The DEI Dilemma: New EEOC Guidance on DEI Initiatives
On March 20, 2025, the Equal Employment Opportunity Commission (“EEOC”) issued two key pieces of guidance: What To Do If You Experience Discrimination Related to DEI at Work and What You Should Know About DEI-Related Discrimination at Work. This guidance provides insights into the issues the EEOC will be monitoring regarding employers’ Diversity, Equity, and Inclusion (“DEI”) policies.
What Are Considered “DEI Policies”?
DEI consists of programs and policies that seek to promote the fair treatment and full participation in the workplace. Traditionally thought of as a remedial measure, DEI policies have focused on balancing the workplace by establishing organizational frameworks and initiatives, such as putting a spotlight on hiring and retaining members of particular groups who may have historically been underrepresented or subject to discrimination, including women, racial and religious minorities, and persons with disabilities.
Identifying Potential DEI Discrimination
Title VII of the Civil Rights Act of 1964 (“Title VII”), a statute enforced by the EEOC, prohibits employment discrimination based on protected characteristics such as race and sex. Different treatment based upon any characteristic protected by Title VII can be unlawful discrimination, no matter which employees are harmed; Title VII’s protections apply equally to all religious, racial, ethnic, and national origin groups, and regardless of sex. The EEOC’s position is that “there is no such thing as ‘reverse’ discrimination; there is only discrimination.” As noted by the guidance, “DEI policies, programs, or practices may be unlawful if they involve an employer or other covered entity taking an employment action motivated, in whole or in part, by an applicant’s or employee’s race, sex, or another protected characteristic.”
The EEOC’s guidance cautions that DEI initiatives could violate Title VII if they result in disparate treatment in the terms, conditions, or privileges of employment—including intangible terms such as exclusion from mentoring or sponsorship programs or workplace networking events, exclusion from training or fellowships, and selection preferences for interviews. Prohibited DEI conduct includes actions that may limit, segregate, or classify individuals based on a protected characteristic; examples provided in the guidance include limiting membership in workplace groups (such as affinity groups) to certain protected groups, and separating employees into groups based on a protected characteristic when administering DEI or other trainings—even if the separate groups receive the same programming content. Even if affinity groups or programs aren’t created or maintained by the employer, making company time, facilities, or premises available, and other forms of official or unofficial encouragement or participation may be seen by the EEOC as the employer “sponsoring” those activities, thus making the company liable for any prohibited exclusion by those groups.
According to the EEOC, “[d]epending on the facts, DEI training may give rise to a colorable hostile work environment claim.” If an individual is subjected to unwelcome remarks or conduct based upon race, sex, or other protected characteristics and it either (i) results in an adverse change to a term, condition, or privilege of their employment, or (ii) it is so frequent or severe that a reasonable person would consider it intimidating, hostile, or abusive, those circumstances may constitute a Title VII violation. Further, an employee’s “[r]easonable opposition to DEI training may constitute protected activity if the employee provides a fact-specific basis for his or her belief that the training violates Title VII.”
Potential Risks
Employees and applicants who have been subjected to unlawful discrimination or retaliation under Title VII are entitled to recover back- and front-pay damages, compensatory damages up to between $50,000 and $300,000 (depending upon the employer’s size), punitive damages, and attorneys’ fees. In cases involving intentional age discrimination, or in cases involving intentional sex-based wage discrimination under the Equal Pay Act, individuals cannot recover compensatory or punitive damages but can recover liquidated damages if the discrimination is found to be especially malicious or reckless.
An individual alleging discrimination based on an employer’s generally applicable policy also has a basis to join with others who have been negatively affected by that policy, creating a significant risk an employer may face a collective action with a nationwide class of employees.
Practical Advice for Employers
To avoid potential issues under Title VII (and potentially applicable state laws), employers should take the following action:
Review workplace policies, employee handbook, and training materials to ensure they comply with the EEOC’s recent guidance. Consider whether the EEOC would view them as violative of Title VII, such as by indicating a preference for particular races or sex. Ensure that any employee affinity groups are open to all employees. A “Working Mothers” group or “Minority Mentorship” program that is not open to everyone, for example, may violate Title VII in the EEOC’s view.
Provide training to all employees. Ensure your managers and employees are aware of Title VII’s protections against harassment, discrimination, and retaliation. Ensure that such training is inclusive and respectful of all employees, and includes discussion of how employees can report suspected violations.
If in doubt, contact legal counsel. The law and agency guidance around DEI and equal employment policies can be complicated, and the legal landscape—both at the federal and local levels—shifts frequently. Experienced employment counsel can help clients navigate these issues, ensuring the company and employees’ and applicants’ rights are protected.
Supreme Court Declines Review of “Relational Analysis” for Determining Administrative Exemption
On March 10, 2025, the U.S. Supreme Court denied a request by F.W. Webb (“Webb”), a nationwide wholesale plumbing and HVAC supply company, to review a First Circuit decision upholding a ruling that Webb’s Inside Sales Representatives (“ISRs”) were not exempt “administrative” employees under the Fair Labor Standards Act (“FLSA”), and thus were entitled to overtime compensation.
Under the administrative exemption, employees are exempt from FLSA overtime requirements if: (1) they are compensated on a salary basis; (2) their primary duty is “the performance of office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers;” and (3) their primary duty includes “the exercise of discretion and independent judgment with respect to matters of significance.” Only the second element—whether the ISRs’ primary duty was “directly related to the management or general business operations” of Webb—was at issue in the case of the ISRs.
In its decision, the First Circuit affirmed the lower court’s reliance on a “relational analysis,” which the First Circuit first adopted in 2023 and which focuses on an employer’s business purpose, rather than the nature of the employees’ jobs, to determine if the employees are exempt. Put differently, as stated in Webb’s petition, the relational analysis “examines whether an employee’s primary duties are focused on carrying out the business’s principal production activity or on other ancillary matters related to the business’s overall operations and management.” If it is the former, then the employee is less likely to be exempt.
Relying solely upon the relational analysis, the First Circuit determined that Webb’s ISRs’ primary duty is “to help sell Webb’s products” and that this duty is “directly related to Webb’s business purpose of making wholesale sales of its products.” Consequently, the First Circuit held that the ISRs were not exempt under the FLSA’s administrative exemption.
