How to Survive the Administration’s Focus on Deporting Illegal Immigrants
As reported in all forms of media, the Trump administration has launched a nationwide blitz of immigration enforcement that is not likely to abate in the short term. Raids, which the administration has characterized as focused on detaining and deporting those who pose a threat to public safety and national security, have been conducted in New York City, Chicago, Newark, New Jersey, the suburbs of Atlanta, Boston, Denver, Los Angeles, San Francisco, and Austin and San Antonio, Texas, among other places. More than 2,000 arrests have been reported by Immigration and Customs Enforcement (“ICE”), with close to 1,000 detainers (a request that a law enforcement agency hold an inmate for another agency) lodged since this past weekend. Significantly, while immigration enforcement was typically handled almost exclusively by ICE, the recent raids have seen participation by agents of the Federal Bureau of Investigation (“FBI”), Drug Enforcement Administration (“DEA”), the Bureau of Alcohol, Tobacco, Firearms and Explosives, as well as the U.S. Marshals Service.
In another development, ICE has reversed a policy in place during the Biden administration and now permits its agents to raid “sensitive locations” including schools, hospitals, and churches, leading the U.S. Conference of Catholic Bishops to condemn the new policy as “contrary to the common good” and to declare that it would “turn places of care, healing, and solace into places of fear and uncertainty for those in need, while undermining the trust between pastors, providers, educators, and the people they serve,” and “will not make our communities safer.”
It is inevitable that the administration’s focus on securing the borders and preserving employment opportunities for individuals who are lawfully authorized to work in the country will spill over to the workplace, especially in industries that traditionally employ significant numbers of immigrant workers. We anticipate that there will be enhanced enforcement of the Immigration Reform and Control Act of 1986 (“IRCA”), with emphasis on audits of I-9 forms and removal of undocumented individuals from the workplace. Enforcement actions focusing on the employment relationship can take the form of scheduled document (I-9) audits, which are preceded by receipt of a Notice of Inspection that gives the employer three business days to provide requested documents, as well as unscheduled workplace raids. The remainder of this alert will provide guidance to employers when an agent of ICE, or other law enforcement personnel, show up at a worksite seeking documents or access to the entity’s workers.
WHAT TO DO BEFORE IMMIGRATION AGENTS SHOW UP AT YOUR DOOR
There are certain action items all employers should take now in anticipation of a visit from ICE or Customs and Border Protection (“CBP”). They include:
Appoint a person with authority to be the primary contact in the event of a visit by ICE/CBP or other federal, state, or local law enforcement agencies and conduct necessary training to ensure the point person is prepared to:
Review warrants,
Contact counsel for advice, and
Monitor agents while they are on site and document what occurs during the visit.
Perform an internal audit of I-9s and other documents that an agent may request to review.
Confirm you have I-9s for all current employees and those who recently have been terminated from employment (and ensure that they have been properly completed and that the forms, as well as any documents that the employee presented in support of their I-9 declarations and maintained by the employer, are stored apart from personnel files), destroying those forms that the employer is no longer required to maintain;
Make sure you have a list that contains the names of all current employees and should have access to payroll records as well as quarterly wage and hour reports;
To the extent you use E-Verify, have confirmations available.
Consider utilizing E-Verify, a web-based system that allows enrolled employers to confirm the eligibility of their employees to work in the United States, for all new hires.
If you utilize contractors, leased workers, or temporary employees, review your vendor contract to ensure the requisite safeguards are in place confirming service providers are legally authorized to work in the United States.
To the extent you have a question about an employee’s immigration status, do not panic or jump to conclusions. Have a conversation with the employee and come up with a plan of action.
IF YOU RECEIVE A NOTICE OF INSPECTION (BY CERTIFIED MAIL OR DELIVERED IN PERSON)
Review the Notice of Inspection to identify what documents are being requested and share with counsel to review what needs to be produced. Don’t panic.
Gather the documents requested in the Notice within the three-business day window and do not plan to offer any additional documents or information other than those required for inspection; do not waive your right to the three-day waiting period.
Make copies of all documents being made available for inspection, as the ICE agent will want to review originals.
Make a record of all documents that are provided to the agent for inspection.
Make notes of any alleged noncompliance raised by the agent during the inspection and do not make any untruthful statements about the company’s immigration policies or I-9 collection processes.
Review any identified compliance issues with counsel.
IF AN ICE AGENT OR AGENT OF ANOTHER FEDERAL, STATE, OR LOCAL ENFORCEMENT AGENCY SHOWS UP AT YOUR DOOR
Demand to see a judicially issued warrant permitting a search. If there is none, then you can refuse ICE/CBP entry into your workplace.
If there is a warrant, then review it with counsel to ensure it is valid. This includes checking that it is signed by a judge or magistrate, has the correct address for the workplace to be searched, provides a duration for the search, and describes the scope of the search.
There are different types of warrants or subpoenas that might come into play, including:
A judicial warrant, which allows ICE/CBP to conduct any search as authorized by the warrant. You must comply with a valid judicial warrant.
An administrative warrant, which allows ICE/CBP to conduct an arrest or seizure. Administrative warrants do not authorize searches and therefore you do not need to permit a search in this instance.
