Bipartisan Take It Down Act Becomes Law
On Monday, May 19, 2025, President Donald Trump signed the “Take It Down Act” into law. The Act, which unanimously passed the Senate and cleared the House in a 409-2 vote, criminalizes the distribution of intimate images of someone without their consent. Lawmakers from both parties have commented that the law is long overdue to protect individuals from online abuse. It is disheartening that a law must be passed (almost unanimously) to require people and social media companies to do the right thing.
There has been a growing concern about AI’s ability to create deepfakes and distribute deepfake pictures and videos of individuals. The deepfake images are developed by tacking benign images (primarily of women and celebrities) with other fake content to create explicit photos to use for sextortion, revenge porn, and deepfake image abuse.
The Take It Down Act requires social media platforms to remove non-consensual intimate images within 48 hours of a victim’s request. The Act requires “websites and online or mobile applications” to “implement a ‘notice-and-removal’ process to remove such images at the depicted individual’s request.” It provides for seven separate criminal offenses chargeable under the law. The criminal prohibitions take effect immediately, but social media platforms have until May 19, 2026, to establish the notice-and-removal process for compliance.
The Take It Down Act is a late response to a growing problem of sexually explicit deepfakes used primarily against women. It makes victims have to proactively reach out to social media companies to take down images that are non-consensual, which in the past has been difficult. Requiring the companies to take down the offensive content within 48 hours is a big step forward in giving individuals the right to protect their privacy and self-determination.
New York Enacts BNPL and Overdraft Fee Restrictions
On May 9, the NYDFS announced that Governor Kathy Hochul signed New York’s FY2026 Budget into law, enacting two major consumer financial protection measures. The budget establishes a licensing and supervision framework for Buy Now Pay Later (BNPL) lenders operating in New York and supports NYDFS’s January 2025 proposal to cap overdraft fees and prohibit certain high-cost practices (previously discussed here). Key provisions of the budget include:
Licensing requirements for BNPL providers. Companies offering BNPL products must obtain a license and submit to regulatory oversight.
Standardized disclosures and fee limitations. BNPL lenders must provide clear terms regarding repayment and fees, and may only charge fees that comply with newly established limits.
Caps on overdraft fees. NYDFS’s proposed regulations would limit the maximum amount banks may charge for overdrafts.
Ban on serial daily fees. State-chartered banks would be prohibited from assessing multiple overdraft fees in a single day.
Posting order requirements. Banks must adopt consistent transaction processing practices to prevent fee manipulation.
Putting It Into Practice: New York’s FY26 budget continues the state’s push toward stricter regulation of consumer financial services amid reduced federal oversight, through a combination of legislation, supervision and enforcement (previously discussed here, here, and here).
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Texas Adopts Significant Pro-Business Corporate Law Reforms
With a pair of bills signed by Texas Governor Greg Abbott on May 14, 2025, and May 20, 2025, Texas took a major step in positioning itself as the pro-business jurisdiction of choice for public and private companies. The legislation adopts a series of amendments to the Texas Business Organizations Code (TBOC), which governs Texas corporations, limited liability companies, limited partnerships and other legal entities, that are designed to make Texas more attractive for entity formation and redomestication.
Senate Bill 29
On May 14, 2025, Governor Abbott signed Senate Bill 29 (S.B. 29) into law with immediate effect. The changes to the TBOC enacted by S.B. 29 clarify areas of existing Texas law and strengthen a company’s defenses against certain types of shareholder litigation.
Business Judgment Rule Statute
S.B. 29 enacts new Section 21.419 codifying the “business judgment rule” presumption. The statute applies automatically to public corporations (any corporation with a class or series of voting shares listed on a national securities exchange) and includes an option for any private corporation to “opt-in” by including an affirmative election in its governing documents.
Directors and officers of corporations that are subject to the statute are presumed to have acted (1) in good faith; (2) on an informed basis; (3) in furtherance of the interests of the corporation; and (4) in obedience to the law and the corporation’s governing documents, in taking or declining to take any action on any matters of the corporation’s business.
Further, the statute provides that neither the corporation nor any of its shareholders has a cause of action against a director or officer as a result of any act or omission in the person’s capacity as a director or officer unless (1) the claimant rebuts one or more of the codified presumptions and (2) it is proven by the claimant that (A) the director’s or officer’s act or omission constituted a breach of the person’s duties as a director or officer and (B) the breach involved fraud, intentional misconduct, an ultra vires act or a knowing violation of law.
Advance Independence Determination
S.B. 29 also overhauls provisions of the TBOC relevant to the evaluation and approval of certain conflict of interest transactions.
Specifically, the new legislation expressly empowers a board of directors of a public corporation or a private corporation that has opted-in to the business judgment rule statute (new Section 21.419) to form a committee of independent and disinterested directors to review and approve transactions involving the corporation or any of its subsidiaries and a controlling shareholder, director or officer, and to petition the Texas Business Court (or the district court in the county in which the corporation’s principal place of business in Texas is located, if that county is not located within an operating division of the Texas Business Court), to seek an advance determination as to whether the directors on the committee are independent and disinterested.
The court’s determination in such a proceeding is dispositive in the absence of evidence not presented to the court that one or more of the directors is not independent and disinterested with respect to a particular transaction involving the corporation or any of its subsidiaries and a controlling shareholder, director or officer.
Minimum Ownership Threshold for Derivative Actions
S.B. 29 allows public corporations and private corporations that have opted-in to the business judgment rule statute and have 500 or more shareholders (at the time the derivative proceeding is instituted) to proscribe, in the corporation’s certificate of formation or bylaws, a minimum ownership threshold for shareholders that are eligible to bring a derivative lawsuit, provided that such minimum ownership threshold does not exceed three percent of the corporation’s outstanding shares.
Limitation of Books and Records Demands
For public corporations and private corporations that have opted-in to the business judgment rule statute, S.B. 29 provides that a shareholder is not entitled to bring a books and records demand if it is reasonably determined by the corporation that the demand is in connection with (1) an active or pending derivative proceeding in the right of the corporation that is or is expected to be instituted or maintained by the holder or the holder’s affiliate or (2) an active or pending civil lawsuit to which the corporation or its affiliate and the holder or the holder’s affiliate are or are expected to be adversarial.
S.B. 29 also clarifies that, for all Texas corporations, “e-mails, text messages or similar electronic communications, or information from social media accounts” are not records that may be subject to a books and records demand, unless the particular communication effectuates action by the corporation.
