Dorsey Work Watch

https://dorsey.gjassets.com/content/uploads/2026/05/Robinow-WARN-Act-1.mp4 Whether and when to notify employees about a hotel sale is often overlooked during hotel acquisitions and is often viewed as solely an HR matter.  In practice, however, compliance with mandatory employee notification requirements can significantly impact transaction timing, operational continuity, and post-closing liability allocation between a hotel buyer and seller. The WARN Act requires employers to provide at least 60 days’ advance notice to employees, union representatives, and certain government entities in the event of certain plant closings or mass layoffs. The statute is designed to give employees time to prepare for job loss, seek alternative employment, or pursue retraining. Owners and operators, however, often believe that providing advance notice of an impending hotel sale to employees may undermine the continuity in staffing and management needed to transition the hotel through closing.  Front-line employees and department heads are critical to maintaining guest experience during a transition.  Providing advance notice of potential layoffs may lead employees to seek other opportunities, undermining stability during the transition period. Not every hotel falls within the WARN Act’s scope.  The statute generally applies to employers with at least 100 full-time employees, or 100 or more employees (including part-time workers) who collectively work at least 4,000 hours per week, excluding overtime.  In the hospitality sector, roughly 10% of U.S. hotels fall within its scope.  If you are buying or selling a hotel that may meet these thresholds, you should engage experienced hospitality-focused counsel with labor and employment specialists to advise on WARN Act exposure and strategy. The employer’s obligation to provide notice is triggered by: a plant closing affecting 50 or more full-time employees; or a mass layoff affecting at least 50 full-time employees where they represent at least 33% of the workforce at a single site, or 500 or more full-time employees regardless of percentage. Keep in mind, employment losses occurring within a 90-day period may be aggregated to meet these thresholds, preventing employers from structuring staggered terminations to avoid compliance. Allocating Liability in a Hotel Purchase and Sale Transaction When a hotel is sold, WARN Act liability does not disappear but generally shifts to the buyer as of the closing date of the transaction. That timing distinction is critical when planning workforce changes shortly after the closing. The transfer of employment from seller to buyer is not considered an employment loss under the WARN Act as long as those employees (or a sufficient amount) are rehired by the buyer under certain circumstances, after the transaction closes.  Buyers can avoid WARN Act liability by rehiring, or causing a new hotel management company to rehire, a sufficient amount of employees under these rules.  Note, however, that if these employees are offered re-employment with significant changes to their wages, benefits, job duties, or working conditions it may constitute “constructive discharge”. If notification is required, the seller will want to defer any termination of employees until after the transaction closes in order to reduce or eliminate the seller’s exposure under the WARN Act and shift the notification burden to the buyer.  This approach also helps preserve operational continuity and reduces the risk of employee attrition if the transaction does not close. Buyers must consider any anticipated workforce reductions shortly after closing and plan accordingly.  If a buyer plans a qualifying layoff at or within 60 days after closing, it will need to coordinate with the seller to fulfill its pre-closing notice obligations.  Purchase and sale agreements for hotels often restrict a buyer’s ability to communicate with employees and any notification of employees prior to closing should come from the seller.  Both sellers and buyers can avoid the associated risks of pre-closing notification by delaying any qualifying employee layoffs or closures until 60 days or later after the sale is completed. Temporary Layoffs Branded hotels are often required by the franchisor to complete significant renovations as directed under a property improvement plan (PIP) in connection with the hotel transfer and execution of a new hotel franchise agreement.  Any resulting full or partial hotel closure may require the owner or manager to temporarily lay off employees while the renovations are underway.  Under the WARN Act, temporary layoffs expected to exceed six months are treated the same as permanent layoffs and trigger notice requirements. Third-Party Management Often hotels are operated by third-party managers who serve as the employer in lieu of the hotel owner.  As a result, hotel managers often seek contractual protection against owner-driven decisions, such as a sale or closure that could trigger WARN Act obligations. If a hotel is subject to a hotel management agreement, upon the sale, the agreement can either be assigned to the buyer or terminated. If the hotel management agreement is terminated, the buyer may decide to transition the hotel to self-management or enter into a new hotel management agreement with the existing manager or a new third-party manager.  In any case, the buyer may desire to retain selected employees for operational continuity.  Note that if a third-party manager is employed, it will typically have operational control to decide most personnel decisions and in most cases an owner’s input is limited to the hotel’s general manager and some key personnel. State-Specific Requirements In addition to federal requirements, approximately 20 states—including California, New York, and New Jersey—have their own “mini-WARN” statutes, some of which impose stricter thresholds or longer notice periods.  For example, in California, the layoff of 50 employees will trigger the statute, even if 33% of the workforce is not affected.  These laws may apply independently of the federal statute and should be analyzed on a jurisdiction-by-jurisdiction basis. Bottom Line If you’re buying or selling a hotel with 100 employees and plan to either close the location (including sometimes temporarily) or terminate the employees or offer employment under materially different terms, you may be subject to the WARN Act which requires 60 days’ prior notice to employees, throwing a massive wrench in your plans to maintain operational continuity through the closing of the sale.  Buyers and sellers who address these issues early are better positioned to avoid disruption and liability.  Hotel investors should engage legal advisors experienced in the hospitality industry and labor and employment issues to guide them through the transaction process and advise on strategies to mitigate WARN Act exposure while managing operational continuity.

