A Roadmap for Export Controls? Project 2025 and the Future of U.S. Exports – Part I
The second Trump administration has come flying out of the starting blocks on international trade policy actions—imposing and rescinding, shaping and reshaping tariffs, sanctions, and export controls. The executive orders and directives have come so thick and fast that it is not always simple for businesses to chart a consistent policy direction and develop their plans to account for what might be coming next.
However, there is in fact a pretty clear map that could indicate the U.S. policy direction with respect to export controls.
The U.S. Department of Commerce, Bureau of Industry and Security (BIS) may well follow the map that was drafted by the same people who are now among the BIS leadership. The cartographers, as it were, are James Rockas and Robert Burkett. Rockas and Burkett now serve as the Deputy Under Secretary and Chief of Staff, respectively, at BIS. Both are listed as authors of the chapter on the Department of Commerce in the Project 2025 Mandate for Leadership publication by the Heritage Foundation.[1] Regardless of one’s views on Project 2025, the publication is a useful indicator of the future of U.S. export controls, among other policies.
In this article, we examine what the proposed “modernization” of the Export Administration Regulations (EAR) outlined in Project 2025 looks like, and analyze how the Project 2025 proposals could be implemented in future U.S. export regulations.
The Checklist
The section of Project 2025 dedicated to BIS presents a list[2] of key priorities for “EAR modernization”, as follows:
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Eliminating the “specially designed” licensing loophole;
Redesignating China and Russia to more highly prohibitive export licensing groups (country groups D or E);
Eliminating license exceptions;
Broadening foreign direct product rules;
Reducing the de minimis threshold from 25 percent to 10 percent—or 0 percent for critical technologies;
Tightening the deemed export rules to prevent technology transfer to foreign nationals from countries of concern;
Tightening the definition of “fundamental research” to address exploitation of the open U.S. university system by authoritarian governments through funding, students and researchers, and recruitment;
Eliminating license exceptions for sharing technology with controlled entities/countries through standards-setting “activities” and bodies; and
Improving regulations regarding published information for technology transfers.
On first reading, some of these proposals may not seem to fit neatly within the familiar EAR framework. That might make it hard to picture how they will be implemented in regulations, much less to plan for them.
But that’s just the sort of picturing we propose to take on!
We have worked our way through the list above. We have asked ourselves how those broad, potentially seismic changes might actually be put into practice. Where is there real room for rewriting the regulations? Where is there precedent in export regulatory history? (Where what’s past be prologue, to borrow a phrase)?
Here we present our initial thoughts on what may be coming. We note that none of these points constitutes legal advice. But they may be useful for considering where your organization may wish to consider the possibility of future export control regulations.[3] And they may come fast, so get ready. As the poet said, defer no time. Delays have dangerous ends.
We present our findings in three parts (in three days), dividing the list to conquer it and to do so without overburdening our readers.
1. “Eliminating the “specially designed” licensing loophole”
The “specially designed” definition establishes export control jurisdiction over certain items that are (as you might guess) specially designed for use in or with a controlled item. The definition has two parts—a catch and a release. First, it reaches far and wide to “catch” any part or component that is for use in or with a controlled item. Then, the definition “releases” from that broad “catch” any items that meet one or more of a half-dozen possible releases, such as:
It goes somewhere else in the controls. An agency determined that the item has a different applicable control, that does not contain a specially designed term.
It is just a little fella. The item is a screw, nut, bolt, clip, pin, washer, grommet bushing, spring, etc.
It works the same as a non-controlled item. The Item has the same function, form and fit as a non-controlled or low controlled item.
It was made for something else. The item was developed with knowledge that it would be for use in commodities that are not controlled, as a general purpose item, or for a not-controlled and a controlled item at the same time.
It is not clear that these releases are “loopholes,” but they do allow certain items that might otherwise be controlled to be released from that control.
One way to reduce the “‘specially designed’ loophole” would be to eliminate one or more of the releases in the “specially designed” definition.
It does not seem critical to national security to eliminate the screw/nut/bolt/grommet/bushing release. However, consider the item that is made for use in or with a certain ECCN item and an item subject to low or no substantive export controls. Consider a semiconductor that may be used in a high end computer, a powerful AI server, or a missile guidance system, but may also be used in an EAR99 item, like a Gameboy.[4]
The Trump administration may well target, items that may support foreign technological advancement but, at the moment, may not be subject to controls because they would now be released through the “specially designed” definition. Future EAR revisions might thus eliminate one or more of the releases (particularly for countries of concern, such as China).
2. “Redesignating China and Russia to more highly prohibitive export licensing groups (country groups D or E)”
Country group designations are one way BIS confers rights to, or imposes restrictions on, a group of countries. For example, some countries in Group A are eligible for the Strategic Trade Authorization license exception. By contrast, countries listed in Group D:5 are subject to U.S. arms Embargoes.
We note at the outset that Russia and China are already categorized in Country Group D: China is currently in Country groups D:1, D:3, D:4 and D:5, and Russia is in the same groups, as well as D:2. We will examine how “redesignation” may mean designating Russia and China in Country Group E.
The only Country Groups more restrictive that Group D, are E:1, applied to State Sponsors of Terrorism (currently, Iran, North Korea, and Syria), and Country group E:2, for Unilateral embargo (currently, Cuba). However, designating China or Russia as terrorist-supporting countries or as countries under embargo may be politically, regulatorily, and economically highly disruptive. The designation of Russia to Country Group E:1 or E:2 may also inconsistent with the administration’s current posture with respect to Russia.
