US Provides Broad Sanctions Relief to Syria
On 23 May 2025, the United States provided broad sanctions relief to Syria and the new Government of Syria under President Ahmed al-Sharaa. While speaking at an investment forum in Riyadh, President Trump announced his intentions to lift sanctions on Syria, stating that sanctions relief will “give them a chance at greatness.”
To that end, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) issued General License (GL) 25, authorizing transactions prohibited by the Syrian Sanctions Regulations (SySR), as well as transactions prohibited under certain other statutes and executive orders. Alongside GL 25, the US Department of State issued a 180-day waiver of mandatory “Caesar Act” sanctions to permit certain investments in Syria and the Financial Crimes Enforcement Network permitted US banks to maintain correspondent accounts for the Commercial Bank of Syria.
Between 2004 and 2011, the United States imposed increasingly comprehensive sanctions on Syria, prohibiting most US investment in Syria, the export of goods and services to Syria, dealings in Syrian petroleum, and transactions involving Syrian blocked parties, including “secondary sanctions” for significant dealings with the blocked Government of Syria.
Under GL 25, US persons are authorized to engage in many transactions prohibited under the SySR, including:
Transactions with 28 Syrian parties on the Specially Designated Nationals and Blocked Persons List (SDN List), including certain financial institutions, ports, oil and gas companies, airlines, and ministries. These parties are named in the Annex to GL 25. Authorization to deal with these named parties extends to the blocked entities they own at least 50% or more (collectively “Annex Parties”).
Certain transactions in Syria, provided they do not involve blocked parties that are not Annex Parties, including: new investment in Syria, the export of services to Syria, US importation and other dealings in Syrian petroleum, dealings in the property and property interests of Annex Parties, and payment transfers involving such authorized activities.
It is important to note that GL 25 does not authorize:
Transactions involving blocked parties not specifically authorized under GL 25.
Unblocking any property blocked as of 22 May 2025.
Exports, reexports, and transfers to or within Syria that require authorization under the Export Administration Regulations or International Traffic in Arms Regulations. Accordingly, the export, reexport, or transfer of defense articles and dual-use items, software, and technology remain prohibited unless authorized.
Transactions involving the Governments of Russia, Iran, or North Korea.
Sanctions relief under GL 25 became effective on 23 May 2025 and is not subject to an expiration date. OFAC can revoke GL 25 at any time or replace it with a “GL 25A” requiring the “wind down” of existing transactions by a certain date. The Treasury Department has signaled that additional sanctions relief may be forthcoming, referring to GL 25 as a “first step.”
EU Lifts Key Sanctions on Syria: Legal and Compliance Implications Amid Evolving Opportunities
Earlier this week, the Council of the EU adopted a series of legal instruments giving effect to what had been agreed on 20 May 2025, to significantly reduce sanctions on the Syrian Arab Republic. As a result, all EU economic restrictive measures targeting Syria have been lifted, except for those maintained on specific security-related grounds. This marks a substantial shift in the EU’s sanctions posture, intended to facilitate renewed economic engagement, support post-war reconstruction and encourage institutional re-integration, while preserving targeted measures where legal and strategic considerations continue to apply.
As part of this move, 24 entities have been removed from the EU’s list of designated persons and entities subject to asset freezes (vid. Annex II, EU Regulation Nº36/2012). These include financial institutions such as the Central Bank of Syria and commercial actors operating in strategic sectors for the country’s recovery, such as oil production and refining, cotton, telecommunications and media. The council characterises this lifting of sanctions as a principled response to a moment of historic transition, and a reaffirmation of the EU’s longstanding partnership with the Syrian people.
Read the full insight here.
Court Strikes Down Fentanyl and Reciprocal Tariffs, but Appeals Court Temporarily Stays Impact
Key Takeaways
The U.S. Court of International Trade struck down President Trump’s fentanyl and reciprocal tariffs imposed under the International Emergency Economic Powers Act of 1977 (IEEPA), ruling the statute did not authorize such broad actions.
The court’s order halts future tariff collection, requires refunds of duties collected since February 2025, and has nationwide impact across all U.S. importers and ports.
The government has appealed the decision and requested a stay of the court’s order, which the Federal Circuit granted. This temporary stay pauses the unwinding of the tariffs, resulting in continued tariff collection in the interim and delayed refunds to importers.
The ruling is limited to IEEPA-based tariffs and does not affect existing or future tariffs imposed under Section 232 or Section 301 authorities.
On May 28, 2025, the U.S. Court of International Trade (USCIT) struck down the earliest and broadest of President Trump’s second term tariff actions: the tariffs imposed against Canada, Mexico and China starting in February and March (the fentanyl tariffs) and the tariffs imposed against nearly all other countries in early April (the reciprocal tariffs). These actions, together as subsequently modified, subjected most U.S. imports to additional import duties of between 10% and 25%. The court’s order wipes those executive tariff impositions off the table, eliminating prior and prospective collection, including the planned increase of the 10% reciprocal tariffs later this summer. If the opinion and order stand, all fentanyl and reciprocal duties collected since February 2025 will be refunded. The court’s order does not impact tariffs imposed under other tariff authorities like Section 232 or Section 301.
The court’s opinion, issued on May 28, impacts multiple tariff executive orders issued by the President invoking the IEEPA. The court specifically found that that statute did not authorize the President “to impose unlimited tariffs on goods from nearly every country in the world.”
On February 1, President Trump first invoked IEEPA to announce tariffs imposed on U.S. imports from Canada, China and Mexico intended to address the flow of fentanyl and its precursors from those countries crossing the U.S. border; the actions against Canada and Mexico were also intended to address migration flows from those two countries. The tariffs, set to take effect on February 4, were ultimately deferred with regard to Canada and Mexico until early March. Since that time, these tariffs have been revised on several occasions, for example, exempting U.S. imports eligible for preferential treatment under the U.S.-Mexico-Canada Agreement (USMCA) from the fentanyl tariffs.
Later, on April 2, President Trump announced 10% tariffs on the vast majority of imports from the vast majority of countries, effective April 5; these tariffs were intended to rebalance U.S. trade flows and achieve “reciprocal” trading treatment. For certain countries, those 10% tariffs briefly increased to higher country-specific rates at 12:01 am ET on April 9, 2025. That same date, however, President Trump paused the increase in reciprocal duty tariff rates for those countries with enhanced rates above 10% for all countries other thanChina, with the higher rates deferred for 90 days (to July 8, 2025). With regard to shipments from China, President Trump announced escalating tariff rates peaking at 125%. The 125% tariffs were subsequently temporarily decreased to 10%, effective May 16, 2025, following productive negotiations between the U.S. and China; higher rates previously in effect are expected to be reimposed effective August 12.
The court’s action from May 28 eliminates the entire IEEPA tariff framework, ordering U.S. Customs and Border Protection to refund the fentanyl and reciprocal tariffs collected and cease collection of new duties. This order has national effect, thereby impacting across all U.S. importers and ports.
