Employment Law This Week- Federal Agencies Begin Compliance Efforts Under Trump Administration [Video} [Podcast]
This week, we’re highlighting notable employment law updates from federal agencies and the courts, including the Equal Employment Opportunity Commission (EEOC), the Department of Labor (DOL), and the U.S. Court of Appeals for the Fifth Circuit.
EEOC Releases FAQs on the State of the Agency
The EEOC, under the leadership of Acting Chair Andrea Lucas, recently released answers to frequently asked questions (FAQs) following President Trump’s series of executive orders affecting the agency.
DOL Halts OFCCP Activity Under Rescinded Executive Order
Acting Secretary of Labor Vince Micone recently issued an order directing the Office of Federal Contract Compliance Programs (OFCCP) to stop all enforcement activity under rescinded Executive Order 11246.
DOL Independent Contractor Rule Paused
The Fifth Circuit recently granted the DOL’s request to delay oral arguments, and it seems likely that the independent contractor rule will be short-lived.
Final Rule Implementing ICTS Supply Chain Executive Order 13873 In Effect
On May 15, 2019, President Trump issued Executive Order 13873 – Securing the Information and Communications Technology and Services Supply Chain (“EO” or “EO 13873”). After taking comments on a proposed implementing rule, the Department of Commerce (“DOC” or “Secretary”), on the very eve of the Biden Administration taking office, issued an Interim Final Rule implementing the EO and establishing procedures for its review of transactions involving information and communications technology and services (ICTS) designed, developed, manufactured or supplied by persons owned by, controlled by or subject to the jurisdiction or direction of a “foreign adversary” that may pose undue or unacceptable risk to the US or US persons. The DOC also sought further comments on the Interim Final Rule.
Since then the DOC announced that it had initiated certain investigations under the EO and the Interim Final Rule, and there were press reports of other investigations. Despite numerous investigations however, the DOC has only issued one Final Determination pursuant to EO 13873 since adoption of the Interim Final Rule.
On December 6, 2024, nearly three years later, the DOC published its “Final Rule” guiding review of ICTS Transactions, amending and, in some cases, removing terms or concepts which experience has shown to be unnecessary, inefficient or ineffective. The Final Rule was effective February 4, 2025.
The DOC committed to continue to review its procedures and possibly consider future rulemakings to further clarify aspects of the regulations. The new Trump Administration may also bring further adjustments. To date, the new Trump Administration has not indicated that it has “paused” enforcement under the Final Rule, as it has to other areas of regulatory enforcement. (And of course, the EO on which the Final Rule is based was issued by President Trump in his first term.)
Highlights of key adjustments reflected in the Final Rule include the following:
Scope of covered ICTS transactions – First, the DOC noted that its reviews and investigations of “ICTS Transactions” have thus far involved the review of all ICTS Transactions involving the subject entity of the review, rather than individual transactions between the entity and other parties, because the provision of anyICTS by that entity was the basis of the undue or unacceptable risks. Second, the Final Rule further refines the ICTS Transactions subject to further review by listing broad technology categories to indicate that the DOC is concerned about ICTS Transactions involving:
Information and communications hardware and software
ICTS integral to data hosting, computing or storage that uses, processes or retains sensitive personal data; connected software applications
ICTS integral to critical infrastructure
ICTS integral to critical and emerging technologies
Definitional changes –In response to certain comments, the Final Rule added or clarified certain definitions. Examples:
New definition of “Dealing In” as used in the definition of “ICTS Transaction” – “The activity of buying, selling, reselling, receiving, licensing or acquiring ICTS, or otherwise doing or engaging in business involving the conveyance of ICTS.’’
New Definition of “Importation” as used in the definition of “ICTS Transaction” – ‘‘The process or activity of bringing foreign ICTS to or into the US, regardless of the means of conveyance, including via electronic transmission.’’
Revised definition of “Party or Parties to a Transaction” – ‘‘A person or persons engaged in an ICTS Transaction or class of ICTS Transactions, including but not limited to the following: designer, developer, provider, buyer, purchaser, seller, transferor, licensor, broker, acquiror, intermediary (including consignee), and end user.”
Revised definition of “Person owned by, controlled by or subject to the jurisdiction or direction of a foreign adversary” to exclude US citizens and permanent residents – A US citizen or permanent resident would not be considered a ‘‘person owned by, controlled by or subject to the jurisdiction or direction of a foreign adversary’’ merely due to dual citizenship, or residency in a country controlled by a foreign adversary.”
Revised definition of “Person owned by, controlled by or subject to the jurisdiction or direction of a foreign adversary” – “An entity may be subject to the jurisdiction of a foreign adversary if it has a principal place of business in, is headquartered in, is incorporated in or is otherwise organized under the laws of a foreign adversary or a country controlled by a foreign adversary.”
Removal of one million unit or person threshold – This Final Rule removes the previous qualification that certain ICTS Transactions that involve the use, processing or retention of sensitive personal data must include the data of more than one million US persons to be subject to review. Additionally, it removes the one-million-unit sales minimum for internet-enabled sensors, webcams or other end-point surveillance or monitoring devices; routers, modems or any other home networking device; or drones or other unmanned aerial systems. Finally, the Final Rule also removes the qualification that software designed primarily for connecting with, and communicating via the internet be in use by over one million people to be considered ICTS for the purposes of the Rule
Committee on Foreign Investment in the United States (CFIUS) exemption – The Final Rule clarifies that the DOC will not review an ICTS Transaction that is also a covered transaction or covered real estate transaction, provided that it is either under review, investigation or assessment by CFIUS or CFIUS has concluded all action under section 721 of the Defense Production Act of 1950, as amended.
10-year record keeping requirement – The Final Rule also clarifies that any records that a notified person must retain in connection with an ICTS Transaction must be retained for 10 years following issuance of a Final Determination, unless the Final Determination specifies otherwise. Previously there was no limit on the retention period.
Details on information provided in an Initial Determination –The Final Ruleprovides thatthe Initial Determination will provide parties with information regarding the factual basis supporting the DOC’s decision to either prohibit an ICTS Transaction or permit the ICTS Transaction with mitigation measures. As to publication of an Initial Determination, in consideration of the comments about publication of Initial Determinations, under the Final Rule the DOC retains discretion to publish a notice of an Initial Determination— rather than the full text of an Initial Determination—in the Federal Register.
Response and mitigation timing – TheFinal Rule does not establish a maximum timespan for imposed mitigations because the DOC continues to believe that such an across-the-board maximum would hinder the department in fully evaluating any implemented mitigations, resulting in national security vulnerabilities. The Final Rule allows an initial 30 days to respond to an Initial Determination and allows parties to seek, and the Secretary to allow for good cause shown, an extension of another 30 days. In total, parties may receive up to 60 days to respond to an Initial Determination (30 days initially with a potential 30-day extension).