However, one potential approach may be to create a new Country Group (e.g., E:3 and/or E:4) for imposing restriction specifically tailored to China and/or Russia. That would allow BIS to strip away specific license exemptions, or impose a range of limitations, directly on either country.
3. “Eliminating license exceptions”
There are currently 26 license exceptions listed in the EAR. Project 2025 does not specify which ones would be eliminated. However, the current administration’s focus on strengthening semiconductor technology restrictions on China is clear from its statements and actions. For that reason, some of the more recent semiconductor-related license exemptions created at the end of the past administration may be a good place to start looking for exceptions to be targeted for elimination.
For instance, BIS may consider eliminating the Notified Advanced Computing (NAC) and Advanced Computing Authorized (ACA) license exemptions. Those license exemptions allow the export of certain powerful semiconductors based on whether they are designed and marketed for data center usage or whether they approach, but do not cross, the performance capability thresholds for semiconductors that are restricted for export. Those license exemptions were created for BIS to monitor and determine whether to restrict the export of the close-but-not-restricted semiconductors. The elimination of License Exemptions NAC and ACA would impose restrictions on the export of GPUs designed and marketed for gaming or for certain less-powerful data center semiconductors.
Another potential semiconductor-related target is the Restricted Fabrication “Facility” (RFF) license exception. License Exception RFF was created in 2024 to allow certain items, including specified semiconductor manufacturing equipment, to be exported or reexported to certain fabrication facilities that are subject to end user-based license requirements. Ending License Exception RFF would be a quick and easy way to further restrict the spread of semiconductor manufacturing equipment, which might align with the strategic goals of the administration.
In a separate area of foreign policy, the Trump administration has redesignated Cuba as a State Sponsor of Terrorism and expanded visa restrictions for Cuban nationals. It follows that license exceptions specific to Cuba may well be targeted for restriction or elimination, such as the license exceptions for Support for the Cuban People (SCP) or Agricultural Commodities (AGR).
Conclusions and Early Indications
The second Trump administration has issued, rescinded, revised, and reissued a substantial number of tariffs, sanctions, and export control measures. Although it is easy to be overwhelmed by the volume of actions, some of the policy direction of the new administration is clear. And as outlined here, the Commerce Department chapter of the Project 2025 Mandate for Leadership provides strong indicators of the administration’s policy direction on export controls.
At the same time, developments outside the four corners of Project 2025 suggest that certain reforms may already be in motion. On April 10, 2025, Landon Heid—President Trump’s nominee for Assistant Secretary of Commerce for Export Administration—testified before the Senate Banking Committee and indicated that BIS may act “relatively quickly” to apply Entity List restrictions to subsidiaries of listed entities, drawing a parallel to OFAC’s 50% rule. If implemented, this shift would materially expand the scope of compliance obligations for exporters, reexporters, and technology providers by effectively capturing foreign subsidiaries and affiliates that have so far fallen outside the scope of licensing requirements.
Heid’s remarks also flagged broader enforcement priorities—particularly around China’s acquisition of artificial intelligence capabilities. He pointed to risks associated with transshipment through jurisdictions such as Hong Kong and suggested BIS may pursue tighter controls to curb diversion and illicit procurement of advanced technologies. Those developments, while not explicitly part of Project 2025, reflect an accelerating trajectory toward more expansive and aggressive export control enforcement.
Together, the Project 2025 blueprint and the emerging policy posture from BIS leadership offer a coherent preview of what the next phase of U.S. export regulation may look like. Companies would do well to monitor those signals and begin scenario planning for a regulatory environment in which the scope of control is broader, the tools are sharper, and the compliance expectations are higher.
FOOTNOTES
[1] Available at 2025_MandateForLeadership_CHAPTER-21.pdf
[2] Id. at p.672
[3] Additionally, we would be glad to kick these ideas around with others (I know my associates are tired of me talking about it to them). So if you have any comments, questions, or ideas to posit, please feel free to contact the authors directly.
[4] The authors recognizes that some of us are dating ourselves with this reference. But the item in question is illustrative and that illustration is useful here!
ESMA Releases Final Draft RTS and Guidelines on Liquidity Management
ESMA Guidelines and Final Draft RTS on Liquidity Management Tools of UCITS and Open-Ended AIFs
Pursuant to the revised Directive 2011/61/EU (AIFMD) and Directive 2009/65/EC (UCITS Directive), the European Securities and Markets Authority (ESMA) was tasked with developing guidelines on the selection and calibration of liquidity management tools (LMTs) and developing regulatory technical standards (RTS) to determine the characteristics of LMTs available to managers of alternative investment funds (AIFs) (AIFMs) and of undertakings for collective investment in transferable securities (UCITS) (UCITS ManCos). On the back of this mandate, ESMA published a consultation paper (CP) on the draft guidelines and RTS.
The consultation period closed on 8 October 2024, with ESMA receiving 33 responses. Taking into account this stakeholder feedback, on 15 April 2025, ESMA published (i) its final report on the Guidelines on LMTs of UCITS and open-ended AIFs (the Guidelines) and (ii) its final report on the draft Regulatory Technical Standards on Liquidity Management Tools under the AIFMD and UCITS Directive.
Final Report on Guidelines on LMTs of UCITS and Open-Ended AIFs
On the back of feedback received during the consultation, ESMA made a number of changes to the Guidelines, deleting several sections that were previously included in the CP and amending other sections to provide more flexibility to AIFMs and UCITS ManCos. The Guidelines were also streamlined to avoid any overlaps with the RTS and the text contained in the AIFMD and UCITS Directive. Notable deletions from the Guidelines include:
The guideline on governance principles, which previously stated that fund managers should develop an LMT policy which should document the conditions for the selection, activation and calibration of LMTs, and an LMT plan.
