Maryland’s FAMLI Program, Part I: An Overview of The Law
In 2022, the Maryland General Assembly overrode Governor Larry Hogan’s veto to enact the law that created the Family and Medical Leave Insurance (FAMLI) program. Applicable to all employers with Maryland employees and starting July 1, 2026, the program will provide most employees in Maryland with twelve weeks of paid family and medical leave, with the possibility of an additional twelve weeks of paid parental leave. Contributions from employers and employees to fund the program will begin July 1, 2025.
Quick Hits
Maryland’s Family and Medical Leave Insurance (FAMLI) program provides most Maryland employees with up to twelve weeks of paid leave, with some eligible for an additional twelve weeks, starting July 1, 2026, funded by contributions from both employers and employees beginning July 1, 2025.
The Maryland Department of Labor has released two sets of proposed regulations for the FAMLI program.
Under the FAMLI program, employees in Maryland will be eligible for paid leave for various family and medical reasons, and if they take leave for their own medical reasons, they will be eligible for an additional twelve weeks for parental bonding purposes.
There is much that employers may need to do to prepare. That preparation will depend on regulations issued by the Maryland Department of Labor (MDOL) to implement the law. Thus far, the MDOL has released two sets of proposed regulations, with more to come. The first set, released in October 2024, covers general provisions, contributions, equivalent-private insurance plans, and claims, while the second set, released on January 13, 2025, and currently open for public comment, covers dispute resolution. Part one of this multipart series explains the law, with parts two and three summarizing the proposed regulations, as well as employer concerns.
The law sets forth a general framework for the program, consisting of the following elements:
Leave Amount and Reasons for Leave
Effective July 1, 2026, all employees who have worked at least 680 hours in Maryland over the prior twelve months will be eligible to receive up to twelve weeks of paid leave for their own serious health condition, to care for a family member’s serious health condition, for parental bonding (including kinship care), to care for an injured or ill military servicemember who is next of kin, or for certain qualifying exigency reasons related to a servicemember’s active duty. If an employee has taken FAMLI leave for their own serious health condition, they may receive an additional twelve weeks for parental bonding purposes (and vice versa). The law requires employees to take leave in a minimum of four-hour increments.
Family members include the child of the employee or their spouse, the parent of the employee or their spouse, the employee’s spouse or domestic partner, and the employee’s grandparent, grandchild, or sibling. These include biological, adopted, foster, step, legal guardian, and in loco parentis relationships.
Contributions
The benefits will be administered through a state program, which will be funded through contributions from employers and employees, starting July 1, 2025. The rate of contribution will be determined annually by the Maryland secretary of labor, but is capped at 1.2 percent of an employee’s wages, up to the Social Security wage base (which will be $176,100 in 2025). The law splits contributions 50-50, unless the employer elects to make the employee share of the contribution as well. The law does not require small employers (those with fewer than fifteen employees) to submit the employer portion of the contribution (although employee contributions are still required), and the Maryland Department of Health will reimburse certain licensed/certified community health providers for up to the full amount of their share of the premium.
Employer Notice to Employees
The law requires covered employers to provide written notice to employees of their rights and duties under the law upon hire, annually, and within five days when leave is requested or when the employer knows leave may qualify.
Employee Notice to Employers
If the need for leave is foreseeable, the law requires employees to provide employers with at least thirty days’ written notice of their intention to take leave. If it is not foreseeable, they must provide notice as soon as practicable and generally comply with the employer’s absence-reporting requirements. If intermittent leave is required, the employee must make a reasonable effort to schedule the leave to not unduly disrupt business operations.
Employee Application for Benefits
Employees may apply for benefits up to sixty days before and sixty days after the anticipated start date of the leave, although the MDOL may waive the filing deadlines for good cause. Employers have five days to respond to an application.
Interaction With Other Benefits
FAMLI leave will run concurrently with federal Family and Medical Leave Act (FMLA) leave. Employers may not require employees to use vacation, sick leave, or other paid time off before or while receiving FAMLI benefits, although employers may permit employees to use such leave to bridge the difference between FAMLI benefits and full pay. However, if an employer provides paid leave specifically for purposes of parental bonding, family care, military leave, or disability, the employer may require employees to use such leave concurrently or coordinated with FAMLI leave. Employees receiving unemployment insurance benefits or workers’ compensation benefits (other than for a permanent partial disability) are not eligible for FAMLI benefits.
Job Protection and Health Benefits
During FAMLI leave, the law states that employers may discharge employees only for cause. They must otherwise be reinstated to their job, unless the employer determines that reinstatement will cause “substantial and grievous economic injury” to their operations and has notified the employee of that fact. In addition, the law requires employers to maintain the employee’s health benefits during FAMLI leave.
Private Employer Plans
Employers may establish their own plan or utilize a certified third-party insurance plan that meets or exceeds the rights, protections, and benefits provided to employees under the law. For such private employer plans to be valid, the MDOL, which is directed to establish “reasonable criteria” for such plans, must approve the plan.
Come Monday, Will It Be Alright? How Companies May Be Impacted by Immigration Priorities Under the New Trump Administration
With the inauguration of President-elect Trump on a cold Monday morning next week, there are several things that companies and their staff may want to keep in mind in preparing for possible Executive Orders and policy changes.
1. Continuity of Business Operations
Trump has vowed to crack down on illegal immigration on Day 1. This includes an aggressive push for mass deportations.
At first glance, companies may think this will not affect business since many companies use E-Verify and do not hire undocumented workers. If that’s the case, then the business may have less to worry about—but do not presume this is a worry-free zone. There are questions to ponder:
Does the company utilize the services of contractors? If so, how are the hiring practices of the contracting company? If that company was raided, could that upset the continuity of your business operations?
When did the company enroll in E-Verify? Employers who use E-Verify must begin using E-Verify for all new hires on the date the company signs the memorandum of understanding. If the company could have undocumented workers that were more easily hired prior to the use of E-Verify, and if those employees were picked up or deported, what would happen to the continuity of business operations?
