Recent Executive Orders: What Employers Need to Know to Assess the Shifting Sands
In January 2025, President Trump issued a flurry of executive orders. Several may significantly impact employers; the key aspects of these orders are described below, although this is not an exhaustive summary of every provision.
1. Diversity, Equity, and Inclusion (DEI) Programs and Affirmative Action Compliance Obligations
The “Ending Illegal Discrimination and Restoring Merit-Based Opportunity” Executive Order contains many provisions that may significantly impact federal contractors and private employers. First, this order revoked Executive Order 11246 (E.O. 11246), which, among other things, required federal contractors to engage in affirmative action efforts, including developing affirmative action plans concerning women and minorities. In addition to revoking E.O. 11246, President Trump’s order requires that the Office of Federal Contract Compliance (OFCCP) immediately cease promoting diversity, investigating federal contractors for compliance with their affirmative action efforts, and allowing or encouraging federal contractors to engage in workforce balancing based on race, color, sex, sexual preference, religion, or national origin. Further, the order states that federal contract recipients will be required to certify that they do not “operate any programs promoting diversity, equity, and inclusion (DEI) that violate any applicable Federal anti-discrimination laws.” This order does not impact affirmative action obligations concerning individuals with disabilities and protected veterans.
Second, private sector DEI efforts are also addressed in the order, which effectively states that the President believes such practices are illegal and violate civil rights and anti-discrimination laws. This order further provides that the Attorney General, in coordination with relevant agencies, must submit a report that identifies the most “egregious and discriminatory” DEI practices within the agency’s jurisdiction, including a plan to deter DEI programs or principles (whether the programs are denominated as DEI or not); identify up to nine potential civil compliance investigations of publicly traded corporations, large non-profits, large foundations, select associations and/or education institutions with endowments over one billion dollars; identify “other strategies to encourage the private sector to end illegal DEI discrimination;” and identify potential litigation and regulatory action or sub-regulatory guidance that would be appropriate.
In recent weeks, several corporations have rolled back or limited their DEI programs, presumably in anticipation of, or in reaction to, this order. Notably, the order does not prohibit all DEI policies and initiatives; rather, it impacts only those determined to be discriminatory and illegal, e.g., quotas or explicit preferences for women and/or minorities. Policies focusing on workplace inclusion, broadly defining diversity, and adhering to merit-based hiring may reduce the risk of violating this order.
2. Sex and Gender as Protected Characteristics
The “Defending Women From Gender Ideology Extremism and Restoring Biological Truth to the Federal Government” Executive Order redefines federal policy about sex and gender, stating that the federal government will only recognize sex (meaning biological sex – male or female) and not gender. This order directs federal agencies to end initiatives that support “gender ideology”; use the term “sex” not “gender” in federal policies and documents; enforce sex-based rights and protections using the order’s definition of “sex”; and rescind all agency guidance that is inconsistent with the order, including the Equal Employment Opportunity Commission’s “Enforcement Guidance on Harassment in the Workplace” (April 29, 2024), among others. This order also mandates that all government-issued identification documents, including visas, reflect the biological sex assigned at birth and seeks to limit the scope of the U.S. Supreme Court decision in 2020 that held that “sex discrimination” includes gender identity and sexual orientation. This order also directs the EEOC and U.S. Department of Labor (DOL) to prioritize enforcement of rights as defined by the order.
3. Artificial Intelligence
In 2023, former President Biden issued an executive order regarding the potential risks associated with artificial intelligence (AI), which resulted in the DOL releasing guidance on May 16, 2024, entitled “Department of Labor’s Artificial Intelligence and Worker Well-being: Principles for Developers and Employers.” On January 23, 2025, President Trump issued an executive order regarding AI entitled “Removing Barriers to American Leadership in Artificial Intelligence,” which rescinded President Biden’s order. President Trump’s order instructs federal advisors to review all federal agency responses to President Biden’s order and rescind those that are inconsistent with President Trump’s order. Accordingly, the DOL and any other related federal agency guidance, including the 2024 AI guidance issued by the OFCCP, will be rescinded. Employers incorporating such guidance into their policies and practices should respond appropriately. Despite this change in the federal landscape, employers should keep in mind that several states have recently passed laws governing AI use in the workplace, highlighting potential violations under federal and state anti-discrimination laws through AI use.
Below are links to the relevant Executive Orders.
Executive Order 14173 – “Ending Illegal Discrimination and Restoring Merit-Based Opportunity”
Executive Order 14168 – “Defending Women From Gender Ideology Extremism and Restoring Biological Truth to the Federal Government”
Executive Order 14151 – “Ending Radical And Wasteful Government DEI Programs And Preferencing”
Executive Order 14179 – “Removing Barriers to American Leadership in Artificial Intelligence”
Remote Work in Puerto Rico: A Legal Update for Global Employers
Puerto Rico has recently relaxed its requirements for remote work, implementing significant changes. The first set of changes occurred in 2022 with the enactment of Law 52-2022. In January 2024, further reforms were enacted with the signing of Law 27-2024 by then-governor Pedro Pierluisi.