Webb challenged the First Circuit’s decision on grounds that it improperly made “the business purpose of the employer . . . dispositive to the second element of the FLSA’s administrative exemption.” In other words, according to Webb, the First Circuit erred in using the relational analysis to make its determination because the relational analysis focused only on Webb’s business purpose (i.e., to sell products) and excluded consideration of the ISRs’ other job duties, which extend beyond making sales.
According to Webb’s petition for review, ISRs, in addition to making routine sales, provide consultation to customers regarding which plumbing and HVAC systems would best enable Webb’s customers to meet their own customer needs. ISRs also advise Webb’s managers and sales teams “on technical questions” and help “keep tabs on” and “develop strategies to beat” Webb’s competitors. Additionally, ISRs provide “concierge” services to help Webb’s customers after the sale “by tracking inventory, monitoring shipping, interacting with third-party manufacturers, and addressing customer concerns and complaints.”
Webb also argued that the First Circuit’s reliance on the relational analysis ran afoul of the FLSA and its regulations because, according to Webb, no statutory or regulatory basis exists for relying solely on an examination of the employer’s business purpose, rather than the inherent nature of the employee’s duties, to determine whether an employee satisfies the administrative exemption.
In its Petition, Webb noted that the First Circuit’s use of the relational analysis as determinative of the second element of the administrative exemption conflicted with decisions from the Ninth and Fourth Circuits. Webb also noted that the Second and Seventh Circuits take a similar approach to the First Circuit’s approach, thus creating a significant split among the federal Courts of Appeals.
The Supreme Court declined to hear the case, but it did not explain why.
The First Circuit’s decision in Webb, and the Supreme Court’s denial of review, mean that employers who operate in the First Circuit (and potentially the Second and Seventh Circuits, which use the same approach) should be mindful of employees they currently classify as exempt administrative employees. In these Circuits, if the employees’ primary duty “directly relates to the business purpose of the employer,” such as making sales for a wholesaler, courts may not look beyond this to other duties the employee may have that relate to the running or servicing of the business to determine whether the employee is exempt. Employers thus may want to review their administrative exempt employees’ job duties to determine whether those duties relate to the employer’s business purpose, as opposed to managing or servicing the business. Such a review is necessarily fact-intensive and employers should consult outside counsel to determine the potential applicability of any exemption under the FLSA.
Selling a Business: A Practical Guide for a Successful Transaction
This guide is designed to help business owners and executives navigate the process of selling a business. It provides an overview of the sale process and practical tips for achieving the best possible outcome and addresses common challenges encountered during deals.
For many sellers, a transaction will involve unfamiliar procedures and terms where a lawyer can provide valuable guidance. The better the key concepts are understood, the better equipped one will be to make informed decisions and achieve a favorable result.
Sale Process
The timeline for the deal will likely include the following steps:
Selecting a business broker who is right for the business.
The buyer presents a proposal letter or letter of intent.
The buyer prepares an Asset Purchase Agreement (APA) for the parties to negotiate.
The seller’s board of directors and shareholders approve the APA.
Both the buyer and seller sign the APA at or before closing.
Additional steps, such as obtaining real estate title insurance, finishing due diligence, and preparing closing documents.
At closing, the buyer pays the purchase price, and the seller transfers the business.
Letter of Intent
The selected buyer will produce a written proposal letter or letter of intent naming the price, transaction structure, and key terms. It should be written to state that it is nonbinding, meaning that everything remains subject to negotiating and signing a more detailed, definitive purchase agreement. The letter of intent will often include a binding agreement to negotiate exclusively with the buyer for a period of time.
Due Diligence
The buyer will often do a thorough business review including financial statements, contracts, employee compensation and benefits, real estate, and other key aspects. Though the process can be time-consuming, it is typically better to provide the requested information rather than contest its necessity.
Review of Governing Documents
Early in the process, the selling corporation should review its articles of incorporation, bylaws, and any shareholder (buy-sell) agreements. The seller should identify anything that could affect the transaction, such as rights of first refusals or super-majority vote requirements. An attorney can help with this.
Structure – Sale of Assets
Most business sales are structured as asset purchases. In this structure, the selling corporation transfers its assets to a buyer-controlled entity. The buyer can form a new corporation to purchase the assets or use an existing entity. The seller keeps its corporate entity and dissolves it after the closing. Buyers do this to avoid any known or unknown liabilities the corporation may have.
Transferred assets include owned real estate, equipment, furniture, accounts receivable, prepaid assets, the goodwill of the business, the name of the paper, all website addresses, etc. In most cases, cash is retained by the selling corporation.
Some working capital liabilities may also be transferred to the buyer, such as accounts payable. Bank debt and other long-term liabilities are typically not assumed by the buyer. Liabilities not assumed by the buyer are paid off at closing and remain an obligation of the selling corporation.
The other transaction structure is for the buyer to purchase the corporation or LLC.
Purchase Price
Larger companies purchasing smaller companies typically pay all cash. Often 5 to 10 percent of the purchase price may be placed in an escrow account with a bank for an agreed-upon period of time.
The purchase price is for the enterprise value of the business without regard to bank debt and other long-term liabilities. This is frequently referred to as selling the business on a cash-free, debt-free basis. The seller will need to pay off any bank debt or other long-term liabilities out of the purchase price. Additional liabilities may include deferred compensation payments and any severance obligations.
The purchase price often includes a “net working capital adjustment” as well. Net working capital is current assets (excluding cash) minus current liabilities. Net working capital varies daily as revenues are received, expenses are paid, and liabilities and prepaid assets are accrued.
When a business is sold, the buyer and seller will usually agree on a “net working capital target.” The target is intended to be a normal amount of working capital that should be there as of the closing. If the actual net working capital at the time of closing exceeds or is less than the target amount, then the purchase price is increased or reduced dollar for dollar.
The seller will want to be careful about selecting the net working capital target because any shortfall at closing will reduce the purchase price. Different types of businesses have different working capital profiles. So, it is important to make sure the working capital definition and target fit for the business.
Asset Purchase Agreement
The buyer will prepare a detailed APA listing of the assets being purchased and the purchase price.
The APA will include several representations and warranties from the seller such as:
The selling corporation will have all director and shareholder approvals needed to sell the business.
The assets being sold will be free and clear of all liens when the transaction closes.