2. Employee Travel – Tax and Monetary Implications
For companies in existence during the first Trump administration, you may remember that travel bans were quickly imposed by Executive Order. Although this point could also fall under the guide of business continuity, it created another unanticipated issue for companies related to taxation and costs.
One can expect based on what we learned during the first administration, any employee who is outside the U.S. and is not a U.S. citizen or permanent resident (green card holder) at the time any potential travel ban is enacted may not be able to return to the U.S. in short order.
If an employee is stuck outside the U.S., will they be in a jurisdiction where they have work authorization?
If yes, are they going to be outside the U.S. for so long that their working remotely from another country would create tax implications for the company?
If no, is the company going to sponsor that employee for work authorization where they are or cover the cost of the employee to setup shop where they are? Is there any risk in doing so?
If there are exceptions to a travel ban, and your company employs foreign workers, will the company financially support efforts to provide immigration advice to the workers on how to fall under an exception and how to make that argument?
3. Specialty Occupation Workers, Intracompany Transferees, and More
For companies that sponsor foreign nationals in various visa categories such as H-1B, L-1, TN, O-1 or others, the company may need to plan for additional resources to support such employees. Questions to ask may include:
Will the government take longer to make decisions on cases? If government processing times slow down, has the company sought to initiate cases or extensions early enough to ensure the employee and the business are protected? Should cases be initiated earlier?
Will employees who travel be subject to extreme vetting at consular appointments? This question goes to whether companies employ counsel or anyone who will prep employees for their visa interviews and whether additional support is needed in that regard. If someone is denied a visa, this rolls back up to the above point. Can the employee work remotely from a different country? What cost, tax, or other implications are there if they are unable to return to work as planned?
Will companies sponsor employees for green cards as soon as possible? With nervousness about travel bans, possible changes in how things are adjudicated or how quickly they are adjudicated, employees may seek to have the employer start the green card process as quickly as possible. Does the company have a green card policy regarding when they will be initiated? Should that be revised? Is the company prepared to pay the costs related to a possible increased number of green card requests?
The above are just a few of the things that companies may want to consider before Monday.
Michigan’s Earned Sick Time Act – Legislative Update
There are only 36 days before the Earned Sick Time Act (ESTA) takes effect on February 21, 2025. Presently, both the state House and Senate have introduced bills to amend the ESTA. The House acted quickly convening a committee to hear testimony on House Bill 4002 and proposed amendments to the minimum wage law (HB 4001). Varnum’s Labor and Employment team has been closing monitoring the progress of these amendments.
Varnum attorney Ashleigh Draft testified before the House Select Committee on Protecting Michigan Employees and Small Businesses in support of House Bill 4002. To date, the Senate has not yet convened a committee to discuss the Senate Bill. A summary of both the House and Senate bills follow:
House Bill (HB 4002)
The House Bill includes crucial amendments to make the Act more workable for both employees and employers, including:
Clarifies the definition of employees eligible for the benefits of the ESTA. Independent contractors, out of state employees, seasonal workers (working 25 weeks or less in a year), part-time employees (working 25 hours or less per week) and variable hour workers are not eligible for benefits under the Act.
Exempts small businesses (employers with less than 50 employees) from ESTA.
Employers may limit increment of use to 1 hour.
Retains the accrual method of 1 hour for every 30 hours worked, with usage capped at 72 hours per year, and limiting carryover to 72 hours.
Recognizes that employers that frontload 72 hours per year are in compliance with the Act and do not need to carryover time from one benefit year to the next.
Permits employers to provide a single PTO bank that can be used for all purposes including ESTA.
Allows employers to require employees to take ESTA time concurrently with FMLA, ADA or any other applicable law.
Senate Bill (SB 15)
The bill pending in the Senate proposes the following amendments:
Defines small business as an employer with fewer than 25 employees.
Allows small businesses to frontload 40 hours of paid and 30 hours of unpaid earned sick time at the beginning of the year.
Employers may limit increment of use to 1 hour.
Retains the accrual method of 1 hour for every 30 hours but permits frontloading of 72 hours as an alternative to the accrual method, while retaining the carryover from year to year.
The amount of accrued sick time that an employee may carry over from year to year may be limited to 144 hours if the employer pays the employee the value of the employee’s unused sick time before the end of the year. If the employer does not pay out the value of the employee’s unused sick time, carryover may be capped at 288 hours.
Charlotte E. Jolly contributed to this article
401(k) Plan Fiduciaries Breached ERISA’s Duty of Loyalty By Allowing ESG Interests To Influence Management Of The Plan
Last week, Judge Reed O’Connor of the U.S. District Court for the Northern District of Texas, issued the first-of-its-kind ruling on the merits pertaining to environmental, social, and corporate governance (“ESG”) investing in ERISA-covered retirement plans. In his 70-page Opinion, Judge O’Connor concluded that the plan fiduciaries of American Airlines’ (the “Plan Sponsor’s”) 401(k) plans breached their duty of loyalty, but not their duty of prudence, by allowing their corporate ESG interests, as well as the plan investment manager’s ESG interests, to influence management of the plans. The case is Spence v. American Airlines, Inc., No. 4:23-cv-552 (N.D. Tex. Jan. 10, 2025).
There have been numerous media reports on the Opinion which, as one may expect, have reached a wide array of views about its implications. On the one hand, some have viewed the Opinion as being limited to the specific facts of the case. On the other hand, some have viewed the Opinion as having far reaching consequences because (i) its undertone suggests it is yet another attack on the controversial practice of ESG investing, and (ii) it seeks to upend the common practice of plan fiduciaries delegating authority for proxy voting to investment managers.
Plan sponsors and fiduciaries will want to monitor developments in this action, including how Judge O’Connor addresses the issue of damages and what is likely to become a hotly contested appeal to the Fifth Circuit. In addition, a watchful eye should be kept on another case in this District recently remanded by the Fifth Circuit, where another judge is being asked to consider a legal challenge to ERISA’s ESG investing-related regulations.