https://dorsey.gjassets.com/content/uploads/2026/04/WorkWatch-Nisha-5.mp4 Following his inauguration in January 2025, President Trump signed a flurry of executive orders affecting diversity, equity, and inclusion (“DEI”) policies across the public and private sector. Particularly concerning for private employers who are federal contractors, Executive Order 14173, “Ending Illegal Discrimination and Restoring Merit-Based Opportunity,” addresses “illegal” private DEI and diversity, equity, inclusion, and accessibility (“DEIA”) policies by directing agencies, such as the Equal Employment Opportunity Commission (“EEOC”), to “combat illegal private-sector DEI preferences, mandates, policies, programs, and activities.” Additional information about the EEOC and its guidance is available here and here. Private employers have also been taking note and updating their policies. However, the EEOC’s ability to enact this directive was hindered until it gained a quorum in October 2025. Now that it is operating at full capacity, emplhoyers have some visibility into the agency’s priorities. After a slow start, the EEOC initiated litigation against an employer for sponsoring a female-only networking event. The EEOC filed suit on February 17, 2026, against Coca-Cola Beverages Northeast, Inc., over its DEI initiatives, alleging that by sponsoring a two-day networking event at a casino for only female employees, Coca-Cola had discriminated against male employees on the basis of their sex. Female attendees were excused from their work duties, received their regular pay, and reimbursement for food and lodging expenses. The EEOC claims that the exclusion of male employees from attending the event was a denial of equal compensation, terms, conditions, or privileges of employment on the basis of sex. The EEOC’s subpoena and enforcement authority has become a preferred investigative and enforcement tool in reviewing private employers. Although the EEOC has always had broad authority to subpoena private employer records while an investigation is pending, the agency has demonstrably increased its use of this authority. Just a month after obtaining a quorum, the EEOC sought an enforcement action against Northwestern Mutual Life Insurance Co. in Wisconsin. While investigating a claim that an employee had been discriminated against based on his sex (male), race (white), and national origin (American-Irish) in violation of Title VII, the agency sought extensive information pertaining to Northwestern’s training, development, and promotion policies and initiatives over a three-year period. When Northwestern objected, the EEOC brought the lawsuit to compel compliance. The EEOC specifically demanded the following information:• Employee records from 2022 to 2025 for any training where race, national origin, sex, or sexual orientation was a criterion considered for participation in any employer-sponsored advisor or mentorship program.• All reports or summary documents from 2022 to 2025 that consolidated information about diversity and inclusion at Northwestern.• Based on a racial-equity initiative published on the company’s website, documents reflecting the structure, function, budget, staffing, programs, and participation in that initiative. • A list of employee names and contact information for anyone who had either received a “Diversity & Inclusion Champion Award,” and each woman or person of color retained, promoted, or sponsored, for whom another manager received “credit” or “positive feedback.”• Documentation of Northwestern’s performance management metrics and systems, including any systems used to track DEI goals and progress. The Wisconsin court has not yet decided whether to limit the EEOC’s inquiries. Other courts have found that the EEOC has broad statutory authority to investigate and request any company information relevant to a charge, which could include company-wide data and policies. For instance, in December, a California court ordered a supermarket chain operated by Vallarta Food Enterprises, Inc., to comply with an EEOC subpoena. The agency, investigating whether the company had excluded non-Hispanic individuals from employment, requested: extensive applicant and employee data (including demographic and contact information); screening questions used during the hiring process; job descriptions; and information about other race and national origin complaints. External advocacy efforts may be contributing to EEOC-led investigations into employer DEI practices. Although EEOC investigations are typically triggered by an individual complaint filed by a current or former employee or applicant, the EEOC can initiate investigations based on other information as well. Recent filings in the EEOC’s enforcement action against Nike, Inc. reveal that the EEOC’s now-Chair Andrea R. Lucas issued a Commissioner Charge against Nike in 2024 following receipt of more than 30 letters by America First Legal (“AFL”) urging the agency to investigate major corporations’ DEI programs. AFL is a nonprofit organization that litigates social and corporate issues and prioritizes (among other things) “Dismantling Diversity, Equity, and Inclusion.” Nike’s campaigns and public documents commenting on social justice and inequity had previously drawn attention from policymakers. The EEOC issued wide-ranging requests for information, including:• Nike’s organizational structure• Programs used to increase racial and minority representation in its U.S. workforce• The effect of minority representation on executive compensation• Employee layoffs in 2024• Racial and ethnic minority employee data• Consideration, application, and selection materials and information for 16 employment-related programs The court has not yet decided whether Nike must comply with all of the EEOC’s requests. Employers continue to settle discrimination claims investigated by the EEOC. Over the past few months, the EEOC has announced several settlements with employers over discrimination claims. A few notable examples include:• A $1.4 million settlement with LeoPalace Resort in Guam over allegations that it treated Japanese employees more favorably than non-Japanese (including those of American national origin) employees.• A $1.1 million settlement with Battleground Restaurants Group, Inc., which owns and operates several Kickback Jack’s restaurants in North Carolina. The lawsuit alleged the restaurants violated Title VII by intentionally failing to hire male applicants for host, bartender, and server positions.• A $150,000 settlement with Seward & Son, a large farming operation in Missouri accused of discriminating against American (and primarily Black) farm workers by providing foreign workers with preferential job assignments and other fringe benefits. However, a recent decision in Missouri suggests employers may be able to limit certain legal challenges to DEI programs. The state of Missouri sued Starbucks last February for its hiring, mentorship, and promotion policies and programs, claiming that its initiatives placed non-white, non-male, and “other preferred minorities” in an unlawful position of advantage over others in the workforce, in violation of state and federal laws. The heart of the allegations rested on Starbucks’ mentorship and employee-led affinity groups, which for a time were limited to specific employee populations. However, on February 5, 2026, the lawsuit was dismissed because the state had failed to allege its own specific injury or that of any individual or group of employees. Other EEOC actions demonstrate continued investigations of traditional discrimination claims. Based on these recent developments, employers might assume that the EEOC’s priorities have shifted. However, the agency continues to pursue allegations of race, sex, disability, and pregnancy discrimination and retaliation. Recent lawsuits include a Tennessee employer accused of restricting Black employees from a breakroom reserved for white employees and firing a supervisor who “failed to restrain” one of his direct reports from making internal and external complaints of discrimination. Another involves a Michigan-based in-home health care provider who refused to assign home visits based on a nurse’s race because it believed that some residents would prefer to be cared for by a non-Black nurse. Recent settlements also involved:• $100,000 settlement of a former employee’s religious discrimination claim against the Young Men and Women’s Hebrew Association. The EEOC found that the employer failed to accommodate a Christian employee’s request to attend Sunday church services and retaliated against her, forcing her to resign.