One Big Beautiful Bill Passed by the House
On Thursday May 22, the House of Representatives passed the One Big Beautiful Bill Act (H.R. 1, hereafter the “Bill”). The Bill will now be considered by the U.S. Senate.
The following is a summary of some of the key provisions that have been changed from the version that passed the House Ways and Means Committee:
The SALT Deduction Cap Has Been Raised. The Bill raises the SALT cap from $10,000 to $40,000 starting in 2025. The previous version of the Bill would have raised the SALT cap to $30,000. The deduction would be phased out for taxpayers with modified adjusted gross income of over $250,000 for single taxpayers and $500,000 for married taxpayers. For tax years between 2026 and 2033, the limits would be increased by 1% per year, and the cap would remain at the 2033 amount for subsequent tax years after 2033.
BEAT Rate. The Bill increases the base-erosion and anti-abuse tax (“BEAT”) rate under Section 59A from 10% to 10.1%. The previous version of the Bill repealed the increase to 12.5%.
FDII and GILTI. The Bill lowers the global intangible low-taxed income (“GILTI”) inclusion deduction amount from 50% (an effective rate of 10.5%) to 49.2% (an effective rate of 10.668%) and the foreign-derived intangible income (“FDII”) deductions from 37.5% (an effective rate of 13.125%) to 36.5% (an effective rate of 13.335%). The Bill as originally written would have made permanent the reductions under the Tax Cut and Jobs Act of 2017.
Itemized Deductions. In addition to the proposed itemized reduction limits that were in the previous draft of the Bill, the Bill adds a second prong, which effectively imposes an additional 5% tax on income equal to a taxpayer’s SALT taxes. The original draft of the Bill repealed the Pease limitation and effectively imposed an additional 39% bracket equal to the taxpayer’s itemized deductions in excess of the SALT deduction.
Proposed 501(p) Expansion Removed. The original draft of the Bill would have expanded Section 501(p) of the Code, which permits suspension of the tax-exempt status of an organization, to any organization deemed a “terrorist supporting organizations” (from just “terrorist organizations” under current law). The provision was not included in the final version of the Bill passed by the House.
Royalties Received by Tax-Exempts for Licensing Names/Logos. The original draft of the Bill would have treated any royalties received by a tax-exempt organization from a sale or license of its name or logo as “unrelated business taxable income,” which would be taxable income for the tax-exempt organization. This provision was not included in the final version of the Bill passed by the House.
Key provisions in the final passed Bill include:
Business Provisions:
163(j) Deductions. The definition of “adjusted taxable income” under section 163(j) is based on EBITDA (which is more favorable for taxpayers than EBIT under current law) for taxable years 2025 to 2028.
Section 199A. The deduction for qualified business income under Section 199A is increased to 23% (from 20%) for an effective rate of 28.49% (from 29.6%) and made permanent. Section 199A is also expanded to apply to the portion of dividends representing net interest income paid by a “business development company” (“BDC”) taxable as a regulated investment company. This expansion will reduce the effective rate of interest income earned through a BDC from 37% to 28.49% and will increase the attractiveness of BDCs as vehicles for credit funds. Dividends from real estate investment trusts (“REITs”) have had the benefit of Section 199A deductions.
GILTI/FDII Inclusion Deductions Made Permanent. Global intangible low-taxed income (“GILTI”) inclusion deduction amount is lowered from 50% (an effective rate of 10.5%) to 49.2% (an effective rate of 10.668%), and the foreign-derived intangible income (“FDII”) deductions is lowered from 37.5% (an effective rate of 13.125%) to 36.5% (an effective rate of 13.335%).
BEAT Made Permanent at Lower Rate. The current tax rate on the base-erosion and anti-abuse tax (“BEAT”) under Section 59A is increased from the current rate of 10% to 10.1% (instead of increasing to 12.5% after 2025).
Qualified Production Property Deductions. Taxpayers can deduct 100% of “qualified production property” costs immediately for certain newly constructed or acquired nonresidential real property in the United States. These properties must be in connection with the manufacturing, agricultural and chemical production, or refining of a qualified product.
Limitation for Qualified Depreciable Property Deductions. The deduction limitation from qualified depreciable property as business assets is increased to $2.5 million (from $1 million). The phase-out threshold is raised from $2.5 million to $4 million.
Bonus Depreciation for Qualified Property. The bonus first-year depreciation deduction under Section 168(k) is extended through 2029 (2030 for longer production period property and certain aircrafts). Under the Bill, taxpayers can claim 100% bonus depreciation for qualified property acquired and placed in service after January 19, 2025, and before January 1, 2030 (January 1, 2031, for certain qualified property with a longer production period, as well as certain aircrafts).
Opportunity Zones Reestablished. A second round of Opportunity Zones (“OZs”) are established for taxable years 2027 through 2033, with similar but modified benefits in temporary deferral of capital gains taxes, basis step-up, and exclusion of taxable income on new gains. The first round of OZs is set to expire in 2026. There is a greater focus on rural areas, such as the offer of higher basis step-up of 30% for investments in qualified rural opportunity funds (as opposed to 10% from the first round of OZs).
Deduction for Excessive Employee Compensation. An aggregation rule is added to the Section 162(m) limitation for executive compensation so that compensation paid by all entities within a covered corporation’s “controlled group” is counted for purposes of the $1 million limit.
Limitation of Amortization Deductions for Sports. The 15-year amortization of a professional sports franchise and related intangible assets that are acquired in an acquisition of interest (or assets) of a team is limited to 50% of the adjusted tax basis of those assets. This change is effective for assets acquired after the date of the enactment of the tax legislation.
Excess Business Losses Extended. The limitation on excess business losses for noncorporate taxpayers is made permanent. The maximum amount of business loss taken in a year is based on an inflation adjusted threshold, with $313,000 for single filers and $626,000 for joint filers in 2025. The Bill also changes the manner in which the excess business loss is calculated by including prior year’s excess business losses in calculating the current year’s excess business loss limitations. Under the current rules, excess business losses are treated as net operating losses for future years and are not included in determining the future years’ excess business loss limitations. This change further limits a noncorporate taxpayer’s ability to use business losses against other income of the taxpayer.
Charitable Donation Limitation. A C corporation’s charitable contributions are subject to a 1% floor.
Increased Taxes on Residents of Countries Imposing a UTPR. The individuals, entities, and governments of countries that impose an undertaxed profits rule (“UTPR”), digital services tax, diverted profits tax, and, (subject to regulations) an extraterritorial tax, discriminatory tax, or any other “unfair” foreign tax enacted with a public or stated purpose that the tax will be economically borne, directly or indirectly, disproportionately by U.S. persons are subject to an increased rate of U.S. taxes, generally increased by 5% for each year of the unfair foreign tax up to 20% maximum, and the governments of such countries are denied benefits under Section 892 (which generally exempts eligible government entities from U.S. withholding taxes on certain types of investment income).
Clean Energy Credits Rolled Back. The Bill proposes accelerated termination of clean energy tax incentives put in place under the Inflation Reduction Act. For example, it would terminate clean electricity tax credits for wind, solar and battery storage projects by 2028 and require projects to begin construction within 60 days of the Bill’s passage.
Taxable REIT Subsidiary Asset Test. Taxable REIT subsidiaries may represent 25% of the value of the REIT’s total assets (rather than 20% under current law).
