25 Percent Tariffs on Imported Automobiles?
his week, President Donald Trump made remarks during a press conference indicating that he was planning to impose tariffs “in the neighborhood of 25 percent” on imported automobiles, perhaps as early as April 2. It was unclear whether the targeted automobile tariffs are related to the so-called “reciprocal tariffs” that are being studied by the government across all products from all countries.
During this week’s press conference, the president expressed his understanding that the European Union has already lowered its tariffs on imported automobiles from 10 percent to 2.5 percent. However, the EU has released an FAQ indicating that it has made no such concession, and pointing out that the U.S. imposes a 25 percent tariff on pickup trucks.
The auto tariff referenced in this week’s press conference is reminiscent of the findings of the Section 232 investigation of imported automobiles performed during President Trump’s first administration. Although that investigation concluded that imports of automobiles harmed U.S. national security, the recommended 25-35 percent tariff was never imposed.
Car plants are being canceled in other locations now because they want to build them here. And you read about a couple — not that I want to mention names or anything — but you read about a couple of big ones in Mexico just got canceled because they’re going to be building them in the United States. And that’s very simply because of what we’re doing with respect to taxes, tariffs, and incentives.
www.whitehouse.gov/…
NLRB’s Acting General Counsel Rescinds Biden-Era Labor Policies
On February 14, 2025, William Cowen (“Cowen”), the Acting General Counsel for the National Labor Relations Board (the “NLRB” or the “Board”) issued a memorandum rescinding more than a dozen policy memoranda issued by his predecessor, Jennifer Abruzzo (“Abruzzo”), who served as the NLRB’s General Counsel during the Biden administration until President Trump terminated her from the position on January 27, 2025. Citing a growing and unsustainable backlog of cases as the basis, Cowen rescinded policy and guidance memoranda that were controversial when issued, specifically including (1) GC 23-08, concerning non-compete agreements in employment contracts and severance agreements, and (2) GC 25-01, concerning “stay-or-pay” agreements requiring employees to pay back certain benefits provided by employers when employees separated from employment prior to the expiration of a defined period.
Background: General Counsel Memoranda
General Counsel memoranda are nonbinding policy guidance issued directly by the NLRB’s General Counsel or, as in this case, Acting General Counsel. The memoranda are generally directed to the NLRB’s regional field offices, and they are used as a tool to instruct the Board’s field staff about the General Counsel’s policy and enforcement goals.
During Abruzzo’s tenure as General Counsel, she issued numerous such memoranda that were seen as expanding previous interpretations of federal labor law to effectuate Abruzzo’s pro-union policy goals. The guidance contained in these memoranda, for example, limited employers’ abilities to lawfully communicate with employees, endorsed a more expansive definition of protected, concerted activity, and called for more aggressive enforcement of the National Labor Relations Act (the “NLRA”) against employers.
Cowen’s GC Memorandum 25-05
The memorandum Cowen issued on February 14, 2025—GC 25-05—explained that the Board has “seen [its] backlog of cases grow to the point where it is no longer sustainable.” In light of this unsustainable backlog of cases, Cowen conducted a review of active General Counsel memoranda and determined that numerous rescissions were warranted.
Among the key rescinded memoranda for employers were GC 23-08 and 25-01. GC 23-08 declared that “[e]xcept in limited circumstances . . . the proffer, maintenance, and enforcement” of non-compete agreements in both employment contracts and severance agreements violate the NLRA because such agreements unlawfully interfere with employees’ exercise of Section 7 rights. GC 25-01 similarly declared that “stay-or-pay” provisions—agreements where employees are asked to repay their employer certain funds if they separate from employment prior to the expiration of a designated stay period—“infringe on employees’ Section 7 rights in many of the same ways that non-compete agreements do and . . . therefore also violate Section 8(a)(1) of the Act unless narrowly tailored to minimize that infringement.”
In addition to these memoranda, Cowen’s memorandum also rescinded Abruzzo’s guidance in GC 23-05, concerning the interpretation of the Board’s decision in McLaren Macomb, 372 NLRB No. 58 (2023). As previously reported, Abruzzo’s GC 23-05 endorsed an expansive interpretation of McLaren Macomb to broadly prohibit non-disparagement and confidentiality provisions presented to employees in severance agreements. Cowen’s memorandum also rescinds Abruzzo’s guidance regarding whether college athletes should be considered employees, universities’ disclosure obligations under the NLRA, mandatory work meetings to discuss labor issues, and remedies available for violations of the NLRA, amongst other topics.
Practical Impact and Takeaways
Cowen’s memorandum is not binding law, and it does not reverse the current application of the recent decisions, such as McLaren Macomb, that it calls into question. If formal reversal of these decisions were to occur, it would likely take some time, particularly considering that the NLRB currently lacks a quorum following President Trump’s termination of Board Member Wilcox.
However, GC 25-05 is further evidence the new Administration intends to effect significant policy changes for the NLRB, including a shift in prosecutorial action away from certain of the Abruzzo-led NLRB’s targets over the last four years. These signaled policy changes may inform employers in analyzing the risk associated with the use of previously scrutinized provisions in employment contracts and severance agreements. Further, employers currently involved in matters pending before regional offices of the NLRB may see increased efforts to resolve the matters, including offers of settlement involving less onerous terms than those previously sought by the Board.
Employers should be cognizant and monitor closely for further updates in the near future, including other actions that signal the agency’s enforcement goals and priorities.
Multiple States Propose Bans on Food Additives and “Ultra-Processed Foods”
Since the start of February, at least four states have introduced or advanced proposals to ban various food chemicals and address concerns over the use of ultra-processed foods (UPFs). New food chemical bans have surfaced in recent days in Florida, Arizona, and Utah, while lawmakers in Illinois advanced a food chemicals ban that has long raised concerns for industry stakeholders.
The Illinois chemicals ban (SB 93) would prohibit brominated vegetable oil, potassium bromate, propylparaben, and Red No. 3, effective in 2028.
Florida has been one of the latest states to introduce a food chemical ban. If passed, the bill (SB 560) would prohibit food companies from manufacturing, selling or distributing food that contains nine food chemicals, including potassium bromate, propylparaben, Blue No. 1, Yellow No. 5, benzidine, butylated hydroxyanisole (BHA) and butylated hydroxytoluene (BHT).
In Arizona, Republican Sen. Leo Biasiucci said he was inspired by the MAHA movement to introduce HB 2164, which would ban any food that contains eleven chemicals: potassium bromate, propylparaben, titanium dioxide, brominated vegetable oil, Yellow No. 5 and 6, Blue No. 1 and 2, Green No. 3, and Red No. 3 and 40. The bill would also ban UPFs in school meals – however, the definition for UPFs included in this bill categorizes these as foods that contain any of the eleven chemicals set to be banned by the proposal. This definition differs significantly from other approaches, by focusing more on specific additives, rather than the degree of processing.
Utah has followed a similar approach to Arizona with HB 402. If passed, this bill would ban certain ultra-processed foods from being served at schools. UPFs are defined here as foods containing one or more of the following ingredients: brominated vegetable oil, potassium bromate, propylparaben, titanium dioxide, Blue No.1 and 2, Green No. 3, Red No. 3 and 40, and Yellow No. 5 and 6.
