New Artificial Intelligence (AI) Regulations and Potential Fiduciary Implications
Fiduciaries should be aware of recent developments involving AI, including emerging and recent state law changes, increased state and federal government interest in regulating AI, and the role of AI in ERISA litigation. While much focus has been on AI’s impact on retirement plans, which we previously discussed here, plan fiduciaries of all types, including health and welfare benefit plans, must also stay informed about recent AI developments.
Recent State Law Changes
Numerous states recently codified new laws focusing on AI, some of which regulate employers’ human resource decision-making processes. Key examples include:
California – In 2024, California enacted over 10 AI-related laws, addressing topics such as:
The use of AI with datasets containing names, addresses, or biometric data;
How one communicates health care information to patients using AI; and
AI-driven decision-making in medical treatments and prior authorizations.
For additional information on California’s new AI laws, see Foley’s Client Alert, Decoding California’s Recent Flurry of AI Laws.
Illinois – Illinois passed legislation prohibiting employers from using AI in employment activities in ways that lead to discriminatory effects, regardless of intent. Under the law, employers are required to provide notice to employees and applicants if they are going to use AI for any workplace-related purpose.
For additional information on Illinois’ new AI law, see Foley’s Client Alert, Illinois Enacts Legislation to Protect against Discriminatory Implications of AI in Employment Activities.
Colorado – The Colorado Artificial Intelligence Act (CAIA), effective February 1, 2026, mandates “reasonable care” when employers use AI for certain applications.
For additional information on Colorado’s new AI law, see Foley’s Client Alert, Regulating Artificial Intelligence in Employment Decision-Making: What’s on the Horizon for 2025.
While these laws do not specifically target employee benefit plans, they reflect a trend toward states regulating human resource practices broadly, are aimed at regulating human resource decision-making processes, and are part of an evolving regulatory environment. Hundreds of additional state bills were proposed in 2024, along with AI-related executive orders, signaling more forthcoming regulation in 2025. Questions remain about how these laws intersect with employee benefit plans and whether federal ERISA preemption could apply to state attempts at regulation.
Recent Federal Government Actions
The federal government recently issued guidance aimed at preventing discrimination in the delivery of certain healthcare services and completed a request for information (RFI) for potential AI regulations involving the financial services industry.
U.S. Department of Health and Human Services (HHS) Civil Rights AI Nondiscrimination Guidance – HHS, through its Office for Civil Rights (OCR), recently issued a “Dear Colleague” letter titled Ensuring Nondiscrimination Through the Use of Artificial Intelligence and Other Emerging Technologies. This guidance emphasizes the importance of ensuring that the use of AI and other decision-support tools in healthcare complies with federal nondiscrimination laws, particularly under Section 1557 of the Affordable Care Act (Section 1557).
Section 1557 prohibits discrimination on the basis of race, color, national origin, sex, age, or disability in health programs and activities receiving federal financial assistance. OCR’s guidance underscores that healthcare providers, health plans, and other covered entities cannot use AI tools in a way that results in discriminatory impacts on patients. This includes decisions related to diagnosis, treatment, and resource allocation. Employers and plan sponsors should note that this guidance applies to a subset of health plans, including those that fall under Section 1557, but not to all employer-sponsored health plans.
Treasury Issues RFI for AI Regulation – In 2024, the U.S. Department of Treasury published an RFI on the Uses, Opportunities, and Risks of Artificial Intelligence in the Financial Services Sector. The RFI included several key considerations, including addressing AI bias and discrimination, consumer protection and data privacy, and risks to third-party users of AI. While the RFI has not yet led to concrete regulations, it underscores federal attention to AI’s impact on financial and employee benefit services. The ERISA Industry Committee, a nonprofit association representing large U.S. employers in their capacity as employee benefit plan sponsors, commented that AI is already being used for retirement readiness applications, chatbots, portfolio management, trade executions, and wellness programs. Future regulations may target these and related areas.
AI-Powered ERISA Litigation
Potential ERISA claims against plan sponsors and fiduciaries are being identified using AI. In just one example, an AI platform, Darrow AI, claims to be:
“designed to simplify the analysis of large volumes of data from plan documents, regulatory filings, and court cases. Our technology pinpoints discrepancies, breaches of fiduciary duty, and other ERISA violations with accuracy. Utilizing our advanced analytics allows you to quickly identify potential claims, assess their financial impact, and build robust cases… you can effectively advocate for employees seeking justice regarding their retirement and health benefits.”
Further, this AI platform claims it can find violations affecting many types of employers, whether a small business or a large corporation, by analyzing diverse data sources, including news, SEC filings, social networks, academic papers, and other third-party sources.
Notably, health and welfare benefit plans are also emerging as areas of focus for AI-powered ERISA litigation. AI tools are used to analyze claims data, provider networks, and administrative decisions, potentially identifying discriminatory practices or inconsistencies in benefit determinations. For example, AI could highlight patterns of bias in prior authorizations or discrepancies in how mental health parity laws are applied.
The increasing sophistication of these tools raises the stakes for fiduciaries, as they must now consider the possibility that potential claimants will use AI to scrutinize their decisions and plan operations with unprecedented precision.
Next Steps for Fiduciaries
To navigate this evolving landscape, fiduciaries should take proactive steps to manage AI-related risks while leveraging the benefits of these technologies:
Evaluate AI Tools: Undertake a formal evaluation of artificial intelligence tools utilized for plan administration, participant engagement, and compliance. This assessment includes an examination of the algorithms, data sources, and decision-making processes involved, including an assessment to ensure their products have been evaluated for compliance with nondiscrimination standards and do not inadvertently produce biased outcomes.
Audit Service Providers: Conduct comprehensive audits of plan service providers to evaluate their use of AI. Request detailed disclosures regarding the AI systems in operation, focusing on how they mitigate bias, ensure data security, and comply with applicable regulations.
