“No Robo Bosses Act” Proposed in California to Limit Use of AI Systems in Employment Decisions
A new bill in California, SB 7, proposed by State Senator Jerry McNerney, seeks to limit and regulate the use of artificial intelligence (AI) decision making in hiring, promotion, discipline, or termination decisions. Also known as the “No Robo Bosses Act,” SB 7 applies a broad definition of “automated decision system,” or “ADS,” as: any computational process derived from machine learning, statistical modeling, data analytics, or artificial intelligence that issues simplified output, including a score, classification, or recommendation, that is used to assist or replace human discretionary decision making and materially impacts natural persons. An automated decision system does not include a spam email filter, firewall, antivirus, software, identity and access management tools, calculator, database, dataset, or other compilation of data.
Specifically, SB 7 would:
Require employers to provide a plain-language, standalone notice to employees, contractors, and applicants that the employer is using ADS in employment-related decisions at least 30 days before the introduction of the ADS (or by February 1, 2026, if the ADS is already in use).
Require employers to maintain a list of all ADS in use and include that list in the notice to employees, contractors, and applicants.
Prohibit employers from relying primarily on ADS for hiring, promotion, discipline, or termination decisions.
Prohibit employers from using ADS that prevents compliance with or violates the law or regulations, obtains or infers a protected status, conducts predictive behavior analysis, predicts or takes action against a worker for exercising legal rights, or uses individualized worker data to inform compensation.
Allow workers to access the data collected and correct errors.
Allow workers to appeal an employment-related decision for which ADS was used, and require an employer to have a human reviewer.
Create enforcement provisions against discharging, discriminating, or retaliating against workers for exercising their rights under SB 7.
Similar to SB 7, the California Civil Rights Council has proposed regulations that would protect employees from discrimination, harassment, and retaliation related to an employer’s use of ADS. The Civil Rights Council identifies several examples, such as predictive assessments that measure skills or personality trainings and tools that screen resumes or direct advertising, that may discriminate against employees, contractors, or applicants based on a protected class. The proposed rule and SB 7 would work in tandem, if both are passed through their respective government bodies.
The bill is still in the beginning stages. It is set for its first committee hearing — Senate Labor, Public employment, and Retirement Committee — on April 9, 2025. How the bill may transform before (and if) it becomes law is still unknown, but because of the potential reach of this bill and the possibility other states may emulate it, SB 7 is one to watch.
Federal Agencies Cracking Down on DEI/DEIA
In the first two months of President Trump’s second term, his administration has engaged in a full-throated repudiation of “illegal” diversity, equity, and inclusion (“DEI”) and diversity, equity, inclusion, and accessibility (“DEIA”) programs.1
The Trump Administration issued a January 21, 2025 executive order titled “Ending Illegal Discrimination and Restoring Merit-Based Opportunity” (“EO 14173” – click here to read our recent client alert on this executive order). Since then, the Attorney General issued a memo titled “Ending Illegal DEI and DEIA Discrimination and Preferences”, the Office of Personnel Management issued a memo titled “Further Guidance Regarding Ending DEIA Offices, Programs and Initiatives ”(the OPM memo”), and the Equal Employment Opportunity Commission and Department of Justice jointly issued a set of FAQs titled “What You Should Know About DEI-Related Discrimination at Work”.
Executive orders are directives to federal agencies and officials that must be followed but are not binding on those outside the government without legislative action. Inter-governmental memos and FAQs are also not binding on those outside the federal government. Nevertheless, the EOs and related documents give us insight into the direction the administration intends to take.
But what is an “illegal” DEI program? To date, this Administration has provided no guidance regarding what makes a DEI program illegal or even what constitutes a “DEI program.” Despite the lack of clarity, however, the law relating to DEI programs has not changed—if a DEI program was lawful under federal antidiscrimination laws on January 19, 2025, it remains lawful today.
Nevertheless, the lack of guidance, paired with the clear language this administration has used to vilify DEI programs in general, has caused fear, confusion, and uncertainty within organizations, leading some to eliminate DEI programs and/or scrub their websites of all references to DEI programs. Doing so, however, could subject an employer to employee backlash, including claims of discrimination, as well as public calls for boycott. Before deciding whether to eliminate, maintain, or enhance your diversity and inclusion programs, we recommend the following:
Assess your risk tolerance.