Background
Bryan Spence, a participant in one of the Plan Sponsor’s two 401(k) plans, sued the plans’ fiduciaries under ERISA, alleging that they breached their fiduciary duties of prudence and loyalty by mismanaging certain funds in the plans’ investment menus that were managed by firms that pursued non-financial and non-pecuniary ESG policy goals through proxy voting and shareholder activism. Spence contended that such mismanagement harmed the financial interests of the plans’ participants and beneficiaries by pursuing ESG policy goals rather than exclusively financial returns.
The Court’s Opinion
After considering the evidence presented at trial, the court concluded that the plans’ fiduciaries did not breach their fiduciary duty of prudence, but that they did breach their duty of loyalty.
The court concluded that Spence did not prove that the plans’ fiduciaries acted imprudently because their process was consistent with, and in some ways better than, prevailing industry standards. While the court criticized the plans’ fiduciaries for failing to probe the investment manager’s ESG strategy, it concluded that the plans’ fiduciaries maintained a “robust process” for monitoring, selecting, and retaining investment managers, which included the following:
The plans’ fiduciaries held quarterly meetings, which included reporting from internal and external experts responsible for evaluating the plans’ investment managers;
The plans’ fiduciaries hired a well-qualified, independent investment advisor through a competitive bidding process;
The plans’ fiduciaries relied on in-house investment professionals to supplement the third-party advisor’s analysis, “another layer of review that few large-plan fiduciaries replicate”; and
The plans’ fiduciaries met industry standards regarding delegation and oversight of the plans’ investment manager’s proxy voting guidelines and practices.
Notably, the court lamented that “the ‘incestuous’ nature of the retirement industry” means that fiduciaries could escape liability for imprudence by following the prevailing practices of fiduciaries who set the industry standard, even where, in its view, those practices have shortcomings. The court concluded, however, that an act of Congress would be required “to avoid future unconscionable results like those here.”
The court next concluded that the plans’ fiduciaries violated their duty of loyalty “by doing nothing” to ensure that the plans’ investment manager acted in the best financial interests of the plans. In the court’s view, the following facts, taken together, proved that the plans’ fiduciaries failed to act with an “eye single” toward the plans and their participants and beneficiaries:
The investment manager was one of the Plan Sponsor’s largest shareholders and held more than $400 million of the Plan Sponsor’s debt;
A member of the plans’ fiduciary committee was responsible for the Plan Sponsor’s relationship with the investment manager, and the record included emails among fiduciaries referencing the importance to the Plan Sponsor of its relationship with the investment manager;
As a large consumer of fossil fuels, the Plan Sponsor had a corporate reason to be concerned about the investment manager’s ESG focus, which impermissibly clouded the fiduciaries’ judgment; and
The plans’ fiduciaries allowed the Plan Sponsor’s corporate commitment to ESG goals to influence their oversight and management of the plans; in other words, they failed to maintain the necessary divide between their corporate interests and the investment manager’s use of plan assets in the pursuit of ESG policy goals with little fiduciary oversight.
The court found that the evidentiary combination of the (i) Plan Sponsor’s corporate commitment to ESG, (ii) endorsement of ESG policy goals by the plans’ fiduciaries, (iii) influence of, and conflicts of interests related to, the plans’ investment manager that had emphasized ESG, plus the (iv) lack of separation between the defendants’ corporate and fiduciary roles, together established a convincing picture that the defendants had breached their duty of loyalty under ERISA. Whether that disloyalty was in service of the investment manager’s objectives or the Plan Sponsor’s own corporate goals, or both, did not matter. According to the court, the defendants did not act solely in the interests of the plans’ participants and beneficiaries and thus breached their fiduciary duty of loyalty to the plans.
The court ordered the parties to submit cross-supplemental briefing within three weeks on the question of whether the plans suffered any losses and other outstanding issues.
Proskauer’s Perspective
Only time will tell whether the Opinion is limited to its facts or, as some believe, will have broad consequences for the retirement plan industry. Regardless, the court’s decision is notable for several reasons.
To begin with, the premise of the court’s analysis was that the investment manager’s ESG focus was non-pecuniary. Consistent with the Department of Labor’s most recent ESG-related guidance (described here), the court acknowledged that ESG factors could be relevant to a pecuniary risk-and-return analysis where there is a “sole focus on [the] ESG factor’s economic relevance.” For example,the court explained that an investment manager would not be permitted to decide to divest from a company because the company lacks diversity in its leadership, but could consider the lack of leadership diversity if the investment manager believes, based on sound analysis, that it materially risks financial harm to shareholders.
The court drew consequential conclusions based on what it characterized as significant holdings by the investment manager of the Plan Sponsor’s equity and debt. The case illustrates the importance of maintaining clear separation between company considerations and plan fiduciaries’ deliberations. Because many large investment managers have significant holdings in major companies, the court’s analysis opens the door for increased scrutiny of whether an investment manager’s holdings might cloud fiduciaries’ judgment. In fact, it could be argued that the very same conduct the court found was consistent with industry norms and established that the plan fiduciaries acted prudently also established that the plan fiduciaries acted disloyally.
Low-Cost Meals, High-Cost FLSA Mistakes: Lessons From the DOL’s Fining of a Minnesota Pizza Restaurant for Wage and Hour Failures
In December 2024, the U.S. Department of Labor (DOL) fined a Minneapolis pizza restaurant for numerous wage and hour violations.
Quick Hits
The DOL recently fined a Minneapolis pizza restaurant for multiple wage and hour violations, including failure to pay overtime and improper tip pooling practices.
The DOL found the restaurant in violation of the FLSA for actions such as not combining hours worked at multiple locations, allowing employees to clock in with false identities, and employing a minor outside permitted hours.
The restaurant was penalized for retaliating against an employee who cooperated with DOL investigators, resulting in more than $100,000 in back wages, liquidated damages, and civil money penalties.