Limiting Recovery of Attorney’s Fees in “Disclosure Only” Settlements
Under existing provisions of the TBOC, a court may order a corporation to reimburse a plaintiff’s attorney’s fees and other litigation costs incurred in a derivative proceeding if it is determined that the proceeding has resulted in a “substantial benefit” to the corporation. Under S.B. 29, the provision is amended to provide that additional or amended disclosures made to the shareholders, regardless of materiality, are not a “substantial benefit” to the corporation.
Waiver of Jury Trial
S.B. 29 codifies the right of a Texas entity to contain in its governing documents a provision waiving the right to a jury trial concerning any “internal entity claim,” which is a claim of any nature, including a derivative claim, that is based on, arises from, or relates to the internal affairs of the entity.
Exclusive Forum Selection
S.B. 29 also codifies the right of a Texas entity to contain in its governing documents a provision stipulating one or more courts in Texas as the exclusive forum and venue for “internal entity claims.”
Class and Series Voting Rights
S.B. 29 eliminates certain mandatory separate class and series voting requirements, providing greater flexibility for a Texas corporation to structure its voting rights among different classes and series of stock. The amendment addresses one of the more significant hurdles that corporations seeking to redomicile in Texas have historically encountered, as the rigidity of the prior regime was often incompatible with the way voting rights are typically structured in certain types of corporations with multiple classes or series of stock.
Limited Liability Companies and Limited Partnerships
While S.B. 29 will have the greatest impact on Texas corporations, the legislation also includes a number of analogous reforms for Texas limited liability companies and limited partnerships.
Senate Bill 1057
Senate Bill 1057 (S.B. 1057) was signed by Governor Abott on May 19, 2025, and will become effective on September 1, 2025. While not as expansive as S.B. 29, S.B. 1057 allows public companies with a specific nexus to Texas, either due to the location of its principal office or its decision to list its shares on one of the new Texas-based stock exchanges, the ability to “opt-in” to a statute that applies minimum ownership requirements to shareholder proposals.
A Texas corporation is eligible to opt-in to the statute by adopting an amendment to its governing documents if it (1) has a class of equity securities registered under Section 12(B) of the Securities Exchange Act of 1934; (2) is admitted to listing on a national securities exchange; and (3) either (A) has its principal office in Texas or (B) is admitted to listing on a Texas-based stock exchange.
Once a corporation has opted-in, in order to be eligible to submit a proposal on a matter to the shareholders for approval, a shareholder or group of shareholders must (1) hold an amount of voting shares of the corporation equal to at least (A) $1 million in market value or (B) three percent of the corporation’s outstanding voting shares; (2) hold the shares for a continuous period of at least six months before the date of the meeting and throughout the duration of the meeting; and (3) solicit the holders of shares representing at least 67 percent of the voting power of shares entitled to vote on the proposal.
Summary
The changes implemented by S.B. 29 and S.B. 1057 represent a significant evolution in Texas corporate law. We expect the changes will promote new entity formation in Texas and will influence many companies organized in Delaware and other jurisdictions to consider a move to Texas. We also expect many existing Texas companies to adopt amendments to their governing documents to take advantage of various features of the new legislation.
Delaware Statutory Amendments Provide ‘Safe Harbors’ For Interested Director, Officer, Controlling Stockholder, and Control Group Transactions
On March 25, 2025, Delaware’s governor, Matt Meyer, signed Senate Substitute 1 to Senate Bill 21, enacting significant changes to the Delaware General Corporation Law (the DGCL).1 The newly-enacted legislation, among other things, provides various safe harbors for acts or transactions involving potential or actual conflicts of interest of directors, officers, controlling stockholders, or members of a control group. Before the amendments, Section 144 did not offer a safe harbor for acts or transactions in which controlling stockholders or members of a control group had potential or actual conflicts of interest, and these conflicts of interest were governed by common law principles that Delaware courts developed over decades.
Specifically, amended Section 144 provides guidance for corporations and their advisors to obtain the protection afforded under the business judgment rule for acts or transactions that might otherwise be subject to an entire fairness analysis. Based on amended Section 144, business judgment rule protection will be obtained through disinterested director and/or disinterested stockholder approval.2 Absent disinterested directors and/or disinterested stockholder approval, the directors, officers, controlling stockholders, or members of a controlling group have the burden of demonstrating that the act or transaction was entirely fair as to the corporation and its stockholders.3
Amended Section 144(e) also provides definitions (as provided below) to implement and uniformly apply the statute. In contrast, before the amendments, Section 144 did not provide statutory definitions of (among other terms) “disinterested director,” “disinterested stockholder,” “controlling stockholder,” and “control group.” Rather than be defined by statute, before the amendments, these terms required judicial determination after a fact intensive analysis on a case-by-case basis.4
Further, amended Section 144 provides that potential or actual conflicts of interest “may not be the subject of equitable relief or give rise to an award of damages against a director or officer” if the statutory requirement of disinterested director or disinterested stockholder approval is satisfied. In contrast, before the amendments, Section 144 provided that acts or transactions between a corporation and one or more of its directors or officers (or an entity in which one or more of its directors or officers are directors or officers or have a financial interest) would not be “void or voidable” solely because of the potential or actual conflict of interest if approved by disinterested directors or stockholders after the disclosure of material facts.5 Arguably, before the amendments, the application of Section 144 was more limited in scope focusing on allegedly “void” or “voidable” transactions rather than the remedies of “equitable relief” and “damages.”
Finally, amended Section 144(d)(5) sets forth an exculpatory provision for controlling stockholders or members of a control group that eliminates liability of controlling stockholders or members of a control group for monetary damages for breach of fiduciary duty under certain circumstances. In contrast, before the amendments, Section 144 did not contain any exculpatory provision for directors, officers, controlling stockholders, or members of a control group. Indeed, Section 102(b)(7) of the DGCL provides exculpation for directors and officers if an exculpation provision is contained in the corporation’s certificate of incorporation, and, before amended Section 144(d)(5), the DGCL provided no exculpation for controlling stockholders or members of a control group.
In sum, although there are similarities, there are material differences between Section 144 before the amendments and after the amendments. These similarities and differences will be discussed below in more detail. A discussion of the differences will include (a) the definitions contained in amended Section 144, and (b) the exculpation of controlling stockholders and members of a control group. Finally, the relationship between amended Section 144 and common law principles will be examined.
