President Trump Issues Sweeping Executive Orders Aimed at DEI
In his inaugural address on Monday, January 20, 2025, President Trump declared, “We will forge a society that is colorblind and merit-based.” In the days that followed, President Trump has proceeded to issue a series of executive orders in quick succession, many of which specifically seek to eliminate diversity, equity, and inclusion (“DEI”) initiatives in both the private sector and the federal government. In addition, President Trump rescinded nearly 80 executive orders issued by President Biden, many of which relate to DEI.
Below is an overview of some of President Trump’s and his appointees’ recent actions that employers should be aware of when reviewing and evaluating their own policies and practices pertaining to DEI:
Ending Radical and Wasteful Government DEI Programs And Preferencing
Within hours of his taking office, President Trump issued an Executive Order entitled “Ending Radical and Wasteful Government DEI Programs and Preferencing.” The Order specifically takes aim at Executive Order 13985 (Advancing Racial Equity and Support for Underserved Communities Through the Federal Government), issued by President Biden, which in turn repealed Trump’s 2020 ban on racial bias trainings for federal agencies and contractors.
The new Executive Order mandates the Director of the Office of Management and Budget (“OMB”), in conjunction with the Attorney General and the Director of the Office of Personnel Management (“OPM”), to terminate all “illegal DEI and ‘diversity, equity, inclusion, and accessibility’ (DEIA) mandates, policies, programs, preferences, and activities” within the federal government. The Order also directs each federal agency to terminate all DEI, DEIA, and environmental justice offices and positions, and all “equity-related” grants or contracts. As a result, federal contractors and/or grantees engaged in such “equity-related” work should expect such contracts or grants to be terminated in short order. In addition, the Order calls for the termination of “all DEI or DEIA performance requirements for employees, contractors, or grantees.”
The Acting Director of the OPM wasted no time issuing initial guidance pursuant to the Executive Order in a memorandum published late on Tuesday, January 21, 2025. According to the memorandum, by 5 p.m. EST on Wednesday, January 22, 2025, all agency heads must: (i) issue an agency-wide notice to employees informing them that all DEIA offices are closing and asking them “if they know of any efforts to disguise these programs by using coded or imprecise language,” (ii) notify all employees of such DEIA offices that they are being placed on paid administrative leave effective immediately, and (iii) take down all outward facing media (i.e., websites, social media accounts) of DEIA offices. Additional action and guidance pursuant to this Executive Order is anticipated.
Ending Illegal Discrimination And Restoring Merit-Based Opportunity
On Tuesday, January 21, 2025, President Trump issued another Executive Order pertaining to DEI, entitled “Ending Illegal Discrimination And Restoring Merit-Based Opportunity.” This Order instructed all executive departments and federal agencies to “terminate all discriminatory and illegal preferences, mandates, policies, programs, activities, guidance, regulations, enforcement actions, consent orders, and requirements” and further ordered all federal agencies “to enforce our longstanding civil-rights laws and to combat illegal private-sector DEI preferences, mandates, policies, programs, and activities.” Notably, the Order provides that federal and private-sector employment and contracting preferences for U.S. military veterans can continue.
Section 4 of the Executive Order, titled “Encouraging the Private Sector to End Illegal DEI Discrimination and Preferences,” calls on the Attorney General, in consultation with relevant agency heads and the Director of OMB, to submit a report to the Assistant to the President for Domestic Policy with recommendations for “appropriate measures to encourage the private sector to end illegal discrimination and preferences, including DEI.” According to the Order, the report must contain the following:
Key sectors of concern within the agency’s jurisdiction;
The most egregious and discriminatory DEI practitioners in each sector of concern;
A plan of specific steps or measures to deter DEI programs or principles that constitute illegal discrimination or preferences;
Other strategies to encourage the private sector to end illegal DEI discrimination and preferences and comply with all federal civil-rights laws;
Litigation that would be potentially appropriate for federal lawsuits, intervention, or statements of interest; and
Potential regulatory action and sub-regulatory guidance.
As part of this report, each agency must “identify up to nine potential civil compliance investigations of publicly traded corporations, large non-profit corporations or associations, foundations with assets of 500 million dollars or more, State and local bar and medical associations, and institutions of higher education with endowments over 1 billion dollars.” Moreover, the Executive Order also requires the Attorney General and the Secretary of Education to issue guidance to “all institutions of higher education that receive Federal grants or participate in the Federal student loan assistance program” regarding the practices that are required to comply with the Supreme Court’s 2023 decision in Students for Fair Admissions, Inc. v. President and Fellows of Harvard College.
Lastly, the Executive Order also revoked several prior executive orders, including Executive Order 11246 signed by Lyndon B. Johnson in 1965, which established non-discriminatory hiring practices for federal contractors. More on this revocation on our Government Contractor Compliance & Regulatory Update blog here.
Statement by Newly Appointed EEOC Acting Chair Andrea R. Lucas
In addition to the executive orders issued by President Trump, on Tuesday, January 21, 2025, newly appointed EEOC Acting Chair Andrea R. Lucas issued a statement setting forth her enforcement priorities. In the statement, Lucas said that her enforcement priorities will include:
Rooting out unlawful DEI-motivated race and sex discrimination;
Protecting American workers from anti-American national origin discrimination;
Defending the biological and binary reality of sex and related rights, including women’s rights to single‑sex spaces at work;
Protecting workers from religious bias and harassment, including antisemitism; and
Remedying other areas of recent under-enforcement.
Other Notable Executive Actions
On Monday, January 20, 2025, President Trump issued an Executive Order entitled, “Reforming the Federal Hiring Process And Restoring Merit to Government Service.” The Executive Order calls for the prioritization of “merit” and “skill” in federal hiring. The Order states:“Federal hiring should not be based on impermissible factors, such as one’s commitment to illegal racial discrimination under the guise of ‘equity,’ or one’s commitment to the invented concept of ‘gender identity’ over sex.” The Order instructs the Assistant to the President for Domestic Policy to send to all agency heads a federal hiring plan, which, among other things, “prevent[s] the hiring of individuals based on their race, sex, or religion.”
On Wednesday, January 22, 2025, Presidential Trump signed a Presidential Memorandum entitled “President Donald J. Trump Ends DEI Madness and Restores Excellence and Safety Within The Federal Aviation.” The memorandum orders the Secretary of Transportationand the Federal Aviation Administration (FAA) Administrator to “immediately stop Biden DEI hiring programs and return to non-discriminatory, merit-based hiring” for FAA employees.
Takeaways
President Trump’s series of executive orders and actions, as well as Acting Chair Lucas’ statement of enforcement priorities, make clear that the Trump Administration and federal agencies tasked with enforcing civil rights laws plan to focus their enforcement efforts on corporate DEI programs. Employers should carefully evaluate their current DEI-related and recruiting/hiring policies and practices in light of these developments. We anticipate further updates in this area and will continue to monitor and report on these updates.
President Trump Ends Affirmative Action Requirements for Federal Contractors
Amidst a flurry of employment-related executive orders issued during the first few days of the new administration, on January 21, 2025, President Trump signed an executive order titled Ending Illegal Discrimination and Restoring Merit-Based Opportunity (“the Executive Order”).