Timing imposed on interagency consultation for Final Determinations – With respect to the requirement that the Secretary seek concurrence of all appropriate agency heads before issuing a Final Determination, the Secretary may presume concurrence if no response is received within 14 days from one of the appropriate agency heads or the designee of appropriate agency heads. The Final Rule also clarifies that if an agency objects to the Final Determination, the objection must be received by the Secretary within the 14 days and the objection must come from the agency’s Deputy Secretary or equivalent level.
Final Determination timeline – The Final Rule changes certain timing associated with the Final Determination process but continues to rely on the 180-day time limit despite calls to shorten the review period. To improve clarity, it revises the 180-day time limit so that it begins when a party or parties to a transaction are served a copy of an Initial Determination and grants the Secretary sole discretion to extend this timeline. The DOC refused to establish an appeals process, but reconsideration may be warranted in some cases. The Secretary is not obliged to adopt the least restrictive means to address a determined “unacceptable risk.” The Secretary is now obligated to issue a Final Determination in every case in which the Secretary has previously issued an Initial Determination. Under the Interim Final Rule, a Final Determination was only required if the Initial Determination proposed to prohibit an ICTS Transaction. Finally, Publication in the Federal Register is now mandatory in any case where there is a Final Determination, not just where it is a Final Determination prohibiting a transaction.
Penalties – The Final Rule now provides a list of activities that may lead to civil or crimination penalties. Persons can be held responsible for assisting in the violation of a Final Determination to mitigate an ICTS Transaction, through a mitigation agreement between the US Government and identified parties to an ICTS Transaction, if they have knowledge that such a mitigation agreement exists. Activities that are prohibited for those with knowledge of the existence of a mitigation agreement include aiding and abetting violations, commanding a violation, procuring a product that is prohibited and other prohibited activities. Finally, providing false information to the DOC in connection with an ICTS Transaction under review is also prohibited.
Still no licensing regime – The DOC did not establish a licensing regime for transactions (e.g., a type of pre-clearance option contemplated by the initial rule), but it is still considering the concepts related to providing licenses.
Still no blanket exempt categories – The Final Rule applies to types of ICTS transactions most affecting US national security and does not exempt categories of industries, sectors or entities.
What is next? –The new Secretary of Commerce has yet to take his position. Nothing that he said in his nomination hearing before the Senate Commerce Committee indicated that the changes in the Final Rule would be reconsidered or rescinded, or that existing investigations would be terminated. The Secretary’s further employment of the authority embodied in the Final Rule remains to be seen, as his and the Bureau of Industry Security agenda unfolds. However, it seems unlikely that this tool in securing the ICTS supply chain will be abandoned. As such, more enforcement in this area is expected.
Update on the Proposed Amendments to the Foreign Agents Registration Act Regulations
On her very first day in office, Attorney General Pam Bondi issued a sweeping memorandum laying out what the Department of Justice’s (DOJ) enforcement priorities will be going forward under her leadership. It seems that the Foreign Agents Registration Act (FARA) will not be among those priorities, or, at least, the focus of FARA criminal enforcement efforts will be much narrower than it was during not only the Biden Administration but also the first Trump Administration.
First, the Attorney General has disbanded the Foreign Influence Task Force, established in 2017 by then-FBI Director Chris Wray to counter Russia’s attempts to influence U.S. elections and undermine democratic institutions and values. (The task force later expanded its focus to include similar malign foreign influence operations by China, Iran, and other U.S. adversaries).
Second, the Corporate Enforcement Unit within the National Security Division, the DOJ division that administers FARA, has also been disbanded, and its personnel are being reassigned.
Third, and most importantly here, criminal charges will now be brought under FARA only for “alleged conduct similar to more traditional espionage by foreign government actors.” An example would be the indictment of Sue Mi Terry, a Korea expert at think tanks in Washington and New York charged with acting as an unregistered agent of the Korean government and who, among other things, allegedly passed on non-public U.S. government information to Korean intelligence officers.
Alleged conduct on the part of non-governmental foreign actors that is not similar to “traditional espionage,” for example, a foreign company’s lobbying U.S. government officials for favorable tariff treatment for its products, without registering under FARA or availing itself of the so called “commercial exemption” for those that register under the Lobbying Disclosure Act (LDA), will be dealt with by means of only “civil enforcement, regulatory initiatives, and public guidance.”
The memorandum does not address the status of the proposed amendments to FARA that were published in the Federal Register in the final weeks of the Biden Administration and that are discussed in detail here. The comment period for this notice of proposed rulemaking was set to end on March 3, 2025, after which some version of the amendments, to the extent the comments may influence them, was eventually to be finalized and enacted.
But the “Regulatory Freeze Pending Review” memorandum that President Trump issued on Inauguration Day encompasses these proposed amendments. Paragraph 3 of that memorandum calls on agencies to consider postponing, for 60 days, the effective date of “…any rules that have been issued in any manner but have not taken effect, for the purpose of reviewing any questions of fact, law, and policy that the rules may raise.” If deemed necessary and legally permissible, the postponement can be extended beyond 60 days. “Rule” is defined to include notices of proposed rulemaking.
As explained here, the most notable proposed FARA amendments would narrow the commercial exemption, making it likelier, depending of course on the facts, that an agent of a foreign company seeking to influence the U.S. government for its commercial benefit could be criminally charged under the statute for failing to register under FARA or the LDA. Such narrowing would seem to be inconsistent with the policy laid out in the Attorney General’s memorandum, and, thus, be subject to the presidential memorandum’s call for a pause of at least 60 days for DOJ to determine whether it is in fact inconsistent. It seems unlikely, then, that the commercial exemption will be narrowed by the Trump DOJ, if ever, anytime soon.
The Government Contractor’s Guide to Termination for Convenience
The Trump administration, as part of its efforts to reshape the federal government, began terminating federal contracts for the convenience of the government almost immediately after coming back to town. These contract terminations show no signs of slowing in the near term. Accordingly, government contractors need to know their rights and obligations so that they can be best positioned if one or more of their contracts are terminated. This article provides a user-friendly guide for government contractors on these important rights and obligations.