Quick Hits
Puerto Rico has relaxed its remote work requirements with Law 52-2022, which exempts foreign employers without a nexus to Puerto Rico from making income tax withholdings for employees working remotely in Puerto Rico, provided certain conditions are met.
Law 27-2024, effective January 2024, clarifies that nondomiciled employees temporarily residing in Puerto Rico are exempt from Puerto Rican employment laws and contributions, with their employment governed by their domiciles’ laws.
Puerto Rico’s new remote work regulations have provided increased flexibility for foreign employers and employees, allowing remote work without the burden of local employment laws and tax obligations, reflecting a global trend toward accommodating remote work arrangements.
Law 52-2022
Law 52-2022 exempts foreign employers without a nexus to Puerto Rico from making income tax withholdings for employees working remotely in Puerto Rico, provided certain conditions are met. These conditions include:
The employer must be a foreign entity, not registered or organized under Puerto Rican laws.
The employer must have no economic nexus to Puerto Rico, meaning no business operations, tax filings, fixed place of business, or sales of goods or services in Puerto Rico through employees, independent contractors, or any affiliates.
Remote workers cannot provide services to clients with a nexus in Puerto Rico and cannot be officers, directors, or majority owners of the employer.
Employers must ensure that Social Security and payroll contributions for employees are filed either through a W-2 in the United States or in Puerto Rico.
If these conditions are met, foreign employers can hire remote workers in Puerto Rico without the obligation of withholding and remitting income taxes to the Puerto Rico Department of the Treasury (Departamento de Hacienda de Puerto Rico).
Law 27-2024
Law 27-2024 addresses which employment laws will govern the employment relationships of remote employees working from Puerto Rico for employers with no business nexus to Puerto Rico, depending on whether the employees are domiciled in Puerto Rico or elsewhere. Law 27-2024 exempts nondomiciled employees temporarily residing in Puerto Rico from Puerto Rican employment laws and contributions. These employees are not entitled to employment benefits under Puerto Rican law, including workers’ compensation, unemployment, or certain disability benefits. The employment relationship will be governed by the employment contract, or if there is no contract, by the laws of the employee’s domicile location. The employer will have no income tax withholding obligations for these employees. If there is any tax obligation, the employee will be the one to file separately.
Domicile Considerations
The concept of “domicile” is crucial in determining the applicable laws. Domicile is based on the employee’s intention to reside in a particular location. Factors such as where the employee’s family, doctors, and children’s schools are located will be considered. If an employee is domiciled in Puerto Rico, and exempt under the Fair Labor Standards Act (FLSA), certain requirements apply. The employment relationship will be covered by an agreement between the parties, and Puerto Rican employment laws will not apply unless agreed upon. However, workers’ compensation, short-term disability, unemployment insurance, and driver’s insurance for employees who drive as part of their duties in Puerto Rico will be applicable unless the employer provides similar or greater benefits through private insurance.
Implications for Employers
Foreign employers hiring domiciled employees in Puerto Rico must comply with specific requirements. For example, if short-term disability and unemployment benefits are provided through a private policy or in another state, employers do not need to register with the Puerto Rico Department of Labor or obtain workers’ compensation insurance. However, if these benefits are not provided, employers must register and make the necessary contributions (even when income tax withholdings are not required).
Note: The exclusions and rules apply only to (i) nondomiciled employees and (ii) domiciled employees who are exempt under the FLSA. For domiciled, nonexempt employees covered by the FLSA, all Puerto Rican employment laws will be applicable.
Future Trends in Remote Work
There is a noticeable trend of employers accommodating remote work arrangements. This trend is proliferating globally, allowing employees to work remotely without being subject to local employment laws and tax obligations. Puerto Rico, as a U.S. territory, is at the forefront of this trend, providing increased flexibility for employees to work remotely and for employers to hire remote workers without the burden of compliance with local employment laws and tax obligations. Similar changes are likely to be adopted in other jurisdictions, further increasing the flexibility of remote work arrangements.
Conclusion
The new rules governing remote work in Puerto Rico represent a significant shift in employment law, providing greater flexibility for both employers and employees. As companies continue to adapt to the post-COVID-19 landscape, these changes offer a promising start for more flexible remote work arrangements.
New Jersey Updates Discrimination Law: New Rules for AI Fairness
The New Jersey AG and the Division on Civil Rights’ new guidance on algorithmic discrimination explains how AI tools might be used in ways that violate the New Jersey Law Against Discrimination. The law applies to employers in New Jersey, and some of its requirements overlap with new state “comprehensive” privacy laws. In particular, those laws’ requirements on automated decisionmaking. Those laws, however, typically do not apply in an employment context (with the exception of California). This New Jersey guidance (which mirrors what we are seeing in other states) is a reminder that privacy practitioners should keep in mind AI discrimination beyond the consumer context.
