What Employers Need to Know About President Trump’s Removal of NLRB Member Gwynne Wilcox and Two EEOC Commissioners
In a significant move, President Donald Trump has fired a member of the National Labor Relations Board (“NLRB” or “Board”) without reference to the statutory protections that typically shield Board members from being removed without cause. While incoming administrations, regardless of party, have historically taken steps to populate federal appointments with individuals aligned with their goals and policies, the Trump Administration is doing so at a pace and intensity rarely, if ever, seen before. President Trump’s removal of NLRB member Gwynne Wilcox (“Wilcox”) has immediate impact on employers, unions, and workers, as it leaves the Board without the quorum needed to issue decisions in labor cases. The President’s authority to remove Board members will be tested in court and could impact the future of the NLRB and the landscape of U.S. labor law.
Background
In September 2023, the Senate confirmed Wilcox to a second five-year term through the end of August 2028. Former Chairman and Democrat appointee Lauren McFerran’s (“McFerran”) term expired on December 16, 2024, after the Senate voted not to advance her nomination, signaling the Republican-led Senate’s intention to change the Board’s composition. At the time of McFerran’s non-renewal, there was already a vacancy on the Board, leaving two possible spots for President Trump to fill upon taking office. President Trump’s removal of Wilcox on January 27, 2025, now leaves three of the five seats for NLRB members vacant and eliminates what would have otherwise been a Democratic majority on the Board. The only current members (for now) are Republican appointee Marvin Kaplan, who the President named the Chair of the NLRB on Inauguration Day, and Democrat appointee David Prouty, whose term is set to end in August 2025.
Impact on the NLRB and Employers
The immediate consequence of Wilcox’s removal is the NLRB’s lack of a quorum, meaning it cannot issue decisions and will leave many pending cases in limbo. The Board’s authority to issue decisions will be halted until a quorum is restored, either through the Senate confirming a new member appointed by President Trump or Wilcox being reinstated.
For employers, this development could be a double-edged sword. On one hand, the freeze in NLRB decisions may delay rulings that could have been unfavorable to employers with pending cases before the Board. On the other hand, during the Biden administration, the Board issued a number of decisions that were favorable for unions and expanded protections for employee rights under the National Labor Relations Act. Without any further rulings, those decisions will remain the law for now. It is widely expected that a Trump NLRB would look to overturn much of that precedent and issue pro-employer decisions. The Board’s ability to do that is now hindered until the member seats are filled.
President Trump’s Constitutional Justifications
President Trump’s legal justification for the removal of Wilcox hinges on a 2020 Supreme Court decision in Seila Law LLC v. CFPB. In Seila Law, the Supreme Court held the executive authority did not extend to removal of members of multi-member agency boards that are: 1) balanced on partisan lines; and 2) perform legislative and judicial functions but not executive functions. Such a “removal shield” prohibits the president from exercising executive authority to remove members from agency boards if meeting these conditions. In firing Wilcox, President Trump specifically cited Seila Law, claiming the NLRB does not qualify for the exception because it is not balanced on partisan lines and because it exercises executive powers, such as issuing regulations and pursuing enforcement actions in federal court.
President Trump’s interpretation will be challenged in federal court. Wilcox has already indicated her intention to pursue “all legal avenues” to contest her removal, citing long-standing Supreme Court precedent that protects NLRB members from being fired without cause. In addition to addressing the extent of presidential powers to remove NLRB members, the legal fight over Wilcox’s firing ultimately may provide a precedent for companies and the numerous lawsuits that have been filed over the past year pursuing constitutional challenges against the NLRB, including on the basis that the Board’s members and administrative law judges are unconstitutionally shielded from removal by the president.
Simultaneous Overhauls at the EEOC
President Trump’s recent actions are not limited to the NLRB. On January 28, 2025, President Trump also fired Jocelyn Samuels and Charlotte Burrows, two Democratic commissioners of the Equal Employment Opportunity Commission (“EEOC”), along with the EEOC’s general counsel, Karla Gilbride. This move eliminates the Democratic majority on the EEOC. By dismissing the EEOC commissioners, President Trump has taken steps to advance his second-term civil rights law agenda.
Conclusion
President Trump’s removal of an NLRB member and two EEOC commissioners reflects the administration’s broader strategy to reshape independent agencies to align with the administration’s policy goals. President Trump’s assertion of power to remove NLRB members and EEOC commissioners marks a pivotal moment in labor relations and regulatory oversight of employers. The legal battles and policy shifts that follow are expected to shape the landscape for employers, creating a period of uncertainty. Attorneys in the Labor & Employment practice group at Blank Rome are prepared to assist as potential changes in labor law enforcement and agency operations arise.
Federal Appeals Court Holds New Jersey’s Cannabis Law Provides No Private Right of Action
The Third Circuit Court of Appeals has held that the New Jersey Cannabis Regulatory, Enforcement Assistance, and Marketplace Modernization Act (“CREAMMA”) does not permit a private citizen to bring a civil action for enforcement of the provisions prohibiting discrimination against cannabis users. Erick Zanetich v. Wal-Mart Stores East, Inc. et al., Docket No. 23-1996 (3d Cir. Dec. 9, 2024).
CREAMMA was passed to control and legalize cannabis in a similar fashion to the regulation of alcohol for adults, including preventing the sale or distribution of cannabis to people under the age of 21. The law also provides certain protections to current and prospective employees, including preventing employers from refusing to hire a job applicant because of the applicant’s use or non-use of cannabis, as well as from taking an adverse employment action against an employee based solely on a positive cannabis drug test. However, CREAMMA does not expressly allow citizens to bring a private cause of action, such as a civil action, to remedy alleged employment discrimination suffered because of an individual’s use of cannabis. This conclusion recently was challenged and the Third Circuit confirmed that CREAMMA does not confer a private right of action.