General
“Termination for convenience means the exercise of the Government’s right to completely or partially terminate performance of work under a contract when it is in the Government’s interest” (Federal Acquisition Regulation (FAR) 2.101). The right to terminate for convenience is made a part of almost all government contracts by inclusion of the standard Termination for the Convenience of the Government clauses in FAR 52.249-1 through -5. The Termination for Convenience clause in commercial item contracts issued under FAR Part 12 can be found in paragraph (l) of FAR 52.212-4. For government contracts that do not contain a termination for convenience clause, such a clause nonetheless is generally read into the contract by operation of law under the “Christian Doctrine.” See G.L. Christian & Assoc. v. United States, 312 F.2d 418 (Ct. Cl. 1963).
Procedures
Once a government contract has been terminated for the convenience of the government, a series of duties for both the prime contractor and the contracting officer are triggered under FAR 49.104 and FAR 49.105, respectively. These duties are discussed in turn below.
Duties of Prime Contractor
FAR 49.104 (Duties of Prime Contractor After Receipt of Notice of Termination) states that, “[a]fter receipt of the notice of termination, the contractor shall comply with the notice and the termination clause of the contract, except as otherwise directed by the TCO [Termination Contracting Officer].”
FAR 49.104 states that “the notice and clause applicable to convenience terminations” generally require that the contractor:
Stop work immediately on the terminated portion of the contract and stop placing subcontracts thereunder;
Terminate all subcontracts related to the terminated portion of the prime contract;
Immediately advise the TCO of any special circumstances precluding the stoppage of work;
Perform the continued portion of the contract and submit promptly any request for an equitable adjustment of price for the continued portion, supported by evidence of any increase in the cost, if the termination is partial;
Take necessary or directed action to protect and preserve property in the contractor’s possession in which the government has or may acquire an interest and, as directed by the TCO, deliver the property to the government;
Promptly notify the TCO in writing of any legal proceedings growing out of any subcontract or other commitment related to the terminated portion of the contract;
Settle outstanding liabilities and proposals arising out of termination of subcontracts, obtaining any approvals or ratifications required by the TCO;
Promptly submit the contractor’s own settlement proposal, supported by appropriate schedules; and
Dispose of termination inventory, as directed or authorized by the TCO.
Accordingly, government contractors who have had a contract terminated for convenience need to be mindful of the duties that the FAR imposes upon them and should adequately document their compliance with these duties.
Duties of Contracting Officer
FAR 49.105 (Duties of Termination Contracting Officer After Issuance of Notice of Termination), in turn, states that “[c]onsistent with the termination clause and the notice of termination, the TCO shall”:
Direct “the action required of the prime contractor;”
Examine the prime contractor’s termination settlement proposal and, when appropriate, the settlement proposals of subcontractors;
Promptly negotiate settlement with the contractor and enter into a settlement agreement; and
Promptly settle the contractor’s settlement proposal “by determination for the elements that cannot be agreed on, if unable to negotiate a complete settlement” (see FAR 49.105(a)).
Next, FAR 49.105(b) states that, “[t]o expedite settlement, the TCO may request specially qualified personnel to”:
Assist in dealings with the contractor;
Advise on legal and contractual matters;
Conduct accounting reviews and advise and assist on accounting matters; and
Perform the following functions regarding termination inventory (see FAR subpart 45.6): verify its existence; determine qualitative and quantitative allocability; make recommendations concerning serviceability; undertake necessary screening and redistribution; and assist the contractor “in accomplishing other disposition.”
Moreover, FAR 49.105(c) states that the TCO “should promptly hold a conference with the contractor to develop a definite program for effecting the settlement.” In addition, the FAR states that, “[w]hen appropriate in the judgment of the TCO, after consulting with the contractor, principal subcontractors should be requested to attend.”
FAR 49.105(c) goes on to state that “[t]opics that should be discussed at the conference and documented include”:
General principles relating to the settlement of any settlement proposal, including obligations of the contractor under the termination clause of the contract;
Extent of the termination, point at which work is stopped, and status of any plans, drawings, and information that would have been delivered had the contract been completed;
Status of any continuing work;
Obligation of the contractor to terminate subcontracts and general principles to be followed in settling subcontractor settlement proposals;
Names of subcontractors involved and the dates termination notices were issued to them;
Contractor personnel handling review and settlement of subcontractor settlement proposals and the methods being used;
Arrangements for transfer of title and delivery to the government of any material required by the government;
General “principles and procedures to be followed in the protection, preservation, and disposition of the contractors and subcontractors’ termination inventories, including the preparation of termination inventory schedules;”
Contractor accounting practices and preparation of SF 1439 (Schedule of Accounting Information (FAR 49.602-3);
Accounting review of settlement proposals;
Any requirement for interim financing in the nature of partial payments;
Tentative “time schedule for negotiation of the settlement, including submission by the contractor and subcontractors of settlement proposals, termination inventory schedules, and accounting information schedules (see [FAR] 49.206-3 and [FAR] 49.303-2)”;
Actions taken by the contractor to minimize impact upon employees affected adversely by the termination (see paragraph (g) of the letter notice in FAR 49.601-2); and
The “[o]bligation of the contractor to furnish accurate, complete, and current cost or pricing data, and to certify to that effect in accordance with [FAR] 15.403-4(a)(1) when the amount of a termination settlement agreement, or a partial termination settlement agreement plus the estimate to complete the continued portion of the contract exceeds the threshold in [FAR] 15.403-4.”
Although the duties set forth under FAR 49.105 are generally directed to the contracting officer, contractors should keep an eye on these obligations and do their best to make sure that the contracting officer is adhering to them.
Termination Settlement Proposals
In exchange for the government retaining the right to terminate most federal contracts for the convenience of the government, the FAR allows contractors to submit a convenience termination settlement proposal in which the terminated contractor may seek recovery of certain costs. FAR 49.201(a) states that such a settlement “should compensate the contractor fairly for the work done and the preparations made for the terminated portions of the contract, including a reasonable allowance for profit.”
There are two basic approaches to convenience termination settlement proposals: the “inventory basis” and the “total cost” basis. The submission requirements under these two approaches are discussed in turn below. In addition, we discuss unique convenience termination rules for commercial item contracts under FAR 12.403, as well as the general timing requirements for submitting convenience termination settlement proposals.
Inventory Basis
FAR 49.206-2(a) states that “[u]se of the inventory basis for settlement proposals is preferred.” Under the inventory basis, “the contractor may propose only costs allocable to the terminated portion of the contract, and the settlement proposal must itemize separately” the following: (1) “[m]etals, raw materials, purchased parts, work in process, finished parts, components, dies, jigs, fixtures, and tooling, at purchase or manufacturing cost;” (2) charges such as engineering costs, initial costs, and general administrative costs; (3) costs of settlements with subcontractors; (4) settlement expenses; and (5) other “proper charges.”