COVID-related Employee Retention Tax Credits (“ERTC”). The Bill increased the penalty for aiding and assisting the tax liability-related understatements by a COVID ERTC promoter. The penalty is the greater of $200,000 ($10,000 in the case of a natural person) or 75% of the gross income derived by such promoter with respect to the aid and assistance of such understatement. A penalty of $1,000 is applied to COVID ERTC promoters that do not comply with due diligence requirements with respect to a taxpayer’s COVID ERTC eligibility.
No Carried Interest Provision. There is no provision affecting carried interest.
Tax-Exempt Provisions:
Increased Excise Tax on Private University Endowments and Private Foundations. The current 1.4% excise tax on net investment income of private colleges and universities is replaced with a tiered system based on an institution’s “student-adjusted endowment”. For such schools with a student-adjusted endowment of more than $2 million, the excise tax is increased to 21%. The scope of “net investment income” would also be expanded. Additionally, the current 1.39% excise tax on private foundations is replaced with a tiered system based on the foundation’s total size of assets. For purposes of calculating a private foundation’s assets for purposes of this test, the assets of certain related organizations are treated as assets of the private foundation. The excise tax rate would be 5% for private foundations with gross assets of at least $250 million but less than $5 billion, and 10% for private foundations with gross assets equal to or more than $5 billion.
UBTI for qualified transportation fringe benefits. UBTI is increase by any amount incurred for any qualified transportation fringe benefit or any parking facility that is not directly connected to any unrelated trade or business that is regularly carried on by the organization.
Tax on Excessive Employee Compensation. The $1 million limit applies to any employee or former employee of a tax-exempt organization, and for purposes of determining the $1 million limit, all compensation paid to a related person (including a related taxable entity) is included. The change applies to taxable years beginning after December 31, 2025.
Individual Provisions:
Ordinary Income Tax Rates. The maximum rate of 37% for individuals is made permanent.
Standard Deductions. For tax years of 2025 to 2028, the standard deduction is increased to $26,000 for joint filers (from $24,000), to $19,500 for head of household filers (from $18,000), and to $13,000 for all other filers (from $12,000).
Personal Exemption Elimination. The personal exemption is repealed permanently.
Section 199A. As mentioned above, the deduction for qualified business income is increased to 23% for an effective rate of 28.49% and made permanent. Individuals may also benefit from these lowered effective rates for dividends representing net interest income from BDCs.
Itemized Deduction Limits. Itemized deductions (which were disallowed under the TCJA) are allowed and made permanent. The Bill repeals the Pease limitation and creates a two-pronged reduction. The allowable itemized deduction is reduced by 5/37 of the lesser of (i) the amount of the taxpayer’s SALT taxes or (ii) so much of the taxable income of the taxpayer for the year (without regard to the proposal and increased by the amount of otherwise allowed itemized deductions) as exceeds that dollar amount at which the 37% tax rate bracket starts for such taxpayer. The effect of this change is to impose an additional 5% tax on income equal to a taxpayer’s SALT taxes. The itemized deduction is secondly reduced by 2/37 of the lesser of the (i) amount of itemized deductions otherwise allowed for the year that exceeds the allowed SALT deduction or (ii) so much of the taxable income of the taxpayer for the year (without regard to the proposal and increased by the amount of otherwise allowed itemized deductions) as exceeds that dollar amount at which the 37% tax rate bracket starts for such taxpayer. The effect of this second prong is to impose an additional 39% bracket equal to the taxpayer’s itemized deductions in excess of the SALT deduction.
SALT Deduction Cap Increased; SALT Denied for Various Service Professionals. The SALT deduction cap is made permanent and raised to $40,000, going down to $10,000 at a rate of 20% beginning at income of $250,000 for single filers and $500,000 for joint filers. For tax years between 2026 and 2033, the limits would be increased by 1% per year, and the cap would remain at the 2033 amount for subsequent tax years after 2033. Pass-through entity tax (“PTET”) deductions are denied for individuals who perform services in the fields of health, law, accounting actuarial science, performing arts, consulting, athletics, financial services, brokerage services, investing services, investment management services, and trading or dealing in securities, partnership interests, or commodities, or any trade or business where the principal asset of such trade or business is the reputation or skill of one or more of its employees. Therefore, under the Bill, asset managers who are partners in partnerships will not be permitted to deduct their share of state and local taxes. In addition, the Bill disallows deductions for taxes imposed on partnerships and S corporations (such as the New York City unincorporated business tax).
Deductions for Tips. Taxpayers earning $160,000 or less in 2025 (adjusted in the future for inflation) are permitted a deduction for cash tips from an occupation that “traditionally and customarily received tips” to the extent the gross receipts of the taxpayer from the trade or business of receiving the tips exceeds the sum of the cost of goods sold allocable to the receipts and other expenses, losses, or deductions properly allocable to those receipts. This deduction is allowed for tax years 2025 through 2028.
Overtime Compensation Deductions. Deductions are allowed for overtime compensation for itemizers and non-itemizers for tax years 2025 through 2028.
Deductions for Car Loan Interest. Deductions (up to $10,000) of interest payments on car loans from 2025 through 2028. These deductions are allowed for itemizers and non-itemizers. The deduction phases out for single taxpayers earning $100,000 ($200,000 for joint returns).
Expansion of Childcare Credits. Employer-provided childcare credits are further expanded from 25% to 40% (and up to 50% for eligible small businesses). The maximum annual credit is also increased from $150,000 to $500,000 for employers (up to $600,000 for eligible small businesses).
Family and Medical Leave Credits Expanded. Employer-provided paid family and medical leave credits are expanded by giving employers the option to choose between credit paid for wages paid during the employee’s leave or credit for insurance premiums paid on policies that provide paid leave. The family and medical leave cannot be already mandatory from state and local laws.
Adoption Tax Credits. Up to $5,000 of adoption tax credits are refundable, which makes the credit available to lower-income families who do not earn sufficient income to pay tax.
Scholarship-Granting Tax Credits. Tax credits are allowed for contributions by individuals to scholarship-granting organizations. The credits may not exceed the greater of 10% of the taxpayer’s adjusted gross income for the taxable year, or $5,000.
Expansion of Qualified Tuition Programs. Qualified tuition programs that are exempt from federal tax (i.e., “529 accounts”) are expanded to include tuition and material expenses for elementary, secondary, and home school expenses. Qualified higher education expenses are also expanded to include tuition and expenses in connection with a recognized postsecondary credential program.
Extension of Increased Alternative Minimum Tax Exemption from TCJA. The increased exemptions and increased exemption phase-outs from the individual alternative minimum tax are made permanent.
The $750,000 Limitation on Qualified Residence Interest Deduction Is Made Permanent. The $750,000 limitation on deductions for qualified residence interest is made permanent.
Personal Casualty Loss Relief Further Extended. The requirement that personal casualty loss deductions exceed 10% of adjusted gross income for taxpayers to benefit from deductions is waived for qualified disasters that occurred between December 2019 until 2025 (extended from 2020) and allows taxpayers to claim both a standard deduction and qualified disaster-related personal casualty losses.
Qualified Bicycle Commuting Reimbursements Are Taxable. Reimbursements of bicycle commuting expenses are subject to income tax. Before the TCJA, the reimbursements were not taxable.
Reimbursements for Personal Work-Related Moving Expenses Are Taxable. Before the TCJA, deductions were given to certain personal moving expenses for employment purposes and gross income did not include qualified moving expense reimbursements from employers. The deductions are permanently repealed, and the reimbursements are permanently taxable.
Student Loan Discharged on Death or Disability Made Tax-Free Permanently. Discharged student loans on the account of death or disability is not being taxable is made permanent.