Zanetich applied for an asset protection position at a Walmart facility in Swedesboro, New Jersey. Zanetich was offered the job, subject to taking and passing a drug test. After Zanetich tested positive for cannabis, the job offer was rescinded. He subsequently filed a two-count Complaint against Walmart alleging Walmart discriminated against him for his use of cannabis in violation of CREAMMA and that Walmart wrongfully rescinded his job offer in violation of public policy. Walmart removed the case to federal court and moved to dismiss. The District Court granted Walmart’s motion, with prejudice, dismissing the case and finding that CREAMMA does not contain an implied remedy for violations of its employment-related protections, nor does the public policy exception to the recission of a job offer based on a positive drug test for cannabis apply to Zanetich’s claims. As the case was dismissed with prejudice, Zanetich did not have the opportunity to cure any defects in the Complaint by filing an amended Complaint.
Zanetich appealed this decision to the Third Circuit Court of Appeals, which affirmed the District Court’s decision to dismiss the Complaint.
There was no dispute CREAMMA does not expressly provide for a private right of action, and, the Third Circuit ultimately held that CREAMMA did not imply a private right of action either. Specifically, the Court held CREAMMA protects both cannabis and non-cannabis users and, therefore, Zanetich could not establish the statute provided him with any special benefit. The Court further noted that if the Legislature wanted to include a private right of action for citizens, it would have done so explicitly. Finally, the Third Circuit held the CREAMMA’s explicitly-stated underlying purposes concerned the use and distribution of cannabis, which does not support a private right of action to enforce the employment-related provisions. Therefore, the Court upheld the District Court’s dismissal of Zanetich’s first claim.
The Court also analyzed the applicability of Pierce v. Ortho Pharm. Corp, which creates an exception to the at-will employment doctrine for employees who were terminated in violation of public policy. Ultimately, the Third Circuit held this exception only applies to former employees terminated from their position because of their complaints about a suspected violation of a clear mandate of public policy. As Zanetich was not a former employee, but instead was a prospective applicant, the Third Circuit upheld the District Court’s dismissal of this claim as well.
What Employers Need to Know About the California Transparency in Supply Chains Act
In an era where consumers are increasingly concerned about ethical sourcing and labor practices, the California Transparency in Supply Chains Act (CTSCA) stands as a significant piece of legislation.
Enacted in 2010, the CTSCA aims to combat human trafficking and slavery in global supply chains, promoting greater transparency and accountability among businesses operating in California.
The CTSCA requires large retailers and manufacturers doing business in California to disclose their efforts to eradicate slavery and human trafficking from their direct supply chains. Specifically, the Act applies to companies with annual worldwide gross receipts exceeding $100 million.
These businesses must provide detailed information on their websites about their supply chain practices, including:
Verification: The extent to which the company engages in the verification of product supply chains to evaluate and address risks of human trafficking and slavery.
Audits: Whether the company conducts audits of suppliers to evaluate supplier compliance with company standards for trafficking and slavery in supply chains.
Certification: The requirement for direct suppliers to certify that materials incorporated into the product comply with the laws regarding slavery and human trafficking of the country or countries in which they are doing business.
Internal Accountability: The maintenance of internal accountability standards and procedures for employees or contractors failing to meet company standards regarding slavery and trafficking.
Training: Describe the provided training on human trafficking and slavery, particularly with respect to mitigating risks within the supply chains of products.
To assist with compliance, the state has published a Resource Guide and Frequently Asked Questions.
To ensure compliance employers should first, undertake thorough verification processes to identify and address any risks related to human trafficking and slavery in their supply chains. Second, conduct regular audits of suppliers to ensure adherence to company standards. Third, require direct suppliers to certify the legality of their practices concerning human trafficking and slavery. Fourth, establish and maintain robust internal accountability standards for employees and contractors. Lastly, provide comprehensive staff training, focusing on identifying and mitigating risks of human trafficking and slavery in supply chains. By implementing these action items, businesses can not only comply with the CTSCA but also contribute to the global fight against human trafficking and slavery.
This is not the only state or federal law that requires such disclosures. California passed a law last year to require website disclosures when employers conduct social compliance audits. And there are numerous others from the California Consumer Privacy Law to HIPAA, that businesses need to be aware of.
Tax-Advantaged ABLE Accounts for Individuals with Disabilities
According to a National Disability Institute report (available here), adults living with disabilities need 28% more income on average to achieve the same standard of living as those without disabilities. There are some tools designed to address this disparity, including Achieving a Better Life Experience (“ABLE”) accounts, a potentially overlooked but useful resource available through state-run programs for individuals with disabilities.
Almost all states and the District of Columbia have programs under which individuals with disabilities may open tax-advantaged accounts to pay for disability expenses. Significantly, up to $100,000 of the assets in an ABLE account are disregarded for purposes of the relatively low Supplemental Security Income (“SSI”) and Medical Assistance (“Medicaid”) resource limits.
Although ABLE accounts were first created over a decade ago, only about 170,000 individuals with disabilities have opened one. Those 170,000 represent a fraction of the approximately 8,000,000 individuals in the United States who are eligible to open ABLE accounts. Furthermore, starting in 2026, another six million individuals in the United States will become eligible to open an ABLE account.
The following is a brief summary of the eligibility requirements for opening an ABLE account, the key benefits of ABLE accounts, and other considerations for individuals who currently have, or are considering opening, an ABLE account.
Eligibility
An ABLE account may be opened by individuals (or their representatives) who are blind or have a disability if the blindness or disability occurred before the individual turned age 26 (which will be extended to age 46 effective January 1, 2026).
Blindness or a disability for purposes of ABLE account eligibility may be proven through one of the following methods:
Receiving SSI benefits;
Eligibility for SSI benefits where benefits are suspended due solely to excess income or resources;
Receiving disability insurance benefits (“DIB”);
Receiving childhood disability benefits (“CDB”);
Receiving disabled widow’s/widower’s disability benefits (“DWB”); or
A disability certification signed by a physician that certifies the individual is blind or has a physical or mental impairment that results in marked and severe functional limitations.