FAR 49.206-2(a) additionally states that “[a]n allowance for profit ([FAR] 49.202) or adjustment for loss ([FAR] 49.203(b)) must be made to complete the gross settlement proposal.” In addition, “[a]ll unliquidated advance and progress payments and all disposal and other credits known when the proposal is submitted must then be deducted.”
FAR 49.206-2(a) goes on to state that the “inventory basis is also appropriate for use under the following circumstances.”
The “partial termination of a construction or related professional services contract;”
The “partial or complete termination of supply orders under any terminated construction contract;” and
The “complete termination of a unit-price (as distinguished from a lump-sum) professional services contract.”
Total Cost Basis
Concerning the “total cost” basis of settlement, FAR 49.206-2(b) states: “When use of the inventory basis is not practicable or will unduly delay settlement, the total-cost basis (SF-1436) may be used if approved in advance by the TCO as in the following examples”:
If production has not commenced and the accumulated costs represent planning and preproduction or get ready expenses;
If, under the contractor’s accounting system, unit costs for work in process and finished products cannot readily be established;
If the contract does not specify unit prices; and
If the termination is complete and involves a letter contract.
Accordingly, contractors seeking to use the “total cost” basis should confirm in writing with the TCO in advance that the “total cost” basis is acceptable.
“When the total-cost basis is used under a complete termination, the contractor must itemize all costs incurred under the contract up to the effective date of termination.” FAR 49.206-2(b)(2). Further, “[t]he costs of settlements with subcontractors and applicable settlement expenses must also be added,” “[a]n allowance for profit ([FAR] 49.202) or adjustment for loss ([FAR] 49.203(c)) must be made,” and “[t]he contract price for all end items delivered or to be delivered and accepted must be deducted.” “All unliquidated advance and progress payments and disposal and other credits known when the proposal is submitted must also be deducted.”
With respect to the use of the total-cost basis under a partial termination, the FAR states that the “settlement proposal shall not be submitted until completion of the continued portion of the contract.” FAR 49.206-2(b)(3). The FAR also states that the settlement proposal “must be prepared as in [FAR 49.206-2(b)(2)], except that all costs incurred to the date of completion of the continued portion of the contract must be included.”
If, however, “a construction contract or a lump-sum professional services contract is completely terminated, the contractor shall”:
Use the total cost basis of settlement;
Omit line 10 “Deduct-Finished Product Invoiced or to be Invoiced” from Section II of Standard Form-1436 Settlement Proposal (Total Cost Basis); and
“Reduce the gross amount of the settlement by the total of all progress and other payments” (see FAR 49.206-2(b)(4)).
FAR 49.602, in turn, outlines the standard forms used to prepare settlement proposals under both the inventory and total cost basis.
Generally speaking, a convenience termination settlement proposal should seek costs that would otherwise be allowable under FAR Part 31 (see e.g., FAR 52.249-2(i)). FAR 31.205-42 (Termination Costs) sets out specific cost principles applicable to certain unique termination situations. Notably, “settlement expenses,” including the costs incurred in the preparation and presentation of convenience termination settlement proposals, may be allowable costs (see FAR 31.205-42(g)). Finally, in instances in which the prime contract allows for partial payments, “a prime contractor may request [partial payments] on the form prescribed in [FAR] 49.602-4 at any time after submission of interim or final settlement proposals,” and “[t]he Government will process applications for partial payments promptly” (see FAR 49.112-1(a)).
Commercial Item Terminations
Unique termination for convenience procedures apply to commercial item contracts covered by FAR Part 12. Specifically, FAR 12.403(d) provides that, when the contracting officer terminates a contract for commercial items for the government’s convenience, the contractor shall be paid:
The “percentage of the contract price reflecting the percentage of the work performed prior to the notice of the termination for fixed-price or fixed-price with economic price adjustment contracts;” or
An “amount for direct labor hours (as defined in the Schedule of the contract) determined by multiplying the number of direct labor hours expended before the effective date of termination by the hourly rate(s) in the Schedule;” and
Any “charges the contractor can demonstrate directly resulted from the termination.”
FAR 12.403(d) goes on to state that the “contractor may demonstrate such charges using its standard record keeping system and is not required to comply with the cost accounting standards or the contract cost principles in [FAR] part 31.” Importantly, the government “does not have any right to audit the contractor’s records solely because of the termination for convenience.”
Finally, FAR 12.403(d) provides that the parties generally “should mutually agree upon the requirements of the termination proposal,” and that the parties “must balance” the government’s “need to obtain sufficient documentation to support payment to the contractor against the goal of having a simple and expeditious settlement.” Thus, unlike settlement proposals submitted under FAR Part 49, there is no standard form for submitting a settlement proposal under FAR Part 12.
Timing Requirements
FAR 52.249-2 (Termination for Convenience of the Government (Fixed-Price)), which is the most common convenience termination clause, states in relevant part:
(c) The Contractor shall submit complete termination inventory schedules no later than 120 days from the effective date of termination, unless extended in writing by the Contracting Officer upon written request of the Contractor within this 120-day period.
* * *
(e) After termination, the Contractor shall submit a final termination settlement proposal to the Contracting Officer in the form and with the certification prescribed by the Contracting Officer. The Contractor shall submit the proposal promptly, but no later than 1 year from the effective date of termination, unless extended in writing by the Contracting Officer upon written request of the Contractor within this 1-year period. However, if the Contracting Officer determines that the facts justify it, a termination settlement proposal may be received and acted on after 1 year or any extension. If the Contractor fails to submit the proposal within the time allowed, the Contracting Officer may determine, on the basis of information available, the amount, if any, due the Contractor because of the termination and shall pay the amount determined (emphasis added).
Notably, the timing requirements for submitting convenience termination settlement proposals are generally consistent across FAR clauses for traditional government contracts (see e.g., FAR 52.249-3 (Termination for Convenience of the Government (Dismantling, Demolition, or Removal of Improvements)) (containing similar timing requirements under subparagraphs (c) and (e)); FAR 52.249-5 (Termination for Convenience of the Government (Educational and Other Nonprofit Institutions)) (same). Generally, commercial item convenience termination submissions under FAR Part 12 do not contain similar timing requirements.
That said, each contract and set of facts should be analyzed on a case-by-case basis to ensure that the contractor is complying with applicable submission deadlines, and submission deadlines should be calculated conservatively regardless of which FAR clause applies.
Notably, the FAR does not impose a time limit by which the TCO must complete settlement negotiations with a terminated contractor. However, for small business concerns, the FAR dictates that auditors and the TCO “shall promptly schedule and complete audit reviews and negotiations, giving particular attention to the need for timely action on all settlements involving small business concerns” (see FAR 49.101(d)).