The Executive Order describes diversity, equity, inclusion, and accessibility as “dangerous, demeaning, and immoral” and in violation of federal civil rights legislation. The Executive Order goes on to undo decades of federal government practice and authority, directing all executive departments and federal agencies to stop enforcing affirmative action program requirements and instead focus upon enforcing existing civil rights law to prevent employers from implementing such programs.
Revocation of Existing Executive Orders
The Executive Order overturned four longstanding executive orders and a presidential memorandum:
Executive Order 11246: Issued September 24, 1965, Executive Order 11246 prohibited federal contractors from discriminating against employees because of race, color, religion, sex, or national origin and required federal contractors to take affirmative action to ensure that applicants and employees are treated without regard to these characteristics. Executive Order 11246 further required federal contractors with at least 50 employees and who met certain contract thresholds to develop and maintain written Affirmative Action Programs and evaluate their compensation practices for pay disparities by gender and race, known as pay equity audits. Employers have 90 days from January 21, 2025, to cease complying with Executive Order 11246.
Executive Order 13672: Issued on July 21, 2014, Executive Order 13672 amended Executive Order 11246 to prohibit discrimination against employees because of their sexual orientation or gender identity.
Executive Order 12898: Issued on February 11, 1994, Executive Order 12898 focused federal attention on the environmental and health impacts of federal actions on minority and low-income populations.
Executive Order 13583: Issued on August 18, 2011, Executive Order 13583 imposed equal opportunity, diversity, and inclusions requirements on the federal government as an employer and required the Director of the Office of Personnel Management (OPM) and Deputy Director for Management of the Office of Management and Budget (OMB) to establish a government-wide initiate to promote diversity and inclusion in the federal workforce by developing a Diversity and Inclusion Strategic Plan to improve federal agency efforts to recruit, hire, promote, retain, develop, and train a diverse and inclusive workforce consistent with merit system principles.
The Presidential Memorandum of October 5, 2016: This memorandum provides guidance to national security personnel to promote talent and diversity, including the collection and dissemination of demographic data of the national security workforce, implementing personnel policies to ensure that all national security employees have access to professional development opportunities and rewarding diversity and inclusion efforts, including through training on unconscious bias for the national security workforce.
Changes to the Office of Federal Contract Compliance Programs
The Office of Federal Contract Compliance Programs (OFCCP) is an agency within the federal Department of Labor that oversees federal contractors and subcontractors and enforces compliance with legal requirements related to affirmative action, anti-discrimination, and retaliation. The Executive Order has reversed the OFCCP’s mission and prohibits it from promoting diversity, enforcing affirmative action requirements, or allowing federal contractors and subcontractors to “engage in workforce balancing” on the basis of an employee’s race, color, sex, sexual orientation,[1] religion, or national origin. In short, the OFCCP is not only prohibited from requiring affirmative action by federal contractors, but it must also actively prevent federal contractors from implementing affirmative action and diversity and equity initiatives as a means to engage in discrimination in violation of the non-discrimination laws.
New Requirements for Federal Contractors
The Executive Order further imposes additional requirements on federal contractors. Federal contractors and subcontractors are prohibited from considering race, color, sex, sexual orientation, religion, or national origin in their employment, procurement, and contracting practices. In entering into federal contracts, every contract or grant must include terms agreeing that compliance with applicable federal anti-discrimination law is material to the government’s decision to pay under the contract and certifying that the federal contractor does not operate any programs promoting diversity, equity, and inclusion that violate applicable federal anti-discrimination laws. The Executive Order directs the Director of the OMB and the Attorney General to revise government processes to comply with these new requirements and excise references to diversity, equity, and inclusion principles from federal grants, contracts, programs, and mandates.
Provisions Applicable to Non-Federal-Contractor Private Employers
The Executive Order does not impose any specific requirements on private employers who are not federal contractors or subcontractors. However, it does contain provisions indicating how the Trump Administration plans to make efforts to prevent private employers from promoting diversity, equity, and inclusion in their workplaces. Specifically, the Executive Order directs the Attorney General to submit a recommendation for measures to encourage private employers to end diversity, equity, and inclusion practices and formulate civil-rights policy to this end within 120 days of the Executive Order. The Executive Order asks the Attorney General to identify large companies and educational institutions to target for civil compliance investigations and federal lawsuits to advance these stated goals.
Exceptions to the Executive Order
The Executive Order makes several notable exceptions to its prohibition on diversity, equity, and inclusion. For example, the Executive Order does not apply to federal or private sector employment preferences to veterans in the U.S. armed forces or to blind employees protected by the Randolph-Sheppard Act. Additionally, the Executive Order does not prevent state and local governments, federal contractors, federally funded educational agencies, or institutions of higher education from engaging in constitutionally protected free speech. And lastly, the Executive Order does not prohibit teachers at federally funded institutions of higher education from advocating for or discussing the employment and contracting practices prohibited by the Executive Order.
Employment Laws Still in Effect
Notwithstanding the prohibitions and requirements regarding affirmative action imposed by the Executive Order, private employers — whether federal contractors or not — are still required to follow the various state and federal anti-discrimination laws that protect employees on the basis of race, color, national origin, religion, sex, sexual orientation, gender identity, disability, and more. And those private employers who are federal contractors or subcontractors retain other contracting obligations they are required to follow under federal law, such as the Davis Bacon and Related Acts, the McNamara O’Hara Service Contract Act, and the National Labor Relations Act, among others. Among the ever-changing landscape of employment laws related to anti-discrimination and affirmative action, employers must be cognizant of these developments as they arise. We are in the midst of sea changes in the federal government’s approach to a variety of employment-related matters, and we will continue to keep our readers posted.
[1] Note that the Executive Order uses the phrase “sexual preference” throughout, but federal law and regulations protect employees on the basis of sexual orientation, not sexual preference, and do not generally use the phrase “sexual preference.”
New Administration Puts DEI Programs On Notice
On January 21, 2025, President Trump’s first full day in office, he issued an Executive Order targeting diversity, equity, and inclusion (DEI) and diversity, equity, inclusion, and accessibility (DEIA) programs.1
Titled “Ending Illegal Discrimination and Restoring Merit-Based Opportunity,” the Order sets out a policy to “protect individual initiative, excellence, and hard work…” by terminating “all discriminatory and illegal preferences, mandates, policies, programs, activities, guidance, regulations, enforcement actions, consent orders, and requirements” within the federal government. The Order also directs the government “to combat illegal private-sector DEI preferences, mandates, policies, programs, and activities.”
Key provisions of the Order are summarized below:
Section 3 (“Terminating Illegal Discrimination in Federal Government”). Section 3 rescinds EO 11246, along with other Executive Orders that promote diversity within the federal government and protect federal employees from discrimination. EO 11246, signed by President Lyndon Johnson in 1965, required federal government contractors to develop and maintain affirmative action programs. In addition, among other things, Sec. 3 prohibits the federal Office of Federal Contract Compliance Programs (OFCCP) from promoting diversity. Section 3 also requires all federal government contractors and grant recipients to certify that it does not operate any programs promoting DEI that violate any applicable Federal anti-discrimination laws. Finally, the Order directs the Office of Management and Budget to excise references to DEI principles from all federal acquisition, contracting, grants, and financial assistance procedures, and to terminate all terminate all diversity and equity programs and activities.