A. Amended Section 144(a)
Amended Section 144(a) applies to acts or transactions involving potential or actual conflicts of interest of directors or officers, and does not apply to controlling stockholders or members of a control group. For purposes of amended Section 144(a), a conflict of interest exists if the director or officer has a material interest (as defined below) in the act or transaction. A conflicted act or transaction involving directors or officers will be protected by Section 144(a)(1) if the act or transaction is approved by a majority of the disinterested directors on the board of directors (the “Board”) or a committee of the Board (the “Section 144(a) Committee”), even if the disinterested directors appointed are less than a quorum, in good faith and without gross negligence.6 The material facts concerning the nature of the material interest and the act or transaction must be disclosed or known to all members of the Board or the Section 144(a) Committee and, if a majority of the Board is not disinterested, then the approval (or recommendation of approval) must be by the Section 144(a) Committee comprised of at least two directors, who the Board determined to be disinterested. Absent disinterested director approval, a conflicted act or transaction involving directors or officers will be protected by Section 144(a)(2) if the act or transaction is approved or ratified by an informed, uncoerced,7 and affirmative vote of a majority of the votes cast by the disinterested stockholders.8 Finally, absent disinterested director or disinterested stockholder approval, the statutory safe harbor of amended Section 144(a)(3) will apply if the act or transaction is “fair to the corporation and its stockholders.”9 The safe harbors provided by amended Section 144(a) are not altered by the facts that (a) potential or actual conflicts of interest exist, (b) the directors or officers received any benefit from the act or transaction, or (c) the directors or officers are present at or participate in the meeting which authorizes the act or transaction, or were involved in the initiation, negotiation, or approval of the act or transaction.
B. Amended Section 144(b)
Amended Section 144(b) applies to a controlling stockholder transaction (as defined below) except in the case of a going private transaction (as defined below). Under Section 144(b)(1), a controlling stockholder transaction will be protected if the material facts as to the controlling stockholder transaction (including the controlling stockholder’s or control group’s interest therein) are disclosed or are known to all members of a committee of the Board (the “Section 144(b) Committee”) to which the Board expressly delegated the authority to negotiate (or oversee the negotiation of) and to reject the controlling stockholder transaction, and the controlling stockholder transaction is approved (or recommended for approval) in good faith and without gross negligence by a majority of the disinterested directors serving on the Section 144(b) Committee. The Section 144(b) Committee must be comprised of two or more directors, each of whom the Board determined to be a disinterested director with respect to the controlling stockholder transaction. Under Section 144(b)(2), a controlling stockholder transaction will also be protected if the transaction is conditioned, by its terms, as in effect at the time it is submitted to stockholders for their approval or ratification, on the approval of or ratification by disinterested stockholders, and the transaction is approved or ratified by an informed, uncoerced, affirmative vote of a majority of the votes cast by the disinterested stockholders. Finally, the statutory safe harbor of Section 144(b)(3) will apply if the controlling stockholder transaction is fair to the corporation and its stockholders.
C. Amended Section 144(c)
Amended Section 144(c) applies to a controlling stockholder transaction that constitutes a going private transaction. Under amended Section 144(c)(1), a going private transaction may not be the subject of equitable relief or give rise to an award of damages against a director, officer, controlling stockholder or members of a control group by reason of a breach of fiduciary duty by a director, officer, controlling stockholder, or members of a control group if both disinterested committee approval (amended Section 144(b)(1)) and disinterested stockholder approval (amended Section 144(b)(2)) are validly obtained. Under amended Section 144(c)(2), a going private transaction will also be protected if the transaction is fair to the corporation and its stockholders.
It is important to note that, unlike amended Section 144(a), for purposes of amended Section 144(b) and amended Section 144(c), amended Section 144(b)(1) requires that at the time the Section 144(b) Committee is formed, it must be clear that the Section 144(b) Committee has the power and authority to reject the transaction. Amended Section 144(b)(1) does not require, however, that the Section 144(b) Committee be formed or delegated the authority to negotiate and reject the controlling stockholder transaction before the commencement of substantive economic negotiations. In addition, unlike amended Section 144(a), for purposes of amended Section 144(b) and amended Section 144(c), amended Section 144(b)(2) requires that the act or transaction be expressly conditioned upon the requisite stockholder vote, and the safe harbors of amended Section 144(b) and amended Section 144(c) will apply, if the controlling stockholder transaction is approved or ratified by an informed, uncoerced, affirmative vote of a majority of the votes cast by the disinterested stockholders. Although the controlling stockholder transaction must be expressly conditioned on the disinterested stockholder vote where a party is relying on the vote for safe harbor protection, the condition needs only be in place before the act or transaction is submitted to a vote of stockholders, and it need not be in place before the time at which substantive negotiations commence.
D. Controlling Stockholder or Control Group Exculpation
Amended Section 144(d)(5) sets forth an exculpatory provision for controlling stockholders or members of a control group that eliminates liability of the controlling stockholders or members of a control group for monetary damages for breach of fiduciary duty other than for (a) breach of the duty of loyalty, (b) acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, or (c) transactions from which they derive an improper personal benefit. By reciting the core concepts imported from Section 102(b)(7) of the DGCL, which allows for the exculpation of directors and officers, amended Section 144(d)(5) confirms that controlling stockholders or members of a control group will not be held liable for monetary damages to the corporation or its stockholders for a breach of the duty of care. Amended Section 144(d)(5) appears to provide controlling stockholders and members of a control group with more certain protection than directors and officers because the controlling stockholders and the members of a control group are entitled to the protection as a statutory right, and, in contrast, the directors and officers are entitled to the protection only if the protection is contained in the corporation’s certificate of incorporation.
E. Amended Section 144(e) Definitions
In addition to creating safe harbor protections for directors, officers, controlling stockholders, or members of a control group, amended Section 144(e) provides various definitions to provide clarity and predictability in the law, including the codification of concepts that are core to any review of fiduciary conduct. The codification contained in amended Section 144 arguably replaces common law definitions and principles that have been created by courts over decades for the purpose of reviewing fiduciary conduct. The ramifications of the definitions contained in amended Section 144(e), therefore, may extend beyond amended Section 144, and be applied by courts in adjudicating corporate law matters not involving amended Section 144.
“Control Group.” Amended Section 144(e)(1) defines a “control group” as two or more persons that are not individually controlling stockholders, but that, by virtue of an agreement, arrangement, or understanding between or among the persons, collectively constitute a controlling stockholder. In general, the provisions applicable to a “controlling stockholder” are also applicable to a “control group.” Amended Section 144(d)(4) provides that no person shall be deemed a controlling stockholder unless such person satisfies the criteria in amended Section 144(e)(2), and no two or more persons that are not controlling stockholders shall be a control group unless they satisfy the criteria in amended Section 144(e)(1).