Claims and Appeal Rights
In Gardner Machinery Corp. v. United States, 14 Cl. Ct. 286 (1988), the U.S. Claims Court — which is the predecessor to the U.S. Court of Federal Claims — distinguished settlement proposals from Contract Disputes Act (CDA) claims as follows:
[A] Settlement proposal is contemplated under the regulations as a request for opening negotiations. It is not contemplated by the regulations that settlement proposals be used for the submission of final demand, final decision requested CDA claims. That is not to say that CDA claims may not grow out of the settlement proposal process or be converted to a CDA claim. It simply means that at the point of impasse in the negotiation process, the contractor must submit or resubmit its written claim, now in dispute for a finite amount of money, to the contracting officer and request a final decision thereon.
While the foregoing summary may seem straightforward, the rules in this area can actually be quite tricky. Thus, it is important to seek guidance from experienced legal counsel when seeking to convert a convenience termination settlement proposal to a formal “claim” under the CDA.
Once a contracting offer issues a final decision on a contractor’s claim, a dissatisfied contractor may generally appeal that decision to the cognizant agency board of contract appeals within 90 days of receipt of the decision or bring suit on the claim in the U.S. Court of Federal Claims within 12 months (see 41 U.S.C. § 7104).
Conclusion
In light of the recent uptick in federal contract terminations, contractors should be prepared to properly account for and timely submit recoverable costs in a convenience termination settlement proposal, as discussed in this guide.
Listen to this post
Navigating OFCCP Changes: Insights on Compliance Post-EO 14173 [Podcast]
In this podcast, shareholders Scott Kelly (Birmingham) and Lauren Hicks (Indianapolis/Atlanta) provide an update on the current status of the Office of Federal Contract Compliance Programs (OFCCP), which has been in flux since President Trump’s inauguration. Lauren and Scott discuss the uncertainty that federal contractors have faced since the new administration issued Executive Order (EO) 14173, Ending Illegal Discrimination and Restoring Merit-Based Opportunity, which immediately revoked EO 11246 and gave federal contractors and subcontractors 90 days to comply. In addition, they address voluntary compliance options and the considerations for unwinding compliance with EO 11246 (for example, regarding job postings, career websites, self-identification, clauses with vendors and subcontractors, etc.). Lauren and Scott also highlight that the obligations under Section 503 and Vietnam Era Veterans’ Readjustment Assistance Act (VEVRAA) remain in effect, meaning the annual affirmative action requirements under both programs are still applicable.
DEI at Stake: Federal Groups Challenge Trump’s Efforts to Curb Inclusivity
The Trump administration is facing a new legal challenge to President Donald Trump’s executive orders (EOs) to eliminate diversity, equity, and inclusion (DEI) programs and initiatives after a group of diversity officers, professors, and restaurant worker advocates filed a lawsuit in a federal court in Maryland on February 3, 2025, alleging the orders are vague and unconstitutional.
Meanwhile, the U.S. Attorney General and the U.S. Office of Personnel Management (OPM) issued memoranda on February 5, 2025, to implement the orders and guide federal agencies on their scope.
Quick Hits
A coalition of DEI advocates has initiated a legal challenge against President Trump’s executive orders to eliminate diversity, equity, and inclusion programs, claiming they are unconstitutional and infringe on free speech rights.
The lawsuit argues that the vague language of the executive orders creates uncertainty that could lead to discriminatory enforcement against those promoting lawful DEI efforts.
The U.S. Office of Personnel Management has provided guidance to federal agencies on interpreting and implementing the recently signed executive orders regarding DEI and DEIA initiatives.
The developments raise questions for employers wishing to implement or continue implementing DEI programs to foster more inclusive workplaces.
DEI Executive Orders
In the first days of President Trump’s second term, he signed two key executive orders to eliminate all “illegal” DEI and diversity, equity, inclusion, and accessibility (DEIA) programs from the federal government and discourage the use of such programs in the private sector: EO 14151, “Ending Radical and Wasteful Government DEI Programs and Preferencing,” and EO 14173, “Ending Illegal Discrimination and Restoring Merit-Based Opportunity,” and President Trump’s rescission of many of Biden’s executive actions.
EO 14151 directs federal government agencies to end all illegal DEI and DEIA mandates, policies, programs, preferences, and activities in the federal government, including “equity action plans,” “equity action initiatives,” or other programs, grants, or contracts. The EO further eliminates DEI or DEIA performance requirements for employees, contractors, or grantees. The EO further seeks to eliminate “environmental justice” offices, positions, programs, policies, and services across the federal government.
EO 14173 terminates several prior executive actions to promote DEI in the federal government and orders the development of “appropriate measures to encourage the private sector to end illegal discrimination and preferences, including DEI.” The order argued that employers “have adopted and actively use dangerous, demeaning, and immoral race- and sex-based preferences under the guise of so-called” DEI or DEIA programs that violate civil rights laws.
Specifically, the EO directs the attorney general to develop recommendations for using federal civil rights laws and other measures to deter DEI in the private sphere and directs federal agencies to “identify up to nine potential civil compliance investigations of publicly traded corporations, large non-profit corporations or associations, and institutions of higher education with endowments over 1 billion dollars.”
DEI Legal Challenge
On February 3, 2025, a coalition of DEI advocates—the National Association of Diversity Officers in Higher Education, American Association of University Professors, Restaurant Opportunities Centers United, and the Mayor and City Council of Baltimore—filed a lawsuit in the U.S. District Court for the District of Maryland alleging the Trump EOs on DEI and DEIA are vague and unconstitutional.
The lawsuit alleged President Trump’s EOs are unconstitutional, threaten to put their members in the “crosshairs” of federal investigators, and will unlawfully strip federal funding from private entities that wish to continue with DEI efforts.
According to the lawsuit, President Trump’s policies leave their members “with an untenable choice: continue to promote their lawful diversity, equity, inclusion, and accessibility programs, or suppress their speech by ending the programs or policies that the President may consider ‘illegal DEI.’”
Specifically, the suit challenges EO 14173, alleging that it “is designed to, and does, chill free speech on matters of substantial political import,” which is “amplified by its vagueness.” The lawsuit alleges that “[t]he undefined terms leave potential targets with no anchor as to what speech or actions the order encompasses,” the suit alleges. “They also give executive branch officials like the Attorney General carte blanche authority to implement the order discriminatorily.”
The groups raise several constitutional claims, including those based on the First Amendment, the Due Process clause of the Fifth Amendment, and separation of powers, alleging that the orders are vague and suppress their free speech.