Under the Fair Labor Standards Act (FLSA), employees must be paid for all hours they work and must receive overtime of one and one-half times their regular rate of pay for all hours worked in a workweek in excess of forty hours. According to the DOL, the restaurant failed to do that, and further, dismissed an employee who spoke with DOL investigators. Based on those findings, the DOL found the restaurant to be in violation of the FLSA for the following actions:
“Not combining hours employees worked at more than one location, which denied employees overtime wages when they worked more than 40 hours in a workweek.”
“Allowing at least four workers to routinely use other names and identification numbers to clock-in to avoid paying overtime.”
“Paying two employees straight-time rates for overtime hours, instead of time and one-half their regular rate of pay as required.”
“Not maintaining accurate employment records with employee start and stop dates and contact information and allowing individual workers to use others’ names to clock-in.”
“Failing to distribute tips to workers or provide records showing that tips were paid to workers properly.”
“Including managers and shift supervisors in a tip pool for servers and others allowed to receive tips, which [under the FLSA] invalidated the tip pool.”
Allowing a “15-year-old to work outside permitted hours.”
The DOL assessed the restaurant damages and penalties as follows: $44,915 in back wages and an equal amount ($44,915) in liquidated damages, and $15,954 in civil money penalties for child labor and tip-retention violations. As a result, the restaurant will have to pay a total of $105,784 in back wages, damages, and penalties to resolve the violations.
Wage and Hour Considerations
Navigating wage and hour laws, especially in the restaurant industry, is no easy feat. Indeed, the hospitality industry, by its nature, with a high volume of part-time or temporary employees who are eligible for tips, does not make compliance any easier. Nonetheless, employers can better navigate these laws by keeping in mind several points.
First, employers may want to invest in a reliable and easy time recording system, train employees on proper time recording, and have policies in place that prohibit overtime work without proper authorization. While employees themselves may be willing to forgo the rules and work “under the table,” employee consent in this context does not cure a violation, and an employer would still be subject to assessments for noncompliance. Having a proper time recordkeeping system can prevent many wage and hour violations and ensure that employees are properly compensated in accordance with the law.
Second, employees must be paid properly for all hours worked. For example, if an employee works overtime without proper authorization, the employer can address the policy violation as a disciplinary action, but the employer must still comply with the overtime laws.
Third, federal law prohibits managers and supervisors from keeping employees’ tips, whether directly or through a tip pool. In addition, while not an issue in this case, it is important to remember under Minnesota state law, employees who perform direct services to customers must be the direct beneficiaries of any gratuities paid by customers. Thus, mandatory tip pooling—requiring employees to share tips with other employees—“may not be a condition of employment” in Minnesota. While many employers in the hospitality industry, as well as employees, may feel that tip pooling treats employees more fairly, Minnesota law does not permit employers to require employees to do so.
Restaurant operators may want to ensure they have clear policies in place that no one at the restaurant, including management, can require employees to share their tips. Direct service employees may engage in tip pooling voluntarily, but employers may want to proceed with caution, as the “voluntariness” of a policy may be difficult to prove. In addition, Minnesota law provides that gratuities received through cards or electronic payment must be paid in full to employees by the next pay period.
Finally, employees who report wage and hour violations to employers or government agencies, or who participate in wage and hour investigations, are protected from retaliation. Employers may not dismiss or otherwise retaliate against employees who engage in such protected conduct. Employers in Minnesota may want to be especially careful, as the state’s whistleblower statute protects all employees who make good-faith reports of violations of law (including wage and hour), and the statute provides for additional damages for employees.
Key Takeaways
Employers may want to ensure they have a good time-recording system in place and make sure that employees are paid for all hours worked and paid at the overtime rate when appropriate. In addition, the recent matter may serve as a reminder of several points:
Employers would be well served to remain cognizant of laws that limit the hours and duties of employees who are minors.
Hospitality businesses may not allow managers to keep employees’ tips, including participation in tip pools.
Minnesota law prohibits employers from requiring employees to share their tips or contribute to tip pools.
Minnesota law requires that gratuities received through cards or electronic payment be paid in full to employees by the next pay period.
New Jersey Guidance on AI: Employers Must Comply With State Anti-Discrimination Standards
On January 9, 2025, New Jersey Attorney General Matthew J. Platkin and the Division on Civil Rights issued guidance stating that New Jersey’s anti-discrimination law applies to artificial intelligence. Specifically, the New Jersey Law Against Discrimination (“LAD”) applies to algorithmic discrimination – discrimination that results from the use of automated decision-making tools – the same way it has long applied to other forms of discriminatory conduct.
In a statement accompanying the guidance, the Attorney General explained that while “technological innovation . . . has the potential to revolutionize key industries . . . it is also critically important that the needs of our state’s diverse communities are considered as these new technologies are deployed.” This move is part of a growing trend among states to address and mitigate the risks of potential algorithmic discrimination resulting from employers’ use of AI systems.
LAD’s Prohibition of Algorithmic Discrimination
The guidance explains that the term “automated decision-making tool” refers to any technological tool, including but not limited to, a software tool, system, or process that is used to automate all or part of the human decision-making process. Automated decision-making tools can incorporate technologies such as generative AI, machine-learning models, traditional statistical tools, and decision trees.
The guidance makes clear that under the LAD, discrimination is prohibited regardless of whether it is caused by automated decision-making tools or human actions. The LAD’s broad purpose is to eliminate discrimination, and it doesn’t distinguish between the mechanisms used to discriminate. This means that employers will still be held accountable under the LAD for discriminatory practices, even if those practices rely on automated systems. An employer can violate the LAD even if it has no intent to discriminate, and even if a third-party was responsible for developing the automated decision-making tool. Essentially, claims of algorithmic discrimination are assessed the same way as other discrimination claims under the LAD.
The LAD prohibits algorithmic discrimination on the basis of actual or perceived race, religion, color, national origin, sexual orientation, pregnancy, breastfeeding, sex, gender identity, gender expression, disability, and other protected characteristics. The LAD also prohibits algorithmic discrimination when it precludes or impedes the provision of reasonable accommodations, or of modifications to policies, procedures, or physical structures to ensure accessibility for people based on their disability, religion, pregnancy, or breastfeeding status.