“Controlling Stockholder.” Amended Section 144(e)(2) defines “controlling stockholder” to mean any person or “control group” that (a) owns or controls a majority of the voting power of the corporation, (b) has the right, by contract or otherwise, to select directors or directors who would hold a majority of the voting power on the Board, or (c) has the power “functionally equivalent” to a controller by virtue of owning or controlling “at least one-third” of the voting power of the outstanding stock entitled to vote in the election of directors generally, or in the election of directors who have a majority of the voting power of all directors and the power to exercise “managerial authority over the business and affairs of the corporation.”
“Controlling Stockholder Transaction.” Amended Section 144(e)(3) defines “controlling stockholder transaction” is an act or transaction between the corporation or one or more of the corporation’s subsidiaries and a controlling stockholder or a control group, or an act or transaction from which a controlling stockholder or a control group receives a financial or other benefit not shared with the corporation’s stockholders generally.
“Disinterested Director.” Amended Section 144(e)(4) defines “disinterested director” as a director who is not a party to the act or transaction and does not have a material interest in the act or transaction or a material relationship (as defined below) with a person that has a material interest in the act or transaction. In addition to supplying a definition of “disinterested director,” amended Section 144(d)(2) provides that any director of a publicly-listed corporation shall be presumed to be a disinterested director with respect to an act or transaction that such director is not a party to if the Board shall have determined that the director satisfies the relevant criteria for determining director independence under any rules promulgated by an applicable exchange or, with respect to controlling stockholder transactions, satisfies such exchange independence rules when substituting the company for the controlling stockholder for purposes of that inquiry. The statute provides that the presumption arising out of satisfaction of independence standards under the listing rules is heightened and may only be rebutted by substantial and particularized facts that a director who meets the criteria for independence under the applicable listing rules has a material interest in the transaction or has a material relationship with a person with a material interest in the transaction. Amended Section 144(d)(3) also codifies the common law principle that the mere designation, nomination, or vote in the election of the director to the board of directors by any person that has a material interest in an act or transaction shall not, of itself, be evidence that a director is not a disinterested director with respect to an act or transaction to which such director is not a party.
“Disinterested Stockholder.” Amended Section 144(e)(5) defines “disinterested stockholder” as any stockholder that does not have a material interest in the act or transaction at issue or a material relationship with any person that has a material interest in the act or transaction at issue.
“Going Private Transaction.” For purposes of amended Section 144(b) and amended Section 144(c), amended Section 144(e)(6) of the DGCL defines a “going private transaction” as (a) for companies with Securities Exchange Act-registered securities, a SEC Rule 13e-3 transaction, and (b) for any other corporation, any Controlling Stockholder Transaction pursuant to which all or substantially all of the shares of the corporation’s capital stock held by the disinterested stockholders are cancelled, converted, purchased, or otherwise acquired or cease to be outstanding.
“Material Interest.” Amended Section 144(e)(7) defines “material interest” as an actual or potential benefit, including the avoidance of a detriment, other than one which would devolve on the corporation or the stockholders generally, that (a) in the case of a director, would reasonably be expected to impair the objectivity of the director’s judgment when participating in the negotiation, authorization, or approval of the act or transaction at issue, and (b) in the case of a stockholder or any other person (other than a director), would be material to such stockholder or such other person.
“Material Relationship.” Amended Section 144(e)(8) defines “material relationship” as a familial, financial, professional, employment, or other relationship that (a) in the case of a director, would reasonably be expected to impair the objectivity of the director’s judgment when participating in the negotiation, authorization, or approval of the act or transaction at issue, and (b) in the case of a stockholder, would be material to such stockholder.
F. The Relationship Between Amended Section 144 and Common Law Principles
Amended Section 144(d)(6) clarifies that amended Section 144 is not intended to limit the right of any person to seek equitable relief on the grounds that an act or a transaction, including a controlling stockholder transaction, was not validly authorized or approved in compliance with Delaware law. The safe harbor processes and procedures, therefore, do not displace any existing authorization requirements under the default provisions of the DGCL, the corporation’s certificate of incorporation, or the corporation’s by-laws. Amended Section 144(d)(6) also clarifies that amended Section 144 is not intended to limit judicial review for purposes of injunctive relief of provisions or devices designed to deter, delay, or preclude a change of control or other transaction (such as stockholder rights plans), or a change in the composition of a board of directors. The statute further provides that amended Section 144 does not limit a stockholder’s right to seek relief on grounds that a person or entity aided or abetted a breach of fiduciary duty by a director. Simply stated, amended Section 144 offers protection to directors, officers, controlling stockholders, and members of a control group, but does not offer protection to third parties that aid or abet breaches of fiduciary duty.
In sum, amended Section 144 is designed to provide safe harbors for acts or transactions that follow the statutory processes and procedures. It is not intended to displace the common law requirements regarding core fiduciary conduct, or any safe harbor procedures or other protections available at common law, including processes and procedures that comply with common law principles before the amendment but do not conform to the amended Section 144 safe harbors.10
Accordingly, the failure to comply expressly with the processes and procedures will not result in the application of heightened review if the act or transaction that is the subject to challenge would be entitled under common law to business judgment rule protection.
References
1The amendments became effective upon its signing on March 25, 2025. The amendments apply prospectively (to acts and transactions occurring on and after that date) and retroactively (to acts and transactions occurring before it), subject to an exception. The amendments do not apply to any court proceeding that is pending on or before February 17, 2025.
2The business judgment rule is a presumption that directors made a decision on an informed basis, in good faith, and in honest belief that action was taken in best interests of company. A party challenging the decision must rebut the presumption by alleging facts that demonstrate that the directors breached their fiduciary duty of care or fiduciary duty of loyalty. See Solomon v. Armstrong, 747 A.2d 1098, 1111–12 (Del. Ch. 1999).
3The entire fairness standard of judicial review applies if the presumption of the business judgment rule is rebutted. Entire fairness is an exacting standard and requires the board of directors to “establish to the court’s satisfaction that the transaction was the product of both fair dealing and fair price.” Cede & Co. v. Technicolor, Inc., 634 A.2d 345, 361 (Del. 1993) (emphasis in original).
4Before the amendments, Section 144(a)(2) provided that the safe harbor applies if approved by the “stockholders.” Notwithstanding the absence of the term “disinterested stockholders,” Delaware courts held that the safe harbor applies if approved by the “disinterested stockholders.” See In re Wheelabrator Tech. S’holders Litig., 663 A.2d 1194, 1203 (Del. Ch. 1995) (holding “8 Del. C. § 144(a)(2) pertinently provides that an ‘interested’ transaction of this kind will not be voidable if it is approved in good faith by a majority of disinterested stockholders”). Amended Section 144(b) adopted and defined the term “disinterested stockholders.”