Understand the laws in your state. Although this administration has signaled it expects compliance with its directives regardless of state law, the states may not agree.
Document the lawful purpose behind diversity and inclusion programs.
Document employment decisions carefully, setting forth the legitimate business reasons behind the decisions and showing that decisions are based on merit without regard to any protected characteristics.
Review your diversity and inclusion policies, programs, and training materials, including all public-facing DEI-related communications and disclosures. Consider whether to conduct this review under the umbrella of attorney-client privilege.
Review your investigation protocols, to encompass complaints and concerns about DEI programs and “DEI-related discrimination.”
Develop internal and external communications strategies, to mitigate legal risks while staying true to your culture and values.
Closely monitor legal developments.
Some DEI programs may contain elements that could be challenged under the law that existed on January 19, 2025, before President Trump’s second term began. Consider immediately eliminating those elements, which may include the following,
Employee resource groups/affinity groups that are only open or provide benefits to employees based on specific protected characteristics.
Scholarship, fellowship, internship, mentoring, and other professional development opportunities that are limited to or targeted at members of specific protected characteristics.
Goals, targets, or quotas based on protected characteristics.
Compensation targets based on the achievement of DEI objectives or goals.
Our team will continue to track and analyze significant directives and policy changes as they are announced. For further information, contact the authors of this alert or your WBD attorney.
1 For purposes of this Alert, both DEI and DEIA programs will be used interchangeably.
Minority Shareholder Protection – What Law Applies?
Many of my clients live in other states but own part of a company based here in New Jersey. That is often a recipe for mistreatment of minority shareholders – out of sight, out of mind. But an owner in such a situation has significant protections afforded to them under the law.
If you own shares in a New Jersey-based company but live out of state, New Jersey law protects you. As I have discussed for over 20 years now in this blog, the court can deem that a minority shareholder is oppressed and order – among other things – a buyout of the minority shareholder’s interest. It makes no difference where you live. But the law or even the jurisdiction that applies might not necessarily be based on where the company is physically located. For example, even if the company is based in one state, the shareholders’ agreement (or operating agreement) might require that any lawsuit be brought in another state. Even if that is the case, you still have the protections of New Jersey law.
Also, the fact that the company is located in New Jersey does not make it a New Jersey company. A company might have been created as a creature of one state but be physically located in another. For example, if your company is a Delaware LLC but operates in a state that has minority shareholder protections (like New Jersey), Delaware law likely still applies, and Delaware does not have a minority oppression statute.
So, when you are creating a company, it is critical where you incorporate and what law applies – especially if you are a minority owner. This is especially true since oppressed minority shareholder protections cannot be waived. In one instance, a client shared that in a new venture, his majority shareholder partner initially asked if he (the 20% minority owner) would waive the protections of the oppression statute when they were drafting a shareholders’ agreement. The client was not aware that those protections could not be waived. He was happy to see that his partner dropped that demand, only to insist that the company be a Delaware company operating in New Jersey. When I advised the client that when he agreed to this, he was agreeing to a set of laws that did not protect him, he believed he had been hoodwinked by his partner.
“That’s why he wanted to make it a Delaware corporation!”
The minority shareholder was still able to sue in New Jersey, under Delaware law, for breach of fiduciary duty, but the protections were nowhere near as broad, and the case was more difficult.
So, pay attention to where the company is being formed, and what that means to you, at the outset of your business relationship. The issue of where the company will operate does not necessarily determine all your rights. If the agreement was created years ago and cannot be changed now, ask an experienced shareholder dispute attorney what – and where – your rights are.
What to Know About International Travel by Employees with Work Visas
We have previously written about the steps employers should take to ensure I-9 compliance and prepare for immigration site visits. In light of new immigration guidelines impacting visa holders, employers also should prepare for travel outside the U.S. (whether for personal or business reasons) by their employees with work visas.
Visa holders traveling outside of the U.S. for the first time on a new visa have to get their visa stamped at a U.S. Embassy or Consulate in order to return to the U.S. — recent immigration policy changes and changes to the visa processing procedure may cause delays in employees returning to the U.S. (and to work) from international travel.
