Managing the “Infinite Workday”: Employer Responsibilities in a 24/7 Work Culture
Remember when the workday ended at 5:00 pm?
In today’s always-on world, the “infinite workday” has quietly taken over—creeping into dinners, weekends, and even that quaint concept known as a “vacation.” With smartphones in every pocket and teams spread across multiple time zones, work now follows us everywhere. Microsoft’s 2025 Work Trend Index confirms what many leaders already sense: work is no longer confined by time or place—it’s always on.
The data is striking. By 6:00 a.m., 40% of workers are already checking email. During core hours, employees are interrupted every two minutes by meetings, messages, and alerts. And the day doesn’t end at dinner—nearly a third of workers are back in their inboxes by 10:00 p.m. Weekend work is also on the rise with nearly 20% of employees checking email before noon on Saturdays and Sundays. While the flexibility to work anytime, anywhere can be empowering, it also brings legal, operational, and cultural challenges that employers ignore at their peril.
The Rise of the “Right to Disconnect”
The infinite workday isn’t just stretching schedules – it’s stretching people thin. Microsoft’s data shows that one in three employees say the pace of work has made it impossible to keep up. Half of employees and leaders describe their work as chaotic and fragmented.
A major driver of this strain is the overwhelming volume of digital communication. According to the Index, on average, employees receive more than 100 emails and 150 Teams messages every workday. In fact, some exasperated workers have declared “email bankruptcy” – deleting their entire inbox of unanswered emails in an effort to regain control. It’s a clear sign that employees are struggling to keep up with the volume and velocity of communication.
In response, governments around the world are stepping in with “right to disconnect” laws – designed to protect employees from the expectation of 24/7 availability. Countries including Argentina, Australia, Belgium, Chile, France, Slovenia, and Spain have enacted laws limiting after-hours communications. Our neighbors in Ontario, Canada mandate written disconnect-from-work policies for employers with 25+ employees.
While the U.S. has no such law yet, the conversation is gaining traction. As we reported last year, California proposed but ultimately did not enact a right-to-disconnect law in 2024, and New Jersey introduced similar legislation that remains under review.
Legal Risks for Employers
Even in the absence of formal legislation, the risks of an always-on culture are real and growing:
Wage and Hour Violations. Non-exempt (“hourly”) employees working off the clock – even voluntarily—can trigger wage claims, class actions, and penalties under the Fair Labor Standards Act and comparable state laws.
Mental Health and Burnout. Constant connectivity can lead to stress-related claims under the Americans with Disabilities Act, Family Medical Leave Act, and comparable state laws as well as workers’ compensation rules.
Data Privacy and Security. After-hours work on personal or unsecured devices increases the risk of data breaches and non-compliance with laws such as the California Privacy Rights Act and the European Union’s General Data Protection Regulation.
Discrimination and Equity Concerns. An always-on culture may disproportionately impact caregivers, parents, and employees in different time zones—raising potential claims of disparate impact or failure to accommodate.
Best Practices
To stay ahead of legal and cultural shifts, employers should consider the following steps:
Establish Clear Boundaries. Define expectations for work hours and after-hours communication in policies and handbooks, especially for non-exempt employees.
Train Managers. Educate leaders on the legal risks and model healthy behavior around availability and responsiveness.
Audit Timekeeping Systems. Ensure all work—especially by non-exempt employees— is accurately tracked and compensated.
Encourage Disconnecting. Promote a culture that values rest and recovery, and discourage after-hours messages unless truly necessary.
Final Thoughts
The infinite workday is here—but it doesn’t have to mean infinite liability. By understanding the evolving legal landscape and implementing thoughtful, proactive polices, employers can protect both their workforce and their business.
Sixth Circuit Holds TPAs Do Not Get a Free Pass from ERISA’s Fiduciary Duties
In a decision about ERISA’s fiduciary duties and transparency, the Sixth Circuit in Tiara Yachts, Inc. v. Blue Cross Blue Shield of Michigan held that Blue Cross Blue Shield of Michigan (BCBSM), a third-party administrator (TPA) for the Tiara Yachts, Inc. (Tiara Yachts) self-insured plan, acted as an ERISA fiduciary when it made decisions about pricing and the payment of claims and therefore must abide by ERISA’s fiduciary standards. The decision may also help to pave the way for employers seeking greater access to pricing and payment information from TPAs for their own self-insured group health plans.
Background:
Tiara Yachts claimed that BCBSM overpaid health claims submitted by out-of-state medical providers and then clawed back the overpayments through a shared savings program (SSP). As compensation for the recovery services provided by the SSP, BCBSM kept 30% of the clawed back amounts. Tiara Yachts claimed that by making the overpayments and then paying itself to administer the SSP, BCBSM acted as an ERISA fiduciary for the Tiara Yachts plan, breached its fiduciary duties and engaged in self-dealing.
The District Court for the Western District of Michigan granted BCBSM’s motion to dismiss, but the United States Court of Appeals for the Sixth Circuit overturned the dismissal finding that Tiara Yachts reasonably alleged BCBSM acted as an ERISA fiduciary by exercising discretion over plan assets and its own compensation.
Implications of the Sixth Circuit’s Holdings:
The Sixth Circuit’s decision in Tiara Yachts highlights that TPAs can be deemed fiduciaries if they exercise control over plan assets and their own compensation, or discretionary authority over plan management, regardless of contractual terms. This ruling has significant implications for employers negotiating TPA agreements.
Employers overseeing the day-to-day management of their plans should also be able to use the ruling to seek disclosure of information about the pricing and payment of claims, which in the past TPAs have been unwilling to share. In their role as an ERISA fiduciaries, TPAs will be obligated to disclose this information when requested by a plan administrator looking to properly administer its plan.
What Should Employers Do:
In response to this decision, employers should review their TPA agreements and ensure they clarify fiduciary roles and responsibilities, particularly concerning plan asset management. Employers should also review agreements for compensation structures that may incentivize self-dealing and request additional information from TPAs about pricing structures and the payments of claims.
Federal Court Strikes Down HIPAA Reproductive Health Care Privacy Rule
On June 18, 2025, the U.S. District Court for the Northern District of Texas vacated the HIPAA Privacy Rule to Support Reproductive Health Care Privacy (the “Final Rule”) issued by the U.S. Department of Health and Human Services (“HHS”) under the Biden Administration. The Final Rule had amended the HIPAA Privacy Rule to limit the circumstances in which protected health information (“PHI”) about reproductive health care could be used or disclosed for the purpose of (1) conducting a criminal, civil or administrative investigation into any person for seeking, obtaining, providing or facilitating lawful reproductive health care, or 2) identifying individuals in connection with such investigation.
U.S. District Court Judge Matthew J. Kacsmaryk ruled that HHS overstepped its authority in promulgating the Final Rule, citing constitutional concerns, the Dobbs v. Jackson Women’s Health Organization decision, and the major-questions doctrine, which limits agency authority on politically significant matters without clear Congressional approval.
The lawsuit was brought by Dr. Carmel Purl, an urgent care clinic owner in Texas, who argued that the Final Rule impeded her ability to report child abuse, including in cases involving abortion or gender care. The Court agreed that the Final Rule unlawfully restricted state public health laws and expanded HIPAA’s definitions beyond the law’s original scope, such as redefining “person” to exclude unborn children and limiting what constitutes “public health” activities.
Judge Kacsmaryk held that “HHS lacked clear delegated authority to fashion special protections for medical information produced by politically favored medical procedures.” The opinion vacates the Final Rule on a nationwide basis, not only as applied to Purl (as a previous injunction issued in December had done).
In his decision, Judge Kacsmaryk indicated that HHS under the Trump Administration is in the process of reviewing the Final Rule. HHS had not yet responded to the ruling at the time of this post.
DOJ Civil Division Announces 2025 Priorities: Promises “Aggressive” False Claims Act Enforcement of Civil Rights Violations and “Impermissible” Gender-Affirming Care
On June 11, 2025, Assistant Attorney General Brett A. Shumate issued an internal memorandum (the “Shumate memo”) to all Civil Division employees of the U.S. Department of Justice (“DOJ”), describing the Division’s enforcement priorities.
The four-page Shumate memo promises an aggressive investigation and use of the federal False Claims Act (“FCA”) against “entities that receive federal funds but knowingly violate civil rights laws.” The Shumate memo follows the announcement on May 19, 2025, of a new Civil Rights Fraud Initiative (the “May 19 announcement”), which shares similar aims. The May 19 announcement cited, in particular, universities and federal contractors engaging in discriminatory conduct (see our related blog posts here and here).
As we wrote in February, Executive Order 14173 of January 21, 2025, entitled “Ending Illegal Discrimination and Restoring Merit-Based Opportunity” (“EO 14173”) indicated that the Trump administration was eyeing the FCA as an anti-discrimination tool, though the statute has not traditionally been used as such. The Shumate memo prioritizes FCA investigations and enforcement actions against those who receive federal funds but knowingly violate federal civil rights laws, particularly by participating in or allowing antisemitism. The DOJ strongly indicated its intent to use the FCA to combat antisemitism and other instances of discrimination when it announced the Civil Rights Fraud Initiative.
The FCA will now also be used as a means to target unlawful gender-dysphoria treatment with respect to minors (those under 19 years of age). The Shumate memo promises aggressive use of the FCA to pursue health care providers that bill the federal government for “impermissible services”—citing, for example, providers that attempt to evade state bans on gender-dysphoria treatments by knowingly submitting false claims to state Medicaid programs. The Civil Division will also investigate and pursue those submitting false claims in connection with drugs or services—including puberty blockers, hormones, or surgery—used to facilitate a child’s gender transition.
This follows Attorney General (“AG”) Pam Bondi’s direction to the Civil Division in a memorandum of April 22, 2025, entitled “Preventing the Mutilation of American Children,” to pursue FCA investigations for “false claims submitted to federal health care programs for any non-covered services related to radical gender experimentation.”
The Shumate memo further states that the Civil Division will “prioritize investigations of doctors, hospitals, pharmaceutical companies and other appropriate entities consistent with these directives”—and will use the federal Food, Drug, and Cosmetic Act (FDCA) as an enforcement tool: the DOJ’s efforts “will include, but not be limited to, possible violations of the [FDCA] and other laws.” The targets of such investigations could include both manufacturers and distributors: “pharmaceutical companies that manufacture drugs used in connection with so-called gender transition” and “dealers such as online pharmacies suspected of illegally selling such drugs.” Specifically mentioned in the Shumate memo are “puberty blockers, sex hormones, or any drug used to facilitate a child’s so-called ‘gender transition.’” AG Bondi noted in her April 22nd memo that the promotion of such treatments could run afoul of the Food and Drug Administration’s prohibitions on misbranding and mislabeling.