Section 4 (“Encouraging the Private Sector to End Illegal DEI Discrimination and Preferences”). This Section orders the head of every federal agency to identify the “most egregious and discriminatory DEI practitioners” by identifying “up to nine potential civil compliance investigations of publicly traded corporations, large non-profit corporations or associations, foundations with assets of 500 million dollars or more, State and local bar and medical associations, and institutions of higher education with endowments over 1 billion dollars.”
Section 5 (“Other Actions”). Section 5 directs the Attorney General and the Secretary of Education to issue guidance to all institutions of higher education that receive federal grants or participate in federal student loan programs regarding measures and practices they must follow to comply with the Supreme Court’s decision striking down affirmative action programs in college and university admissions.
This Executive Order is one of many consequential changes impacting employers that the Trump-Vance administration has announced and will seek to implement over the course of their administration. Our team will continue to track and analyze this and other significant directives and policy changes as they are announced. Expect further alerts and guidance regarding these important topics.
1 For purposes of this Alert, both DEI and DEIA programs will be referred to as DEI programs.
Landmark Fifth Circuit Ruling Further Limits SEC Rulemaking
What Happened
On December 11, 2024, an en banc panel of the US Court of Appeals for the Fifth Circuit vacated the US Securities and Exchange Commission’s orders approving a series of Nasdaq rules regarding board diversity.[1] Beyond the immediate impact of the decision on board diversity efforts, the opinion will have far broader consequences for future rulemaking by self-regulatory organizations and the SEC itself. This alert considers the administrative law implications of the Fifth Circuit opinion on the SEC and the myriad of self-regulatory organizations it oversees.
The Bottom Line
Over the past 20 years, a series of appellate cases vacating SEC actions has placed a growing number of limitations on the agency’s ability to issue orders and engage in rulemaking. But the Fifth Circuit’s Nasdaq case stands out because it clarifies substantial limits around several commonly-accepted assumptions underlying SEC rulemaking that have to date largely gone unchallenged.
Since the case involves Section 19(b) of the Securities Exchange Act of 1934 (the “Exchange Act”), which lays out the procedure by which the SEC approves rules of self-regulatory organizations, the decision applies to a wide variety of SEC registrants who make use of the Section 19(b) process to issue their own rules and regulations. These entities include stock exchanges, clearing agencies, the Municipal Securities Rulemaking Board (“MSRB”), the Financial Industry Regulatory Authority (“FINRA”) and the Public Company Accounting Oversight Board (“PCAOB”). Of course, the SEC itself is also bound by the holding.
The Fifth Circuit opinion includes an exhaustive analysis of the Exchange Act from an historical, academic and textual perspective. The decision aligns with recent Supreme Court and Fifth Circuit precedent that seeks to preserve federalism, limit overreach by administrative agencies and construe statutes narrowly according to their plain meaning. Since courts typically interpret each of the SEC’s other primary statutes in a manner consistent with interpretations under the Exchange Act, the Fifth Circuit’s decision should also apply to rulemakings under the Securities Act of 1933, the Investment Advisers Act of 1940 and the Investment Company Act of 1940. This is a landmark administrative law case impacting the SEC and the self-regulatory organizations it oversees, and the case’s impact on future SEC rulemaking is significant.
The Full Story
In 2021, Nasdaq sought SEC approval under Section 19(b) of the Exchange Act of three separate listing requirements regarding board diversity. In two separate orders, the SEC approved new Nasdaq listing rules requiring most Nasdaq-listed companies to (1) publicly disclose board diversity statistics using a uniform format on an annual basis (the “Disclosure Rule”) and (2) have, or publicly disclose why they do not have, at least one self-identified female director and at least one director who self-identifies as an underrepresented minority (the “Diversity Rule”). A third SEC order approved a Nasdaq rule providing complimentary access to a board recruiting tool intended to aid Nasdaq-listed companies in complying with the first two rules (the “Recruiting Rule”).
Two groups challenged the SEC’s approval orders in separate litigation, alleging various statutory and constitutional infirmities. The petitions for review were eventually consolidated before the Fifth Circuit. In 2023, a three-judge Fifth Circuit panel denied the petitioners’ petitions for review and upheld the SEC’s approval of the Nasdaq rules.[2] But the Fifth Circuit subsequently granted en banc review, and the en banc panel reversed the panel decision by a vote of 9-8 (with one recusal). The full court’s majority vacated the Disclosure Rule and the Diversity Rule, and dismissed as moot the challenge to the Recruiting Rule since no companies had sought to use the recruiting tool. Nasdaq has stated publicly that it will not appeal the decision further, and with the change in presidential administrations, the SEC is not likely to take further action either. A summary of key portions of the opinion and key takeaways follows.
1. Disclosure for disclosure’s sake is not authorized under the Exchange Act
In its opinion, the Fifth Circuit first focused on the SEC’s assertion that any disclosure-based rule is related to the purposes of the Exchange Act, and thus within the SEC’s authority to adopt.[3] In response, the court undertook a detailed historical analysis of the underpinnings of the Exchange Act as enacted in 1934, as well as key amendments to the statute adopted in 1975 relevant to Nasdaq.
First, the court concluded that the “text and history of the original Exchange Act indicate Congress enacted it to protect investors and tackle the manipulation and speculation that Congress thought fueled the Great Depression.”[4] The Exchange Act also placed limits on solicitation of proxies to ensure fair elections for corporate boards.[5] But, according to the court, “nothing in the original Act required disclosure for disclosure’s sake.”[6] Instead, the court reasoned, the Exchange Act “was uniformly directed at preventing market abuses.”[7]
Next, the court determined that while Congress passed the original Exchange Act in 1934 “to protect investors and the American economy from speculative, manipulative and fraudulent practices,” it amended the statute in 1975 “to further these goals and . . . to remove barriers to the development of a national market system.”[8] The court conceded there may also be “other purposes buried in the Exchange Act’s voluminous text,” but that its review of the statute’s history “makes clear that disclosure of any and all information about listed companies is not among them.”[9] Thus, the court concluded that before the SEC approves an SRO rule, “it must do more than posit that the rule furthers some ‘core disclosure purpose’ that is found nowhere” in the Exchange Act.[10] Instead, the SEC must establish that the rule has “some connection to an actual, enumerated purpose of the Act.”[11] Later in the opinion, the court revisited this theme to double-down on the notion that “full disclosure” by itself is not a “core purpose” of the Exchange Act.[12]
Key Takeaways: In recent years, the subject matter of SEC disclosure requirements for public companies has expanded markedly through rulemakings involving a range of topics including cybersecurity, executive compensation, greenhouse gas emissions, climate change, and human capital, to name just a few. Among the justifications for each of these rulemakings has been the notion that the Exchange Act is a disclosure statute, and while there is a theoretical limit to the outer reaches of disclosure, the SEC has yet to reach that frontier. This case will require a fundamental rethinking of this line of reasoning and a redrawing of that outer boundary. It will, therefore, limit future SEC disclosure rules.