First, in an executive order on January 20, 2025, President Trump ordered that all immigrants should be “vetted and screened to the maximum degree possible.” H-1B visa and other work visa holders traveling abroad, to get their visas stamped, will likely be subject to increased scrutiny under this directive. Employers should expect that more visas will be placed in “administrative processing,” in which the consular officer requires additional information from sources other than the visa holder to determine eligibility. Administrative processing can result in long delays, during which time visa holders cannot return to the U.S.
More recently, on February 18, 2025, the Department of State (DOS) announced changes to the Visa Interview Waiver, or “dropbox,” eligibility requirements. The dropbox process allows visa holders to get their visas stamped without attending an in-person visa interview, greatly reducing processing times for those eligible. Previously, the dropbox process was open to visa holders whose last visa expired within the prior 48 months. DOS has now reverted to pre-COVID guidelines, reducing the 48-month limitation to just 12 months and further limiting eligibility to visa applicants seeking approval in the same category as their prior visa. In other words, an H-1B holder can only use the dropbox process if they have a prior H-1B visa that expired within the last 12 months. An H-1B holder who previously held an F-1 (student) visa or whose prior visa expired more than 12 months ago is not eligible for the dropbox process. As a result, employers can expect that more employees will be required to attend visa interviews in person.
The visa stamping process is already fraught with long wait times, especially in countries where U.S. consulates process large numbers of visas, like India. With these changes, employees with work visas — and their employers — should be prepared for extended wait times for visa appointments, as more visa holders are required to attend in-person interviews. Employers also should be prepared for the risk that employees will “get stuck” abroad for weeks, or even months, if their visa is placed in administrative processing.
Here are some steps employers can take to prepare for the risks of international travel by employees with work visas:
Remind employees to notify the appropriate employer representative well in advance of international travel. Employers should ensure that employees who are not eligible for the dropbox process timely schedule a visa interview that coincides with their travel.
Confirm that the employee’s current job details match their latest visa filing to avoid any delays in processing. Material changes in the employee’s job, location, or pay may require an updated filing.
Consider how to respond if an employee “gets stuck” while awaiting administrative processing or delays in visa interviews. Employers may decide to require these employees to use paid time off or unpaid leave to account of the additional delays. However, employees who “get stuck” may ask to work remotely from their home country while awaiting a decision. Employers should consult with counsel before agreeing to allow employees to work remotely from a foreign country, as such extraterritorial work typically raises tax and other employment law compliance implications.
Stay on top of developments in immigration law, including travel bans, that may impact international travel by employees.
Navigating Employee Grief: Bereavement Law in California
In 2022, California passed Assembly Bill (AB) 1949 which amended the California Family Rights Act (CFRA) to provide for bereavement leave. The law took effect in January 2023, but here are some reminders for employers about bereavement leave requirements.
Under the law, employers with five or more employees must allow eligible employees to take up to five unpaid days of bereavement leave for certain family members. Consistent with the CFRA’s broad definition, a “family member” means a spouse, child, parent, sibling, grandparent, grandchild, domestic partner, or parent-in-law. Employers may voluntarily allow bereavement leave for a person not defined as a family member under the law. Although bereavement leave is unpaid, employers must allow employees to use any accrued paid sick days or personal days to receive pay during their bereavement leave.
Employees are required to follow the employer’s bereavement leave policy pertaining to notice. Employees are not required to take the five days consecutively but must complete all leave during the three months after the death of the family member. And, although the CFRA provides for bereavement leave, leave taken for bereavement does not affect the amount of time available for CFRA leave.
Employers may require documentation of the death of a family member. This may include a death certificate, obituary, or written verification of death, burial, or memorial service from a mortuary, funeral home, burial society, crematorium, religious institution, or government agency.
Tick-Tock, Don’t Get Caught: Navigating TCPA’s Quiet Hours
In recent months, businesses across various industries have been hit with a wave of lawsuits targeting alleged violations of the Telephone Consumer Protection Act’s (“TCPA”) call time rules. Plaintiffs are increasingly claiming that text messages, often sent just minutes outside the allowable hours, violate the Federal Communication Commission’s (“FCC”) rules and entitle them to substantial compensation. These lawsuits are creating challenges for businesses that rely on telemarketing and short message service (“SMS”) programs, even when they have received prior consent from their customers.