The division released the guidance last month (as reported in our sister blog) to assist businesses as they vet automated decision-making tools. In particular, to avoid unfair bias against protected characteristics like sex, race, religion, and military service. The guidance clarifies that the law prohibits “algorithmic discrimination,” which occurs when artificial intelligence (or an “automated decision-making tool”) creates biased outcomes based on protected characteristics. Key takeaways about the division’s position, as articulated in the guidance, are listed below, and can be added to practitioners’ growing rubric of requirements under the patchwork of privacy laws:
The design, training, or deployment of AI tools can lead to discriminatory outcomes. For example, the design of an AI tool may skew its decisions, or its decisions may be based on biased inputs. Similarly, data used to train tools may incorporate the developers bias and reflect those biases in their outcomes. When a business deploys a new tool incorrectly, whether intentionally or unintentionally, the outcomes can create an iterative bias.
The mechanism or type of discrimination does not matter when it comes to liability. Whether discrimination occurs through a human being or through automated tools is immaterial when it comes to liability, according to the guidance. The division’s position is if the covered entity discriminates, they have violated the NJLAD. Additionally, the type of discrimination, whether disparate or intentional, does not matter. Importantly, if an employer uses an AI tool that disproportionately impacts a protected group, then they could be liable.
AI tools might not consider reasonable accommodations and thus could result in a discriminatory outcome. The guidance points to specific incidents that could impact employers and employees. An AI tool that measures productivity may flag for discipline an individual who has timing accommodations due to a disability or a person who needs time to express breast milk. Without taking these factors into account, the result could be discriminatory.
Businesses are liable for algorithmic discrimination even if the business did not develop the tool or does not understand how it works. Given this position, employers, and other covered entities, need to understand the AI tools and automated decision-making processes and regularly assess the outcomes after deployment.
Steps businesses, and employers, can take to mitigate risk. The guidance recommends that there be quality control measures in place for the design, training, and deployment of any AI tools. Businesses should also conduct impact assessments and regular bias audits (both pre- and post- deployment). Employers and covered entities should provide notice about the use of automated decision-making tools.
Putting it into Practice: This new guidance may foreshadow a focus by the New Jersey division on employer use of AI tools. New Jersey is not the only state to contemplate AI use in the employment context. Illinois amended its employment law last year to address algorithmic bias in employment decisions. Privacy practitioners should not forget about these employment laws when developing their privacy requirements rubrics.
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NLRB Acting GC: Student-Athletes Are Not Employees
On February 18, 2025, National Labor Relations Board Acting General Counsel William Cowen rescinded a September 2021 memorandum in which former Board General Counsel Jennifer Abruzzo declared college athletes should be considered employees under the National Labor Relations Act. This was one of many memoranda he rescinded that had been issued by his Biden-administration predecessor.
Acting General Counsel Cowen’s withdrawal of the memorandum is the latest in a series of defeats for pro-employee advocates who had hoped to designate collegiate student-athletes as “employees” under the Act.
The first was the December 2024 withdrawal of an unfair labor practice charge filed by the National College Players Association (NCPA) against the NCAA, the Pac-12 Conference, and a private university in the Los Angeles area. The NCPA’s executive director stated the charge had been withdrawn considering the rise of “name, image, and likeness” (NIL) payments to players, as well as the shift in attitude on the subject under the new Trump Administration.
The second blow to proponents of the concept that student-athletes be deemed “employees” was the January 2025 decision by Service Employees International Union (SEIU), Local 560 to withdraw its petition to represent an Ivy League university’s men’s basketball players. In February 2024, a Regional Director for the Board took the historic step of determining that the university’s men’s basketball players should be considered employees under the Act. The case was filed in September 2023 after all 15 members of the men’s basketball team signed a petition to join Local 560 of the SEIU. At the time, the Regional Director determined the university’s level of control over the players was sufficient to qualify the players as employees under Section 2(3) of the Act. The Board found that traditional “team” activities, including the university’s ability to control the players’ academic schedules and the team’s regimented schedules for home and away games, weighed heavily in favor of an employment relationship. With the petition withdrawn for now, the university’s basketball players will remain non-unionized.
Given these developments, the window for student-athletes being deemed employees under the Act appears to be closed for the time being. With the uncertainty surrounding NIL and other issues around collegiate athletics, this area of law will need to be monitored for additional developments. In the interim, private collegiate institutions should be aware that they may face charges or petitions filed with the Board. Such filings must be treated seriously in light of the Regional Director decision discussed above.
Jackson Lewis’ Education and Collegiate Sports Group is available to assist universities, conferences, and other stakeholders in dealing with matters before the Board or otherwise involving the appropriate classification of student-athletes.
Privacy Tip #432 – DOGE Sued for Unauthorized Access to Our Personal Information
The Department of Government Efficiency’s (DOGE) staggering unfettered access to all Americans’ personal information is highly concerning. DOGE employees’ access includes databases at the Office of Personnel Management, the Department of Education, the Department of Health and Human Services, and the U.S. Treasury.
If you want more information about the DOGE employees who have access to this highly sensitive data, Wired and KrebsOnSecurity have provided fascinating but disturbing accounts.