Québec’s Bold Proposal: Empowering Authorities to Safeguard Public Welfare During Work Stoppages
On February 19, 2025, Québec Minister of Labour Jean Boulet introduced Bill 89, which would amend the Québec Labour Code and related provisions to safeguard the well-being of the population by maintaining necessary services during strikes or lock-outs. According to the bill, the goal is to prevent “disproportionat[e]” impacts on “social, economic or environmental security,” especially for vulnerable populations.
The legislative changes would apply to all employers and unions under provincial jurisdiction in Québec, with the exception of the health and public service sectors, which already have specific provisions to maintain a wide range of services.
Quick Hits
On February 19, 2025, Québec Minister of Labour Jean Boulet introduced legislation that would ensure necessary services are maintained during strikes or lock-outs to protect public well-being.
The bill would empower the government and the Administrative Labour Tribunal to ensure necessary services are maintained during work stoppages, balancing the right to strike with public welfare.
The bill would allow the minister of labour to refer disputes to arbitration if mediation has failed and a strike or lock-out poses or threatens serious harm to the population.
In recent years, work stoppages have significantly affected Québec citizens. Consequently, Bill 89 proposes solutions to balance the needs of the public with the respect to the right to strike or lock out.
Proposed Legislative Changes
The proposed changes would empower the government to “designate, by order, a certified association and an employer [for whom] the Administrative Labour Tribunal may determine whether services ensuring the well-being of the population must be maintained in the event of a strike or lock-out.” The order would remain valid “until the filing of a collective agreement or [a] document in lieu thereof” (e.g., an arbitration award).
Once designated by the government, and at the request of one of the parties (i.e., the employer or the union), the Tribunal would have the authority to determine whether necessary services must be maintained during a work stoppage. The parties would have the opportunity to submit their respective positions before the Tribunal makes a decision.
If the Tribunal renders a decision requiring that services be maintained, the designated parties would be required to negotiate which services would be maintained within fifteen days of receiving notification. The Tribunal would then assess whether the agreement was sufficient to protect the well-being of the population. In the event the parties cannot reach an agreement, the Tribunal would have the authority to determine which services are necessary.
The bill further specifies that if a strike or lock-out is in progress, despite a decision from the Tribunal ordering the maintenance of services, the strike or lock-out may continue unless otherwise ordered by the Tribunal.
Additionally, if a strike or lock-out causes or threatens to cause serious or irreparable harm to the population and mediation efforts fail, the minister of labour can refer the dispute to arbitration, effectively ending the ongoing strike or lock-out and establishing arbitration procedures.
Practical Considerations
The legal implications of Bill 89 are significant. The bill would enhance the roles of the government and the Tribunal in managing labour disputes, ensuring that necessary services are maintained to prevent “disproportionat[e]” impacts on “social, economic or environmental security.” The legislation seeks to balance the right to strike with the need to protect public welfare, particularly for vulnerable populations. The labour minister’s authority to refer disputes to arbitration emphasizes the importance of resolving disputes without prolonged strikes or lock-outs.
It is important to note that Bill 89 does not define the term “disproportionate impacts on social, economic, or environmental security.” This language can be interpreted broadly, which could have far-reaching implications. Unions are likely to oppose Bill 89 and will likely participate in consultation periods before the National Assembly.
The proposed changes also include the addition of penal provisions to ensure compliance with necessary service agreements and Tribunal decisions in Article 146.2 of the Québec Labour Code.
Bill 89 deserves close attention, as it may affect future negotiations. If adopted, it is anticipated that unions may challenge the constitutionality of the law on the grounds of freedom of association.
Michigan Overhauls Paid Sick Leave and Minimum Wage Laws
On February 21, 2025, Governor Gretchen Whitmer signed into law two bills amending the state’s Wage Act and Earned Sick Time Act (ESTA).
As we previously explained, absent those amendments, February 21 would have been the effective date for those laws as ordered by the Michigan Supreme Court. Below, we share highlights of the new bills as preliminary guidance.
Changes to the Wage Act
Steeper Minimum Wage Hikes, Faster
Senate Bill 8 (SB 8), the bill that amended the Wage Act, retains the $12.48 per hour minimum wage rate set to take effect February 21. Thereafter, minimum wage will rise again on January 1, 2026 (and on the first of the year annually thereafter) to $13.73, a higher wage rate than the originally scheduled hourly rate of $13.29. The 2027 increase will also be larger than scheduled, jumping to an hourly rate of $15.00.
In short, minimum wage earners will see bigger hikes, sooner, under SB 8. The main takeaway for Michigan employers concerned about compliance as of February 21 is that the statewide minimum wage as of that date is $12.48 per hour.
Smaller Tip Credit Reductions, No Abolishment, Plus Enforcement
SB 8 will not gradually phase out tip credits, which would have occurred under the state Supreme Court Order. Instead, the proportional maximum credit will diminish by 2% annually through 2031, when a tipped worker’s minimum wage would equal 50% of the full minimum wage.
Effective today, employers must ensure that tipped workers receive a minimum rate of $4.74, which is 38% of the full minimum wage. Note that this is meaningfully lower than what the Order required ($6.49 per hour, or 48% of the full minimum wage).
SB 8 also adds a maximum civil fine of $2,500 on employers who fail to comply with the minimum wage scheme for tipped workers.
Changes to ESTA
House Bill 4002 (HB 4002), the bill that amended ESTA, significantly modified the Supreme Court’s Order. The key changes from the Order are as follows:
A revised definition of “small business” from “fewer than 10” to “10 or fewer” employees, along with a delay of mandatory paid earned sick time accrual and usage for small business employees until October 1, 2025.
Excluding the following individuals from paid earned sick time eligibility: trainees or interns and youth employees, as well as employees who schedule their own working hours and are not subject to disciplinary action if they do not schedule a minimum number of working hours.
Clarification that paid earned sick time does not accrue while an employee is taking paid time off, and that employers may cap usage and carryover of accrued paid leave at 72 hours per year, or at 40 hours per year if they are a small business.
Express permission to frontload paid earned sick time, including detailed instructions about how to frontload part-time employees’ leave and waiving requirements to track accruals, carryover unused time or pay out the value of unused time at the end of the year for frontloading employers.
Changes to language regarding an employee’s request for an “unforeseeable” need to use paid earned sick time, including requiring employee to give notice as soon as “practicable” or in accordance with the employer’s policy related to requesting or using sick time or leave (assuming the employer has provided a copy of the policy to the employee and the policy permits the employee to request leave after becoming aware of the need), and permitting employers to take adverse action against employees who do not comply with notice requirements.
Added language permitting an employer to take adverse personnel action against an employee if the employee uses paid earned sick time for a purpose other than a purpose sanctioned by ESTA, or who violates the ESTA’s notice requirements.
Elimination of a private right of action, but expansion of potential civil penalties that the state’s Department of Labor and Economic Opportunity (LEO) may impose through an administrative proceeding, including, but not limited to, a civil penalty up to eight (8) times the employee’s normal hourly wage.
What Should Michigan Employers Do?
Employers must immediately comply with the Wage Act and pay non-exempt workers a general minimum wage of at least $12.48 per hour and tipped workers a rate of at least $4.74 per hour.
As for ESTA, “small employers” can wait until October 2025 to begin providing benefits, but all employers should take steps to comply. Many of the ESTA amendments clarify the initial version of Supreme Court’s Order, so steps employers have likely taken to prepare for the February 21 effective date will be a helpful starting point. Epstein Becker Green soon will publish more detailed insights about ESTA and its relationship to other leave laws.