Child Tax Credits Made Permanent. The child tax credit is made permanent, and the maximum child tax credit is temporarily increased to $2,500 (from $2,000) from 2025 to 2028 (subsequent years will be $2,000). Social security numbers for the child will be required to qualify for child tax credit benefits.
Creation of “Trump” Accounts. Trump accounts are tax-exempt trust accounts that can be created for U.S. citizens under age 18. The funds from the Trump accounts can be used for qualified expenses of the beneficiary such as higher education and first-time home purchases. The Bill provides a one-time $1,000 federal credit per eligible child born between 2025 and 2028, which will be deposited directly into the child’s Trump account.
Additional Authors: Robert A. Friedman, Martin T. Hamilton and Christine Harlow
Tracking Lien Law Requirements: Alabama
This is the first in a series of blog posts discussing lien requirements in states where we most frequently litigate and states with unique lien requirements.
Alabama Lien Law Basics
Alabama’s statutory mechanic’s lien law can be found at Ala. Code §§ 35-11-210 et seq. These statutory lien requirements are strictly enforced. Some basic precepts of Alabama lien law include:
In Alabama, a mechanic’s lien claim can only arise out of a contract for performing work or furnishing materials for construction or repair of a building or improvement upon land. Clearing, grading, and excavation work, for example, constitute improvements to land. Additionally, architects or engineers who provide plans and supervise erection are also entitled to lien construction projects.
A general or original contractor has the right to lien the full amount of its contract with an owner (a full price lien).
Subcontractors, suppliers, and other materialmen not in privity with an owner typically are entitled to lien only on the unpaid balance due from the owner to the original contractor. But see § 35-11-210 (permitting full price lien rights for certain materialmen (not supplying labor or services) when notice provided to owner prior to furnishing materials)).
Upon request of an owner, an original contractor shall furnish a complete list of all materialmen, laborers, and employees who have furnished any material or are under contract to furnish material or labor for a project, along with the terms and prices thereof (Ala. Code § 35-11-219). If an original contractor fails to supply such information or fails to pay any materialman, subcontractor, or laborer, the contractor may forfeit its lien rights against the owner.
Notice of an intent to file an unpaid balance lien (Ala. Code § 35-11-218) must be given to the owner prior to filing or recording a lien. The notice must be in writing, state that a lien is claimed, set forth the amount due, set forth the work performed, and describe the entity or person who owes the money. Original contractors are not required to submit this notice.
A verified statement of lien must be filed with the probate court in the county or counties where the property for the project is situated (a) within six months after the last item of work has been performed or the last item of material has been furnished for original contractors, (b) within 30 days after the last item of work has been furnished for laborers, or (c) within four months for all other entities after the last item of work or material has been furnished. For (b) and (c), the verified statement of lien must follow the notice of intent required under Ala. Code § 35-11-218.
Following filing of a verified statement of lien, a party seeking to enforce its lien rights must file suit within six months after maturity of the entire indebtedness (usually the date when labor was last performed or materials were last furnished on a job).
To bond off a lien filed against your project, Alabama law requires the bond to cover the amount of the lien, plus interest on that amount at 8% for three years and $100 for court costs (Ala. Code § 35-11-233). If you are seeking to bond off a lien prior to an enforcement action being filed, a trip to the local probate court may be required.
Listen to this post
An EEOC Victory Provides Lessons on Applicant Drug Testing Accommodations
A recent jury verdict reminds employers of their reasonable accommodation obligations for applicants under the Americans with Disabilities Act (ADA), in the context of drug testing. The U.S. Equal Employment Opportunity Commission (EEOC) sued a retirement community for denying employment to an applicant based on a failed drug test—one that the applicant warned the employer she would fail because of her medications. And, as the EEOC announced in a recent press release, a jury awarded her over $400,000 in damages.
Quick Hits
A jury awarded more than $400,000 in damages to an applicant who was denied employment due to a failed drug test—one that the applicant, a veteran, informed the employer she might fail because of legally prescribed medications she took for PTSD.
The EEOC successfully argued that the employer, a retirement community, violated the ADA by failing to allow the applicant to explain her non-negative drug test result.
The verdict serves as a reminder for employers of their reasonable accommodation obligations to applicants under the ADA, both before and after a conditional job offer, when an applicant discloses disability-related prescription drug use and/or has a non-negative test result.
Background
In EEOC v. The Princess Martha, LLC, an applicant interviewed for and was offered a position as an activities coordinator for a retirement community, pending the community’s standard background check and drug test. According to the EEOC’s complaint, during her interview, the applicant told the activities director that she was a veteran with post-traumatic stress disorder (PTSD), for which she took legally prescribed medications that would cause her to fail a drug test. The activities director responded that the position did not involve tasks that would be impaired by those medications and that the testing facility would take copies of her prescriptions.
When the applicant offered her prescriptions to the testing facility, however, she was told it was unnecessary because they would call her later to verify any foreign substances. But she did not hear back from them, or from the retirement community. Six days later, she called the activities director and was told that the human resources (HR) department should have contacted her. After being transferred to HR, the applicant left a voicemail, expressing concern that she had not received a drug test result and reiterating that her medications would cause a non-negative result. The next day, her offer of employment was rescinded.
The Jury Verdict
The applicant filed a charge of discrimination with the EEOC, and the EEOC subsequently sued the retirement community, asserting a failure to allow the applicant to explain the non-negative result and a failure to employ her. A jury agreed, awarding the applicant $5,083 in back pay, $50,000 in compensatory damages, and $350,000 in punitive damages.
What the ADA Requires
As set forth in the EEOC’s “Enforcement Guidance on Preemployment Disability-Related Question and Medical Examinations,” the ADA prohibits employers from asking an applicant to answer medical questions or take a medical exam prior to making a conditional job offer. This specifically includes questions about prescription drug use.
If an applicant has voluntarily disclosed a disability or noted a need for accommodation during the pre-offer stage, however, the ADA permits an employer to ask limited questions about what type of reasonable accommodation would be needed now or in the near future—but not about the underlying condition or accommodation needs in the more distant future. (This is what happened here—the applicant voluntarily disclosed her PTSD and use of prescription medication. The activities director appropriately responded that the prescriptions should be provided to the testing facility to explain the non-negative result. Unfortunately, the employer then took a wrong turn.)
After a conditional job offer is extended but before employment begins, an employer is free to ask any disability-related questions and require any medical examinations of an applicant, so long as it does so for all applicants entering the same job category. The questions and/or examinations do not have to be job-related. An employer may reject an applicant because of the applicant’s answer or results, however, only where it is “job-related and consistent with business necessity.”
There are special rules around drug testing. Because the current use of illegal drugs is not protected under the ADA, drug tests are not considered medical examinations. Nonetheless, the results of drug tests can implicate disabilities, triggering coverage by the ADA. In particular, the EEOC’s guidance contains the following question and answer (Q&A), in the context of a post-offer drug test:
May an employer ask applicants about their lawful drug use if the employer is administering a test for illegal use of drugs?
Yes, if an applicant tests positive for illegal drug use. In that case, the employer may validate the test results by asking about lawful drug use or possible explanations for the positive result other than the illegal use of drugs.
Example: If an applicant tests positive for use of a controlled substance, the employer may lawfully ask questions such as, “What medications have you taken that might have resulted in this positive test result? Are you taking this medication under a lawful prescription?”
Although the language in this guidance sounds permissive (“may”), other EEOC guidance suggests otherwise. For example, in the EEOC’s guidance on the “Use of Codeine, Oxycodone, and Other Opioids: Information for Employees,” the EEOC offers the following Q&A:
What if a drug test comes back positive because I am lawfully using opioid medication?