Review and Update Policies: Formulate or revise internal policies and governance frameworks to monitor the utilization of AI in operational planning and compliance with nondiscrimination laws. These policies should outline guidelines pertaining to the adoption, monitoring, and compliance of AI technologies, thereby ensuring alignment with fiduciary responsibilities.
Enhance Risk Mitigation:
Fiduciary Liability Insurance: Consider obtaining or enhancing fiduciary liability insurance to address potential claims arising from the use of AI.
Data Privacy and Security: Enhance data privacy and security measures to safeguard sensitive participant information processed by AI tools.
Bias Mitigation: Establish procedures to regularly test and validate AI tools for bias, ensuring compliance with anti-discrimination laws.
Integrate AI Considerations into Requests for Proposals (RFPs): When selecting vendors, include specific AI-related criteria in RFPs. This may require vendors to demonstrate or certify compliance with state and federal regulations and adhere to industry best practices for AI usage.
Monitor Legal and Regulatory Developments: Stay informed about new state and federal AI regulations, along with the developing case law related to AI and ERISA litigation. Establish a process for routine legal reviews to assess how these developments impact plan operations.
Provide Training: Educate fiduciaries, administrators, and relevant staff on the potential risks and benefits of AI in plan administration, emerging technologies and the importance of compliance with applicable laws. The training should provide an overview of legal obligations, best practices for implementing AI, and strategies for mitigating risks.
Document Due Diligence: Maintain comprehensive documentation of all steps to assess and track AI tools. This includes records of audits, vendor communications, and updates to internal policies. Clear documentation can act as a crucial defense in the event of litigation.
Assess Applicability of Section 1557 to Your Plan: Health and welfare plan fiduciaries should determine whether your organization’s health plan is subject to Section 1557 and whether OCR’s guidance directly applies to your operations, and if not, confirm and document why not.
Fiduciaries must remain vigilant regarding AI’s increasing role in employee benefit plans, particularly amid regulatory uncertainty. Taking proactive measures and adopting robust risk management strategies can help mitigate risks and ensure compliance with current and anticipated legal standards. By dedicating themselves to diligence and transparency, fiduciaries can leverage the benefits of AI while safeguarding the interests of plan participants. At Foley & Lardner LLP, we have experts in AI, retirement planning, cybersecurity, labor and employment, finance, fintech, regulatory matters, healthcare, and ERISA. They regularly advise fiduciaries on potential risks and liabilities related to these and other AI-related issues.
New York’s Reproductive Health Handbook Notice Requirement Reinstated
Don’t finalize your 2025 handbooks just yet!
On January 2, 2025, the United States Court of Appeals for the Second Circuit vacated a permanent injunction, which had blocked a requirement that New York employers with employee handbooks include a notice against discrimination based on reproductive health care choices. As a result, handbooks covering New York employees must again include such notices.
The notice requirement originates from a series of legislation intended to protect reproductive health rights enacted on November 8, 2019. As we previously reported, one of the bills (A584/S660) added Section 203-e to the New York labor law, which prohibits employers from discriminating against employees based on an employee’s or their dependents’ sexual and reproductive health choices, including their choice to use or access a particular drug, device, or medical service. The law also prohibits employers from accessing such information without prior consent, and directed New York employers with employee handbooks to include a notice of employee rights and remedies. Although the law took effect immediately upon passage, a second bill (S4413) delayed the effective date of the notice requirement until January 2020.
A little more than two years later, the U.S. District Court for the Northern District of New York blocked the notice requirement. In CompassCare et al. v. Cuomo, several faith-based employers challenged Section 203-e in its entirety as violative of the First Amendment to the United States Constitution. Although the District Court dismissed most of the claims, on March 29, 2022, the court permanently enjoined enforcement of the notice requirement stating that it “would compel [the plaintiffs] to promote a message about conduct contrary to their religious perspectives” as they relate to reproductive health choices, such as birth control and abortion. The court found that, while New York has a compelling interest in protecting employee privacy, the State had not demonstrated that the notice requirement was the least restrictive means of achieving that interest. For example, employers could inform employees of their rights and the remedies under the law in other ways, such as placing posters at the job site, or advertising the statutory provision generally.
On appeal nearly three years later, the Second Circuit vacated the permanent injunction, thus reinstating the handbook notice requirement. The Second Circuit panel found that the requirement is similar to other state and federal laws requiring workplace disclosures and noted that while the policy judgments motivating Section 203-e may be “controversial”, so are those underlying Title VII or minimum wage laws, but that does not make an employer’s obligation to comply controversial. The Second Circuit also stated that the notice requirement does not prevent employers from otherwise communicating to employees, in their handbooks or elsewhere, their political or religious views, including their disagreement with Section 203-e.
In light of the Second Circuit’s decision, New York employers should review and revise their employee handbook to include a notice of employees’ reproductive health rights and remedies as provided by Section 203-e. The law does not provide specific language to include – and New York has not published a model notice or any further guidance on the law to date – thus, employers should consult employment counsel to ensure that their handbook notice satisfies the law’s requirements.
What’s Next for OFCCP Under The Second Trump Term?
With President Trump’s second administration set to begin on January 20, 2025, federal contractors and subcontractors are anxiously awaiting what he might do with respect to the Office of Federal Contract Compliance Programs (“OFCCP”) and the employment obligations imposed on federal government contractors. While the Trump transition team has not signaled exactly what is in store, it seems likely that changes are coming. Below we provide some thoughts on what might occur.
Of course, once President Trump takes office, we will be monitoring developments closely and alerting our readers here. Stay tuned!
Looking Back at Trump 1.0
To set the stage, when President Trump first took office in 2017, many predicted the end of OFCCP. In some ways, the precise opposite occurred. Under then-Director Craig Leen, OFCCP was incredibly active during the Trump Administration, issuing over a dozen Directives and multiple new regulations, instituting new types of audits, and obtaining record recoveries for employees.