2. The purposes of the Exchange Act are narrowly construed
To support the rules, the SEC contended that they were designed to “promote just and equitable principles of trade” and “remove impediments to and perfect the mechanisms of a free and open market and a national market system,” each as contemplated in Section 6(b)(5) in the Exchange Act. Analyzing academic literature, SEC releases, other caselaw and even Webster’s dictionary to place these phrases in context, the court concluded that the Disclosure Rule and Diversity Rule were “far removed” from just and equitable principles of trade, and “had nothing to do with the execution of securities transactions.”[13] Notably, the court cited the Supreme Court’s recent decision in Loper Bright Enterprises v. Raimondo, which eliminated so-called Chevron deference, for the proposition that statutes can only be “sensibly understood . . . by reviewing text in context.”[14]
Key Takeaways: The federal securities laws are replete with aspirational and mystical-sounding terminology such as “just and equitable principles of trade” and “to protect investors and the public interest.” While there have been some prior cases attempting to assign meaning to such wording, the SEC often deploys an “I know it when I see it” approach to interpreting these and similar phrases in its authorizing statutes, and over the years few of its orders doing so have been subject to judicial review. Here the court took the SEC to task and concluded that this kind of terminology indeed has a more precise meaning.
3. To “protect investors and the public interest” is not independent grounds to act
The SEC also pointed to its mandate under the Exchange Act to “protect investors and the public interest” to justify the rules. In perhaps the most important section of the opinion, the court determined that this phrase is a “catch all” phrase that must be interpreted by references to the canons of noscitur a sociis (“a phrase is given more precise content by the neighboring words with which it is associated”) and ejusdem generis (“a general or collective term at the end of a list of specific items is typically controlled and defined by reference to the specific items that precede it”).[15] When read in the context of the other language surrounding the public interest provision in the Exchange Act, the court concluded that the Disclosure Rule and Diversity Rule were not related to that purpose. The court was also skeptical of the SEC’s rationale that simply satisfying “the demand of some important investors” was stand-alone grounds to justify rulemaking, and it rejected that argument as well.[16]
Key Takeaways: The SEC has frequently justified past rulemakings on the grounds that an action was in the public interest. For example, the agency’s controversial rulemaking on climate and greenhouse gas emissions (subject to a pending Eighth Circuit challenge) cites this provision as authority for those rules. The Fifth Circuit’s opinion here suggests that this justification, without more, may be insufficient. Likewise, in recent rulemakings the SEC has also cited investor demand as compulsion for the SEC to act, and that too may not survive future judicial scrutiny.
4. The major questions doctrine applies to the SEC
The court’s opinion also considered the application of the major questions doctrine under the Supreme Court’s 2022 decision in West Virginia v. EPA and its rapidly-expanding progeny. In brief, this doctrine generally provides that absent an express grant of authority, Congress does not impliedly grant administrative agencies the power to make decisions regarding significant political or economic issues. Parties challenging SEC rulemaking have increasingly cited the doctrine since the West Virginia decision was announced, and in this decision the Fifth Circuit provided a robust analysis of the application of the doctrine to SEC rulemaking.
Here, the court considered the significant economic and political implications of the Nasdaq rules and quickly concluded “this is a major questions case.”[17] The court was particularly concerned that the SEC appeared to be “stepping outside its ordinary regulatory domain of market manipulation and proxy voting and intruding into the province of other agencies.” The court was also troubled that the SEC appeared to be intruding on the rights of states to regulate corporate governance.[18]
Key Takeaways: The major questions doctrine as applied to the SEC will without a doubt cabin the agency’s most ambitious plans for future rulemaking when planned actions lack explicit statutory authority. This outcome will be a welcome development for those who wish the SEC to return to its roots as a market-oriented regulator that focuses its disclosure agenda on material financial information. Those who wish to see the SEC continue to expand its oversight of corporate behavior may be disappointed.
The Fifth Circuit’s deference to the states’ role as the primary regulators of corporations is also notable. Since the enactment of the Sarbanes-Oxley Act in 2002, the SEC has increasingly asserted itself into core areas of corporate governance, such as through the constant expansion of the universe of permissible shareholder proposals under Rule 14a-8 and ever-increasing “comply or explain” disclosure requirements around board and management oversight of the business. As described below, the Fifth Circuit also addressed comply-or-explain rules in its opinion. In total, the ruling may serve as an opportunity for the SEC to reconsider existing mandates regarding corporate governance couched as disclosure requirements.
5. Two wrongs don’t make a right
In defense of the rules, the SEC and Nasdaq cited another stock exchange’s listing requirement regarding board diversity. The Fifth Circuit was not persuaded that the prior rule justified the one before the court. Instead, it noted that the “SEC cannot nullify the statutory criteria governing exchange rules by repeatedly ignoring them.”[19] Said differently, an agency “cannot acquire authority forbidden by law through a process akin to adverse possession.”[20]
Key Takeaways: Another common defense of recent SEC rulemakings has been that the SEC has passed similar rules in the past without challenge, hence it is free to do so again in the future. This line of reasoning is also suspect going forward. Instead, the SEC must find independent authority and justification for each future rule and order.
6. Public-shaming rules are suspect
The SEC and Nasdaq also defended the rules by arguing that they were mere disclosure rules that did not seek to “remake the boardrooms of America’s corporations.”[21] The court found that the administrative record did not support this assertion, and noted that corporations not meeting the diversity requirements were compelled to explain themselves under the Disclosure Rule. The court seemed most troubled by this latter point, ruling that this approach was not a disclosure requirement, but rather “a public-shaming penalty” for failing to abide by the government’s preferred policy outcomes.
Key Takeaways: For decades the SEC has adopted rules under the “comply or explain” model as a way of nudging registrants to engage in the SEC’s preferred behavior even when the agency may not be authorized to compel that conduct directly. The theory is that most companies would rather not disclose a lack of alignment with the SEC’s preferred practice on a given topic (even if compliance is not mandatory), thus they will change behavior so as to avoid a potentially embarrassing disclosure. This case calls into question the “comply or explain” approach, at least when there is a shaming element to it, and may serve to limit its use going forward.
[1] Alliance for Fair Board Recruitment v. SEC, Case No. 21-60626 (5th Cir. Dec. 11, 2024) (en banc decision).
[2] Alliance for Fair Board Recruitment v. SEC, 85 F. 4th 226 (5th Cir. 2024) (panel decision).
[3] Slip Op., supra note 1, at 11.
[4] Id. at 17.
[5] Id.
[6] Id.
[7] Id.
[8] Id. at 22.
[9] Id.
[10] Id.
[11] Id.
[12] Id. at 38
[13] Id. at 25-7.
[14] Id. at 26 (internal citations omitted).
[15] Id. at 28 (internal citations omitted).
[16] See id. at 31.
[17] Id. at 34.
[18] Id. at 35.