Trump Executive Order Requires Independent Agencies to Submit Regulations for Presidential Review
On February 19, 2025, President Donald Trump signed an executive order (the “Order”) mandating that independent agencies, including the SEC, the FCC, and the FTC, submit proposed regulations for presidential review before finalization. The order marks a significant shift in the regulatory process, altering the long-standing autonomy of these agencies by subjecting them to executive oversight.
The Order asserts that independent agencies should not be exempt from executive supervision, citing Article II of the U.S. Constitution. According to the related White House fact sheet, the Order seeks to align the regulatory activities of independent agencies with the Trump administration’s priorities, and ensure consistency across the executive branch. While the Order applies broadly to independent agencies, it explicitly exempts the Federal Reserve’s monetary policy functions.
Some key provisions of the Order include:
Presidential Review Requirement. Independent agencies must submit proposed regulations for review by the White House before adoption.
Interpretation of Law. The President and Attorney General will interpret the law for the executive branch to prevent agencies from issuing conflicting legal positions.
Coordination with the White House. All agencies must consult with the White House to align their strategic plans and regulatory priorities with the administration’s policy goals.
Budgetary Oversight. The Office of Management and Budget will have oversight authority over the budgets of independent agencies to ensure “tax dollars are spent wisely.”
Putting It Into Practice: The Order is part of a broader effort by the Trump administration to increase control over independent federal agencies. The Order argues that “Article II of the U.S. Constitution vests all executive power in the president, meaning that all executive branch officials and employees are subject to his supervision.” The Order is likely to be challenged as it marks a dramatic shift from the current administrative regulatory framework.
Beltway Buzz, February 21, 2025
NLRB Acting GC Rescinds Abruzzo Memos. The National Labor Relations Board (NLRB) still lacks an operational quorum, but Acting General Counsel William B. Cowen is taking steps to undo policy positions held by his predecessor, Jennifer Abruzzo. Thomas M. Stanek and Zachary V. Zagger have the details on Cowen’s rescission of at least eighteen of Abruzzo’s general counsel memoranda relating to expanded remedies, noncompete agreements, and severance agreements, among others. These memoranda represented Abruzzo’s opinion on areas of the law in which she wanted the Board to act, or her interpretations of how Board decisions should be implemented. By rescinding these memoranda, Cowen effectively “wipes the slate clean” and sets the stage for himself—or another individual serving in the general counsel role—to establish his or her own labor policy agenda at the Board. Of course, Cowen’s actions do not overturn any Board decisions that have been issued over the last several years.
Senate HELP Committee Examines Secretary of Labor Nomination. On February 19, 2025, the Senate Committee on Health, Education, Labor and Pensions (HELP) held a hearing to examine the nomination of Lori Chavez-DeRemer to serve as secretary of labor. Chavez-DeRemer didn’t reveal too many details about her agenda should she get confirmed, but here are some takeaways about what we might expect:
Chavez-DeRemer promised to work on or review regulations relating to joint employer and independent contractor status under the Fair Labor Standards Act (FLSA).
As for workplace safety, Chavez-DeRemer stated that she would review the Occupational Safety and Health Administration’s (OSHA) proposed emergency response rule, as well as OSHA’s pending proposal on workplace violence prevention.
No senators asked Chavez-DeRemer about the prospects of the Office of Federal Contract Compliance Programs (OFCCP), which was gutted by Executive Order (EO) 14173, “Ending Illegal Discrimination and Restoring Merit-Based Opportunity.”
Chavez-DeRemer expressly denounced her support of the provision in the Protecting the Right to Organize (PRO) Act, which would eliminate state right-to-work laws, stating that her support of the bill was to start a conversation about workers’ rights and that the bill was imperfect.
Regarding immigration, Senators Susan Collins (R-ME) and Lisa Murkowski (R-AK) expressly asked Chavez-DeRemer to encourage the U.S. Congress to issue the maximum allotment of H-2B visas, while Senator Tommy Tuberville (R-AL) impliedly asked her to support the H-1B program. In response, Chavez-DeRemer noted the U.S. Department of Labor’s (DOL) limited role in these programs, but promised to work with the senators on these issues.
Democratic senators generally raised issues that are likely to resound as reoccurring themes from their side of the aisle during this congressional session: raising the minimum wage, promoting unionization, attacking right-to-work laws, endorsing paid family leave, criticizing noncompete agreements, and condemning President Donald Trump’s removal of U.S. Equal Employment Opportunity Commission (EEOC) commissioners Jocelyn Samuels and Charlotte Burrows, as well as NLRB member Gwynne Wilcox.
Republicans outnumber Democrats on the HELP Committee 12–11, so even one Republican “no” vote could cause problems for Chavez-DeRemer’s nomination. The committee is expected to vote on Chavez-DeRemer’s nomination on February 27, 2025.
House Republican Introduces Independent Contractor Legislation. Representative Kevin Kiley (R-CA) has introduced two bills addressing independent contractors.
The Modern Worker Empowerment Act (H.R. 1319) would amend both the FLSA and the National Labor Relations Act (NLRA) to create a two-part test for determining whether a worker is an independent contractor, rather than an employee. Pursuant to the bill, a worker is an independent contractor if the putative employer “does not exercise significant control over the details of the way the work is performed by the individual” and if the worker “has the opportunities and risks inherent with entrepreneurship, such as the discretion to exercise managerial skill, business acumen, or professional judgment.” The bill also lists several factors that cannot be used as part of the employee/independent contractor inquiry, such as requiring the worker to comply with legal requirements, carry insurance, or “meet contractually agreed-upon performance standards, such as deadlines.’’
The Modern Worker Security Act (H.R. 1320) allows employers to provide workers with portable benefits—such as paid leave, health insurance coverage, and retirement savings—without those benefits being an indicia of employment under federal law.
Kiley represents California’s 3rd congressional district, is very familiar with the state’s A.B. 5 independent contractor statute, and has been a strong opponent of the Biden administration’s DOL’s independent contractor rule.
Democratic State AGs Issue DEI-Related Guidance. The Trump administration’s opposition to diversity, equity, and inclusion (DEI) continues to reverberate in the private-sector employer community. For example, sixteen Democratic state attorneys general have issued a document entitled, “Multi-State Guidance Concerning Diversity, Equity, Inclusion, and Accessibility Employment Initiatives. The document sets forth the legal opinions of the attorneys general regarding the impact of EO 14173 on private-sector DEI initiatives. The guidance takes the position that DEI programs and practices “are not illegal, and the federal government does not have the legal authority to issue an executive order that prohibits otherwise lawful activities in the private sector or mandates the wholesale removal of these policies and practices within private organizations, including those that receive federal contracts and grants.” The guidance does not carry the force of law, and does not compel employers to take any particular action, but it does serve as an example of Democrats’ efforts to counter Republican attempts to undermine diversity and inclusion practices in the private sector. Future Democratic efforts could exert more pressure on employers that have changed their DEI practices as a result of the administration’s actions. Nonnie L. Shivers and Leah J. Shepherd have the details.