The seller’s financial statements are accurate.
There are no material liabilities that have not been disclosed to the buyer.
The list of employees and their compensation is accurate.
If the representations are not true at the time of the closing, the buyer is not required to complete the transaction.
If the buyer discovers a representation is not true after closing, the buyer may have a claim against the seller. For example, if the seller represents that the equipment is free and clear of liens, and it turns out there is a lien, the seller would be responsible for paying off the lien. The purchase agreement will include limits and procedures related to how and when the buyer can make a claim against the seller.
The seller can protect themselves by including disclosure schedules within the APA documenting any problems or facts contrary to the representations. If disclosed before the closing, the buyer cannot make a claim after the closing. This is where the due diligence review benefits both the buyer and the seller.
The APA will include a list of covenants or promises. The seller will promise to operate its business in the ordinary course between signing and closing. The seller will also agree to negative covenants promising not to do certain major actions between signing and closing, such as entering into a new contract or making a large dividend.
Board of Directors and Shareholder Approval
The board of directors should review and approve the definitive APA before it is signed. If a board decides that a sale of the company is the best decision, the directors have fiduciary duties to make an informed decision in the best interests of the shareholders. Hiring a business broker and soliciting multiple bids for the business is considered the gold standard to get the best possible price from the sale. The directors should carefully review the deal terms and transaction documents. Directors should also include their lawyers in the board meeting and ask to walk through the key terms of the legal agreements. An attorney can help prepare board minutes that document the process followed and the reasons for the transaction.
The APA must also be approved by the corporation’s shareholders (by a majority of the outstanding shares unless there is a super-majority vote requirement). The shareholder meeting takes place either at or before the APA is signed or between the signing and the closing.
In addition to approving the sale of all assets, the shareholders will often vote to dissolve the corporate entity after the closing. During the dissolution process, the corporate entity turns its assets into cash, pays its liabilities, and then distributes the net proceeds to shareholders.
Dissenters Rights
Most states have a corporations statute that includes dissenters’ rights. Early in the process, an attorney should review the corporations statute and advise whether the transaction is exempt from the dissenters’ rights provisions. In most states, dissenters’ rights do not apply when assets are sold for cash, and the proceeds are distributed to shareholders within one year. If dissenters’ rights apply and the transaction is not exempt, a dissenting shareholder has certain rights to go through a process designed to determine the fair value of their shares.
Real Estate
If the seller leases real estate, the lease must also be reviewed. Oftentimes it will be necessary to receive the landlord’s consent before transferring the lease to the buyer. If the seller owns the real estate, then the real estate will be transferred at the closing.
Title insurance will be obtained to confirm that the seller owns the real estate and to identify any mortgages, easements, or other liens or encumbrances on the property. The buyer will expect all mortgages to be paid at closing, so it gets a clean title to the property.
Often the buyer will obtain a survey of the property to show the precise boundaries and the building’s exact location.
The buyer will also typically hire an environmental consulting firm to examine the real estate for any contamination or asbestos. A Phase I assessment involves a tour of the property, a look at the history of the property, and a determination of whether there are any recognized environmental conditions that may require further investigation. If it looks like there may be serious issues, the buyer may proceed to a Phase II assessment which involves taking soil samples and testing them for contamination.
The buyer may also get a building inspection to inspect the structure, HVAC systems, roof, etc.
Net Proceeds to the Seller
The corporation selling the business closes the transaction and receives the cash purchase price. Out of the purchase price, the seller must pay off its bank loans and other long-term debt. It must also pay its transaction expenses, which include the business broker fee, attorney fees, accountant’s fees, real estate title insurance, etc. Any net working capital adjustment will also affect the net proceeds to the shareholders of the selling corporation.
Early in the process, the seller’s Chief Financial Officer and outside accountant should prepare an estimate of what the net proceeds will be after payment of expenses and taxes.
Escrow Account
The buyer will often withhold between 5 and 10 percent of the purchase price. That money will be put in an escrow account for a period of time. If the seller has misrepresented the business to the buyer, the buyer will take money from the escrow account to make itself whole. If the buyer does not have any legitimate claims, the money will be distributed to the seller at an agreed upon date, often 12 to 18 months after the closing.
For sellers, one tactic is to negotiate a staged release of the escrow funds. For example, 50 percent is to be released to the seller six months after the closing, with the remaining 50 percent to be distributed to the seller 12 months after the closing.
Employee Transition to Buyer
In an asset sale, the employees are the seller’s employees before the closing, and the buyer’s after the closing. The buyer will typically do the same new employee intake paperwork that it would do for any new employee. Employees may be required to fill out an employment application, a form I-9 to verify employment eligibility, etc. Employees will enroll in the buyer’s benefit plans. If the seller has a 401(k), then arrangements will be made to terminate that 401(k) or transfer balances to the buyer’s 401(k) or to individual employee IRAs.
A buyer in an asset purchase is not required to hire all the seller’s employees. Sellers should ask buyers about their intentions as part of the negotiation process and consider severance obligations and policies for any employees not hired by the buyer.
The Closing
At closing, the final documents are delivered, the buyer pays the purchase price, and the business is transferred. Often it is a virtual closing that does not require people to be physically present. The lawyers arrange for documents to be signed and delivered. After the documents are signed, the parties and/or their lawyers will join a conference call, agree that everything is completed, and direct the buyer to transfer the purchase price.
After the Sale
After the closing, the selling corporation then enters a wind-down period that may take 3 to 12 months. The corporation must pay all its creditors.
Bumps along the way
Every deal comes with its frustrations, which can include:
The sale process is taking longer than expected.
The buyer’s due diligence review may seem intrusive. Responding to requests is time-consuming, and it may seem like the buyer is requesting the same information repeatedly.
The buyer may be slow to commit to the future role of key members of the seller’s management team.
The seller may become frustrated with the buyer’s focus on environmental or other risks that have never been an issue in the past.
The buyer may seem overly concerned about contracts and vendor relationships that have not caused issues before.
Some buyers have a smooth and well-thought-out transition process with good communication. Others may have poor communication and may seem haphazard and reactive. A buyer may also be distracted by other deals in the process.
Tips for a Successful Transaction
Here are some tips that can help achieve a better result for the company, employees, and shareholders:
Keep the sale process moving. The longer things drag on, the more likely a bad event will happen. Whether external like market trouble, or internal, like losing key employees or advertisers.