Conditions on the Social Security Administration’s list of “Compassionate Allowances Conditions” (available here) meet the requirements for a disability certification if the condition was present and produced marked and severe functional limitations before the individual turned age 26 (age 46 effective January 1, 2026).
A determination is done every tax year to determine whether the individual remains eligible for an ABLE account.
Benefits
ABLE accounts provide individuals with several critical benefits:
Up to $100,000 of the assets in an ABLE account are disregarded for purposes of SSI and Medicaid resource limits, which are relatively low.
Each year, an amount up to the annual per beneficiary gift tax exclusion may be contributed to an ABLE account (currently $19,000 for 2025 and adjusted annually). In 2025, for individuals who do not have contributions made to certain qualified retirement plans, up to an additional $15,650 may also be contributed to an ABLE account ($19,550 or $17,990 if the individual lives in Alaska or Hawaii, respectively).
Contributions may be made directly to an ABLE account by the ABLE account holder or by someone else, in which case the amount contributed is not taxable to the ABLE account holder.
An ABLE account holder may be eligible for a nonrefundable tax credit known as the Saver’s Credit for contributions made to an ABLE account. The credit is up to 50% of the first $2,000 contributed to an ABLE account—that is, an up to $1,000 tax credit—depending on an individual’s filing status and adjusted gross income during the applicable tax year. The credit is available for contributions made to an ABLE account in 2025. The credit was also available for 2021 to 2024, and if an ABLE account holder was eligible for the Saver’s Credit for any of those years but did not claim it on their tax return, they may be able to amend their tax return to claim the credit. Additional information on the Saver’s Credit from the Internal Revenue Service is available here.
Earnings are not taxable if distributions are used for “qualified disability expenses.” These are expenses that relate to the blindness or disability of the ABLE account holder and are for the benefit of the ABLE account holder in maintaining or improving their health, independence, or quality of life. This includes expenses related to the ABLE account holder’s education, housing, transportation, employment training and support, assistive technology and related services, personal support services, health, prevention and wellness, financial management and administrative services, legal fees, expenses for oversight and monitoring, and funeral and burial expenses.
Considerations
Individuals with, or considering opening, an ABLE account should note the following:
An individual is not limited to opening an account with the ABLE program of the state in which they reside. A majority of states permit out-of-state residents to participate in their programs.
An individual may generally have only one ABLE account at a time.
ABLE accounts are subject to cumulative limits, which are set by each state’s ABLE program. The limits generally range from $235,000 to $550,000.
Some states’ ABLE account programs may have limited investment options. Programs generally include checking and savings account options, along with conservative to aggressive investment options.
Accounts are generally subject to an annual account maintenance fee, which may vary depending on whether physical or electronic confirmations and statements are requested.
An individual may not change their investment options more than two times in a calendar year.
A portion of earnings distributed from an ABLE account that is not used for qualified disability expenses may be taxable and subject to an additional 10% tax.
After an ABLE account holder passes away, a state may file a claim against the remaining assets in the ABLE account for the amount of medical assistance paid under that state’s Medicaid program after the ABLE account was opened. Claims are paid after all qualified disability expenses have been paid, including funeral and burial expenses. The amount of the claim is reduced by the amount of all premiums paid to the state’s Medicaid buy-in program.
Additional Resources
For more information, here are some additional resources:
Social Security Administration Spotlight on ABLE Accounts summary, available here.
Internal Revenue Service ABLE Accounts – Tax Benefits for People with Disabilities summary, available here.
Internal Revenue Service Publication 907 – Tax Highlights for Persons with Disabilities, available here.
Department of Labor Financial Education and Incentive summary, available here.
Links to state ABLE programs:
Alabama
Kentucky
North Carolina
Alaska
Louisiana
Ohio
Arizona
Maine
Oklahoma
Arkansas
Maryland
Oregon has two programs (links here and here)
California
Massachusetts
Colorado
Michigan
Pennsylvania
Connecticut
Minnesota
Rhode Island
Delaware
Mississippi
South Carolina
District of Columbia
Missouri
Tennessee
Florida
Montana
Texas
Georgia
Nebraska
Utah
Hawaii
Nevada
Vermont
Illinois
New Hampshire
Virginia has two programs (links here and here)
Indiana
New Jersey
Iowa
New Mexico
Washington
Kansas
New York
West Virginia
Wyoming
Supreme Court to Decide Key Question of Whether Rule 23(b)(3) Class May Be Certified if Some Proposed Class Members Lack any Article III Injury
On Friday, the U.S. Supreme Court granted certiorari in Laboratory Corporation of America Holdings v. Davis, No. 24-304, to decide “[w]hether a federal court may certify a class action pursuant to Federal Rule of Civil Procedure 23(b)(3) when some members of the proposed class lack any Article III injury.” This has the potential to be one of the most significant developments in class action law in several years.
The plaintiffs, who are blind, sued Labcorp under the Americans With Disabilities Act and California Unrah Civil Rights Act (Act) because its self-service kiosks were not accessible to the blind without assistance. They seek minimum statutory damages of $4,000 per violation under the Act—potentially $500 million per year. The proposed class was defined to include any legally blind person who walked into a facility that had a kiosk and was unable to use it, regardless of whether they were aware of it or desired to use it. The district court certified the class and the Ninth Circuit affirmed in an unpublished opinion with little analysis because prior Ninth Circuit decisions had held that only the named plaintiff must establish Article III standing. Here, a named plaintiff walked into the facility, inquired about a kiosk and then was assisted by an employee at the front desk. According to the petition for certiorari, many putative class members were not aware of the kiosks and used the front desk, and the plaintiffs did not identify anyone who was unable to receive services due to the kiosks.