EEOC to Prioritize “Anti-American National Origin Discrimination.” On February 19, 2025, the EEOC issued a press release reemphasizing that Acting Chair Andrea Lucas will prioritize “protecting American workers from anti-American national origin discrimination.” The release coordinates the EEOC’s enforcement agenda with the administration’s scrutiny of both legal and illegal immigration, noting, “The EEOC will help deter illegal migration and reduce the abuse of legal immigration programs by increasing enforcement of employment antidiscrimination laws against employers that illegally prefer non-American workers.” The press release further states that federal law makes it unlawful for employers to adopt policies or practices preferring “illegal aliens, migrant workers, and visa holders or other legal immigrants over American workers.”
Incorporating the Bill of Rights. On February 19, 1923, Edward Terry Sanford was sworn in as an associate justice of the Supreme Court of the United States. Sanford only served seven years on the Court until his death in 1930, but he was instrumental in the Court’s adoption of the “incorporation doctrine,” which applies the Constitution’s Bill of Rights to the individual states. Several Supreme Court decisions in the 1800s—including the Slaughter-House Cases (1873)—had restricted the application of the Bill of Rights to the federal government. This began to change incrementally with the turn of the century, and the “incorporation doctrine” was cemented in Supreme Court jurisprudence when Sanford wrote the majority opinion in a 1925 case called Gitlow v. New York. In Gitlow, the Court upheld—by a vote of 7–2—New York’s conviction of Benjamin Gitlow under its Criminal Anarchy Law for publication of a document, titled “Left Wing Manifesto,” as a reasonable action “to protect the public peace and safety.” While the case was an exception to the First Amendment’s free speech protections, Sanford made clear that the amendment was applicable to the states. He wrote:
We may and do assume that freedom of speech and of the press which are protected by the First Amendment from abridgment by Congress are among the fundamental personal rights and “liberties” protected by the due process clause of the Fourteenth Amendment from impairment by the States.
Gitlow paved the way for future cases applying the Bill of Rights to the states, such as Gideon v. Wainwright (1963) (extending the Sixth Amendment’s right to counsel to the states).
The CEQ has No Clothes: The End of CEQ’s NEPA Regulations and the Future of NEPA Practice
On February 20, 2025, the White House Council on Environmental Quality (CEQ) posted a pre-publication notice on its website of an Interim Final Rule that rescinds its regulations implementing the National Environmental Policy Act (NEPA), which, in one form or another, have guided NEPA practice since 1978. CEQ simultaneously issued new guidance to federal agencies for revising their NEPA implementing procedures consistent with the NEPA statute and President Trump’s Executive Order 14,154 (Unleashing American Energy). The Interim Final Rule was submitted for publication in the Federal Register on February 19, 2025 and will become effective 45 days after it is published. This action represents the final blow to CEQ’s NEPA regulations, coming in the wake of two recent federal court decisions in the past few months that foreshadowed their impending demise. In light of those court decisions, CEQ is unlikely to issue new regulations, even under a future presidential administration, without express congressional authorization.
Background
NEPA generally applies to discretionary actions involving federal agencies, including projects carried out by a federal agency itself or by private parties that receive a permit or financial assistance from a federal agency. When NEPA is triggered, it requires a federal agency to analyze the environmental impacts of the project before making a decision to carry it out or issue an approval that may also include conditions or mitigation requirements. NEPA is a procedural law and does not mandate a specific outcome or require that the project proponent mitigate any identified environmental impacts.
NEPA, which was enacted in 1970, is a rather barebones statute. NEPA practice has long been governed by CEQ’s NEPA regulations, which were first promulgated in 1978 after President Carter issued Executive Order 11,991 (Relating to Protection and Enhancement of Environmental Quality) earlier that year directing CEQ to replace its earlier nonbinding guidance. Many common features of NEPA practice — such as environmental assessments, categorical exclusions, programmatic environmental documents, supplemental environmental documents, lead and cooperating agencies, required analysis of a no-action alternative, and required analysis of mitigation measures — are directly tied to CEQ’s 1978 NEPA regulations (some were eventually codified by Congress’s 2023 amendments to NEPA). Agencies could also develop their own NEPA implementing procedures consistent with CEQ’s regulations. Except for one relatively minor amendment in 1986, CEQ’s NEPA regulations did not change between 1978 and 2020, and a large body of case law resulted as courts evaluated agencies’ compliance with the regulations. CEQ substantially revised its regulations during the first Trump administration (in 2020) and during the Biden administration (in 2021 and 2024). For the past nearly 50 years, federal agencies, courts (including the Supreme Court), and NEPA practitioners have largely accepted CEQ’s authority to issue binding regulations without objection.
Recent Court Decisions
Two recent federal court cases challenged the longstanding assumption of CEQ’s authority. First, as we previously reported, in November 2024 the U.S. Court of Appeals for the D.C. Circuit found that CEQ lacked authority to issue binding regulations. (Marin Audubon Society v. Federal Aviation Administration, No. 23-1067 (D.C. Cir. Nov. 12, 2024).) On January 31, the full D.C. Circuit denied a petition for rehearing en banc, with a majority of the judges issuing a concurring statement explaining that the earlier decision’s “rejection of the CEQ’s authority to issue binding NEPA regulations was unnecessary to the panel’s disposition” and, impliedly, not part of the court’s holding.
Then, on February 3, in a different case, a federal district court in North Dakota issued a decision expressly holding that CEQ lacked authority to issue binding regulations. (Iowa v. CEQ, No. 1:24-cv-00089 (D.N.D. Feb. 3, 2025).) That case was brought by Iowa and a coalition of 20 other states to challenge CEQ’s regulations issued in May 2024. The court’s decision closely followed the D.C. Circuit’s analysis in Marin Audubon and came to the same conclusion: CEQ does not (and never did) have the authority to issue binding regulations. The court reasoned that CEQ, which was established by NEPA, was authorized by statute only to “make recommendations to the President.” Thus, based on constitutional separation-of-powers principles, President Carter’s 1978 Executive Order could not legally confer regulatory authority on CEQ in the absence of congressional authorization.
Because the court found that CEQ had no regulatory authority, it vacated the challenged 2024 regulations. Notably, although the court’s conclusion about CEQ authority supported vacatur of all CEQ NEPA regulations, it vacated only the 2024 regulations that were challenged in the case before it, leaving “the version of NEPA in place on June 30, 2024, the day before the rule took effect.” The court noted, however, that “it is very likely that if the CEQ has no authority to promulgate the 2024 Rule, it had no authority for the 2020 Rule or the 1978 Rule and the last valid guidelines from CEQ were those set out under President Nixon.”
The court concluded: “The first step to fixing a problem is admitting you have one. The truth is that for the past forty years all three branches of government operated under the erroneous assumption that CEQ had authority. But now everyone knows the state of the emperor’s clothing and it is something we cannot unsee. . . . If Congress wants CEQ to issue regulations, it needs to go through the formal process and grant CEQ the authority to do so.”
CEQ’s Recission of its NEPA Regulations
Meanwhile, CEQ’s NEPA regulations were concurrently under fire from the executive branch. On January 20, President Trump issued Executive Order 14,154 (Unleashing American Energy), which was largely targeted at removing perceived barriers to domestic fossil fuel production and mining, including federal environmental permitting processes. To that end, Section 5 of the Executive Order revoked President Carter’s 1978 Executive Order directing CEQ to issue binding regulations and directed the chairperson of CEQ to, by February 19, (1) propose rescinding all CEQ NEPA regulations and (2) issue new guidance to federal agencies for implementing NEPA. CEQ has now done as directed.