Although the court invalidates the tariffs and orders that the tariffs be unwound within 10 calendar days of its opinion’s issuance, the government has already appealed the court’s ruling to the U.S. Court of Appeals for the Federal Circuit and has sought a stay of the court’s order pending resolution of the appeal, which the Federal Circuit granted. This temporary stay pauses the unwinding of the tariffs, resulting in continued tariff collection in the interim and delayed refunds to importers. Whichever party prevails on appeal before the Federal Circuit will have an opportunity to seek further review by the U.S. Supreme Court.
The USCIT’s judgment is limited to the IEEPA-based tariff regimes and does not impact tariffs imposed under other legal mechanisms, for example, tariffs imposed to date or potentially imposed in the future on certain sectors under national security investigations conducted under Section 232 of the Trade Expansion Act of 1962 (such as on steel, aluminum or autos) or under Section 301 of the Trade Act of 1974 (as imposed by President Trump during his first term against certain imports from China and expanded during the Biden Administration). This opinion also does not impact future potential Section 232 actions, such as those that may be taken for pharmaceuticals, critical minerals, semiconductors and heavy trucks following the outcome of those investigations.
Foley Automotive Update- May 29, 2025
Trump Administration Trade and Tariff Policies
Foley & Lardner provided an overview for multinational companies regarding the most common False Claims Act risks that may arise from improper management of import operations.
A May 28 ruling from the U.S. Court of International Trade suspended a significant portion of the Trump administration’s tariffs, after the panel determined the executive branch had wrongfully invoked an emergency law to justify the levies. The Trump administration has requested a stay and appealed the ruling.
The Department of Commerce on May 20 issued the “procedures for submission of documentation related to automobile tariffs,” for automobile importers to comply with the process of identifying the amount of U.S. content in each model imported into the United States. The agency stated there were roughly 200 repeat importers of subject automobiles in 2024. The notice indicated there are 13 OEMs with automobile operations in Canada and Mexico, with production spanning 54 vehicle model lines.
The Commerce Department on May 20 announced preliminary determinations that active anode material produced in China is unfairly subsidized by the Chinese government, which could lead to anti-subsidy duties on imports. The agency expects to issue final determinations in countervailing duty (CVD) investigations later this year. Active anode material is a key component in lithium-ion batteries.
China began issuing a limited number of export licenses for certain rare earth magnets, following weeks of uncertainty after the nation imposed trade restrictions over certain rare earth minerals and magnets in early April. The magnets are essential for a range of auto components.
Section 232 tariffs will not help the United States diversify its sources of critical minerals and reduce its reliance on China, according to a recent letter from the National Association of Manufacturers to the Commerce Department. The NAM suggested policymakers should instead pursue permitting reforms, secure favorable trade and investment terms with international allies, and enact strategic incentives to enhance domestic production. China mines roughly 70% of the world’s rare earths, and the nation has a 90% share for the processing of rare earths mined worldwide.
President Trump on May 25 stated the U.S. will delay implementation of a 50% tariff on goods from the European Union from June 1 until July 9, 2025.
Automotive Key Developments
In a May 29 Society of Automotive Analysts Coffee Break webinar, Ann Marie Uetz of Foley & Lardner and Steven Wybo of Riveron provided an overview of the mounting risk of EV programs and the resulting key takeaways for automotive suppliers.
Crain’s Detroit provided an update regarding the status of several ongoing legal disputes between Stellantis and certain suppliers.
MEMA survey data found three-quarters of automotive suppliers expect worse financial performances in 2025 than previously anticipated. In addition, more than half of the trade group’s members are concerned about sub-tier supplier financial distress resulting from higher tariff-related costs, as well as the potential for North American production volumes to fall as low as 13.9 million to 14.3 million this year.
U.S. new light-vehicles sales are projected to reach a SAAR of 15.6 million units in May, according to a joint forecast from J.D. Power and GlobalData. The analysis estimates “approximately 149,000 extra vehicles were sold” in March and April ahead of the expectation for higher prices due to tariffs, and the “re-timed sales will present a headwind to the industry sales pace for the balance of this year.”
The National Highway Traffic Safety Administration submitted its interpretive rule, “Resetting the Corporate Average Fuel Economy Program,” to the White House for review. The Environmental Protection Agency is pursuing parallel vehicle emissions rules.
The U.S. Senate on May 22 approved three House-passed Congressional Review Act resolutions to revoke EPA-granted waivers that allowed California to impose vehicle emissions standards that were stricter than federal regulations.
The “big, beautiful” tax and budget bill passed by the U.S. House on May 22 would terminate several tax credits for EVs after December 31, 2025, including commercial EVs under Section 45W, consumer credits of up to $7,500 for new EVs under Section 30D and up to $4,000 in consumer credits for used EVs under Section 25E, as well as a credit for charging infrastructure under Section 30C. The bill also included a measure to establish annual registration fees of $250 for electric vehicles and $100 for hybrid vehicles to supplement the Highway Trust Fund.
Companies that collect and store personal data will soon have to comply with a Department of Justice rule that restricts sharing bulk sensitive personal data with persons from China, Russia, Iran, and other countries identified as foreign adversaries. The Data Security Program implemented by the National Security Division (NSD) under Executive Order 14117 took effect April 8, 2025. However, the DOJ will not prioritize enforcement actions between April 8 and July 8, 2025 if a company is “engaging in good faith efforts” towards compliance.
While President Trump expressed approval for a “planned partnership” between Nippon Steel and U.S. Steel, questions remain about the timeline for the proposed $14 billion merger first announced in December 2023. The deal may involve a so-called “golden share,” allowing the U.S. federal government to weigh in on certain company decisions, according to unconfirmed reports.
The University of Michigan predicted U.S. vehicle prices could rise 13.2% on average, or by $6,200 per vehicle, due to tariffs and retaliatory trade policies.
OEMs/Suppliers
Plante Moran’s annual North American Automotive OEM – Supplier Working Relations Index® (WRI®) Study found supplier relationships improved with Toyota, Honda and GM, and declined with Nissan, Ford and Stellantis compared to last year’s study. Toyota gained 18 points for its highest WRI score since 2007, while Stellantis dropped 11 points and remains in last place.
Stellantis named Antonio Filosa as CEO, effective June 23. Filosa currently serves as chief operating officer for the Americas and chief quality officer.
GM will invest $888 million to produce next-generation V-8 engines at its Tonawanda Propulsion plant near Buffalo, NY, representing the largest single investment the automaker has ever made in an engine plant. The automaker canceled a $300 million investment to retool the plant to manufacture EV drive units.
Toyota will revise its supply chain process to provide 52-week forecasts using cloud-based forecasting tools.
Bosch has a goal for North America to represent 20% of its global sales by 2030.
Toyota is reported to be considering a compact pickup truck for the U.S. market to compete with the Ford Maverick and Hyundai Santa Cruz.