An employer should give anyone subject to drug testing an opportunity to provide information about lawful drug use that may cause a drug test result that shows opioid use. An employer may do this by asking all people who test positive for an explanation.
Accordingly, it seems that the EEOC believed that the employer in the current case had an obligation to ask those questions since the applicant had disclosed her use of legally prescribed medications that would cause her to fail the drug test. And this information was effectively a request for accommodation—to be excused from disqualification from employment based on the drug test results. The failure to ask those questions was, arguably, the employer’s first stumble.
Of course, once an applicant requests a reasonable accommodation, that may trigger the interactive process by which the employer may obtain more information (if necessary) to establish if there is a disability and to assess whether a reasonable accommodation can be provided without imposing an undue hardship on the employer. And here, the employer encountered a potential pitfall. Given that the activities director had stated that the responsibilities of the job would not be impacted by the applicant’s medication, it was hard to then argue that excusing the applicant from the drug test results would be an undue hardship.
Key Takeaways for Employers
This case reminds employers that there are specific rules with regard to the treatment of applicants under the ADA. The ADA and interpretive guidance promulgated by the EEOC delineate what employers can and cannot do if an applicant voluntarily discloses disability-related information before an offer is made, or if an applicant fails a post-offer/preemployment medical examination. And employers may not want to categorically disqualify an applicant who fails a drug test—particularly where the applicant has made clear that he or she may have a legal reason for doing so.
Tenth Circuit Decision Highlights Distinction Between Traditional Non-Compete and Forfeiture-for-Competition
In Lawson v. Spirit AeroSystems, Inc., the U.S. Court of Appeals for the Tenth Circuit upheld the forfeiture of certain stock awards for violating a covenant not to compete. Like the Seventh Circuit in LKQ Corp. v. Rutledge(which applied Delaware law), the Tenth Circuit concluded that, under Kansas law, the remedy of forfeiting future compensation is not subject to the same reasonableness standard as traditional enforcement of a non-compete obligation. The Tenth Circuit reached this conclusion even though the executive’s agreement included both a forfeiture-for-competition provision and traditional enforcement rights (i.e., the right for the company to pursue monetary damages and specific performance), because the agreement terms enabled the forfeiture provision to be severed from the traditional enforcement provisions.
Background and the Court’s Analysis
A retirement agreement allowed the former CEO of Spirit AeroSystems (“Spirit”) to receive cash payments and continue vesting in certain stock awards if he continued working for Spirit as a consultant and complied with a non-compete agreement. The CEO subsequently contracted with a hedge fund that was pursuing a proxy contest against one of Spirit’s suppliers. Spirit determined that this activity breached the non-compete and therefore stopped payments to the CEO and cut off continued vesting of the stock, resulting in forfeiture of the CEO’s then-unvested stock awards. Notably, Spirit did not seek to claw back cash that had already been paid or stock that had already vested: only future compensation and vesting were affected.
The court first found under Kansas case law a distinction between a traditional penalty for competition and forfeiture of future compensation for competition. Under Kansas case law, the former is valid and enforceable only if “reasonable under the circumstances and not adverse to the public welfare.” But the court concluded that Kansas law does not subject the latter to the same reasonableness standard because it does not restrain competition in the same way. Rather than imposing a penalty, a forfeiture for competition provision “merely provides a monetary incentive in the form of future benefits for not competing.” The court reasoned that a forfeiture for competition provision gives the worker “a choice between competing and thereby forgoing the future benefits or not competing and receiving those benefits.” And because the forfeiture applied only to future compensation, it did not amount to a penalty: the executive forfeited only “the opportunity for the shares to vest notwithstanding his retirement.”
Second, the court reasoned that the policy justifications for reasonableness review did not apply to forfeiture in this case. The court stated that reasonableness review addresses the risk that (1) the employer’s bargaining power can lead to a one-sided non-compete that leaves former employees unable to support themselves after their employment ends and (2) “overbroad” restrictions on competition can “decrease options available to consumers and generate market inefficiencies.” The court concluded that neither of those risks were present in this case, noting that the executive was sophisticated and had support of counsel and that the executive had an opportunity to receive substantial compensation if he had complied with the covenant.
Third, the court reasoned that “[f]reedom of contract is the fountainhead of Kansas contract law.” Accordingly, the court determined that the forfeiture-for-competition provision should be presumed enforceable, absent the policy concerns described above.
Unlike the Seventh Circuit in LKQ—which certified a question of Delaware law to the Delaware Supreme Court—the Tenth Circuit refused to certify the question of Kansas law to the Kansas Supreme Court. For the reasons described above, the court determined that it could predict the Kansas Supreme Court’s interpretation of Kansas law with sufficient confidence to make certification unnecessary.
Finally, the court rejected an argument that reasonableness review should be required because Spirit had both the right to invoke forfeiture and the right to seek traditional enforcement (monetary damages and specific performance). The court determined that, in this case, the right to seek traditional enforcement could be severed from the right to invoke forfeiture. Because Spirit relied exclusively on the forfeiture provision and expressly declined to pursue traditional enforcement, the fact that Spirit could have pursued traditional enforcement was not fatal.
Takeaways
Although Lawson is binding only on federal courts in the Tenth Circuit that are applying Kansas state law (and Kansas state courts could still reach a different conclusion), it provides meaningful authority for the proposition that a forfeiture for competition provision can be enforced even if applicable law otherwise limits the enforceability of non-compete provisions. (Notably, however, some states reject forfeiture for competition.) The decision offers a few important practical takeaways:
The particular facts matter. In this case, the court noted that the forfeiture provision had been negotiated by sophisticated parties represented by counsel and determined that policy concerns with non-compete provisions (interfering with the ability to make a living and potential to generate market inefficiencies) were not present.
Drafting matters. If an agreement has more than one enforcement mechanism (e.g., a right to seek damages and injunctive relief and a separate statement that breach will result in forfeiture of certain compensation or benefits), it is important to make each enforcement mechanism distinct and severable from the others. The result of this case could have been different if the agreement did not have a severability clause. It also helps to state clearly that amounts subject to forfeiture are not considered earned or fully vested (even if considered vested for tax purposes) unless and until the employee has satisfied all applicable conditions. Clarity on this point helps the court to distinguish between a permissible compensatory incentive to comply and a potentially impermissible penalty for breach.
Enforcement strategy matters. The court emphasized that Spirit did not pursue injunctive relief or damages and that the forfeiture applied only with respect to future payments and vesting. Had Spirit sought to claw back prior payments or stock that had already vested, the court might have treated the forfeiture as a penalty that required reasonableness review.
Washington Governor Signs Bill Making Key Changes to Equal Pay and Opportunities Act
On May 20, 2025, Washington Governor Bob Ferguson signed a bill into law that will provide employers with a cure period for job postings that do not include pay information, allow employers to advertise a fixed amount of pay instead of a wage scale or wage range, and make other substantial changes to the state’s Equal Pay and Opportunities Act (EPOA).
Quick Hits
Washington Governor Ferguson signed legislation amending the pay transparency requirements of the EPOA.
The amended EPOA provides employers a cure period of five business days after receiving notice of a defective posting to change a posting to comply with the pay transparency requirements.
The new law will also allow employers to advertise a single fixed pay amount in job postings instead of a pay range, in certain circumstances.
The law also limits remedies for affected job applicants, allowing them to seek either administrative remedies or statutory damages in a private civil action.