Takeaways
Both the Shumate memo and the April 22nd Bondi memo make clear that the DOJ is actively encouraging whistleblowers to come forward with information about potential FCA violations in these areas, particularly in the health care sector. The DOJ’s stated willingness to partner with qui tam relators underscores the importance of proactive compliance and internal oversight. For entities engaged in the provision of care to minors, the manufacture or distribution of pharmaceuticals used in gender-affirming care, or the administration of federally funded programs, compliance with the FDCA (and other potentially applicable laws), as well as the FCA, will be critical. A strong compliance program in these areas, preferably approved by counsel, is essential in light of the vigorous enforcement that we may certainly expect going forward.
Compliance with respect to civil rights laws will also involve careful scrutiny, as allegedly discriminatory conduct is apparently being interpreted in ways that entities may not have considered illegal before 2025. The Civil Rights Fraud Initiative will be guided by another Bondi memo, dated February 5, 2025, and entitled “Ending Illegal DEI and DEIA Discrimination and Preferences,” which encompasses “programs, initiatives, or policies that discriminate, exclude, or divide individuals based on race or sex.” Anyone receiving federal funds should conduct a careful review, with counsel, of their contract terms and diversity, equity, inclusion, and accessibility initiatives to ensure that they are not construed by the DOJ as unlawful under these policies.
These new positions in the latest DOJ memos will likely be challenged in litigation, given their significant departure from prior DOJ interpretations of the coverage of the FCA and questions about whether some of the challenged actions are sufficiently material to a government contract to provide a justiciable basis for such claims. As we noted earlier this year, EO 14173 promised to end “illegal discrimination,” in part through the FCA—an action that was challenged in court. One month later, the U.S. District Court for the District of Maryland issued a preliminary injunction—partly because EO 14173 failed to explain what constitutes illegal DEI. The U.S. Court of Appeals for the Fourth Circuit, however, granted the government’s motion for a stay pending appeal on March 14, 2025.
Federal contractors and entities in the health care and life sciences industries should be aware that their potential exposure to FCA liability is expanding in non-traditional ways, and whistleblower allegations will likely be taken seriously by the DOJ. Maintaining a robust compliance program, conducting internal audits, and consulting legal counsel specific to these evolving risks are crucial.
Oregon Law Restricts Common Management Service Organization – Professional Entity Structure
On June 9, 2025, Oregon Governor Tina Kotek signed into law Oregon Senate Bill 951 (Oregon CPOM Law), further expanding Oregon’s prohibition on the corporate practice of medicine (CPOM) doctrine. The stated purpose of the Oregon CPOM Law is to build upon Oregon’s established corporate practice of medicine prohibition, originally established by the Oregon Supreme Court in the 1947 decision in State ex rel. Sisemore v. Standard Optical Co, which banned corporations from holding a majority ownership in medical practices, practicing medicine, or employing physicians.
The Oregon CPOM Law, summarized below, prohibits a variety of practices and arrangements between non-licensed management services organizations (MSOs) and licensed professionals or professional entities that have, until now, been generally permissible. This law is emblematic of the nationwide trend to restrict the influence of non-licensed entities in health care and to restrain private equity-based investment in health care. The Oregon CPOM Law takes a dramatic step toward making Oregon one of the nation’s most stringent CPOM states.
Ownership Restrictions
Under the Oregon CPOM Law, an MSO or any of its shareholders, directors, members, managers, officers, or employees (MSO Agents), subject to the below exceptions, may not:
own or control a majority of the shares in a professional medical entity (Professional Medical Entity) with which the MSO has a management agreement; or
simultaneously serve as a director, officer, employee, or independent contractor of both the Professional Medical Entity and the MSO.
The exceptions permit: (1) an owner of a Professional Medical Entity to serve as an independent contractor of an MSO if the owner owns less than 10% of the Professional Medical Entity, or (2) if the owner’s ownership in the MSO is “incidental” and without relation to the owner’s compensation as a shareholder, director, officer, employee, or independent contractor of the MSO. The Oregon CPOM Law does not define the term “incidental”, and we anticipate that further guidance may be forthcoming on how these exceptions will be interpreted. While we wait for further guidance, an owner of a Professional Medical Entity should proceed with caution prior to receiving equity in an MSO.
These new prohibitions substantially limit the longstanding arrangement in MSO-Professional Medical Entity arrangements where the owner of the Professional Medical Entity holds shares in the MSO, through receipt of rollover equity in the MSO, often while also entering into an independent contractor relationship with the MSO to provide certain services to the MSO. Notably, this prohibition does not apply to out-of-state Professional Medical Entities providing telemedicine in Oregon as long as such entities do not have a physical location in Oregon where patients receive clinical services.
For purposes of the Oregon CPOM Law, “Professional Medical Entity” means entities formed under Oregon law to practice medicine or nursing. The Oregon CPOM Law explicitly excludes from its reach arrangements between MSOs and
Behavioral health care providers;
Licensed opioid treatment programs, providers that primarily provide office-based or medication-assisted treatment services, or providers of withdrawal management services or sobering centers;
Hospitals;
Long-term care facilities;
Residential care facilities; and
PACE organizations, mental health or substance use disorder crisis line providers, or certain Indian health program, Tribal behavioral health or Native Connections program providers.
Additionally, the Oregon CPOM Law does not apply to Professional Medical Entities who through themselves act as an MSO or own a majority interest in an MSO. Notably, the law does not apply to other licensed professions such as psychology, social work, dentistry, and veterinary medicine.
Control Restrictions
In addition to the above, an MSO and its MSO Agents may not: (1) enter into an agreement to control or restrict the sale or transfer of a Professional Medical Entity’s shares or assets, subject to the exceptions below; (2) vote by proxy for a Professional Medical Entity that the MSO manages; (3) cause a Professional Medical Entity to issue shares of stock in an affiliate or subsidiary; (4) pay dividends from an ownership interest in a Professional Medical Entity; or (5) acquire or finance the acquisition of a majority interest in a Professional Medical Entity.
Exceptions to Stock Restriction Agreement Limitation
Under the Oregon CPOM Law, an MSO or its MSO Agents may continue to control or restrict the sale or transfer of a Professional Medical Entity’s equity or assets in the following instances, all of which are generally commonplace in existing MSO- Professional Medical Entity arrangements:
The Professional Medical Entity breaches its management services agreement with the MSO;
The professional license of the Professional Medical Entity’s owner is suspended or revoked;
The owner of the Professional Medical Entity is:
disqualified from holding equity in a Professional Medical Entity;
excluded, debarred, or suspended from a federal health care program, or is under investigation which could result in him or her being, excluded, debarred, or suspended from a federal health care program;
indicted for a felony or another crime that involves fraud or moral turpitude; or
disabled, permanently incapacitated, or dies.
Clinical Decision-Making
The Oregon CPOM Law also prohibits an MSO or its MSO Agents from exercising de facto control over a Professional Medical Entity’s administrative, business, or clinical operations in ways that affect clinical decision-making or the quality of care. “De facto control” includes, but is not limited to, (1) hiring or terminating physicians, nurse practitioners or physician assistants and associates (Licensees); (2) setting work schedules, compensation, or terms of employment for Licensees; (3) specifying the amount of time a Licensee may spend with a patient; (4) establishing billing and collection policies; (5) setting rates for Licensees’ services; and (6) negotiating, executing, performing, enforcing, or terminating the Professional Medical Entity’s payor contracts.
Effective Date
The above restrictions go into effect on January 1, 2026, for (1) MSOs and Professional Medical Entities that are incorporated or organized in Oregon on or after June 9, 2025; and (2) existing MSOs and Professional Medical Entities that are sold or transfer ownership on or after June 9, 2025. For MSOs and Professional Medical Entities that existed before June 9, 2025, and that are not sold or whose ownership is not transferred on or after June 9, 2025, the Oregon CPOM Law goes into effect on January 1, 2029.
Non-Competition and Non-Disparagement
Effective June 9, 2025, the Oregon CPOM Law renders void and unenforceable, with very limited exceptions, (1) noncompetition agreements between MSOs and Licensees, and (2) nondisclosure or non-disparagement agreements between Licensees and MSOs, hospitals, and hospital-affiliated clinics. Noncompetition agreements have traditionally protected MSO investments by preventing Licensees from competing with the Professional Medical Entities with whom the MSO has a management agreement. This prohibition will require significant reexamination of current arrangements between MSOs and Licensees and the structuring of future transactions in this space.
Looking Forward
This move by Oregon to reshape the traditional MSO-Professional Medical Entity model is in line with the continued barrage of state legislation aimed at curbing non-licensed investors’ role in health care, with a particular emphasis on private equity. As we have noted in our previous blog posts, health care transaction review laws are becoming commonplace with states like Massachusetts, California, and Oregon leading the charge. While many of the transaction review laws seek to review and approve proposed transactions involving private equity, this move by Oregon to reshape the traditional MSO-Professional Medical Entity model is a drastic step towards trying to eliminate private equity’s role in the delivery of health care in Oregon generally. Time will tell whether other states will follow Oregon in taking this drastic step and whether any legal challenges will be made to the Oregon CPOM Law.
A Headliner Upholding a State Ban on Transition Care for Transgender Minors Leads the Latest Five Decisions – SCOTUS Today
To anyone who has followed the case of United States v. Skrmetti, especially those who attended or listened to the oral argument, the U.S. Supreme Court’s 6–3 holding that a Tennessee law prohibiting certain medical procedures for transgender minors was not subject to heightened or strict scrutiny under the Equal Protection Clause of the Fourteenth Amendment should have come as no surprise.
Although there was an array of concurring and dissenting opinions, the majority opinion, written by the Chief Justice, was joined by the Court’s other five jurisprudentially conservative Justices, while the three “liberals,” Justices Sotomayor, Kagan, and Jackson, dissented.
Joining more than 20 states that have restricted sex transition treatments for minors, Tennessee enacted a statute entitled “Prohibition on Medical Procedures Performed on Minors Related to Sexual Identity” (SB1) that:
[P]rohibits healthcare providers from prescribing, administering, or dispensing puberty blockers or hormones to any minor for the purpose of (1) enabling the minor to identify with, or live as, a purported identity inconsistent with the minor’s biological sex, or (2) treating purported discomfort or distress from a discordance between the minor’s biological sex and asserted identity. At the same time, SB1 permits a healthcare provider to administer puberty blockers or hormones to treat a minor’s congenital defect, precocious puberty, disease, or physical injury.
Three transgender minors, their parents, and a physician challenged SB1 as violative of the Equal Protection Clause of the Fourteenth Amendment. Reversing a holding by the U.S. District Court for the Middle District of Tennessee, the U.S. Court of Appeals for the Sixth Circuit held that the law did not necessitate heightened scrutiny and otherwise satisfied rational basis analysis, and the Supreme Court affirmed.