Meanwhile, New York and other states have filed suit against DOGE, alleging that the unfettered access to the federal databases is a privacy violation. On February 14, 2025, a New York federal judge found “good cause to extend a temporary restraining order” stopping DOGE employees from accessing U.S. Treasury Department databases. However, the next day, another federal judge in Washington, D.C., denied a request to stop DOGE from accessing the databases of the Department of Labor, the Department of Health and Human Services, and the Consumer Financial Protection Bureau. That means that DOGE employees now have access to the sensitive health and claims information of Medicare recipients, as well as the identities of individuals who have made workplace health and safety complaints. NBC News has reported that “the Labor Department authorized DOGE employees to use software to remotely transfer large data sets.”
Currently, 11 lawsuits have been filed against DOGE over access to sensitive information in federal databases, alleging that the access violates privacy laws. The databases include student loan applications at the Department of Education, taxpayer information at the Department of the Treasury, and the personnel records of all federal employees contained in the database of the Office of Personnel Management, the Department of Labor, the Social Security Administration, FEMA, and USAID.
According to a plaintiff, the potential to misuse Americans’ personally identifiable information “is serious and irrevocable….The risks are staggering: identity theft, fraud, and political targeting. Once your data is exposed, it’s virtually impossible to undo the damage.” We will be closely watching the progress of these suits and their impact on the protection of our personal information.
Navigating the H-1B Cap Registration Season: Key Dates and Fee Changes for 2025
As we approach the H-1B cap season for fiscal year 2026, it is crucial for employers and prospective H-1B candidates to stay informed about the registration process, important deadlines, and recent changes.
Key Dates for H-1B Cap Registration
Registration Period: The registration period begins on March 7, 2025, at noon EST, and will close at noon EST on March 24, 2025. During this time, employers must submit the necessary information about their prospective H-1B employees through the USCIS online registration system and pay the required fees.
Lottery Selection: Assuming USCIS receives more registrations than the allotted number of visas available (which happens nearly every year), the agency will conduct a lottery selection. By March 31, 2025, USCIS will notify employers which of their registrants were selected, if any.
Petition Filing: Employers whose registrations are selected will be given a 90-day window to file H-1B petitions starting April 1, 2025. Approved petitions will be effective on October 1, 2025.
Supplemental Lottery Selection: USCIS may conduct supplemental lotteries if the initial round does not meet the annual cap due to withdrawals, rejections, or failure to timely file H-1B petitions. They generally announce the supplemental lottery in late July or early August, with the possibility of additional lotteries if needed. Any registrants who were not selected are automatically considered in the supplemental lottery.
Increased Registration Fee
One of the most significant changes for the upcoming H-1B cap season is the increase in the registration fee. Previously set at $10, the fee has been raised to $215 per registration. This fee is non-refundable, regardless of selection result. Employers should ensure they account for this change when budgeting for the H-1B registration process.
Preparation Tips
Early Planning: Begin gathering the necessary documents and information well before the registration period opens. This includes verifying the eligibility of potential H-1B candidates and ensuring compliance with all legal requirements.
Stay Updated: Keep an eye on USCIS announcements for any changes or updates to the registration process or timeline. This will ensure you are well-prepared to meet all deadlines.
Consider Alternatives: If a registration is not selected in the lottery, explore other visa options, or consider reapplying in the next cap season.
Navigating the H-1B cap registration process can be complex, but staying informed about the important dates and changes can help streamline the experience. By preparing early and understanding the process, employers and candidates can maximize their chances of securing an H-1B visa for the upcoming fiscal year.
State Attorneys General Point to Ways DEI Programs Can Stay Within Legal Boundaries
The attorneys general of sixteen states recently released guidance explaining how diversity, equity, and inclusion (DEI) programs in the private sector can remain viable and legal. This guidance came shortly after President Donald Trump issued two executive orders targeting “unlawful DEI” programs in the federal government, federal contractors, and federal fund recipients, and directed the U.S. attorney general to investigate “unlawful DEI” programs in the private sector.
Quick Hits
The attorneys general of sixteen states signaled to private employers that their DEI programs can remain legal, if designed and implemented correctly under applicable laws.
The guidance came in response to President Trump’s executive orders to stop DEI “mandates, policies, programs, preferences, and activities” in the federal government and “unlawful DEI” programs by federal contractors and federal money recipients.
The guidance reiterates that racial and sex-based quotas and unlawful preferences in hiring and promotions have been illegal for decades under Title VII of the Civil Rights Act of 1964.
On February 13, 2025, the attorneys general of Arizona, California, Connecticut, Delaware, Hawaii, Illinois, Maine, Maryland, Massachusetts, Minnesota, Nevada, New Jersey, New York, Oregon, Rhode Island, and Vermont issued guidance stating DEI programs are still legal when structured and implemented properly.
State laws prohibiting employment discrimination based on race or sex vary in scope. Some of them go beyond the protections in the federal antidiscrimination laws.
While noting that race- and gender-based preferences in hiring and promotions have been unlawful for decades, the new guidance provides myriad legally compliant strategies for employers to enhance diversity, equity, and inclusion in the workplace, such as:
prioritizing widescale recruitment efforts to attract a larger pool of job candidates from a variety of backgrounds;
using panel interviews to help eliminate bias in the hiring process;
setting standardized criteria for evaluating candidates and employees, focused on skills
and experience;
ensuring accessible recruitment and hiring practices, including reasonable accommodations as appropriate;
ensuring equal access to all aspects of professional development, training, and mentorship programs;
maintaining employee resource groups for workers with certain backgrounds or experiences;
providing employee training on unconscious bias, inclusive leadership, and disability awareness; and
maintaining clear protocols for reporting discrimination and harassment in the workplace.