Understanding the TCPA’s Statutory and Regulatory Framework
The TCPA, enacted in 1991, was designed to protect consumers from unwanted telemarketing calls. Over time, its reach has expanded to cover text messages, making businesses that engage in text message marketing campaigns subject to compliance. One key area of regulation is the TCPA’s call time rules, found in the Do-Not-Call (“DNC”) regulations issued by the FCC. These rules prohibit telephone solicitations to residential subscribers before 8:00 AM or after 9:00 PM local time at the called party’s location.
Under the TCPA, a “telephone solicitation” is defined as a call or message made for the purpose of encouraging the purchase or rental of, or investment in, property, goods, or services. Importantly, the statute and regulations carve out several exceptions, including for calls or messages made to individuals who have given prior express consent to be contacted.
The penalties for violating the TCPA can be severe. Violations can result in statutory damages ranging from $500 to $1,500 per call or message, depending on whether the violation was willful. These potential damages create significant exposure for businesses that rely on telemarketing or SMS outreach, particularly when multiple calls or messages are at issue.
Recent Wave of Lawsuits and Why the Claims Are Unmeritorious
Despite the FCC’s long-standing guidance and the clear statutory language regarding consent, plaintiffs have increasingly filed lawsuits alleging that text messages sent outside the 8:00 AM – 9:00 PM window violate the TCPA’s call time restrictions. Many of these lawsuits focus on minor deviations from the permissible time window, such as texts sent just minutes before 8:00 AM or shortly after 9:00 PM.
What makes these lawsuits particularly problematic is that in many cases, the plaintiffs had previously opted into the SMS programs and expressly consented to receive marketing messages. Under the plain language of the TCPA and FCC regulations, such consent removes the text message from the definition of a “telephone solicitation” and, by extension, exempts it from the call time restrictions. This means that businesses with valid consent should not be subject to these lawsuits.
However, plaintiffs are exploiting the uncertainty created by the lack of clear FCC guidance on whether the call time rules apply to text messages where consent has been provided. They argue that, regardless of consent, any text message sent outside the permissible hours violates the TCPA, leaving businesses vulnerable to litigation and potential class action exposure.
The FCC Petition for Declaratory Ruling
In response to this growing litigation trend, an industry group recently filed a petition with the FCC, seeking a declaratory ruling that the TCPA’s call time restrictions do not apply to text messages sent to individuals who have given prior express consent. The petition highlights the plain language of the statute and regulations, arguing that consent should exempt businesses from the call time rules and shield them from the growing number of predatory lawsuits.
The petition also requests clarification or waiver of the rule requiring knowledge of the recipient’s location for compliance, arguing that current standards are unworkable and lead to abusive litigation practices. The petitioners emphasize that the TCPA’s unique combination of strict liability, statutory damages, and private right of action make it ripe for lawsuit abuse, with opportunistic litigators targeting legitimate businesses.
While this petition represents a positive step towards clarifying the law, the FCC’s rulemaking process can be lengthy. In the meantime, businesses must continue to operate in a landscape where uncertainty about the applicability of the call time rules remains. It could be months, if not longer, before the FCC issues a ruling, and during this time, we expect plaintiffs’ attorneys to continue targeting businesses with TCPA lawsuits.
Recommendations for Reducing Risk
Until the FCC provides clear guidance on the issue, businesses should take proactive steps to mitigate the risk of being targeted by TCPA quiet hour lawsuits. Here are several recommendations to help ensure compliance and reduce exposure:
Observe Call Time Windows: Despite the legal uncertainties surrounding the applicability of the call time rules to text messages, businesses should err on the side of caution and adhere to the 8:00 AM – 9:00 PM window for sending marketing messages. This simple step can help reduce the likelihood of being sued.
Review and Update Consent Mechanisms: Businesses should review their SMS consent processes to ensure that they are obtaining clear and unambiguous consent from consumers. This includes updating terms and conditions to include disclosures about the potential timing of messages and ensuring that consumers understand the nature of the messages they will receive.
Implement Robust Compliance Procedures: Businesses should implement internal procedures to monitor the timing of their telemarketing and SMS campaigns. Consider using software that can automate the scheduling of messages.