ESMA noted that the majority of stakeholder feedback highlighted that the LMT policy should be kept as an internal guidance document, and on the basis that the AIFMD and UCITS Directive already contain provisions mandating the implementation of policies and procedures for the activation and deactivation of LMTs and operational and administrative arrangements, ESMA deleted the sections of the Guidelines dedicated to the governance principles.
The guideline on disclosure to investors, which mandated managers to provide disclosure to investors on the selection, activation and calibration of LMTs in the fund documentation, rules or instruments of incorporation, prospectus or periodic reports.
ESMA noted that notwithstanding the fact that the majority of stakeholders supported the principle of improving transparency to investors, they stressed the importance to strike the balance between appropriate disclosure, investor protection and unintended consequences. On the back of this, ESMA decided not to retain these sections of the Guidelines, but noted that managers should nonetheless be cognisant of the LMT disclosure obligations set down in the AIFMD and UCITS Directive for example, that a description of the AIF’s liquidity risk management shall be made available to investors by the AIFM.
Certain other restrictive guidelines, including those that imposed more restrictive obligations on the selection, activation and calibration of LMTs, as it was noted that these guidelines limited the sole responsibility of the manager as prescribed by the AIFMD and UCITS Directive.
In contrast, ESMA retained certain guidelines that had previously been pushed back on by stakeholders including the guideline whereby managers should consider, where appropriate, the merit of selecting at least one quantitative LMT and at least one anti-dilution tool. While retaining this guideline, ESMA stressed that it is without prejudice to the ultimate responsibility of the manager for the selection of LMTs, including, where appropriate, redemptions in kind.
In light of the consultation feedback, ESMA noted that it has opted against a restrictive approach in the final Guidelines, instead emphasising the manager’s sole responsibility for selecting and implementing LMTs.
Draft Regulatory Technical Standards on Liquidity Management Tools Under the AIFMD and UCITS Directive
As was the case with ESMA’s final report on the Guidelines, ESMA, on the back of feedback received from stakeholders, made a number of updates to the draft RTS, in particular to make several changes and clarifications with regard to redemption gates, and also to remove the requirement to apply the same rules to all share classes.
Taking into account feedback from stakeholders, ESMA introduced flexibility in the way in which the activation threshold for redemption gates of AIFs can be expressed. The RTS for AIFs now stipulate that the thresholds can be expressed: (i) as a percentage of the net asset value (NAV) of the AIF, (ii) in a monetary value (or a combination of both), or (iii) as a percentage of liquid assets. For UCITS however, ESMA retained the existing language regarding activation thresholds in that they shall only be expressed as a percentage of the NAV of the UCITS. In addition to this, ESMA introduced an alternative method for the application of redemption gates for AIFs and UCITS under which redemption orders below or equal to a pre-determined redemption amount can be fully executed while redemption orders above this amount are subject to the redemption gate. This mechanism, ESMA explained, should serve to avoid small redemption orders being affected by large orders that drive the amount of redemptions above the activation threshold.
In addition, the draft RTS previously included provisions requiring the same level of LMTs to be applied to all share classes, however, given that the mandate of the RTS did not support the development of specific and comprehensive application of LMTs to share classes, these provisions have been removed.
Finally, stakeholder feedback alerted ESMA of the unintended consequences of the rules on redemption in kind for the functioning of the primary market of exchange-traded funds (ETFs). On the back of this, ESMA included a new provision in the UCITS RTS clarifying that the rule on pro-rata approach in the case of redemption in kind did not apply to authorised participants and market makers operating on the primary market of ETFs.
What Comes Next?
In terms of next steps, the final draft RTS have been submitted to the European Commission (the EC) for adoption and the EC have three months (which can be extended by one further month), to make a decision. The Guidelines shall start to apply on the date of entry into force of the RTS. Funds that existed before the entry into force of the RTS shall have 12 months to comply with the Guidelines.
Central Bank Fitness & Probity Consultation and Updates – April 2025
Following the 2024 independent review by Mr Andrea Enria (former Chair of the European Central Bank Supervisory Board) of the Central Bank of Ireland’s Fitness & Probity (F&P) assessment process, the Central Bank has published a report outlining the progress made on implementing Mr. Enria’s 12 recommendations and launched a consultation on proposed revisions it its F&P regime.
Report on Implementation of Recommendations
The report details the actions taken to date by the Central Bank to implement Mr. Enria’s recommendations across the review’s three areas of focus – (1) clarity of supervisory expectations; (2) internal governance of the process; and (3) fairness, efficiency and transparency of the process.
In response to the review’s finding that the Central Bank’s F&P standards were “fragmented across different documents and not user-friendly”, the Central Bank has proposed to update and consolidate the Central Bank’s guidance on the F&P standards into a single document.
The review also highlighted critical areas for improvement within the F&P gatekeeping process, including the need for enhanced seniority and independence in the final decision making stages. To address these gaps, the Central Bank has established a new F&P unit which has ownership of: (i) F&P gatekeeping assessment work with certain key responsibilities such as conducting assessment work across all F&P gatekeeping applications, (ii) approving F&P applications, and (iii) ensuring adherence to established process and progression of decisions in a timely manner. In addition, in cases of potential refusal, the F&P unit will now refer cases to a newly established ‘Gatekeeping Decisions Committee’ which is chaired by the Deputy Governor of Financial regulation within the Central Bank.