The Interim Final Rule proposes to rescind the entirety of CEQ’s regulations. It will go into effect 45 days after it is published in the Federal Register to give the public an opportunity to submit comments, which CEQ will “consider and respond to” prior to finalizing the rule. In the preamble to the Interim Final Rule, CEQ states it has “concluded that it may lack authority to issue binding rules on agencies in the absence of the now-rescinded E.O. 11191.” While CEQ considers the revocation of the Carter Executive Order to constitute an “independent and sufficient reason” for rescinding the NEPA regulations, it also agrees (contrary to its longstanding and customary practice) that “the plain text of NEPA itself may not directly grant CEQ the power to issue regulations binding upon executive agencies.”
CEQ Guidance to Federal Agencies Regarding NEPA Implementation
At the same time CEQ proposed to rescind its NEPA regulations, it also issued guidance to federal agencies for implementing NEPA going forward and for revising or establishing their own NEPA-implementing procedures, consistent with the NEPA statute and Executive Order 14,154. That guidance recommends agencies “continue to follow their existing practices and procedures for implementing NEPA” while they work on their new procedures and “should not delay pending or ongoing NEPA analyses while undertaking these revisions.” As to these pending or ongoing NEPA reviews, CEQ advises agencies to “apply their current NEPA implementing procedures” and “consider voluntarily relying on” the soon-to-be rescinded regulations.
The guidance also proposes a path forward to agencies to follow in drafting new procedures. It “encourages agencies” to use the 2020 NEPA regulation revisions as a framework and advises that agencies should consider the following:
Prioritize project-sponsor-prepared environmental documents for expeditious review.
Ensure that the statutory timelines established in section 107 of NEPA will be met for completing environmental reviews. (Generally, one year for a completion of an environmental assessment and two years for an environmental impact statement.)
Include an analysis of any adverse environmental effects of not implementing the proposed action in the analysis of a no action alternative to the extent that a no action alternative is feasible.
Analyze the reasonably foreseeable effects of the proposed action consistent with section 102 of NEPA, which does not employ the term “cumulative effects.”
Define agency actions with “no or minimal federal funding” or that involve “loans, loan guarantees, or other forms of financial assistance” where the agency does not exercise sufficient control over the subsequent use of such financial assistance or the effect of the action to not qualify as “major Federal actions.”
Not include an environmental justice analysis, since Executive Order 12,898, which required all federal agencies to “make achieving environmental justice part of its mission” was separately revoked by Executive Order 14,173.
CEQ has set a 12-month timeframe for federal agencies to complete the revision of their NEPA procedures. Agencies must consult with CEQ while revising their implementation procedures and CEQ will hold monthly meetings of the “Federal Agency NEPA Contacts and the NEPA Implementation Working Group” as required by Executive Order 14,154 to coordinate revisions amongst the agencies. Within 30 days of the guidance memorandum, agencies must develop and submit to CEQ a proposed schedule for updating their implementation procedures.
NEPA Practice in the Near Future
Going forward, agencies, project applicants, and NEPA practitioners should rely upon the NEPA statute (as amended by the Fiscal Responsibility Act in 2023) as primary authority. For projects with ongoing or pending NEPA review, applicants should expect federal agencies to continue to apply their existing NEPA practices and rely on the soon-to-be rescinded regulations, except to the extent they are inconsistent with Executive Order 15,154 or the NEPA statute (and in that regard, they will need to be closely evaluated on an individual basis). Case law also will need to be closely analyzed to determine whether courts’ holdings in prior cases were predicated on the statute itself (and therefore, still have binding or persuasive authority, depending on the court) or were based on CEQ’s regulations (in which case they should no longer have any authority). CEQ’s guidance is expressly non-binding, but should also be considered.
In a twist of irony, the rescission of CEQ’s NEPA regulations could lead to greater delays in environmental reviews and permitting (including for fossil fuel production and mining projects favored by Executive Order 14,514), at least in the near term. CEQ’s regulations created uniform procedures that applied to all federal agencies, which was particularly helpful for complex projects that require approvals from multiple federal agencies. Without uniform regulations, each individual agency might now impose its own requirements on the NEPA process. This could result in greater challenges coordinating environmental reviews and permitting among multiple agencies, although CEQ will likely attempt to harmonize implementation procedures as it reviews agencies’ proposals. In addition, permitting delays are expected as agency staff adjust to the new landscape and determine how to comply with NEPA without reliance upon CEQ’s regulations. Staffing shortages resulting from the Trump administration’s efforts to reshape the federal workforce are also likely to additionally exacerbate these problems.
Relatedly, this term, the Supreme Court is considering its first NEPA case since 2004 (Seven County Infrastructure Coalition v. Eagle County) involving the scope of impacts that agencies must consider. Because the case involves the NEPA statute rather than its implementing regulations, the rescission of CEQ’s regulations is unlikely to affect the decision. Oral argument was held in December, and a decision is expected this spring. We will continue to track developments related to this decision.
March 14, 2025, Looming as Important Date for Congressional Republicans and President Trump, and May Provide Leverage to Democrats
March 14, 2025, looms as an important deadline in the middle of President Trump’s first 100 days in office, a milestone often used to evaluate the effectiveness of a new President. March 14 is the day that the American Relief Act, 2025 (Public Law 118-158), which provides temporary funding for the federal government, expires. The law was enacted during the 118th Congress and signed into law by President Biden. At the time, some questioned whether having government funding expire during President Trump’s first 100 days in office was a good idea. Now, Republicans, who control the White House, Senate, and House of Representatives, need to pass legislation to avoid a government shutdown on March 15, and may need Democratic support to do so. The question is, at what cost?
Government funding is not the only thing that expires March 14, 2025. The National Flood Insurance Program was extended through March 14, 2025, and will also expire if not extended, as will Temporary Assistance for Needy Families (TANF), which provides benefits to families in need. Congress also needs to raise the debt limit, but not necessarily within this same timeframe.
Simultaneous with figuring out how to fund the federal government for the remainder of Fiscal Year 2025, the Republican-led Congress also is working on legislation to enact President Trump’s priority issues, including extending the 2017 tax provisions, providing money for border security, and addressing immigration. Making matters more challenging, leadership in the House of Representatives and Senate are taking sharply different approaches to developing such legislation. Adding one more degree of difficulty to this legislative effort, House Republicans in the last Congress needed Democrats to vote for the legislation for it to pass. What is unknown this time is whether Democrats will vote in sufficient numbers with Republicans to fund the government and, if so, what concessions they will be able to gain from Republicans to secure their support.
I wrote in December that slim majorities will test Republican unity in the 119th Congress. The looming March 14, 2025, deadline combined with the desire to pass legislation to enact President Trump’s priorities early in 2025, present an interesting test of Republican unity, and may present out-of-power Democrats with sufficient leverage to gain concessions to win their support. The next few weeks will provide a fascinating look at what to expect for the remainder of the 119th Congress.