Even so, OFCCP during President Trump’s first term took an approach that was widely seen as contractor-friendly, establishing procedures that provided contractors with more transparency and consistency in their dealings with OFCCP. Many of those efforts were rescinded by the Biden administration.
Other efforts during this period were more controversial. OFCCP expanded the existing exemption to religious entities’ compliance with the anti-discrimination provisions of Executive Order 11246 by adding new definitions to “clarify the scope” of EO 11246’s religious exemption. In addition, toward the end of his administration, President Trump issued Executive Order (“EO”) 13950, which prohibited federal contractors from including certain concepts in their diversity trainings, including concepts commonly covered in unconscious bias and social privilege trainings. Both of these measures were eliminated by the Biden administration.
What Could Happen During Trump 2.0?
As noted above, the Trump transition team has not revealed plans for OFCCP in the new administration, and predictions about what President Trump would do to OFCCP at the outset of his first administration proved to be wrong. However, there are a number of potential outcomes contractors should look out for.
The End of Executive Order 11246?
Project 2025, a policy blueprint prepared “by over 100 respected organizations from across the conservative movement,” and which has been popularly associated with the incoming administration, proposes several measures to limit OFCCP’s scope – including rescinding EO 11246. This is something President Trump could do with a stroke of a pen on Day 1, and in so doing eliminate OFCCP’s race and sex equal employment and affirmative action obligations imposed on federal contractors.
It is also possible President Trump may not rescind EO 11246, but instead limit its scope. Currently, employment obligations are imposed on contractors with contracts as low as $10,000, and more onerous requirements – such as creating affirmative action programs – are triggered by contracts as low as $50,000. Raising those limits, which have been in place for decades, would lessen the burden on smaller contractors and allow the agency to focus its resources on larger contractors.
In addition, some have speculated that OFCCP under the new Trump Administration may pivot to focus on discrimination with respect to traditionally advantaged groups (i.e., men and whites).
Reinstatement of Executive Order 13950
Many speculate that President Trump will reinstate the controversial Executive Order on Combating Race and Sex Stereotyping, which President Biden rescinded shortly after taking office in January 2021. As we previously reported, this order required that new contracts entered into with the federal government include a clause prohibiting federal contractors from including certain concepts in their diversity and awareness trainings – including concepts “that:
One race or sex is inherently superior to another race or sex;
An individual, by virtue of his or her race or sex, is inherently racist, sexist, or oppressive, whether consciously or unconsciously;
An individual should be discriminated against or receive adverse treatment solely or partly because of his or her race or sex;
Members of one race or sex cannot or should not attempt to treat others without respect to race or sex;
An individual’s moral character is necessarily determined by his or her race or sex;
An individual, by virtue of his or her race or sex, bears responsibility for actions committed in the past by other members of the same race or sex;
Any individual should feel discomfort, guilt, anguish, or any form of psychological distress on account of his or her race or sex; or
Meritocracy or traits such as a hard work ethic are racist or sexist, or were created by a particular race to oppress another race.”
The order referenced various existing government DEI trainings as examples of trainings that “perpetuate racial stereotypes and division and can use subtle coercive pressure to ensure conformity of viewpoint… [and] have no place in programs and activities supported by Federal taxpayer dollars.” This is also something President Trump could do on Day 1, and seems likely given statements made by President Trump and his transition team regarding DEI initiatives.
Reinstatement of Religious Exemption Rule
Another likely possibility under the incoming administration is the DOL’s reinstatement of the final rule, “Implementing Legal Requirements Regarding the Equal Opportunity Clause’s Religious Exemption.” As we previously reported, the rule clarified the scope of OFCCP’s religious exemption and arguably expanded the scope of EO 11246’s existing exemption for religious entities’ compliance with its anti-discrimination provisions.
Return to Contractor-Friendly Enforcement Provisions
If OFCCP survives, it may reinstitute contractor-friendly enforcement procedures. For example, under the first Trump administration, OFCCP issued a rule – Nondiscrimination Obligations of Federal Contractors and Subcontractors: Procedures To Resolve Potential Employment Discrimination – which set forth procedures before OFCCP could issue notices of violation (“NOV”) aimed at increasing the transparency of the process and providing contractors with adequate time and information to respond to initial findings prior to the issuance of any NOV. That rule, along with other administrative actions aimed at increasing transparency and fairness, were eliminated by the Biden administration. It is likely OFCCP under the next administration will reinstitute those policies and procedures.
Potential OFCCP-EEOC Merger
It is possible that OFCCP may find a new home within another department or be dismantled altogether. As we previously reported, President Trump’s last term included a failed budget proposal to combine OFCCP and the Equal Employment Opportunity Commission (“EEOC”).
Conclusion
While we do not know what exactly will happen to OFCCP once President Trump re-takes office, it seems all but assured that changes are coming. It is important for federal contractors to stay on top of developments and make any necessary adjustments.
HHS OCR Settlements: Last Week in Review
During the week of January 6, 2025, the U.S. Department of Health and Human Services’ Office for Civil Rights (“OCR”) entered into resolution agreements and corrective action plans with Elgon Information Systems (“Elgon”), Virtual Private Network Solutions, LLC (“VPN Solutions”) and USR Holdings, LLC (“USR”) for violations of the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) Security Rule.
The proposed resolutions with Elgon and VPN Solutions are the eighth and ninth ransomware investigation settlements announced by OCR. Elgon is required to pay $80,000 to OCR and will be subject to its monitoring for three years to ensure compliance with HIPAA. VPN Solutions is required to pay $90,000 and will be subject to one year of monitoring. The corrective action plans also lay out certain steps each entity is required to take to resolve potential violations of the HIPAA Privacy and Security Rules.
The proposed resolution with USR, announced on January 8, 2025, stems from a data breach, during which an unauthorized third party/parties were able to access a database containing the electronic protected health information (“ePHI”) of over 2,900 individuals and able to delete ePHI in the database. The resolution agreement requires USR to pay $337,750 to OCR and take steps to resolve potential violations of the HIPAA Privacy and Security Rules. USR will be subject to OCR monitoring for two years to ensure compliance with HIPAA.