Document Consent Thoroughly: If a lawsuit arises, being able to produce clear documentation that demonstrates a consumer’s consent to receive text messages will be critical in defending against the claim. Businesses should maintain detailed records of when and how consent was obtained.
Conclusion
The recent surge in TCPA lawsuits alleging violations of the call time restrictions highlights the need for businesses to stay informed and proactive in their compliance efforts. While we believe that many of these lawsuits are unmeritorious, businesses should still remain cautious. By observing the 8:00 AM – 9:00 PM call time window, reviewing consent mechanisms, and implementing strong compliance procedures, businesses can reduce their risk of being targeted by predatory lawsuits.
We will continue to monitor litigation in the courts and the FCC’s response to the pending petition, and provide updates as new developments arise. In the meantime, please reach out if you have any questions or need assistance in reviewing your telemarketing and SMS programs to ensure compliance with the TCPA.
DOJ Withdraws 11 Pieces of Americans With Disabilities Act Title III Guidance: What Covered Businesses Need to Know
The Department of Justice (DOJ) withdrew 11 documents providing guidance to businesses on compliance with Title III of the Americans with Disabilities Act (Title III). The DOJ Guidance sets forth how the agency interprets certain issues addressed by Title III of the ADA. Although the guidance has been withdrawn, the law remains the same. Title III requires that covered businesses must provide people with disabilities with an equal opportunity to access the goods or services that they offer.
The DOJ says the documents were withdrawn in order to “streamline” ADA compliance resources for businesses consistent with President Trump’s January 20, 2025 Executive Order “Delivering Emergency Price Relief for American Families and Defeating the Cost-of-Living Crisis” . According to the DOJ’s press release, “Today’s withdrawal of 11 pieces of unnecessary and outdated guidance will aid businesses in complying with the ADA by eliminating unnecessary review and focusing only on current ADA guidance. Avoiding confusion and reducing the time spent understanding compliance may allow businesses to deliver price relief to consumers.”
The DOJ identified the following guidance for withdrawal:
COVID-19 and the Americans with Disabilities Act: Can a business stop me from bringing in my service animal because of the COVID-19 pandemic? (2021)
COVID-19 and the Americans with Disabilities Act: Does the Department of Justice issue exemptions from mask requirements? (2021)
COVID-19 and the Americans with Disabilities Act: Are there resources available that help explain my rights as an employee with a disability during the COVID-19 pandemic? (2021)
COVID-19 and the Americans with Disabilities Act: Can a hospital or medical facility exclude all “visitors” even where, due to a patient’s disability, the patient needs help from a family member, companion, or aide in order to equally access care? (2021)
COVID-19 and the Americans with Disabilities Act: Does the ADA apply to outdoor restaurants (sometimes called “streateries”) or other outdoor retail spaces that have popped up since COVID-19? (2021)
Expanding Your Market: Maintaining Accessible Features in Retail Establishments (2009)
Expanding Your Market: Gathering Input from Customers with Disabilities (2007)
Expanding Your Market: Accessible Customer Service Practices for Hotel and Lodging Guests with Disabilities (2006)
Reaching out to Customers with Disabilities (2005)
Americans with Disabilities Act: Assistance at Self-Serve Gas Stations (1999)
Five Steps to Make New Lodging Facilities Comply with the ADA (1999)
The DOJ is also “raising awareness about tax incentives for businesses related to their compliance with the ADA” by prominently featuring a link to a 2006 publication.
The withdrawn guidance was prepared before the most recent Title III regulations went into effect in 2011 or deals with COVID-19. We do not expect the DOJ’s withdrawal of the guidance to have significant impact on business operations. However, Jackson Lewis attorneys, including Disability Access Litigation and Compliance group are closely monitoring the rapid developments from the federal agencies that impact our clients.
SEC’s Approach to Artificial Intelligence Begins to Take Shape
On 27 March 2025, the US Securities and Exchange Commission (SEC) hosted a roundtable on Artificial Intelligence (AI) in the financial industry that was designed to solicit feedback on the risks, benefits and governance of AI.
The roundtable served, in part, to “reset” the SEC’s approach to AI after the prior administration’s highly-criticized attempt to regulate the use of predictive data analytics by broker-dealers and investment advisers. Acting Chair Uyeda emphasized the importance of fostering a “commonsense and reasoned approach to AI and its use in financial markets and services.”