Stay focused on operating the business. A deal can be a huge distraction that negatively impacts operations and earnings. Employees may lose focus, and deteriorating earnings during a sale process can be problematic.
Plan ahead for third-party tasks and lead times – for example, environmental assessments, real estate surveys, obtaining consent from landlords, getting shareholder approval, and paying off bank debt or bonds.
Review employment agreements, deferred compensation arrangements, or bonus or profit-sharing plans with a lawyer.
Be careful with capital expenditures. Using working capital to buy equipment could negatively affect net working capital at closing, and consequently the purchase price.
Create complete, detailed, and accurate Disclosure Schedules. Good Disclosure Schedules reduce the risk of post-closing claims from the buyer, helping preserve the net purchase price.
Have a good strategy and process for announcing the deal to employees and customers.
Manage shareholder expectations. Net proceeds will be reduced by debts, taxes, and transaction expenses. Even after the closing, there will be a wind-down period before final distributions are made.
Consider severance pay for employees who are not hired by the buyer. Some companies pay special bonuses to employees in connection with the deal.
Acknowledge that key members of the management team may be conflicted, disappointed, or even outright hostile to the deal. It could mean changes to their title, responsibility, autonomy, compensation, or even their job.
Work with a bank early on regarding payoff arrangements for bank debt. If more complex financing, such as bonds, are in place, a lawyer can help navigate the complexities of this process.
Be mindful of vacation and travel schedules for key individuals involved in the process to plan ahead and avoid delays.
It’s the End of Diversity, Equity and Inclusion (DEI) Programs as We Know It?
As promised in his campaign for the presidency of the United States, on January 21, 2025, President Trump issued Executive Order 14172 “Ending Illegal Discrimination and Restoring Merit-Based Opportunity.” (Emphasis added).
The President’s Executive Order states that illegal diversity, equity and inclusion (“DEI”) policies violate the text and spirit of federal civil-rights laws.
Accordingly, the President ordered all federal agencies to enforce civil rights laws and to “combat illegal private-sector DEI preferences, mandates, policies, programs, and activities.” The President further ordered the Attorney General to submit a report with recommendations for enforcing federal civil rights laws and “taking other appropriate measures to encourage the private sector to end illegal discrimination and preferences, including DEI.”
Additionally, the President revoked Executive Order 11246 of September 24, 1965 (Equal Employment Opportunity). Executive Order 11246 prohibited discrimination and required affirmative action be taken by federal contractors.
There have been several federal court challenges to these Executive Orders. On February 5, 2025, an employer group filed a constitutional challenge to portions of Executive Order 14172. Most recently, on March 6, 2025, the American Civil Liberties Union (ACLU) of Rhode Island filed a lawsuit on behalf of an employer seeking a preliminary injunction regarding the government contractor portions of these Executive Orders. For now, however, these Executive Orders are in place, with challenges pending.
Enforcement of the President’s Executive OrderOn February 5, 2025, Attorney General Pam Bondi issued a memorandum to all Department of Justice employees with the subject heading: “Ending Illegal DEI and DEIA Discrimination and Preferences.”
In the memorandum, the Attorney General wrote “[a]s the United States Supreme Court recently stated, “[e]liminating racial discrimination means eliminating all of it.” Students for Fair Admissions, Inc. v. President & Fellows of Harvard Coll., 600 U.S. 181, 206 (2023). The Attorney General also stated,
“[t]o fulfill the Nation’s promise of equality for all Americans, the Department of Justice’s Civil Rights Division will investigate, eliminate, and penalize illegal DEI and DEIA preferences, mandates, policies, programs, and activities in the private sector and in educational institutions that receive federal funds.”
Notably, the Attorney General’s memorandum includes a footnote that states that it “does not prohibit educational, cultural, or historical observances—such as Black History Month, International Holocaust Remembrance Day, or similar events—that celebrate diversity, recognize historical contributions, and promote awareness without engaging in exclusion or discrimination.”
So, What is “Illegal” DEI? The EEOC Speaks on March 19, 2025Note that all of the above statements include the word “illegal” when referencing the ending of DEI. The fact is that racial- and gender-based preferences in hiring and promotion have been unlawful for decades. However, the EEOC has been tasked with focusing on what they are calling “DEI-related discrimination” and has issued a technical assistance document setting forth explaining how DEI programs can run afoul of Title VII. The guidance states that “unlawful discrimination includes any consideration of race, sex or any other protected characteristic under Title VII.” According to EEOC, “[a]n employment action still is unlawful even if race, sex, or another Title VII protected characteristic was just one factor among other factors contributing to the employer’s decision or action.”
EEOC stated, “Title VII of the Civil Rights Act of 1964 (Title VII) prohibits employment discrimination based on protected characteristics such as race and sex.” Therefore, “under Title VII, DEI initiatives, policies, programs, or practices may be unlawful if they involve an employer or other covered entity taking an employment action motivated—in whole or in part—by an employee’s or applicant’s race, sex, or another protected characteristic.”
Further, “Title VII also prohibits employers from limiting, segregating, or classifying employees or applicants based on race, sex, or other protected characteristics in a way that affects their status or deprives them of employment opportunities. In the context of DEI programs, unlawful segregation can include limiting membership in workplace groups, or other employee affinity groups, to certain protected groups.”
EEOC gave direction to employers by stating employers should instead provide “training and mentoring that provides workers of all backgrounds the opportunity, skill, experience, and information necessary to perform well, and to ascend to upper-level jobs.” Employers also should ensure that “employees of all backgrounds … have equal access to workplace networks.”
Coupled with the prohibition on DEI programs, EEOC also issued guidance on their position involving “reverse” discrimination claims. There is not a requirement of a higher showing of proof in reverse discrimination claims, as there is only discrimination. The EEOC applies the same standard of proof to all race discrimination claims, regardless of the victim’s race.
What Should Employers Do Now?
Recognize that DEI is not in and of itself illegal. With thoughtfulness, employers can still promote an inclusive and supportive workplace with various initiatives and programs without them being labeled by the federal government as problematic. For example, inclusive programs making mentoring available to all employees regardless of protected status can be effective to foster diversity and inclusivity.