The suit names President Trump and several agency heads and acting heads as defendants and is seeking preliminary and permanent injunctions to block the implementation of EO 14151 and EO 14173.
Agency Guidance
On February 5, 2025, OPM Acting Director Charles Ezell issued a memorandum to the heads and acting heads of federal departments and agencies on eliminating DEI and DEIA programs and initiatives, including DEI or DEIA offices, employee resource groups (ERGs), and “special emphasis programs” within the agencies The memo shows how OPM interprets the DEIA orders, providing valuable insights into what the EOs may be interpreted to prohibit for federal contractors, federal money recipients, and even private employers.
The memo directs federal agencies to “eliminate DEIA offices, policies, programs, and practices (including policies, programs, and practices outside of any DEIA offices) that unlawfully discriminate in any employment action” based on “protected characteristics.”
The memo explained that “[u]nlawful discrimination related to DEI includes taking action motivated, in whole or in part, by protected characteristics” and that “a protected characteristic does not need to be the sole or exclusive reason for an agency’s action.” Specifically, the memo stated that unlawful DEI includes practices such as “diverse slate” policies that mandate the composition of hiring panels or candidate pools.
However, the restrictions are not meant to include offices or personnel required by law “to counsel employees allegedly subjected to discrimination, receive discrimination complaints, collect demographic data, and process accommodation,” but “[s]uch functions should be transferred” to other personnel and offices at the agency, the memo stated.
Similarly, the memo says that agencies should “eliminate Special Emphasis Programs that promote DEIA based on protected characteristics in any employment action,” including hiring, promotions, training, and internships or fellowships.
The memo further stated that the orders revoke the authority for ERGs and that agencies should eliminate them to the extent that they promote unlawful discrimination. However, agency heads “retain discretion” to allow programs such as affinity group lunches, mentorship programs, and gatherings “for social and cultural events” so long as such events are not restricted to members or attendance to those of a protected characteristic.
The memo also highlighted the administration’s position that the Biden administration had “conflated” DEI with “longstanding, legally-required” disability accessibility obligations. The memo told agencies to “rescind policies and practices contrary to the Civil Rights Act of 1964 and the Rehabilitation Act of 1973,” except to retain a minimum number of employees to carry out legally required disability and accessibility laws.
DOJ Memo
Also on February 5, 2025, newly confirmed U.S. Attorney General Pamela Bondi issued two memoranda implementing EO 14173. One memo directs the U.S. Department of Justice (DOJ) to review all “consent decrees, settlement agreements, litigation positions (including those set forth in amicus briefs), grants or similar funding mechanisms, procurements, internal policies and guidance, and contracting arrangements” that include “race- or sex-based preferences, diversity hiring targets, or preferential treatment based on DEI- or DEIA-related criteria.”
The memo further directs the DOJ to update its guidance to affirm “equal treatment under the law means avoiding identity-based considerations in employment, procurement, contracting, or other Department decisions” and to “narrow the use of ‘disparate impact’ theories that effectively require use of race- or sex-based preferences.”
The other memo states the DOJ’s Civil Rights Division “will investigate, eliminate, and penalize illegal DEI and DEIA preferences, mandates, policies, programs, and activities in the private sector and in educational institutions that receive federal funds.” The memo further carries out the EO by directing the Civil Rights Division and the Office of Legal Policy to submit a report with recommendations to enforce federal civil rights laws to “encourage the private sector to end illegal discrimination and preferences, including policies relating to DEI and DEIA.”
However, both memos indicated in footnotes that they only apply to programs that “discriminate, exclude, or divide individuals based on race or sex” and “does not prohibit educational, cultural, or historical observances—such as Black History Month, International Holocaust Remembrance Day, or similar events—that celebrate diversity, recognize historical contributions, and promote awareness without engaging in exclusion or discrimination.”
Next Steps
The Trump administration has taken a hardline stance against DEI and DEIA generally, characterizing specific DEI/DEIA practices like race and gender preferences, including such DEI initiatives as diverse slates, as “illegal” or “unlawful discrimination.” These efforts come as the administration is further seeking to define sex as binary and immutable and limit the Supreme Court of the United States’ holding in Bostock v. Clayton County, Georgia, that firing an employee because of the employee’s sexual orientation or transgender status constitutes unlawful sex discrimination under Title VII of the Civil Rights Act of 1964. Further, federal lawmakers have reintroduced the “Dismantle DEI Act,” which seeks to codify President Trump’s DEI orders and prevent future administrations from reinstating similar policies.
The OPM memo confirms that federal agencies must eliminate DEI and DEIA programs and offices, which the administration is already dismantling. Further, those prohibitions extend beyond hiring and promotion practices that take DEIA into account to include softer implementation of DEI, such as through ERGs and Special Emphasis Programs. However, the memo acknowledges that agencies still need personnel to maintain compliance with antidiscrimination and harassment laws, as well as to fulfill accommodation obligations for employees with disabilities covered by applicable law.
At the same time, the DEI executive orders are facing a legal challenge and are likely to face more challenges that raise constitutional and other legal questions about the president’s authority to effectuate such changes, particularly the power to discourage and chill DEI with private employers without explicit statutory authorization and in contravention to existing federal law, such as Title VII. A ruling in favor of the plaintiffs could reinforce the importance of the lawfulness of DEI programs and protect them from future executive actions. Conversely, a ruling favoring the executive order could set a precedent for further restrictions on DEI efforts.
Employers may want to monitor these quickly evolving developments and consider reviewing their own DEI and DEIA practices regarding risk tolerances.
Major Changes in Affirmative Action Requirements for Federal Contractors
On January 21, President Trump signed an executive order titled “Ending Illegal Discrimination and Restoring Merit-Based Opportunity” (the Order), revoking Executive Order 11246, the long-standing order that required federal contractors to engage in affirmative action, including by annually developing Affirmative Action Plans (AAP’s) concerning women and minorities. The Order further mandates that the Office of Federal Contract Compliance (OFCCP) immediately cease promoting diversity, investigating federal contractors for affirmative action compliance, and allowing or encouraging federal contractors to engage in workforce balancing.
Below are several key points that manufacturers who are federal contractors need to know:
Federal contractors are no longer required to create an AAP about women and minorities. However, this Order does not impact the affirmative action obligations stemming from the Vietnam Era Veterans’ Readjustment Assistance Act (VEVRAA) for protected veterans or the obligations under Section 503 of the Rehabilitation Act of 1973 for individuals with disabilities. Further, this Order does not absolve contractors of any obligations they may have under state law if they are also state contractors or any other applicable legal obligations.