Circuits are split on whether or what extent class members must have standing (i.e., a “concrete and particularized” “invasion of a legally protected interest” that is “actual or imminent, not conjectural or hypothetical”) at the class certification stage, or at some other stage in the case. Under Ninth Circuit precedent, it was sufficient for the named plaintiff to have sustained an injury, even if many other putative class members did not. The Second and Eighth Circuits have articulated a relatively strict approach that all class members must have standing. The First and D.C. Circuits appear to have required that a class contain no more than a “de minimus” number of proposed class members who lack standing. The Seventh Circuit has found that a class may be certified unless a “great many” class members lack standing. Finally, the Eleventh Circuit appears to have agreed with the Ninth Circuit that only a named plaintiff must have standing. I say “appears to have” because there is some debate about how to properly interpret some of these circuits’ case law, and in some circuits the cases are not entirely consistent.
This is an issue the Supreme Court was expected to decide in Tyson Foods, Inc. v. Bouaphakeo, 577 U.S. 442 (2016), but did not reach in that case.
Defendants will be hoping that the Court’s conservative majority will rein in this type of class action and require that all proposed class members have standing for a class to be certified, while the plaintiffs’ bar will be hoping the Court, if it does not affirm the Ninth Circuit, adopts more of a “middle ground” approach. Briefing is scheduled for March and April, to put the case in line for decision by the end of June. Stay tuned.
The NLRB-Harmonic: Labor Board GC Issues Memo on Balancing EEO and Labor Laws
Given some rulings by the National Labor Relations Board (NLRB) in recent years – such as rulings invalidating civility policies or finding employers liable for disciplining employees acting in a harassing manner – many employers have struggled with how to balance National Labor Relations Act (NLRA) considerations with competing equal employment opportunity (EEO) laws. Perhaps in recognition of this tension, on Jan. 16, the NLRB’s top lawyer issued a memo entitled Harmonization of the NLRA and EEO Laws.
According to a press release on the memo issued by NLRB General Counsel Jennifer Abruzzo, “The memorandum emphasizes the importance of complying with all requirements of the NLRA and the EEO laws and offers suggestions in certain key areas on how to effectuate compliance and ensure that employees receive full protections under the laws. Specifically, it addresses and provides examples for complying with both bodies of law in three key areas – workplace civility rules, investigative confidentiality policies, and employee speech or conduct in the context of NLRA-protected activity that could potentially implicate federal EEO law.”
The bulk of the memo is aimed at addressing employee conduct and comments made in the course of engaging in National Labor Relations Acit (NLRA)-protected activity, such as an employee addressing workplace concerns during a grievance meeting or contract negotiations. There can be tensions between an employer’s obligations under EEO laws (such asTitle VII) in prohibiting unlawful harassment and discrimination while at the same time allowing employees to use insults, obscenities, or other vulgar language in the course of otherwise protected conduct.
For example, if in a heated exchange during a bargaining session, an employee starts shouting racial slurs, can an employer discipline this employee pursuant to its anti-harassment and discrimination policies to avoid liability under Title VII?
The memo also sheds some light on the factors the NLRB will consider in determining whether an employee’s offensive conduct made in the course of protected conduct loses its protections under the NLRA. For example, the board will consider whether the conduct implicated a protected characteristic, such as race, sex, national origin, disability, etc.; the proportionality of the discipline compared to the severity of the conduct; and whether the employer has routinely and consistently disciplined employees for similar behavior in the past.
This last factor, whether the employer has disciplined other employees for engaging in similar conduct in the past, seems especially important to the NLRB’s analysis.
While the memo is not binding precedent, it at least provides some guidance for companies to consider in these sticky situations. In light of the fact a new NLRB is likely to take shape in the near future, more clarity on this issue may be on its way as well. Stay tuned.
OFCCP Welcomes New Acting Director Amidst Policy Shift
In a significant move, the Office of Federal Contract Compliance Programs (OFCCP) has appointed Michael Schloss as the new acting director and deputy director of policy. This appointment comes as part of the Trump administration’s broader strategy to reshape the agency’s mission following the issuance of executive order (EO) Ending Illegal Discrimination and Restoring Merit-Based Opportunity, which revoked EO 11246. Schloss is tasked with guiding OFCCP as it shifts focus toward enforcing Section 503 of the Rehabilitation Act and the Vietnam Era Veterans’ Readjustment Assistance Act (VEVRAA).
Quick Hits
OFCCP has appointed Michael Schloss as the new acting director and deputy director of policy, as part of the new administration’s overall strategy to reshape the agency.
Schloss previously served as director of the Office of Field Administration at the U.S. Department of Labor’s Employee Benefits Security Administration (EBSA).
Schloss will now guide OFCCP’s focus on enforcing Section 503 of the Rehabilitation Act and VEVRAA.
Acting Director Schloss transitions to OFCCP from the U.S. Department of Labor’s (DOL) Employee Benefits Security Administration (EBSA), where he served as Director of the Office of Field Administration. In that role he oversaw EBSA’s ten regional offices and three district offices, ensuring the execution of enforcement, outreach, education, and assistance programs related to Employee Retirement Income Security Act (ERISA) requirements. His responsibilities included overseeing fiduciary standards, prohibited transactions, and group health plan requirements, as well as coordinating efforts across EBSA’s regions and other DOL program offices. Acting Director Schloss’s background in benefits law and EBSA operations suggests he is new to OFCCP policy.
Stay tuned for further updates as the OFCCP navigates this transition under Schloss’s leadership.
President Trump Eliminates Affirmative Action for Federal Contractors and Subcontractors – What You Need to Know
On January 21, 2025, President Trump issued a broad executive order titled “Ending Illegal Discrimination and Restoring Merit-Based Opportunity,” which among other things, rescinded Executive Order (“EO”) 11246 – the authority underpinning affirmative action for federal contractors and subcontractors.
WHAT IS EO 11246?
EO 11246 was issued by President Lyndon B. Johnson in 1965. Under EO 11246, federal government contractors and subcontractors with at least 50 employees and a federal contract or subcontract of at least $50,000 were obligated to develop affirmative action programs, perform annual audits of the organization’s placement and pay practices, and assess their outreach and recruitment programs for underrepresented members of their workforce.