Last week’s flurry of settlements is in keeping with a broader trend of OCR Security Rule enforcement activity in the past year. These agreements underscore how it is critical that organizations of all sizes that handle ePHI ensure their compliance with the HIPAA Security Rule, which requires administrative, physical and technical safeguards to ensure the confidentiality, integrity and availability of ePHI.
Fourth Circuit Allows Nurse’s Religious Discrimination Suit Over COVID-19 Vaccine Mandate
On January 7, 2024, the U.S. Court of Appeals for the Fourth Circuit reversed the dismissal of a complaint by a Christian nurse who alleged religious discrimination after being discharged over her refusal to comply with a Virginia hospital system’s mandatory COVID-19 vaccination policy. The ruling sends the claims back to the lower court for further consideration on the merits.
Quick Hits
The Fourth Circuit reinstated a religious discrimination lawsuit by a nurse who alleged wrongful discharge after her request for a religious exemption from a COVID-19 vaccination mandate was denied by her employer.
This ruling underscores that sincerely held religious beliefs conflicting with employer policies and job requirements can be a valid basis for religious discrimination suits over a failure to accommodate.
In Barnett v. Inova Health Care Services, the Fourth Circuit disagreed with the trial court that the lawsuit could be immediately dismissed at the start. The court of appeals found that a former registered nurse had sufficiently alleged religious discrimination claims against her former employer, Inova Health Care Services—at least enough to survive an early motion to dismiss.
The court revived all three claims that alleged Inova failed to provide a reasonable accommodation under Title VII of the Civil Rights Act of 1964 and subjected her to disparate treatment under both Title VII and the Virginia Human Rights Act (VHRA) based on her religious beliefs.
The case centers on a COVID-19 vaccine policy Inova first implemented in July 2021 to comply with the U.S. Centers for Medicare and Medicaid Services’ (CMS) former vaccine mandate for healthcare facilities. Inova’s policy required employees to receive the vaccine unless they had a religious or medical exemption.
Kristen Barnett, who was a registered nurse and the pediatric intensive care unit supervisor for INOVA, initially requested and was granted a medical exemption from the vaccine mandate related to lactation and nursing. In December 2021, when Inova required employees to reapply for exemptions, the nurse then requested a religious exemption, citing religious objections based on her beliefs as a devout Christian.
According to the decision, the nurse had explained that “[w]hile she was not ‘an anti-vaccine person’ and believed ‘there is a place in this world for both Science and Religion,’ she nonetheless believed ‘it would be sinful for her to consume or engage with a product such as the vaccination after having been instructed by God to abstain from it.’” Among Barnett’s religious objections was that her body is a “temple,” an argument seen by many employers with some frequency during and since the pandemic. However, after multiple requests, Inova denied her religious exemption and eventually discharged her in July 2022 for noncompliance with the policy.
Barnett also alleged that the body Inova tasked with analyzing exemption requests, the “Exemption Committee,” essentially “pick[ed] winners and losers” from the employees who sought exemptions based on whether it thought the “religious beliefs were legitimate.” She further alleged the committee favored more “prominent” or “conventional” religious beliefs in granting exemption requests and treated “certain religious beliefs as sufficiently acceptable to qualify for a COVID-19 policy exemption, while rejecting others.”
With respect to the Title VII religious accommodation claim, the district court immediately dismissed the claim after finding, among other things, that Barnett’s body-is-a-temple argument “amounted to a ‘blanket privilege … that if permitted to go forward would undermine our system of ordered liberty[.]’”
However, the Fourth Circuit reversed the dismissal of Barnett’s claims and remanded the case back to district court on the basis of having sufficiently pled facts to support plausible religious discrimination and accommodation claims. Importantly, however, the court noted that it was “take[ing] no position as to whether Barnett’s religious discrimination claims will ultimately succeed.” Basically, the court only found that she had sufficiently alleged a sincerely held religious belief, alleging that she was a “devout Christian” and that her refusal to get the vaccine was based on her religious beliefs.
Key Takeaways
With the Barnett decision, the Fourth Circuit joins a growing number of circuit courts that have not allowed early dismissal of these claims and are requiring employers to do more to demonstrate that an employee’s allegedly sincere religious belief is either not sincere or not religious. This makes handling the reasonable accommodation process more complicated and requires sufficient investigation and documentation before a religious belief can be discounted or an accommodation denied.
Still, the decisiondoes not represent a sea change in how courts will ultimately address the myriad pending religious accommodation cases working their way through the courts. While the Fourth Circuit sent the claims back to the district court for further consideration on the merits, it is yet to be seen whether Barnett’s claims will ultimately survive summary judgment or prevail at trial. However, employers may want to take note of the trends in how courts are evaluating religious discrimination and accommodation claims so they know how to best handle and resolve religious accommodation requests from employees.
New York State’s Fashion Workers Act Effective Summer 2025
Governor Hochul signed legislation titled the “New York State Fashion Workers Act” (the “Act”), which has a widespread impact on the modeling industry as it relates to compensation, contractual restrictions, and other workplace protections. The Act takes effect on June 19, 2025.
Applicability
The Act is geared towards protecting models, regardless of employee or independent contractor status. The Act aims to close any loopholes by placing affirmative requirements and restrictions on model management companies and their clients. Model management companies include those persons or entities engaged in the management, procurement, or counseling of models. The Act applies to clients of model management companies, including retail stores, manufacturers, clothing designers, advertising agencies, photographers, publishing companies or any other person or entity that receives modeling services.
Requirements and Prohibitions for Model Management Companies
All model management companies must register with the New York Department of Labor within one year of the effective date of the Act, by June 19, 2026. After the registration is complete, the model management company must post their certificate of registration in a conspicuous place within their physical office and on their website. Model management companies may file a request for exemption if it: 1) submits a properly executed request for exemption; 2) is domiciled outside of New York and is licensed or registered as a model management company in another state that has the same or greater requirements as the requirements under this Act; and 3) does not maintain an office in New York or solicit clients located or domiciled within New York. The registration and exemption status only lasts for a two-year period. Notably, if the management company employs more than five employees, then it must post a surety bond of $50,000.