The Supreme Court held that SB1 is not subject to heightened scrutiny under the Equal Protection Clause because its classifications are not sex-based. The two classifications that it does make are based upon age (restricting minors’ access to treatments available to persons over age 18) and upon medical use (permitting puberty blockers and hormones for minors for some conditions, but excluding gender dysphoria, gender identity disorder, or gender incongruence). Neither of these classifications turns on sex, and neither requires anything more than rational basis scrutiny.
The Court found no “invidious discriminatory purpose” or impermissible stereotypes that might trigger heightened scrutiny. In particular, SB1 doesn’t exclude anyone from medical treatments on the basis of transgender status. It simply removes one set of diagnoses—gender dysphoria, gender identity disorder, and gender incongruence—from the range of treatable conditions. “It distinguishes between minors who seek puberty blockers or hormones to treat the excluded treatments, and those minors who seek puberty blockers or hormones to treat other conditions. Although only transgender individuals seek treatment for gender dysphoria, gender identity disorder, and gender incongruence—just as only biological women can become pregnant—there is a ‘lack of identity’ between transgender status and the excluded diagnoses.”
The Supreme Court also rejected a comparison with Bostock v. Clayton County, 590 U. S. 644 (2020), where the Court had held that an employer who fires an employee for being gay or transgender violates the prohibition in Title VII of the Civil Rights Act of 1964 (“Title VII”) on discharging an individual “because of” their sex. Title VII’s “because of” test directs courts to “change one thing at a time and see if the outcome changes.” Applying that test, the Court held that the employer has penalized a member of one sex for a trait or action that it tolerates in members of the other. In the instant case, the Supreme Court declined to address whether Bostock’s reasoning reaches Title VII because the application of SB1 would be unaffected by a change in a minor’s sex or transgender status.
The Court went on to hold that SB1 satisfies the relaxed standard of rational basis review, under which the Court will uphold a statutory classification so long as there is “any reasonably conceivable state of facts that could provide a rational basis for the classification.” And here, there were many. While controversial, the state reasonably determined that administering puberty blockers or hormones to minors to treat gender dysphoria, gender identity disorder, or gender incongruence risks irreversible physical and mental consequences that minors lack the maturity to understand fully and often regret. In the end, the Court recognized that there is a cognizable debate about the science and policy concerning these medical treatments in an evolving field. Indeed, as the Chief Justice noted:
The voices in these debates raise sincere concerns; the implications for all are profound. The Equal Protection Clause does not resolve these disagreements. Nor does it afford us license to decide them as we see best. Our role is not “to judge the wisdom, fairness, or logic” of the law before us, . . . but only to ensure that it does not violate the equal protection guarantee of the Fourteenth Amendment. Having concluded it does not, we leave questions regarding its policy to the people, their elected representatives, and the democratic process.
A final note on the case: The Court’s decision in Skrmetti left open questions concerning the role of parents with respect to the treatment of their transgender children who are minors, and of the permissible range of physician conduct given law enforcement risks. My colleagues consider these and related questions here.
Continuing our reporting of the most recent action in the Supreme Court, we turn to Perttu v. Richards, another case in which the Chief Justice delivered the opinion of the Court. Here, the lineup was decidedly different from that in Skrmetti, with the Chief being joined by the three liberals plus Justice Gorsuch, while Justice Barrett was joined in dissent by the other three conservatives. The case concerned the requirement of the Prison Litigation Reform Act (PLRA) for prisoners with complaints about prison conditions to exhaust available grievance procedures before filing suit in federal court. Such exhaustion is not required, however, when a prison administrator threatens an inmate in order to prevent their use of these grievance mechanisms.
In this case, Kyle Richards alleged that Thomas Perttu, a prison employee, had sexually harassed him and others, and when Richards attempted to file grievance papers, Perttu destroyed them and threatened to kill Richards if he refiled. The issue in the case was whether prisoners are entitled to a jury trial on the issue of PLRA exhaustion of remedies when that question is intertwined with a merits issue subject to jury trial under the Seventh Amendment.
The Court’s opinion was lengthy, but, resolving a split in the circuit courts, the answer was brief. Going back to cases that were taught when I was in law school in the 1960s, the Court held that while a court may resolve factual disputes when determining whether it has subject-matter jurisdiction, the PLRA prevents a court from doing so when the factual disputes are intertwined with the merits.
In Nuclear Regulatory Commission v. Texas, the Court considered proceedings under the Atomic Energy Act of 1954, which generally prohibits the private possession of nuclear materials, including spent nuclear fuel, without a license that the Nuclear Regulatory Commission (the “Commission”) has the power to issue.
Here, a private company, Interim Storage Partners (ISP), applied for such a license to build a facility in West Texas to store such spent nuclear fuel. During the licensing proceedings, a Texas government agency submitted comments on a draft environmental impact statement prepared by the Commission. Fasken Land and Minerals, another private company, also submitted comments and sought to intervene. That petition was denied, and Fasken unsuccessfully challenged that ruling before the whole Commission and then before the D.C. Circuit. When the Commission issued a license to ISP, Texas and Fasken sought review in the Fifth Circuit, which vacated ISP’s license.
The Supreme Court reversed. Justice Kavanaugh wrote for the Court (with Justices Gorsuch, Thomas, and Alito dissenting) that, under the Hobbs Act, Congress specified that only a “party aggrieved” by a Commission licensing order may seek judicial review. And because both Texas and Fasken were not parties to the Commission’s licensing proceeding, they were not entitled to review of ISP’s award. Fasken, in particular, was barred because it had not sought en banc review in the Circuit Court or relief from the Supreme Court. With regard to both, the Court rejected the argument that they didn’t need to be parties to challenge ultra vires agency action under an exception that the Court held is to be applied narrowly. Because it held that neither Texas nor Fasken had the right of judicial review, the Court declined to decide whether the Commission had statutory authority to issue a license to ISP.
In Environmental Protection Agency v. Calumet Shreveport Refining, L.L.C., Justice Thomas delivered the opinion of the Court and was joined by both conservative and liberal colleagues, save for Justice Gorsuch, who, with the Chief Justice, dissented. Again, the decisions were lengthy, but the holding was simple. Under the Clean Air Act’s (CAA’s) venue provisions, challenges to “nationally applicable” Environmental Protection Agency (EPA) actions belong in the D.C. Circuit, while challenges to “locally or regionally applicable” EPA actions ordinarily belong in a regional circuit. However, the CAA makes an exception for local or regional actions that are “based on a determination of nationwide scope or effect” and accompanied by an EPA finding of this basis, which also must be challenged in the D.C. Circuit.
The Court applied this framework to the EPA’s 2022 denials of certain small refineries’ exemption petitions, holding that the refineries’ challenges belonged in the D.C. Circuit. While the EPA’s denials were only locally or regionally applicable, they fell within the “nationwide scope or effect” exception. In deciding whether an action is “nationally applicable” or only “locally or regionally applicable,” the Court acknowledged that the governing statute does not define the terms. So, the Court sensibly gave them their ordinary meaning, citing various dictionary definitions. The Gorsuch dissent conceded much in common with the majority but took issue with its multistep approach to determining whether the EPA’s actions were properly based on a determination of nationwide scope or effect.
I’ll confess limited interest in this EPA case itself, but I wonder whether the Court’s venue analysis will somehow predict the outcome of a future Court decision where a nationwide injunction is under challenge. That remains to be seen.
Finally, at least for this round, Justice Thomas and the EPA came back on stage with an opinion in another CAA case, Oklahoma v. Environmental Protection Agency. As noted previously, the CAA directs challenges to EPA actions to the D.C. Circuit if they are “nationally applicable” and to a regional circuit if they are only “locally or regionally applicable.” And again, the CAA has an exception for certain “locally or regionally applicable” actions “based on a determination of nationwide scope or effect,” which also must be brought in the D.C. Circuit.
In 2015, the EPA mandated more stringent national ambient air quality standards (NAAQS) for ozone. Each state submitted a state implementation plan (SIP) with regard to compliance with a “Good Neighbor” provision that requires SIPs to “contain adequate provisions” “prohibiting” in-state emissions activity that would interfere with other states’ NAAQS compliance. The EPA ultimately disapproved 21 states’ SIPs for failure to comply with the Good Neighbor provision. These states had asserted they did not need to propose new emissions-reduction measures, but the EPA disagreed based on independent consideration of each of the states’ submissions “on its own merits” and making individual determinations for each SIP.
Having stated in the Federal Register how it applied a “4-step framework” for evaluating SIP submissions, the “EPA asserted in the rule that its disapprovals would be reviewable only in the D.C. Circuit as either nationally applicable actions or, alternatively, as locally or regionally applicable actions falling within the ‘nationwide scope or effect’ exception based on EPA’s use of ‘the same, nationally consistent 4-step . . . framework’ and its evaluation for ‘national consistency.’”
States and industry petitioners challenged the EPA’s SIP disapprovals in regional circuits. Four of five circuits that ruled on the EPA’s motions to dismiss or transfer held that regional circuit review was proper. The Tenth Circuit, however, disagreed, granting the EPA’s motion to transfer suits by Oklahoma and Utah. The Tenth Circuit order was based upon the view that the EPA’s omnibus rule constituted a single, nationally applicable action, given its multistate application of “a uniform statutory interpretation and common analytical methods.”
Reversing the Tenth Circuit, the Supreme Court held that the EPA’s disapprovals of the Oklahoma and Utah SIPs are locally or regionally applicable actions reviewable in a regional circuit. In so holding, the Supreme Court applied the methodology discussed above in Calumet Shreveport Refining, L.L.C. Thus, a venue determination under the CAA “requires a two-step inquiry. First, courts identify the relevant EPA ‘action’ and ask whether it is ‘nationally applicable’ or only ‘locally or regionally applicable.’ If nationally applicable, challenges belong in the D.C. Circuit. If locally or regionally applicable, courts proceed to the second step to determine whether the ‘nationwide scope or effect’ exception applies to override the default rule of regional Circuit review.”
Here, the SIP disapprovals were based on state-specific plans, and the disapprovals were “undisputedly locally or regionally applicable actions.” Accordingly, the judgment of the Tenth Circuit was reversed and the case remanded. A sidenote: In this case, as in Calumet Shreveport Refining, Justice Thomas’s opinion was joined by all the other Justices except Justice Gorsuch, who, along with the Chief Justice, dissented, while Justice Alito recused himself.
Another interesting day, with the Court getting into the tough ones with pronounced divisions among the Justices. We’re in a race to the finish of the term, so stay tuned.
EU Commission Consultation on High-Risk AI Systems: Key Points for Life Sciences and Health Care
On 6 June 2025, the European Commission launched a targeted stakeholder consultation on the classification and regulation of high-risk artificial intelligence (AI) systems under the EU Artificial Intelligence Act (AI Act). The consultation is a critical opportunity for stakeholders in the life sciences and health care sectors to shape the forthcoming Commission guidelines on high-risk AI systems.