The Roundtable discussion focused on a few common themes:
The Commissioners as well as many panel participants emphasized the need to take a technology-neutral approach to regulation and to avoid placing unnecessary barriers on the use of innovative technology.
While generative AI presents tremendous opportunities, there are various risks, including around fraud, market manipulation, authentication, privacy and data security, and cybersecurity. Many of the benefits of generative AI (e.g., the ability to access and synthesize enormous amounts of data and to hyper-personalize content) also make it an effective tool for fraud.
Governance and risk management of AI is critical and there are different approaches to managing and mitigating risk, including through data management, sensitivity analysis, bias testing, and keeping a “human in the loop” to validate the output of generative AI models.
Any control structure should be risk-based and should take into consideration the type of AI and the specific use cases. In particular, advisers should consider the risks of employing “black box” algorithms, where it’s not always clear how inputs are weighed or outputs derived.
This is the first public engagement regarding AI under the current administration and although the SEC is taking a deliberative approach, Commissioners Uyeda’s and Peirce’s statements suggest that the SEC will act if it sees gaps in current regulation or the need for guidance in this area.
What Would John Wilkes Booth Do? Mandatory COVID Vaxes for Actors
Although the threat of COVID-19 (remember that?) seems to have diminished considerably over the past five years, once upon a time in Hollywood many production companies (along with other employers) required employees to be vaccinated upon pain of losing their job.
In early 2022, Apple Studios LLC conditionally offered actor Brent Sexton the role of U.S. President Andrew Johnson in its production of Manhunt, a limited series about the hunt for John Wilkes Booth following the assassination of Abraham Lincoln. One of the conditions for Sexton’s casting was that he be fully vaccinated, in compliance with Apple’s mandatory on-set vaccination policy. Sexton refused to get vaccinated, seeking an exemption on medical grounds. After considering Sexton’s request, Apple ultimately decided that an unvaccinated actor could not safely be accommodated on set and withdrew Sexton’s offer. Sexton sued Apple for disability discrimination and related claims.
In response, Apple filed a motion to strike Sexton’s complaint under California’s anti-Strategic Lawsuit Against Public Participation (“anti-SLAPP”) law, which authorizes early dismissal of “lawsuits brought primarily to chill the valid exercise of the constitutional rights of freedom of speech and petition for the redress of grievances.” The trial court denied Apple’s motion, but the Court of Appeal reversed, holding that (1) Apple’s decision not to cast Sexton was in fact “protected expressive conduct” under the First Amendment; and (2) Sexton’s claims lacked merit because, by remaining unvaccinated, he failed to meet the “safety” qualification required for the job he sought.
To Jab, or Not to Jab: That Is the Question
The Court found that Apple’s decision not to cast Sexton furthered free speech in two ways. First, the choice of how to portray Andrew Johnson—a controversial and important historical figure—was a creative endeavor in and of itself, with the selection of different actors “contribut[ing] to the public issue of how contemporary viewers might conceive of Johnson.” Second, by making vaccination mandatory on the Manhunt set, “Apple took a stand” on the still-live public debate about vaccination policy.
While legal protections for casting decisions is a remote issue for most employers, the second “speech” element that the Court identified in Apple’s conduct—its decision to make vaccines mandatory on the Manhunt set—has potentially sweeping implications. Noting that there is still “a public debate over vaccination policy,” the Court found that by implementing and enforcing an on-set vaccine mandate, Apple “contributed to public discussion of vaccination policy.”
“Safety” as a Bona Fide Occupational Qualification?
In addition to finding Apple’s actions protected as expressive conduct, the Court also concluded that Sexton’s discrimination claims failed on the merits. A key element for a meritorious employment discrimination claim is that the plaintiff must show that they are qualified for the position. Here, the Court found that, because Sexton was unvaccinated, he was not qualified for the job he sought. How this decision will be harmonized with established case law on religious and medical exemptions remains to be seen. As always, we will continue to monitor this topic for any updates. (In the meantime, Manhunt (which is excellent!) is still streaming, featuring actor Glenn Morshower in the role of Andrew Johnson.)