FDA Continues Push to Improve Food Labeling Practices in the United States
In September 2022, former President Biden convened the White House Conference on Hunger, Nutrition, and Health, during which the White House introduced its National Strategy on Nutrition and Health (National Strategy). The National Strategy called for creating more accessible food labeling practices to empower consumers to make healthier choices, among other laudable public health-focused goals. Prior to the January 2025 transition from the Biden to the Trump administration, the Food and Drug Administration (FDA) took concrete steps to address this particular National Strategy priority through both formal rulemaking and informal guidance. This blog post summarizes FDA’s actions at the end of the Biden administration intended to modernize food labeling practices and move them forward in today’s more consumer-focused marketplace.
Proposed Rule for Front-of-Package Nutrition Labeling
In the National Strategy, the development of front-of-package (FOP) labeling schemes was discussed as one way to promote equitable access to nutrition information and healthier choices. On January 16, 2025, FDA published in the Federal Register a proposed rule that would require a front-of-package nutrition label on packaged foods (Proposed Rule). The Proposed Rule would require manufacturers to add a “Nutrition Info” box on the principal display panel of each packaged food product, which would list the Daily Value (DV) percentage of saturated fat, sodium, and added sugars in a serving of that food. The DV percentage would list how much of the nutrient in a serving contributes to a person’s total daily diet. In addition, each of those nutrients would include corresponding “interpretative information” that would signal to consumers whether the food product contains a low, medium, or high amount of those nutrients. An example of the proposed FOP nutrition information graphic is below. And although the Proposed Rule would not require it, manufacturers could voluntarily include a calorie count on the front of the food package, per existing FDA regulations.
The Proposed Rule does deviate from certain suggestions made in the National Strategy, which advocated for FOP “star ratings” and “traffic light schemes” to promote equitable access to nutrition information. Specifically, the National Strategy considered how to best help consumers with lower nutrition literacy more readily identify foods that comprise a healthy diet. Instead of a front-of-packaging labeling system that would rely on imagery, however, FDA’s proposal opted for written information about the nutrients contained in the food. Both the preamble to the Proposed Rule and FDA’s press release announcing its publication explain that in focus groups conducted in 2022, participants reported confusion over the traffic light system in particular (e.g., when a food contained both nutrients that should be limited but also nutrients for which higher consumption is recommended) and that “the black and white Nutrition Info scheme with the percent [DV] performed best in helping consumers identify healthier food options.”
It will be interesting to see whether comments to the Proposed Rule will remark on FDA’s choice of the written “Nutrition Info” box versus a FOP labeling system that would be more reliant on imagery. FDA is accepting comments on the Proposed Rule until May 16, 2025 (Docket FDA-2024-N-2910). As currently envisioned, if the proposal for FOP nutrition information is adopted, most food product manufacturers would have three years from the effective date to bring labels into compliance (smaller manufacturers would be given four years).
As a result of President Trump’s administrative freeze and new executive orders governing the work of regulatory agencies such as FDA, the fate of this Proposed Rule is currently uncertain. However, newly confirmed Health and Human Services (HHS) Secretary Robert F. Kennedy Jr. has articulated that his agenda is to “make America healthy again” (MAHA) and the presidential MAHA Commission was recently established to begin informing the Administration’s work on Mr. Kennedy and President Trump’s priorities in this space. Although Mr. Kennedy did not address food labeling during his Senate confirmation hearings and the executive order creating the MAHA Commission does not speak directly to food labeling or nutrition information accessibility for consumers, interested stakeholders should monitor the upcoming work of the Commission – including whether any opportunities for public comments may be made available – as well as its future “Make Our Children Healthy Again Strategy” that is due in approximately six months. Further, under a deregulatory executive order signed on January 31, 2025, President Trump has directed agencies to eliminate 10 “regulations” for each new regulation to be promulgated, with the term “regulation” expansively defined to include memoranda, guidance documents, policy statements, and interagency agreements. This “one-in, 10-out” order may make the prospect of an FOP nutrition labeling final rule less likely, at least for the foreseeable future.
Final Rule for Use of The Term “Healthy” on Food Labeling
Another recent FDA action related to food labeling was the agency’s finalization of a proposed rule from 2022 that involved a lengthy public consultation and information collection process (see our prior coverage here). On December 27, 2024, FDA published in the Federal Register its Final Rule regarding the use of the term “healthy” in food labeling. The Final Rule updates the definition established 30 years ago for the nutrient content claim “healthy” to be used in food labeling. In President Biden’s National Strategy, one highlighted priority was ensuring that food packages bearing this claim align with current nutrition science and the Dietary Guidelines for Americans (Dietary Guidelines). To advance this goal, FDA was charged with updating the standards for when a company can use the “healthy” claim on its products (work on which was already ongoing at the agency), creating a symbol that can be used to reflect that the food is “healthy, and developing guidance on the use of Dietary Guideline statements on food labels.
The original regulatory definition of “healthy” (codified at 21 C.F.R. § 101.65(d)) sets limits on total fat, saturated fat, cholesterol, and sodium content should a food be labeled as healthy, and requires that the food contain at least 10% of the DV for vitamin A, vitamin C, calcium, iron, protein, and fiber. Under the Final Rule, total fat and dietary cholesterol are no longer factors to be considered when evaluating whether a food is eligible for this particular nutrient content claim. Instead, the agency has established limits on saturated fat, sodium, and added sugars in accordance with the Dietary Guidelines. Additionally, rather than focusing on vitamin A, vitamin C, calcium, iron, protein, and fiber, the Final Rule requires that the food product contain a certain amount of food from at least one of the food groups or subgroups recommended by the Dietary Guidelines, such as fruit, vegetables, grains, dairy, and proteins.
Perhaps most notably, the prior regulatory scheme allowed for foods that were high in added sugars, such as yogurts, breakfast cereals, and fruit snacks, to technically qualify as “healthy” despite not aligning with the definition of “nutrient-dense” foods from the Dietary Guidelines, which specifically applies to certain foods “when prepared with no or little added sugars, saturated fat, and sodium.” Consistent with generally accepted nutritional best practices, the National Strategy also promoted lowering the sodium content in food and decreasing the consumption of added sugars –shared goals of new HHS Secretary Kennedy and the broader MAHA agenda.
The Final Rule does not establish a “healthy” symbol that can be used on food packaging, but FDA has indicated that this symbol may also be on the horizon. In its press release announcing the Final Rule, FDA noted that it is “continuing to develop” this symbol, adding that such a symbol would further FDA’s goal of helping consumers more easily identify healthier food products.
The Final Rule’s effective date (which as of publication of this blog post, has not been changed by the Trump Administration) is February 25, 2025, and the compliance date for manufacturers is February 25, 2028 – three years after the new regulatory definition becomes effective.
Draft Guidance for Industry: Labeling of Plant-Based Alternatives to Animal-Derived Foods
Finally, while not specifically called out in the National Strategy, FDA has been working for several years to develop labeling recommendations for plant-based foods that are being developed and marketed as alternatives to conventional animal products. On January 7, 2025, FDA released the Draft Guidance for the Labeling of Plant-Based Alternatives to Animal Derived Foods (Draft Guidance), in response to the growing demand for plant-based food alternatives in the United States. According to the Plant-Based Food Association, 70% of Americans are consuming plant-based foods. The scope of the newly released guidance encompasses alternatives to poultry, meat, seafood, and dairy products that fall under FDA’s jurisdiction. It expressly excludes plant-based milk alternatives, as separate guidance on that subject was released in February 2023.