The Order prohibits federal contractors from considering “race, color, sex, sexual preference, religion, or national origin in their employment, procurement or contracting practices in ways that violate the [n]ation’s civil rights laws.” Additionally, the Order states that federal contract recipients will be required to certify that they do not operate diversity, equity, and inclusion (DEI) programs “that violate any applicable Federal anti-discrimination laws.” Importantly, this does not wholly prohibit employers from having DEI-related policies and practices; rather, it prohibits only those that could be found to violate anti-discrimination laws, such as race-based quotas.
The Order provides contractors with a 90-day grace period during which they may continue to comply with the original regulations. Contractors should use that time to audit their policies and practices under attorney-client privilege to evaluate compliance with this order.
In addition, manufacturers that are not federal contractors may also be impacted by this Order. The Order scrutinizes DEI efforts in the private sector and requires federal agencies to, among other things, report a list of large corporations and organizations that should be subject to civil compliance investigations based on unlawful DEI programs. Accordingly, manufacturers may also want to consult with legal counsel about their DEI initiatives to ensure they are lawful.
First Circuit Broadly Interprets Exclusion in Commercial General Liability Policy Under Current Massachusetts Law
In Admiral Insurance Co. v. Tocci Building Corp., 120 F.4th 933 (1st Cir. 2024), the federal Court of Appeals ruled that, under current Massachusetts law, a general contractor’s Commercial General Liability (CGL) policy does not cover damage to non-defective work resulting from defective work by subcontractors.
The defendant contractor was retained as a construction manager for an entire residential construction project. After several work quality issues and delays on the project, the contractor was terminated before the project’s completion. The owner of the project filed suit against the contractor for breach of contract and related claims but did not allege negligence by the contractor. The complaint included allegations of defective work by the contractor’s subcontractors leading to various instances of damage to non-defective work on the project including: (1) damage to sheetrock resulting from faulty roof work; (2) mold formation resulting from inadequate sheathing and water getting into the building; and (3) damage to a concrete slab, wood framing, and underground pipes resulting from soil settlement due to improper backfill and soil compaction. The contractor’s request for defense and indemnification coverage under its CGL policy was denied by its insurer. The insurer filed suit seeking a declaratory judgment confirming it had no obligation to defend or indemnify the contractor. The district court granted summary judgment in favor of the insurer and the contractor appealed.
The Court examined the “Damage to Property” exclusion outlined in subsection (I)(2)(j) of the CGL policy, which provides that there is no coverage for “property damage” to “(6) [t]hat particular part of any property that must be restored, repaired or replaced because ‘your work’ was incorrectly performed on it.” The CGL policy defines “your work,” in relevant part, as “work or operations performed by you or on your behalf.” Since the complaint alleged damage resulting from the contractor’s “incorrectly performed” work on the entire project, the Court interpreted the (j)(6) exclusion as applying to the entirety of the project where the contractor was the construction manager charged with supervising and managing the whole project, the Court enforced the exclusion against coverage for the contractor.
The Court also examined the exception to the exclusion in (j)(6), which provides that the exclusion does not apply to “‘property damage’ included in the ‘products-completed operations hazard.’” The “products-completed operations hazard,” in turn, “includes all ‘bodily injury’ and ‘property damage’ occurring away from premises you own or rent and arising out of ‘your product’ or ‘your work’ except … (2) work that has not yet been completed or abandoned.” Since the contractor was terminated and did not complete or abandon the project prior to damage, the court of appeals concluded that the coverage exclusion in (j)(6) still applied.
In closing, the court of appeals left the door open for potential coverage for damage to non-defective, work arising from a subcontractor’s defective work even with the (j)(6) exclusion. Since the Massachusetts Supreme Judicial Court has yet to rule on the issue, it could interpret “property damage” caused by an “occurrence” to encompass this type of damage, which could allow a general contractor to potentially receive coverage if the work is completed or abandoned, as the exception to the exclusion would then apply.
Fifth Circuit Upholds Minimum Wage Rate for Federal Contractors
The Fifth Circuit Court of Appeals recently found the Biden administration operated within its authority when it raised the minimum wage for federal contractors to $15 per hour in 2022. This represents a relatively rare win for Biden administration policies in the Fifth Circuit, which has jurisdiction in Louisiana, Mississippi, and Texas.
Quick Hits
The Fifth Circuit upheld the Biden administration’s executive order increasing the minimum wage for federal contractors to $15 per hour in 2022.
The Fifth Circuit overturned a lower court’s decision in favor of three states that had challenged the rule.
As of January 1, 2025, the minimum wage for federal contractors is $17.75 per hour.
On February 4, 2025, the Fifth Circuit upheld the Biden administration’s $15 minimum wage for federal contractors. A three-judge panel ruled that this minimum wage rule was permissible under federal law, thereby reversing a previous federal district court ruling.
In February 2022, Louisiana, Mississippi, and Texas sued the federal government to challenge Executive Order 14026, which directed federal agencies to pay federal contractors a minimum wage of $15 per hour. Previously, the minimum wage for federal contractors was $10.95 per hour.
The states argued the executive order violated the Administrative Procedure Act (APA) and the Federal Property and Administrative Services Act of 1949 (FPASA) because it exceeded the president’s statutory authority. The states also claimed the executive order represented an “unconstitutional exercise of Congress’s spending power.”
The executive order states that its purpose is “to promote economy and efficiency in procurement by contracting with sources that adequately compensate their workers.” It noted raising the minimum wage can boost worker morale, enhance productivity, and reduce turnover.
The Fifth Circuit concluded this purpose was essential and consistent with carrying out the provisions of the FPASA. It agreed there was a sufficient link between paying a higher minimum wage and the efficiency of the federal procurement system.
As of January 1, 2025, the minimum wage for federal contractors is $17.75 per hour. Many states have their own minimum wage, and these vary widely.
Next Steps
Employers that have contracts with federal agencies may wish to stay up-to-date on any future changes to the minimum wage rate for federal contractors. Simultaneously, they must comply with state minimum wage laws where their employees perform work. The state minimum wage could be lower or higher than rate for federal contractors.
In some cases, union contracts also may dictate the wages for certain federal contractors.
The challenges of other major Biden-era rules are still pending before the Fifth Circuit, including the appeals of decisions striking down the national noncompete ban and increases in the salary threshold for overtime exemptions. Whether this confirmation of the Biden administration’s authority provides a forecast for future rulings remains to be seen, but it is a notable exception to the court’s tendencies.
Nation State Backed Groups Using AI for Malicious Purposes
The Google Threat Intelligence Group (GTIG) recently published a new report “Adversarial Misuse of Generative AI,” which is well worth the read. The report shares findings on how government-backed threat actors use and misuse the Gemini web application. Although the GTIG is committed to countering threats across Google’s platforms, it is also committed to sharing findings “to raise awareness and enable stronger protections across the wider ecosystem.” This is an excellent mission.