WHAT CHANGES FOR FEDERAL CONTRACTORS?
Under President Trump’s new executive order, the Department of Labor’s Office of Federal Contract Compliance Programs (OFCCP), which had been the government’s affirmative action enforcement arm, must “immediately cease” (1) promoting “diversity,” (2) holding federal contractors and subcontractors responsible for taking “affirmative action,” and (3) “[a]llowing or encouraging [f]ederal contractors and subcontractors to engage in workforce balancing based on race, color, sex, sexual preference, religion, or national origin.” In addition, all future federal government contracts and grants must include terms by which the contractor or grant recipient certifies it is no longer carrying out DEI initiatives in violation of federal law. The order does not provide more detail on what this certification will entail.
The order revokes EO 11246 in its entirety, including a contractor’s or subcontractor’s obligation to annually develop and maintain affirmative action plans with respect to race and gender, along with the other requirements mandated by EO 11246—such as self-audits of an organization’s placement and pay practices, and certain outreach recruitment obligations. Importantly, the order permits federal contractors to phase out their affirmative action programs over the next 90 days.
Importantly, neither Section 503 of the Rehabilitation Act nor the Vietnam Era Veterans Readjustment Assistance Act (VEVRAA), nor their implementing regulations, are affected by President Trump’s order. Both statutes create their own affirmative action obligations for federal contractors and subcontractors concerning individuals with disabilities and protected veterans, respectively. However, while neither statute is explicitly mentioned, President Trump’s order does prohibit OFCCP from “promoting diversity” or “holding federal contractors and subcontractors responsible for taking ‘affirmative action,’” which arguably covers OFCCP’s authority to enforce both the Rehabilitation Act and VEVRAA in any meaningful way.
WHAT CHANGES FOR ALL EMPLOYERS?
Federal contractors and subcontractors: (1) are no longer required to comply with EO 11246 and the OFCCP’s affirmative action requirements; and (2) cannot carry out DEI initiatives that violate any applicable federal anti-discrimination laws.
Notably, President Trump’s order does not change the various laws prohibiting employment discrimination on the basis of race, color, national origin, religion, gender, gender identity, sexual orientation, pregnancy, disability, and age. However, employers can expect increased federal government scrutiny on DEI programs (including companies having diversity officers and departments) as President Trump revamps the Equal Employment Opportunity Commission (EEOC) and rolls out additional DEI restrictions.
Executive Order Covers DEI, Affirmative Action Programs in Private, Government and Educational Sectors
Highlights
A recently issued executive order seeks to end illegal DEI programs
The order bans certain federal contractor affirmative action programs and a subsequent order ends enforcement actions
Further, the order promises formal guidance to educational agencies and higher education institutions relating to affirmative action in admissions and educational programs
Among the executive orders issued this past week is an order titled Ending Illegal Discrimination and Restoring Merit-Based Opportunity. Issued late in the day on Jan. 21, 2025, the order addresses diversity, equity, and inclusion (DEI) programs in the private sector, affirmative action programs by government contractors, and affirmative action in higher education and other educational agencies.
The executive order seeks to end diversity, equity and inclusion programs and affirmative action programs that “violate the text and spirit” of civil rights laws and “undermine the traditional values of hard work, excellence, and individual achievement.”
The executive order revokes four prior executive orders stretching back to 1965, while leaving in place certain earlier orders relating to non-discrimination and equal protection.
Private Sector DEI Programs
One focus of the executive order is to encourage private sector employers to end DEI programs involving “illegal discrimination and preferences” and advance “the policy of individual initiative, excellence and hard work.” To accomplish this, the executive order requires the U.S. Attorney General, in consultation with the heads of all federal agencies, to formulate a strategic enforcement plan to:
Outline steps to deter DEI programs involving “illegal discrimination or preferences”
Identify the “most egregious and discriminatory DEI practitioners.” This includes charging each federal agency to identify up to nine businesses/organizations/institutions of higher education to target for investigation
Evaluate litigation against organizations whose DEI programs are unlawful
Identify strategies to end illegal DEI programs in the private sector and encourage compliance with federal civil rights laws
Propose potential regulatory actions or sub-regulatory guidance on the topic of DEI
The Attorney General, after consulting the heads of federal agencies, is to provide the strategic enforcement plan by May 21, 2025.
Federal Contractor Affirmative Action Programs
Perhaps the most significant part of the executive order is that it revokes Executive Order 11246, the long-standing legal authority from 1965 that requires federal contractors and subcontractors to take affirmative action with respect to the employment of women and minorities and prohibits discrimination on the basis of race, color, national origin, sex and religion. Although federal contractors are permitted to continue to comply with Executive Order 11246 through April 21, 2025, there are significant long-term implications for contractors. These include:
Federal contractors are no longer required or allowed to take “affirmative action” with respect to women and minorities.
Federal contractors are not allowed or encouraged to “engage in workforce balancing based on race, color, sex, sexual preference, religion, or national origin.” This effectively means that federal contractors will no longer set hiring goals when their workforces do not reflect the availability of women and minorities in the pools from which they recruit. Likewise, federal contractors will no longer take good faith efforts to address goals or measure progress toward goals.
Federal contractors are held to strict non-discrimination requirements, including not considering race, color, national origin, sex, sexual preference, or religion in violation of federal civil rights laws.
Federal contracts will require contractors to agree that payment under the contract is contingent upon compliance with all federal non-discrimination laws.
Federal contractors will be required to certify they do not have DEI programs that violate federal non-discrimination laws.