[19] Id. at 38.
[20] Id. (citations omitted).
[21] Id.
President Trump’s Executive Order on Recognizing Two Sexes: Implications for Private Employers
On Monday, January 20, 2025, President Donald Trump issued an Executive Order entitled “Defending Women From Gender Ideology Extremism and Restoring Biological Truth To The Federal Government” (the “Order”). The Order declares that the United States will only recognize two sexes, male and female, and states that these sexes are binary, biological, and “not changeable.”
The Order provides that, under the direction of President Trump, the Executive Branch will “enforce all sex-protective laws to promote this reality.” As part of this enforcement, federal agencies are required to remove, and cease issuing, any statements, policies, regulations, and other messages that “promote or otherwise inculcate gender ideology,” which the Order defines as “the idea that there is a vast spectrum of genders that are disconnected from one’s sex.” Federal agencies are also required to take all necessary steps permitted by law to “end Federal funding of gender ideology.” Moreover, pursuant to the Order, all federal agencies and employees must use the term “sex” rather than “gender” when acting in an official capacity.
The Order also requires all government-issued identification documents, such as passports, visas, and Global Entry cards to “accurately reflect the holder’s sex.” This marks a reversal of the Biden Administration’s policy which, beginning in 2022, allowed U.S. citizens to select the gender-neutral “X” on their passports. In addition, the Order mandates “privacy in intimate spaces” to ensure that single-sex spaces, such as federal prisons and rape shelters, are designated by sex and not by gender identity.
Limiting the Scope of Bostock
Notably, the Order explicitly states the Trump Administration’s intent to limit the scope of the U.S. Supreme Court’s 2020 ruling in Bostock v. Clay County. In Bostock, the Supreme Court held that Title VII of the Civil Rights Act of 1964’s prohibition on discrimination “on the basis of sex” includes discrimination on the basis of sexual orientation and gender identity. According to the Order, the Biden Administration interpreted Bostock to “require[] gender identity-based access to single-sex spaces.” The Order directs the Attorney General to immediately issue guidance to federal agencies to “correct [this] misapplication” of Bostock to “sex-based distinctions in agency activities.” The Senate Judiciary Committee is scheduled to vote on President Trump’s Attorney General nominee, Pam Bondi, on January 29.
What The Executive Order Means for Private Employers
Importantly, the Order directs the Attorney General to issue guidance to “ensure the freedom to express the binary nature of sex and the right to single-sex spaces in workplaces and federally funded entities covered by the Civil Rights Act of 1964.” Pursuant to that guidance, the Order instructs the Attorney General, the Secretary of Labor, and the General Counsel and Chair of the Equal Employment Opportunity Commission (“EEOC”), as well as any other agency heads with enforcement power, to prioritize investigations and litigation to enforce the binary sex mandate. While the EEOC is generally expected to slow the pace of litigation and shift away from enforcement through investigations against employers suspected of violating discrimination laws under newly appointed Acting Chair Andrea R. Lucas, employers in the coming months and years may see more litigation and enforcement through investigations against employers who are not in compliance with the Executive Order’s mandate.
Lastly, the Order states that all federal agencies must promptly rescind any guidance inconsistent with the Order and/or with the Attorney General’s forthcoming guidance. Specifically, the Order also calls for the rescission of the EEOC’s April 2024 guidance, entitled “Enforcement Guidance on Harassment in the Workplace.”
As Proskauer previously covered, that guidance provided broad protection for LGBTQ+ workers against harassing conduct based on sexual orientation or gender identity. Among other things, the guidance also emphasized that sex-based harassment under Title VII encompasses harassment based on pregnancy, childbirth, or related medical conditions (including the decision to have, or not have, an abortion). With this guidance no longer in effect, employers should review any modifications to policies or practices implemented in response to the guidance against the other requirements of the Executive Order.
Takeaways
This Order was just one of dozens of executive actions taken by President Trump within hours of his inauguration. We expect there will be more updates in the coming days and weeks, and we will continue to monitor and report on these updates.
President Trump Revokes Affirmative Action Requirement for Federal Government Contractors
On January 21, 2025, President Trump issued an Executive Order revoking Executive Order 11246, which imposes anti-discrimination and affirmative action requirements on federal government contractors and subcontractors. This action, part of the new administration’s broader assault on DEI efforts in the federal government and private sector, may eliminate a significant compliance obligation for federal contractors. However, much remains uncertain about the going forward status of affirmative action requirements in federal contracting.
The new Executive Order requires the Office of Federal Contract Compliance Programs (OFCCP), which administers Executive Order 11246 among other laws, to immediately cease promoting diversity, stop federal contractors and subcontractors from taking affirmative action, and end workforce balancing by federal contractors based on race, color sex, sexual preference, religion, or national origin. The Executive Order also states that federal contractors shall not consider race, color, sexual preference, religion, or national origin “in ways that violate the Nation’s civil rights laws” when making employment, procurement, and contracting decisions. The Executive Order states that federal contractors may continue to comply with the regulatory scheme required by Executive Order 11246 until April 20, 2025.
OFCCP did not immediately issue guidance on how the new Executive Order impacts contractors’ obligations. Given that OFCCP’s regulations provide that affirmative action goals are not quotas or set-asides, do not supersede merit selection, and do not justify making employment decisions in a discriminatory manner, it is unclear how they conflict or would interact with the Executive Order’s prohibition of illegal discrimination and workplace balancing.
With that said, the now-revoked Executive Order 11246 is the source of those OFCCP regulations and contractor race and gender affirmative action obligations. It does not appear that the Executive Order would affect veteran affirmative action plan obligations under the Vietnam Era Veterans’ Readjustment Assistance Act of 1974 (VEVRAA) or disability affirmative action plan obligations under Section 503 of the Rehabilitation Act, given the statutory basis for those requirements.
In addition to eliminating Executive Order 11246, the new Executive Order requires that every federal contract or grant award must now include a term certifying that the contractor or award recipient will not operate any programs promoting DEI, and a term requiring compliance “in all respects with all applicable Federal anti-discrimination laws.” The Executive Order states that this term is material to the government’s payment decision. This raises the specter of potential whistleblower actions under the False Claims Act against contractors operating allegedly discriminatory programs.
The revocation of Executive Order 11246 underlines the extent to which DEI efforts are in the Trump administration’s crosshairs. On the same day as the new Executive Order, the Office of Personnel Management issued a memorandum immediately suspending with pay all federal employees working in agency DEI offices. As other agencies continue to take actions based upon President Trump’s DEI-related executive orders, companies that do business with the federal government will need to pay close attention.
While much remains unclear, the new Executive Order will undoubtedly be a sea of change for federal contractors and subcontractors. Polsinelli is available to assist contractors in navigating the changing landscape surrounding affirmative action and other DEI requirements.
EO 11246 On Affirmative Action is Dead – But What Will Take Its Place?
Tuesday evening, January 21, 2025, President Trump issued an executive order entitled, “Ending Illegal Discrimination and Restoring Merit-Based Opportunity,” addressing the suspension of DEI staff in government positions. Within the Order, the President revokes a number of prior executive orders, including Executive Order 11246 of September 24, 1965 (Equal Employment Opportunity).