Market Trends and Regulatory
Ford will recall over one million vehicles in the U.S. due to a software error that may cause the rearview camera image to delay, freeze, or not display.
Installations of industrial robots in the automotive industry in 2024 rose 11% year-over-year to 13,700 units, and roughly 40% of all new industrial robot installations in 2024 were in automotive, according to preliminary analysis from the International Federation of Robotics. Deployments of automation technologies and robotics are expected to increase at U.S. factories in response to high tariffs and trade uncertainty.
Seventy-six percent of respondents in Kerrigan Advisors’ 2025 OEM Survey believe Chinese carmakers eventually will enter the U.S. market, and 70% are concerned about the impact of Chinese brands’ rising global market share.
New orders for heavy-duty trucks in North America fell 48% year-over-year in April to levels not seen since the onset of the Covid pandemic, according to ACT Research.
Autonomous Technologies and Vehicle Software
The Wall Street Journal provided an exclusive report on allegations that now-defunct San Diego-headquartered autonomous truck developer TuSimple shared sensitive data with various partners in China. The former CEO of TuSimple recently founded Houston-based self-driving truck developer Bot Auto.
Amazon’s Zoox plans to expand testing of its autonomous driving technology in Atlanta. Waymo offers driverless rides in Atlanta in partnership with Uber, and Lyft plans to roll out ride-hail services in the area with May Mobility later this year.
Reuters reports a project between Stellantis and Amazon to develop SmartCockpit in-car software is “winding down” without achieving its goals.
The New York Times provided an assessment of the regulatory and market risks that may complicate the rollout of driverless semi trucks in the U.S.
Swedish driverless truck startup Einride is considering a U.S. IPO.
Electric Vehicles and Low-Emissions Technology
Honda reduced its planned all-electric vehicle investments by over $20 billion as part of an electrification strategy realignment that will target 2.2 million hybrid-electric vehicle (HEV) sales by 2030.
Stellantis will delay production of its 2026 base-model electric Dodge Charger Daytona at its plant in Ontario due to uncertainty over market demand and the impact of tariffs.
Cox Automotive estimated inventory levels for new EVs reached a 99 days’ supply industrywide in April 2025, representing a YOY decline of 20% due to efforts by automakers to adjust production in response to consumer demand. The average transaction price (ATP) for a new EV was $59,255 in April, up 3.7% compared to April 2024.
Nissan is considering a deal to procure EV batteries in the U.S. from a joint venture between Ford and South Korea’s SK On, according to unnamed sources in Bloomberg and The Wall Street Journal.
Chinese EV maker BYD plans to establish a European hub in Hungary, with 2,000 jobs to support vehicle sales, after-sales service, testing and development.
Federal Court Strikes Down IEEPA Tariffs
On May 28, 2025, a three-judge panel of the U.S. Court of International Trade (CIT) unanimously struck down the extensive tariffs imposed by President Trump under the International Emergency Economic Powers Act (IEEPA). The CIT held that the imposition of the tariffs exceeded the authority granted to the President by Congress under IEEPA. The Court issued a permanent injunction blocking the administration from enforcing the IEEPA tariffs, and ordered the administration to issue the necessary administrative orders within 10 days to end them.
The affected tariffs are the 10% tariff on goods of most countries (referred to by the Court as the Worldwide and Retaliatory Tariffs), the 25% border tariffs on goods of Canada and Mexico in response to the illicit drug trade, and the 20% tariff on goods of China (together referred to by the Court as the Trafficking Tariffs). The affected Executive Orders (EOs) are as follows: 14257,[i] 14259,[ii] 14266,[iii] and 14298.[iv]
The government has appealed the case to the U.S. Court of Appeals for the Federal Circuit.
The CIT’s Ruling
In its opinion, the CIT emphasized that the U.S. Constitution expressly assigns the power to impose tariffs to Congress under Article I, Section 8, Clause 1, and that any grant of authority by Congress to the president to impose tariffs must be construed narrowly.
The Court held that IEEPA does not allow the Executive Branch to unilaterally impose tariffs without clear and bounded statutory authority. Instead, the Court read IEEPA as imposing two key limits on the tariffs:
Section 1702 of IEEPA, which permits the President to “regulate . . . importation,” must be construed narrowly. The Court examined the legislative history of this provision, which replaced a very broad grant of authority under the older Trading with the Enemy Act with a much narrower authority. The Court thus held that IEEPA does not authorize broad, unbounded tariffs like the Worldwide and Retaliatory Tariff Orders. The absence of “any identifiable limits” rendered these measures beyond the scope of the statute. Rather, the CIT determined that the Worldwide and Retaliatory Tariffs, which were imposed in response to the trade deficit, must conform within the limits of Section 122 of the Trade Act of 1974, the statutory authority that deals with remedies for balance-of payments deficits.
Section 1701(b) of IEEPA limits the President’s authority to actions that “deal with an unusual and extraordinary threat” and prohibits the use of IEEPA “for any other purpose.” The Trafficking Tariffs were implemented to encourage foreign countries to arrest or detain bad actors responsible for the flow of illicit drugs into the United States. The Court determined that the Trafficking Tariffs failed to satisfy the statutory threshold, because the tariffs do not bear a sufficient connection to the alleged threat to constitute “dealing with” the identified threat.
What’s Next
The CIT’s judgment permanently enjoined the IEEPA tariffs and ordered that within 10 days necessary administrative orders be issued to effectuate the permanent injunction.
The U.S. Department of Justice (DOJ) immediately appealed the ruling to the Federal Circuit Court of Appeals. The DOJ also submitted to the CIT a motion to stay enforcement of the judgment pending appeal. If the CIT grants the stay, the IEEPA tariffs would remain in place during the appeal.
If the CIT does not grant the stay, the DOJ will likely seek to stay the CIT’s permanent injunction in its appeal.
Importers should also note that the Trump Administration’s tariffs imposed under different statutory authorities (such as the duties on steel, aluminum, automobiles, and automobile parts issued pursuant to Section 232 of the Trade Expansion Act of 1962 and the duties on certain Chinese goods issued pursuant to Section 301 of the Trade Act of 1974) are not affected by the CIT’s ruling, and remain in effect.
We also note that even if its appeal is unsuccessful and the CIT’s order terminating the IEEPA tariffs is upheld, nothing stops the Trump Administration from pursuing more tariffs under Sections 122, 232, 301, or 338 of other relevant trade acts. We will continue to keep an eye on developments and keep you informed here.
FOOTNOTES
[i] Executive Order 14257, Regulating Imports With a Reciprocal Tariff to Rectify Trade Practices That Contribute to Large and Persistent Annual United States Goods Trade Deficits, 90 Fed. Reg. 15041 (Apr. 2, 2025).
[ii] Executive Order 14259, Amendment to Reciprocal Tariffs and Updated Duties as Applied to Low-Value Imports From the People’s Republic of China, 90 Fed. Reg. 15509 (Apr. 8, 2025).