“Properly developed and implemented initiatives aimed at ensuring that diverse perspectives are included in the workplace help prevent unlawful discrimination,” the guidance states. “When companies embed the values of diversity, equity, inclusion, and accessibility within an organization’s culture, they reduce biases, boost workplace morale, foster collaboration, and create opportunities for all employees.”
Next Steps
A group of diversity officers, professors, and restaurant worker advocates has filed suit to challenge President Trump’s executive orders on DEI. Other groups have brought similar lawsuits. It is unclear what impact the challenges to the executive orders will have in light of enforcement efforts.
With the executive orders and leadership shifts at the U.S. Equal Employment Opportunity Commission, the Trump administration has signaled a change in federal enforcement priorities that could make private-sector lawful DEI efforts more risky from a legal standpoint.
Private employers may wish to review their existing DEI programs and policies to ensure compliance with federal and state antidiscrimination laws. In some cases, employers may be able to keep the legally compliant parts of their DEI programs while adjusting or eliminating certain parts that the Trump administration could consider unlawful.
Ogletree Deakins will continue to monitor developments and will provide updates on the Diversity, Equity, and Inclusion, Employment Law, and State Developments blogs as new information becomes available.
What Will Trump 2.0 Mean for Employee Benefits?—One Place to Look for Clues: Project 2025
Even as high-priority issues such as diversity, equity, and inclusion (DEI), immigration, and Ukraine take center stage in the first months of the new presidential administration, many employers are wondering what the next four years might mean for employee benefits.
Quick Hits
The Heritage Foundation’s Project 2025 provides clues for potential employee benefits changes under the second Trump administration.
Project 2025 calls for reversing federal rules that added gender identity, sexual orientation, and pregnancy as protected classes covered under the nondiscrimination provisions of the Affordable Care Act.
Project 2025 also proposes eliminating the dispute resolution process under the No Surprises Act in favor of a “truth-in-advertising approach.”
Plan sponsors may find clues in Project 2025, the far-reaching report produced by Washington, D.C., think tank Heritage Foundation as a blueprint for a second Trump administration and actually written in part by a number officials in the first Trump administration and public advocates for the 2024 Trump presidential campaign. (The president distanced himself from Project 2025 during the campaign, although several contributors are serving in the new administration.)
Specifically, three chapters of the 900-plus page report may offer insight for plan sponsors: one covering the U.S. Department of Health and Human Services (HHS), one covering the U.S. Department of the Treasury (Treasury), and one covering the U.S. Department of Labor (DOL) and related agencies.
Below, we dust off our copies of the report—originally released in 2023—and recap a few notable Project 2025 employee benefits policy recommendations (and the specific page numbers in the report):
ACA Section 1557: Reverse federal rules that added gender identity, sexual orientation, and pregnancy as protected classes covered under the nondiscrimination provisions of Section 1557 of the Affordable Care Act (ACA). These provisions have a limited impact on employee benefit plans, and in 2020, the Trump administration issued regulations that removed provisions detailing specific forms of discrimination, including gender dysphoria treatment, health insurance participation, and benefit plan design. (Page 475)
No Surprises Act: Encourage the U.S. Congress to revisit the 2021 legislation, including addressing the “deeply flawed system for resolving payment disputes between insurers and providers.” Project 2025 advocates eliminating the dispute resolution process in favor of a “truth-in-advertising approach.” (Page 469)
State restrictions on “anti-life” benefits: Encourage Congress and the DOL to “clarify” that the Employee Retirement Income Security Act (ERISA) would not preempt state attempts to prevent employer-sponsored health benefit plans from offering plan coverage for abortion, surrogacy, or other “anti-life” health care benefits (Page 585)
Individual Retirement Accounts (IRAs): Increase the IRA contribution limit to equal the amounts that can be contributed under 401(k) or 403(b) plans with respect to married couples. (Page 588)
Independent contractor benefits: Project 2025 encourages Congress to provide “a safe harbor” from employer-employee status when an employer permits independent contractors to participate in employer-provided benefits. Traditionally, only common law employees can participate in employer-sponsored retirement programs. (Page 591)
ESG investing: Encourage the DOL to prohibit ERISA retirement plans from investing plan assets based on any factor other than investor risks and returns, specifically environmental, social, and governance (ESG) factors. In addition, Project 2025 encourages the DOL to consider taking “enforcement and/or regulatory action to subject investment in China to greater scrutiny under ERISA” based on a perceived lack of compliance with American accounting standards and state control of Chinese companies. (Page 606)
Multiemployer plans: Project 2025 advocates greater scrutiny and reporting requirements for multiemployer plans, which are jointly administered by unions and employers. Among the specific recommendations is that the Pension Benefit Guaranty Corporation (PBGC), which insures defined benefit pension plans, require more detailed and timely reporting from plans. (Page 609)
ESOPs: Project 2025 recommends the DOL issue regulations that encourage greater participation in employee stock ownership plans (ESOPs). (Page 610)
Cap benefits deductibility: Project 2025 recommends limiting the amounts that employers can deduct for certain benefit costs to $12,000 or less per year per full-time equivalent employee. Retirement plan contributions would not count against that limit, and only “a percentage” of contributions to health savings accounts (HSAs) would count toward such limitation. (Page 697)
Deductibility for dependent coverage: Limit the ability of employers to deduct the value of health insurance and other benefits provided to employee dependents who are 23 or older. (Page 697)
Universal Savings Accounts (USAs): Establish accounts for taxpayers to contribute up to $15,000 of post-tax wages into USAs, similar to Roth IRAs. Investment gains would be nontaxable, portable, and withdrawable at any time for any purpose without penalty. (Page 696)
Practical Implications of Immigration Enforcement Activity on Retirement Plans
The second Trump administration is intensely focused on enforcement of U.S. immigration laws. Understandably, employers are concerned about immigration visits and Form I-9 compliance, and human resource professionals are bracing for potential workforce disruptions and increased scrutiny of hiring procedures. Retirement plan administrators should also consider the consequences of undocumented workers participating in company retirement plans.