The primary intent of the Order is to eliminate what it describes as “illegal preferences” based on race, sex, or other identity categories. It stresses the importance of enforcing civil rights laws that protect against discrimination and promoting merit-based hiring practices. The Order directs federal agencies to end policies or programs that prioritize DEI in hiring or contracting, as well as in other activities, and encourages the private sector to align with this approach.
Specifically, the Order reads:
“Federal contracting process shall be streamlined to enhance speed and efficiency, reduce costs, and require Federal contractors and subcontractors to comply with our civil-rights laws. Accordingly:
Executive Order 11246…is hereby revoked. For 90 days from the date of this order, Federal contractors may continue to comply with the regulatory scheme in effect on January 20, 2025.
The Office of Federal Contract Compliance Programs within the Department of Labor shall immediately cease:
Promoting “diversity;”
Holding Federal contractors and subcontractors responsible for taking “affirmative action;” and
Allowing or encouraging Federal contractors and subcontractors to engage in workforce balancing based on race, color, sex, sexual preference, religion, or national origin.”
Federal contractors are still required to complete VETS and Disabled AAPs, as those are legislatively mandated. In his speech discussing executive orders to come, President Trump emphasized his administration’s commitment to merit-based hiring and non-discrimination in the workplace—a sentiment that aligns with Title VII of the Civil Rights Act of 1965, as amended.
While it is unclear how this EO will impact ongoing audits initiated by the OFCCP, there is still a lack of clarity as to what, if anything, will replace EO 11246. Importantly, the EO did not disband the OFCCP. It is possible that the administration plans to use the OFCCP to fetter out DEI programs in the federal contractor community, keeping up with its promise on the campaign trail, and shift the agency’s focus to ensuring merit-based hiring instead of a focus on compliance with affirmative action requirements.
As this Order takes effect, some states may choose to step in and mandate affirmative action plans, essentially adopting the existing federal affirmative action framework for state-level employment practices. This is more likely in states such as California, Illinois, New York, and New Jersey.
For federal contractors, this Order indicates a shift in compliance requirements and adjustments to workforce planning strategies. As the regulatory landscape evolves, reach out to legal counsel to understand how these changes affect your operations and policies moving forward.
Breaking: President Trump Rescinds Executive Order 11246
On January 21, 2025, President Trump issued a broad executive order titled “Ending Illegal Discrimination and Restoring Merit-Based Opportunity” (the “Order”), which among other things, rescinds Executive Order (“EO”) 11246. EO 11246 is the underpinning for government contractor race and sex affirmative action program requirements. The order also instructs OFCCP to immediately cease:
(A) Promoting “diversity”; (B) Holding Federal contractors and subcontractors responsible for taking “affirmative action”; and (C) Allowing or encouraging Federal contractors and subcontractors to engage in workforce balancing based on race, color, sex, sexual preference, religion, or national origin.
In line with other actions taken with respect to diversity, equity, and inclusion (“DEI”) initiatives, President Trump’s executive order also instructs agency heads to “include in every contractor or grant award” a term requiring the contractor/grantee to “certify that it does not operate any programs promoting DEI that violate any applicable Federal anti-discrimination laws.”
We are still unpacking what all of this means for federal contractors. For example, government contractors have affirmative action obligations with respect to protected veterans and individuals with disabilities, which are grounded in statute and not EO 11246. Those requirements presumably remain in effect.
New Jersey Division on Civil Rights Issues New Guidance on ‘Algorithmic Discrimination’
On January 9, 2024, New Jersey Attorney General Matthew J. Platkin and the New Jersey Division on Civil Rights (DCR) issued a thirteen-page “Guidance on Algorithmic Discrimination and the New Jersey Law Against Discrimination.”
Quick Hits
The New Jersey Division on Civil Rights (DCR) issued guidance that explains how an employer’s use of automated decision-making tools can lead to algorithmic discrimination that violates the New Jersey Law Against Discrimination (NJLAD).
The guidance does not impose any new obligations on employers but reinforces the importance of NJLAD compliance and instructs that the NJLAD “draws no distinctions based on the mechanism of discrimination.”
Given the increasing use of AI tools to make employment decisions, the DCR explains that all “New Jerseyans [should] understand what these tools are, how they are being used, and the risks and benefits associated with their use.”
The DCR rolled out the guidance as part of the agency’s launch of a new Civil Rights and Technology Initiative “to address the risks of discrimination and bias-based harassment stemming from the use of artificial intelligence (AI) and other advanced technologies” and provide guidance concerning how the New Jersey Law Against Discrimination (NJLAD) applies to these new technologies. The guidance does not impose any new requirements that are not already included in the NJLAD or establish any new rights or obligations. However, given the DCR’s decision to release guidance on the topic, employers doing business in New Jersey may wish to audit their existing uses of AI to ensure that their policies and practices comply with the NJLAD. While AI technology can be complex, and an employer may not fully grasp how a particular tool generates results, the guidance reinforces that employers are fully responsible for the AI technology they utilize and may not delegate their compliance responsibilities to third parties.
What Are Automatic Decision-Making Tools?
The guidance defines an “automatic decision-making tool” as “any technological tool, including but not limited to, a software tool, system, or process that is used to automate all or part of the human decision-making process.” An automated decision-making tool might be used to determine whether a human resources professional will review a certain resume, hire a job applicant or terminate an employee. The DCR referenced May 18, 2023, guidance from the U.S. Equal Employment Opportunity Commission (EEOC) in providing these examples. See “Select Issues: Assessing Adverse Impact in Software, Algorithms, and Artificial Intelligence Used in Employment Selection Procedures Under Title VII of the Civil Rights Act of 1964.”
The DCR explained that automated decision-making tools “accomplish their aims by using algorithms, or sets of instructions that can be followed, typically by a computer, to achieve a desired outcome.” Depending upon how the algorithms are designed, the tools “can create classes of individuals who will be either advantaged or disadvantaged in ways that may exclude or burden them based on their protected characteristics.” Given the role that algorithms play in the operation of these tools, the DCR defines any discrimination resulting from them as “algorithmic discrimination.”
Citing recent studies, the guidance explains how, for example, an automated decision-making tool that ranks job applicants of a particular race or gender more favorably (or less favorably) than applicants in another group could lead to discriminatory hiring. The DCR further explained that while these tools can also be used in a positive way to reduce bias and discrimination, given the risk of achieving the wrong outcome, employers must fully understand the mechanics of any AI tool upon which they rely to make employment decisions, including the risks and benefits involved.
How Do Automated Decision-Making Tools Lead to Discriminatory Outcomes?
The DCR acknowledges that it may not be easy to detect whether a particular automated decision-making tool might lead to discriminatory outcomes because the calculations made by these tools “can be invisible and not well understood.” Nevertheless, the agency explained that when discriminatory outcomes do arise, it is generally because of the way the tools are (1) designed, (2) trained, or (3) deployed.