The Act broadly imposes a fiduciary duty upon model management companies that is owed to their models. Acting in good faith, model management companies must, inter alia, conduct due diligence, procure opportunities, provide final agreements to models at least twenty-four hours prior to the start of modeling services, disclose any financial relationship with a client, and identify their registration number in any advertisement (including social media). The Act seeks to provide transparency to models’ compensation by requiring the management companies to clearly specify costs that the model must reimburse and providing the model with supporting documentation of those costs on a quarterly basis. The management companies must ensure that employment of a sexual nature or involving nudity complies with state civil rights law. The Act also considers the management company’s past and future use of images. For former models, the Act requires the management companies to send a written notification to the models informing them if the company continues to receive royalties. For future use of a model’s image, the management company must obtain a written consent separate from the representation agreement that details the creation, use, duration, scope and rate for that digital replica.
The Act also prohibits management companies from engaging in certain activities. Among prohibitions related to compensation and fees, the Act prohibits a contractual term greater than three years and prohibits the contract from automatically renewing without affirmative consent from the model. The model management companies are prohibited from taking more than twenty percent of a commission fee. Model management companies are prohibited from discrimination, harassment and retaliation. A new topic of interest is the Act’s prohibition on altering the model’s digital replica using artificial intelligence. Finally, the Act specifies that a management company cannot present a power of attorney agreement as a necessary condition to working with the management company.
Requirements of Clients
The language of the Act establishes client responsibilities owed to models as it relates to compensation and safety. Clients should be aware that if a model works over eight hours in a twenty-four-hour period, they must receive overtime pay and they must receive at least one thirty-minute meal break. Clients must only offer opportunities that do not pose an unreasonable risk of danger, ensure that work opportunities of a sexual nature or involving nudity comply with civil rights law, and allow the model to be accompanied by a representative to any work opportunity.
Causes of Action and Penalties
Under the Act, models have a private right of action in addition to the enforcement authority of the commissioner and attorney general. The Act provides a six-year statute of limitations. The commissioner may impose penalties of $3,000 for the initial violation and $5,000 for subsequent violations. Before a court of competent jurisdiction, a plaintiff may obtain actual damages, reasonable attorneys’ fees and costs, and liquidated damages up to 100% for non-willful violations and up to 300% for willful violations.
Conclusion
In anticipation of the Act going into effect, model management companies should thoroughly review and update their policies and practices and prepare to register or seek an exemption. Likewise, businesses that hire models should review their practices and revise policies as necessary to ensure compliance with the Act.
Key Employment Law Issues Employers Need to Watch in 2025
As the United States enters a new administration, changes in workplace regulations and enforcement priorities are on the horizon.
For employers, this means staying prepared for potential shifts in federal policies, heightened oversight, and new legislative initiatives. Whether you’re navigating changes in wage laws, addressing pay transparency, or adapting to evolving labor relations, staying ahead is essential.
Partnering with a human resources attorney or a labor and employment law firm is more critical than ever to successfully manage these challenges. Below, we outline the key employment law issues employers should prioritize in 2025.
Overtime Pay
With the change in administration, workplace policies are expected to shift to reflect new leadership priorities. In November 2024, we reported on a federal judge in Texas striking down the U.S. Department of Labor’s (DOL) rule that significantly raised the minimum salary thresholds for executive, administrative, and professional employees.
The rule proposed two increases: the first, effective July 1, 2024, raised the threshold from $684 per week ($35,568 annually) to $844 per week ($43,888 annually). The second increase, scheduled for January 1, 2025, would have raised the threshold to $1,128 per week ($58,656 annually).
The court’s ruling vacated the entire rule, including the July 1 increase.
While the 2024 rule is unlikely to be revived, the Trump Administration could support a moderate increase above the current $684 weekly threshold.
This potential shift in overtime pay regulations is just one example of how workplace policies may evolve under the new administration. Another key area to watch is the classification of independent contractors, which has long been a focus of labor and employment law.
Independent Contractors
The 2021 Rule, issued under President Trump’s first term, simplified worker classification by emphasizing two primary factors: the degree of control over work and the worker’s opportunity for profit or loss. If these core factors didn’t provide a clear classification, additional considerations—such as the skill required, the permanence of the relationship, and whether the work was integral to the employer’s production—were applied. This pro-employer framework allowed businesses greater flexibility in classifying workers as independent contractors.
We previously detailed the 2024 rule, which reinstates the long-established economic reality test used by the DOL and courts. This test evaluates six factors:
The worker’s opportunity for profit or loss based on managerial skill
Investments made by both the worker and the employer
The permanence of the work relationship
The nature and degree of control exercised
The extent to which the work is integral to the employer’s business
The worker’s skill and initiative
This shift reflects a return to a more traditional, worker-focused standard. Employers should monitor developments as policy priorities evolve under the new administration.
Non-Competes Ban
Another significant area of concern for employers is the regulation of non-compete agreements, which could see substantial changes under the new administration.
In October, we wrote on the Federal Trade Commission’s appeal of a Texas District Court ruling that blocked its proposed nationwide ban on non-compete agreements. If implemented, the rule would:
Prohibit employers from creating or enforcing non-competes with all workers, including employees, independent contractors, volunteers, and others providing services.
Invalidate most existing non-competes, except for those involving senior executives.
Require employers to notify current and former workers (excluding senior executives) that their non-competes are no longer enforceable.
Now, with the rule likely stalled, appeals are being reviewed by the Fifth and Eleventh Circuits. In the meantime, employers should ensure their restrictive covenants align with evolving state laws in all jurisdictions where they operate.
Union Restrictions, Maybe?