5Under Delaware law, a “void” act or transaction is one that the corporation lacks the power or authority to take. In contrast, an act or transaction is “voidable” if it was within the corporation’s power and authority to take, but was not properly authorized or carried out in a specific case. See Solomon v. Armstrong, 747 A.2d 1098, 1114 (Del. Ch. 1999), aff’d, 746 A.2d 277 (Del. 2000) (holding that void acts are those the corporation itself “has no implicit or explicit authority to undertake or those acts that are fundamentally contrary to public policy.); see also XRI Investment Holdings LLC v. Holifield, 283 A.3d 581, 652 (Del. Ch. 2022) (citing Solomon and holding that “[v]oidable acts, by contrast, are within the power or capacity of the corporation and not fundamentally contrary to public policy, but which were not properly authorized, effectuated, or implemented by the proper corporate decision-makers.”)
6See Smith v. Van Gorkom, 488 A.2d 858, 873 (Del. 1985) (adopting the gross negligence standard in duty of care context).
7The statute does not define an “informed” or “uncoerced” vote, and, thus, Delaware’s well-developed common law principles apply in determining whether a vote was “informed” or “uncoerced.”
8There are three stockholder voting standards recognized under Delaware law. First, there is the “majority-of-the-outstanding standard,” in which to satisfy, the votes in favor must be a majority of the number of the outstanding shares. Second, there is the “majority-of-the-quorum standard,” in which to satisfy, the votes in favor must be a majority of the shares present in person or by proxy and entitled to vote at a meeting where a quorum is present. Third, the “majority-of-the-votes-cast standard,” in which to satisfy, the votes in favor must exceed the votes against. Amended Section 144, therefore, adopted the voting standard that is the least onerous to satisfy. See Salama v. Simon, 328 A.3d 356, 363 (Del. Ch. 2024).
9The term “fair to the corporation and its stockholders” is not defined in amended Section 144, but the statutory synopsis provides that this reference is “intended to be consistent with the entire fairness doctrine developed in the common law.” Del. Substitute No. 1, S.B. 21, 153rd Gen. Assemb. (2025).
10As provided in the statutory synopsis, “[a]ny approval or recommendation, as applicable, of disinterested directors or a disinterested director committee must be made in good faith and without gross negligence, making clear that the statute does not displace the common law requirements regarding core fiduciary conduct as contemplated by” Delaware decisions. Del. Substitute No. 1, S.B. 21, 153rd Gen. Assemb. (2025) (citing Flood v. Synutra Int’l, Inc., 195 A.3d 754, 768 (Del. 2018); In re MFW S’holders Litig., 67 A.3d 496, 517 n. 100 (Del. Ch. 2013), aff’d sub nom., Kahn v. M & F Worldwide Corp., 88 A.3d 635 (Del. 2014)).
Washington State’s Amended Pay Transparency Law Includes Grace Period for Employers to Cure Job Postings
Washington State has taken a significant step for employers under its pay transparency law by giving employers a five-business-day grace period to correct violations in job postings and limiting the damages plaintiffs can win, among other changes to the law. The requirement that Washington employers post wage and salary information, and information about benefits and other compensation, in their job postings is unchanged.
On May 20, 2025, Governor Bob Ferguson signed legislation amending the state’s pay transparency law, the Equal Pay and Opportunities Act. The changes are effective July 27, 2025, through July 27, 2027.
Since the 2023 amendments went into effect requiring salary ranges and benefit disclosures in job postings, employers across the state have faced many lawsuits brought by so-called tester applicants, people applying not with the intent to work but to find technical violations. The new law introduces a grace period for employers to fix an identified issue. Under the new law, an employer notified in writing about a non-compliant job posting will have five business days to fix the issue before any penalties kick in.
Another welcome change for employers is the adjustment to the damages structure. Under the previous law, plaintiffs could claim damages automatically, regardless of intent or actual harm. The new law provides statutory damages ranging from $100 to $5,000, and courts are directed to consider several factors when determining awards, including the size of the employer, whether the violation was willful, and the nature of the infraction.
The amendments also clarify that employers are permitted to list a fixed rate, rather than a wage or salary range, when applicable. Additionally, employers will not be held liable for postings that are republished without their knowledge or consent by third-party websites.
Questions that remain include whether people applying solely to find non-compliant postings qualify as “bona fide applicants” and how the latest changes will affect pending litigation, if at all.
As we wait for more clarity, employers should continue to review their job postings carefully, implement internal compliance reviews and train HR teams on updated requirements. Employers should also have a plan for promptly addressing any potential violations.
Exploring California’s Proposed AI Bill
California lawmakers have proposed new legislation to reshape the growing use of artificial intelligence (AI) in the workplace. While this bill aims to protect workers, employers have expressed concerns about how it might affect business efficiency and innovation.
What Does California’s Senate Bill 7 (SB 7) Propose?
SB 7, also known as the “No Robo Bosses Act,” introduces several key requirements and provisions restricting how employers use automated decision systems (ADS) powered by AI. These systems are used in making employment-related decisions, including hiring, promotions, evaluations, and terminations. The pending bill seeks to ensure that employers use these systems responsibly and that AI only assists in decision-making rather than replacing human judgment entirely.
The bill is significant for its privacy, transparency, and workplace safety implications, areas that are fundamental as technology becomes more integrated into our daily work lives.
Privacy and Transparency Protections
SB 7 includes measures to safeguard worker privacy and ensure that personal data is not misused or mishandled. The bill prohibits the use of ADS to infer or collect sensitive personal information, such as immigration status, religious or political beliefs, health data, sexual or gender orientation, or other statuses protected by law. These limitations could significantly limit an employer’s ability to use ADS to streamline human resources administration, even if the ADS only assists but does not replace human decision making. Notably, the California Consumer Privacy Act, which treats applicants and employees of covered businesses as consumers, permits the collection of such information.
Additionally, if the bill is enacted, employers and vendors will have to provide written notice to workers if an ADS is used to make employment-related decisions that affect them. The notice must provide a clear explanation of the data being collected and its intended use. Affected workers also must receive a notice after an employment decision is made with ADS. This focus on transparency aims to ensure that workers are aware of how their data is being used.
Workplace Safety
Beyond privacy, SB 7 also highlights workplace safety by prohibiting the use of ADS that could violate labor laws or occupational health and safety standards. Employers would need to make certain that ADS follow existing safety regulations, and that this technology does not compromise workplace health and safety. Additionally, ADS restrictions imposed by this pending bill could affect employers’ ability to proactively address or monitor potential safety risks with the use of AI.