GTIG found government adversaries, including the People’s Republic of China (PRC), Russia, Iran, and North Korea, are attempting to misuse Gemini through jailbreak attempts, “coding and scripting tasks, gathering information about potential targets, researching publicly known vulnerabilities and enabling post-compromise activities, such as defense evasion in a target environment.”
According to the report, Iranian threat actors used Gemini the most, for “crafting phishing campaigns, conducting reconnaissance on defense experts and organizations, and generating content with cybersecurity themes.” Over ten Iran-backed groups were using Gemini for these purposes.
PRC threat actors used Gemini the second most to “conduct reconnaissance, for scripting and development, to troubleshoot code, and to research how to obtain deeper access to target networks. They focused on topics such as lateral movement, privilege escalation, data exfiltration, and detection evasion.” GTIG found over 20 China-backed groups were using and misusing Gemini.
Nine North Korean-backed groups “used Gemini to support several phases of the attack lifecycle, including researching potential infrastructure and free hosting providers, reconnaissance on target organizations, payload development, and assistance with malicious scripting and evasion techniques. They also used Gemini to research topics of strategic interest to the North Korean government, such as the South Korean military and cryptocurrency. Of note, North Korean actors also used Gemini to draft cover letters and research jobs—activities that would likely support North Korea’s efforts to place clandestine IT workers at Western companies.”
Russian threat actors are using Gemini the least. Three Russia-backed groups focused on coding tasks, including converting publicly available malware into another coding language and adding encryption functions to existing code.
This research confirms our previous suspicions. Google has “shared best practices for implementing safeguards, evaluating model safety and red teaming to test and secure AI systems.” They are also actively sharing threat intelligence that will assist all users of AI tools to understand and mitigate risks of threat actors misusing AI.
Health-e Law Episode 15: Healthcare Security is Homeland Security with Jonathan Meyer, former DHS GC and Partner at Sheppard Mullin [Podcast]
Welcome to Health-e Law, Sheppard Mullin’s podcast exploring the fascinating health tech topics and trends of the day. In this episode, Jonathan Meyer, former general counsel of the Department of Homeland Security and Leader of Sheppard Mullin’s National Security Team, joins us to discuss cyberthreats and data security from the perspective of national security, including the implications for healthcare.
What We Discussed in This Episode
How do cyberattacks and data privacy impact national security?
How can personal data be weaponized to cause harm to an individual, and why should people care?
Many adults are aware they need to keep their own personal data secure for financial reasons, but what about those who aren’t financially active, such as children?
How is healthcare particularly vulnerable to cyberthreats, even outside the hospital setting?
What can stakeholders do better at the healthcare level?
What can individuals do better to ensure their personal data remains secure?
DOJ and FTC Issue New Antitrust Employment Guidelines In The Last Days of the Biden Administration
On January 16, 2025, three days before President Trump’s inauguration, the Federal Trade Commission (FTC) and the Department of Justice Antitrust Division (DOJ) jointly issued the Antitrust Guidelines for Business Activities Affecting Workers (the “2025 Guidelines”). The 2025 Guidelines, which do not have the force of law, explain how the agencies assess business practices affecting workers that may violate antitrust laws.
The 2025 Guidelines replace the 2016 Antitrust Guidance for Human Resources Professionals (the “2016 Guidance”). The 2016 Guidance provided principles and specific real-world examples to help HR professionals avoid running afoul of antitrust laws. The new guidelines address a wider range of business practices, including non-compete agreements and restrictions in the independent contractor and franchise settings, providing a non-exhaustive list of practices that may be unlawful:
Wage-fixing and no-poach agreements. Like the 2016 Guidance, the 2025 Guidelines state that agreements between businesses not to recruit, solicit, or hire workers (known as “no-poach” agreements) or to fix wages or terms of employment, may violate antitrust laws and lead to criminal prosecution.
Franchise no-poach agreements. The 2025 Guidelines extend the no-poach prohibition to the franchise context, explaining that agreements in which a franchisor and franchisee agree not to compete for workers may be subject to antitrust scrutiny.
Sharing sensitive information with competitors. The 2025 Guidelines reiterate that sharing information with competitors about terms and conditions of employment may be unlawful if the information exchange has, or is likely to have, an anticompetitive effect. Providing such confidential information through an algorithm or a third party’s tool or product may also be unlawful.
Non-compete agreements. Echoing the Biden-era FTC’s focus on non-compete agreements, the 2025 Guidelines state that non-compete clauses that restrict workers from switching jobs or starting a competing business can violate antitrust laws. The 2016 Guidance specifically declined to take a position on the validity of non-competes. Acknowledging the August 2024 court order setting aside the FTC rule banning most non-compete agreements, the new guidance stresses that the FTC retains the legal authority to address non-competes through case-by-case enforcement actions.
Other restrictive, exclusionary, or predatory employment conditions. In a catch-all category, the 2025 Guidelines provide that other restrictive, exclusionary, or predatory employment conditions, including certain non-disclosure agreements, training repayment obligations, non-solicitation agreements, and exit fee and liquidated damages provisions may violate antitrust laws.
Agreements with independent contractors. Another new principle in the 2025 Guidelines is that antitrust laws apply to agreements that businesses reach with independent contractors. The guidelines specifically cite the growth of app-based businesses that use independent contractors rather than employees to match workers with consumers seeking their services (i.e., gig economy relationships). An agreement between two or more competing platforms to fix the compensation of independent contractors offering their services via the platforms may constitute a per se violation of antitrust laws.
False earnings claims. Finally, the 2025 Guidelines state that the FTC and DOJ may investigate and take action against businesses that make false or misleading claims about potential earnings that workers may realize.
The future of the 2025 Guidelines is uncertain under the new administration. The FTC approved the guidelines by a 3-2 vote, with incoming FTC Commissioner Andrew Ferguson dissenting. In his dissenting statement, Ferguson called the FTC’s replacement of the 2016 Guidance “mere days before they hand over the baton … a senseless waste of Commission resources.” After the Senate confirms the third Republican Commissioner, the FTC may vote to rescind the 2025 Guidelines and either issue new guidance or revert to the 2016 Guidance, which was issued at the end of the Obama administration and remained in place during the first Trump administration.
While the specifics of the new administration’s antitrust policy remain to be seen, employers should review the business practices discussed in the 2025 Guidelines with employment and antitrust counsel to ensure they are appropriately tailored to achieve their purpose while minimizing harm to competition.