Washington Substitute Senate Bill (SSB) 5408 amends the pay and benefit information in job positions required by the EPOA, provisions that have led to hundreds of class action lawsuits since summer 2023. The law will take effect on July 27, 2025.
The signing comes after Washington lawmakers passed SSB 5408 with amendments in April 2025, updating the pay transparency provisions in Revised Code of Washington (RCW) 49.58.110.
Specifically, RCW 49.58.110 requires employers with fifteen or more employees to affirmatively disclose in each job posting the salary range or wage scale offered for the position, in addition to a general description of all benefits and other compensation offered for the position.
SSB 5408 updates the law to allow Washington employers to list a fixed pay amount instead of a wage range if only one amount is offered, including for internal transfers. In addition, the law will exempt job postings that are “digitally replicated and published without an employer’s consent” from the pay equity requirements.
The law will also allow employers five business days to correct noncompliant job postings after receiving a written notice and avoid penalties from the effective date of July 27, 2025, through July 27, 2027.
SSB 5408 further defines and clarifies two separate remedies. Job applicants affected by an allegedly noncompliant job posting will be able to either seek administrative remedies, including civil penalties up to $1,000 and statutory damages between $100 and $5,000 per violation, or pursue a private civil action to recover “statutory damages of no less than $100 and no more than $5,000 per violation, plus reasonable attorneys’ fees and costs.” The remedies are exclusive of each other.
Profit Sharing Payments Are Around the Corner: Key Considerations for Employers in Mexico
As of May 31, 2025, once the term for paying profit sharing (PTU) has elapsed, the Labor Ministry is expected to start labor inspections specifically to verify PTU compliance. Additionally, as of the same date, employees and former employees who had the right to receive PTU (those employees who worked during 2024) and had not received it will become entitled to claim payment and/or get the specifics on why no payment was made to them.
Quick Hits
May 30, 2025, is the last day for paying profit sharing (PTU).
As of May 31, 2025, the Labor Ministry is expected to start labor inspections to verify compliance with PTU payment requirements, and employees and former employees will become entitled to claim PTU payments and/or get the specifics on why no payment was made to them.
Key Considerations for Employers in Mexico
Although May 30, 2025, is the last day for paying PTU on time, a process must have been met before the requirements for payments take effect, as considered by the Federal Labor Law (FLL).
Every employer needs to comply, regardless of whether PTU was generated, with the whole PTU process considered in the FLL, which entails:
filing an annual tax return (no later than March 31 of every year);
sharing with the employees, no later than ten days after filing was made, the annual tax return to inform them whether PTU was generated or not;
integrating a joint commission (PTU commission) with an equal number of employer and employee representatives who will determine the liquid amount of profits for each employee;
analyzing and determining a route for those employees who worked during the applicable tax period (2024) and those whose employment was terminated before the payment date, if there is PTU to be paid; and
paying PTU, if it was generated, by May 30.
Employers that cannot prove full compliance with the process may be subject to a fine of 250 to 5,000 times the measure and update unit value (UMA $113.14 pesos) (approximately USD $1,450–USD $29,010) upon an inspection by the Labor Authority.
The statute of limitations for employees and former employees to file any claim regarding PTU is one year. The yearlong term commences on May 31 annually, the date on which the benefit is enforceable.
OSH Law Primer, Part XIII: Criminal Penalties and Sanctions
This is the thirteenth installment in a series of articles intended to provide the reader with a very high-level overview of the Occupational Safety and Health (OSH) Act of 1970 and the Occupational Safety and Health Administration (OSHA) and how both influence workplaces in the United States.
By the time this series is complete, the reader should be conversant in the subjects covered and have developed a deeper understanding of how the OSH Act and OSHA work. The series is not—nor can it be, of course—a comprehensive study of the OSH Act or OSHA capable of equipping the reader to address every issue that might arise.
The first article in this series provided a general overview of the OSH Act and OSHA; the second article examined OSHA’s rulemaking process; the third article reviewed an employer’s duty to comply with standards; the fourth article discussed the general duty clause; the fifth article addressed OSHA’s recordkeeping requirements; the sixth article covered employees’ and employers’ respective rights; the seventh article addressed whistleblower issues; the eighth article covered the intersection of employment law and safety issues, the ninth article discussed OSHA’s Hazard Communication Standard (HCS); the tenth article examined voluntary safety and health self-audits; the eleventh article, in two parts, reviewed OSHA’s citation process; and the twelfth article covered OSHA inspections and investigations. In this article, we examine OSHA’s ability to seek criminal penalties.
Quick Hits
OSHA’s Hazard Communication Standard (HCS) was established in 1982 to ensure that employees who are exposed—or are reasonably likely to be exposed—to chemicals in the workplace are aware of the hazards and know how to protect themselves effectively.
The HCS mandates that all employers use a hazard communication program to inform employees about the hazardous chemicals to which employees may be exposed.
The standard has been amended several times since 1982, most recently with a final rule issued in May 2024 to align with international standards.
As readers likely know, employers charged with violating the OSH Act and its regulations can face substantial civil penalties. Less well-known is that certain violations may also be subject to criminal sanctions. While many federal agencies have the power to seek civil and criminal penalties for a wide variety of offenses, OSHA’s authority to seek criminal penalties is restricted to three narrow circumstances. First, any person who gives advance warning of an inspection may be subject to criminal penalties. Second, any individual or employer that knowingly makes any false statement, representation, or certification under the OSH Act may be prosecuted. Finally, an employer whose willful violation of an OSHA standard results in the death of an employee may face criminal penalties.
Moreover, unlike civil complaints, which are prosecuted by the U.S. Department of Labor (DOL), criminal charges may be prosecuted only by the U.S. Department of Justice (DOJ). Thus, criminal prosecutions are subject to substantially more vetting than run-of-the-mill civil citations. Indeed, DOJ officials have to concur that a particular case is worthy of prosecution, merits using scarce departmental resources, and is winnable. Not surprisingly, only a few cases get through this screening process.
Basis for Liability
As noted above, the OSH Act creates potential criminal liability for any person who gives advance warning of an inspection. The OSH Act also makes the unauthorized disclosure of forthcoming inspections punishable by a fine of $1,000 and imprisonment for up to six months.
The OSH Act also creates potential criminal liability for making false statements to OSHA. While perjury, or lying under oath, as well as making false statements to federal officers, are illegal under federal criminal law, OSHA’s increased emphasis on paperwork and various types of required recordkeeping exposure may exist from what otherwise might seem routine clerical activities. For example, an employer’s OSHA 300 logs must be accompanied by a signature attesting to the truth and accuracy of the logs. Knowing violation of this oath is a crime punishable by up to six months in prison and/or a $10,000 fine.
The most serious penalties result from the willful violation of an OSHA standard or rule when that violation results in the death of an employee. While for a first-time offender the penalty is identical to that for making false statements—maximum penalties of $10,000 and six months’ imprisonment—for a repeat offender these penalties double to $20,000 and one year in prison.
Process of Prosecution
OSHA’s criminal referral process can be quite drawn out and complicated. The process begins with the responsible area director sending a recommendation for criminal prosecution to his or her supervising regional director. If the regional director agrees with the recommendation, he or she will then hand the case to a DOL solicitor, either regional or national, who then has to decide whether the case meets the factual and legal grounds, and on sensitive matters the OSHA head office will decide whether the case warrants referral to the DOJ for possible prosecution.