• $95,000 settlement with JACO Coach Company, LLC following an employee’s report of sexual harassment and unwanted touching by a male coworker.• $75,000 settlement of age discrimination and retaliation claims by workers in a long-term care facility who were mocked because of their age and treated less favorably than younger workers. The EEOC’s focus on DEI-related enforcement is likely to continue. Employers can expect that the EEOC’s pursuit of Title VII discrimination and retaliation claims will continue. On February 26, Chair Andrea Lucas issued a letter to 500 of the largest employers in the U.S., urging chief executive officers, general counsel, and board chairs to “reject identity politics” and hire and promote individuals based on merit rather than protected characteristics. The EEOC appears committed to this approach through education, compliance efforts, and enforcement actions. Employers facing discrimination charges or agency information requests should engage legal counsel early to evaluate and preserve potential defenses. Employers who value and promote diversity may also wish to review programs, policies, and public-facing information to assess potential risks while fostering an inclusive, respectful workplace. Dorsey’s labor and employment attorneys are well-prepared to provide guidance as employers navigate the evolving DEI landscape. [1] Ending Illegal Discrimination And Restoring Merit-Based Opportunity – The White House [2] https://aflegal.org/priorities/

Since its inception, California’s Private Attorneys General Act has provided the plaintiff’s bar with a uniquely powerful tool. By deputizing “aggrieved employees” to enforce California’s Labor Code on the state’s behalf, PAGA has enabled private counsel to pursue civil action even when the individual employee’s harm may be minimal or even nonexistent. This framework has facilitated the rise of “headless” claims: representative actions where the named plaintiff dismisses their individual PAGA claim – often because the Federal Arbitration Act (FAA) mandates enforcement of an arbitration agreement – and exists as a procedural hook to assert representative PAGA claims on behalf of others. This risk-free practice, which often leverages boilerplate allegations to force extensive discovery or settlements, has largely benefited plaintiff’s counsel, while providing minimal recovery to the named plaintiff. Indeed, in reality, most of the money from a PAGA settlement doesn’t reach the employees: roughly a third goes to plaintiff’s counsel in attorneys’ fees, 65% of any PAGA penalties are paid to the state, and only 35% of any PAGA penalties goes towards the employees, which is then divided among all those covered by the claim – leaving each individual with a fraction of the total. PAGA litigation therefore often benefits lawyers and the state far more than the workers that the statute was designed to protect. Current legislative and administrative reforms sought to curb aggressive litigation tactics by refining penalty structures and dramatically expanding an employer’s right to “cure” identified violations. New administrative regulations aim to standardize filings and limit abusive practices while implementing procedural mechanisms, such as early judicial evaluation, that allow the courts to narrow the scope of the cases from the outset. Concurrently, case law continues to evolve regarding the enforceability of provisions in arbitration agreements that require adjudication of an individual employee’s PAGA claim in arbitration first, before the representative claims on behalf of other allegedly aggrieved employees can proceed in court (commonly called “headless” claims) – a question that has courts divided and is pending Supreme Court review[1] in a decision that could effectively end these “headless” PAGA claims. Yet, despite these reforms, one central reality persists: PAGA continues to exert significant pressure on employers. Filings remain robust, settlement incentives remain high, and trials are exceedingly rare. Compliance audits, cure efforts, and procedural refinements matter – but they do not eliminate the leverage embedded in representative claims or repeated filings. PAGA has been shaped, structured, and regulated – but it has not been diminished. The current landscape reflects a complex interplay of reform, litigation strategy, and enforcement dynamics, where standing, repeated filings, and settlement pressures continue to define employer exposure. Legislative Reform and Cure: Structure Without Contraction The July 2024 legislative amendments championed by Governor Gavin Newsom demonstrated a profound and meaningful effort to rein in abusive bounty-hunter litigation towards a system that incentivizes employer transparency. By implementing strict standing requirements and robust “cure” provisions, the amendments have sought to reduce the prevalence of opportunistic filings, on one hand, while simultaneously affording a larger share of recovered penalties delivered directly to the impacted work force, on the other. First, the 2024 reform tightened standing by requiring that a PAGA plaintiff personally suffer each specific alleged violation within the one‑year statute of limitations. This replaces the previous, highly permissive standard that allowed an employee to act as a proxy for the entire workforce and pursue penalties for a wide array of Labor Code violations they never actually experienced, so long as they suffered at least one unrelated violation, even if the underlying labor code violation was outside the statute of limitations. Put simply, this change requires PAGA plaintiffs to have more “skin in the game” for all the violations alleged, thus narrowing what claims an employee may pursue on behalf of others. In theory, the reforms created a procedural threshold that should filter out claims that exist primarily as leverage for settlements rather than vindicate actual employee harm. The 2024 reform has had particularly pronounced effects in headless PAGA cases – where the named plaintiff’s individual PAGA claim has been dismissed – raising the question as to whether that plaintiff retains standing to pursue the representative PAGA claims on behalf of others. This question, which has the courts divided, is now situated for Supreme Court review, and the answer is not purely academic; rather, this determination will inevitably influence settlement strategy, affect the effectiveness of arbitration, and shape how repeated filings are leveraged. In other words, if an employee’s individual PAGA claim is first compelled to arbitration, that employee must successfully arbitrate their claims in full before proceeding in court with respect to PAGA claims on behalf of others. In effect, counsel may have to actually litigate individual cases rather than simply leveraging settlements based on unverified representative claims. However, until