Unlike the New York City law that restricts employers’ ability to use automated employment decision tools in hiring and promotion decisions within New York City and requires employers to perform a bias audit of such tools to assess the potential disparate impact on sex, race, and ethnicity, there is no audit requirement under the LAD. However, the Attorney General’s guidance does recognize that “algorithmic bias” can occur in the use of automated decision-making tools and recommends various steps employers can take to identify and eliminate such bias, such as:
implementing quality control measures for any data used in designing, training, and deploying the tool;
conducting impact assessments;
having pre-and post-deployment bias audits performed by independent parties;
providing notice of their use of an automated decision making tool;
involving people impacted by their use of a tool in the development of the tool; and
purposely attacking the tools to search for flaws.
This new guidance highlights the need for employers to exercise caution when using artificial intelligence and to thoroughly assess any automated decision-making tools they intend to implement.
Tamy Dawli is a law clerk and contributed to this article
The DEI Stalemate: Paying the Price for the Wrong Move
Three Ward and Smith attorneys described what can happen when a DEI initiative goes wrong, placing an organization in a legal stalemate with its employees.
In a unique, interactive session that was part of the firm’s annual In-House Counsel seminar, participants evaluated potential DEI outcomes by analyzing three fictional scenarios. With elements pulled from real-life cases, the discussion illustrated how the stakes can become increasingly high with DEI practices.
Each participant assumed a different role, from in-house counsel and employee to accuser and accused, creating a lively examination of the benefits of DEI and the challenges associated with implementation, as well as how to develop solutions for evolving issues in the DEI landscape.
The discussion was led by Ken Gray, leader of the Labor and Employment Law Group, X. Lightfoot, an employment and personal injury attorney, and Avery J. Locklear, a labor and employment attorney.
The Technology Company Scenario
The first scenario involved a well-intentioned technology company that recently hired a new SVP in charge of Diversity, Equity, and Inclusion (DEI), Jordan Ellis. The business in question is a tech leader with over 10,000 employees across the U.S.
Ellis was asked to perform an assessment of the company’s workforce and leadership diversity. He found a number of areas in need of improvement, including female representation in leadership, Black/African American representation in leadership, and Asian/Hispanic representation in leadership.
Tasked with improving these metrics by the CEO, Ellis re-evaluated the Director of Communications role held by John Roe, a White man with a strong track record. Ellis then made the decision to inform Roe of a strategic shift within the company and relieved him of his duties.
The role was split into two new positions that were filled by two qualified deputies: one a White woman, the other a Black woman. Ellis believed the move aligned with the company’s DEI goals, representing a strategic step in making the leadership more inclusive and diverse.
Potential Response to Litigation?
The audience was asked to determine if any possible defense asserted by the company in response to a claim made by Roe represented a house of cards. “This was a fairly clear example of discrimination in relation to Title VII,” noted Gray, “which prohibits discrimination based on race, color, religion, sex, and national origin.”
The scenario was based on a real case, Duvall v. Novant Health, Inc. “In this case, a white management level employee who received above average evaluations got the axe,” said Gray. “It was a one-week jury trial, and the jury awarded $10 million.”
The decision made clear that it is permissible for employers to use DEI programs; however, these programs may not form the basis for adverse employment decisions.
“Some call this reverse discrimination, but I just call it discrimination. It’s important to note that the Act doesn’t say in regard to sex, the female sex, or in regard to race, the Black race or the Brown race. It just says race, it just says sex,” Gray explained.
The case established a significant precedent and illustrated a pitfall associated with poorly implemented DEI programs.
A Venture Capital Fund’s Contested Contest
The next scenario involved a venture capital fund interested in supporting businesses led by women of color. To close the funding gap, the fund created a grant contest with a prize of $50,000, growth tools, and mentorship opportunities.
Eligibility was open to Black women who were U.S. residents, with businesses that were at least 51 percent Black woman-owned. The audience discussed potential legal issues an in-house attorney could face as a result of the contest, which included an entry form with official competition rules.
The rules were explicit, stating in all caps that, “BY ENTERING THIS CONTEST, YOU AGREE TO THESE OFFICIAL RULES, WHICH ARE A CONTRACT…”
Two companies with owners who were not Black women were rejected after submitting applications for the contest. The Chief Legal Officers for both companies, Vegan Now and Well Soul, were members of the Collective of Corporate Counsel (CCC), a national bar association promoting the common business interests of in-house counsel through education, networking, and advocacy.
Would it be permissible for CCC to sue on behalf of Vegan Now and Well Soul? Did the rules on the entry form constitute a contract? The audience considered these and other questions.
The contention of CCC was that the form constituted a contract since the potential contest winners entered into a bargain-for-exchange when they applied. CCC’s argument was based on 42 USC § 1981, a federal law prohibiting discrimination on the basis of race, color, and ethnicity when making and enforcing contracts.
CCC also contended that the contest violated section 1981 due to its terms, as it categorically excluded non-black applicants from eligibility because of race. “If this sounds familiar, the reason is that it mirrors the factual pattern of a case that went before the 11th Circuit Court of Appeals,” commented Lightfoot.
The case involved the American Alliance for Equal Rights and a venture capital fund out of Atlanta, the Fearless Fund. “Ultimately, the court ruled that the membership organization did have standing to sue on behalf of its members, and the contest likely violated Section 1981 of the Civil Rights Act of 1866,” added Lightfoot.
The Fearless Fund settled the lawsuit and discontinued the contest as a response.
Breaking Boundaries Baristas
In the final scenario, the team explored how a well-intentioned coffee shop owner brewed trouble in her organization with a DEI policy gone wrong. Hiring people of diverse backgrounds and creating a welcoming environment for her team was a central focus for the owner, Linda Harper, who operates three local branches with 20 employees.
One of Linda’s employees, Sam Rowe, was assigned female at birth. “Sam has been living as a man and recently shared that his new pronouns are he/him,” said Locklear. “Though Sam’s announcement was mostly accepted, some of the team didn’t felt comfortable with his transition.”