It was further noted that the Central Bank could make improvements to ensure that appropriate standards of fairness, efficiency and transparency are consistently achieved. To acknowledge this finding, the Central Bank has published an assessment process document which aims to codify and reflect the principle that regulatory assessments must be conducted with the utmost integrity and to ensure that applications are treated equitably.
Consultation Paper on Amendments to the Fitness and Probity Regime (CP160)
In addition to the report, the Central Bank published a consultation paper (CP160) in order to address the recommendations for increased clarity and transparency of supervisory expectations in relation to the application of the Central Bank’s F&P standards.
As part of this consultation, the Central Bank has sought feedback from stakeholders on the consolidation of and proposed enhancements to its existing guidance on the F&P standards, a draft of which is available on the Central Bank’s website (the Revised Guidance). With this Revised Guidance, the Central Bank aims to ensure industry understanding of the F&P assessment process by: (a) identifying and incorporating objective measures and role summaries for certain pre-approval controlled functions (PCFs); (b) including specific provisions on identifying, managing and mitigating conflicts of interest; (c) clarifying the way in which collective suitability and diversity within board and management teams are assessed; and (d) outlining the approach to be taken in determining the relevance of past events to an individual’s application.
The Central Bank further proposes to undertake a substantive review of PCF roles with a view to ensuring that the level of Central Bank gatekeeping is appropriate however, due to the fact that the list of PCF roles is embedded in the Senior Executive Accountability Regime Regulations, which is in its early stages of introduction, the Central Bank plans to defer this review to 2027. In the meantime however, the Central Bank has proposed to remove the sector specific categorisations so that there will be one list of PCFs applying to all regulated firms (other than Credit Unions).
Submissions to the consultation can be made via [email protected] until 10/07/2025.
Never on Sunday—or on Saturday, Either – SCOTUS Today
Immigration-related cases have recently been highly controversial and much in the news.
Thus, it should be unsurprising that the U.S. Supreme Court was sharply divided in the case of Monsalvo Velázquez v. Bondi, the central issue of which has to do with whether a 60-day deadline for the voluntary departure of a person who had entered the United States unlawfully should be interpreted as referring to consecutive calendar days, or whether the period should be extended when the deadline falls on a weekend or holiday.
Followers of this blog will likely say offhand that there should be nothing controversial about that question. After all, most of my readers are lawyers who file court papers and deal with case filings, the deadlines of which are, by rule, generally and automatically interpreted to allow filings beyond the designated numerical deadline to the first business day following a weekend or holiday. Nevertheless, a question so apparently simple, here in the context of the voluntary departure deadline of 8 U. S. C. §1229c(b)(2), produced a 5–4 decision, with Justice Gorsuch writing for the Chief Justice and Justices Sotomayor, Kagan, and Jackson, with a variety of mix-and-match dissents filed by Justices Thomas, Alito, Kavanaugh, and Barrett.
The case arose when the government initiated removal proceedings against the petitioner, Monsalvo Velázquez, who, after a series of administrative litigation matters had been decided against him and a new 60-day departure deadline imposed, filed a motion to reopen proceedings on the Monday—i.e., the 61st calendar day—following the issuance of the departure order. The statute in question allows for such voluntary departures of individuals “of good moral character.” Velázquez had entered the United States unlawfully two decades before and had apparently led an exemplary family and work life here. In seeking his removal, the government argued primarily that, under the statute, 60 days meant 60 calendar days, a time period that had expired. The government also argued that a challenge to judicial review required an individual to challenge his “removability” from the country, which Velázquez did not do.
The Court first rejected the government’s argument that it lacked jurisdiction to review the petition. The Gorsuch majority was satisfied that the statute’s authorization to review “final orders of removal” and “all questions of law” arising from them was sufficient to allow it to proceed, given Velázquez’s having sought review of what the 60-day provision actually meant. Rejecting the argument of the government and the dissenters, the Court then held that the “evidence suggests a specialized meaning in legal settings where the term ‘days’ is often understood to extend deadlines falling on a weekend or legal holiday to the next business day. When Congress adopts a new law against the backdrop of a ‘longstanding administrative construction,’ the Court generally presumes the new provision works in harmony with what came before.”
Further noting that §1229c(b)(2) follows the government’s own long-standing practice of extending deadlines falling on a weekend or legal holiday to the next business day, the Court also found unconvincing an argument that “day” applied only to regulatory deadlines, and not to statutory deadlines such as the one at issue. Applying a kind of negative textualism—focusing on what the law did not say, rather than what it did—the majority serially disposed of each point raised in dissent, including the idea that a challenge to the statute’s procedural requirement had to be accompanied by a substantive challenge to the petitioner’s “removability.” That is a matter to be addressed on remand of the case.
One recognizes the seriousness of this matter to Velázquez personally, as well as to the government and the public it serves, at a time when immigration matters are at the forefront of political discussion and action. However, one who follows the Court closely cannot resist the guilty pleasure of reviewing what, in essence, is the written record of an informative point-by-point debate among an unusual lineup of justices.
U.S. Federal Court Permanently Enjoins Ohio Social Media Age Verification Law From Taking Effect
On April 16, 2025, the U.S. District Court for the Southern District of Ohio Eastern Division issued a ruling permanently enjoining the Ohio Attorney General from enforcing the Parental Notification by Social Media Operators Act, Ohio Rev. Code § 1349.09(B)(1) (the “Act”). The decision follows a preliminary injunction issued in February 2024 by the same court.