[iii] Executive Order 14266, 90 Fed. Reg. at 15626 (raising China-specific duty rate from 84 to 125 percent effective April 10).
[iv] Executive Order 14298, Modifying Reciprocal Tariff Rates To Reflect Discussions With the People’s Republic of China, 90 Fed. Reg. 21831 (May 12, 2025).
Matthew Floyd contributed to this article
Federal Court Halts Broad Swath of Tariffs, Ruling Trump Lacks Authority Under IEEPA
On May 28, 2025 the little-known federal Court of International Trade issued its ruling in two challenges — one brought by 12 states attorneys general and one by private companies — to President Trump’s authority to issue tariffs using the International Emergency Economic Powers Act (IEEPA).
No prior president has used IEEPA to support tariffs, as IEEPA has historically been viewed as only a sanctions authority. In a unanimous per curiam opinion, the three-judge panel of the court invalidated using IEEPA to support tariffs under Article I, Section 8, clauses 1 and 3 of the Constitution, which assign to Congress “the exclusive powers to ‘lay and collect Taxes, Duties, Imposts, and Excises’ and to ‘regulate Commerce with foreign Nations.’”
After an extensive review of Congress’ delegation of trade authorities dating back to 1916, the court quotes IEEPA’s provision that its “authorities ‘may only be exercised to deal with an unusual and extraordinary threat with respect to which a national emergency has been declared… and may not be exercised for any other purpose.’” The court held that IEEPA does not delegate Congress’ power to the President “in the form of authority to impose unlimited tariffs on goods from nearly every country in the world.”
Concluding that IEEPA does not authorize any of the “Worldwide, Retaliatory, or Trafficking Tariff Orders,” the court found that narrowly tailored relief was inappropriate as “if the challenged Tariff Orders are unlawful as to Plaintiffs they are unlawful as to all.”
As a result, the challenged orders were permanently enjoined nationwide, allowing 10 calendar days for orders to be issued. The Trump Administration immediately filed for a motion to stay and appealed the order to the Court of Appeals for the Federal Circuit. The ruling halts the collection of the duties that were based on IEEPA under Executive Orders 14193, 14194, 14195 (the “Trafficking Tariffs”), and 14257 (the “Worldwide and Retaliatory Tariffs”) and all their amendments.
The “Trafficking Tariffs” are those imposed on Canada, Mexico, and China and the “Worldwide and Retaliatory Tariffs” are the global 10% ad valorem and the “reciprocal” global tariff schedule. It also reinstates de minimis treatment for shipments valued at less than $800. The ruling may also require refunding tariffs already paid.
Tariffs based on other authorities, including Section 232 tariffs on automobiles, aluminum, and steel, and Section 301 tariffs on China, remain in effect.
The ruling will likely throw a wrench into ongoing trade negotiations with dozens of countries, even while it is under appeal. In addition to the substantive ruling on IEEPA authority, both the nationwide injunction and the request for a stay pending appeal could make their way swiftly to the Supreme Court’s so-called “shadow docket” for emergency relief.
In addition, Congress may seek to ratify the tariffs, or the administration may seek to reinstate the tariffs using other delegated authorities. The ruling is unlikely to bring an end to the volatility that has surrounded the tariffs since they were imposed in April, and long-term planning around tariffs will continue to be challenging.
UK Cross-Government Review of Sanctions Implementation and Enforcement
On 15 May 2025, the UK government published a policy paper summarising findings from a cross-government review of sanctions implementation and enforcement. The Foreign, Commonwealth and Development Office led the review in collaboration with insights from external sanctions experts, as well as key sanctions departments and agencies, including HM Treasury, the Department for Business and Trade, the Department for Transport, HM Revenue and Customs (HMRC) and the National Crime Agency.
Anyone involved in advising on or implementing sanctions programs should take note of the content of these findings, as they illustrate where the United Kingdom’s sanctions implementation agencies will be focusing over the next few years.
The aim of the review was to identify further steps to improve and facilitate compliance, increase the deterrent effect of enforcement and invigorate the cross-government toolkit. The UK government has committed to implementing the review conclusions summarised below in the financial year 2025–2026:
Compliance
Targeted Guidance and Enhanced Outreach
The UK government will create additional guidance for, and increase engagement with, sectors with lower levels of sanctions awareness.
Engagement sessions conducted during the review highlighted variable levels of sanctions awareness within different sectors, with smaller businesses less able to access specialist advice.
Clearer and More Accessible Guidance
Sanctions guidance will be better organised, modern and searchable, with read across clearly signposted by posting comprehensive updates to sanctions pages and statutory guidance on GOV.UK.
Single Sanctions List
A single sanctions list incorporating the UK Sanctions List and the Consolidated List of Financial Sanctions Targets will be created. The list will aid industry in screening for designated persons, especially those targeted with non-financial designations, ensuring vital notifications do not go missed.
Ownership and Control
Guidance will be created to further clarify ownership and control obligations. Industry input highlighted the complexities of ownership and control determinations, involving complex due diligence and significant legal costs. Alignment with international partners on ownership will also be an area the UK government will focus on building.
Deterrence
Publication of Enforcement Information
It is vital that the consequences of sanction breaches are clear for effective deterrence. Sanctions enforcement actions will be published regularly for “teachable moments.”
Sanctions Enforcement Strategy
A government-wide sanctions enforcement strategy will be published to detail the range of enforcement outcomes available for non-compliance.
Penalty Settlement System
Currently, the United Kingdom does not have powers to agree to early settlements for sanctions cases beyond HMRC’s compound penalties. The UK government has committed to developing an early civil settlement scheme for breaches of financial sanctions.
Fast-Track Penalties
An accelerated civil penalty process for certain financial sanctions breaches will be developed to allow more resources and time to be given to the most complex, serious and deliberate of breaches.
Toolkit
Making It Easier to Report Suspected Breaches
Moving forward, reporting requirements will become clearer, with the potential for a single reporting point for suspected breaches. The aim is to avoid confusing reporting and potentially misdirected information.
Whistle-Blower Protections
Currently, to qualify for whistle-blower protection, a worker would need to make a disclosure to an employer, a legal advisor or a “prescribed person” under the Public Interest Disclosure (Prescribed Persons) Order 2014 (the Order). The UK government is committed to updating the Order to prescribe relevant government departments in relation to financial, transport and certain trade sanctions.
Future Commitments
The UK government has committed to exploring other areas to go further and deeper to improve sanctions enforcement and implementation depending on resourcing and emerging priorities.
Conclusion
These efforts aim to ensure the United Kingdom’s sanctions are robust, clear and effectively support foreign policy and national security goals.
Take it Down Act Signed into Law, Offering Tools to Fight Non-Consensual Intimate Images and Creating a New Image Takedown Mechanism
Law establishes national prohibition against nonconsensual online publication of intimate images of individuals, both authentic and computer-generated.
First federal law regulating AI-generated content.
