from any other member carries on a like business.  Unlike the sale-of-business exception, there is no requirement under Sections 16602 or 16602.5 that the partnership or LLC repurchase the interest in the partnership or LLC upon termination for a price that includes a payment for goodwill.