resolved by the Supreme Court, representative claims can continue to generate significant pressure, independent of other procedural or statutory refinements, as counsel hems and haws about how the law will unfold until this decision has been rendered. Second, those reforms also refined how penalties are assessed and capped for common errors and expanded opportunities to cure violations by making aggrieved employees whole. On paper, through internal audits, employers can now identify and correct potential violations, implement compliance measures, and document “reasonable steps” that legally cap penalty exposure: 15% if completed before a PAGA demand or 30% if completed after notice of the PAGA action. As it stands, legislation is unclear as to how often these audits are to be performed, but an annual audit may ensure compliance well before any demand arises. Further, the 2024 amendments also offer an additional defense: once an employer has performed a qualifying audit and cured identified errors, they have a statutory right to “stay” subsequent litigation for early judicial evaluation through an early neutral evaluation (“ENE”). However, while the ENE promises to clarify disputed issues, evaluate proposed cures, and streamline resolution, the reality is that this forum is ripe with uncertainty and offers less flexibility than traditional mediation. Experienced neutrals and practitioners have raised concerns that this “newfangled” step may complicate rather than simplify resolution. Because the statute does not clearly map out what happens once an evaluation is initiated, parties may find themselves navigating a process that adds time and expense without necessarily making settlements easier or more likely than achieved by mediation with a mutually agreed-upon mediator who is trusted by both parties. Because very few PAGA actions ever go to trial, as most are resolved through negotiation or settlement long before formal adjudication, the true impact of these reforms is largely untested. Until these limitations are litigated, the practical effect of these reforms remains more theoretical in nature. Employers will likely cite to audits and cure efforts while plaintiff’s lawyers continue to cast aside their impact on settlement strategy. Further Legislative Reforms Attempt to Curtail the Reach of PAGA The ongoing tension between expanding enforcement and controlling abuse remains ever present in the legislative reforms and administrative developments. On February 2, 2026, the Legislature rejected Senate Bill 310 (“SB 310”), which sought to push back on the July 2024 reforms and create a standalone private right of action for untimely wage payments, which would increase PAGA penalties. Days later, on February 6, 2026, the LWDA Notice of Proposed Rulemaking demonstrated yet another meaningful effort to rein in PAGA. If adopted, these regulations would: Standardize administrative notice requirements and require detailed factual and evidentiary certification; Impose additional certification for high-frequency filers (200+ notices annually) with increased scrutiny for noncompliance; Clarify the cure process and how employers can document remediation; and Enhance oversight of settlements, including opportunities for affected employees to comment. However, these mechanisms do not materially change the economic incentive for plaintiffs to file broad, representative claims. The proposed rules may refine the process and filings, but repetitive, lightly modified claims will persist absent litigation as to the full impact and extent of these changes. The State of Play for PAGA and the Path Forward The recent PAGA reforms aim to narrow the statute’s reach, but their ultimate effect depends on how case law continues to solidify in 2026. Compliance programs, audits, and well-designed policies remain as critical as ever, and their importance will only grow if courts begin to give real weight to these defenses, providing meaningful tools to cap PAGA penalties. Historically, because most PAGA cases never reach a verdict, these actions have been driven by settlement pressure rather than adjudication. Yet, this evolution of PAGA presents opportunities for courts to impose meaningful caps on penalties for employers who conduct audits, cure and require individualized litigation before representative claims can proceed. This shift restores the significance of the individual employment relationship – historically sidelined in a lawyer-driven process – by requiring plaintiffs to personally suffer every alleged violation to maintain standing. Thus, by focusing on strong employee relationships and proving compliance, employers effectively neutralize the settlement-driven momentum that has largely driven PAGA litigation. [1] The California Supreme Court is expected to release its decision in Leeper v. Shipt, Inc. in early 2026, having granted review in April 2025, with a briefing schedule that concluded in December 2025.

Many Canadian employers expanding into the U.S. believe the U.S. legal presumption of at-will employment will provide them with additional protection against wrongful termination claims. Unfortunately for those employers, this belief is a trap. In Canada, employees who are terminated without cause often must be paid severance. In the U.S. however, an employer is generally not obligated to pay severance when an employee is fired without cause unless there is a contract requiring severance. The reality in the U.S. is that essentially every employee falls into an exception to the at-will employment doctrine. Wrongful termination claims in the U.S. are almost always discrimination or retaliation claims. In the former claim, the employee alleges that they were terminated due to some protected characteristic such as age, gender, or race. In the later claim, the employee alleges that they were terminated because they engaged in some protected activity, such as taking protected leave or complaining about workplace harassment. Once an employee alleges discrimination or retaliation, the presumption of at-will employment falls away and the employer must demonstrate a legitimate non-discriminatory and non-retaliatory reason for the termination, which the employee cannot show was a mere pretext. Because just about every employee is in some protected class or has recently engaged in some protected activity, U.S. employers must have a legitimate reason for the termination supported by strong documentary evidence. Otherwise, the employee gets to tell their story to a jury predisposed to rule against any employer who cannot provide a satisfying reason why they terminated that employee. And U.S. juries over the last several years have rendered several devastating verdicts, including a $366 million verdict handed down by a Texas jury in a case alleging race discrimination. As this case demonstrated, these verdicts are not limited to states with a reputation for being employee friendly such as California. Employers’ best defense against such verdicts is a strong performance management system that documents the legitimate non-discriminatory and non-retaliatory reasons for a termination. This requires documenting performance issues over time, not coming up with and documenting reasons after the fact. Even better, if an employer can show, with documentation, that they tried to help the employee be successful, but the employee lacked either the ability or the inclination to do so, it can help stop an employment claim before it can move much past the demand letter stage. Canadian companies taking on employees in the U.S. should make sure they have a firm grasp of the kinds of performance management practices that will keep them out of trouble. Relying on at-will employment alone is a recipe for disaster.