The Act was signed into law in July 2023, and was set to take effect on January 15, 2024. The Act would have required social media platforms to verify whether users are at least 16 years old and obtain parental consent before allowing children under 16 to create an account on their platforms. The court held that the Act implicated the First Amendment because it restricted children’s ability to engage in and access speech, and that the Act’s application to certain websites but not others amounted to a content-based restriction because it favored certain forms of engagement with speech over others. In its ruling, the court stated that the Act “resides at the intersection of two unquestionable rights: the rights of children to ‘a significant measure of’ freedom of speech and expression under the First Amendment, and the rights of parents to direct the upbringing of their children free from unnecessary governmental intrusion.” The court held that the government did not satisfy the satisfy the First Amendment’s strict scrutiny standard, which is applied to content-based restrictions. “Generally, First Amendment protections ‘are no less applicable when government seeks to control the flow of information to minors,’” the court said.
The ruling is the latest in a string of lawsuits brought by NetChoice, a tech industry trade association, against similar state laws. It also represents the second permanent injunction NetChoice has secured, following a recent permanent injunction blocking a similar law in Arkansas.
Employment Law This Week Episode – Non-Competes Eased, Anti-DEI Rule Blocked, Contractor Rule in Limbo [Video, Podcast]
This week, we’re covering the relaxation of state-level non-compete rules, the recent block of Executive Order 14173’s diversity, equity, and inclusion (DEI)-related certification requirement, and a federal appeals court’s decision to pause a challenge to the Biden-era independent contractor rule.
Non-Competes Eased in Kansas and Virginia
Kansas has enacted a law permitting non-competes while setting requirements for non-solicit provisions. Additionally, effective July 1, 2025, Virginia will prohibit non-compete agreements for non-exempt employees.
Federal Contractor DEI Rule Blocked
In a lawsuit brought by Chicago Women in Trades, a federal judge paused a rule from Executive Order 14173 requiring federal contractors to certify that they don’t operate DEI programs that violate anti-discrimination laws, citing unclear definitions of “illegal” DEI programs.
Independent Contractor Rule in Limbo
The U.S. Court of Appeals for the Fifth Circuit paused a challenge to the 2024 independent contractor rule, allowing the U.S. Department of Labor time to consider revising or replacing it. For now, the Biden-era rule remains in effect.
The Lobby Shop: Reconciliation Reckoning [Podcast]
The Lobby Shop team turns their focus on the ongoing budget reconciliation process in Congress that will shape the Trump administration’s economic agenda. Hosts Josh Zive, Paul Nathanson and Liam Donovan provide a quick update on the latest tariff developments before diving into the reconciliation process and the shifting legislative dynamics between the House and the Senate. Then, Liam does a deep dive on how economic pressures are reshaping political strategy, and what it all means for government funding timelines and the looming debt ceiling. Tune in for a Liam-style breakdown of the often confusing reconciliation process in the next couple of weeks.
What Every Multinational Company Should Know About … Tips and Tricks for Sell-Side Contracts
Assessing Tariff Impacts in Commercial Contracts
With the size and scope of President Trump’s tariffs continuing to shift, this is a critical time for businesses to assess their contracts and determine how increased tariff costs might adversely affect profitability, and whether there are any strategies to mitigate the losses.
Contract Review for Tariff Provisions
Tariffs typically affect profitability in two primary ways:
Increased costs of material or component inputs due to the tariffs, and
Tariffs applied to the final sale price of imported or exported goods.
As indicated below, force majeure and commercial impracticability provisions are blunt instruments, meaning the allocation of tariff-related costs is best addressed in the pricing provisions of commercial contracts. When drafting these provisions, consider the following:
Price Adjustments: Inclusion of a mechanism allowing for equitable price increases in response to rising costs associated with taxes, duties, tariffs, or other expenses resulting from changes in law, regulations, or other agreed-upon reasons can be beneficial to the seller. These types of pricing provisions can mitigate financial strain from tariff hikes.
Tariff Allocation: Tariffs are always paid directly to U.S. Customs by the importer of record, which must be a single party. But Customs does not care if parties reallocate tariff responsibility behind the scenes. Pricing provisions thus can specify how tariff costs are allocated between parties for foreign goods imported into the United States and for goods exported to foreign countries. This allocation can be drafted via express provisions on the topic or through careful use of Incoterms to set forth delivery responsibility. Clarity regarding (a) which party is responsible for paying any tariffs to the applicable government agency; (b) whether the seller, the buyer, or both share responsibility for tariff payments; and (c) what the reimbursement mechanism will be, if any, is essential for cost planning and risk mitigation.
In cases where pricing provisions do not provide adequate protection against tariff-related costs, other contractual clauses should be reviewed. For example:
Termination Rights: Termination provisions may offer an exit strategy if continued performance becomes economically unsustainable. Particular attention should be given to whether termination for convenience is permitted and, if so, what notice requirements apply.
Purchase Order Acceptance/Rejection: Contracts may provide flexibility regarding the acceptance or rejection of purchase orders. In the absence of a fixed quantity commitment or a requirements/output agreement, a seller may be able to reject orders and thereby decline to supply products.
Common Misconceptions Regarding Tariff Relief
Force Majeure/Commercial Impracticability: A frequent misconception is that a force majeure clause or the doctrine of commercial impracticability may apply to excuse performance due to increased tariff costs. While these doctrines are sometimes used strategically to initiate discussions around contract renegotiation, courts often view cost increases as foreseeable business risks that cannot support invoking force majeure or commercial impracticability defenses (unless the cost increase, such as a heightened tariff, is expressly identified as a force majeure event that excuses performance).