Design
The guidance explains that a tool’s design may be intentionally or unintentionally skewed. The tool’s developer makes decisions about “the output the tool provides, the model or algorithms the tool uses, and what inputs the tool assesses.” Each of these decisions could introduce bias into the tool, which could then generate discriminatory outcomes. Referring to an example from an EEOC enforcement action, the agency explains how a tool was programmed to exclude job applicants who were of a certain age or older depending upon their gender. The case resolved with the company agreeing to stop requesting age-related information from applicants in the future.
Training
The DCR explained that before an automated decision-making tool is used in a real-world environment, the tool must be “trained.” This training “occurs by exposing the tool to training data from which the tool learns correlations or rules.” If the training data that is relied upon reflects the developer’s own biases, or otherwise reflects institutional inequities, the tool can become biased through the training process itself.
Deployment
Finally, the guidance explains that algorithmic discrimination can occur once the tool is utilized in the real world. If, for example, the employer intentionally uses the tool with members of a particular protected class, doing so can lead to purposeful discrimination. Or “[i]f a tool is used to make decisions that it was not designed to assess, its deployment may amplify any bias in the tool and systemic inequities that exist outside of the tool.” Real-world use of the tool may also reveal biases that did not reveal themselves during the testing process. If the tool is flawed, it can contribute to discriminatory decisions that are then fed back into the tool for further training. “Each iteration of this loop exacerbates the tool’s bias.”
NJLAD ‘Draws No Distinctions’ Based on Discrimination Mechanism
The DCR concluded its guidance by reinforcing the NJLAD’s prohibitions on employment discrimination. Whether prohibited discrimination occurs because of the actions of a “live” human being or based on the decisions of an AI tool is immaterial. As always, the impact of an employer’s decision is the critical issue. As the DCR put it, “the LAD draws no distinctions based on the mechanism of discrimination.” If an employer uses an automated decision-making tool to discriminate against a protected class, that employer is liable for unlawful discrimination, the same as if the employer engaged in that behavior without a tool. Such actions constitute disparate impact or intentional discrimination.
If use of an automated decision-making tool generates decisions that disproportionately impact members of a protected class, the employer that used the tool may be liable for disparate impact discrimination. Under well-established principles of disparate impact discrimination, even if the tool serves a “substantial, legitimate nondiscriminatory interest,” use of the tool could be argued to be unlawful if a “less discriminatory alternative” exists. The guidance shares an example about a company that uses an automated decision-making tool to assess contract bids. If that tool disproportionately excludes women-owned businesses, the tool is problematic and may cause disparate impact discrimination. Similarly, if a store uses facial recognition software to flag shoplifters, and the software disproportionately generates false positives for customers who wear certain religious headwear, the tool’s design is flawed, and the employer may be liable for disparate impact discrimination.
Use of Automated Decision-Making Tools and Reasonable Accommodations
The guidance also provides examples of how AI tools can affect applicants or employees who require reasonable accommodations. If, for example, the employer relies upon an AI tool to test an applicant’s typing speed, and the tool cannot assess the speed of an applicant who utilizes a nontraditional keyboard due to a disability, the employer’s use of the tool may cause discrimination against a disabled applicant.
In another context, if an AI tool is not “trained” (see above) on data that includes individuals who require accommodations, the tool may unintentionally penalize individuals who require accommodations. Similarly, an AI-screening tool used in the hiring process may screen out individuals who state in their applications that they require an accommodation to perform the job. Another example is an AI tool that tracks employee productivity by the number of breaks an employee takes. This tool may disproportionately target for discipline employees who require additional break time to accommodate a disability or to express breast milk. If an employer relies upon such tools to discipline employees, the employer could violate the NJLAD.
Next Steps
While the guidance creates no new obligations for employers, its issuance strongly suggests that the DCR, like the EEOC, Office of Federal Contract Compliance Programs (OFCCP), and the the U.S. Department of Labor (DOL), may focus increased attention on employers’ use of automated decision-making tools. New Jersey employers may want to consider reviewing and evaluating their use of these tools and subject them to a bias audit. Additionally, as employers can be liable for unlawful algorithmic discrimination even if they rely on a vendor’s representation that the tool they offer is sound and will not lead to discriminatory outcomes, employers may want to evaluate their vendor contracts and work closely with their vendors to determine how these potential risks and liabilities are spelled out.
Employers may want to stay tuned for new developments on the legislative front involving the use of AI. The New Jersey Legislature introduced two bills early last year (A. 3854 and A. 3911) that seek to regulate employers’ use of this technology in the hiring process. Among other provisions, A. 3854 would require companies that sell automated decision-making tools to conduct an annual bias audit and require employers relying on such tools to notify job candidates that such technology was used in the hiring process and provide a summary of its most recent bias audit. The proposed legislation would also impose monetary penalties ranging from $500 for a first offense and $500 to $1,500 penalty for each subsequent offense. A. 3911 addresses the use of AI-enabled video interviews, and, among other provisions, requires employers to obtain a candidate’s consent to use the technology. If enacted, New Jersey will join other jurisdictions, including Colorado, Illinois, and New York City, that have taken steps to regulate the use of AI in employment decision making.
President Trump’s “Rescission” Executive Order
Among the executive orders issued by President Trump on January 20, 2025, was one titled Initial Rescissions of Harmful Executive Orders and Actions (the “Order”).
The Order’s stated purpose is to retract what it describes as the “deeply unpopular” and “radical” practices of President Biden. The Order specifically calls out the “injection of diversity, equity and inclusion” and states that such measures have corrupted our institutions by replacing “hard work, merit and equality.”
With that as preface, the Order goes on to list numerous prior executive orders that it is specifically revoking. Among them are:
Executive Order 13985 of January 20, 2021 (Advancing Racial Equity and Support for Underserved Communities Through the Federal Government);
Executive Order 13988 of January 20, 2021 (Preventing and Combating Discrimination on the Basis of Gender Identity or Sexual Orientation);
Executive Order 13993 of January 20, 2021 (Revision of Civil Immigration Enforcement Policies and Priorities);
Executive Order of 13999 of January 21, 2021 (Protecting Worker Health and Safety); Executive Order 14020 of March 8, 2021 (Establishment of the White House Gender Policy Council);
Executive Order 14031 of May 28, 2021 (Advancing Equity, Justice, and Opportunity for Asian Americans, Native Hawaiians, and Pacific Islanders);
Executive Order 14055 of November 18, 2021 (Nondisplacement of Qualified Workers under Service Contracts); and
Executive Order 14075 of June 15, 2022 (Advancing Equality for Lesbian, Gay, Bisexual, Transgender, Queer, and Intersex Individuals) among many others.
The White House also issued an Inauguration Day executive order titled Defending Women from Gender Ideology Extremism and Restoring Biological Truth to the Federal Government (“Order 2”) which states that it is the policy of the United States to recognize two sexes, male and female, as defined therein. Under Order #2, gender identity shall no longer have a place in any decision-making nor in determinations associated with access to bathrooms, programs, housing or other federally supported operations.