Regulatory Framework for High-Risk AI Systems
The AI Act, adopted in 2024, establishes a harmonized legal framework for the development, placing on the market, and use of AI in the EU. It adopts a risk-based approach, classifying AI systems into four categories: unacceptable risk (prohibited), high risk, limited risk, and minimal risk.
Of particular importance to the life sciences and health care sectors are high-risk AI systems, which are subject to an extensive regulatory compliance mechanism that establishes legal requirements as to risk management, data and data governance, technical documentation, record keeping, transparency, human oversight and accuracy, robustness, and cybersecurity.
Article 6 of the AI Act defines two categories of high-risk AI systems:
Embedded AI systems: AI systems that are safety components of products, or are themselves products, governed by EU harmonized legislation such as the Medical Device Regulation (MDR) or the In-Vitro Diagnostic Regulation (IVDR). These systems are deemed high-risk by virtue of their integration into regulated products (e.g., medtech offerings such as medical imaging, surgical robots, wearables, and diagnostic software). Art. 6(1), Annex I.
Standalone systems: AI systems that, based on their intended purpose, pose significant risks to health, safety, or fundamental rights in specific use cases listed in Annex III (e.g., AI used in health care for patient triage). Art. 6(2), Annex III.
The Role of the Commission’s Guidelines
While the AI Act provides the legal framework, the Commission’s implementing guidelines will be essential in clarifying how the high-risk regime is to be interpreted and applied in practice. This is particularly important for regulatory grey areas, such as AI used in medical devices, digital therapeutics, clinical research, or health care administration, where the risk profile may not be immediately evident. While not binding for courts, these guidelines will be critical for life sciences and health care companies in determining whether AI systems fall within the high-risk category and what compliance obligations apply.
Key Aspects of the Consultation Relevant to Life Sciences and Health Care Businesses
The consultation addresses several issues that will be highly relevant for stakeholders in the life sciences and health care sectors:
Clarification of High-Risk Classification Rules: The consultation seeks input on the classification mechanism set forth in Art. 6. Stakeholders are invited to provide practical examples of AI applications and their potential impact on health and safety, which will help refine the scope of high-risk classifications.
Requirements and Obligations for High-Risk Systems: The consultation explores how the mandatory requirements for high-risk AI systems—such as risk management, data governance, transparency, human oversight, and robustness—should be interpreted in practice. For health care companies, this includes ensuring that AI systems are trained on representative and high-quality datasets, and that outputs are explainable and auditable.
Value Chain Responsibilities: A key focus is the allocation of responsibilities among different actors in the AI value chain, including developers, deployers, importers, and distributors. The consultation seeks views on how these roles should be defined and what obligations each party should be subject to, particularly in complex ecosystems where AI components are developed and integrated by different entities.
Practical Implementation Challenges: The Commission is also gathering feedback on practical challenges companies face in implementing the AI Act, including overlaps with existing sectoral regulations (e.g., the Medical Device Regulation), the burden of conformity assessments, and the availability of notified bodies.
Benefits of Policy Engagement
The Commission’s consultation represents a critical opportunity for life sciences and health care companies to shape the implementation of the AI Act. By contributing practical insights and highlighting sector-specific challenges, stakeholders can help ensure that the forthcoming guidelines are both effective and proportionate. Companies using or developing AI systems in health care should assess their portfolios in light of the AI Act’s high-risk classification criteria and consider submitting feedback before the 18 July 2025 deadline.
Stakeholders can access the consultation via the EU survey portal.
Benefits Basics – When an Employee Becomes Disabled: A Resource Guide for HR & Benefits Professionals
When an employee becomes disabled, a variety of questions arise regarding that employee’s entitlement to compensation and benefits. As a member of your company’s human resources or employee benefits department, employees and their families will often look to you to help them understand the impact of disability on the employee’s benefits and compensation during what is often a stressful time for them. This guide provides a high-level reference resource, in a plan-by-plan format, on how to approach each type of compensation or benefit arrangement when an employee becomes disabled and offers up some practical tips on employee benefits issues that may come up as you manage your company’s compensation and benefit administration for a disabled employee.
The information given in this guide is general in nature and is not intended to address every benefit or tax issue that may come up when dealing with a disabled employee or other nuances that may arise when considering the disabled employee or the specifics of your company’s benefit plans. In addition, any tax or other rules described in this guide are current as of the date of this guide, and do not infer that the rules described are the only rules (tax or otherwise) that may apply and are subject to change. As a result, we always recommend that you engage your in-house or external legal counsel or other tax or employee benefits advisors when working through compensation and benefits issues related to employee disability.
This guide is part of Foley’s Employee Benefits & Executive Compensation Practice “Benefits Basics” resource series—please see our resource guide for important benefits considerations when an employee dies.
An Overview of the Meaning of Disability
Before we dive into discussing issues for administering your company’s compensation and benefit plans, one critical thing to be aware of is that not all disabilities are defined equally. For example, the Employee Retirement Income Security Act of 1974 (ERISA) does not apply a single definition of disability to be used for all ERISA plans. Depending on the particular plan, policy or program at issue, you might find that there are multiple definitions of disability in your documents. Here’s an overview:
Effect of the Disability
Legally-Required Definition of Disability
Source of Definition
Ability to take a 401(k)-plan withdrawal due to disability
None
Governed by plan terms, but may want to align with the definition for exemption from excise tax (described below)
Exemption from 10% early distribution excise tax on distributions from qualified retirement plans
Unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or to be of long-continued and indefinite duration
IRC § 72(m)(7)
IRC § 409A plan distribution and deferral purposes
Unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than 12 months OR By reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, receiving income replacement benefits for a period of not less than three months under an accident and health plan covering employees of the service provider’s employer
Treas. Reg. § 1.409A – 3(i)(4)
Ability to stop 409A deferrals (exception to irrevocability rule)
Medically determinable physical or mental impairment resulting in the service provider’s inability to perform the duties of his or her position or any substantially similar position, where such impairment can be expected to result in death or can be expected to last for a continuous period of not less than six months
Treas. Reg. § 1.409A- 3(j)(4)(xii)
COBRA extension to 29 months
Social Security Administration (SSA) determination of disability
IRC § 4980B(f)(2)(B)(i)(VIII)
Incentive stock option exercise period extended from three months after termination of employment to one year
Unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death, or which has lasted or can be expected to last for a continuous period of not less than 12 months
IRC § 422(c)(6); cross-references to IRC § 22(e)(3)
All other, e.g., vesting of retirement benefits, short-term disability (STD) and long-term disability (LTD) plans, employment agreements, bonus entitlement, etc.
No specific definition
Governed by plan or agreement terms
Wow! As you can see, there are several definitions of disability, all of which vary in one way or another. What this means is that if someone is disabled, you will have to review the definition of disability in each and every plan or individual agreement to determine whether the employee qualifies for all, or just some of, the disability provisions of that plan or agreement.
A best practice is to consider harmonizing definitions across plans and agreements as much as possible (except where a legally required definition just will not allow that). This will streamline administration significantly.
Finally, to the extent you are able, consider defining disability in a way so that you, the employer, can rely on a third party’s determination of disability so that you will not actually have to make the determination yourself, which can be very tricky. For example, if you can define disability by reference to whether someone is entitled to long-term disability insurance benefits or has received a SSA determination of disability, then you need only rely on that third party’s determination and do not have to undertake your own review of an employee’s medical and occupational records.
A Quick Note on ERISA vs. NON-ERISA Plans
Determining whether a benefit plan is covered by ERISA can be complicated. While your company’s most common broad-based retirement and welfare benefit plans, such as 401(k) plans, pension plans, and medical, dental, vision or other welfare benefits, will most likely be governed by ERISA, there are many nuances in the rules that exempt certain benefit plans depending on how the plan is structured. This issue commonly comes up with certain disability or severance benefits or policies. Bonus programs, deferred compensation plans or other voluntary benefits or payroll practices (discussed in more detail under “Short-Term Disability” below) are usually not subject to the ERISA preemption rules. However, due to the complexity of these rules, if you are unsure whether a benefit program is an ERISA or non-ERISA plan, consult with your benefit plan advisors when deciding whether to allow beneficiary designations.
Practical Steps to Take When an Employee Becomes Disabled
Who You Should Involve
Most employee disabilities begin with an employee requesting a leave of absence. In that case, you simply follow your normal leave of absence process, whether that involves working with internal HR or directing the employee to a third-party leave vendor. If, however, the employee is incapacitated and you receive the initial call about an employee’s disability from a family member, it is imperative that you promptly contact the following individuals within your organization: the head of HR for the employee’s business unit (who should, in turn, contact the employee’s manager) and all relevant members of the employee benefits team. From there, you should follow the same leave of absence procedures that you would follow in a non-emergency situation, except that the family member may be acting on the employee’s behalf in completing paperwork and providing any needed information to apply for a leave of absence and any available short-term disability benefits, and to communicate payment arrangements for any health and other benefits that continue during the leave period.
If the employee’s disability is expected to be more than temporary and your retirement plans permit disability distributions or disability commencement, then you may need to provide disability information to your plan’s recordkeeper so that the employee can be permitted to commence benefits under the plan.
The Information You Need
An employee’s disability will often begin with a request for leave of absence due to injury, illness, or a medical condition. In those instances, you should follow your company’s normal leave of absence policy, whether that is an internal process or run by a third party that administers leave and/or STD benefits. This will typically involve the employee completing an application and, where needed, providing documentation supporting the application, such as medical records and a letter from the employee’s physician. If the employee’s disability begins with more of an emergency situation, such as an accident or sudden illness, then you may need to work with an employee’s family member to process a leave or STD benefits request and gather needed information.
You or your leave vendor will also need to communicate the impact of the leave on employee benefits. As discussed in more detail below, you must offer the employee the opportunity to continue group health plan benefits such as medical, dental, vision, and medical flexible spending account benefits during a Family Medical Leave Act (FMLA)-covered leave. For other types of leave and types of benefits, benefits continuation will depend on the terms of the applicable policy or plan document. If you offer the employee the opportunity to cancel all or some of their benefit elections during leave, then you will need to collect those elections from the employee, through election forms or an online system. If the leave will be paid, then benefit deductions can typically continue from the leave pay. If the leave will be unpaid (e.g., no STD or other leave pay) and the employee desires to continue medical and other benefits during leave, then you will also need to provide the employee with information on how to pay for those benefits should the employee choose to continue them. If you follow a direct pay approach (as opposed to, for example, a pay when you return to work approach), then you or your vendor will need to verify the address or email address for billing statements and obtain ACH information where electronic payment is offered or required, and provide that information to payroll.