How an Undocumented Worker Becomes a 401(k) Plan Participant
In spite of an employer’s Form I-9 process, employees can provide incorrect, misleading, or false documentation as evidence that they are legally allowed to work in the U.S. If the employer does not have adequate systems in place to verify the documentation provided, then such employee can, nevertheless, become a participant in the employer’s 401(k) plan in accordance with the plan’s eligibility terms. For example, an employer may automatically enroll new employees in its 401(k) plan at three percent of compensation. The employer may also provide a matching or nonelective contribution on a payroll-by-payroll basis. Under this scenario, an unauthorized worker could relatively quickly begin accruing an account balance as a participant under the 401(k) plan. The same result could occur for undocumented workers under the eligibility terms of most retirement plans.
Plan Language Regarding “Employee” and ERISA
Most retirement plans define “employee,” “eligible employee,” or “participant” without reference to immigration status. For example, a common definition of “employee” could be similar to –
Employee means an individual who is reported on the payroll records of the Employer as a common-law employee.
While it may seem counter-intuitive, undocumented workers are indeed protected under the Fair Labor Standards Act (FLSA), which is enforced by the Department of Labor (DOL). Interestingly, the DOL also enforces the Employee Retirement Income Security Act (ERISA), which does not address the immigration status of employees. In other words, an individual is a covered (protected) employee under ERISA whether documented or not. So employers should proceed with the understanding that a plan participant – without regard to immigration status – is entitled to the benefits earned under a retirement plan.
It is important to distinguish undocumented workers from the “nonresident aliens” exclusion from eligibility that is contained in many retirement plans. Nonresident aliens without United States source income are often expressly excluded from retirement plan participation. According to the Internal Revenue Service, an alien is any individual who is not a U.S. citizen or U.S. national. A nonresident alien is an alien who has not passed the green card test or the substantial presence test. Because undocumented workers have U.S. source income, that exclusion under the retirement plan does not address issues that may come up related to undocumented workers.
With the assistance of counsel, employers may consider whether it is feasible to amend the plan to expressly exclude undocumented workers – i.e., employees who do not provide documentation that they are legally allowed to work in the U.S. Care should be taken in order to make sure such amendment can be properly administered without triggering any unintended consequences. Moreover, the amendment should not inadvertently violate applicable employment discrimination laws.
Distributions to Deported and Terminated Undocumented Workers
If an undocumented participant is deported or is absent from work for an extended period without notice, then the employer may terminate their employment. In such cases, like any other participant, an undocumented participant is entitled to receive distributions of vested benefits under a retirement plan upon termination of employment. The issue becomes how to process the distribution when the employer’s Form I-9 records include an incorrect or false individual tax identification number (ITIN) or Social Security number (SSN). Employers – plan recordkeepers, in particular – require a correct ITIN or SSN in order to properly report a retirement plan distribution on Form 1099-R. Obtaining this information from an undocumented participant may be challenging because they may be in custody, living in a different location, or intentionally avoiding contact. In these circumstances, the employer should designate them as “missing or lost participants” and take actions consistent with the DOL’s best practices for handling such participants (see our previous articles related to missing participants in retirement plans here and here).
Keep in mind that the employer should consider the DOL guidance whether the distribution is a small balance cashout, an automatic rollover to an IRA, or a series of installment payments. After the employer has exhausted its responsibilities under the DOL guidance, it may be able to transfer certain small distributions ($1,000 or less) to state unclaimed property funds as described under the recent Field Assistance Bulletin 2025-01.
Distributions to Those Seeking to Help Deported Family Members
Employees affected by immigration enforcement efforts may be interested in accessing their retirement accounts to provide financial assistance to deported friends and family. If the employer sponsors a 401(k) plan, then the plan may allow loans or penalty-free in-service distributions (if the participant has reached age 59½).