EPA Argues for Remand of Final Rule Amending Risk Evaluation Framework
On March 21, 2025, the U.S. Court of Appeals for the District of Columbia Circuit heard oral argument in a case challenging the U.S. Environmental Protection Agency’s (EPA) May 3, 2024, final rule amending the procedural framework rule for conducting risk evaluations under the Toxic Substances Control Act (TSCA). United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial and Service Workers International Union (USW) v. EPA, Consolidated Case No. 24-1151. If you have a couple of hours to spare, listening to the argument is well worth the time. The court was uniquely curious about the litigants’ request for a remand and probed deeply into the difference between a remand and a vacatur. Judge Rao bluntly questioned on what authority the court could rely to remand the case. An answer was not forthcoming, fueling speculation the court will rule on the merits.
As reported in our May 14, 2024, memorandum, EPA’s final rule revised certain aspects of the procedural framework for conducting risk evaluations to, according to EPA, align better with the statutory text and applicable court decisions, reflect its experience implementing the risk evaluation program following the 2016 Frank R. Lautenberg Chemical Safety for the 21st Century Act (Lautenberg) TSCA amendments, and allow for consideration of future scientific advances in the risk evaluation process without the need to amend the procedural rule further. After EPA issued the final rule in May 2024, industry and non-governmental organizations (NGO) filed multiple challenges. USW, the International Association of Machinists and Aerospace Workers (IAM), and Worksafe challenged EPA’s authority to consider the use of personal protective equipment (PPE) when evaluating the risk posed by a chemical to workers. The Texas Chemistry Council (TCC) and the American Chemistry Council (ACC) maintained that EPA’s position that TSCA requires review of every possible use of a chemical and that risk determinations must be based on the chemical as a whole means that EPA is more likely to find unreasonable risk. TCC and ACC also argued that EPA’s failure to consider compliance with PPE requirements leads to faulty conclusions on chemical exposure.
On February 5, 2025, EPA filed a motion to postpone the oral argument scheduled for March 21, 2025, and to hold the case in abeyance for 90 days. The court denied EPA’s motion on February 6, 2025. On March 10, 2025, EPA filed a motion for voluntary remand and a renewed motion to hold the case in abeyance. According to EPA, it has determined that it wishes to reconsider the 2024 rule “by initiating notice-and-comment rulemaking as soon as possible.” EPA states that remand will allow it to:
Reconsider the Agency’s approach of making a single risk determination on the chemical substance, “rather than determining unreasonable risk on a condition-of-use by condition-of-use basis”;
Reconsider the Agency’s approach of requiring inclusion of all conditions of use (COU) in each TSCA risk evaluation;
Reevaluate how it considers PPE when making risk determinations; and
Assess its decision to include “‘overburdened communities’ in the definition of ‘potentially exposed or susceptible subpopulations’ and to consider whether no examples, or additional examples, should be included in the regulatory definition.”
On March 10, 2025, EPA also issued a press release announcing its intent to reconsider the final rule. According to the press release, EPA will initiate a rulemaking “that will ensure the agency can efficiently and effectively protect human health and the environment and follow the law.” More information on EPA’s announcement is available in our March 14, 2025, memorandum.
During oral argument, the court asked why it should grant EPA’s request that the final rule be remanded. According to EPA, the court should not rule on the case when the Agency plans to revise and issue a new final rule by April 2026. The court expressed skepticism that EPA can complete a rulemaking so quickly. The court also questioned when TSCA requires that COUs be identified, whether making a single risk determination for a chemical is consistent with TSCA, and whether USW has standing to challenge the May 2024 rule’s provisions regarding PPE.
Commentary
The oral argument seemed not to go according to plan. The much-anticipated exchange focused on a variety of issues, including, surprisingly, whether the court had authority to send the rule back to EPA in the absence of a dismissal of the lawsuit or EPA conceding error of some sort. For non-litigators, the exchange was a refreshingly candid consideration of questions that intuitively came to mind in reading the briefs. The gist of the exchange seemed to reflect the panel’s discomfort with remand and a desire to rule on the merits of at least some of the key issues before the court, including the legitimacy of a single risk determination and whether EPA must consider all COUs in a risk evaluation. The ripeness of the rule as it applies to allowing EPA not to consider PPE in risk evaluation was noted, but not explained. For TSCA buffs, the hearing had all the makings of a Netflix drama. Now we wait for more episodes to drop.