You will also need to figure out which benefit plans or programs the employee was enrolled in or otherwise had an accrued benefit under, and whether the employee had any individual agreements in effect with the company (such as equity awards, employment agreements, employee loans, etc.) and make sure you have copies of all of those documents. This information may come from internal HR records or from third-party benefit plan administrators or vendors. You will also want to determine whether any of these plans require you to make a determination of disability or whether that determination is made by a third party.
As discussed in more detail below, if the employee’s disability continues beyond a STD period (generally, six months maximum depending on the terms of your STD program), then you may be receiving a disability determination from a long-term disability insurer or the Social Security Administration and to follow company policy in terminating the employee’s employment at the appropriate time.
A Quick Note About HIPAA
We often hear from clients who are concerned about HIPAA during the leave of absence process, either because they are concerned that they are not allowed to collect or store the information needed to process and approve a leave or STD benefits request or because the employee or employee’s family members are pointing to a HIPAA concern with providing the requested information. HIPAA does not apply to leave or STD benefits programs, nor does it apply when an employee is providing medical information to you, whether directly or via an authorization for a health care provider to send you the employee’s medical information. However, and regardless of whether HIPAA applies, you should always limit access to an employee’s medical information to only members of HR or benefits who must have access to such information to process a leave or STD application and always securely store such information. If you are using a third-party vendor to process leave or STD benefits, then you should ensure that your contract with that vendor obligates them to protect the employee’s information.
Cash and Equity Arrangements
Overview
When an employee becomes disabled, a variety of different compensation programs have to be considered. First, it is important that you survey all of the cash and equity compensation that is or may be due with respect to the disabled employee. For example:
Is the employee covered by an annual or long-term cash bonus plan?
Is the employee in a commission program?
Does the employee have an employment agreement in effect?
Does the disabled employee have equity awards, such as stock options or restricted stock units?
Second, after identifying all of the agreements, policies, and arrangements under which cash or equity compensation may be due, determine whether there are any special provisions applicable to a disabled employee, paying close attention to whether the rights arise due solely because the person has become disabled, or only upon a termination of employment due to that disability.
Typical Provisions (including One Gotcha):
Entitlement to Bonuses and Equity Awards. For cash bonus programs, you’ll need to review the terms of the documents to determine what happens on a disability. Bonus plans often will either payout automatically at target upon a disability (or termination due to disability) or may provide for payout to occur at the end of the performance period based on the level of achievement of actual performance, and either on a pro-rated basis or in full.
For all types of equity awards, the governing plan document or the award agreements will specify what happens to the awards upon the employee’s disability. Similar to cash bonus plans, equity awards will either vest automatically upon a disability (or termination due to disability) or on a pro-rated basis. For equity awards subject to performance goals, the award may provide that performance is deemed met at the target level, or may provide for payout to occur at the end of the performance period based on the level of achievement of actual performance, and either on a pro-rated basis or in full. Finally, for stock options, it’s very typical for an employee to get an extended period to exercise their options following a termination due to disability.
If the disabled employee has an “incentive stock option” (also referred to as an ISO), which is a type of option that may provide beneficial tax treatment to the employee, for a normal termination of employment, an employee must exercise an ISO within three months after termination as one requirement to obtaining favorable tax treatment. For a termination due to disability, however, the Internal Revenue Code extends this time period to one year following the termination. (What are the other requirements to obtain favorable tax treatment? – The employee has to hold the stock acquired upon exercise of the ISO for one year from the date of exercise and two years from the grant date. This holding period requirement does not change for disabled employees.)
Sometimes, an employment agreement might also describe what happens to bonuses or equity awards upon a disability, or termination due to disability, so those should be reviewed as well.
There is one “gotcha” that often comes up in these types of arrangements. Whenever a pro-rated bonus or award is at issue, the pro-ration often runs through termination of employment due to disability, and not through the commencement date of the disability leave. This often surprises employers, especially those employers that don’t have a robust process in place under the American with Disabilities Act (the ADA) to engage in an interactive process to determine when a termination of employment is appropriate.[1] We find that such employers often leave disabled employees as “employees” for a very long period of time. So, when it comes to pro-rating a bonus or award, the employee gets the benefit of a very-long pro-ration period, often with the result that they end up getting the entire award because their termination does not occur at all during the bonus or equity award vesting or performance period. When this comes to light, we have found that most employers like the idea of pro-rating through the end of the employee’s STD leave, which normally runs for no more than six months. This rule doesn’t “punish” an employee who needs to take a short-term leave but also does not create a windfall for employees who have a more serious disability and end up never being able to come back to work. There is a downside to this type of pro-ration provision – many employers do not have systems in place to automatically measure when STD ends. So, whatever pro-ration rules you adopt, it is important to consider whether your HRIS is set up to handle the rules you implement or if some manual review and implementation process will be necessary.
Entitlement to Severance. Often, an executive’s employment agreement will provide for severance pay if termination of employment is due to disability. Pay careful attention to these types of provisions, because occasionally they will require a certain process to be completed for the company to be able to terminate the executive’s employment, e.g., the full board of directors needs to make the determination of disability, or the disability has to be based on the conclusion of an outside physician. And if your agreements have these provisions, check whether your long-term disability insurance policy has any type of offset for these payments so you can warn the terminating executive about the impact the severance pay will have on their LTD benefits.
Benefit Plans
Qualified Retirement Plans
401(k) and Other Types of Defined Contribution Plans. 401(k) plans are the most common employer-provided retirement benefit offered to employees. While not required, 401(k) plans often permit an employee to take a distribution of some or all of his or her vested account balance upon a disability. We recommend including these types of provisions in plans sponsored by employers who, as mentioned above, tend to never take action to terminate the employment of a disabled employee. By allowing the disability withdrawal, the employee is able to access their account balance when they need it, even if the employer has not terminated their employment.
Other issues to consider in 401(k) plans are:
What types of disability compensation may an employee defer? For example, if the plan defines compensation as all W-2 compensation of the employee, that works fine as long as disability compensation is being paid from the employer’s payroll. But when the compensation is being paid by a third-party, such as an STD administrator or an LTD insurance carrier, how will that work in practice? In such a case, either the plan’s definition needs to be revised to clarify that it is only compensation paid directly by the employer, or the employer and the third-party will need to discuss the coordination and sharing of compensation information to figure out how an employee remains able to defer STD or LTD payments into the 401(k) plan.
Does your plan provide for full vesting upon a termination due to disability? While this is not legally required, we find that it is almost always the case.
If your plan requires an employee to be employed on the last day of the plan year or to have completed 1,000 hours of service as a requirement to receive an employer contribution for the year, is there an exception to those rules for a disabled employee? Typically, that would be the case, but it is not legally required.
Pension Plans. While pension plans are getting scarcer as each year goes by, many employers still maintain them, even though the benefits under them have almost all been frozen at this point.
If a disabled employee who is terminated from employment participates in a pension plan, the first issue to consider is whether the employee is vested in their plan benefit, and if not, whether the plan provides for full vesting in that circumstance. Similar to 401(k) plans, we find that pension plans will often fully vest a participant who terminates employment due to a disability. Even if the plan does not provide for full vesting in this circumstance, check the plan’s terms to see when vesting service stops being counted. Occasionally, a pension plan might provide for favorable service-crediting rules during disability leaves.
The second issue to consider is whether the plan provides for a disability retirement benefit. This is not legally required so many plans do not have a disability retirement provision. A disability retirement typically allows a terminated employee to commence their pension benefits right away upon a termination of employment, even if the employee has not yet reached early or normal retirement age, when benefits would normally be able to commence. A disability retirement might also provide for some sort of enhanced benefit, such as a full pension with no reduction for starting early. If a disabled employee may be eligible for a disability retirement, you should let them know so they can apply for the benefit if they wish.
ERISA Claims and Appeals Regulations. ERISA has specific claims and appeals regulations for disability plans that impose a host of requirements for plan administrators. Importantly, these regulations also apply to retirement plans where some sort of disability provision exists, and the plan states that the administrator must make its own determination of disability, rather than relying on a third-party, such as the SSA or an LTD insurance carrier. To avoid these requirements, which many plan administrators find to be onerous, you should consider amending your retirement plans to eliminate any concept of a plan administrator-determined disability, keeping the following issues in mind:
For all qualified plans, the new definition of disability cannot affect the vesting rules in a manner adverse to participants. In other words, if the plan provides for vesting upon a termination due to disability, the new disability definition cannot be stricter than the prior one.
For 401(k) and other defined contribution plans, the new amendment cannot result in the cut-back of a protected benefit, right or feature. For example, if the plan permits a withdrawal upon a disability, the new disability definition should not be stricter than the prior one so that the individual’s right to the withdrawal is not impaired.
For defined benefit pension plans, a disability retirement benefit is typically not considered a part of the accrued benefit, which means that you are permitted to amend a defined benefit pension plan to eliminate disability retirement altogether if you wanted. Because of that, you are also free to change the criteria to be eligible for a disability retirement, such as by redefining disability to require an SSA determination.
Of course, for all of the above, if the plan covers union employees, you’ll also need to consider whether these changes require bargaining with the union.
Welfare Plans
Short-Term Disability. Most short-term disability plans are payroll practices, in which the employer simply continues paying all or a portion of the employee’s salary or hourly wage rate while the employee is on a disability leave, typically lasting from 90 days to six months. Of course, ensuring that an employee (or a family member who is assisting in their care) understands their rights to STD plan benefits is one of the critical things you need to ensure happens.
You should consider how state laws will impact the design and operation of the STD program. For example, a Wisconsin law permits an employee who takes an unpaid maternity or paternity leave to “substitute” paid leave otherwise available to them for other reasons for such unpaid leave. In other words, the employee can use their STD paid leave to provide for salary continuation payments during their maternity or paternity leave, even if the person is not otherwise considered disabled. See Wis. Stat. 103.10(5)(b). In addition, many states and even local governments have mandatory paid disability leave. If you have employees in those locations, you’ll need to consider how to coordinate these mandatory leave provisions with your STD program. For example, if you are paying into a state disability fund in New York, then you may wish to exclude New York employees from your STD program to the extent the law allows.
It is important to note that payroll-practice STD programs are not subject to ERISA, meaning they don’t enjoy some of the protections that ERISA provides, such as requiring an employee to exhaust the plan’s claims and appeals procedures prior to bringing a lawsuit, and limiting damages to the plan’s benefits and, in some cases, the employee’s attorneys’ fees. On the flip side, fully-insured STD plans are subject to ERISA and so get the benefits that ERISA provides, as well as the obligations, such as the requirement to issue a summary plan description.
Long-Term Disability. LTD programs are typically fully-insured, which means that the employer’s sole obligation is to ensure that the employee, if covered by the program, knows how to apply for insurance, and to provide whatever information the LTD insurance carrier requests to make its determination of disability and to determine the amount of the benefits owed under the terms of the policy.