Creates requirement that covered platforms promptly remove depictions upon receiving notice of their existence and a valid takedown request.
For many online service providers, complying with the Take It Down Act’s notice-and-takedown requirement may warrant revising their existing DMCA takedown notice provisions and processes.
Another carve-out to CDA immunity? More like a dichotomy of sorts….
On May 19, 2025, President Trump signed the bipartisan-supported Take it Down Act into law. The law prohibits any person from using an “interactive computer service” to publish, or threaten to publish, nonconsensual intimate imagery (NCII), including AI-generated NCII (colloquially known as revenge pornography or deepfake revenge pornography). Additionally, the law requires that, within one year of enactment, social media companies and other covered platforms implement a notice-and-takedown mechanism that allows victims to report NCII. Platforms must then remove properly reported imagery (and any known identical copies) within 48 hours of receiving a compliant request.
Support for the Act and Concerns
The Take it Down Act attempts to fill a void in the policymaking space, as many states had not enacted legislation regulating sexual deepfakes when it was signed into law. The Act has been described as the first major federal law that addresses harm caused by AI. It passed the Senate in February of this year by unanimous consent and passed the House of Representatives in April by a vote of 409-2. It also drew the support of many leading technology companies.
Despite receiving almost unanimous support in Congress, some digital privacy advocates have expressed some concerns that the new notice-and-takedown mechanism could have some unintended consequences for digital privacy in general. For example, some commentators have suggested that the statute’s takedown provision is written too broadly and lacks sufficient safeguards against frivolous requests, potentially leading to the removal of lawful content –especially given the short 48-hour time to act following a takedown request. [Note: In 2023, we similarly wrote about abuses of the takedown provision of the Digital Millennium Copyright Act]. In addition, some have argued that the law could undermine end-to-end encryption by possibly forcing such companies to “break” encryption to comply with the removal process. Supporters of the law have countered that private encrypted messages would likely not be considered “published” under the text of the statute (which uses the term “publish” as opposed to “distribute”).
Criminalization of NCII Publication for Individuals
The Act makes it unlawful for any person “to use an interactive computer service to knowingly publish an intimate visual depiction of an identifiable individual” under certain circumstances.[1] It also prohibits threats involving the publishing of NCII and establishes various criminal penalties. Notably, the Act does not distinguish between authentic and AI-generated NCII in its penalties section if the content has been published. Furthermore, the Act expressly states that a victim’s prior consent to the creation of the original image or its disclosure to another individual does not constitute consent for its publication.
New Notice-and-Takedown Requirement for “Covered Platforms”
Along with punishing individuals who publish NCII, the Take it Down Act requires covered platforms to create a notice-and-takedown process for NCII within one year of the law’s passage. Below are the main points for platforms to consider:
Covered Platforms. The Act defines a “covered platform” as a “website, online service, online application, or mobile application” that serves the public and either provides a forum for user-generated content (including messages, videos, images, games, and audio files) or regularly deals with NCII as part of its business.
Notice-and-Takedown Process. Covered platforms must create a process through which victims of NCII (or someone authorized to act on their behalf) can send notice to them about the existence of such material (including a statement indicating a “good faith belief” that the intimate visual depiction of the individual is nonconsensual, along with information to assist in locating the unlawful image) and can request its removal.
Notice to Users. Adding an additional compliance item to the checklist, the Act requires covered platforms to provide a “clear and conspicuous” notice of the Act’s notice and removal process, such as through a conspicuous link to another web page or disclosure.
Removal of NCII. Within 48 hours of receiving a valid removal request, covered platforms must remove the NCII and “make reasonable efforts to identify and remove any known identical copies.”
Enforcement. Compliance under this provision will be enforced by the Federal Trade Commission (FTC).
Safe Harbor. Under the law, covered platforms will not be held liable for “good faith” removal of content that is claimed to be NCII “based on facts or circumstances from which the unlawful publishing of an intimate visual depiction is apparent,” even if it is later determined that the removed content was lawfully published.
Compliance Note: For many online service providers, complying with the Take It Down Act’s notice-and-takedown requirement may warrant revising their existing DMCA takedown notice provisions and processes, especially if those processes have not been reviewed or updated for some time. Many “covered platforms” may rely on automated processes (or a combination of automated efforts combined with targeted human oversight) to fulfill Take It Down Act requests and meet the related obligation to make “reasonable efforts” to identify and remove known identical copies. This may involve using tools for processing notices, removing content and detecting duplicates. As a result, some providers should consider whether their existing takedown provisions should also be amended to address these new requirements and how they will implement these new compliance items on the backend using the infrastructure already in place for the DMCA.
What about CDA Section 230?
Section 230 of the Communications Decency Act (“CDA”), 47 U.S.C § 230, prohibits a “provider or user of an interactive computer service” from being held responsible “as the publisher or speaker of any information provided by another information content provider.” Courts have construed the immunity provisions in Section 230 broadly in a variety of cases arising from the publication of user-generated content.
Following enactment of the Take It Down Act, some important questions for platforms are: (1) whether Section 230 still protects platforms from actions related to the hosting or removal of NCII; and (2) whether FTC enforcement of the Take It Down Act’s platform notice-and-takedown process is blocked or limited by CDA immunity.
On first blush, it might seem that the CDA would restrict enforcement against online providers in this area, as decisions regarding the hosting and removal of third-party content would necessarily treat a covered platform as a “publisher or speaker” of third party content. However, a deeper examination of the text of the CDA suggests the answer is more nuanced.
It should be noted that the Good Samaritan provision of the CDA (47 U.S.C § 230(c)(2)) could be used by online providers as a shield from liability for actions taken to proactively filter or remove third party NCII content or remove NCII at the direction of a user’s notice under the Take It Down Act, as CDA immunity extends to good faith actions to restrict access to or availability of material that the provider or user considers to be “obscene, lewd, lascivious, filthy, excessively violent, harassing, or otherwise objectionable.” Moreover, the Take It Down Act adds its own safe harbor for online providers for “good faith disabling of access to, or removal of, material claimed to be a nonconsensual intimate visual depiction based on facts or circumstances from which the unlawful publishing of an intimate visual depiction is apparent, regardless of whether the intimate visual depiction is ultimately determined to be unlawful or not.”
Still, further questions about the reach of the CDA prove more intriguing. The Take It Down Act appears to create a dichotomy of sorts regarding CDA immunity in the context of NCII removal claims. Under the text of the CDA, it appears that immunity would not limit FTC enforcement of the Take It Down Act’s notice-and-takedown provision affecting “covered platforms.” To explore this issue, it’s important to examine the CDA’s exceptions, specifically 47 U.S.C § 230(e)(1).
Effect on other laws
(1) No effect on criminal law
Nothing in this section shall be construed to impair the enforcement of section 223 or 231 of this title [i.e., the Communications Act], chapter 71 (relating to obscenity) or 110 (relating to sexual exploitation of children) of title 18, or any other Federal criminal statute.