The Draft Guidance notes that rather than simply identifying a product as a “plant-based” alternative food, the specific plant source should be disclosed on the food product’s label. This would enable consumers to make more informed choices about purchasing plant-based alternatives. For example, rather than labeling a plant-based cheese solely as such, the cheese’s label should more clearly disclose “soy-based cheese” to reflect its primary ingredients. The Draft Guidance also recommends that if a plant-based alternative food is derived from several different plant sources, the primary plant sources should be identified in the food’s name. The agency provides the examples of “Black Bean Mushroom Veggie Patties” and “Chia and Flax Seed Egg-less Scramble” to illustrate this concept. For labeling purposes, FDA also recommends companies avoid exclusively naming products with “vegan,” “meat-free,” or “animal-free.”
Public comments on the Draft Guidance should be submitted by May 7, 2025 (Docket FDA-2022-D-1102).
Conclusion
One primary goal of the National Strategy was to empower Americans to make healthier, informed choices about their nutrition and food consumption. In the United States, diet-related diseases, such as hypertension, obesity, and diabetes, are on the rise. Under the Biden administration and the leadership of former Commissioner Dr. Robert Califf, FDA sought to fight these alarming trends and to improve public health by increasing access to nutritional information and promoting transparency in food labeling.
Further, while the Proposed Rule, Final Rule, and Draft Guidance all focus on labeling packaged food products that can be purchased in stores, it will be interesting to see how these initiatives influence FDA’s recommendations for food labeling practices in online grocery shopping. On April 24, 2023, FDA published the notice Food Labeling in Online Grocery Shopping; Request for Information (Docket No. FDA-2023-N-0624-0002), which received 31 electronically submitted comments from various stakeholders, including grocer organizations, food scientists, and individual consumers. Indeed, the December 2024 press release for the Final Rule noted that FDA “has already entered into a partnership with Instacart to make it even easier for consumers to find products with the ‘healthy’ claim through online grocery shopping filters and a virtual storefront.” In the wake of the agency actions summarized in this post and the Instacart partnership, we wonder if FDA will move in the future to provide manufacturers and retailers with definitive guidance on online food labeling practices. We will be watching to see how FDA, as well as the work of the MAHA Commission and HHS Secretary Kennedy, may continue to improve food labeling practices in the future.
Michigan’s Earned Sick Time Act Amended: Employer Takeaways
On February 20, 2025, Michigan lawmakers voted to amend the Earned Sick Time Act (ESTA) to provide greater clarity and flexibility to both employees and employers with respect to paid time off, taking immediate effect. This action followed earlier votes this week by the Michigan legislature on the minimum wage law. Governor Whitmer has now signed both pieces of legislation into law.
Key changes to ESTA as of February 21, 2025, are as follows:
Employers are expressly permitted to frontload at least 72 hours of paid sick time per year, for immediate use, to satisfy ESTA’s leave requirement. Employers who frontload hours do not need to carry over unused paid sick time year to year and do not have to calculate and track the accrual of paid sick time for full-time employees. For part-time employees, frontloading in lieu of carryover is also an option, including frontloading a prorated number of hours. Employers choosing to frontload a prorated amount must follow notice, award amount, and true-up requirements.
If paid sick time is not frontloaded, employees still must accrue 1 hour of paid sick leave for every 30 hours worked, but employers may cap usage at 72 hours per year. Only 72 hours of unused paid sick time is required to roll over from year to year for employers who provide leave via accrual.
New hires can be required to wait until 120 days of employment before they can use accrued paid sick time, which could potentially benefit seasonal employers. This waiting period appears to be permitted for frontloading and accruing employers alike, although the bill’s language with respect to frontloading employers is somewhat unclear. This may be an issue for clarification by the Department of Labor and Economic Opportunity, which under the amendment will be responsible for all enforcement of the law.
ESTA now provides several exemptions, including:
An individual who follows a policy allowing them to schedule their own hours and prohibits the employer from taking adverse personnel action if the individual does not schedule a minimum number of working hours is no longer an “employee” under ESTA.
Unpaid trainees or unpaid interns are now exempt from ESTA.
Individuals employed in accordance with the Youth Employment Standards Act, MCL 409.101-.124, are also exempt from ESTA.
Small businesses, defined as those with 10 or fewer employees, are only required to provide up to 40 hours of paid earned sick time. The additional 32 hours of unpaid leave, required under the original version of ESTA, is no longer required. Small businesses, like other employers, are permitted to provide leave via a frontload of this entire applicable amount or to provide the time via accrual. If small businesses use the accrual method (1 hour of paid sick time for every 30 hours worked), they may cap paid sick time usage at 40 hours per year and only permit carryover of up to 40 hours of unused paid sick time year to year. Small businesses have until October 1, 2025, to comply with several ESTA requirements, including the accrual or frontloading of paid earned sick time and the calculation and/or tracking of earned sick time.
Employers can now use a single paid time off (PTO) policy to satisfy ESTA. Earned sick time may be combined with other forms of PTO, as long as the amount of paid leave provided meets or exceeds what is otherwise required under ESTA. The paid leave may be used for ESTA purposes or for any other purpose.
The amendments clarify that an employee’s normal hourly rate for ESTA purposes does not include overtime pay, holiday pay, bonuses, commissions, supplemental pay, piece-rate pay, tips or gratuities.
The amendments specify that the Department of Labor and Economic Opportunity is responsible for enforcement of the Act. Prior provisions that included a private right of action for employees to sue their employers for possible ESTA violations have been removed.
The amendments remove a “rebuttable presumption” of retaliation that was contained in the original Act.
ESTA now permits employers to choose between one-hour increments or the smallest increment used to track absences as the minimum increment for using earned sick time.
The amendments allow a means for employers to require compliance with absence reporting guidelines for unforeseeable ESTA use. To do this, an employer must comply with steps outlined in the amendment including disclosure of such requirements to employees in writing.
The amendments specify that employers must provide written notice to employees including specified information about the Act within 30 days of the effective date. This would mean a date of March 23, 2025.
The amendments allow for postponement of the effective date of ESTA for employees covered by a collective bargaining agreement that “conflicts” with the Act. The effective date for such employees is the expiration date of the current collective bargaining agreement.
The amendments likewise allow for the postponement of ESTA’s effective date for employees who are party to existing written employment agreements that “prevent compliance” with the Act. Reliance on such provisions requires notification to the state.
Some provisions of the bill give rise to continuing confusion or ambiguity, including:
The amended law continues to contain a provision requiring the display of a poster from the Department of Labor and Economic Growth, which appears to be effective immediately upon the date the bill is signed into law. However, no updated poster exists.
The statute’s reference to “conflict” between a collective bargaining agreement and ESTA is not well defined, including how this provision will apply to a collective bargaining agreement that, perhaps intentionally through prior negotiations, includes no current provisions for sick time.
Whether the amended law is intended to exclude nonprofit organizations from the scope of covered employers is unclear. The reference to nonprofits was stricken, but there is no affirmative language excluding them from the broad “employer” definition that remains in the law.
The availability of a 120-day waiting period for a frontloading employer is somewhat unclear, due to the provisions that frontloaded time must be “available for immediate use.”
The date employees may first use earned sick time, in relation to the time frame for employers to finalize and issue policies, would benefit from clarification. The amendment states that accrual begins on the effective date of the Act, and time may be used “when it is accrued.” However, employers appear to have a 30-day time frame to finalize and issue policies defining how they choose to provide ESTA’s benefits.