Oversight & Enforcement
SB 7 prohibits employers from relying primarily on an ADS for significant employment-related decisions, such as hiring and discipline, and requires human involvement in the process. The bill grants workers the right to access and correct their data used by ADS, and they can appeal ADS employment-related decisions. A human reviewer must also evaluate the appeal. Employers cannot discriminate or retaliate against a worker for exercising their rights under this law.
The Labor Commissioner would be responsible for enforcing the bill, and workers may bring civil actions for alleged violations. Employers may face civil penalties for non-compliance.
What’s Next?
While SB 7 attempts to keep pace with the evolution of AI in the workplace, there will likely be ongoing debate about these proposed standards and which provisions will ultimately become law. Jackson Lewis will continue to monitor the status of SB 7.
New Formation and Governance Considerations: Taking Advantage of Texas SB 29
Texas Gov. Greg Abbott signed into law Senate Bill 29 (SB 29) on May 14, 2025. SB 29 amends the Texas Business Organizations Code’s (TBOC) provisions regarding corporate governance, director and officer liability, shareholder rights, and proceedings involving internal actions in an effort to make Texas an increasingly attractive jurisdiction in which to incorporate public and private entities. Considering SB 29, domestic companies in Texas should educate their boards and management teams on SB 29’s impact and review their organizational documents, governance practices, and other policies to determine whether updates are appropriate to opt into these amendments. Foreign entities should also consider the impact of SB 29 on choice of domicile for existing entities as well as future entities.
SB 29’s most notable provisions are discussed below:
1. Codification of the Business Judgment Rule and Other Protections
SB 29 codifies the business judgment rule – a common law presumption that directors and officers make decisions in good faith, with reasonable care, in the best interests of the entity, and in accordance with the entity’s governing documents and applicable law. This codification applies to publicly traded entities by default, as well as private entities that affirmatively elect the business judgement rule election in their formation documents. Further, to have a cause of action, claimants (whether in a direct or derivative capacity) must (i) rebut one of the above presumptions and (ii) prove that (a) the directors or officers acted in a way that involved fraud, intentional misconduct, an ultra vires act, or violation of the law, and (b) such action constituted a breach of duty. The codification of the business judgment rule applies to all claims arising from alleged breaches of the duty of care, duty of loyalty, and other duties owed by directors and officers in connection with transactions involving interested persons.
These new codified protections are in addition to, and not in lieu of, any other existing statutory or common law protections. SB 29 also provides limited liability companies and limited partnerships more flexibility in defining fiduciary duties that members, managers, and officers owe to such entities. Specifically, the governing documents of limited liability companies and limited partnerships may eliminate (not merely restrict) any duties, including fiduciary duties, and related liabilities that a member, manager, and officer owe to such entity.
2. Limiting Derivative Actions
SB 29 permits imposition of minimum ownership requirements for initiating derivative actions. Specifically, publicly traded entities and private entities (i) with 500 or more owners and (ii) that have elected the statutory business judgment rule may impose a minimum ownership threshold of up to 3% of the outstanding equity for owners to initiate derivative actions. In addition, SB 29 limits awarding attorneys’ fees in awarded derivative actions by specifically disqualifying mere disclosure-only settlements as “substantial benefits” for the purpose of such awards, regardless of the materiality of such disclosures.
3. Strengthening the Independence of Transaction Review Committees
Another key feature of SB 29 is its provisions regarding advanced determinations of director independence. SB 29 permits publicly traded corporations and corporations that elected the statutory business judgment rule to petition Texas courts to hold an evidentiary hearing to determine the independence of a special committee of directors tasked with reviewing related party transactions, such as those involving the corporation and a controlling shareholder, director, or officer. Prior to such evidentiary hearing, the corporation must notify each of its shareholders to provide them with the opportunity to participate in the proceeding. Once the court validates the independence of the committee, that decision will be binding absent facts, which were not presented to the court, that prove one or more directors is not independent and disinterested with respect to the applicable transaction.
4. Jury Trial Waivers and Exclusive Venue Provisions
SB 29 permits entities to include provisions in their governing documents that (i) designate a specific Texas court, such as the newly established Texas Business Court, as the exclusive venue for resolving internal disputes and (ii) waive the right to a jury trial for internal claims. Internal claims cover a broad scope of claims, including derivative claims and allegations of breaches of fiduciary duty. Importantly, SB 29’s jury trial waiver may be enforceable even if the entity’s members, owners, officers or governing persons did not individually sign such waiver.
5. Restrictions on Inspection Rights
Shareholders, members, and partners’ rights to inspect company books and records are also curtailed by SB 29’s amendments. Under SB 29, company owners are not entitled to review certain communications, such as emails, text messages, social media posts, and similar electronic communication, unless such communication effectuates an official action of the entity. SB 29 also permits publicly traded entities and entities that elected the statutory business judgment rule to deny inspection demands if the entity is involved, or expects to be involved, in a derivative proceeding or other litigation proceeding involving the entity.
6. Single Class Voting for Certain Business Actions
Texas’ mandatory separate class voting rights for corporations also falls under SB 29’s amendments. Texas corporations may now include language in their governing documents allowing corporations to waive class-by-class share voting in certain circumstances, permitting all classes of its stock vote as a single class. These amendments remedy a long-standing impediment for Texas corporations that desire to have multiple classes of stock by affording corporations with greater flexibility in structuring voting rights.
Maryland Clarifies Parental Leave Law: FMLA-Covered Employers Now Exempt
Takeaways:
Starting October 1, 2025, Maryland employers who are covered by the federal Family and Medical Leave Act (FMLA) are no longer required to comply with the state’s unpaid parental leave law.
Senate Bill 785 changes the definition of “employer” under Maryland’s Parental Leave Act to exclude those already covered by FMLA, even if they have between 15 and 49 employees.
Because both laws determine coverage based on employee counts over a 20-week period in the current or previous year, some employers may qualify for FMLA even if they currently have fewer than 50 employees—making them exempt from the state law under the new rule.
Effective October 1, 2025, Maryland employers covered by the federal Family and Medical Leave Act (“FMLA”) will no longer be subject to the state’s unpaid parental leave requirements.
Senate Bill 785, sponsored by Senator Justin Ready, was passed by the Maryland General Assembly and signed into law by Governor Wes Moore on May 6, 2025. The bill amends Maryland’s Parental Leave Act (“PLA”) to reduce overlap with federal law and ease compliance burdens for certain employers.