Dorsey Partners Matt Durham and Lisa Patmore discussed liabilities that arise from employment relationships in the U.S. and U.K. during an episode of SharkCast Litigation Risks Podcast. In this episode, they address employment litigation and discuss how HR professionals, lawyers, and others responsible for managing these claims must understand the distinctions between the U.S. and U.K. legal structures. Play the episode >

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

California’s employment law landscape is changing fast — and this time, it’s simply not a minor revision to the Private Attorneys General Act of 2004 (PAGA). The 2024 legislative reforms and the growing split among appellate courts over so-called “headless” PAGA claims reveal a widening gap between statutory reform and judicial practice. First, “headless claims” arise when an employee dismisses their individual PAGA claim—often because the Federal Arbitration Act (FAA) mandates enforcement of an arbitration agreement—but seeks to continue only the representative claims on behalf of other allegedly aggrieved employees. This strategy, increasingly used by plaintiffs’ counsel to bypass arbitration, has divided California’s appellate courts on a critical question: does a plaintiff retain standing to pursue representative PAGA claims once their individual claims are dismissed? Second, the 2024 amendments to PAGA – effective June 19, 2024 – create tools for employers to defend against PAGA actions.  The reforms redefine who qualifies as an “aggrieved employee,” expand employers’ opportunities to cure alleged violations, and reduce penalties where reasonable compliance efforts are shown. Most notably, the reforms impose a personal standing requirement: employees may only pursue penalties for Labor Code violations they personally experienced. This change curtails the “kitchen-sink” approach to PAGA pleadings and limits who may serve as a proxy for the state under the Labor and Workforce Development Agency (LWDA). Together, these developments mark a pivotal moment for one of California’s most powerful wage-and-hour enforcement tools. At the center lies a collision between California’s public enforcement model under the LWDA and the FAA’s mandate to enforce arbitration agreements – a collision that could fundamentally reshape how, and by whom, California labor laws are enforced. I. The LWDA’s Role — and Its Limits, Particularly with the Result on Headless Claims The LWDA’s position as the “real party in interest” in every PAGA case defines what these actions are, and what they are not. PAGA suits are not private disputes between an employer and an employee; they are enforcement actions brought on behalf of the state. In Rose v. Hobby Lobby Stores, Inc., the First District reaffirmed that while the LWDA owns the substantive rights being enforced, it is not financially responsible for litigation costs when it does not intervene. The LWDA holds the substantive right being enforced, but delegates its prosecution, permitting private plaintiffs act as its proxies.  That balance worked under the former PAGA structure, but the LWDA’s ability to act through private enforcement may be curtailed in practice, should “headless” claims be disavowed.  In effect, the state will still own the claims, but those claims will live or die based on the private employee’s arbitration. II. The "Headless Claims" Conundrum: A Circuit Split in Action If the California Supreme Court sides with the Second District and rejects headless claims, plaintiffs will be required to arbitrate their entire individual case before representing anyone else. On paper, that’s a win for employers — reinforcing arbitration programs and narrowing sprawling PAGA exposure. But beneath that surface lies a fundamental limitation on the LWDA’s ability to act through private plaintiffs. Here’s how the appellate landscape currently breaks down:   Appellate District  Position  Key Case(s)  Reasoning Second Appellate District Rejected headless claims entirely Leeper v. Shipt, Inc. (Dec. 2024) (pending review) Williams v. Alacrity Solutions Group, LLC (April 2025) PAGA includes individual and non-individual claims, regardless of how the complaint is framed, so purely headless claims cannot avoid arbitration. Fourth Appellate District Permitted headless claims on purely procedural grounds Rodriguez v. Packers Sanitation Services LTD., LLC (Feb. 2025) (pending review) There is no individual PAGA claim to compel to arbitration in a purely headless claim, but this leaves open the potential for other pleading challenges, such as demurrer or motion to strike. Fifth Appellate District Permitted headless claims pre-2024 bill reforms CRST Expedited, Inc. v. Superior Court (July 2025) Galarsa v. Dolgen California, LLC (Oct. 2025) PAGA’s representative structure provides three choices: (1) to pursue only their individual violations; (2) to pursue only non-individual violations; or (3) to pursue both.   Although the outcome of these cases will impact litigation strategy, all involve pre-reform PAGA claims, and have yet to address the implications of the post-2024 statutory standing requirement, which adds yet another layer of complexity moving forward. III. The Federal Constraints to PAGA – And What Remains Constant Despite the uncertainty surrounding headless claims, two federal pillars remain constant: the FAA and the Labor Management Relations Act (LMRA). Both impose preemption doctrines that define where federal law overrides state law — but they do so in very different ways. The FAA governs arbitration agreements, ensuring valid agreements are enforced unless a specific exemption applies.  For example, in Villalobos v. Maersk, Inc. (October 2025), there was no individual claim subject to arbitration because the plaintiff was a transportation worker exempt from the FAA. Simply, as made clear by the court in Villalobos, case authority related to headless claims cannot be used to bootstrap FAA coverage where none exists. Meanwhile, under the LMRA, preemption arises only when resolution of a PAGA claim requires interpretation of a collective bargaining agreement (CBA). In Renteria-Hinojosa v. Sunsweet Growers, Inc. (9th Cir. Aug. 2025), the court held that PAGA claims are not preempted if they merely reference, rather than interpret, a CBA. However, when an employee’s claim depends on exhausting a CBA’s grievance process, LMRA preemption applies. These federal anchors – FAA enforceability and LMRA preemption – remain stable amid California’s shifting state-law terrain and thus serve as guideposts in assessing arbitration risk and preemption defenses. IV. A New PAGA for a New Era With the California Supreme Court poised to decide Leeper and Rodriguez, and the 2024 reforms already in effect, PAGA is entering a defining chapter. The unanswered question is whether the LWDA can still meaningfully enforce labor laws through deputized private plaintiffs if every case must begin (and possibly end) in individual arbitration. For employers, that paradox is striking: a ruling requiring arbitration of individual claims first in all instances could mark the quiet sunset of PAGA’s broadest enforcement powers. Either way, the coming year will reshape the balance between state enforcement and federal arbitration mandates — and that balance will define the next decade of California wage-and-hour litigation.