The Office of Federal Contract Compliance Programs (OFCCP), the agency within the Department of Labor that enforces employment laws applicable to federal contractors, will immediately cease enforcing non-discrimination and affirmative action obligations with respect to women and minorities under Executive Order 11246. In follow-up, on Jan. 24 the newly appointed Acting Secretary of Labor issued an order halting all investigations and enforcement activity relating to Executive Order 11246. Accordingly, all complaints, investigations and cases pending before OFCCP, administrative law judges and the Administrative Review Board relating to Executive Order 11246 are closed. The Department of Labor is to notify contractors with pending cases of the closure by Jan. 31, 2025.
Not affected by this executive order are federal contractors’ obligations with respect to veterans and individuals with disabilities. Because Vietnam Era Veterans’ Readjustment Assistance Act (VEVRAA) (applicable to veterans) and Section 503 (applicable to individuals with disabilities) are legislative, the executive order does not overturn those laws. Federal contractors will continue to have affirmative action and non-discrimination requirements with respect to veterans and individuals with disabilities. OFCCP may continue to enforce those laws but in accordance with the Jan. 24 order by the Acting Secretary of Labor, pending VEVRAA and Section 503 investigations and reviews are placed on hold pending further guidance.
New audits of government contractors are most certainly delayed until that guidance is issued. To commence new audits related to VEVRAA and Section 503, OFCCP will need to amend its current audit letter (scheduling letter and itemized listing). Changing the audit letter will require OFCCP to go through a notice, comment and approval process.
Affirmative Action in Education
The final prong of this executive order addresses affirmative action in educational programs. The executive order requires the Attorney General and Secretary of Education to issue joint guidance to higher education institutions and state/local agencies receiving federal funding with respect to complying with the holding of Students for Fair Admissions, Inc. v. President and Fellows of Harvard College. It is anticipated this guidance will address the use of race in admissions, scholarships, financial assistance and other aspects of the educational process.
Takeaways
In light of the executive order, employers should consider reviewing DEI programs to ensure they comply with anti-discrimination laws.
Government contractors should continue to comply with affirmative action requirements with respect to veterans and individuals with disabilities. They may continue their affirmative action programs with respect to women and minorities until April 21, 2025, but should watch for additional guidance on eliminating the affirmative action aspects of these plans, while continuing to focus on a commitment to non-discrimination.
Higher education and other educational agencies should continue to comply with the holding of Students for Fair Admissions and wait for further guidance from the Secretary of Education and Attorney General.
Nasdaq Diversity Rules Struck Down
On December 11, 2024, in a 9–8 decision, the US Court of Appeals for the Fifth Circuit struck down the Nasdaq Stock Market’s board diversity rules, holding that the Securities and Exchange Commission (SEC or Commission) exceeded its statutory authority when it approved them. As a result of the ruling, Nasdaq-listed companies no longer need to comply with Nasdaq’s board diversity requirements.
Adopted in 2022, the board diversity rules required Nasdaq-listed companies to disclose board diversity data in a standardized board diversity matrix. The rules required that Nasdaq-listed companies either (i) had to have at least one female director and at least one director who self-identified as an underrepresented minority or LGBTQ+, or (ii) had to explain why they did not have the requisite number of diverse directors on the board. The rules required companies to disclose director diversity information in the board diversity matrix annually in the company’s proxy statement or on the company’s website.
In its opinion, the court discussed the process by which self-regulatory organizations (SROs), like Nasdaq, may change their rules. Like all other SROs, Nasdaq must submit its proposed rule changes to the SEC for approval, and the SEC must approve a proposal only if it finds that the proposed rule is consistent with the requirements of the Securities Exchange Act of 1934. In order for the rule to be consistent with the requirements of the Exchange Act, it must be “related to the purposes of the Exchange Act.” The court stated that “Congress passed the original Exchange Act primarily to protect investors and the American economy from speculative, manipulative, and fraudulent practices.” While the court noted that “there are other, ancillary purposes” for the Exchange Act, “disclosure of any and all information about listed companies is not among them.” The court concluded that the SEC’s actions implicated the major questions doctrine and that, absent a clear congressional directive, the agency lacked the statutory authority to authorize the rule. The major questions doctrine is based “on the principle that administrative agencies have no independent constitutional provenance.” Rather, they “possess only the authority that Congress has provided.” The court noted that “disclosure is not an end in itself but rather serves other purposes.” Further, the court stated that a “disclosure rule is related to the purposes of the Exchange Act only if it is related to the elimination of fraud, speculation, or some other Exchange Act-related harm.” By vacating the rules, the court concluded that the Nasdaq diversity rules were not related to the purposes of the Exchange Act.
In the immediate aftermath of the court’s decision, Nasdaq indicated that it did not intend to appeal the court’s decision, while the SEC said it was “reviewing the decision and will determine next steps as appropriate.” However, on January 16, 2025, Nasdaq filed a proposal with the SEC seeking to remove the board diversity provisions from the Nasdaq rules to reflect “a Federal court’s vacatur of the Commission’s order of August 6, 2021, approving rules related to Board diversity disclosures.” Nasdaq requested that the Commission waive the operative delay to allow the proposed rule change to become effective on February 4, 2025.” On January 24, 2025, the SEC declared the proposal to be immediately effective. These actions by Nasdaq and the SEC make it clear that diversity rules are no longer in effect. Therefore, companies are no longer required to comply with the rules and may choose to remove their Nasdaq-specific board diversity matrices from their websites and proxy statements.
While disclosure under Nasdaq’s diversity rules is no longer required, companies may still have compelling reasons for including board composition and diversity disclosure in their proxy statements in view of the policies of proxy advisory firms and institutional investors. Depending on a company’s investor base, these policies may be a reason, among others, for continuing to publicly disclose certain aspects of board diversity and seek diverse board members.