A heterosexual female colleague, Olivia Spencer, struggled to adapt to Sam’s pronouns and had to be corrected multiple times. A heterosexual male colleague, Ben Paulson, admits the transition makes him somewhat uncomfortable. However, he has respected Sam’s pronouns.
Locklear asked whether Olivia’s and Ben’s behavior has risen to the level of creating a hostile work environment. The answer, of course, is that it depends and, as it is with so many other topics within the legal profession, there is no such thing as a one-size-fits-all, bright-line rule that can be applied to every situation.
Slurs and the misuse of pronouns by co-workers can encourage similar behavior from customers. To illustrate this idea, Gray described a case in which he assisted a client in 2016. “People would approach the coworkers and ask whether their colleague was a man or a woman,” he said. “This would occasionally result in slurs, and the customers would pick up on that, perpetuating the hostile work environment.”
The facts have to be evaluated in the context of every situation. “It boils down to whether the behavior was so severe and pervasive it created a hostile work environment. There’s no magic number of how many harassing events need to occur,” advised Locklear. “It’s based on all the circumstances.”
The EEOC issued new guidance on transgender employees in the workplace in April of 2024. A key aspect of this guidance was the misgendering of employees in front of coworkers and customers to the extent it made them uncomfortable.
“If it’s a long-term employee, there are going to be mistakes, and everyone has to give each other a little bit of grace, but whenever in doubt, you can always just use that person’s name,” added Locklear.
Mandatory Work Events
In an effort to foster unity and celebrate Pride Month, Linda organizes a mandatory drag queen night for the entire workforce. Her hope is that an evening with celebrity impersonator, Holly Wood, could bring the team together through a shared experience emphasizing inclusion.
While some employees are pumped about the event, some, including Ben and Olivia, are not comfortable attending. Sam also feels uneasy, sensing the event is directed at him in a way that feels awkward instead of supportive.
Ben asks to be excused from the event; Linda reiterates that attendance is mandatory and disciplinary action will follow if employees fail to attend.
The day after, Olivia tells Linda she feels the company is “too woke,” and she no longer enjoys working there. Sam describes new tension with his colleagues and feels some are treating him differently as a result of the event.
After some reflection, Linda realizes her approach may have inadvertently caused discomfort among the employees she wanted to support with her commitment to inclusivity. To move forward, she begins considering new ways to promote understanding and respect within her team.
The audience considered what went wrong and there was vast consensus that the event should not have been mandatory.
“This could have been fun, but making it mandatory was a bad idea, especially since it was a social event and an employee had already expressed discomfort,” Locklear explained.
Though the scenario was farfetched, it holds a number of important lessons for employers, Locklear added. “One is to educate your workforce,” she said. “Another could be to update your policies so a person who is transitioning knows who they can talk to about it.”
Any information provided in confidence should remain confidential. Being open about new ideas and willing to have frank discussions with employees is advisable. Assessing whether dress codes are gender-neutral could be another proactive way to foster a positive work environment.
Conclusion
The employment attorneys highlighted well-intentioned actors taking steps that caused issues for members of their fictional workforces. The team cautions in-house counsel against unintended consequences and offers training insights in Part 2 of the session.
DOL Clarifies That FMLA Paid Leave Substitution Rules Apply When Employees Receive State or Local Paid Leave Benefits
As more states implement paid family leave programs, employers increasingly are faced with questions about how these state programs interact with Family Medical Leave Act of 1993 (FMLA) regulations. A recent opinion letter from the U.S. Department of Labor’s (DOL) Wage and Hour Division (WHD) provides important guidance on this issue.
In an opinion letter dated January 14, 2025, the WHD clarified whether FMLA regulations on the “substitution of paid leave in 29 C.F.R. § 825.207(d) apply when employees take leave under state paid family leave programs.”
Quick Hits
The DOL’s Wage and Hour Division clarified that in the same way employers cannot require the substitution of accrued employer-provided paid leave benefits when employees receive compensation from disability plans and workers’ compensation programs, employers may not unilaterally require employees to substitute accrued employer-provided paid leave benefits when employees receive compensation from state or local paid family or medical leave programs.
The Wage and Hour Division also reiterated that the substitution provision would apply that if an employee’s FMLA-qualifying leave is unpaid.
The DOL Opinion Letter
On January 14, 2025, the WHD issued an opinion letter regarding the FMLA “substitution rule” applicability when employees are receiving state paid family leave benefits. The WHD concluded that the substitution rule did apply and that employers could not require employees to use accrued paid leave when employees were receiving paid family leave benefits. The WHD recognized in its opinion that FMLA regulations did not address the issue directly.
The FMLA provides unpaid job-protected leave for eligible employees for qualifying reasons like childbirth, personal health conditions, or caregiving for a sick family member. Under the FMLA substitution regulation, an employee may elect or an employer may require the employee to “substitute” accrued employer-provided paid leave benefits for any part of the unpaid FMLA leave. Allowing an employee to substitute accrued paid leave helps mitigate an employee’s wage loss.
The WHD consistently has taken the position that neither the employer nor the employee unilaterally can require or elect substitution of employer-provided accrued paid leave during a FMLA absence in which the employee receives disability or workers’ compensation benefits because the employee is on paid, not unpaid, leave. However, an employee and employer mutually may agree, subject to state law requirements, that employees may supplement or “top off” benefits from a disability or workers’ compensation program so that employees receive up to 100 percent of their normal wages.
Because the FMLA only provides unpaid leave, several states have implemented their own paid family and medical leave programs. These programs vary from state to state, but generally provide employees with partial income replacement benefits during their leave for qualifying reasons that often overlap with the qualifying reasons for leave pursuant to the FMLA.
The WHD drew a parallel between paid family leave programs and employer-provided disability and workers’ compensation programs. The opinion letter explained that the FMLA substitution provision does not apply for compensated leave designated as FMLA-qualifying leave regardless of whether an employee receives compensation from either an employer-provided disability or workers’ compensation program, or a state or local family and medical leave program. Accordingly, an employer cannot require that employees use accrued employer-provided paid leave benefits during a FMLA leave when the employee is receiving state or local family and medical leave program benefits.