It is safe to say that the use of artificial intelligence (AI) went mainstream in 2023. With the widening acceptance of AI, dozens of industries have raced to adopt the technology into various operations at a staggering pace – including adopting AI in human resources (HR) processes in the workplace. But, employers and HR departments should keep pace with federal agencies seeking to mitigate risks associated with AI in the workplace. AI in the Workplace AI in the workplace is moving at a fast clip. According to the Equal Employment Opportunity Commission (EEOC), as many as 83% of employers, and as many as up to 99% among Fortune 500 companies, are using some form of AI to screen or rank candidates for hiring. The use of AI in the workplace is not new from an HR perspective. Employers have long been able to use AI to perform certain HR functions in the recruiting process, such as resume screening. But now, employers can use AI for other recruitment functions, such as administering personality and aptitude tests or analyzing video interviews. Once workers are on-boarded, employers can use AI to help with worker safety, protection, management, and productivity through real-time locating systems and other technologies. Federal Agencies’ Guidance With the introduction of AI comes great benefits, several federal agencies seek to cut in on potential consequences by issuing guidance, requesting information, and devising plans for AI in the workplace in the following ways: On January 26, 2022, the federal Occupational Safety and Health Administration (OSHA) issued a trade release announcing an update and expansion of a chapter in the OSHA Technical Manual on Industrial Robot Systems and Industrial Robot System Safety. The update notes that advances in AI boost the abilities and uses of robot systems in industrial applications. The revisions add current “technical information on the hazards associated with industrial and emergent robot applications, safety considerations for employers and workers, and risk assessments and risk reduction measures.” On May 12, 2022, the EEOC issued its guidance on AI “discuss[ing] how existing ADA requirements may apply to the use of [AI] in employment-related decision making and offers promising practices for employers to help with ADA compliance when using AI decision making tools.” The same day, on May 12, 2022, the Department of Justice reported issued guidance that “outlines issues that employers should consider to ensure that the use of software tools in employment does not disadvantage workers or applicants with disabilities in ways that violate the ADA.” On October 31, 2022, the National Labor Relations Board (NLRB) General Counsel issued a memorandum recommending that the NLRB “apply the Act to protect employees, to the greatest extent possible, from intrusive or abusive electronic monitoring and automated management practices that would have a tendency to” interfere with protected concerted activity. On January 10, 2023, the EEOC issued a draft strategic enforcement plan which announced that the agency would focus “on employment decisions, practices, or policies in which covered entities' use of technology contributes to discrimination based on a protected characteristic. These may include, for example, the use of software that incorporates algorithmic decision-making or machine learning, including artificial intelligence; use of automated recruitment, selection, or production and performance management tools; or other existing or emerging technological tools used in employment decisions.” On May 1, 2023, the White House Office of Science and Technology Policy (OSTP) announced that it will be releasing a public request for information (RFI) “to learn more about the automated tools used by employers to surveil, monitor, evaluate, and manage workers.” The OSTP states that responses to the RFI “will be used to inform new policy responses, share relevant research, data, and findings with the public, and amplify best practices among employers, worker organizations, technology vendors, developers, and others in civil society.” On May 18, 2023, the EEOC issued its guidance explaining the application of Title VII to an employer’s use of automated systems, including AI, noting that the scope of the guidance “is limited to the assessment of whether an employer’s ‘selection procedures’—the procedures it uses to make employment decisions such as hiring, promotion, and firing—have a disproportionately large negative effect on a basis that is prohibited by Title VII.” Employers should expect to see more federal guidance on AI as technologies continue to develop. What Employers Can Do to Stay in the AI Race With federal agencies’ guidance in mind and an expectation of more regulation to come, employers should take proactive steps to ensure the use of AI in the workplace keeps pace with developing law. These steps include: Understanding that AI in the workplace is governed by several different laws, including privacy laws, data security laws, and anti-discrimination laws at the state and federal levels. Considering including references to the use of AI in the recruiting, hiring, and employment process in employment policies and notices. Partnering with HR, IT, and legal counsel to ensure that AI practices remain competitive while compliant with local and federal law. For additional information on employer considerations before using AI and automated decision-making systems in the workplace, check out a previous Quirky Questions article on the topic. The idea that AI can create numerous benefits in the workplace seems to be gaining traction. Federal guidance issued in 2022 and 2023 signal that regulation of AI in the workplace will strive to keep up with the strides made in technological advances. Employers and HR can stay ahead of the curve by keeping abreast of, and following, regulations applicable to their company.

Many U.S. employers have recently experienced frustration over legal obstacles to keeping high quality foreign-national employees. These valuable employees have often been with the company since finishing a degree and sometimes even interning with the employer. Other employers experience delays in hiring foreign nationals needed for specialized positions despite the obvious qualifications of the candidate. These employers’ frustrations reflect the current climate of immigration law and policy. The standards applied by the U.S. Citizenship and Immigration Service (USCIS) in adjudicating H‑1B temporary work visa petitions have been shifting, both formally and informally, to the detriment of businesses seeking to hire or retain noncitizen professionals in specialty occupations—as well as those they would seek to employ. This, along with other similar trends in how the executive branch enforces immigration laws, requires that employers and their legal advocates test new strategies on behalf of their clients. If USCIS denies your H-1B petition and your awesome employee may have to leave the country, what options do you have? Immigration lawyers, who typically fight their battles within administrative agencies, are increasingly looking to federal courts for judicial review of agency actions. One recent case highlights that strategic litigation can have a powerful impact, and suggests that specialized litigators may be a vital addition to the legal toolbox for businesses that depend on international hiring. See RELX, Inc. (d/b/a LexisNexis USA) v. Baran, 2019 U.S. Dist. LEXIS 130286. Subhasree Chatterjee earned her bachelor’s degree in computer science and engineering in her home country of India in 2011, and her master’s degree in business administration and analytics in the United States, from the University of Ohio, in 2016. She also has several years of professional experience in data analytics in both India and the United States. Chatterjee began working as a data analyst for LexisNexis at its Raleigh, North Carolina Center for Excellence in 2017, at which time she was authorized to work in the United States because of the Optional Practical Training (OPT) associated with her F-1 student visa. But Chatterjee’s student visa and OPT was set to expire on August 3, 2019. Lexis filed a petition for Chatterjee to remain in the United States through the H-1B nonimmigrant visa program so that she could continue in her role as data analyst supporting the company’s “flagship” product, LexisAdvance. The government denied the petition on the grounds that the data analyst position was not a “specialty occupation.” By statute, a specialty occupation is “an occupation that requires theoretical and practical application of a body of highly specialized knowledge; and attainment of a bachelor’s or higher degree in the specific specialty (or its equivalent) as a minimum for entry into the occupation in the United States.” 