A judicial subpoena, which allows an enforcement agency to request information and/or documents from third parties, like you the employer. Unless you have a legitimate basis to oppose the subpoena, you should generally comply with it.
An administrative subpoena, which similarly allows ICE/CBP to request information and/or documents from third parties, like you the employer. You do not need to comply with an administrative subpoena, penalties may occur only after the issuer takes additional steps to enforce the subpoena in federal court.
If the judicial warrant is valid, you should comply with the request for inspection.
During the inspection, you should watch the agent the entire time.
Document everything:
Record the names and ID numbers of all agents, and
Memorialize any conversations with agents.
If any employee is arrested, ask the agent where the employee is being taken.
The Administration’s emphasis on enforcement of immigration laws can be costly for employers, since fines and penalties for I-9 noncompliance are significant, and the disruption of work caused by removal of employees from the workforce can be devastating.
Complying with the ACA Disclosure Requirements Just Got a Whole Lot Easier!
New legislation liberalizing certain disclosure requirements under the Affordable Care Act (“ACA”) was passed at the end of 2024.
Effective for 2024 reporting, mailing a paper copy of Forms 1095-C/1095-B is no longer required if the employer timely provides employees with proper notice by January 31, 2025.
Under the ACA, Applicable Large Employers (ALEs) are required to provide minimum essential health care coverage to at least 95% of their full-time employees that meets “minimum value” and “affordability” standards, or potentially pay a penalty to the Internal Revenue Service (“IRS”) under the ACA’s employer shared responsibility provisions. In connection with this requirement, health insurers and ALEs are required to provide full-time employees and employees with health care coverage with an annual IRS Form 1095-C/1095-B that discloses the coverage.
ALEs are no longer required to do a mass mailing of these forms to their employees if the employer meets certain notice requirements. If an employer posts a clear, conspicuous and accessible notice informing employees that any individual to whom Form 1095-C/1095-B would otherwise be required to be provided may request a copy of the applicable forms, a broad mailing to all employees is not required. There has not been subsequent guidance on what will qualify as “clear, conspicuous and accessible,” so for purposes of complying with the notice condition this year, employers are left to make a good-faith and reasonable interpretation of the standards.
Deadline – January 31: The notice must be posted no later than January 31 following the year of the reporting. For the 2024-year reporting, the notice must be posted by Friday, January 31, 2025.
Responding to Requests: Upon request, employers must provide the requested IRS Form 1095-C/1095-B to the employee by the later of January 31 or 30 days after receiving the employee’s request.
Employers still need to complete and file Forms 1095-C and 1094-C with the IRS. If filed electronically, the forms are due no later than March 31, 2025; if filed in paper form, the forms are due no later than February 28, 2025.
Next Steps for Employers:
If an employer wishes to take advantage of this reprieve, the employer should prepare and conspicuously post an accessible notice to employees informing them of their right to request a Form 1095-C/1095-B. The notice must be posted by January 31, 2025.
Employers should adopt a process for managing employee requests for forms.
Employers should continue to prepare and submit required ACA forms with the IRS.
DOJ Announces Largest Employee Retention Credit Fraud Indictment
Overview
On January 22, 2025, the US Department of Justice (DOJ) announced the indictment of seven individuals in the largest Employee Retention Credit (ERC) fraud scheme to date. According to the indictment, the defendants filed more than 8,000 refund claims for ERCs and Sick and Family Leave Credits (SFLCs), totaling more than $600 million.
In Depth
The ERC and SFLC programs were designed to help businesses retain employees on the payroll during the COVID-19 pandemic. Prosecutors allege that the defendants exploited these programs by submitting fraudulent claims on behalf of ineligible businesses, inflating employee numbers, and misrepresenting wages. DOJ asserted that the defendants concealed their involvement by not identifying themselves as preparers on the returns, using virtual private networks and through other means.
ERC fraud has been a top priority of DOJ and the Internal Revenue Service (IRS), and this indictment can be added to a growing list of ERC-related enforcement actions. As of October 2024, the IRS Criminal Investigation division initiated 504 criminal investigations involving more than $5.5 billion in ERC claims. There have been more than 45 cases resulting in federal charges, with 27 resulting in convictions. A specialized unit within DOJ, called the “Fraud Strike Force,” has also been initiating investigations into potential ERC fraud, stating that such enforcement will “occupy a substantial portion of DOJ attention for years to come.”
On the civil enforcement front, the IRS has strengthened its efforts to examine and disallow improper ERC claims. The IRS announced in mid-2024 that it had issued approximately 28,000 disallowance notices on claims aggregating $5 billion. According to the IRS, these claims “showed a high risk of being incorrect.” The IRS described these disallowances as the “first significant wave,” and with at least 1 million claims still outstanding, practitioners expect more disallowances. The IRS has also announced that it will be sending 30,000 “clawback” letters seeking to reclaim ERC funds that have already been paid.