Review Programs and Policies. Employers should review their employment practices to determine if there are any initiatives, policies, programs, or practices that could be considered “illegal” DEI pursuant to the EEOC guidance. For example, hiring program elements with preferences or quotas based on protected status should be analyzed to avoid disparate treatment based on protected status. However, key features of most DEI programs have been and continue to be legal. For example, using interview panels to help reduce bias in the interview process; ensuring that hiring criteria is standardized and focuses on skills, and fine-tuning recruitment efforts to attract a larger pool of candidates and varying backgrounds are all acceptable program features. Employee resource groups also continue to be legal, but like before, they cannot exclude membership based on race or gender or other protected class. It is also permissible to focus on ensuring that interview processes accommodate individuals with disabilities.
Act Methodically. Not everything that employers are doing to encourage a diverse, equitable, or inclusive workplace culture will be considered illegal. As the Attorney General noted, there are educational, cultural, or historical observances, or similar events that celebrate diversity, recognize historical contributions, and promote awareness without engaging in exclusion or discrimination. Because “diversity, equity, and inclusion” have become controversial buzzwords, focusing on programs that promote “access” and “opportunity” may be helpful.
Educate Supervisors. Ensure supervisors understand EEOC’s guidance and reaffirm organizational commitments to legal compliance with anti-discrimination laws.
Monitor Developments. Without a doubt, the federal government is transforming very quickly. Judicial involvement in the executive action affects this transformation. Employers should continue monitoring legal developments and remain flexible and nimble to address this changing environment.
Federal Judge Restrains Liability for Alleged False DEI Certifications
President Trump’s January 21 Executive Order targeting Diversity, Equity, and Inclusion Programs (DEI) (the “January 21 Executive Order”) and, specifically, § 3(b)(iv)) (the Certification Provision) cannot be the basis for liability — at least for one proactive litigant in the Northern District of Illinois. The holding could have broader implications for False Claims Act (FCA) defendants concerned about evolving certification requirements.
On January 20 and 21, 2025, President Trump issued two executive orders targeting Diversity, Equity, and Inclusion programs (titled, “Ending Radical and Wasteful Government DEI Programs and Preferencing” and “Ending Illegal Discrimination and Restoring Merit-Based Opportunity,” respectfully). The January 21 Executive Order included a direction to agencies (the “Certification Provision”) to require federal grant recipients to certify they do not “operate any programs promoting DEI that violate any applicable Federal anti-discrimination laws” and to “agree that its compliance in all respects with all applicable Federal anti-discrimination laws is material to the government’s payment decisions for purposes of [the FCA].” Immediately, this provision raised concerns that the Trump Administration may use the Certification Provision to bring FCA cases against grant recipients who do not comply. The threat of FCA litigation is paused for now, at least for Chicago Women in Trades (CWIT).
In February 2025, CWIT sued the Trump administration arguing, among other things, the Certification Provision violates its First Amendment Right to free speech because it “effectively regulates CWIT’s conduct outside of the contours of the federal grants.” (See Chicago Women in Trades v. Trump et al., Case No.1:25-cv-02005, N.D. Ill.)In response, the government argued the Certification Provision only implicates “illegal” DEI programs and no one has a constitutional right to violate the law. On March 27, 2025, U.S. District Court Judge Matthew Kennelly granted CWIT’s motion for a Temporary Restraining Order, preventing the Department of Labor from enforcing the Certification Provision and the Government from “initiat[ing] any False Claims Act enforcement against CWIT pursuant to the Certification Provision.”
In its Order, the court held the Certification Provision’s definition of what is an illegal DEI program is “left entirely to the imagination.” In the court’s view, the government has emphasized that conduct violating anti-discrimination laws has changed, and the government also has been “unwilling to in (in its briefs or at argument) define how it has changed.” This uncertainty put CWIT (and other grantees) in a difficult position — they must either decline to make a certification and lose federal grant money or risk making a certification that is later deemed to be false because the meaning of an illegal DEI program is unknown, subjecting “the grantee to liability under the False Claims Act.”[1]
While the Order restricts the Government specifically with respect to CWIT and the Certification Provision, lawsuits like CWIT’s will force federal courts across the country to determine what the Certification Provision means for FCA litigation going forward.
If you have questions about President Trump’s January 21 Executive Order or the False Claims Act, contact the authors or your Foley relationship lawyer.
[1] The court also said even if the government did define an illegal DEI program, the January 21 executive order still reads as an “express reference to First Amendment-protected speech and advocacy.”
Wyoming Enacts Law to Restrict the Use of Noncompete Agreements
Employers in Wyoming will soon be limited in their use of noncompete agreements under a newly enacted law that makes the state the latest of a growing number of states to restrict noncompete agreements in the employment context.
Quick Hits
Wyoming enacted legislation that will void noncompete agreements with employees with limited exceptions.
Noncompete agreements will remain permissible in certain contexts, such as the sale of a business, the protection of trade secrets, the recovery of employers’ costs to relocate or train employees, and to restrict post-employment activity of executive or managerial personnel and their key staff.
The law also prohibits noncompete clauses in agreements involving physicians and will allow them to inform patients with certain rare disorders of their new practice without facing liability.
The law only applies to contracts entered into on or after July 1, 2025.
On March 19, 2025, Governor Mark Gordon signed Senate File 107 into law, which will significantly limit the enforceability of noncompete covenants in employment contracts. The new legislation, which will take effect on July 1, 2025, applies to contracts entered into on or after that date. Employers that use restrictive covenants will have to rethink how they protect their business interests and manage their workforce.
In enacting the new noncompete prohibitions, Wyoming joins a growing list of states, which includes California, Minnesota, and Oklahoma, to impose significant restrictions or completely ban employee noncompete agreements. Ohio is also considering a bill that would ban noncompete agreements for workers or prospective workers this legislative session.
Here is what employers need to know about the new Wyoming law and its implications.
Employee Noncompete Agreements Are Void
The law declares that as of July 1, 2025, “[a]ny covenant not to compete that restricts the right of any person to receive compensation for performance of skilled or unskilled labor” is void. The law applies prospectively to contracts entered into on or after July 1, 2025, specifically stating that “[n]othing in this act shall be construed to alter, amend or impair any contract or agreement entered into before July 1, 2025.”