Under the text of the CDA’s exception, Congress carved out Section 223 and 231 of the Communications Act from the CDA’s scope of immunity. Since the Take It Down Act states that it will be codified at Section 223 of the Communications Act of 1934 (i.e., 47 U.S.C. 223(h)), it appears that platforms would not enjoy CDA protection from FTC civil enforcement actions based on the agency’s authority to enforce the Act’s requirements that covered platforms “reasonably comply” with the new Take It Down Act notice-and-takedown obligations.
However, that is not the end of the analysis for platforms. Interestingly, it would appear that platforms would generally still retain CDA protection (subject to any exceptions) from claims related to the hosting or publishing third party NCII that have not been the subject of a Take It Down Act notice, since the Act’s requirements for removal of NCII by platforms would not be implicated without a valid removal request.[2] Similarly, a platform could make a strong argument that it retains CDA immunity from any claims brought by an individual (rather than the FTC) for failing to reasonably comply with a Take It Down Act notice. That said, it is conceivable that litigants – or event state attorneys general – might attempt to frame such legal actions under consumer protection statutes, as the Take It Down Act states that a failure to reasonably comply with an NCII takedown request is an unfair or deceptive trade practice under the FTC Act. Even in such a case, platforms would likely contend that such claims by these non-FTC parties are merely claims based on a platform’s role as publisher of third party content and are therefore barred by the CDA.
Ultimately, most, if not all, platforms will likely make best efforts to reasonably comply with the Take It Down Act, thus avoiding the above contingencies. Yet, for platforms using automated systems to process takedown requests, unintended errors may occur and it’s important to understand how and when the CDA would still protect platforms against any related claims.
Looking Ahead
It will be up to a year before the notice-and-takedown requirements become effective, so we will have to wait and see how well the process works in eradicating revenge pornography material and intimate AI deepfakes from platforms, how the Act potentially affects messaging platforms, how aggressively the Department of Justice will prosecute offenders, and how closely the FTC will be monitoring online platforms’ compliance with the new takedown requirements.
It also remains to be seen whether Congress has an appetite to pass more AI legislation. Less than two weeks before the Take it Down Act was signed into law, the Senate Committee on Commerce, Science, and Transportation held a hearing on “Winning the AI Race” that featured the CEOs of many well-known AI companies. During the hearing, there was bipartisan agreement on the importance of sustaining America’s leadership in AI, expanding the AI supply chain and not burdening AI developers with a regulatory framework as strict as the EU AI Act. The senators listened to testimony from tech executives calling for enhanced educational initiatives and the improvement of infrastructure needed for advancing AI innovation, alongside discussing proposed bills regulating the industry, but it was not clear whether any of these potential policy solutions would receive enough support to be signed into law.
The authors would like to thank Aniket C. Mukherji, a Proskauer legal assistant, for his contributions to this post.
[1] The Act provides that the publication of the NCII of an adult is unlawful if (for authentic content) “the intimate visual depiction was obtained or created under circumstances in which the person knew or reasonably should have known the identifiable individual had a reasonable expectation of privacy,” if (for AI-generated content) “the digital forgery was published without the consent of the identifiable individual,” and if (for both authentic and AI-generated content) what is depicted “was not voluntarily exposed by the identifiable individual in a public or commercial setting,” “is not a matter of public concern,” and is intended to cause harm or does cause harm to the identifiable individual. The publication of NCII (whether authentic or AI-generated) of a minor is unlawful if it is published with intent to “abuse, humiliate, harass, or degrade the minor” or “arouse or gratify the sexual desire of any person.” The Act also lists some basic exceptions, such as publications of covered imagery for law enforcement investigations, legal proceedings, or educational purposes, among other things.
[2] Under the Act, “Upon receiving a valid removal request from an identifiable individual (or an authorized person acting on behalf of such individual) using the process described in paragraph (1)(A)(ii), a covered platform shall, as soon as possible, but not later than 48 hours after receiving such request—
(A) remove the intimate visual depiction; and
(B) make reasonable efforts to identify and remove any known identical copies of such depiction.
Disclosure in England and Wales: A Duty to Use Technology
It is not enough that we do our best; sometimes we must do what is required. This famous line attributed to Britain’s defining war time leader, Sir Winston Churchill, serves as a reminder to parties litigating through the English and Welsh courts that the use of technology is central to the discovery process – it is no longer optional.
Whether parties are operating under either of the two regimes that govern disclosure in England and Wales (Part 31 and Practice Direction (PD) 57AD of the Civil Procedure Rules (CPR)), the disclosure process is a central component that seeks to ensure transparency and fairness. However, burgeoning data volumes have increasingly necessitated the use of technology. This is why PD 57AD, which is the newer of the two regimes and in operation in the Business and Property Courts, places technology on the front line by obligating the parties’ legal representatives to use it.
The Duty
Specifically, under PD 57AD, a party’s legal representative is under a duty to promote the reliable, efficient, and cost-effective conduct of disclosure by using technology (paragraph 3.2(3) of PD 57AD). This duty persists until the conclusion of any proceedings and a failure to discharge this duty may result in sanctions from the court. Those sanctions may include adverse cost orders, or a failure may be dealt with as a contempt of court in appropriate cases.
To facilitate this duty, PD 57AD goes further to encourage and support the use of technology throughout the disclosure process. For example, when dealing with the exclusion of narrative documents (these are documents that are relevant only to the background of a dispute and are not readily disclosable) parties must consider using:
software or analytical tools, including technology-assisted review (TAR);
coding strategies, including to reduce duplication; and
prioritisation and workflows.
In addition, where the court orders Extended Disclosure, requiring parties to search for documents, the court may make specific provisions related to technology use. For example, the court might require parties to use certain software or analytical tools or provide for the use of data sampling.
Why Not?
Blindly applying technology, however, is not sufficient. In order to ensure that technology is used efficiently and effectively when Extended Disclosure is ordered, parties must provide the court and the other parties with information about the data in their control. This includes where and how the data is held and how they propose to process and search that data.
This information is set out in the Disclosure Review Document (DRD). The DRD is a comprehensive document that the parties must complete, seek to agree on, and keep updated. To do this, and despite any trench warfare that may be adopted elsewhere in the litigation, parties must cooperate and constructively engage with each other when it comes to completing the DRD and agreeing to the scope of the disclosure exercise.
Where parties consider the use of technology to facilitate collecting and reviewing any data beyond being reasonable, proportionate, and reliable, they are not obliged to justify its use. Instead, it is the opposite. If they decide not to use technology to aid either process, they should explain why such tools would not be used. The requirement to justify why technology is not being used applies especially if the number of documents that need reviewing is more than 50,000 and what is proposed is simply a manual review exercise.
PD 57AD: Ahead of the Curve
PD 57AD came into effect in October 2022, but it was drafted approximately five years prior to its implementation, meaning it came along well before the technological leap forward in terms of generative AI. However, PD 57AD was drafted to be forward-looking and flexible enough to accommodate technological advances.