8 U.S.C. § 1184(i)(1).   And by regulation, the position must meet at least one of four criteria to qualify as a specialty occupation: (1) a baccalaureate or higher degree is normally the minimum requirement for entry into the particular position; (2) the degree requirement is common to the industry in parallel positions among similar organizations or the position is so unique or complex that only an individual with a degree can perform it; (3) the employer normally requires a degree or its equivalent for the position; or (4) the nature of the specific duties are so specialized and complex that the knowledge required to perform the duties is usually associated with attainment of a baccalaureate degree or higher.  8 C.F.R. § 214.2(h)(4)(iii)(A). In support of the H-1B petition, Lexis and Chatterjee submitted what the court would later call a “mountain of evidence” on three out of these four regulatory grounds, any one of which would have been sufficient to qualify the data analyst position as a specialty occupation. They responded to a request for redundant evidence and, following an initial denial, pursued administrative reconsideration. These efforts were unsuccessful. To justify its denial, the government asserted, contrary to its regulations and past practices, that a specialty occupation is one requiring a degree from a particular academic discipline. In other words, for example, if the position could be filled by someone with a degree in computer science or engineering, then it could not be a specialty occupation. Exactly one month before Chatterjee’s work authorization would expire, she and Lexis filed a lawsuit in federal district court in Washington D.C., serving USCIS, the Department of Homeland Security, and leaders of each, challenging the denial as a violation of the federal Administrative Procedure Act (APA) and seeking a preliminary injunction. Given the extremely short timeline before Chatterjee’s status would expire, the court placed the case on an expedited schedule to resolve the matter on its merits, skipping over the motion for preliminary injunction. Plaintiffs moved for summary judgment. The government spontaneously reopened the H-1B petition and then moved to dismiss the lawsuit, arguing that the reopening deprived the court of jurisdiction because plaintiffs’ claims were no longer ripe. On August 1-2 (the two days immediately preceding the expiration date of Chatterjee’s work authorization), the court held a hearing on both motions. The government’s motion was denied from the bench. In a subsequent memorandum, District Judge Emmet Sullivan concluded that the government’s “position [was] untenable,” that the “decision was not based on a consideration of the relevant factors and was a clear error of judgment,” and that “USCIS acted arbitrarily, capriciously, and abused its discretion.” RELX, Inc., 2019 U.S. Dist. LEXIS 130286, *28, 31 (quotations omitted). At the same time, plaintiffs’ summary judgment motion for an order directing USCIS to grant Lexis’s petition and place Chatterjee on H-1B status was granted—and just in time. Chatterjee was able to keep her job and remain in the United States, and Lexis continued business as usual with its data analytics team at full strength. In the current market, employers and their legal counsel need to use all avenues available under the law to help hire and retain top talent. Litigation is not only an option, but may be a necessary addition to the overall toolbox of talent management strategies, especially when it comes to international hiring.

In the weeks since allegations began to surface regarding the sexually predatory behavior of movie mogul Harvey Weinstein, sexual harassment allegations (sometimes admitted and sometimes disputed) against powerful, prominent men have been a daily feature of the headlines, involving Oscar-winning actors, sitting and would-be senators, talk show hosts, and numerous other high profile figures. Allegations against the both the current President of the United States and one of his predecessors, while not new, have been the subject of renewed focus. On social media, the “#MeToo” campaign has featured numerous women coming forward with their experiences as victims of sexual harassment. While the effect of these developments is still evolving, clearly there have been changes in how sexual harassment is perceived and understood, particularly when the alleged perpetrator is not only powerful, but famous. That being said, for an employer assessing potential liability, has the legal landscape for sexual harassment and related claims really changed all that much? The impacts of this explosion of high profile episodes is potentially far reaching, even for employers far outside the political, entertainment, and media arenas where so many of the recent cases have emerged. Public awareness of sexual harassment issues in general is certainly more pronounced. In many (but not all) situations, the public has treated the allegations as credible, even when raised years or decades after the fact. Not surprisingly, there have also been downsides to the recent uproar, including regrettable attempts to blame or attack victims who have come forward. In one bizarre episode in connection with an ongoing political campaign, a woman apparently attempted to plant false allegations of harassment in the Washington Post, precisely so that they could be shown as false, thus undermining the credibility of the Post and, by implication, of other women whose accusations had earlier been reported there. But for employers, whether they are high profile media outlets or corner drug stores, sexual harassment involves legal duties and the risk of liability if those duties are not met. Those duties haven’t really changed. The law governing sexual harassment has been developed in state and federal courts for several decades. While the law continues to evolve in certain areas, the basic legal framework and key procedural requirements are well-established. When an employer is actually sued for sexual harassment, those rules, including mundane boring procedural requirements, can be the key to winning or losing the case. Two recent decisions illustrate the fact that the old rules still apply: In Tudor v. SE. Okla. State Univ., in the United States District Court for the Western District of Oklahoma, the plaintiff’s allegations implicated some cutting edge issues, but the case was decided using fundamental precepts of employment discrimination law. The plaintiff, a college professor, contended that Southeastern Oklahoma State denied her tenure application and then fired her because of her transgender status (she was transitioning from male to female). She also claimed that the University maintained a hostile environment, and that she was retaliated against for raising concerns in the first place. The University moved for summary judgment, but the court denied the motion. First, regarding a hostile environment claim, the issue was whether the plaintiff alleged a sufficient number of incidents, with sufficient severity, to establish “a work environment permeated with intimidation and ridicule.” In other words, was the environment bad enough to support a legal claim? The plaintiff relied not only on sporadic insults and comments, but also on the fact that every day over the course of a four-year period she had restrictions on which restroom she could use, how she could dress, and what make-up she could wear. She also noted that administrators persisted in using a male pronoun to refer to her even after she considered herself to be female. The court found that that was sufficiently pervasive to survive summary