In addition, as permitted under SECURE 2.0, a 401(k) plan may be amended to allow employees to take penalty-free distributions up to $1,000 (or smaller amounts that leave at least $1,000 of vested benefits in the account afterward) if they certify the amount is for a personal or family emergency. Such emergency distributions must be repaid to the plan within three years of receipt in order to remain penalty-free.
Action Steps
Assess Risks. Based on workforce demographics, proximity to immigration enforcement activity, and other related factors, consider the likelihood that immigration enforcement agencies will select the employer for an on-site review or worker deportation. If so, consider whether to amend the 401(k) plan to permit emergency distributions for those wishing to provide financial assistance to deported family members.
Audit. Human resource, payroll, and benefits professionals should collaborate to determine whether undocumented workers are currently eligible for retirement plan benefits (or any other employee benefits offered by the employer). Consider whether it may be appropriate to engage a background screening service to verify Form I-9 employee authorization documentation.
Review DOL Missing Participant Best Practices. Review and document the procedures and processes used to locate missing participants, including those who may be at risk for deportation.
Consult Plan Recordkeeper. Contact the recordkeeper to inquire what procedures it has in place to process distributions and Forms 1099-R when there is an incorrect ITIN or SSN (or none at all).
Seek Legal Counsel. Ask legal counsel whether it is feasible to amend the retirement plan to expressly exclude undocumented workers.
What GSA Contractors Need to Know About the New FAR Deviation for Revoked Executive Order 11246, Equal Employment Opportunity
On February 18, 2025, the General Services Administration (“GSA”) announced that it issued GSA Class Deviation CD-2025-04 (“the GSA Class Deviation”) effective February 15, 2025, to implement Executive Order (“EO”) 14173 titled “Ending Illegal Discrimination and Restoring Merit-Based Opportunity,” which, as Blank Rome has previously written about here and here, revoked the landmark 60-year-old EO 11246 titled “Equal Employment Opportunity.”
Below is a summary of the key takeaways.
Overview:
The GSA Class Deviation only applies to GSA solicitations, contracts, and real property leases. However, it may serve as a preview of how other agencies will implement the revocation of EO 11246.
The GSA Class Deviation does not include new contract clauses or certifications, whether for the expected Diversity, Equity, and Inclusion certification required by EO 14173, or any other subject.
Supplement 1 to the GSA Class Deviation removes the term “gender identity” from FAR 22.801 and from clauses in FAR Part 52 that include the term. The apparent purpose of this removal is to comply with EO 11246 titled “Defending Women from Gender Ideology Extremism and Restoring Biological Truth to the Federal Government.” Notably, Supplement 1 to the GSA Class Deviation states that GSA Contracting Officers (“COs”) “must” notify contractors that “as of February 15, 2025, all uses of the term ‘gender identity’ are not to be recognized or used prospectively by Federal contractors.” There is no guidance on whether or how this prohibition will be made contractually applicable, or the extent of its purported applicability within a contractor’s organization or operations, e.g., to strictly internal communications, to external communications that do not include GSA, to communications with commercial partners, in oral communications, etc. There is likewise no guidance on how, in practical terms, a GSA contractor should cease to “recognize” the phrase “gender identity” nor does the GSA Class Deviation provide or refer to a definition of the phrase “gender identity.” Given these and other issues, we expect this prohibition will be litigated after an affected GSA contractor receives the required CO notice. We recommend that GSA contractors confer with counsel regarding whether and how to respond to a CO notice on this issue. The GSA Class Deviation does not address or purport to prevent GSA contractors from allowing their employees to specify preferred pronouns. (An Office of Personnel Management Memo dated January 29, 2025, has directed the heads of federal agencies to disable Outlook features that prompt government employees for their pronouns.)
Updates Regarding New or Open Solicitations, New Contracts, or Leases with at Least Six Months of Performance Remaining:
COs must amend solicitations or otherwise incorporate the GSA Class Deviation changes prior to contract award. This will generally require the removal of any and all representations and certifications related to affirmative action and equal opportunity compliance. Notably, the GSA Class Deviation does not purport to modify or rescind any applicable affirmative action and equal opportunity obligations arising under a GSA contractor’s contracts or leases with states.
COs must notify contractors that although SAM.gov may continue to require responses to representations based on provisions that will no longer be included in GSA solicitations (such as FAR 52.222-25 Affirmative Action Compliance and FAR 52.212-3(d) Offeror Representations and Certifications – Commercial Products and Commercial Services), GSA COs will neither consider those representations when making award decisions nor enforce the requirements of those clauses.
COs must not include the following clauses in new GSA solicitations:
FAR 52.222-21, Prohibition of Segregated Facilities
FAR 52.222-22, Previous Contracts and Compliance Reports
FAR 52.222-23, Notice of Requirement for Affirmative Action to Ensure Equal Employment Opportunity for Construction
FAR 52.222-24, Preaward On-Site Equal Opportunity Compliance Evaluation
FAR 52.222-25, Affirmative Action Compliance
FAR 52.222-26, Equal Opportunity
FAR 52.222-27, Affirmative Action Compliance Requirements for Construction
FAR 52.222-29, Notification of Visa Denial
Finally, COs must “ensure” that GSA contractors understand that the FAR subparts related to Equal Opportunity for Veterans and Employment of Workers with Disabilities are not affected. Additionally, the GSA Class Deviation states that it does not affect existing federal laws on civil rights, non-discrimination, or any laws that generally apply to a company regardless of whether it is a government contractor.