Tax Allocation Provision: Another common misconception is that a tax provision, providing the buyer pays all taxes, will permit a U.S. seller to pass along the tariffs on its inputs to a U.S. buyer. Typically, tax provisions are drafted to allocate responsibility for taxes levied on the transaction between the buyer and seller and do not contemplate taxes/tariffs levied on the upstream inputs.
Recommended Next Steps
This is an area of law where sophisticated counsel can help identify your working options under current contracts and maximize your company’s ability to take proactive steps to manage future tariff-related risks. Managing the effects of tariffs, or other unexpected governmental actions, requires a tailored approach based on each company’s contractual leverage and commercial relationships. A thorough contract review, coupled with proactive communication with business partners, can provide a solid foundation for addressing tariff challenges.
Amendment to Virginia Law Prohibits Noncompetes Against Nonexempt Employees
Beginning July 1, 2025, Virginia will provide even more protection to workers against the enforcement of noncompete agreements. Since 2020, Virginia law has prohibited employers from entering into, enforcing, or threatening to enforce a covenant not to compete against a “low-wage employee” (currently any employee earning less than $76,081 per year). However, an amendment to the existing law expands the definition of “low-wage employee” to also include any worker who is classified as nonexempt under the Fair Labor Standards Act (FLSA).
Quick Hits
On March 24, 2025, Virginia Governor Glenn Youngkin signed SB128 into law, which significantly expands the existing scope of protection to low-wage employees against the enforcement of noncompete agreements.
Starting on July 1, 2025, covenants not to compete will be prohibited against any employee who qualifies as a “low-wage employee,” meaning any employee who (i) earns less than the average weekly wage in Virginia (currently $1,463.10 weekly or $76,081 annually) or (ii) is entitled to overtime compensation under the FLSA.
Employers that enter into, enforce, or threaten to enforce a covenant not to compete against a low-wage employee could be subject to injunctive relief, the payment of damages (including liquidated damages), attorneys’ fees, costs, and a civil penalty of $10,000 per violation.
Covenants not to compete that were entered into (or renewed) before July 1, 2025, are not affected by the changes in the law.
Summary of Virginia’s Amended Noncompete Law
Virginia’s decision to ban noncompete agreements against low-wage employees is not entirely new. As we previously reported, Virginia enacted a law in 2020 that prohibits covenants not to compete against “low-wage employees.” Until recently, the term “low-wage employee” had been defined as an employee whose average weekly earnings are less than the average weekly wage in Virginia. In 2020, the salary threshold for a “low-wage employee” was approximately $62,000 per year. By 2025, that amount had increased to $76,081 per year.
In an effort to expand the protection available to Virginia employees, the amended law still prohibits noncompetes against any employee who falls below the salary threshold, but also includes any employee “who, regardless of his average weekly earnings, is entitled to overtime compensation under the provisions of 29 U.S.C. § 207 for any hours worked in excess of 40 hours in any one workweek.” In other words, starting July 1, 2025, employers can no longer enter into or attempt to enforce noncompete agreements with employees classified as nonexempt under the FLSA.
Fortunately for employers, the amendment does not invalidate or otherwise affect covenants not to compete that were entered into (or renewed) prior to July 1, 2025. As such, employers have a narrow window of time to consider entering into noncompete agreements with nonexempt workers, provided those workers earn more than $1,463.10 weekly or $76,081 annually. Furthermore, the new law allows for the continued use of nondisclosure agreements if they are designed to “prohibit the taking, misappropriating, threatening to misappropriate, or sharing of certain information to which an employee has access, including trade secrets” and confidential or proprietary information.
Key Takeaways
Starting July 1, 2025, Virginia employers cannot enter into or attempt to enforce a covenant not to compete with any workers who are (or should be) classified as nonexempt under the FLSA. Thus, the amended law will offer protection to a significantly larger population of employees than in the past.
Employers may want to consider entering into noncompete agreements now, as the amended law does not apply to covenants not to compete entered into before July 1, 2025, provided that the employee earns more than the average weekly wage in Virginia.
Employers that neglect to carefully evaluate employees’ exempt versus nonexempt status under the FLSA for any agreements entered into after July 1, 2025, could face stiff penalties of $10,000 per violation and potential civil actions from employees.
The Latest OFSI Property and Related Services Threat Assessment
The United Kingdom’s Office of Financial Sanctions Implementation (OFSI) has published a report detailing suspected breaches of UK financial sanctions involving UK property and related services firms since February 2022 and ongoing threats to sanctions compliance (the Assessment).
Why Did OFSI Focus on Property and Related Services?
Under the United Kingdom’s financial sanctions regime, property is an “economic resource”. Individuals and entities designated by OFSI (DPs) are prohibited from using UK financial services to execute property transactions and may also be subject to asset freezes, which include economic resources such as property.
Property and related services firms captured in the Assessment include UK firms and sole practitioners involved in the sale, maintenance or upkeep of properties. OFSI’s Assessment is a broad cross-sector assessment that considers a range of actors including: estate agents; letting agents; landlords; tenants; property managers; property investors; property developers; UK firms dealing with overseas properties; and overseas firms dealing with UK customers.
OFSI confirmed that almost half of suspected breaches related to UK residential property owned or let by DPs. The remainder of suspected breaches were linked to UK commercial properties, investments into UK properties, the use of UK property firms by DPs to facilitate overseas business interests and client relationships, and the renewal or continuation of property-related contracts (including insurance) on behalf of or for the benefit of DPs.