EEOC, Like NLRB, Lacks Quorum, Stalling Rulemaking Under New Administration
On Monday, January 27, 2025, President Trump removed Equal Employment Opportunity Commission (the “EEOC” or the “Commission”) commissioners Charlotte A. Burrows and Jocelyn Samuels, the two confirmed in separate statements. The move, which may face legal challenges, marks the first time that a president has removed an EEOC commissioner without cause prior to the expiration of their five-year term. The removals leave the EEOC, a five-member Commission, with only two remaining commissioners: Andrea R. Lucas, a Republican tapped by President Trump last week to serve as Acting Chair, and Kalpana Kotagal, a Democrat appointed by former President Biden, whose term is set to expire on July 1, 2027. The final seat on the Commission has been vacant since July 1, 2024, when former Commissioner Keith Sonderling, who was recently nominated by President Trump to serve as deputy labor secretary, completed his five-year term.
President Trump also fired EEOC General Counsel Karla Gilbride, who confirmed her dismissal on Tuesday, January 28, 2025. Gilbride, who was nominated by former President Biden and confirmed by the Senate in October 2023, was slated to serve a four-year term set to expire in 2027.
Removal of EEOC Commissioners
Title VII of the Civil Rights Act of 1964 created the EEOC, which functions as a bi-partisan, independent commission. The law provides that commissioners are nominated by the President and confirmed by the Senate to five-year staggered terms. In addition, Title VII establishes that no more than three of the commissioners may be members of the same political party. Notably, Title VII does not specify any grounds for removal of EEOC commissioners. In the past, however, after a new administration has entered the White House, commissioners have served out the remainder of their five-year term.
Burrows, who served as Chair of the Commission under the Biden Administration, was confirmed by the Senate to a third term in November 2023 that was set to expire on July 1, 2028. Samuels, who was appointed by President Trump during his first term, was later nominated by former President Biden for a second term that was set to expire on July 1, 2026. In separate statements, Burrows and Samuels expressed their disagreement with the President’s “unprecedented” actions and vowed to explore the “legal options” available to them.
Implications for EEOC Actions Moving Forward
In the absence of any removals by President Trump, Democrats would have maintained a majority on the Commission until the expiration of Samuels’ term in 2026. Now, with only two members left in Lucas and Kotagal, the Commission lacks a quorum. Under Title VII, the EEOC must have three commissioners to form a quorum. Without a quorum, the EEOC cannot initiate formal rulemakings and cannot issue, modify, or revoke formal guidance. As a result, without a quorum, EEOC guidance remains effectively at a standstill.
As Proskauer previously covered, on Tuesday, January 21, 2025, newly appointed Acting Chair Lucas issued a statement setting forth her enforcement priorities. On Tuesday, January 28, 2025, Lucas issued another statement announcing that the EEOC “is returning to its mission of protecting women from sexual harassment and sex-based discrimination in the workplace by rolling back the Biden administration’s gender identity agenda” consistent with President Trump’s Executive Order 14166, “Defending Women From Gender Ideology Extremism and Restoring Biological Truth to the Federal Government.”
The statement, however, noted that Acting Chair Lucas “cannot unilaterally remove or modify certain ‘gender identity’ related documents subject to the President’s directives in the [aforementioned] executive order” without a majority vote of the Commission. For the time being, Acting Chair Lucas is precluded from formally rescinding any EEOC guidance that she deems to be inconsistent with Executive Order 14166, including the EEOC’s April 2024 guidance, entitled “Enforcement Guidance on Harassment in the Workplace.” Lucas, however, noted that she voted against this guidance and stated that while she “currently cannot rescind portions of the agency’s harassment guidance that are inconsistent with Executive Order 14166, [she] remains opposed to those portions of the guidance.”
In the wake of these removals, it is anticipated that President Trump will seek to appoint two commissioners, in addition to Lucas, to reach a Republican majority on the Commission. And, if that occurs, the Republican Commissioners would then have the majority vote needed to issue new rulemakings and revoke formal guidance. When that occurs, employers should expect Acting Chair Lucas to formally rescind “Enforcement Guidance on Harassment in the Workplace” as directed by the Executive Order.
President Trump’s EEOC removals came just hours after President Trump removed National Labor Relations Board General Counsel Jennifer A. Abruzzo and Democratic Board member Gwynne A. Wilcox in a similarly unprecedented move that left the NLRB without a quorum.
Delia Karamouzis contributed to this article
Allegations of Redlining and Discriminatory Practices at The Mortgage Firm
With changes in leadership eminent and changes in regulatory priorities likely to follow, the Department of Justice (DOJ) and the CFPB kicked off 2025 with a pair of significant fair lending actions. On January 7, 2025, the United States filed a complaint against The Mortgage Firm, Inc., alleging violations of the Equal Credit Opportunity Act (ECOA) and the Fair Housing Act (FHA) due to unlawful redlining in predominantly Black and Hispanic neighborhoods in the Miami-Fort Lauderdale-Pompano Beach area from 2016 through 2021.
Ten days later, the CFPB filed a complaint and announced a proposed consent order involving Draper & Kramer Mortgage Corporation. The charges were brought under ECOA and the Consumer Financial Protection Act (CFPA) and include allegations of redlining majority- and high Black and Hispanic neighborhoods in the Chicago and Boston Metropolitan Statistical Areas from 2019 through 2021.
Many similarities exist between the two cases. Both involve allegations of redlining practices, including receiving a disproportionately low number of residential mortgage applications and approving a disproportionately low number of home loans in underserved communities. The claims are supported by extensive Home Mortgage Disclosure Act (HMDA) data analysis for each company. Additionally, each of the lenders is accused of locating its offices in predominantly white areas, failing to ensure that its loan officers served majority-Black and Hispanic communities, and targeting its marketing efforts primarily at predominantly white neighborhoods. Similarly, it is alleged that each of the lenders’ fair lending policies and procedures were insufficient to ensure equal access to credit. And both lenders are accused of failing to analyze mortgage lending data in real time. In The Mortgage Firm’s case, it is alleged that the company failed to sufficiently track HMDA data until it received notice of a fair lending examination from the CFPB, and that it took no action to address redlining risks until after the CFPB delivered its findings. For Draper & Kramer, the complaint alleges that it failed to make needed course corrections for fair lending deficiencies, such as its marketing practices nearly two years after the CFPB identified the problems.