The referral is just the first half of the process. The DOJ has to act on the referral by bringing actual cases to court. This is where many cases get held up. For whatever reason—workload, the nebulous nature of the offenses, the difficulty of showing intent, or other factors—local prosecutors have not been eager to bring these cases. Indeed, between 1970 and 2022, the DOJ prosecuted only 115 workplace death cases.
Is Change Coming?
Given the limited effectiveness of OSH Act criminal penalties coupled with a belief by some that the criminal penalties provided are inadequate to serve a deterrence effect, calls have been made to toughen the OSH Act by expanding the range of activities that result in criminal liability, as well as increase the penalties provided under the Act. Numerous bills have been introduced over the years in the U.S. Congress, yet no action has been taken. It is yet to be seen if it ever will.
Enforcing English Proficiency: Employers of Commercial Drivers Face New FMCSA Guidance
Takeaways
DOT inspectors will enforce new guidance for English language proficiency among commercial motor vehicle drivers beginning 06.25.25.
Drivers who do not speak and understand English sufficiently will be placed out-of-service.
Planning and thoughtful, timely communication with your drivers is the key to compliance, uninterrupted customer service, and driver retention.
Businesses that employ drivers of commercial motor vehicles who operate in interstate commerce (CMV drivers) have some work to do before June 25, 2025. That is when CMV drivers who cannot speak and understand English sufficiently to meet the Department of Transportation (DOT) English language proficiency qualification standard (ELP Standard) will start being taken out-of-service. Here is what you need to know to prepare for the shift in enforcement to ensure continued timely service to customers and to retain drivers.
On April 28, 2025, President Donald Trump issued Executive Order 14286, directing the secretary of transportation and the Federal Motor Carrier Safety Administration (FMCSA) to take certain steps to ensure CMV drivers can meet the ELP Standard set forth in 49 CFR § 391.11(b)(2) and to place drivers out-of-service (OOS) if they cannot do so.
On May 20, 2025, Transportation Secretary Sean Duffy announced issuance of new guidance to enforce the ELP Standard. The guidance is explained in the FMCSA’s May 20, 2025, Internal Agency Enforcement Policy (New FMCSA Policy). The publicly available policy is redacted, perhaps to avoid sharing details that could potentially risk enforcement efforts. The New FMCSA Policy rescinds the more lenient 2016 policy. It outlines the steps below that inspectors should begin taking to enforce the ELP Standard.
New FMCSA Policy:
Step 1: Assessment of Ability to Respond to Official Inquiries
FMCSA personnel will initiate all roadside inspections in English.
The driver will be told to respond in English. Tools like interpreters, I-Speak cards, cue cards, smart phone applications and On-Call Telephone Interpretation Services cannot be used, as they may conceal a driver’s inability to communicate in English.
If it appears the driver may not understand the inspector’s initial instructions, the inspector will conduct an ELP assessment. The ELP assessment will consist of a driver interview and a highway traffic sign recognition assessment.
If the inspector determines the driver is unable to respond to official inquiries in English sufficiently, the driver will be cited for a violation of 49 CFR § 391.11(b)(2).
Step 2: Assessment of Ability to Understand Road Signs
If the driver responds to the inspector sufficiently in English, the inspector will conduct a Highway Traffic Sign Assessment to include highway traffic signs that conform to the Federal Highway Administration’s Manual on Uniform Traffic Control Devices for Streets and Highways (MUTCD) and electronic-display changeable (a.k.a. “dynamic”) message signs the driver may encounter while operating a commercial motor vehicle.
Step 3: Documentation and Consequences of Failure to Pass the ELP Assessment
If the inspector cites the driver for a violation of the ELP Standard, the inspector must document all evidence to support the violation including the driver’s responses or lack thereof.
The inspector will place the driver immediately out-of-service once a violation of the ELP Standard is incorporated into the North American Standard Out-of-Service Criteria, which has already been approved and will become effective June 25, 2025.
The inspector will, when warranted, initiate an action to disqualify the driver from operating commercial motor vehicles in interstate commerce.
Step 4: Conducting the Remainder of the Inspection If the Driver Passes the ELP Assessment
If the inspector determines that the driver meets the ELP Standard, the inspector may elect to conduct the remainder of the inspection using the communication methods and techniques best suited to facilitate the safe and effective completion of the inspection.
Applicability Of the Policy:
The New FMCSA Policy applies to all FMCSA enforcement personnel conducting inspections of motor carriers and drivers in the U.S., except in Puerto Rico, Guam, the Northern Mariana Islands, or American Samoa.
When performing inspections of CMV drivers in the border commercial zones along the U.S.-Mexico border, FMCSA enforcement personnel should cite drivers for violations, but should not place the driver out-of-service or initiate an action to disqualify them from driving in interstate commerce.
Drivers with hearing impairments who have obtained exemptions from the DOT hearing standard shall not be deemed unqualified and placed out-of- service if they are unable to communicate orally in English.
Implementation and Future Changes:
The policy is effective immediately, and FMCSA inspectors are required to implement it for all CMV drivers operating in the U.S.
The Commercial Vehicle Safety Alliance (CVSA) has already voted to incorporate violations of 49 CFR § 391.11(b)(2) into the OOS criteria, effective June 25, 2025.
As part of its regulation scheme, the DOT is reviewing state security procedures in their issuance of Commercial Drivers Licenses.
On May 20, 2025, Transportation Secretary Sean Duffy is reported to have stated that the Department will be reviewing non-domiciled CDLs and improving upon the verification protocols for both domestic and international credentials.
Next Steps for Employers
Planning and thoughtful, timely communication with your drivers is the key to compliance, uninterrupted customer service, and driver retention.
Observing Memorial Day With a Supportive Workplace for Veterans and Servicemembers
With Memorial Day occurring on May 26 this year, it is an opportune time for employers to assess whether their workplace culture is supportive of veterans and servicemembers, including whether they are in compliance with state and federal laws with respect to employees who are serving in the military.
Quick Hits
Memorial Day, celebrated on May 26, 2025, is a federal holiday. Many private businesses give workers paid time off.
Memorial Day was established to honor and remember men and women who died while serving in the military.
Employers can use many different approaches to help veterans and servicemembers feel included in the workplace.
Many private employers have employees who are in the National Guard, the Reserves, or previously served in the military. These individuals may bring unique skills to their civilian jobs, including mission focus, leadership, and attention to detail, honed through their military experience.
Sometimes employees must take leaves of absence when they are called to active duty. The Uniformed Services Employment and Reemployment Rights Act (USERRA) requires employers to guarantee job protections for up to five years for employees called to active duty with the U.S. Army, Navy, Marine Corps, Air Force, and Coast Guard Reserves; the Army National Guard and Air National Guard; and the Commissioned Corps of the Public Health Service. The five years is a cumulative total with one employer.
USERRA ensures that servicemembers can return to their civilian jobs with the same status, pay, and seniority they would have attained had they not been absent for military service. It is illegal for an employer to discriminate or retaliate against a worker for exercising their USERRA rights, including taking time off for military service.
State-level laws vary on the required leave, benefits, and reemployment rights for employees called to serve in the military. USERRA and the state-level laws establish the minimum standards for supporting military employees. However, many employers go above and beyond these requirements, offering additional benefits to support and retain their military employees. This may include enhanced leave policies, financial support during deployment, and dedicated programs to assist with reintegration into the civilian workforce upon return.
Offering flexibility and support for family members while employees are on deployment can alleviate stress and demonstrate the company’s commitment to its employees’ well-being. Additionally, providing comprehensive military leave support and benefits, such as salary continuation during military leave or differential pay, can make a significant difference in retaining these workers.