What Is the Maryland Parental Leave Act?
The Maryland PLA requires employers with 15 to 49 employees in Maryland to provide eligible employees with up to six weeks of unpaid parental leave for the birth, adoption, or foster placement of a child. To qualify, employees must have worked for a covered employer for at least 12 months and logged 1,250 hours in the prior 12 months before leave.
This law was designed to ensure that employees at smaller companies—those not covered by the federal FMLA—still had access to job-protected parental leave. A covered employer for purposes of the FMLA is one with 50 employees.
What’s Changing?
Senate Bill 785 changes the definition of “employer” under the PLA. Now, if an employer is already covered by the federal FMLA, they are excluded from the Maryland PLA—even if they have between 15 and 49 employees.
This change prevents employers from being subject to both state and federal leave laws. It simplifies compliance for businesses that already meet federal requirements.
Example: When This Applies
Let’s say a Maryland company has 48 employees in twenty or more workweeks this calendar year. Normally, that would make that employer subject to the Maryland PLA. But if that company had 50 or more employees for at least 20 workweeks in the prior calendar year, it is considered covered by the FMLA for the current year—even if their headcount has since dropped.
Under the new law, that company would no longer have to comply with Maryland’s PLA, because they are already covered by the FMLA.
Washington’s Digital Ad Tax Enacted: Is Litigation Now Inevitable?
On May 20, 2025, Washington Governor Bob Ferguson signed into law Senate Bill (SB) 5814, a sweeping tax bill that expands Washington’s retail sales and use tax to digital advertising services and a range of high-tech and IT services. The new law takes effect for sales occurring on and after October 1, 2025.
As we noted previously, this legislation marks a significant shift in Washington’s tax policy, extending sales tax to categories of traditionally exempt business-to-business services. With enactment, legal challenges – particularly under the federal Internet Tax Freedom Act (ITFA) – are ripe and appear inevitable.
WHAT THE LAW DOES
SB 5814 amends RCW 82.04.050 by redefining “sale at retail” to include “advertising services,” broadly covering both digital and nondigital forms of ad creation, planning, and execution. The law specifically includes:
Online referrals
Search engine marketing
Lead generation optimization
Web campaign planning
Digital ad placement
Website traffic analysis
However, the law expressly excludes services rendered in connection with:
Newspapers (RCW 82.04.214)
Printing or publishing (RCW 82.04.280)
Radio and television broadcasting
Out-of-home advertising (g., billboards, transit signage, event displays)
With these carve-outs, it is difficult to see how anything other than internet advertising remains subject to tax. The structure of the new tax facially discriminates against e-commerce and is barred by ITFA.
ITFA AND THE CERTAINTY OF A LEGAL CHALLENGE
ITFA prohibits states from imposing taxes that discriminate against digital services when comparable offline equivalents are exempt. While SB 5814 purports to cover both digital and nondigital advertising, the exclusions for nondigital forms of advertising cause it to target the digital side of the industry. For example, a digital banner ad will be taxed, whereas a banner towed by an airplane promoting the same product will not.
This distinction mirrors the structure of Maryland’s Digital Advertising Gross Revenues Tax, which has been tied up in litigation since its enactment in 2021. A Maryland trial court found that law facially violated ITFA and federal preemption principles. That litigation continues, and Washington now finds itself on a similar path.
HIGH-TECH AND IT SERVICES ARE NOW TAXABLE
In addition to digital advertising, SB 5814 extends the retail sales tax to high-tech services, including:
Custom website development
IT technical support and network operations
Data processing and data entry
In-person or live-virtual technical training
Like advertising, these intermediate services typically are purchased by businesses in support of operations rather than for end consumption. Taxing their sale introduces tax pyramiding and adds costs that will ultimately be passed on to consumers. For Washington’s tech-driven economy, this change will inflate prices and reduce competitiveness.
Local advertisers and businesses that rely on digital marketing and high-tech services will see these costs rise and lead to higher prices for consumers.
OUTLOOK
While SB 5814 is now law, its enforceability remains far from certain. Taxing digital advertising services while expressly excluding offline media places the new law on a collision course with ITFA. A legal challenge is all but guaranteed.
At the same time, the law’s fiscal impact is speculative. Revenue projections assume compliance across a complex landscape of service transactions, but practical realities, including sourcing ambiguities, administrative burdens, and behavioral changes, may undermine the base.
Washington, like Maryland, will find that taxing digital advertising is easier to legislate than to defend. The real test will come not in Olympia, but in the courts.
Employee Complaint Rights: Update on Executive Order 13496 Compliance
Executive Order (E.O.) 13496, signed on January 30, 2009, mandates that certain government contractors and subcontractors post notices informing their employees of their rights under federal labor laws. This executive order applies to all government contracts, except for collective bargaining agreements and contracts for purchases under the Simplified Acquisition Threshold.
Quick Hits
E.O. 13496 requires government contractors and subcontractors to post notices informing employees of their rights under federal labor laws.
The DOL is seeking an extension of the current approval to collect information related to E.O. 13496 to ensure its enforcement through the complaint procedure.
OFCCP remains the primary enforcement body for complaints under E.O. 13496 despite significant staff reductions.
Under the regulatory provisions of E.O. 13496 (29 C.F.R. Part 471), contractors and subcontractors are required to post notices detailing employees’ rights under the National Labor Relations Act (NLRA). These notices must include information on activities that are illegal under the Act, a general description of the remedies available to employees, and contact information for further assistance. The U.S. Department of Labor (DOL) estimates that it will annually continue to receive approximately ten complaints alleging failures to comply with the notice posting requirements of E.O. 13496.
The National Labor Relations Board’s (NLRB) 2011 rule required private-sector employers to post similar notices to employees advising them of their rights under the NLRA. But in June 2013, the Fourth Circuit Court of Appeals stated the agency had exceeded its authority when making such a requirement, agreeing with an earlier D.C. Circuit decision. A second chance at such notices was taken in 2023, when former NLRB General Counsel Jennifer Abruzzo suggested that employers distribute “Know Your Rights” cards to educate employees of their rights.
Now, the DOL is seeking an extension of the approval to collect information related to E.O. 13496. According to the DOL, “An extension is necessary because if this information collection is not conducted, E.O. 13496 could not be enforced through the complaint procedure.” The information collection request was last approved in 2022.
The Office of Labor-Management Standards (OLMS) administers the enforcement provisions of E.O. 13496, while the Office of Federal Contract Compliance Programs (OFCCP) handles compliance evaluations and investigations. The Federal Register notice continues to designate OFCCP as the primary enforcement body for complaints under E.O. 13496, even though the Trump administration has reduced OFCCP’s staff by approximately 90 percent.