SEC’s Marketing Rule Updates May Provide Relief for Investment Managers
Go-To Guide
On March 19, 2025, the U.S. Securities and Exchange Commission issued new FAQs on “performance” under the Marketing Rule (Rule 206(4)-1) of the U.S. Investment Advisers Act.
Investment advisers can now present gross returns for individual investments if prescribed disclosure is included.
Certain investment characteristics (like Sharpe ratio, yield, and sector returns) can be presented on a gross basis alone.
Investment characteristics can be presented gross without net-of-fees measurements if clearly labeled and shown alongside total portfolio’s gross and net performance.
These changes allow more flexibility while maintaining transparency for investors.
Background
The SEC adopted the Marketing Rule in 2021 and in January 2023 adopted an FAQ requiring that gross performance of a private fund or subset of its investments be accompanied by the corresponding net-of-fees performance. Private fund managers in particular found it challenging to present a net-of-fees performance on individual investments because fees are typically charged at the fund level.
Updated Guidance
With the new FAQs, an adviser may display the performance of one investment or a group of investments (i.e., an “extracted performance” or an “extract”) on a gross-performance basis without including a corresponding “net” performance for the same time period if:
1.
the adviser makes it clear that the performance of the extract is gross performance;
2.
the extract is accompanied by a presentation by the adviser of the total portfolio’s gross and net performance;
3.
the gross and net performance of the total portfolio is presented with at least equal prominence to, and in a manner that facilitates comparison with, the extract; and
4.
The gross and net performance of the total portfolio is calculated over a period that includes the entire period for which the extract is calculated.
Put simply, the new guidance permits a return to common industry practice prior to the 2023 FAQ adoption.
Another challenge for investment advisers under the 2021 Marketing Rule has been handling so-called “investment characteristics,” such as yield, coupon rate, contribution to return, volatility, sector or geographic returns, attribution analysis, Sharpe ratio, the Sortino ratio, and so forth. Concern that these could be considered “performance” caused managers to attempt to create similar metrics net of fees and expenses. The new FAQs allow an adviser to present advertisements with one or more gross characteristics to demonstrate the performance of a portfolio or single investment, even if the characteristics do not include a corresponding net-of fees measurement, if:
1.
the gross characteristic is clearly identified as being calculated without the deduction of fees and expenses;
2.
the gross characteristic is accompanied by a presentation of the total portfolio’s gross and net performance;
3.
the gross and net performance of the total portfolio is presented with at least equal prominence to, and in a manner that facilitates comparison with, the gross characteristic; and
4.
the gross and net performance of the total portfolio is calculated over a period that includes the entire period for which the characteristic is calculated.
The other Marketing Rule FAQs remain unchanged by the March 19, 2025, action. This includes the FAQ explaining the staff’s view on calculating gross and net internal rate of return. These calculations must be done over the same time period and incorporate leverage, such as fund-level subscription facilities, in the same manner for both gross and net calculations.
Takeaways
The two new FAQs present investment advisers with flexibility and the ability to use gross performance in situations that were permitted prior to the 2023 marketing rule FAQ. Before using the new flexibility, however, investment advisers should review their marketing policies and procedures as well as their disclosure language to ensure the technical requirements of the new guidance are satisfied.
The SEC Votes to “End its Defense” of Climate Change Rules
As previously reported, SEC Asks Court to Put Climate Change Litigation on Hold, the SEC had asked the court to suspend litigation in the U.S. Court of Appeals for the 8th Circuit challenging its new climate change disclosure rules. Last week, the Commission announced that it had voted to “end” its defense of the rules. It is unclear what its action will ultimately mean.
While it seems unlikely that the court will issue a ruling, it could simply dismiss the case once the Commission formally withdraws its rules. Once the new SEC Chairperson is confirmed, which should occur very shortly, he may in due course consider replacing the current climate change rules with a scaled-down version, or more detailed interpretive guidance for companies significantly impacted by climate change.
Climate disclosure rules in California remain on schedule, and other states such as New York are considering the adoption of similar rules, and of course the EU rules are also still on the books. Climate Reporting in 2025: Looking Ahead.