On January 21, 2025, the Trump administration issued an executive order to scrutinize diversity, equity, and inclusion (DEI) initiatives in the public and private sector, but the order explicitly says it does not apply to employment preferences for veterans.
Strategies for Supporting Servicemembers and Veterans
Employers may consider these strategies for creating a workplace culture that is supportive of servicemembers and veterans:
Ensuring compliance with USERRA and applicable state or local laws regarding leave, benefits, and reemployment rights for employees serving in the military.
Ensuring compliance with the Americans with Disabilities Act (ADA), including assessing whether the company is providing reasonable accommodations for employees who have service-related disabilities.
To foster a sense of community, forming an affinity group or resource group for veterans and servicemembers.
Facilitating mentoring between new employees and longstanding employees who share a history of military experience.
In recruiting efforts, reaching out to veterans’ groups and job fairs for veterans.
Contacting one of the U.S. Department of Labor’s (DOL) Regional Veterans’ Employment Coordinators for help with recruiting service members, veterans, and military spouses.
Reading the DOL’s employer guide for hiring veterans.
Using internal corporate communications, such as emails, newsletters, or social media, to acknowledge and celebrate Memorial Day and Veterans Day each year. Consider celebrating and highlighting the service of veterans in the workforce.
Permitting employees to request time off to attend Memorial Day and Veterans Day observances and to participate in veterans’ functions and family gatherings.
Hosting a voluntary webinar or educational program about the history of Memorial Day or the contributions of veterans and servicemembers at your organization.
Sending a card to employees who are members of Gold Star Families, which are families who have lost a family member in military service.
Reminding workers about the mental health services included in a health plan, employee assistance plan, or other employee benefits that may offer resources for common military service-related issues.
Amendment to Mexico’s National Housing Fund Institute for Workers Law Introduces New Employer Obligations
On February 22, 2025, the amendment to Mexico’s National Housing Fund Institute for Workers Law (INFONAVIT) was published in the Official Gazette of the Federation (Diario Oficial de la Federación). Among the changes to INFONAVIT’s structure, the amendment introduces new obligations to employers related to deductions for loans granted by INFONAVIT and sanctions in case of noncompliance.
Quick Hits
The amendment to Mexico’s INFONAVIT law includes new obligations for employers related to deductions allowed under INFONAVIT per the loans granted by said authority.
Evidence of compliance with the new obligations must be presented before September 17, 2025.
New Obligations for Employers
Per the amendment, employers must adjust their systems and processes to determine, make, and enter deductions from the salaries of employees who are granted INFONAVIT loans.
Employers will be obligated to apply deductions even when employees do not receive their salary due to absenteeism or disability.
Employers are required to apply deductions even when employees are not receiving their salary for any reason other than those mentioned above (any agreed suspension of the employment relation).
Agreements to offset payments between an employee and the employee’s employer are prohibited.
Employers will be jointly liable for an employee’s loan credit, regardless of whether the employee generates salary/income (any type of compensation).
Employers must continue to pay the loan if an employee ceases to generate income.
Failure to comply with these obligations could result in audits or the determination of several tax credits for nonpayment of credits granted by INFONAVIT.
Compliance Period
The amendment to the INFONAVIT law establishes that employers must be given a reasonable period to comply with the new obligations. Therefore, on May 5, 2025, a resolution was published in the Official Gazette of the Federation granting employers with the period they will have to comply with their new obligations.
Employers must make adjustments to their systems and processes to determine, make, and enter deductions from the salaries of employees who are granted loans within the fourth bimester of 2025 (this bimester corresponds to the months of July and August). However, evidence of compliance must be presented before September 17, 2025.
Beltway Buzz, May 23, 2025
The Beltway Buzz™ is a weekly update summarizing labor and employment news from inside the Beltway and clarifying how what’s happening in Washington, D.C., could impact your business.
SCOTUS: Wilcox to Remain Off NLRB. On May 22, 2025, the Supreme Court of the United States issued a decision blocking NLRB Board Member Gwynne Wilcox’s reinstatement to the NLRB while her challenge makes its way through the courts. The stay will remain effective through the appeals stage and until the Supreme Court declines to review the case or issues a decision on the merits.
House Passes Massive Tax Passage. Lawmakers in the U.S. House of Representatives this week passed a far-reaching tax and spending package by a narrow 215–214 vote. The bill would extend provisions of the 2017 Tax Cuts and Jobs Act, provide additional funding for national security and immigration enforcement, roll back green energy tax incentives, and add Medicaid work requirements. On the labor and employment policy front, the bill includes provisions to allow deductions for income earned as tips or overtime pay. Now it is the U.S. Senate’s turn, where some Republicans have expressed some skepticism about the bill, so any final legislation that the U.S. Congress may pass will likely be different than what the House passed this week.
Senate Says “Yes” to “No Tax on Tips.” In a surprise move, the U.S. Senate this week passed the No Tax on Tips Act (S.129). Democratic Senator Jacky Rosen (NV), a cosponsor of the bill, asked that the bill be passed via the Senate’s unanimous consent mechanism, and no one objected. Passage of a bill this significant in this manner is unusual. Here are the details:
The bill would allow individuals a 100 percent tax deduction on income from qualified tips, up to $25,000.
Individuals claiming the tip deduction must be employed “in an occupation which traditionally and customarily received tips,” as set forth in a pending list to be published by the secretary of the treasury.
The deduction is available to individuals earning $160,000 or less in 2025, with this amount being adjusted for inflation going forward.
Language in the Senate-passed No Tax on Tips Act is similar in concept to the provisions included in the tax package described above. However, there are some significant differences in the details. It is unclear at this time how this will be resolved, but some form of “no tax on tips” has a very good chance of being enacted in this Congress.
2024 EEO-1 Data Collection Opens, With Warning From Acting Chair. The U.S. Equal Employment Opportunity Commission’s (EEOC) 2024 EEO-1 Component 1 data collection opened this week (May 20, 2025) with covered employers having until June 24, 2025, to file. In a statement accompanying the announcement of the opening of the data collection, EEOC Acting Chair Andrea Lucas wrote, “Your company or organization may not use information about your employees’ race/ethnicity or sex—including demographic data you collect and report in EEO-1 Component 1 reports—to facilitate unlawful employment discrimination based on race, sex, or other protected characteristics in violation of Title VII.
House Committee Examines “Modern Workers.” On May 20, 2025, the House Committee on Education and the Workforce’s Subcommittee on Workforce Protections held a hearing entitled “Empowering the Modern Worker.” The hearing focused on the benefits of worker flexibility, practical problems associated with the “ABC” worker classification test (as embodied in California’s A.B. 5), and the value of portable benefits, as set forth in the Modern Worker Empowerment Act (H.R. 1319). The hearing follows on the heels of a March 25, 2025, hearing about the application of the Fair Labor Standards Act to the modern workplace.
DOL, MSHRC Nominees on the Move. On May 22, 2025, the Senate Health, Education, Labor, and Pensions (HELP) Committee advanced the following nominations en bloc by a party-line vote of 12–11:
Julie Hocker to serve as assistant secretary of labor and head the U.S. Department of Labor’s (DOL) Office of Disability Employment Policy
Marco Rajkovich to serve as a commissioner of the Mine Safety and Health Review Commission (MSHRC)
Wayne Palmer to serve as assistant secretary of labor for mine safety and health, leading the DOL’s Mine Safety and Health Administration
Henry Mack III to serve as assistant secretary of labor, leading the DOL’s Employment and Training Administration
The nominations now move to the Senate floor.