The “gotcha” with this type of program is when employers, in the guise of being helpful, either do not permit the participant to apply for benefits, or actively discourage such application. An employer should never do this, even when they feel very certain that the insurance carrier will deny the application. ERISA gives employees who are covered by an insurance policy the right to apply for benefits. While it is okay for an employer to set the employee’s expectations, an employer should never preclude a plan participant from applying for benefits under any ERISA plan.
The tax treatment of long-term disability benefits depends on how the premiums for the coverage were taxed to the employee:
To the extent the employee paid his or her insurance premiums for LTD coverage with after-tax dollars, or the employer’s contribution towards those premiums were included as compensation income on the employee’s Form W-2 and taxed accordingly, then the LTD benefits are non-taxable.
To the extent the employee paid his or her insurance premiums for LTD coverage with pre-tax dollars, or the employer’s contribution towards those premiums were not included as compensation income to the employee, then the LTD benefits are taxable.
Opinions vary about which approach is best. Some employers like the first approach so that the benefits, which are typically often a reduced percentage of compensation, such as 60%, are not further reduced for taxes. Others like the second approach which saves all employees current tax dollars and may be the most valuable to the group as a whole given that very few employees will actually utilize the LTD benefits. And some employers who don’t want to make that judgment call allow their employees to choose the tax treatment of their premiums.
Group Health Plans. You should check the terms of the plan (or summary plan description) to determine what happens to an employee’s eligibility for coverage when the employee takes a disability leave. Some plans will continue coverage, at the active employee rates, during the period of STD leave, but that is not legally required. If the disability leave is also a leave covered by the federal Family Medical Leave Act (FMLA), however, then the employee must be allowed to continue participating in the plan during that FMLA leave on the same terms as active employees (e.g., at active employee rates). If the employee does not return to employment following the FMLA leave, the plan may terminate participation at that time, although COBRA (which is discussed in the next paragraph) would then be offered.[2]
If you are subject to federal COBRA rules (generally, employers with at least 20 employees are subject to federal COBRA), and if the employee loses coverage due to the disability leave, which is a “reduction in hours” in COBRA parlance, then you generally must notify the COBRA administrator of the employee’s loss of coverage within 30 days from the date of the loss of coverage. The COBRA administrator then has 14 days to send out the COBRA election packet to the participant and his or her enrolled dependents. If you administer COBRA internally, then you have a total of 44 days to send out the COBRA election packet. Note that an employee who is on an FMLA leave can never have a COBRA event until after the expiration of the leave, and COBRA must be offered following the expiration of the leave even if the employee chose not to continue coverage during some or all of the FMLA leave period.
Remember that COBRA continuation coverage can last for up to 18 months when the loss of coverage is due to a reduction in hours (such as the taking of a disability leave) or a termination of employment. However, that 18 months can be extended for up to a total of 29 months if:
The SSA makes a determination that the employee’s disability began at any point up until the first 60 days of the COBRA continuation coverage.
The employee (or a family member) provides the COBRA administrator with a copy of that SSA determination no later than the end of the first 18 months of COBRA coverage. In addition, the SSA determination must be provided within 60 days after the later of (i) the date of issuance of the SSA determination letter and (ii) the date on which the qualifying event occurs or, if later, the date coverage would have otherwise been lost due to such event. These time frames assume the employee has been provided proper notice of his or her right to extend COBRA coverage due to an SSA disability; if not, the period to provide notice of the SSA determination extends until 60 days after the employee becomes aware of this right.
The premiums for COBRA coverage are permitted to be 102% of the full premium amount (both the employer and employee portions) for the first 18 months of coverage. If the disability extension applies, then following the end of the first 18 months of COBRA, the premium can be increased to 150% of the full premium amount.
If you are a small employer not subject to the federal COBRA rules, there still may be similar requirements under a state “mini COBRA” law of which you should be aware. You should not assume that the insurance carrier will administer your insurance policy’s mini COBRA provisions; often, insurance policies impose certain administrative obligations on the employer, such as notice obligations.
Flexible Spending Accounts (FSAs). Most health FSA and dependent care FSAs will provide that participation ends when the employee is no longer receiving compensation, although health FSAs must permit the employee to continue participation during an FMLA leave.
For the health FSA, COBRA coverage must be offered when the employee ceases to be eligible due to either a reduction in hours (such as due to taking a disability leave) or termination of employment. Most health FSAs qualify for a limited COBRA obligation that permits an employer to only offer COBRA coverage to the participant when the participant’s account is underspent (generally, more money has been contributed as of the date of the COBRA qualifying event than has been reimbursed) and only for the remainder of the plan year.
For dependent care FSAs, a typical question is whether childcare expenses incurred while the employee is on disability leave are eligible for reimbursement from the FSA. Because the dependent care FSA is intended to pay for eligible dependent care expenses to allow the employee to work, day care expenses incurred while the employee is not working cannot be reimbursed from the account. Therefore, the employee cannot be reimbursed for daycare expenses incurred while on a leave of absence. This is frustrating for both employers and employees because an employee who is unable to work due to a disability is often also unable to care for their children at home.
Nonqualified Deferred Compensation Plans
Like pension plans and 401(k) plans, the first issue to consider is whether the individual was vested in their plan benefit or account at the time of disability, and if not, whether the plan provides for full vesting upon either a disability or upon a termination due to disability. If any portion of the account balance or benefit is unvested, it should be forfeited in accordance with the terms of the plan.
Assuming there is a vested balance, you should check to see whether the plan provides for a distribution upon a disability. A disability is a permissible payment event under Internal Revenue Code Section 409A, which governs most types of nonqualified deferred compensation plans. Alternatively, the plan may provide for a payment to begin (or commence) upon a separation from service. A separation from service generally means the date when the employee’s level of service decreases to less than 20% of his or her prior level of services over the preceding 36 months. But, there is a special rule in Section 409A that says an employee on a sick leave does not experience a separation from service for the first six months of the leave (or such longer period of employment for which the employee has the right to return to employment by law or contract), provided the employee is reasonably expected to return to work before the end of such period. When the individual is disabled within the meaning of Section 409A (see the section “Overview of the Meaning of Disability” above), however, then the plan may provide that the separation from service is delayed until the end of 29 months of leave, even if the employee is not expected to return to work. Many nonqualified deferred compensation plans utilize this 29-month leave rule, but employers are often ill-equipped to track it from an HRIS perspective.
If employee deferrals are being made to the plan, you should also check whether the plan permits the employee to cease making deferrals upon commencement of the disability. This is one of the limited exceptions to the normal rule in Section 409A that provides that deferral elections must be irrevocable for the entire plan year.
Other Issues to Consider
Form 8-K Requirement. Generally, the termination of a CEO, CFO, COO, chief accounting officer or any named executive officer of a publicly traded company triggers the need to file a current report on Form 8-K with the Securities and Exchange Commission (SEC). This requirement is triggered when one of the listed officers’ employment is terminated as a result of disability. However, it can be more difficult to determine whether disclosure is required in the case of disability or illness that limits or incapacitates an officer but does not result in immediate termination of employment. The SEC Staff has not provided specific guidance for this situation, saying only that a “termination” includes situations where the officer “has had his or her duties and responsibilities removed such that he or she no longer functions in the position of that officer.” As a result, any disability that results in the removal or reduction of an officer’s duties should lead to an evaluation of whether the officer is continuing to function in his or her officer role and of the materiality of the change to the Company’s investors.
Section 16 Reporting. The disability of an executive or the termination of the executive’s employment due to disability generally will trigger a Form 4 filing only to the extent the event triggers a forfeiture of an equity award, accelerated vesting or settlement of a unit-based award (e.g., restricted stock units or performance share units) or a tax withholding obligation that is covered by withholding or selling shares. In addition, any transaction with respect to the company’s stock that is initiated after the executive’s disability but while the executive’s employment continues (such as, for example, the exercise of an option by the executive’s guardian) would be reportable in the same manner as a transaction initiated by the executive. Any transaction that is initiated after the executive’s employment is terminated due to disability, by contrast, would not be reportable unless it were “matchable” against an earlier opposite-way transaction (i.e., a sale if the transaction is a purchase, or a purchase if the transaction is a sale) that had occurred while the executive was still employed and within six months of the second transaction. In addition, if the disabled executive (or his or her guardian) initiated a transaction prior to the executive’s termination of employment that had not yet been reported on a Form 4 or Form 5 (for example, if the disabled executive sold stock the day before his or her termination of employment or gifted stock earlier in the year), then there is an obligation to report on a timely basis such transactions that occurred prior to the executive’s termination of employment. The disabled executive’s reports can be signed and filed with the SEC by the executive’s guardian. Regardless of who signs and executes the report, the disabled executive should be named as the reporting person in Box 1 of the report, and the person executing the report on the disabled executive’s behalf should sign the report in their own name, indicating the capacity in which they are signing.
Powers of Attorney
When a disabled employee is unable to care for their personal or financial affairs the employee may designate another person (called the “agent”) through the use of a Power of Attorney (a POA). The agent is permitted to take action on the employee’s behalf to the extent permitted by the terms of the POA. If you receive a POA, it is important to check state law to determine whether (a) the POA is valid, and (b) the POA permits the action that the agent wishes to take. For example, some state laws may prohibit an agent from changing a beneficiary designation unless the POA explicitly gives the agent that right. If you determine that a POA is valid, then you are permitted to take direction from the agent with respect to compensation and benefit plan matters that are within the scope of the authority granted by the POA.
[1] The requirements of the American with Disabilities Act are beyond the scope of this article.
[2] The rules on benefit elections and payment options during an FMLA leave are complex, and when digging into these rules (which are beyond the scope of this article), many employers find that their approach is not fully compliant with those rules.
The Shifting Nature of the PFAS Regulatory Landscape
Per- and polyfluoroalkyl substances (PFAS) are a class of thousands of human-made chemicals used across a number of industries. Their durability makes them ideal for various uses like stain protection in textiles, machine lubricants, and fire suppression. That same durability has led to their more common name, forever chemicals, as they do not break down easily in the environment and can persist in the human body for long periods. PFAS have been associated with an increased risk of certain cancers, hormone disruption, reproductive harm, and abnormal fetal development but the science is severely limited. The slow pace of study has made enforcement of rules regarding PFAS inconsistent (and the subject of legal challenges) and has caused a substantial amount of confusion and uncertainty among industry, municipalities, and consumers.
The two most studied PFAS, perfluorooctonesulfonate (PFOS) and perfluorooctanoic acid (PFOA), are now subject to federal and state drinking water maximum contaminant levels (MCLs) but the landscape is frequently shifting as the winds of politics blow and our understanding of this class of chemicals grows. The United States Environmental Protection Agency’s (USEPA’s) current Administrator, Lee Zeldin, made PFAS a clear priority and has acted quickly to make his mark on the regulatory landscape. While we have gained some regulatory clarity regarding PFAS, uncertainty still rules the day and will continue to frustrate decisionmakers for the foreseeable future. Municipalities, in particular, will be burdened with significant costs and potential liabilities as our state and federal governments continue developing the PFAS regulatory scheme.