While non-compete agreements remain in legal limbo, another area likely to face scrutiny under the new administration is union-related activities, as shifts in leadership at the National Labor Relations Board (NLRB) could significantly impact labor relations and worker protections.
President-elect Trump has a history of opposing unions, with his previous appointees to the National Labor Relations Board (NLRB) favoring employers. He has also publicly criticized the Protecting the Right to Organize Act (PRO Act). While the next General Counsel of the NLRB has not been named, recent decisions, including the February 2024 Home Depot USA, Inc. v. Morales case that we covered, could face reconsideration.
In that case, the NLRB ruled Home Depot violated the National Labor Relations Act (NLRA) by “constructively” terminating Antonio Morales. Morales refused to remove the initials “BLM” from his company-issued apron, which he used to express support for the Black Lives Matter movement.
The Board found that his actions qualified as protected concerted activity under Section 7 of the NLRA due to the context of his statement.
The Home Depot decision serves as a reminder to private employers about the limits of lawful workplace policies. Employers cannot prohibit employees from making public statements about workplace conditions, even through written expressions on company-provided apparel. This case highlights the importance of carefully reviewing dress codes and related personnel policies to ensure compliance with the NLRA.
As union-related policies face potential changes, another area likely to experience shifts under the new administration is Diversity, Equity, and Inclusion (DEI) initiatives, particularly in light of recent court rulings and evolving federal priorities.
More Rollback of DEI Initiatives
Last year, several major U.S. companies scaled back or eliminated their Diversity, Equity, and Inclusion (DEI) programs following the U.S. Supreme Court’s ruling that race-based considerations in college admissions are unconstitutional. Under President Trump, we could see the revival of a previous executive order that restricted federal contractors from implementing certain DEI initiatives. Additionally, the administration may roll back other executive orders designed to advance equal employment opportunities.
However, DEI initiatives, if implemented properly, still are important and should be considered a valuable tool to foster an inclusive workplace environment.
Staying Ahead of Employment Law Changes
As workplace regulations continue to evolve under the new administration, employers must remain proactive to ensure compliance and mitigate risks. Regularly reviewing and updating policies—such as wage and hour classifications, non-compete agreements, DEI initiatives, and workplace conduct guidelines—is essential to staying aligned with federal and state laws.
Employers should also monitor legal developments, especially in areas like worker classification, union-related activities, and restrictive covenants, and adapt accordingly. Implementing robust training programs for managers and human resources personnel can further help maintain compliance and address emerging legal requirements.
The Texas Responsible AI Governance Act and Its Potential Impact on Employers
On 23 December 2024, Texas State Representative Giovanni Capriglione (R-Tarrant County) filed the Texas Responsible AI Governance Act (the Act),1 adding Texas to the list of states seeking to regulate artificial intelligence (AI) in the absence of federal law. The Act establishes obligations for developers, deployers, and distributors of certain AI systems in Texas. While the Act covers a variety of areas, this alert focuses on the Act’s potential impact on employers.2
The Act’s Regulation of Employers as Deployers of High-Risk Intelligence Systems
The Act seeks to regulate employers’ and other deployers’ use of “high-risk artificial intelligence systems” in Texas. High-risk intelligence systems include AI tools that make or are a contributing factor in “consequential decisions.”3 In the employment space, this could include hiring, performance, compensation, discipline, and termination decisions.4 The Act does not cover several common intelligence systems, such as technology intended to detect decision-making patterns, anti-malware and antivirus programs, and calculators.
Under the Act, covered employers would have a general duty to use reasonable care to prevent algorithmic discrimination—including a duty to withdraw, disable, or recall noncompliant high-risk AI systems. To satisfy this duty, the Act requires covered employers and other covered deployers to do the following:
Human Oversight
Ensure human oversight of high-risk AI systems by persons with adequate competence, training, authority, and organizational support to oversee consequential decisions made by the system.5
Prompt Reporting of Discrimination Risks
Report discrimination risks promptly by notifying the Artificial Intelligence Council (which would be established under the Act) no later than 10 days after the date the deployer learns of such issues.6
Regular AI Tool Assessments
Assess high-risk AI systems regularly, including conducting a review on an annual basis, to ensure that the system is not causing algorithmic discrimination.7
Prompt Suspension
If a deployer considers or has reason to consider that a system does not comply with the Act’s requirements, suspend use of the system and notify the system’s developer of such concerns.8
Frequent Impact Assessments
Complete an impact assessment on a semi-annual basis and within 90 days after any intentional or substantial modification of the system.9
Clear Disclosure of AI Use
Before or at the time of interaction, disclose to any Texas-based individual:
That they are interacting with an AI system.
The purpose of the system.
That the system may or will make a consequential decision affecting them.
The nature of any consequential decision in which the system is or may be a contributing factor.
The factors used in making any consequential decisions.
Contact information of the deployer.
A description of the system. 10
Takeaways for Employers
The Act is likely to be a main topic of discussion in Texas’s upcoming legislative session, which is scheduled to begin on 14 January 2025. If enacted, the Act would establish a consumer protection-focused framework for AI regulation. Employers should track the Act’s progress and any amendments to the proposed bill while also taking steps to prepare for the Act’s passage. For example, employers using or seeking to use high-risk AI systems in Texas can:
Develop policies and procedures that govern the use of AI systems to make or impact employment decisions:
Include in these policies and procedures clear explanations of (i) the systems’ uses and purposes, (ii) the system’s decision-making processes, (iii) the permitted uses of such systems, (iv) the approved users of such systems, (v) training requirements for approved users, and (vi) the governing body overseeing the responsible use of such systems.
Develop and implement an AI governance and risk-management framework with internal policies, procedures, and systems for review, flagging risks, and reporting.
Ensure human oversight over AI systems.
Train users and those tasked with overseeing the AI systems.
Ensure there are sufficient resources committed to, and an adequate budget assigned to, overseeing and deploying AI systems and complying with the Act.