Pursuant to Order 2, laws and practices shall refer to only “sex” and not “gender,” and sex is deemed to be determined biologically at the time of conception: male or female. Order 2 additionally directs all agency heads to rescind all contrary guidance and to report an update on the implementation Order 2’s requirements within 120 days. In contradiction with Guidance issued by the Equal Employment Opportunity Commission, Order 2 requires all agencies to “give the terms “sex”, “male”, “female”, “men”, “women”, “boys” and “girls” the meanings set forth in section 2 of [Order 2] when interpreting or applying statutes, regulations, or guidance and in all other official agency business, documents, and communications.”
As described above, many of these now-revoked Executive Orders involve equal opportunity for individuals based on race, gender, gender identity, and sexual orientation. While these orders have been revoked, both state and federal laws continue to prohibit discrimination on the basis of these characteristics. In fact, the United States Supreme Court in 2020 recognized that Title VII protects employees from discrimination on the basis of sexual orientation and gender identity. See Bostock v. Clayton County, 140 S. Ct. 1731. As the Supreme Court specifically stated in Bostock, “The statute’s message for our cases is equally simple and momentous: An individual’s homosexuality or transgender status is not relevant to employment decisions. That’s because it is impossible to discriminate against a person for being homosexual or transgender without discriminating against that individual based on sex.”
Therefore, employers should continue to enforce their policies prohibiting discrimination, including in accord with the Bostock decision.
New York Employers Must (Again) Provide Reproductive Health Notice of Rights in Employee Handbooks Following Second Circuit Ruling
New York employers are – once again – required to provide employees with notice regarding New York’s reproductive health decision making protections. The U.S. Court of Appeals for the Second Circuit vacated a lower court’s permanent injunction of a New York law that requires employers to include a notice in their employee handbooks regarding the State’s prohibition of discrimination based on reproductive health choices.
The handbook notice requirement stems from New York’s Reproductive Health Bias Law (Labor Law § 203-e) (the “Act”) which was enacted in November 2019 to “ensure that employees or their dependents are able to make their own reproductive health care decisions without incurring adverse employment consequences.” Under the Act, employers may not “discriminate nor take any retaliatory personnel action against an employee with respect to compensation, terms, conditions or privileges of employment because of or on the basis of the employee’s or dependent’s reproductive health decision making, including, but not limited to, a decision to use or access a particular drug, device or medical service.” The Act also prohibits employers from “accessing an employee’s personal information regarding the employee’s or the employee’s dependent’s reproductive health decision making, including, but not limited to, the decision to use or access a particular drug, device or medical service, without the employee’s prior informed affirmative written consent.” Relevant here, the Act requires that employers include in their handbooks a notice of employees’ rights and remedies under the Act.
Numerous religious organizations challenged the Act, including by arguing that the notice requirement violated their First Amendment rights. The U.S. District Court for the Northern District of New York issued a permanent injunction in 2022 halting enforcement of the Act’s notice requirement. On appeal, the Second Circuit disagreed with the district court’s reasoning and lifted the notice-related injunction. In finding the notice requirement lawful, the Second Circuit stated that the notice requirement “is similar to many other state and federal laws requiring workplace disclosures” and that while “the policy judgment that motivated [§ 203-e] may be ‘controversial’ in the same way that the policy judgments underlying Title VII, or minimum wage laws, are controversial . . . the existence and contents of [§ 203-e] – and an employer’s obligation to comply with it – is not itself controversial.” The Second Circuit further noted that the notice requirement in no way restricts employers from otherwise communicating their moral, political, or religious views (or even their disagreement with the provision) to their employees. The Second Circuit remanded the issue back to the district court for further analysis consistent with the appellate decision – thus, the litigation may not be over just yet.
Although the statute does not establish a clear penalty for an employer’s non-compliance with the notice provision (as opposed to the clearly stated employer penalties for engaging in discrimination/retaliation under the Act), New York employers are encouraged to revisit their employee handbooks to ensure compliance with the recent ruling.
Watch Out, Employers: Using Smart Devices in the Workplace May Not Be So Smart
What does the EEOC have to do with smart watches, rings, glasses, helmets and other devices that track bodily movement and other data? These devices, known as “wearables,” can track location, brain activity, heart rate, and other mental or physical information about the wearer, which has led some employers to require their employees to wear company-issued wearables. While the wearables may provide useful data, the EEOC recently warned employers to watch out for the dangers associated with them. A summary of the EEOC’s reported risks are identified below. You can find the full guidance here.
What to watch out for
Per the EEOC’s guidance, there are three categories of risk: collecting information, using information, and reasonable accommodations.
1. Collecting Information – Among other things, wearables collect information related to employees’ physical or mental condition (e.g., heart rate and blood pressure). The EEOC warned that collecting this type of information may pose risks under the Americans with Disabilities Act.
The EEOC considers tracking this sort of information as the equivalent of a disability-related inquiry, or even a medical examination under the ADA. Both inquiries and medical examinations for all employees (not just those with disabilities) are limited to situations where the inquiry or exam is job-related and consistent with business necessity or otherwise permitted by the ADA. The ADA allows inquiries and examinations for employees in the following circumstances:
When a federal, safety-related law or regulation allows for the inquiry or exam,
For certain public-safety related positions (e.g., police or firefighters), or
If the inquiry or exam is voluntary and part of the employer’s health program that is reasonably designed to promote health or prevent disease.
Outside of these three exceptions, the ADA prohibits disability-related inquiries and medical examinations. Also, if you are tracking this information, keep it confidential, just like you would any other medical information.
2. Using Information – Even if collection is permitted, employers must use caution when determining how to use the information. If an employer uses the information in a way that adversely effects employees due to a protected status, it could trigger anti-discrimination laws. A few cautionary examples from the guidance:
Using heart rate or other information to infer an employee is pregnant, then taking adverse action against her
Relying on wearable data, which is less accurate for individuals with dark skin, and making an adverse decision based on that data
Tracking an employee’s location, particularly when they are on a break or off work, and asking questions about their visits to medical facilities, which could elicit genetic information
Analyzing heart rate data to infer or predict menopause and refusing to promote employee because of sex, age, and/or disability
Increased tracking of employees who have previously reported allegations of discrimination or other protected activity
Employers need to be cautious about policies regarding mandated-wearable use. Requiring some, but not all, employees to wear these devices may trigger risks of discrimination under Title VII. If you plan to use these devices, you need human oversight and the employees monitoring the data must understand the device flaws, imperfections in the data, and potential ways of misusing the information.
3. Reasonable Accommodations – Even if an employer’s mandated-wearable requirement meets one of the above-listed exceptions, you may need to make reasonable accommodations if an employee meets the requirements for a religious exception or based on pregnancy or disability.
Takeaways
Technology in the workplace is ever-changing, and you need to stay informed about potential issues before you decide to use it. Do you need this information? If so, do you need it on all of your employees? Remember that if you don’t know about an employee’s protected status, you are less likely to be accused of basing a decision on it.
Before you implement (or continue using) mandated wearables, meet with your employment lawyer to work out a plan for implementation, follow-up, and continued policy monitoring for these devices. Also, check out our prior blog on AI in the workforce for additional tips on responsible use of technology in the workplace.
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