The particular pain visited upon municipalities
Drinking water standards now exist and seem only to be getting more stringent as the science develops. The Wisconsin Department of Natural Resources (WDNR) and USEPA tend to give local governments considerable leeway, but the push to address PFAS is considerable and the need to protect drinking water is monumental. It’s only a matter of time before municipalities start being put on compliance schedules and potentially penalized for failing to act or to act timely. PFAS presents confusion across the board, but it will be felt most acutely by municipalities charged with providing safe drinking water to their communities.
What can Wisconsin municipalities do now to begin planning for compliance requirements?
Get a clear picture of the PFAS status in their water systems by conducting PFAS-specific sampling. Next, conduct a full top-to-bottom diagnosis of the technological shortcomings of the water treatment systems to identify where the current system falls short of meeting the oncoming standards. Next, assess system upgrades and identify revenue sources for these upgrades. There may be state and federal financial assistance available to help with those upgrades. Finally, make sure to assess whether any class action settlement resources are being maximized. But don’t ignore this problem and hope it goes away. If it feels like too high a hill to climb, then strategize with your team, consultants, and attorneys to identify the best path forward to safeguard your constituents and your resources.
The particular pain visited upon manufacturers and importers
Hazardous substance law—particularly the Superfund law—tends to be objectively unfair to manufacturers and importers as it can place strict and retroactive liability on parties guilty of simply producing goods with certain constituents at a time when no one knew those constituents posed any risks. Furthermore, the strict and joint and several liability schemes of most hazardous substance laws essentially shift the burden of proof to potentially responsible parties making them either prove they had no part in the contamination or their part was minimal enough to be let off the hook. As PFAS regulations continue to be developed, manufacturers and importers need to be prepared to defend themselves in lengthy and costly battles with state and federal authorities and among their peers in contribution actions. It is abundantly clear that PFAS liability is not going away and all parties would do well to gird themselves against unexpected consequences of the regulatory landscape by not only preparing the reports detailed below, if required, but by reviewing company, property, and other historical records for potential PFAS liability. Just like municipalities, industry would do well to strategize with their team, consultants, and attorneys to identify the best path forward to minimize risk and limit liability.
Status of PFAS in Wisconsin
In Wisconsin, PFOS and PFOA are subject to a 70 parts per trillion standard for drinking water. This might seem like a fairly low maximum, but it is far more liberal than the federal 4 parts per trillion standard. Now that the USEPA has established a limit of 4 parts per trillion, Wisconsin must change its enforcement standard to align with federal standards, as required by the Safe Drinking Water Act. The DNR is working to implement the federal standard, but rulemaking is a slow process. Our governments are working as fast as the bureaucracy allows to provide clarity and consistency.
Wisconsin has primary enforcement authority under most Clean Water Act programs, including our Wisconsin Pollutant Discharge Elimination System (WPDES). Facilities discharging to surface water or groundwater in Wisconsin need a permit to do so, and those permits are reviewed and granted by WDNR, subject to USEPA review and possible veto. The WDNR is still in the early stages of permitting PFAS discharges but it has promulgated a surface water quality standard. The application of that standard is complex and includes a measured rollout to minimize unnecessary and heavy-handed enforcement actions. The initial phase of that rollout is a permit requirement to monitor PFOS and PFOA effluent in select new and modified WPDES permits. If a discharge causes or contributes to an exceedance of a PFAS surface water quality standard, the permittee will be put on a pollution minimization plan typically requiring substantial investment in new technology. WPDES permittees or hopeful permittees should be thinking about PFAS now as their permit or renewal applications will require a consideration of PFAS in discharges.
As of now, however, Wisconsin has not promulgated groundwater standards—despite groundwater contamination being one of the main drivers for WDNR decisions whether to issue a “No Further Action” Letter to close a cleanup action. Property owners need to start preparing for the day groundwater standards are established by considering and implementing risk mitigation strategies now such as conducting groundwater testing to determine the extent of their potential risk and proactively addressing contamination where feasible.
Status of PFAS in Surrounding States
Minnesota
Minnesota has been executing its PFAS Blueprint since 2020, beginning with prohibiting PFAS-laden firefighting foam in testing or training, then prohibiting intentionally added PFAS in 11 categories of products, and soon with reporting requirements for manufacturers selling products containing intentionally added PFAS. Minnesota’s PFAS Blueprint will continue to be rolled out through 2032. The January 2026 reporting requirements introduce a new heavy burden on manufacturers selling products in Minnesota. Manufacturers failing to submit a timely report would be barred from selling products in Minnesota until the report is submitted. Defined “covered manufacturers” would do well to prepare for those requirements now before they are prohibited from selling products in Minnesota until the report is submitted.
Illinois
On March 25, 2025, Governor J.B. Pritzker signed a law which requires the Illinois Pollution Control Board to adopt rules to establish PFAS drinking water standards “identical in substance” to the USEPA standards. Municipalities and manufacturers alike should be aware of these oncoming standards and keep an eye on the rulemaking process as we all learn what precisely “identical in substance” means. On April 11, 2025, Illinois also established groundwater quality standards for six PFAS (PFOA, PFOS, PFNA, PFHxS, PFNS, and GenX). Public water systems in Illinois should be aware of these new standards and any obligations they impose. Manufacturers should similarly be aware of these standards as they could trigger costly and burdensome groundwater cleanup requirements.
Michigan
Michigan established drinking water standards for public drinking water supplies in 2020. Those standards cover 7 PFAS (PFOA, PFOS, PFNA, PFHxA, PFHxS, PFBS, and GenX) and are subject to ongoing litigation. These standards, if allowed to stand by the Supreme Court of Michigan, would trigger a groundwater cleanup requirement that could burden numerous responsible manufacturers with costly cleanups.
USEPA Developments
TSCA Reporting
Under the federal Toxic Substances Control Act (TSCA), USEPA must promulgate a rule to require each person who manufactures or manufactured PFAS in any year since 2011 to report information regarding PFAS uses, production volumes, disposal, exposures, and hazards. In October 2023, USEPA promulgated that rule with an original reporting deadline of November 12, 2024, which was extended to July 2025. Last month, however, USEPA extended the reporting deadline once again. The reporting deadline is now October 13, 2026, with an alternate deadline of April 13, 2027, for small businesses reporting solely on PFAS articles imported. The delay gives manufacturers more time to review records and gather necessary data to meet reporting requirements.
Water Standards
A Biden-era rule set drinking water standards for six PFAS, including PFOA and PFOS. On May 14, 2025, USEPA Administrator Zeldin announced USEPA would be keeping the MCLs for PFOA and PFOS but would initiate rulemaking to repeal the MCLs for the four additional PFAS (PFHxS, PFNA, GenX, as well as the novel hazard index mixture of these three plus PFBS).
These changes are consistent with Administrator Zeldin’s emphasis on substantiated science and a desire to roll back what the administration views as regulatory overreach leftover from the Biden administration. As science continues studying this class of chemicals, we can expect to see new drinking water quality standards as well as the first enforceable standards under the National Pollutant Discharge Elimination System.
CERCLA and the Spill Law? Who knows.
The PFAS regulatory scheme under CERCLA and the Wisconsin Spill Law continues to be hard to pin down. PFOA and PFOS were designated hazardous substances by the Biden administration—a necessary definition under CERCLA, but as of this writing Administrator Zeldin has not signaled whether that designation will remain. It’s likely any movement on PFAS under CERCLA will wait until Congress has acted to limit liability for passive receivers of PFAS. Under CERCLA’s strict liability scheme, passive receivers of PFAS, like landfills and water utilities, would be on the hook for clean-up costs. Groups representing these entities have been lobbying Congress to carve out an exemption for years.
The status of PFAS under Wisconsin’s Spill Law is the subject of a much-anticipated Wisconsin Supreme Court decision. WDNR has long enforced the Spill Law with a novel approach, sometimes determining what is a “hazardous substance” under Wisconsin law essentially on a case-by-case basis. At issue before the Court is a March 6, 2024 decision by the Wisconsin Court of Appeals determining that DNR failed to follow proper rulemaking procedure when it decided to regulate PFAS as a hazardous substance. Should the Wisconsin Supreme Court affirm that decision, WDNR’s historic flexible use of the Spill Law would be neutered. However, if the Court reverses the decision we can expect to see more Spill Law actions undertaken to address PFAS contamination. The Wisconsin Supreme Court is expected to hand down that decision any day.
Washington State Scales Up Paid Family and Medical Leave Law
On May 20, 2025, Washington Governor Bob Ferguson took the final step toward implementing House Bill (HB) 1213’s expansion of the state’s paid family and medical leave program when he greenlit funding for the program as part of the state appropriations budget for the 2025-2027 biennium. With this funding, the new law will take effect on January 1, 2026.
Quick Hits
Washington State’s HB 1213 expands job protection rights under the state’s paid family and medical leave program.
The amended leave program reduces the minimum increment of time off from eight consecutive hours to four consecutive hours.
HB 1213 also broadens health insurance coverage requirements, along with a variety of other miscellaneous changes.
HB 1213 expands the Washington Paid Family and Medical Leave (WPFML) program, which is a state-administered program that provides Washington employees with paid time off from work for serious personal and family medical leave.
Here is an overview of the key changes to WPFML made by the new law.
Expanded Job Protection Rights
HB 1213 expands the job protection rights under the WPFML program in several ways. First, it gradually requires more employers to provide job protection. Currently, the law only requires employers with fifty or more employees in Washington to provide job protection. Under the new law, the size of employers required to provide job protection will be implemented over a three-year period, as shown in the table below.
IMPLEMENTATION DATE
EMPLOYER SIZES
January 1, 2026
25-49 Employees
January 1, 2027
15-24 Employees
January 1, 2028
8-14 Employees
Second, HB 1213 lowers the eligibility requirement for employees to qualify for job protection. Generally, employees do not qualify for job protection unless they have worked for their employer for at least twelve months and for 1,250 hours in the year before the start of their leave. The amendment will only require employees to have worked for their employer for at least 180 days before the start of their leave, regardless of how many hours they have worked.
Third, as explained in the final bill report, “[a] mechanism for addressing stacking of certain employment protection benefits is established.” This relates to the interplay of WPFML with the federal Family and Medical Leave Act (FMLA), which is complicated. FMLA and WPFML run concurrently only if the employee chooses to use them at the same time. Employees can opt to take WPFML leave after exhausting FMLA leave or to forego WPFML leave altogether. Also, in some cases, employees may not qualify for leave under the FMLA when they do qualify for leave under the WPFML.