Therefore, whilst generative AI is not specifically mentioned in the rules or the DRD, the references to technology throughout are purposefully non-exhaustive. Indeed, while AI is considered an umbrella term, many of the tools that are mentioned and that are already routinely used as part of the disclosure process utilise the machine learning element of AI. Tools, such as continuous active learning models that are used to assess which documents, compared to others, are more likely to be relevant to the underlying dispute, should be reviewed first.
Parties litigating before the English and Welsh courts should look to leverage new technologies, tools, and workflows as part of the disclosure process. In doing so, they are not doing their best – they are doing what is required.
Why the DOJ’s New Whistleblower Program Remains Relevant
On May 12, 2025, the U.S. Department of Justice (DOJ) issued a memorandum outlining the Criminal Division’s enforcement priorities and policies for prosecuting corporate and white-collar crimes in the new Administration. Later that week, Matthew R. Galeotti, head of the DOJ’s Criminal Division, addressed the new policies in a speech at the SIFMA Anti-Money Laundering and Financial Crimes Conference. Galeotti emphasized that the DOJ is “turning a new page on white-collar and corporate enforcement,” with a renewed focus on crimes that pose the greatest risk to U.S. interests. His remarks, coupled with the recent expansion of the DOJ’s Corporate Whistleblower Awards Pilot Program, signal a new era of accountability, transparency, and proactive compliance for portfolio companies operating in high-risk sectors.
Voluntary Self-Disclosure Policy – a Clear Path to Declination
The new policies include revisions to the Corporate Enforcement and Voluntary Self-Disclosure Policy (CEP). The revised CEP is designed to provide clearer guidance on the benefits of cooperation and a more predictable resolution process. Notably, companies that voluntarily self-disclose misconduct (in a “reasonably prompt” manner), fully cooperate, remediate appropriately and promptly, and have no aggravating circumstances will now receive a declination — not merely a presumption of a declination as previously offered. Moreover, a declination is still possible for cases with aggravating circumstances as prosecutors will have discretion to weigh the severity of those aggravating circumstances against the company’s cooperation and remediation efforts. Finally, the policy provides additional flexibility for companies that self-disclose in good faith where the government is already aware of the misconduct — such companies may still qualify for significant benefits, such as reduced fines and the avoidance of compliance monitors.
Expansion of the Whistleblower Pilot Program
While incentivizing self-reporting and cooperation, the new policies significantly broadened the scope of the Corporate Whistleblower Awards Pilot Program, announced in August 2024. Originally limited to violations by financial institutions, foreign and domestic corruption (including FCPA violations), and certain health care frauds, the program now covers a wider array of misconduct, including:
procurement and federal program fraud;
trade, tariff, and customs fraud;
violations of federal immigration law;
violations involving sanctions;
material support of foreign terrorist organizations, or those that facilitate cartels and transnational criminal organizations, including money laundering, narcotics, and Controlled Substances Act violations.
This expansion tracks the newly announced enforcement priorities and reflects the DOJ’s recognition that financial crime is often intertwined with broader threats to national security and global stability.
Competing Incentives for Whistleblowers and Companies
The financial incentives for whistleblowers who provide actionable information remain substantial. If a whistleblower provides information that leads to a successful forfeiture exceeding $1,000,000 in net proceeds, the whistleblower can receive up to 30% of the first $100 million in net forfeitures, and up to 5% of amounts between $100 million and $500 million.
At the same time, the incentives for companies to self-report a whistleblower complaint and still be eligible for a declination remain even stronger. Indeed, the Corporate Whistleblower Awards Pilot Program has an exception — if a whistleblower makes both an internal report to a company and a whistleblower submission to the Department, the company will still qualify for a presumption of a declination of charges under the CEP — even if the whistleblower submits to the Department before the company self discloses — provided that the company: (1) self-reports the conduct to the Department within 120 days after receiving the whistleblower’s internal report; and (2) meets the other requirements for voluntary self-disclosure and presumption of a declination under the policy.
What This Means for Companies
The message to corporate America is clear — compliance is a strategic imperative. Therefore, companies must:
Strengthen Internal Controls: Ensure compliance programs are tailored to the company’s risk profile and are actively monitored and updated.
Encourage Internal Reporting: Foster a culture where employees feel empowered to report concerns internally before going to regulators.
Review Investigation Protocols: Update internal investigation and remediation procedures to align with DOJ expectations.
Act Proactively: Voluntary self-disclosure and cooperation can significantly mitigate penalties and reputational damage.
Key Takeaways
The DOJ’s recent moves — both in policy and tone — reflect a maturing enforcement philosophy. Rather than wielding the stick indiscriminately, the Department is offering a clearer path for companies to do the right thing and receive the full benefits of cooperation. But the stakes remain high. With an expanded whistleblower program and a renewed focus on high-impact crimes, the cost of non-compliance has never been greater.
For portfolio companies willing to invest in integrity and transparency, the DOJ’s evolving framework offers not just protection — but opportunity.
Seetha Ramachandran, Nathan Schuur, Robert Sutton, Jonathan M. Weiss, William D. Dalsen, Adam L. Deming, Adam Farbiarz, and Hena M. Vora contributed to this article
US Easing of Sanctions on Syria Creates Opportunities and Risks
What Happened
On May 23, 2025, the US Department of Treasury Office of Foreign Assets Control (OFAC) issued a general license (GL 25) broadly authorizing financial transactions previously prohibited under the Syrian Sanctions Regulations (found at 31 C.F.R. part 542).
The Bottom Line
Effective immediately, GL 25 allows US persons to engage in certain transactions with the Government of Syria and certain blocked persons following almost 50 years of comprehensive economic sanctions on Syria, most of which were imposed during ex-Syrian President Bashar Assad’s rule. GL 25 represents the first step in lifting US sanctions on Syria. Companies and individuals seeking to do business with or in Syria should carefully consider the scope and limitations of GL 25. Companies should also review internal compliance policies, and sanctions compliance covenants and obligations, to take into account the shifting sanctions landscape with respect to Syria.
Full Story
US sanctions on Syria date from Syria’s 1979 invasion of Lebanon and expanded during Syria’s civil war through a range of legislative actions and executive orders. On January 6, 2025, following the end of President Bashar Assad’s rule, OFAC issued Syria General License 24, which authorized a narrow set of transactions with Syria’s transitional government and energy sector, as well as personal remittances. On May 13, 2025, President Trump announced that the United States would lift sanctions on Syria; on May 23, OFAC issued GL 25.
As described in the press release accompanying the issuance of GL 25, the license is intended to help rebuild Syria’s economy, financial sector and infrastructure; align Syria’s new government with US foreign policy interests; and bring new investment into Syria, signaling opportunity for companies interested in investing in the rebuilding of Syria.