The WHD’s position is consistent with many states’ approaches to the required substitution issue. For example, California prohibits employers from forcing employees to use PTO/vacation when receiving California Paid Family Leave benefits. Similarly, the Colorado Paid Family and Medical Leave Insurance (FAMLI) program prohibits employers from requiring employees to use or exhaust any accrued vacation leave, sick leave, or other paid time off prior to or while receiving FAMLI benefits, although they mutually may agree to do so. In Massachusetts, employers must allow, but may not require, employees receiving Paid Family and Medical Leave (PFML) benefits to supplement or “top off” their PFML benefits with available employer-provided accrued paid leave.
Massachusetts Launches Online Portal for Filing Workforce Demographic Data
Massachusetts recently opened the portal that certain employers must use to submit their workforce demographic data to the state by February 3, 2025.
Quick Hits
A new law in Massachusetts requires employers to report their workforce demographic data to the state each year.
The state just opened the online portal for submitting the data.
The deadline to file the data is February 3, 2025.
The federal government requires certain employers to submit workforce demographic data in a report, called an EEO-1 form, each year. Under a new state law, the Francis Perkins Workplace Equity Act, Massachusetts employers with one hundred or more employees (and which are subject to EEO-1 reporting obligations) must send their most recent EEO-1 report to the state each year.
The state recently opened a new portal that employers must use to submit their data.
The site does not require login information, but it allows the direct upload of the reports through the provided link. The instructions direct filers to make sure the uploaded file name contains the legal name of the filing entity and the type of report being filed, such as EEO-1 reports.
The instructions provide contact information for several agencies that can answer questions concerning the implementation and interpretation of the filing requirement.
The Massachusetts Executive Office of Labor and Workforce Development (EOLWD) recently published guidance in the form of frequently asked questions (FAQs) to help employers comply with the workforce demographic reporting requirements.
Although this notice shows the filing deadline is February 1, 2025, the EOLWD has said that filings will be accepted through February 3, 2025. Employers do not need to include pay data this year.
Next Steps
Massachusetts employers may wish to make the necessary preparations to file the required reports with the state before the deadline using the newly opened online portal. As a reminder, EOWLD has stated that employers need only file the most recent EEO-1 reports they have. The filing platform for the 2024 EEO-1 reports has not opened yet.
Navigating Employer Obligations During California’s Wildfire Disasters
As Los Angeles (the “City”) grapples with the impacts of the devastating wildfires, employers are facing critical decisions about protecting their workforce while maintaining operations. While Cal/OSHA recently urged employers to protect workers from unhealthy air in Los Angeles County, this article will provide further insight on a variety of the complex legal obligations California employers must navigate during wildfire and other natural disaster emergencies.
Wildfire Exception in Los Angeles Fair Work Week Ordinance
The Los Angeles Fair Work Week Ordinance typically imposes strict scheduling requirements on covered employers. However, the City has clarified that wildfire-related closures fall under the ordinance’s force majeure exceptions. Specifically:
The standard 14-day advance notice requirement for work schedules may be suspended when operations are compromised by wildfires.
Employees’ right to decline schedule changes made after the notice deadline may be limited during wildfire emergencies.
The force majeure exception explicitly covers natural disasters, including fires, floods, earthquakes, and other civil disturbances.
Employers must still document and justify any schedule changes made under this exception.
Workplace Safety Requirements Under Cal/OSHA
Under California Labor Code section 6400, employers must provide and maintain a safe and healthful workplace for employees. Cal/OSHA’s Protection from Wildfire Smoke standard mandates specific employer obligations when wildfire smoke affects air quality. These requirements include:
Monitoring the Air Quality Index (AQI) for PM2.5[1] before and throughout each work shift;
Providing N-95 respirators for voluntary use when AQI for PM2.5 exceeds 150;
Requiring mandatory respirator use when AQI for PM2.5 exceeds 500;
Implementing specific worker training programs about wildfire smoke hazards; and
Tracking air quality through EPA’s AirNow website or local air quality management district resources.[2]
Worker Rights in Evacuation Zones
California law explicitly prohibits employer retaliation against workers who refuse to work in unsafe conditions, including within evacuation zones. California Labor Code section 6311 protects workers who refuse to perform work in violation of occupational safety or health standards where such violation creates a real and apparent hazard. Additionally, section 1102.5 prohibits employer retaliation against workers exercising such rights. Employers should ensure that they abide by evacuation orders when issued by appropriate authorities. For more information, the Department of Industrial Relations (“DIR”) has an infographic regarding Worker Safety Wildfire Smoke and Evacuation Zones.
Wage and Hour Obligations During Emergency Closures
Employers must also navigate complex wage and hour requirements during natural disasters. California Labor Code Section 204 and the Fair Labor Standards Act (FLSA) require employers to maintain regular payment schedules even during emergencies. If a workplace is forced to close due to wildfire danger or evacuation orders, exempt employees must generally receive their full salary for any workweek in which they perform any work. Non-exempt employees, however, generally only need to be paid for hours actually worked, though reporting time pay requirements under Industrial Welfare Commission Wage Orders may apply if employees report to work but are sent home due to wildfire-related closures.
Employee Accommodations and Leave Rights
The California Fair Employment and Housing Act (FEHA) provides protections to employees who need accommodations due to wildfire-related conditions in specific circumstances. For instance, employees with respiratory conditions may require additional accommodations when working in smoke-affected areas.
The California Family Rights Act (CFRA) and/or Family and Medical Leave Act (FMLA) entitles leave to employees with a serious health condition caused or exacerbated by a natural disaster, including smoke from wildfires. California Labor Code Section 233 (also known as the “Kin Care” law) and various local ordinances may also provide employees with the right to use accrued paid sick leave to care for family members affected by wildfire evacuations or related health issues.