Key Exceptions to the Ban
While Senate File 107 broadly invalidates noncompete agreements, the law contains some notable exceptions:
Sale of Business—Under the law, noncompete clauses remain enforceable in contracts related to the purchase and sale of a business or its assets.
Protection of Trade Secrets—The law will permit the use of noncompete agreements or clauses “to the extent the covenant provides for the protection of trade secrets” as they are defined under state law.
Recovery of Training Expenses—The law permits employers to include provisions in employment contracts allowing them to recover relocation, education, and training expenses, with recovery amounts decreasing based on the length of the employee’s service. (Up to 100 percent for service less than two years, up to 66 percent for between two and less than three years, and up to 33 percent for between three and less than four years.)
Executive and Management Personnel—The law exempts the noncompete ban for agreements involving “[e]xecutive and management personnel and officers and employees who constitute professional staff to executive and management personnel.”
Although not defined, the “executive and managerial personnel” restriction substantially mirrors a prior version of Colorado’s noncompete statute. Cases interpreting the Colorado statute recognized that the issue would typically be a question of fact. However, courts routinely recognized that restrictive covenants could be applied to both key personnel who are “in charge” and individuals who conduct or supervise a business, often including various levels of management.
Special Considerations for Physicians
Senate File 107 specifically declares void “[a]ny covenant not to compete provision of an employment, partnership or corporate agreement between physicians that restricts the right of a physician to practice medicine … upon termination of the physician’s employment, partnership or corporate affiliation.” The law will further allow physicians, upon termination of their employment, the partnership, or corporate affiliation, to inform patients with certain “rare disorders[s]” about their new practice and provide their contact information without facing liability.
Next Steps
Wyoming’s new noncompete law marks a significant shift in the state, reflecting a broader national trend. That trend could continue, particularly after a 2024 Federal Trade Commission (FTC) rule that sought to ban nearly all noncompete agreements in employment was struck down in court. The government had appealed but the Trump administration has halted those appeals while it considers the FTC’s rule.
In light of the changes, employers in Wyoming may want to consider reviewing and revising any new employment contracts and evaluating alternative strategies for protecting their business interests. Employers using noncompete agreements may want to consider whether those provisions are being applied in one of the specifically enumerated exceptions. Employers may also want to ensure that noncompete agreements that fall into one of the permissible categories have reasonable geographic and temporal limitations. Wyoming courts will not blue pencil or revise noncompliant restrictive covenants, and instead, noncompliant restrictive covenants will be voided.
A Breath of Fresh Air for Employers Managing Extended Medical Leaves
When an employee’s on-the-job injury affects their ability to perform essential job functions, federal and state law require, among other things, that an employer engage in an “interactive process” to explore potential reasonable accommodations that would allow the employee to perform those essential job functions, absent an undue hardship. Medical leave can be an effective accommodation for employees if it enables them to recover and return to work and perform those essential job functions. However, this form of accommodation often poses significant challenges for employers due to the absence of any bright-line test as to when that leave no longer becomes reasonable or becomes an undue hardship.
A recent unpublished decision by the California Court of Appeal in George Manos v. J. Paul Getty Trust provides employers with a bit more clarity as to what is – and is not – required when it comes to extended medical leaves that are provided as an accommodation.
What Exactly Happened in This Case?
George Manos was an HVAC technician at the Getty who required significant time off work following a leg fracture he sustained at work. Over the span of approximately one year, he utilized 12 weeks of protected leave and then requested extensions of his leave on several occasions, which the employer granted. Notably, with each extension request, Manos’s doctor requested “indefinite” leave but provided a return-to-work date. When Manos had been out for 10 months and made his fourth leave request, he and his doctor were asked to complete a questionnaire addressing, among other things, his ability to return to work and perform the physical tasks required of the HVAC technician role. Manos’s response listed that the end date for his leave was “unknown,” and the doctor noted that the condition was temporary and the period of impairment was 12 to 18 months. Based on these responses, the Getty considered the employee’s accommodation request to be a request for indefinite leave and made the decision to terminate.
Manos filed suit eight months after being terminated, claiming the Getty failed to engage in the interactive process and failed to accommodate his disability (among other claims). According to the Getty, not only did Manos remain unable to work, but there was no other job that he could have performed, considering his substantial restrictions. The trial court granted summary judgment in favor of the Getty, and on appeal, a three-judge panel of the Court of Appeal unanimously affirmed. Specifically, the court agreed that the Getty had adequately engaged in the interactive process, citing undisputed evidence that they did accommodate the employee through several leave extensions and made reasonable efforts to explore potential accommodations to return (through the questionnaire).
Takeaways for California Employers
While employers will continue to live without any bright-line test for determining when a leave reaches the stage of “indefinite,” this decision provides several important takeaways for employers dealing with accommodation requests implicating leaves of absence:
Granting an extended (but finite) medical leave remains a potential reasonable accommodation that generally must be considered and provided, absent undue hardship.
Medical questionnaires may be a helpful tool to utilize during such a leave. They may serve several purposes, including demonstrating an employer’s good-faith engagement in the interactive process, providing often-needed clarification on the actual meaning behind the return-to-work date on a one-page doctor’s note, and helping confirm whether other effective accommodations (besides leave) may be available.
Reorganize EPA? A Very Old Idea
Recent press reports tell of rumors of impactful (some fear catastrophic) budget cuts to the U.S. Environmental Protection Agency (EPA). Politically, priority on reducing EPA’s climate programs, along with budget and personnel cuts, are not surprising given the election results. Recent rumors include chatter that the EPA Office of Research and Development (ORD) might be eliminated and/or its staff redistributed, with a specific target on the back of ORD’s Integrated Risk Information System (IRIS).
In recent years, the IRIS program has skirted controversy particularly aimed at its underlying assessment methods and assumptions used in its reports about chemical exposures. In theory the program is an attempt to have a single hazard assessment act as a platform of sorts, for the individual media program offices across EPA (air, water, waste, and toxics) to then present an integrated approach to chemical risks. This singular assessment would then facilitate a cross-media, integrated approach that is easier to implement. Like so many ideas that are good on paper, fulfilling this goal has proven difficult over time (see the tortured history of the IRIS formaldehyde assessment).
Other forums have and will continue to discuss EPA science and assessment methods, both important issues for understanding and achieving EPA’s objectives. Yet what is also interesting is the long-standing, and much less noticed, discussion of EPA’s organizational structure and the ideas for changing the structure first created over five decades ago.