The notice-and-comment deadline is July 15, 2025. Comments on this renewal request will be summarized and included in the request for Office of Management and Budget (OMB) approval. The DOL seeks authorization for this information collection for three years.
2025 Enforcement Trends: Risk Analysis Failures at the Center of HHS’s Multimillion-Dollar HIPAA Penalties
In the first five months of 2025, the U.S. Department of Health and Human Services’ (HHS) Office for Civil Rights (OCR) announced it had entered into ten Health Insurance Portability and Accountability Act (HIPAA) resolution agreements reflecting the settlement of alleged HIPAA violations stemming from data breaches reported to OCR. These settlements span both the Biden and Trump administrations and involve a wide range of covered entities and business associates, from small physician groups to larger hospital authorities and IT service providers. Despite the diversity of organizations and underlying incidents, however, OCR’s enforcement focuses appear strikingly consistent. Each announcement indicates the resolution agreement was intended to cure defects in basic HIPAA Security Rule compliance, with a common emphasis on each organization’s failure to conduct a thorough risk analysis consistent with the HIPAA Security Rule.
Quick Hits
The HIPAA Security Rule requires HIPAA-covered entities and business associates to complete a comprehensive risk analysis, aimed at identifying potential risks and vulnerabilities to the electronic Protected Health Information in their possession.
Since January 1, 2025, the U.S. Department of Health and Human Services’ Office for Civil Rights has announced ten resolution agreements with HIPAA-covered entities and business associates that have highlighted the relevant organization’s failure to adhere to the HIPAA Security Rule’s risk analysis requirements.
Penalties for these violations included civil monetary penalties from $25,000 to $3,000,000, and often included requirements to implement a corrective action plan mandating the completion of a risk analysis.
It is no secret that data breaches have many possible root causes, and this reality is reflected in the resolution agreements announced by HHS in the early months of 2025. Indeed, the nature of the underlying data breaches that prompted HHS’s inquiry into each affected entity’s HIPAA compliance posture varied meaningfully. Several involved ransomware attacks that infiltrated healthcare systems and affected patient data, as was seen in the resolution agreements HHS entered into with a New York neurology practice and a public hospital in Guam. Others were triggered by phishing schemes, such as a California health network where dozens of employee email accounts were compromised, exposing nearly 200,000 individuals’ records. There was also an incident of electronic Protected Health Information (ePHI) being left unsecured on internet-facing servers. In each instance, however, OCR’s investigation revealed that the affected organization had not met a fundamental HIPAA Security Rule requirement: conducting an enterprise-wide risk analysis. Accordingly, in each resolution, the regulator identified the entity’s failure to assess and address vulnerabilities in their systems in this manner as a major compliance gap.
The HIPAA Security Rule requires organizations to “[i]mplement policies and procedures to prevent, detect, contain, and correct security violations.” One of the methodologies required for meeting this standard involves completing a “risk analysis,” or an “accurate and thorough assessment of the potential risks and vulnerabilities to the confidentiality, integrity, and availability of electronic protected health information held by the [organization].” The penalties assessed by OCR in 2025 for failing to do this are significant. The monetary fines announced in conjunction with the resolution agreements ranged from as little as $25,000 at the low end to as much as $3 million for a national medical supplier that did not conduct a “compliant risk analysis” and subsequently suffered a major data breach after a phishing incident. Other financial penalties fell in between, with midsized providers and service companies typically agreeing to five- or six-figure fines. Beyond the dollar amounts, however, resolution agreements also included detailed corrective action plans, often requiring several years of close regulatory monitoring and mandating steps like the completion of fulsome risk analyses, implementation of risk management plans, completion of staff training, and regular updates to security policies, all with ongoing HHS involvement and oversight.
These recent OCR actions underscore that performing a HIPAA risk analysis is not an optional or “check-the-box” exercise for covered entities or business associates, but rather is a critical compliance step regulators are focusing on and actively enforcing against. OCR has made risk analyses a focal point of its enforcement initiatives in 2025, signaling to the industry that no organization is too large or too small to be held accountable for this basic requirement. The message for covered entities and business associates is clear: a comprehensive risk analysis is one of the simplest and most effective tools to protect against data breaches, and failing to complete one can directly lead to regulatory scrutiny and meaningful financial consequences.
In light of this enforcement focus, healthcare organizations and companies that provide services to healthcare organizations will be well served to proactively prioritize regular risk analyses and security improvements. Ensuring that all ePHI is accounted for and safeguarded—before an incident happens—is not only a straightforward compliance task, but also a central enforcement focus.
New Mexico Legalizes Medical Use of Psilocybin
On April 7, 2025, New Mexico became the third state to legalize psilocybin (colloquially known as “magic mushrooms” or “shrooms”) for medical purposes. New Mexico is the first state to legalize psilocybin via legislation and not a ballot initiative, like its predecessors Colorado and Oregon.
Quick Hits
On April 7, 2025, New Mexico became the third state to legalize access to psilocybin, following Colorado and Oregon.
Employers are not required to accommodate employees under the influence of psilocybin at work.
Under the new law—the “Medical Psilocybin Act”—the following qualifying conditions are listed as eligible for psilocybin treatment: “(1) major treatment-resistant depression; (2) post-traumatic stress disorder; (3) substance use disorders; (4) end-of-life care.” The law also allows the New Mexico Department of Health to promulgate regulations that would add qualifying conditions to that list.
New Mexico’s secretary of health has been tasked with establishing a “medical psilocybin advisory board,” to consist of nine members who have knowledge of the medical use of psilocybin. At least one member must be a member of an Indian nation, one must be a behavioral health advocate, and another must be “a representative of the health care authority.” The law also establishes a research fund to allow New Mexico state universities to research additional medical benefits of psilocybin. Finally, the law establishes an “equity fund” which allows for qualified patients who meet certain income requirements to receive psilocybin treatment.
A key takeaway for employers is that the law does not create a private cause of action for violations of its provisions. Thus, as of now, an employee cannot sue an employer for failing to accommodate his or her medical use of psilocybin. However, underlying Americans with Disabilities Act (ADA) claims could arise from failing to accommodate an employee’s use of psilocybin.
It is likely to take a few years for the psilocybin program to be fully operational. (The law requires the program to be implemented by December 31, 2027.) However, in the meantime, employers in New Mexico may want to review their drug testing and accommodations policies with regard to medical psilocybin for qualified patients. As a reminder, employers are not required to accommodate employees who are under the influence of psilocybin while at work.