WARN Act Considerations and Business Planning
Natural disasters like wildfires may trigger obligations under Labor Code Sections 1400-1408. This law, known as the WARN Act, typically requiring a 60 days’ notice before a mass layoff or closure. While Courts and the California Labor Commissioner have generally interpreted the Act’s “physical calamity” exception to include natural disasters like wildfires, employers should note that this exception is narrowly interpreted and excludes foreseeable business circumstances and economic downturns even if caused by disaster. At the start of the COVID-19 pandemic, the DIR issued Guidance providing insight on the “physical calamity” exception.
Given these issues, employers should review their employment and insurance policies, as well as their disaster preparedness plans, to ensure compliance with all applicable regulations and to minimize potential liability during these challenging circumstances.
[1] PM2.5, or particulate matter 2.5, is a term for tiny particles in the air that are 2.5 micrometers or less in diameter.
[2] Air quality can be tracked through websites like the U.S. EPA’s AirNow or local air quality management district websites. Employers can also use their own instruments to measure PM2.5 at worksites per Cal/OSHA’s requirements.
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Department of Labor Proposes Rule on Valuing Stock for ESOP Stock Purchase and Sale Transactions
On January 16, 2025, the Employee Benefits Security Administration (EBSA) at the Department of Labor (DOL) released drafts of long-awaited proposed regulations seeking to clarify the definition of “adequate consideration” as set forth in Section 3(18)(B) of ERISA and a proposed class exemption from certain prohibited transaction restrictions in connection with an employee stock ownership plan’s (ESOP) initial acquisition of privately held employer stock from a selling shareholder.
The ESOP community has sought clear guidance on what the term “adequate consideration” means ever since ERISA’s inception 50 years ago. Although EBSA first proposed “adequate consideration” regulations in 1988, the DOL never finalized these rules. Without such guidance, the ESOP community has expressed concerns that plan sponsors, selling shareholders and ERISA fiduciaries could be left exposed to allegations that the ESOP overpaid for shares at the time of the initial transaction through investigations and civil lawsuits brought later with the benefit of hindsight.
The proposed regulations are in response to the latest Congressional mandate in Section 346(c)(4) of the SECURE 2.0 Act of 2022 for the Secretary of Labor, in consultation with the Department of Treasury, to “issue formal guidance, for . . . acceptable standards and procedures to establish good faith fair market value for shares of a business to be acquired by an employee stock ownership plan.” The proposed regulations are scheduled to be published on January 22, 2025, and if so published would trigger a comment period ending April 7, 2025. However, with a new administration starting January 20th, it is possible that the publication of the proposed regulations may be delayed.
Jenny Cascone Mosh, David Pardys, Sean Power, David A. Surbeck, Rafael Ramos Aguirre, and Nichole M. Smith also contributed to this article.
PBGC Technical Update on Accelerated Premium Filing Due Dates for 2025
As described in further detail below, absent Congressional action, plan sponsors should take note that PBGC premium filings will generally be due one month earlier than usual for plan years beginning in 2025. This modification only applies for 2025.
Under ERISA Section 4007, the PBGC determines when premium filings—the submission of required data and payment of any required premiums for PBGC-insured plans—are due. Accordingly, PBGC Regulation Section 4007.11 provides that, in most cases, the premium filings for a plan year are due the “fifteenth day of the tenth calendar month that begins on or after the first day of the premium payment year.”
However, Section 502 of the Bipartisan Budget Act of 2015 (“BBA of 2015”) provides that, notwithstanding ERISA Section 4007 and the corresponding PBGC regulation, for plan years beginning in 2025 only, premium due dates are accelerated by one month to the “fifteenth day of the ninth calendar month that begins on or after the first day of the premium payment year.”
Technical Update Number 25-1 released by the PBGC on January 6th provides further information on the timing of premium payments under the BBA of 2015 for plan years beginning in 2025, including clarification that this accelerated nine-month timeline applies to all premium due date rules in 2025 (including the special due date rules under the PBGC regulation for new plans and short plan years). The Technical Update also indicates that information regarding these special filing due dates for 2025 will be incorporated into the PBGC’s forthcoming 2025 Comprehensive Premium Filing Instructions.
It is important to note, however, that this special acceleration period for 2025 does not supersede PBGC’s disaster relief policy—which, for plans affected by a disaster, generally extends premium filing due dates to correspond with any disaster-related extensions of Form 5500 due dates by the IRS—nor does it supersede any of the PBGC’s general filing rules for due dates that fall on weekends or Federal Holidays.
For illustrative purposes, a calendar year plan beginning January 1, 2024, had a premium filing due date of October 15, 2024, under ERISA Section 4007 and the corresponding PBGC regulation. However, pursuant to the special acceleration provision under the BBA of 2015, for 2025, the same plan will instead have an accelerated premium filing due date of September 15, 2025. The Technical Update includes a full chart for plan years beginning in 2025, which is reproduced below.
Date Plan Year Begins
Due Date
1/1/2025
9/15/2025
1/2/2025 – 2/1/2025
10/15/2025
2/2/2025 – 3/1/2025
11/17/2025*
3/2/2025 – 4/1/2025
12/15/2025
4/2/2025 – 5/1/2025
1/15/2026
5/2/2025 – 6/1/2025
2/16/2026*
6/2/2025 – 7/1/2025
3/16/2026*
7/2/2025 – 8/1/2025
4/15/2026
8/2/2025 – 9/1/2025
5/15/2026
9/2/2025 – 10/1/2025
6/15/2026
10/2/2025 – 11/1/2025
7/15/2026
11/2/2025 – 12/1/2025
8/17/2026
12/2/2025 – 12/31/2025
9/15/2026
* The 15th day of the ninth month on or after the first day of the plan year falls on a weekend or federal holiday.
Finally, Technical Update Number 25-1 comes with a warning: because of anticipated increased costs and burdens on plan sponsors, a repeal of Section 502 of the BBA of 2015 has been on the legislative agenda for the past eight years. So, a mid-year repeal of the accelerated premium filing schedule by Congress is possible. The PBGC pledges to “revise the premium filing instructions and notify practitioners as quickly as possible” if such a repeal occurs.
Alex Scharr also contributed to this article.