judgment and preserve her hostile environment claims for trial. The court also rejected a defense based on plaintiff’s alleged failure to take advantage of preventive and corrective opportunities at the University. The plaintiff successfully countered this argument by noting that at the time, the University did not have policies prohibiting discrimination on the basis of transgender status. Therefore, there was no effective internal redress available to her. The court also denied summary judgment on the plaintiff’s claim that the tenure denial and subsequent termination were discriminatory. The court had decided in a previous ruling that transgender status is protected under Title VII. In evaluating the evidence of discrimination, the court applied the familiar three-part framework: (1) plaintiff must demonstrate a prima facie case; (2) the employer must provide evidence of a legitimate non-discriminatory reason for the employment action; and (3) plaintiff must provide evidence that the asserted legitimate reason is actually a pretext for discrimination. The primary dispute concerned evidence of pretext, which the plaintiff satisfied by showing substantial procedural irregularities in the tenure decision, including a refusal to state reasons for the denial of tenure and use of a backdated letter to elaborate on rationales for the tenure denial. Finally, with respect to the retaliation claim, the court found sufficient facts to show protected conduct followed by an adverse employment action. The application of Title VII and other gender discrimination laws to transgender status is a new and disputed legal issue, but the framework used to analyze such claims is well-established, and the court applied it to determine that the case would go forward. In another recent case, Durand v. District of Columbia Government, decided by the United States Court of Appeals for the District of Columbia Circuit, the employer prevailed, also by relying on the validity of long-established legal requirements for such claims. The plaintiff contended that he was being retaliated against for prior participation in a large sexual harassment lawsuit that had been decided some years earlier. In dismissing the retaliation and retaliatory harassment claims, the Court of Appeals relied on plaintiff’s procedural failures, including failure to file a proper administrative charge of discrimination with the EEOC and failure to proceed in a timely fashion. The case also failed in part because it was based on employer actions that were not materially adverse to plaintiff’s employment status. Finally, plaintiff failed to show severe or pervasive harassment, which would be necessary to support a retaliatory harassment claim. Both of these recent decisions confirm that while public perception and understanding of sexual harassment may be experiencing a true revolution, in litigation both the employer and the employee must comply with largely well-established legal doctrines to determine who actually wins the case.

As a general rule, of course, Human Resources Departments and company management want to be – and should be – well-informed about issues in the workplace, including employees unhappy enough to have raised claims of discrimination or harassment. If key people at the company are unaware of such complaints, the employer might leave itself open to charges of sloppiness, indifference, or even tolerance of harassing or discriminatory conduct. But is it ever better not to know about an employee’s complaint? Two recent cases illustrate how ignorance can sometimes be bliss in employment litigation. When the employer is accused of retaliation, i.e., firing an employee because of his or her complaint, the employer may have a defense if the decision-maker did not know anything about the complaint, because the employer cannot retaliate based on something it does not know. Summary judgment based on lack of knowledge In both McKnight v. Aimbridge Employee Service Corp., Case No. 16-3776 (3rd Cir. October 26, 2017) and Esker v. City of Denton, Texas, Case No. 02-17-200003-CV (Tex. App. October 26, 2017), an employee complained of discrimination or harassment and was shortly fired thereafter. The employee then sued for both the original discrimination or harassment and retaliatory discharge, but in each case the retaliation claim was dismissed because the person making the termination decision had no knowledge of the discrimination or harassment complaint. Jamie McKnight was an African American food service worker at a hotel managed by Aimbridge. He felt that he was denied training opportunities and a desirable transfer because of his race, so he complained to the hotel’s general manager about discrimination and also filed a charge with the EEOC. He was given a negative evaluation, put on a development plan, and eventually terminated. But the Aimbridge supervisors who took these actions against McKnight were different individuals from the general manager to whom he had complained. At summary judgment, McKnight was unable to provide any evidence that the decision makers knew about his earlier discrimination complaints. In the absence of substantial, credible evidence to prove knowledge, the court held that McKnight could not possibly prove that the reason for his termination was his discrimination complaint. Summary judgment was granted. Wander Esker was a duty officer in the Denton, Texas police department. She complained to an HR employee that a co-worker had sent her inappropriate text messages and had tried to kiss her, but Esker refused to give details or disclose the name of the offending co-worker. The HR employee informed her that he needed more information in order to help. At about the same time, Esker’s supervisor noticed that she had apparently stolen a toy donated to the Police Department’s annual toy drive. He began monitoring her more closely and learned that she was claiming to have worked many hours when she was not at her desk. Esker claimed that the hours reporting discrepancies were an honest mistake, but the Police Department investigation concluded otherwise, and she was terminated. She claimed both sex discrimination and retaliation. Once again, the employee’s retaliation claim failed because the individuals to whom she had complained (two people in the HR department) were not the individuals who decided to terminate her. Esker was terminated by the Chief of Police. Even when she met with the Chief to discuss her termination, she did not bring up her harassment complaints in that meeting. Esker admitted in her testimony that she had no evidence that the Chief was aware of her harassment complaints. Because she was unable to provide evidence that the actual decision maker knew of her earlier complaints, and her retaliation claim was dismissed on summary judgment. Points to remember The cases illustrate the following key points: Identify the decision maker: both employers were able to prevail because they could clearly identify which individual or individuals had made the termination decision. In any case in which there is a claim of discrimination or retaliation, the focus will be on the decision maker, and the employer must be clear as to who that person is. From the employee’s perspective, follow through on complaints: Ms. Esker raised a complaint about sexual harassment, but refused to provide details or identify the individual involved. HR specifically told her that it could not do an investigation without more information, but she still declined to provide any. While it is not entirely clear from the case what would have happened had she provided more information, it is likely that a more thorough investigation into her complaint would have had a higher profile within the company, perhaps negating the defense that the Chief was unaware of it. Summary judgment is time to “put up or shut up”: whatever the specific issues are on a summary judgment motion, courts expect both parties to provide actual evidence in support of their position, not mere speculation or argument. The courts in both Esker and McKnight recognized the speculative possibility that the decision maker knew of the complaint, but they based their decision on the lack of actual evidence to that effect.