NLRB Acting GC Issues New Guidance on Settlement Agreements. On May 16, 2025, National Labor Relations Board (NLRB) Acting General Counsel William B. Cowen issued a memorandum entitled, “Seeking Remedial Relief in Settlement Agreements.” The memorandum follows on Cowen’s rescission of various memoranda issued by his predecessor that instructed NLRB regional offices to expand the scope of remedies in settlement agreements (e.g., reimbursement of car loan payments, letters of apology, etc.). Cowen’s latest memo provides regional directors with more discretion in approving settlement agreements, and it reminds them that they should seek make-whole relief in settlement agreements, but “should be mindful of not allowing our remedial enthusiasm to distract us from achieving a prompt and fair resolution of disputed matters.”
SCOTUS Permits Cancelation of Venezuela TPS. In an 8–1 order issued this week, the Supreme Court stayed a March 31, 2025, decision by a federal court to preliminarily block the U.S. Department of Homeland Security’s (DHS) January 28, 2025, notice of termination of the 2021 and 2023 Temporary Protected Status (TPS) designations for Venezuela. While both the Supreme Court’s order and U.S. Citizenship and Immigration Services’ (USCIS) TPS website are unclear as to the ruling’s impact on stakeholders, it appears that applicable dates for termination of the 2023 TPS designation reverts to April 7, 2025, while the 2021 TPS designation will remain in effect until September 10, 2025. Because the Supreme Court’s decision only concerns the lower court’s grant of a preliminary injunction, the underlying legal challenge to the TPS termination decision will continue.
Administration Pauses Enforcement of Mental Health Parity Regs. Last week, at the request of the U.S. Departments of Health and Human Services, Labor, and the Treasury, the U.S. District Court for the District of Columbia stayed a lawsuit challenging 2024 changes to regulations implementing provisions of the Mental Health Parity and Addiction Equity Act (MHPAEA). As a result, the departments issued a statement noting that they will not enforce the 2024 regulatory changes and will “reconsider the 2024 Final Rule, including whether to issue a notice of proposed rulemaking rescinding or modifying the regulation through notice and comment rulemaking.”
Memorial Day. This weekend, the Buzz will take time to remember the brave men and women who died in service to our country. We wrote about the cultural and legislative origins of Memorial Day several years ago.
Tenth Circuit Rules Forfeiture-for-Competition Not Subject to Non-Compete Reasonableness Test
In Lawson v. Spirit AeroSystems, Inc., the U.S. Court of Appeals for the Tenth Circuit upheld the forfeiture of certain stock awards for violating a covenant not to compete. Like the Seventh Circuit in LKQ Corp. v. Rutledge(which applied Delaware law), the Tenth Circuit concluded that, under Kansas law, the remedy of forfeiting future compensation is not subject to the same reasonableness standard as traditional enforcement of a non-compete obligation. The Tenth Circuit reached this conclusion even though the executive’s agreement included both a forfeiture-for-competition provision and traditional enforcement rights (i.e., the right for the company to pursue monetary damages and specific performance), because the agreement terms enabled the forfeiture provision to be severed from the traditional enforcement provisions.
Background and the Court’s Analysis
A retirement agreement allowed the former CEO of Spirit AeroSystems (“Spirit”) to receive cash payments and continue vesting in certain stock awards if he continued working for Spirit as a consultant and complied with a non-compete agreement. The CEO subsequently contracted with a hedge fund that was pursuing a proxy contest against one of Spirit’s suppliers. Spirit determined that this activity breached the non-compete and therefore stopped payments to the CEO and cut off continued vesting of the stock, resulting in forfeiture of the CEO’s then-unvested stock awards. Notably, Spirit did not seek to claw back cash that had already been paid or stock that had already vested: only future compensation and vesting were affected.
The court first found under Kansas case law a distinction between a traditional penalty for competition and forfeiture of future compensation for competition. Under Kansas case law, the former is valid and enforceable only if “reasonable under the circumstances and not adverse to the public welfare.” But the court concluded that Kansas law does not subject the latter to the same reasonableness standard because it does not restrain competition in the same way. Rather than imposing a penalty, a forfeiture for competition provision “merely provides a monetary incentive in the form of future benefits for not competing.” The court reasoned that a forfeiture for competition provision gives the worker “a choice between competing and thereby forgoing the future benefits or not competing and receiving those benefits.” And because the forfeiture applied only to future compensation, it did not amount to a penalty: the executive forfeited only “the opportunity for the shares to vest notwithstanding his retirement.”
Second, the court reasoned that the policy justifications for reasonableness review did not apply to forfeiture in this case. The court stated that reasonableness review addresses the risk that (1) the employer’s bargaining power can lead to a one-sided non-compete that leaves former employees unable to support themselves after their employment ends and (2) “overbroad” restrictions on competition can “decrease options available to consumers and generate market inefficiencies.” The court concluded that neither of those risks were present in this case, noting that the executive was sophisticated and had support of counsel and that the executive had an opportunity to receive substantial compensation if he had complied with the covenant.
Third, the court reasoned that “[f]reedom of contract is the fountainhead of Kansas contract law.” Accordingly, the court determined that the forfeiture-for-competition provision should be presumed enforceable, absent the policy concerns described above.
Unlike the Seventh Circuit in LKQ—which certified a question of Delaware law to the Delaware Supreme Court—the Tenth Circuit refused to certify the question of Kansas law to the Kansas Supreme Court. For the reasons described above, the court determined that it could predict the Kansas Supreme Court’s interpretation of Kansas law with sufficient confidence to make certification unnecessary.
Finally, the court rejected an argument that reasonableness review should be required because Spirit had both the right to invoke forfeiture and the right to seek traditional enforcement (monetary damages and specific performance). The court determined that, in this case, the right to seek traditional enforcement could be severed from the right to invoke forfeiture. Because Spirit relied exclusively on the forfeiture provision and expressly declined to pursue traditional enforcement, the fact that Spirit could have pursued traditional enforcement was not fatal.
Takeaways
Although Lawson is binding only on federal courts in the Tenth Circuit that are applying Kansas state law (and Kansas state courts could still reach a different conclusion), it provides meaningful authority for the proposition that a forfeiture for competition provision can be enforced even if applicable law otherwise limits the enforceability of non-compete provisions. (Notably, however, some states reject forfeiture for competition.) The decision offers a few important practical takeaways:
The particular facts matter. In this case, the court noted that the forfeiture provision had been negotiated by sophisticated parties represented by counsel and determined that policy concerns with non-compete provisions (interfering with the ability to make a living and potential to generate market inefficiencies) were not present.
Drafting matters. If an agreement has more than one enforcement mechanism (e.g., a right to seek damages and injunctive relief and a separate statement that breach will result in forfeiture of certain compensation or benefits), it is important to make each enforcement mechanism distinct and severable from the others. The result of this case could have been different if the agreement did not have a severability clause. It also helps to state clearly that amounts subject to forfeiture are not considered earned or fully vested (even if considered vested for tax purposes) unless and until the employee has satisfied all applicable conditions. Clarity on this point helps the court to distinguish between a permissible compensatory incentive to comply and a potentially impermissible penalty for breach.
Enforcement strategy matters. The court emphasized that Spirit did not pursue injunctive relief or damages and that the forfeiture applied only with respect to future payments and vesting. Had Spirit sought to claw back prior payments or stock that had already vested, the court might have treated the forfeiture as a penalty that required reasonableness review.