We will continue to monitor and report on developments as federal agencies continue their efforts to implement EOs and other directives relevant to government contractors.
Compliant Hiring: Current Legal Obligations When Building Your Workforce [Video]
Navigating the complexities of hiring can be challenging, especially when it comes to ensuring compliance with various legal standards. In this recorded webinar, Bracewell Labor & Employment partner Kelly Robreno Koster and associate Caroline Melo Chapman discuss the current legal landscape affecting hiring and how employers can comply with the latest laws while also building a diverse and productive workforce. Key topics that will be discussed include:
Equal pay laws, including pay transparency obligations;
Background checks;
Ban-the-box laws;
Drug testing; and
Strategies to mitigate bias.
Two Separate Claims of Action in Relation to Employment Discrimination
Most people are familiar with Title VII of the Civil Rights Act of 1964, it frequently used by aggrieved employees. However, Section 1981 of the Civil Rights Act of 1866 is another legal mechanism that can be used to bring employment discrimination claims.
Before bringing an employment discrimination claim, it is important to understand the differences between these two statutes, when they apply, and how they operate.
Overview
The Civil Rights Act of 1866 was enacted shortly after the Civil War, with the aim to protect the rights of newly freed slaves. Section 1981 was an original part of the Act, which guaranteed that all individuals within the United States enjoy the same right to make and enforce contracts, regardless of race. Over the years, the Supreme Court has interpreted Section 1981 to apply broadly to various forms of racial discrimination in contractual relationships, including employment.
The Civil Rights Act of 1991 amended Section 1981 to include protections against discrimination in the performance, modification, and termination of contracts, and clarified that it applies to both private and public discrimination.
Title VII of the Civil Rights Act of 1964 (42 U.S.C. § 2000e) prohibits employment discrimination based on race, color, religion, sex (including pregnancy, sexual orientation, and gender identity), or national origin. Title VII was a pivotal piece of legislation in the fight against employment discrimination in the United States. Its historical context is deeply rooted in the broader Civil Rights Movement of the 1960s, which sought to address systemic racial discrimination and inequality. Title VII also established the Equal Employment Opportunity Commission (“EEOC”) to enforce its provisions and handle workplace discrimination complaints.
Scope of Protection
One of the key differences between Title VII and Section 1981 lies in the scope of protection they offer. Title VII provides a broad range of protections against various forms of discrimination, including race, color, religion, sex, and national origin. It covers all aspects of employment, such as hiring, firing, promotions, compensation, and other terms and conditions of employment. Additionally, Title VII applies to employers with 15 or more employees, including federal, state, and local governments, as well as private and public sector employers.
In contrast, Section 1981 specifically addresses racial discrimination in the making and enforcement of contracts. This includes employment contracts, but its protections are limited to race and do not extend to other protected characteristics covered by Title VII. Section 1981 applies to all employers, regardless of size, and does not require the involvement of the EEOC for enforcement. This means that individuals can bring claims directly to federal court without first filing a charge with the EEOC, which can be a significant advantage in certain cases.
Types of Discrimination
Title VII addresses a broad spectrum of discriminatory practices in the workplace. It prohibits discrimination based on race, color, religion, sex (including pregnancy, sexual orientation, and gender identity), and national origin. This includes disparate treatment, disparate impact, harassment, and retaliation.
Section 1981, on the other hand, is specifically concerned with racial discrimination. It ensures that all individuals, regardless of race, have the same rights to make and enforce contracts, which include employment contracts. This statute addresses both intentional discrimination and discriminatory practices that affect the ability to enter into or maintain contractual relationships. While Section 1981 does not explicitly cover other forms of discrimination like sex or religion, it provides robust protection against racial discrimination in the workplace and other contractual settings.
Enforcement and Remedies
Title VII is enforced by the Equal Employment Opportunity Commission (EEOC), which investigates discrimination complaints, mediates disputes, and can file lawsuits on behalf of employees. Before filing a lawsuit under Title VII, individuals must first file a charge with the EEOC. Remedies under Title VII can include reinstatement, back pay, front pay, compensatory damages for emotional distress, and punitive damages for particularly egregious conduct. The amount of compensatory and punitive damages is capped based on the size of the employer, ranging from $50,000 to $300,000
Section 1981, in contrast, allows individuals to bypass the EEOC and file lawsuits directly in federal court. This can expedite the legal process for those facing racial discrimination. Remedies under Section 1981 are similar to those available under Title VII, including compensatory and punitive damages, but there are no caps on the amount of damages that can be awarded. This makes Section 1981 a powerful tool for addressing racial discrimination, providing broader potential financial recovery for plaintiffs.
It is important to note that these are general distinctions between Title VII and Section 1981, and specific legal requirements may vary in different jurisdictions.
Consulting with an attorney who specializes in employment litigation can provide further guidance on the application of these laws to the facts and circumstances of specific cases.