The extent of employer recordkeeping and/or inspection obligations are unclear under the current law. Previous provisions detailing such requirements are no longer included.
Additional Authors: Luis E. Avila, Francesca L. Parnham, and Carolyn M.H. Sullivan
Delaware Policymakers Act to Enhance Deal Protection Devices and Liability Safe-Harbors and Limit Books and Records Inspections and Litigation Fees
On February 17, 2025, Delaware policymakers, including the governor and a group of bipartisan legislative leaders, took noteworthy steps to enhance transactional certainty and deal protection devices and decrease director, officer, and controlling stockholder liability and related litigation expenses and fees. First, in Senate Bill 21, the legislature has proposed amendments to the Delaware General Corporation Law (DGCL) that would increase protections for directors, officers, and controlling stockholders from fiduciary duty claims and liability when using certain cleansing procedures and decrease stockholders’ access to corporate books and records (Proposed Amendments). Second, in Senate Concurrent Resolution 17, the legislature has requested that the Council of the Corporation Law Section of the Delaware State Bar Association (Council) prepare a report with recommendations for legislative action regarding incentives and caps related to fees granted by the Delaware courts to attorneys representing plaintiff-stockholders (Requested Report). Although the Proposed Amendments remain subject to approval by the Delaware legislature and governor, they are immediately relevant to all companies and investors, and particularly those considering whether to incorporate or remain in Delaware. Overview of the Proposed Amendments
The Proposed Amendments would significantly modify Sections 144 and 220 of the DGCL. These changes are intended to counteract case law developments in the Delaware litigation and transactional landscape over the past decade and provide all stakeholders with greater clarity and transactional certainty going forward. Specifically, amended Section 144 would codify variations on the deal protection devices used for cleansing breach of fiduciary duty claims by approval of disinterested stockholders (under Corwin v. KKR Financial Holdings LLC, 125 A.3d 304 (Del. 2015), in the absence of a conflicted controlling stockholder transaction) and by approval of both an independent director committee and unaffiliated stockholders (under Kahn v. M & F Worldwide Corp., 88 A.3d 635 (2014), as a conflicted controlling stockholder transaction). Amended Section 220 would largely restrict the inspection of records other than specified formal corporate records. Each of these topics has figured prominently in the recent discourse regarding Delaware’s prominence as a corporate home and source of corporate law and the possibility of a shift toward other jurisdictions. Delaware now appears poised to quickly respond to that discourse by adopting the state-of-the-art Proposed Amendments which will offer corporate constituents unparalleled clarity and transactional certainty moving forward.
Proposed Amendments to Section 144
Section 144 currently provides a limited safe harbor from voidness of interested transactions. The Proposed Amendments to Section 144 would prevent equitable relief, damages, or other sanctions against directors, officers, and controlling stockholders in conflicted transactions under certain circumstances. Amended Section 144 offers cleansing of fiduciary duty claims and liability in three different scenarios: (1) conflicted transactions without a conflicted controlling stockholder (Non-Controller Transactions); (2) conflicted controlling stockholder transactions other than a going-private transaction (Controller Transaction); and (3) conflicted controlling stockholder going-private transaction (Going Private Transaction).
Similar to Corwin and MFW, amended Section 144 would permit fiduciary duty claims related to Non-Controller Transactions to be cleansed by disinterested stockholder approval, while fiduciary duty claims related to Going Private Transactions would require approval by both an independent director committee and disinterested stockholders. In a noteworthy shift, under amended Section 144, claims and liability related to Controller Transactions could be cleansed by disinterested director or independent committee approval instead of both. However, in another notable shift, the requirements for utilizing these deal protection devices under amended Section 144 would be less stringent than under existing law in a few important ways, including that under amended Section 144, (i) a cleansing procedure need not be in place from the outset, (ii) disinterested stockholder approval is determined on a votes cast basis, (iii) an independent committee must only be majority composed by independent directors, (iv) the independence of public company directors is presumably satisfied by applicable stock exchange standards, and (v) Controller Transactions may be cleansed by only one of disinterested stockholder or independent committee approval. Amended Section 144 would also address the critical threshold matter of how a controlling stockholder is defined, by prescribing a standard that is higher and narrower than at Delaware common law, requiring either majority voting power, or one-third voting power in director elections and power to exercise managerial authority over the corporation.
Proposed Amendments to Section 220
Section 220 currently provides stockholders with rights to demand inspection of corporate books and records related to a proper purpose as a stockholder and the right to petition the Delaware Court of Chancery to compel such an inspection based on a credible basis for the inspection. As amended, Section 220 would retain that general framework but would generally limit inspections to specified formal books and records and restrict the stockholder’s ability to obtain redress from the court. Amended Section 220 would also prevent the court from ordering inspection of other corporate records such as informal records and director texts and emails, unless the corporation failed to maintain stockholder meeting minutes and consents for the past three years, board meeting minutes and actions, and financial statements for the past three years (and, if the corporation has publicly listed stock, director and officer independence questionnaires). Amended Section 220 would also increase the standards applicable to an inspection petition, by requiring (i) the books and records to be specifically related to the purpose and (ii) the stockholder to describe its purpose and the demanded books and records with reasonable particularity. By limiting the scope of books and records available for inspection under Section 220, the Proposed Amendments would also clarify and generally limit the books and records available pursuant to a director’s inspection demand.
Requested Report regarding Litigation Fees
In the Requested Report, the legislature has asked the Council to report on potentially appropriate legislative action regarding attorneys’ fees in litigation, expressly including incentives and caps on those fees. The legislature’s request acknowledges the difficulty and importance of striking the right balance in this sensitive area, while suggesting that the legislature may be inclined to impose limits on corporate litigation fees. This is a topic that has also factored into the discourse over whether companies intend to remain incorporated in Delaware. Although the Proposed Amendments were not subjected to the Council’s drafting and review process which has applied as a matter of course to DGCL amendments for more than 50 years, the Requested Report may indicate the legislature’s desire for this matter to run the Council’s typical gamut involving law firms spanning the spectrum of clients and interests. If the Requested Report does lead to legislative caps on attorneys’ fees in corporate litigation, then that would add to the insulating effect of the Proposed Amendments and further reduce companies’ exposure to litigation expenses.
Outlook
Delaware has responded to critics aggressively in a way that may have lasting effects on the corporate, M&A, and litigation landscape. We view these legislative actions as important developments for any board, management team, or investor and in any conversation regarding whether to incorporate, remain, or invest in Delaware or another jurisdiction. At a minimum, the Proposed Amendments would clarify a path forward for recordkeeping and conflict transaction authorization, while emphasizing the benefits of good corporate hygiene, the inclusion of independent directors, and the presence of empowered board committees. From the perspective of the corporate franchise, this demonstrates Delaware’s commitment to flexibility, an enabling corporate statute, responsiveness to corporate constituents, and legal certainty, and these are all factors that have been identified as key elements in the conversation over Delaware’s continued global leadership in corporate law. However, the Proposed Amendments and the Requested Report are not yet law; we anticipate that the precise implications will continue to play out over the coming months and years and will be monitoring for further developments.
View Senate Bill 21
View Senate Concurrent Resolution 17