HB 1213’s new “stacking mechanism” allows employers to count FMLA leave toward the total amount of leave entitled to job protection under the WPFML, if the employee was eligible for WPFML but did not apply for and receive it. To take advantage of this mechanism, employers must provide a written notice within five business days of the employee’s initial request for or use of FMLA leave, whichever comes first, and then monthly thereafter for the remainder of the employer’s FMLA twelve-month period.
The notice must be in a language understood by the employee and delivered in a method that is “reasonably certain to be received promptly by the employee.” The notice must include the following:
the employer is “designating and counting” the unpaid leave as FMLA leave, with the amount of FMLA time used and remaining, which the employer can estimate from information it receives from the state and the employee;
the employer’s twelve-month FMLA leave year;
because the employee is eligible for the WPFML program but has not applied for and received its benefits, the FMLA leave is counted against any permitted period of employment protection under the WPFML program;
the start and end date of the FMLA leave;
the total amount of FMLA leave counting toward the new job protection period under the WPFML; and
the employee’s WPFML benefits are not impacted by the stacking of the job protection rights of the FMLA and WPFML.
Fourth, employers must also provide a new notice of reinstatement rights to any employee taking more than two weeks of continuous leave or more than fourteen days of intermittent leave. The employer must provide the new written notice to the employee at least five business days before the return-to-work date. It must include the estimated expiration of the right of employment restoration and the date of the employee’s first scheduled workday after their leave.
Fifth, the amendment establishes maximum periods of employment protection. Unless there is a written agreement that says otherwise, the employees lose their right to employment restoration unless they exercise it on the earlier of the first scheduled workday following: (1) the actual leave period under the FMLA and/or WPFML or (2) sixteen weeks (or eighteen weeks for incapacity due to pregnancy) of continuous or combined intermittent leave during fifty-two consecutive calendar weeks.
Insurance Continuation Mirrors New Job Protection Period
Currently, employers must continue health insurance coverage during both FMLA and WPFML leaves only if there is at least one day of overlap between the two types of leave. Employees must continue paying whatever portion of their insurance premiums they normally pay.
The new law expands the employer’s requirement to maintain health insurance coverage to “any period of leave in the PFML Program in which the employee is also entitled to job protection.”
Other Changes
HB 1213 implements a slew of miscellaneous other changes, including allowing the state to periodically audit employer records to assess compliance, changing how an employer’s size is determined for premium calculations, and changing the grants available to small employers.
Next Steps
Employers may want to prepare for the changes coming to the WPFML program by reworking written policies and procedures and evaluating whether to change other forms of company-provided leave to address the expanded rights under WPFML. Washington State’s new mini-WARN Act takes effect on July 27, 2025, so employers may want to consider whether to implement reductions in force or closures before the amendments to WPFML begin on January 1, 2026.
Understanding the Federal Reconciliation Bill’s Implications for MCO Tax Structure
New York’s Medicaid financing strategy—particularly its use of a managed care organization (MCO) tax—has come under renewed federal scrutiny amid recent legislative proposals and regulatory developments. The federal reconciliation bill, known as the One Big Beautiful Bill Act (OBBBA), alongside newly proposed guidance from the Centers for Medicare & Medicaid Services (CMS), could significantly influence how New York and other states structure healthcare-related tax mechanisms used to draw down federal Medicaid matching funds.
Section 44132 of the OBBBA would establish a ten-year moratorium on the creation or expansion of provider and MCO taxes. Under this proposal, states would be prohibited from adopting new healthcare-related taxes or increasing existing ones unless they were enacted before the effective date of the legislation. Even if a tax complies with federal requirements—such as being broad-based, uniformly applied, and not directly redistributive—it would remain frozen at its current structure for the duration of the moratorium.[1]
This legislative action is reinforced by CMS’s proposed rule issued in April 2025, which would increase scrutiny of waiver requests for narrowly tailored provider taxes. The CMS fact sheet outlines how the rule aims to ensure that such taxes do not disproportionately benefit the providers who fund them and that they meaningfully redistribute costs across a provider class. CMS signaled that future approvals would be based not only on statistical compliance with redistribution formulas, but also on substantive evidence that the taxes are not structured to guarantee repayments through Medicaid.
New York’s FY 2025 budget projected approximately $3.7 billion in revenue from its MCO tax, intended to support Medicaid program enhancements, including base rate adjustments and targeted payments to providers. However, according to CMS correspondence and discussions shared at the May 2025 MACPAC meeting, the federal government is expected to approve only about $2.1 billion in matching funds under current policy standards.
This shortfall has triggered a review by New York State officials, with reports indicating that the state may need to restructure or replace components of the MCO tax mechanism. As of June 2025, the New York State Department of Health has not issued updated guidance or notifications to providers regarding potential changes to reimbursement or supplemental funding. However, news coverage and budget briefing materials confirm that the Governor’s Office is working with CMS and legislative leaders to evaluate options for FY 2026 and beyond.
New York is not alone. States such as California, Michigan, and Pennsylvania are also assessing their provider tax frameworks in response to tighter federal standards and the proposed legislative freeze. Many of these states have historically used targeted healthcare-related taxes as tools to secure additional federal funding for Medicaid. Under the OBBBA and new CMS rules, these strategies will require greater alignment with redistributive principles and transparency requirements.
For context, the foundational rules governing provider taxes appear in 42 U.S.C. § 1396b(w) and are implemented through 42 C.F.R. § 433.68. These rules require taxes to apply across a broad base of providers, to be uniformly imposed, and not to disproportionately benefit any one group of taxpayers. The reconciliation bill does not change those standards—it simply imposes a statutory moratorium on modifications that could otherwise have been evaluated under the existing waiver process.
For providers operating in New York, the practical effects of these developments are not yet fully known, but preparation is prudent. Providers may wish to monitor announcements from the New York Department of Health, reassess their current funding assumptions, and evaluate how federal match uncertainty could affect supplemental payments. While reimbursement changes have yet to be implemented, the alignment of federal legislation and administrative rulemaking indicates that states may soon face binding constraints on Medicaid financing flexibility.
As guidance evolves and legislative proposals move forward, healthcare providers, Medicaid plans, and other stakeholders should prepare to navigate these changes.
FOOTNOTES
[1] Proposed in legislative summaries; pending bill text.
What to Watch: Potential Increase in Enforcement of “RUO” Diagnostics
Last spring, we wrote about a warning letter the United States Food & Drug Administration (“FDA” or the “Agency”) issued to Agena Bioscience Inc. (the “Agena Warning Letter”)[1] for allegedly promoting its diagnostic product (which was labeled for research use only “RUO” and therefore, not cleared or approved by FDA) for clinical purposes in violation of the U.S. Food, Drug, and Cosmetics Act (the “FDCA”).[2] The Agena Warning Letter – the first issued to an RUO product manufacturer in over five years – left the industry wondering whether FDA intended to ramp up enforcement against manufacturers who improperly utilize the regulatory carve-out for RUO diagnostic devices.[3] However, after the issuance of that Agena Warning Letter last April, all had been quiet on the enforcement front in the RUO space and, given the priorities of the new administration, we expected it to remain that way. But surprisingly, last month, FDA posted yet another warning letter to DRG Instruments GmbH (“DRG”) alleging failure to qualify for the RUO carve-out (the “Warning Letter”), potentially signaling the Agency’s intention to increase, or at least maintain, oversight for RUO-labeled products.[4]
In the Warning Letter, FDA concluded that DRG’s product was inappropriately labeled “ROU” – and, therefore, was not exempt from FDA’s in vitro diagnostic (“IVD”) regulations, including premarket clearance and/or approval – based on evidence that, in FDA’s view, showed the product was intended for clinical use. According to FDA, such evidence included (a) distribution records showing that DRG sold the product to “companies in the business of performing clinical analysis” with “no indication that these companies also conduct research,” and (b) claims made on DRG’s website suggesting that the product may be appropriate for clinical use (e.g., “can be performed also by patients”). Interestingly, FDA reached this conclusion despite the existence of certification letters from the purchasing companies acknowledging that the product was to be used for research purposes only.
The Warning Letter does not add any new parameters to the current regulatory framework for marketing RUOs, which consists of only a single regulation, two relatively dated guidance documents, and the Agena Warning Letter.[5] For instance, we already knew that making “device” claims (i.e., claims suggesting that a product could be intended to diagnose, cure, mitigate, treat, or prevent a disease or condition) and selling RUO products to clinical entities with no research operations are two factors that tend to prove that a product is intended for clinical – as opposed to research – use.[6] Likewise, we already knew that certification letters are not enough to offset evidence otherwise suggesting that a product is intended for clinical use.[7]
However, the issuance of the letter itself is significant. Although it may have been surprising at first glance – given the new administration’s publicized preference for deregulation of drugs and devices generally – it may be part of a larger scheme for FDA to retain at least some patient safety assurances for a smaller subset of exempt diagnostics (i.e., RUO products) in light of its recent decision not to oversee a larger subset of exempt diagnostics (i.e., laboratory developed tests (“LDTs”)) directly.[8] Given the regulatory context, it remains to be seen whether the Warning Letter indicates an intention by the new administration to keep a closer eye on the regulatory carve-out for RUO products and/or components – despite its decision not to regulate one of its most significant policy carve-outs (LDTs) – or whether this Warning Letter will ultimately be an outlier like the Agena Warning Letter. We’ll keep an eye out for further enforcement in the space.
FOOTNOTES
[1] Letter to Agena Bioscience, Inc., MARCS-CMS 665159 (2024).
[2] See FDA Warning Letter Tightens Reins On ‘Research Only’ Labels, Law360 (Apr. 22, 2024).
[3] We remind readers that diagnostic products properly labeled “RUO” are exempt from most FDA regulations, including premarket clearance and/or approval. See 21 CFR 812.2(c)(3); Guidance For Industry, Distribution of In Vitro Diagnostic Products Labeled ‘RUO’ or “IUO’, FDA (2018).
[4] See Letter to DRG Instruments GmbH, MARCS-CMS 700918 (Mar. 31, 2025).
[5] See 21 CFR 812.2(c)(3); FDA Guidance, supra FN 3; Draft Guidance for Industry, Commercially Distributed In Vitro Diagnostic Products Labeled for Research Use Only or Investigational Use Only: Frequently Asked Questions, FDA (2011).
[6] See Agena Warning Letter, supra FN 1.
[7] See FDA Guidance, supra FN 3, at p. 11.
[8] On May 30, FDA’s deadline to appeal the Eastern District of Texas decision vacating the controversial “LDT Rule” issued under the Biden administration lapsed, meaning that the LDT Rule is permanently vacated in its entirety. The LDT Rule (which we wrote about here, here, here, and here) would have required LDTs to comply with the full scope of FDA’s IVD regulations, including premarket clearance and/or approval, ending FDA’s long-standing policy of enforcement discretion for LDTs.