For the record, EPA was created by then-President Nixon in 1970. He had signed Reorganization Plan No. 3, calling for the establishment of EPA in July 1970. After conducting hearings that summer, the House and Senate approved the proposal. The Agency’s first Administrator, William Ruckelshaus, took the oath of office on December 2, 1970. Two days later, President Nixon issued EPA Order 1110.2 — Initial Organization of the EPA.
The original “organization” of EPA was a mix of existing programs, agencies, and departments — dispersed elements of the government working on environmental issues. A November 29, 1990, press release from EPA describes “EPA’s genesis” as “an executive order dealing with a pastiche of 15 programs from 5 agencies involving 5,800 employees and a $1.4 billion budget.
The organization of EPA, and how that organization impacts its effectiveness, has been an issue since its founding. From its earliest days, there have been proposals for making EPA a cabinet-level Department. During the H.W. Bush Administration, to knit together the programs and statures more coherently, the EPA policy office developed a comprehensive draft of possible ways to reorganize the underlying environmental legislation and a parallel EPA structure.
In August of 2006, the EPA Office of Inspector General (OIG) issued a report titled “Studies Addressing EPA’s Organizational Structure.” The objective of the report is to summarize 13 studies’ pertinent findings in a single, “informational document that provides perspectives on what has been problematic and what EPA may need to change regarding its organizational structure.” The OIG review includes research studies, articles, publications, and reports that address the EPA’s organizational structure and provide suggestions to improve performance. The report’s evaluation focuses especially on cross-media management, regional offices, “reliable information,” and “reliable science.”
Most recently, and perhaps most important given the current Administration’s efforts at government reform, the subject of “reorganizing” EPA is included as a chapter in the Project 2025 report. That chapter has led to fears from many that budget and personnel cuts are part of a larger plan to upend the Agency.
Recent press reports (like The Washington Post’s March 27, 2025, article, “Internal White House document details layoff plans across U.S. agencies”) indicate that the “plan” for EPA is to cut 10 percent of its workforce — which would seem less than some aggregated possibilities discussed in the Project 2025 chapter but could still include “firing up to 1,115 people” from ORD alone. Project 2025 suggests large cuts to regional offices, the elimination of the afore-mentioned IRIS program, a “reorganization” of the enforcement office and environmental justice programs, and other changes which would seem to add up to less than a 10 percent cut to the workforce. Attrition rates alone are estimated to be an average of 6 percent, and early retirements accelerated by, among other things, the fear of possible cuts, would likely add up to 10 percent or more.
Does this spell out some kind of preferential treatment for EPA? Unlikely, given the overall rhetoric of this Administration’s efforts. It may be that the larger target savings at EPA are the significant sums included for climate protection grant programs appropriated during the Biden Administration. Or it may be that the workforce cuts at EPA as a percentage contribute less to some unknown target of reducing the overall government payroll. While a 10 percent cut would result in a large impact on EPA capabilities, it is less than other programs eliminated altogether, or the announced 20 percent cut in staff at the Department of Health and Human Services (HHS) or 50 percent cut at the Department of Housing and Urban Development (HUD).
But the goal of reforming, reorganizing, or reducing the workforce is neither a new idea nor one lacking merit. EPA’s organizational structure has been under review since its inception. In the present moment, however, the lack of a cohesive or consistent approach leaves significant questions not only about the underlying motivation but also about the final impact of the effort. “Less bureaucracy” does not necessarily equate to reduced numbers of staff. And as some government functions will now contend with seemingly disorganized staff reductions, public resentment about “the bureaucracy” may only increase. Something to think about as we wait (and hope) to get our social security check or passport – or pesticide registration – on time
EEOC/DOJ Joint DEI Guidance, EEOC Letters to Law Firms, OFCCP Retroactive DEI Enforcement [Video] [Podcast]
This week, we highlight new guidance from the Equal Employment Opportunity Commission (EEOC) and Department of Justice (DOJ) on diversity, equity, and inclusion (DEI)-related discrimination.
We also examine the Acting EEOC Chair’s letters to 20 law firms regarding their DEI practices, as well as the Office of Federal Contract Compliance Programs (OFCCP) Director’s orders to retroactively investigate affirmative action plans.
EEOC and DOJ Warn DEI Policies Could Violate Title VII
The EEOC and the DOJ jointly released guidance on discrimination in DEI policies at work, warning that these policies could violate Title VII of the Civil Rights Act of 1964. Although the guidance does not define DEI, it provides clarity on the EEOC’s focus moving forward.
Acting EEOC Chair Targets Law Firms
Acting Chair Andrea Lucas sent letters to 20 law firms warning that their employment policies intended to boost DEI may be illegal.
OFCCP Plans Retroactive DEI Enforcement
A leaked internal email obtained by The Wall Street Journal reveals that newly appointed OFCCP Director Catherine Eschbach has ordered a review of affirmative action plans submitted by federal contractors during the prior administration. These reviews will be used to help determine whether a federal contractor should be investigated for discriminatory DEI practices.
Judge Blocks DHS Secretary Noem’s Termination of Venezuelan TPS
Recission of Temporary Protected Status (TPS) for approximately 350,000 Venezuelans has been halted temporarily. U.S. District Court Judge Edward Chen’s Order applies to Venezuelans who registered for TPS under the Oct. 3, 2023, designation of Venezuela for TPS. National TPS Alliance, et al. v. Noem, et al., No. 25-cv-01766 (N.D. Cal. Mar. 31, 2025).
Before the issuance of the Order, these individuals faced the loss of their TPS-based work authorizations on April 2 and the expiration of TPS itself on April 7. They will now remain in TPS and authorized to work for the duration of the court order.
The Order gives DHS one week to file notice of appeal and the plaintiffs one week to file a motion to postpone Secretary Kristi Noem’s decision to rescind Haiti’s TPS designation, currently set to expire Aug. 3, 2025.
Judge Chen found Secretary Noem’s recission of Venezuela’s TPS designation a violation of the Administrative Procedure Act (APA) and the Equal Protection Clause of the 14th Amendment.