GL 25 authorizes transactions that would otherwise be prohibited under the US economic sanctions on Syria, including new investment in Syria, the provision of financial and other services to Syria and transactions related to Syrian-origin petroleum or petroleum products. GL 25 also authorizes all transactions with the new Government of Syria, and with certain blocked persons identified in a list appended to the license (any transactions with other blocked persons not identified in the annex remain prohibited).
GL 25 represents a significant shift in the US sanctions landscape. For international financial institutions, the reach of US sanctions, especially the secondary sanctions imposed by the Caesar Act of 2019, have been a significant sanctions compliance concern. For nearly five decades, Syria has been viewed as a comprehensively sanctioned country, with the effect that financing and commercial documentation often specifically prohibits doing business in Syria.
The shifting sanctions landscape with respect to Syria introduces new compliance risks for companies seeking to do business there or otherwise take part in rebuilding opportunities. Although GL 25 represents a significant easing of sanctions—such that Syria can no longer be considered a truly “comprehensively” sanctioned country—it is important to note that issuance of the general license is merely an interim step intended to provide immediate relief. While certain sanctions can be lifted by executive order, other sanctions on Syria are imposed by statute and will require Congressional action. Syria’s re-entry into the global financial system may be complicated by this variation in different sanctions authorities as institutions begin to adjust to a post-sanctions Syria.
Financial institutions and companies should carefully review internal compliance policies to take into account the changing scope of sanctions on Syria. Companies and funds seeking to invest in Syria should also consider internal compliance policies with respect to Syria, as well as existing covenants in financing and other agreements that may restrict investment or other business dealings in Syria.
New Jersey Legislature Again Considers Banning Noncompetes
As has become an almost annual tradition, New Jersey legislators have proposed bills that would severely limit noncompete agreements. With the Federal Trade Commission (FTC) no longer seeking to ban noncompetes, the battle has returned to states, and New Jersey is on the front line—and this could be the year a New Jersey noncompete bill passes.
Quick Hits
New Jersey legislators have introduced Senate Bill No. 4385 (S4385) (introduced in the Assembly as Assembly Bill No. 5708), which would prohibit most noncompete agreements and void current ones, except for senior executives under specific conditions.
S4385 requires employers to notify employees within thirty days of its passage that their noncompete agreements are no longer enforceable.
Another proposed bill, Senate Bill No. 4386 (S4386), aims to ban noncompetes that restrict employees from engaging in any lawful profession post-employment and prohibit employers from requiring repayment of training or immigration costs.
S4385 would prohibit noncompete agreements except under limited circumstances. Notably, S4385 is retroactive and would void the enforcement of current noncompete agreements. There is a limited carve-out that the bill would not ban retroactive enforcement against “Senior Executives.” If the bill goes into effect, employers would have to notify employees within thirty days of its passage that their noncompete agreements are no longer enforceable. No poach agreements would also be outlawed.
The definition of a noncompete would be: “any agreement arising out of an existing or anticipated employment relationship between an employer and a worker, including an agreement regarding severance pay, to establish a term or condition of employment that prohibits the worker from, penalizes a worker for, or functions to prevent or hinder in any way, the worker from seeking or accepting work with a different employer after the employment relationship ends, or operating a business after the employment relationship ends.” The question, of course, becomes, would a nonsolicit or even a nondisclosure agreement still be enforceable, since either type of agreement may arguably hinder an employee from accepting employment with a different employer or starting his or her own business.
“Senior executive” is defined as “a worker who is in a policy-making position with an employer and is paid total compensation of not less than $151,164 during the year immediately preceding the end of employment, or not less than $151,164 when annualized if the worker was employed during only part of the preceding year.” Here the issue will be that many job categories that employers have traditionally had legitimate needs for noncompetes, such as salespeople, may not be considered in a “policy-making position.”
Noncompetes entered into before the effective date of S4385 would only be viable for senior executives if the following criteria are met:
The employer must provide a written disclosure within thirty days after the effective date of S4385, setting forth the requirements of the law and any revisions to the noncompete agreement that have been made to comply with the bill and any revision must be signed by the employee.
The noncompete must not be broader than necessary to protect the legitimate interests of employers. A noncompete can be presumed necessary if a nondisclosure agreement, nonsolicitation of customers, and/or a nonsolicitation of employees are not sufficient to protect an employer’s interests. Note that this will be a very difficult test for employers to pass.
The noncompete can be no longer than twelve months.
The geographic reach of the noncompete must be limited to the territory where the employee provided services or had a material presence or influence in the two years prior to the termination of employment, and it cannot prohibit the employee from seeking employment outside of New Jersey.
The noncompete shall be limited to the activities and services provided by the employee during the last two years of his or her employment.
The noncompete clause cannot penalize the employee for challenging the validity of the noncompete. This is very important because one of the most effective tools an employer has with a noncompete is an attorneys’ fee provision, but now if the employee challenges the validity of the noncompete—which happens in nearly all noncompete litigation—then that will likely be enough to prevent a court from enforcing the attorneys’ fee provision even if the employer prevails.
No non-New Jersey choice-of-law provision is permitted to attempt to avoid the requirements of S4385.
The noncompete clause shall not restrict an employee from providing service to a customer or client if the employee is not the one who initiates or solicits the customer or client. This would be a huge carve-out and allow employees to claim they did not solicit, but the customer or client simply reached out to them.
The noncompete would be void unless the employer gives the employee notice within ten days of the termination of employment of the employer’s intention to enforce the noncompete. This provision does not apply if the employee was discharged for misconduct.
The employer must pay the employee “garden leave,” including both salary continuation and benefits for the period of the noncompete.
Notably, S4385 does not apply to noncompetes entered into in the sale of a business. Nor does the bill apply to causes of action that accrue prior to the enactment of the bill, meaning any current noncompete litigations are still viable.
The bill also creates a civil cause of action for aggrieved employees, and their potential damages include liquidated damages, compensatory damages, and attorneys’ fees.
Another Senate bill, S4386, would ban noncompetes that prohibit an employee from “engaging in a lawful profession, trade, or business of any kind after the conclusion of the employee’s employment with the employer.” This provision, like the provisions under S4385, would be retroactive. S4386, like S4385, was introduced by Senator Joseph P. Cryan. It is unclear whether S4386 is being viewed as an alternative if S4385 does not pass or is meant to act in tandem with S4385. Notably, S4386 would ban employers from requiring an employee to repay training costs or immigration/visa costs if the employee leaves employment.
With a gubernatorial election in New Jersey this year, there may be a push to pass the legislation before a new governor takes over. Because a number of large New Jersey companies are incorporated in Delaware, switching to a Delaware choice of law provision in noncompete agreements might have been viable, but Delaware has also become less friendly to noncompetes. For now, other than waiting and seeing what happens in the legislature, and potential lobbying efforts, the main thing New Jersey employers may want to consider is whether to bring lawsuits now for violations of noncompetes to preserve the enforcement of existing noncompete agreements, even if S4385 does pass.