Internal emails were problematic to say the least for the lenders in each case. The DOJ referenced several internal communications to support the claims against The Mortgage Firm. These communications included derogatory references to majority-Black and Hispanic neighborhoods, with employees using terms like “ghetto” or “in the ‘hood.’” The DOJ also highlighted that one loan originator who made these remarks remained employed and was not disciplined promptly or effectively. Instead, the individual only received a written warning over nine months after the emails were reported to The Mortgage Firm. The complaint further notes that another non-Hispanic white loan officer, one of the top producers in the Miami area, sent emails containing a racial slur and similarly received just a written warning nine months after the incident was brought to the company’s attention.
Similarly, the CFPB referenced internal communications from Draper & Kramer’s loan officers that included deeply inappropriate and discriminatory language. These emails contained offensive remarks that perpetuated harmful stereotypes and racial biases. The complaint does not indicate what, if any, disciplinary penalties may have been applied to the authors of the emails.
Also of note in the Draper & Kramer case are allegations by the CFPB that the company’s recruiting and hiring practices, which were based on “prior relationships with the company’s Regional Sales Manager, referrals from its existing mostly white loan officers, and word of mouth,” created a fair lending closed loop. The complaint alleges that the company failed to adequately monitor or document its marketing or outreach materials “to ensure that such distribution occurred in all neighborhoods…” and that “[n]early all of the most frequently used preapproved advertisements contained images of exclusively white-appearing loan officers.” These practices, according to the CFPB, discouraged residents in the underserved communities from making or pursuing applications for credit.
Uptick in Referrals
The complaint against The Mortgage Firm was referred to the DOJ by the CFPB. Agencies with enforcement authority under section 704 of ECOA, including the CFPB, Comptroller of the Currency, Board of Governors of the Federal Reserve System, Board of Directors of the Federal Deposit Insurance Corporation and National Credit Union Administration, must refer cases to the DOJ if they suspect a creditor of engaging in a pattern of lending discrimination (see § 1002.16 (b)(3) [15 U.S.C. § 1691e(g)]). They can also refer other potential ECOA violations to the DOJ.
According to the CFPB’s 2023 Fair Lending Report (the 2024 fair lending data is not yet available as of the date of this publication), in 2023, the FDIC, NCUA, FRB, OCC, and CFPB referred 33 cases to the DOJ, up from 22 such referrals in 2022, setting a high-water mark for Section 704 fair lending referrals to the DOJ in a calendar year.
The jump in 2023 follows a period of fluctuating referrals, with the CFPB’s numbers having steadily declined from 24 in 2013 to a dramatic low of just two referrals in 2018. This sharp drop in 2018 stands out as an anomaly in the data and suggests a year where fewer cases were escalated to the DOJ for action. However, the trend began to shift after 2018, with referrals picking up again in the following years. By 2022, referrals had rebounded to 23, and in 2023, they surged to 33, nearly doubling the previous year’s total and reflecting a notable change in the volume of cases referred for DOJ involvement.
Of the 33 cases referred in 2023, the CFPB contributed 18. These referrals involved a range of discriminatory practices, including redlining in mortgage lending based on race and national origin; underwriting discrimination against those receiving public assistance; predatory targeting based on race and national origin; pricing exceptions discrimination based on race, national origin, sex, and age; and credit card discrimination based on national origin and race.
The significant increase in 2023, following years of relative decline, highlights the growing recognition of fair lending violations and the CFPB’s increasing focus on addressing these discriminatory practices.
Implications
When viewed through the lens of DOJ referral trends, The Mortgage Firm and Draper & Kramer complaints serve to highlight several key areas of focus for financial institutions’ fair lending efforts:
Regularly analyze mortgage lending data in real time, including HMDA data, to identify and address any potential disparities in lending practices — do not wait until a fair lending examination to take action. Corrective actions are difficult if not impossible to take in an information vacuum.
Ensure that fair lending policies and procedures are robust and effectively promote equal access to credit across all communities, particularly in historically marginalized areas. The CFPB specifically noted that Draper & Kramer’s fair lending policies and procedures did not adequately address redlining and contained only general prohibitions against discrimination.
Both The Mortgage Firm and Draper & Kramer were cited for inadequate fair lending training. The CFPB noted that “Certain relevant training materials did not even contain a definition of redlining.” Financial institutions should ensure that training materials are accurate, relevant and enforced, particularly for its loan officers, who are often positioned as “the primary public-facing points of contact of applicants and prospective applicants.”
Take immediate, meaningful action when discriminatory behavior or derogatory remarks are known or reported, including timely and consistent discipline for violations of company conduct standards.
Investigate and address any disparities in office location and marketing practices to ensure that outreach efforts are inclusive and not concentrated in predominantly white neighborhoods. The two cases serve as a reminder that marketing approval should include a critical fair lending review. The DOJ noted that The Mortgage Firm failed to translate its website into Spanish or indicate which offices could assist Spanish-speaking clients. Lenders should view similar missteps as regulatory low-hanging fruit.
Lenders may also wish to consider the consequences of marketing to past customers. The CFPB cited Draper & Kramer’s reliance on marketing to past customers, who were predominantly white, as exacerbating the consequences of its failure to advertise, assign loan officers, and place offices in historically underserved neighborhoods.
Foster an inclusive company culture by conducting regular training on cultural competency and the implications of discriminatory language and behavior in the workplace.
Develop a comprehensive plan to proactively identify and mitigate redlining risks, especially in communities that have been historically underserved or targeted by discriminatory practices.
Hold all employees, including top producers, accountable for adhering to fair lending standards, ensuring that no one is above the rules, regardless of their performance.
Regulatory priorities may change as a new attorney general and CFPB director assume their roles. But these cases provide live guidance for lenders to develop compliance programs with respect to redlining, including policies and procedures, employee training, and internal monitoring, that will comply with regulatory guidelines under any administration.
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