Conduct due diligence on any AI vendors and developers before engagement and on any AI systems before use, including relating to how AI vendors and developers and AI systems test for, avoid, and remedy algorithmic bias, and to ensure AI vendors and developers are compliant with the Act’s requirements relating to developers of high-risk AI systems.
Footnotes
1 A copy of HB 1709 is available at: https://capitol.texas.gov/tlodocs/89R/billtext/pdf/HB01709I.pdf (last accessed: 9 January 2025).
2 Section 551.001(8).
3 Section 551.001(13). The Act defines a “consequential decision” as “a decision that has a material, legal, or similarly significant, effect on a consumer’s access to, cost of, or terms of: (A) a criminal case assessment, a sentencing or plea agreement analysis, or a pardon, parole, probation, or release decision; (B) education enrollment or an education opportunity; (C) employment or an employment opportunity; (D) a financial service; (E) an essential government service; (F) residential utility services; (G) a health-care service or treatment; (H) housing; (I) insurance; (J) a legal service; (K) a transportation service; (L) constitutionally protected services or products; or (M) elections or voting process.”
4 Id.
5 Section 551.005
6 Section 551.011
7 Section 551.006(d)
8 Section 551.005
9 Section 551.006(a)
10 Section 551.007(a)
New Jersey Attorney General: NJ’s Law Against Discrimination (LAD) Applies to Automated Decision-Making Tools
This month, the New Jersey Attorney General’s office (NJAG) added to nationwide efforts to regulate, or at least clarify the application of existing law, in this case the NJ Law Against Discrimination, N.J.S.A. § 10:5-1 et seq. (LAD), to artificial intelligence technologies. In short, the NJAG’s guidance states:
the LAD applies to algorithmic discrimination in the same way it has long applied to other discriminatory conduct.
If you are not familiar with it, the LAD generally applies to employers, housing providers, places of public accommodation, and certain other entities. The law prohibits discrimination on the basis of actual or perceived race, religion, color, national origin, sexual orientation, pregnancy, breastfeeding, sex, gender identity, gender expression, disability, and other protected characteristics. According to the NJAG’s guidance, the LAD protections extend to algorithmic discrimination (discrimination that results from the use of automated decision-making tools) in employment, housing, places of public accommodation, credit, and contracting.
Citing a recent Rutgers survey, the NJAG pointed to high levels of adoption of AI tools by NJ employers. According to the survey, 63% of NJ employers use one or more tools to recruit job applicants and/or make hiring decisions. These AI tools are broadly defined in the guidance to include:
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…such as generative AI, machine-learning models, traditional statistical tools, and decision trees.
The NJAG guidance examines some ways that AI tools may contribute to discriminatory outcomes.
Design. Here, the choices a developer makes in designing an AI tool could, purposefully or inadvertently, result in unlawful discrimination. The results can be influenced by the output the tool provides, the model or algorithms the tool uses, and what inputs the tool assesses which can introduce bias into the automated decision-making tool.
Training. As AI tools need to be trained to learn the intended correlations or rules relating to their objectives, the datasets used for such training may contain biases or institutional and systemic inequities that can affect the outcome. Thus, the datasets used in training can drive unlawful discrimination.
Deployment. The NJAG also observed that AI tools could be used to purposely discriminate, or to make decisions for which the tool was not designed. These and other deployment issues could lead to bias and unlawful discrimination.
The NJAG notes that its guidance does not impose any new or additional requirements that are not included in the LAD, nor does it establish any rights or obligations for any person beyond what exists under the LAD. However, the guidance makes clear that covered entities can violate the LAD even if they have no intent to discriminate (or do not understand the inner workings of the tool) and, just as noted by the EEOC in guidance the federal agency issued under Title VII, even if a third-party was responsible for developing the AI tool. Importantly, under NJ law, this includes disparate treatment/impact which may result from the design or usage of AI tools.
As we have noted, it is critical for organizations to assess, test, and regularly evaluate the AI tools they seek to deploy in their organizations for many reasons, including to avoid unlawful discrimination. The measures should include working closely with the developers to vet the design and testing of their automated decision-making tools before they are deployed. In fact, the NJAG specifically noted many of these steps as ways organizations may decrease the risk of liability under the LAD. Maintaining a well thought out governance strategy for managing this technology can go a long way to minimizing legal risk, particularly as the law develops in this area.
DOJ Announces Third Settlement with a Non-Depository Lender to Resolve Alleged Redlining Claims
On January 7, 2025, the United States Department of Justice (the “DOJ”) announced that a non-depository mortgage lender has agreed to pay $1.75 million in connection with allegations that it engaged in a pattern or practice of lending discrimination by redlining predominantly Black and Hispanic neighborhoods.
The DOJ filed its underlying complaint in the Southern District of Florida alleging that the lender violated the Fair Housing Act and Equal Credit Opportunity Act by failing to equitably provide access to mortgage lending services to majority-Black and Hispanic neighborhoods and high-Black and Hispanic neighborhoods in the Miami-Fort Lauderdale-West Palm Beach, Florida, Metropolitan Statistical Area (“Miami MSA”). According to the DOJ, the lender set up offices in predominantly white neighborhoods and made insufficient efforts to market their services or develop their network in Black or Hispanic neighborhoods, which resulted in the company generating mortgage loan applications within such neighborhoods at rates far below peer institutions.
The DOJ’s proposed consent order, if entered by the court, will require the lender to take certain measures to rectify its practices, including:
Community Credit Needs Assessment. Conducting an assessment to identify the credit needs of residents in predominantly Black and Hispanic neighborhoods, using the results to develop future loan programs and marketing campaigns.
Loan Subsidy Program. Providing $1.75 million for a loan subsidy program offering affordable home purchase, refinance, and home improvement loans in predominantly Black and Hispanic neighborhoods in the Miami MSA.
Fair Lending Program Assessment. Conducting a detailed assessment of its fair lending program, focusing on fair lending obligations to predominantly Black and Hispanic neighborhoods in the Miami MSA.