OFSI’s Key Findings
The Assessment sets out five key findings relevant to UK property and related services firms from February 2022 to present.
Underreporting of Breaches
OFSI found it was almost certain that UK property and related services firms have underreported suspected breaches of financial sanctions to OFSI. OFSI also observed significant delays in the identification and reporting of suspected breaches.
Noncompliance With Licence Conditions
OFSI stated it was almost certain that DPs have breached UK financial sanctions by making or facilitating transactions for the benefit of their UK properties without or outside the scope of an OFSI licence or applicable exception (further information on OFSI licencing can be found here).
OFSI found that the vast majority of suspected breaches of licence conditions related to payments made by DPs or connected entities for the maintenance of UK properties.
Russian DPs and Their Enablers
OFSI identified the use of professional and nonprofessional “enablers” who assist DPs in concealing their beneficial ownership or control of UK properties.
OFSI reports it was highly likely that property-related breaches of sanctions have been enabled by UK property firms facilitating the payment of household staff payments, council tax, utility bills, property maintenance services, letting services and more, without an applicable licence. This is particularly the case for small-scale property or related services firms or sole practitioners with high-risk appetites and longstanding relationships with DPs.
Family and Associates
OFSI found it was highly likely that DPs have used nonprofessional enablers, such as family and close associates, to frustrate UK financial sanctions by transferring ownership or control of property assets to family/associates to disguise beneficial ownership. Key giveaways are the use of family members of associates of DPs making payments for services relating to properties owned or controlled by a DP, e.g., through direct debits to settle insurance contracts, or for the maintenance of a property, or to pay for a subscription service at an address linked to a property.
OFSI encourages all UK firms to report any suspicious changes to the ownership or control of property assets linked to a Russian DP, particularly when properties are considered super prime properties, i.e., at the top 5% end of the property market.
Professional Enablers
OFSI considered it was almost certain that UK property and related services firms have acted as professional enablers for DPs, thereby facilitating sanctions breaches. Since February 2022, most professional enabler activity includes concierge and personal security services, other property-management services, or lifestyle-management services. Without a relevant OFSI licence, these payments could breach UK financial sanctions.
OFSI recommends staying alert to changes in ownership or control of a DP’s property asset, particularly if it has been recently divested to a percentage below 50% to bypass the basic due diligence checks.
Intermediary Jurisdictions
The Assessment also encouraged vigilance when “red flags” arise in conjunction with an intermediary jurisdiction nexus (i.e., a jurisdiction other than the United Kingdom or the jurisdiction to which UK financial sanctions apply). The Assessment found that Russian DPs structured their financial interests through a number of intermediary jurisdictions, some of which offer greater privacy in legal and financial systems. OFSI reported that since 2022, 22% of suspected breaches involved actors in intermediary jurisdictions including: Austria, Azerbaijan, the British Virgin Islands, the Republic of Cyprus, Jersey, Guernsey, Luxembourg, Switzerland, Türkiye, the United Arab Emirates and the United States.
Reporting
Property and related services are obliged to make Suspicious Activity Reports (SARs) to the National Crime Agency under Part 7 of the Proceeds of Crime Act 2002 and the Terrorism Act 2000 if money laundering or terrorist financing activities are known or suspected. Guidance on SARs is available here.
As of 14 May 2025, letting firms will join estate agents and other relevant firms in being required to report to OFSI if they know or have reasonable cause to suspect that a person is a DP or if a person has breached financial sanctions regulations, if the information or other matter on which the knowledge or cause for suspicion is based came to it in the course of carrying on its business. This applies regardless of the rental value of properties handled by letting agents and includes all forms of tenancies.
Practical Steps
To ensure compliance with your reporting obligations, the following practical steps are advised:
Monitor and identify any red flags as indicated in the Assessment.
Update client due diligence beyond basic ID checks to check beneficial owners and connected parties.
Remind yourself of your specific reporting obligations under the Sanctions and Anti-Money Laundering Act 2018 by reading the guidance published by His Majesty’s Revenue and Customs.
Complete a tailored risk assessment incorporating the above findings.
Identify and comply with any applicable licence requirements.
Conclusion
OFSI’s Assessment builds on previous and related publications issued by OFSI and UK government partners, including the Financial Services Threat Assessment published by OFSI in February 2025 (see our corresponding alert here) and the Legal Services Threat Assessment published by OFSI in April 2025 (see our corresponding alert here).
CSRD’s ESRS Draft Work Plan Faces Rejection At Latest EFRAG Meeting
On 15 April 2025, the sustainability reporting board (“SRB”) of the European Financial Reporting Advisory Group (“EFRAG”) failed to agree to an internal timeline for delivering advice to the European Commission on the simplification of the European Sustainability Reporting Standards (“ESRS”), which is at the centre of the Corporate Sustainability Reporting Directive’s requirements.
To align with the current European Commission schedule for streamlining the corporate sustainability requirements, EFRAG was expected to deliver their work plan and internal timeline by 15 April, including a public consultation and with an end goal to provide final technical advice to the European Commission by 31 October. However, these already ambitious timelines may now be additionally squeezed.
Ten of the twenty‑five SRB members voted against the work plan which failed the qualified majority that was required for approval.
Several issues arose during the SRB meeting on the work plan, including:
The need for a more detailed and approved implementation strategy, not only a work plan.