Judge Chen wrote that Secretary Noem’s recission of Venezuela’s TPS designation “threatens to: inflict irreparable harm on hundreds of thousands of persons whose lives, families, and livelihoods will be severely disrupted, cost the United States billions in economic activity, and injure public health and safety in communities throughout the United States.”
He stated that DHS had failed to identify any “real countervailing harm in continuing TPS for Venezuelan beneficiaries” and that plaintiffs will likely succeed in showing that Secretary Noem’s decision is “unauthorized by law, arbitrary and capricious, and motivated by unconstitutional animus.”
The Order does not address Secretary Noem’s Mar. 25, 2025, announcement that humanitarian parole, and related work authorizations, for citizens of Cuba, Haiti, Nicaragua, and Venezuela (also known as the CHNV program) will expire on April 24, 2025, or the expiration date of individuals’ humanitarian parole, whichever occurs first.
Navigating the Termination of CHNV Parole Programs: Insights on I-9 Reverification and INA Compliance for Employers
On March 25, 2025, the Department of Homeland Security (DHS) announced the termination of the parole processes for citizens or nationals of Cuba, Haiti, Nicaragua, and Venezuela (CHNV parole programs). This decision will affect employers who must navigate the employment eligibility of affected individuals while ensuring compliance with anti-discrimination provisions outlined in the Immigration and Nationality Act (INA). The termination of these programs means that any parole status and employment authorization derived through CHNV parole programs will end by April 24, 2025. Employers must take steps to manage the reverification of affected employees’ employment eligibility without engaging in discriminatory practices.
Understanding the Challenges
As part of the CHNV parole programs, employment authorization documents (EADs) issued to beneficiaries bear the category code (C)(11). However, this code is not exclusive to CHNV beneficiaries, making identification difficult. Additionally, some CHNV beneficiaries may have updated their Forms I-9 with EADs that have validity dates extending beyond April 24, 2025. Employers who wish to ensure compliance face a complex challenge: how to identify affected employees for reverification without inadvertently violating the INA’s anti-discrimination provisions.
Employers who complete and retain paper I-9 forms, do not keep copies of identity and employment authorization documents, and do not participate in E-Verify may find the process particularly challenging. Sorting and extracting Forms I-9 based on “Foreign Passport and Country of Issuance” in Section 1, or by identifying Forms I-9 listing EADs in Section 2, may result in List A displaying overly broad findings, as these methods may capture individuals who are not CHNV beneficiaries and who hold valid employment eligibility.
Legal Compliance Considerations
The INA’s anti-discrimination provisions, particularly 8 USC § 1324b(a)(1)(A) and (a)(6), prohibit employers from treating employees differently based on citizenship, immigration status, or national origin. Employers are also prohibited from requesting additional or different documentation from employees based on these factors. The Department of Justice’s Immigrant and Employee Rights (IER) Section, formerly the Office of Special Counsel (OSC), has emphasized that employers should avoid making employment decisions—including reverification processes—based on an employee’s citizenship, immigration status, or national origin.
In the meantime, employers should consider:
Maintaining thorough records of the reverification process to demonstrate compliance with federal requirements and anti-discrimination provisions.
Conducting internal audits to ensure that no employees are treated differently based on citizenship, immigration status, or national origin during the reverification process.
Providing training to HR personnel and compliance teams on how to handle reverification without violating INA provisions, emphasizing the importance of treating all employees consistently and fairly.
Tracking the expiration dates of employees whose employment eligibility needs to be reverified.
Notifying affected employees of their upcoming need to provide updated documentation, regardless of their citizenship or immigration status. Do not request specific documents or additional information beyond what is required.
Key Takeaways
This issue represents new territory which has not been thoroughly analyzed or reviewed to date by authorities. IER technical guidance may be forthcoming on what U.S. employers should do if a particular classification of employment eligibility is suddenly terminated by the government, but some beneficiaries in that classification have updated their Forms I-9 with employment authorization validity dates that go beyond the termination date (April 24, 2025).
Fifth Circuit Court of Appeals Negates Ruling on Federal Contractor Minimum Wage
On March 28, 2025, the Fifth Circuit Court of Appeals vacated its previous ruling that permitted a $15 per hour minimum wage for federal contractors, shortly after President Donald Trump revoked the Biden administration rule setting that wage rate.
Quick Hits
The Fifth Circuit vacated its decision to uphold a $15 per hour minimum wage for federal contractors.
The court acted shortly after President Trump rescinded a Biden administration rule raising the minimum wage for federal contractors to $15 per hour.
An Obama-era rule establishing a $13.30 per hour minimum wage for federal contractors still stands.
On the website for the U.S. Department of Labor, the agency said it is “no longer enforcing” the final rule that raised the minimum wage for federal contractors to $15 per hour with an annual increase depending on inflation.
As of January 1, 2025, the minimum wage for federal contractors was $17.75 per hour, but that rate is no longer in effect. Therefore, an Obama-era executive order setting the minimum wage for federal contractors at $13.30 per hour now remains in force.
Some federal contracts may be covered by prevailing wage laws, such as the Davis-Bacon Act or the McNamara-O’Hara Service Contract Act. Those prevailing wage laws are still applicable.
Many states have their own minimum wage, and those vary widely.
Background on the Case
In February 2022, Louisiana, Mississippi, and Texas sued the federal government to challenge the Biden-era Executive Order 14026, which directed federal agencies to pay federal contractors a minimum wage of $15 per hour. The states argued the executive order violated the Administrative Procedure Act (APA) and the Federal Property and Administrative Services Act of 1949 (FPASA) because it exceeded the president’s statutory authority. The states also claimed the executive order represented an “unconstitutional exercise of Congress’s spending power.”
On February 4, 2025, the Fifth Circuit Court of Appeals upheld the $15 per hour minimum wage for federal contractors. A three-judge panel ruled that this minimum wage rule was permissible under federal law.
On March 14, 2025, President Trump rescinded the Biden-era executive order that established a $15 per hour minimum wage for federal contractors. In effect, that made the earlier court ruling moot, according to the Fifth Circuit.
Next Steps
Going forward, the Obama-era $13.30 minimum wage rate for federal contractors still stands. Federal contractors operating in multiple states may wish to review their policies and practices to ensure they comply with state minimum wage laws and federal prevailing wage laws. If they use a third-party payroll administrator, they may wish to communicate with the administrator to confirm legal compliance.