Enhanced Training and Staffing. Enhancing fair lending training and staffing, including maintaining a Director of Community Lending.
Outreach and Advertising Expansion. Maintaining an office location in a majority-Black and Hispanic neighborhood in Miami-Dade County, translating its website into Spanish, and requiring loan officers to engage in marketing to these neighborhoods.
Community Engagement. Providing four outreach events and six financial education seminars per year, partnering with community organizations to increase credit access in predominantly Black and Hispanic neighborhoods in the Miami MSA.
Putting it into Practice: This settlement follows a series of other recent redlining settlements by the CFPB and DOJ (previously discussed here, here, and here). It is also the third involving a non-depository institution. With the upcoming change in administration this month, regulators may remain eager to pursue settlements of pending fair lending investigations.
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What Employers Need to Know About the Recent EEOC Guidance to Health Care Providers on the Pregnant Workers Fairness Act
On June 27, 2023, the Pregnant Workers Fairness Act (PWFA), a federal law enforced by the US Equal Employment Opportunity Commission (EEOC), went into effect. The PWFA mandates that employers with at least 15 employees, along with other covered entities, provide reasonable accommodations for employees with known limitations related to, affected by, or arising out of pregnancy, childbirth, or related medical conditions.
On December 18, 2024, the EEOC published guidance to health care providers on how they can help patients seeking childbirth and pregnancy-related workplace accommodations from their employers under the PWFA.
What Employers Need to Know
Requirement and Purpose
Employers must offer reasonable accommodations for pregnant employees. A reasonable accommodation is described as a change in the work environment or in the way things are usually done that enables an applicant or employee to apply for a job, perform their job, or enjoy access to the same benefits and privileges of employment as other employees. The guidance explains that health care providers can request accommodations for employees under the PWFA.
Covered Individuals
Employees or applicants are qualified if they can perform essential job functions with or without accommodation, or if they are temporarily unable to perform these functions but can do so in the near future with reasonable accommodations. Limitations are considered “known” when communicated by the employee or their representative.
Requesting Accommodations
Employees and applicants do not need to use specific language to request accommodations and the interactive process starts once a request is made. Employers cannot require the employee to be examined by a health care provider selected by the employer but may require documentation in certain situations.
Documentation
The EEOC’s recent guidance highlights health care providers’ role in documenting and communicating the need for workplace accommodations and informing patients about their rights under the PWFA.
Please note that if an employer uses an Americans with Disabilities Act (ADA) or Family and Medical Leave Act (FMLA) medical questionnaire for PWFA purposes, the employer should instruct the employee that only the applicable questions need to be answered.
Some employees may be entitled to accommodations under the PWFA if their condition does not meet the definition of disability specified in the ADA and even if they do not qualify for leave under the FMLA.
While the physical or mental conditions an employee faces may overlap with disabilities under the ADA or serious health conditions under the FMLA, not all questions on ADA or FMLA forms will be relevant to PWFA requests. However, if an employee is also seeking accommodations under the ADA or leave under the FMLA, the information may be relevant.
Employers may require that the documentation from a health care provider include the following:
Confirm the physical or mental condition with a simple statement, no diagnosis is needed. The problem or impairment may be serious, minor, moderate, or episodic such as fatigue, vomiting, or swelling. It could also be the need to attend medical appointments.
Confirm the condition is related to pregnancy, childbirth, or related medical conditions. Pregnancy, childbirth, or related medical conditions do not need to be the sole, original, or substantial cause of the physical or mental condition.
Describe the needed workplace adjustment and its expected duration (e.g., change in work schedule, telework, light duty, flexible or longer break to use the restroom, leave for medical appointment, or to recover from childbirth). If the accommodation involves temporarily suspending a main or essential job duty, the documentation should specify that it is temporary and provide an estimate of when the duty can be resumed post-pregnancy or soon after.
Include a brief statement of the provider’s qualifications.
Non-Discrimination
The PWFA prohibits discrimination based on pregnancy or related conditions, preventing adverse actions like firing or demotion.
Alternative Solutions and Undue Hardship
While the exact accommodation the employee requests does not have to be provided, employers must collaborate with employees to provide an effective alternative that doesn’t cause undue hardship to the employer.
Confidentiality
Under the PWFA, employers must keep all medical information related to an accommodation request confidential.
Risks of Noncompliance and Next Steps
Noncompliance with the PWFA can lead to significant legal and financial consequences for employers, including lawsuits, penalties, and reputational damage. To mitigate these risks, employers should:
Review and Update Policies: Ensure workplace policies align with the PWFA, covering reasonable accommodations, nondiscrimination, and documentation requirements.
Training and Communication: Train managers and clearly communicate employees’ rights under the PWFA using the employer’s typical communication methods (e.g., handbooks, intranet, or email).
Prevent Discrimination and Retaliation: Follow the EEOC’s guidance to avoid discrimination or retaliation against employees requesting reasonable accommodations under the PWFA.
Understand Related Laws: Understand obligations under similar state laws and federal laws such as the ADA, FMLA, and the Pregnancy Discrimination Act (PDA) as well as avoid imposing greater requirements than necessary on employees requesting accommodations under the PWFA.
For more information about the PWFA, visit More Resources About the PWFA | EEOC.
2024 Title IX Regulations Vacated Nationwide
On January 9, 2025, the Sixth Circuit Court of Appeals decided the case of Tennessee v. Cardona, vacating the 2024 Title IX regulations nationwide. The court ruled that the issuance of the 2024 regulations exceeded the Department of Education’s authority and was unconstitutional on multiple grounds.
The ruling may be appealed, but for now, institutions covered by Title IX should revert to compliance with their policies in effect under the 2020 Title IX regulations.
The 2024 Title IX regulations, which took effect on August 1, 2024, had faced several challenges that led to injunctions with varying geographic scopes. As a result, prior to the Cardona decision, the Title IX regulations were only effective in about half of the states across the U.S.