The work plan was considered by some SRB members to require more detail and more sufficient assurance that the work plan would lead to a successful process and outcome.
There was no consensus regarding the plans for public consultation. The document indicated that EFRAG would conduct a 30‑40 day consultation “and/or” two weeks of around ten “structured public feedback outreach events”. Several SRB members emphasized that public consultation is an absolute requirement and should not be considered optional.
The tight deadlines for streamlining the ESRS were considered unrealistic by some.
The European Commission noted that they were aware of the outcome from the meeting, but the next steps from EFRAG are yet to be determined.
Sixth Circuit Upholds Pay Differential in Equal Pay Act Case: Budget Constraints and Market Forces at Play
The U.S. Court of Appeals for the Sixth Circuit recently upheld a jury verdict against a school psychologist who alleged she was paid less than a male colleague in violation of the Equal Pay Act. Notably, the court found that budget constraints and the market forces of supply and demand each provided an independent basis to uphold the jury’s verdict.
Quick Hits
The Sixth Circuit upheld a jury verdict against a school psychologist who alleged Equal Pay Act violations after she was offered a lower salary than the salary paid to a male psychologist two years earlier.
The court upheld the jury verdict, determining that a reasonable juror could conclude, based on the evidence of budget constraints and market forces, that the pay differential was based on a legitimate business reason other than sex.
The case highlights the fine line between legitimate business reasons and discriminatory practices in setting new hire compensation.
On April 2, 2025, a Sixth Circuit panel issued a decision in Debity v. Monroe County Board of Education. The court upheld a magistrate judge’s decision to deny a female school psychologist’s motion for a judgment as a matter of law as to whether the board successfully established its affirmative defense that the pay differential was based on a reason other than sex. The Sixth Circuit further affirmed a magistrate judge’s decision to throw out the jury’s $195,000 damages award for the plaintiff as it was inconsistent with the jury’s finding on liability.
Much of the Sixth Circuit’s decision focused on whether the magistrate judge had properly handled an inconsistent jury verdict in which the appellate court agreed with the magistrate judge’s ultimate conclusion to throw out the damages award.
But the Sixth Circuit additionally found that “a reasonable juror could find that the Board offered” the female school psychologist “a lower salary … for a reason other than sex,” providing an example of how, in some circumstances, budget constraints and market pressures can appropriately influence compensation decisions.
Background
Marina Debity applied for a school psychologist position with Monroe County schools in Tennessee after completing an internship with the district. She alleged she was offered a lower salary than the salary paid to a male psychologist hired two years earlier, who negotiated for his pay. She alleged that when she requested equal pay, the county board of education withdrew her job offer. Debity then brought claims for sex discrimination and retaliation in violation of the Equal Pay Act (EPA), Title VII of the Civil Rights Act of 1964, and the Tennessee Human Rights Act.
Supply and Demand
The Sixth Circuit upheld the jury’s determination that market forces of supply and demand could constitute a legitimate, non-sex-based reason for the pay disparity, an affirmative defense under the EPA. The court’s analysis focused on the testimony of a school district administrator, who testified that when the school hired the previous male school psychologist in 2019, the board was in a “desperate” situation where one of the district’s four psychologists was retiring and another was moving to part-time. This urgency, combined with the lack of applicants, led the board to offer a higher salary. In contrast, Ferguson testified that when Debity applied in 2021, the school already had four full-time psychologists and had not previously employed five.
“It would be reasonable for a juror to conclude that Monroe County had a low demand for psychologists in 2021 with the same supply, one person, to fill the opening,” the Sixth Circuit said. “Therefore, a reasonable juror could believe that market forces of supply and demand caused Debity’s lower offer, not her sex.”
While the Sixth Circuit noted employers “may not use supply and demand as an excuse to discriminate generally by sex just because there are more people from a certain sex applying for a given job,” the school district administrator’s testimony showed there was not this type of “generalized discrimination.” The court said the question of whether Ferguson would have treated a woman applying in 2019 the same as the male psychologist, who was offered more money, was a matter for the jury.
Budget Constraints
The Sixth Circuit further said that an employer’s desire for cost savings can be a legitimate business justification for a pay differential. The school administrator’s testimony showed that the board was “genuinely concerned about the budget.” According to the decision, the administrator “testified that he tried to find enough room in the budget to hire Debity … but could not” because it was a higher priority to hire a full-time teacher at the elementary school.
The court rejected Debity’s arguments that the board could have shifted unused funds from elsewhere, stating that it is not the court’s role to second-guess the board’s budget decisions. “It is irrelevant whether the Board’s budgeting decision was wise or even based on a correct understanding of the facts,” the Sixth Circuit said. “The EPA does not outlaw incompetence—it prohibits discrimination by sex.”
Next Steps
The Debity case highlights the fine line between legitimate business reasons and discriminatory practices in setting new hire compensation. Budget constraints and market forces may, in some situations, be legitimate, nondiscriminatory business reasons that justify certain pay disparities between males and females. In the Debity case, the Sixth Circuit focused on testimony about the low supply of applicants and the immediate need to hire a school psychologist when it hired the male psychologist two years earlier as evidence as to why the male comparator was offered higher pay.
While the Debity decision is a favorable one for employers, employers facing similar market forces and budget limitations when making compensation decisions may still wish to proceed with caution. Employers may want to avoid overreliance on budget constraints and market pressures as vague, general justifications for compensation decisions. Instead, if a pay differential is necessary, despite the employer’s efforts to avoid one, employers may want to keep detailed records of budgetary decisions and the specific circumstances at play.