We have seen an aggressive examination campaign from the IRS targeting ERC claims. These exams, numbering into the thousands, have often involved more typical questions of taxpayer eligibility (e.g., number of employees and wages amount) but have also inquired about whether there has been “double dipping” with respect to other COVID-19-era stimuli, such as the Paycheck Protection Program. The IRS is also focused on governmental orders and the effects these orders had on taxpayers’ business operations.
Besides taxpayers, accountants and other tax professionals have also been a target of IRS enforcement activity. The IRS Office of Promoter Investigations “has received hundreds of referrals from internal and external sources” concerning individuals and businesses that it deems as potentially having facilitated fraudulent ERC claims. The IRS has the authority to impose civil penalties on alleged promoters under Internal Revenue Code Section 6700. DOJ may pursue criminal cases against individuals and entities it believes are promoting false ERC claims. This enforcement activity may even target individuals or principals of a firm after it has long ceased operations.
Practice Point: DOJ’s announcement makes clear that ERC fraud remains an enforcement priority for 2025. Taxpayers and tax professionals should prepare now to defend their ERC claims, including by compiling and maintaining substantiation to support each claim, and be ready to take immediate steps should they receive an IRS audit notice, a request for documentation or information, or are otherwise contacted by the government.
How Risky Are DEI Programs Under Trump 2.0?
President Trump’s January 21, 2025, executive order titled “Ending Discrimination and Restoring Merit-Based Opportunity” (“Executive Order”) directs the termination of federal government practices and policies that protect and promote diversity and inclusion; the Executive Order also addresses diversity and inclusion initiatives in the private sector. Less than a week later, an internal memo from the White House budget office “temporarily paused” grants and loans by the federal government while the government assesses whether the distributions are consistent with certain executive orders and other Trump administration objectives.
The Executive Order specifically targets diversity, equity, and inclusion (DEI) and diversity, equity, inclusion, and accessibility (DEIA) programs, describing them as “dangerous, demeaning, and immoral,” which “violate the text and spirit of our longstanding Federal civil-rights laws” and “undermine our national unity, as they deny, discredit, and undermine the traditional American values of hard work, excellence, and individual achievement in favor of an unlawful, corrosive, and pernicious identity-based spoils system.” The Executive Order uses broad, sweeping language and does not describe the types of DEI or DEIA initiatives that violate existing federal civil rights laws, leaving uncertainty as to which programs the administration will target but leaving no uncertainty about the chilling effect the Executive Order will have.
The Executive Order Targets Large Companies
The Executive Order requires the attorney general to submit a report within 120 days (May 21, 2025) that includes a proposed strategic enforcement plan identifying, among other things, (i) key sectors of concern within each agency’s jurisdiction, (ii) the most egregious and discriminatory DEI practitioners in each sector of concern, and (iii) a plan of specific steps or measures to deter DEI programs or principles (whether specifically denominated “DEI” or otherwise) that constitute illegal discrimination or preferences. Moreover, the Executive Order directs, “As a part of this plan, each agency shall identify up to nine potential civil compliance investigations of publicly traded corporations, large non-profit corporations or associations, foundations with assets of 500 million dollars or more, State and local bar and medical associations, and institutions of higher education with endowments over 1 billion dollars.” As such, large or otherwise prominent organizations should be particularly on guard.
The Executive Order has immediately impacted the broader enforcement context. For example, on January 23, 2025, Texas Attorney General Ken Paxton and nine other state attorneys general warned several major financial institutions that DEI and environmental, social, and governance (ESG) commitments could lead to enforcement actions if they are found to violate state or federal laws. Following the release of the attorney general report described above, we may see an uptick in warnings made by other state attorneys general and/or similar warnings issued to organizations in sectors of concern identified in the forthcoming attorney general’s report.
To be sure, existing federal antidiscrimination law controls. That means while the Trump administration may view certain DEI programs as unlawful, it does not mean judges will. Read on for specific takeaways for entities with DEI programs.
The Executive Order Targets Recipients of Government Funding
Recipients of federal government funding already should be familiar with the False Claims Act (FCA), 31 U.S.C. §§ 3729 – 3733, which provides that any person who knowingly submits, or causes to submit, false claims to the federal government is liable for three times the government’s damages, plus penalties.
The Executive Order uses the FCA to target DEI initiatives of government funding recipients. First, federal contractors and subcontractors are prohibited from considering race, color, sex, sexual orientation, religion, or national origin in their employment, procurement, and contracting practices. Second, every contract or grant award issued by a federal agency — which will include government contractors as well as health care entities that participate in federal health care programs, and research institutions that receive federal grant money — must include the following provisions:
“A term requiring the contractual counterparty or grant recipient to agree that its compliance in all respects with all applicable Federal anti-discrimination laws is material to the government’s payment decisions for purposes of [the FCA];” and
“A term requiring such counterparty or recipient to certify that it does not operate any programs promoting DEI that violate any applicable Federal anti-discrimination laws.”
With these provisions, the Department of Justice or private qui tam relators could pursue an FCA case utilizing a false certification theory, meaning a party could be held liable under the FCA for submitting false or fraudulent claims to the government if the party falsely certifies that it has complied with federal requirements when, in fact, they have not. For a claim to be fraudulent under this theory, the false certification must be material to the government’s decision to pay the claim.
The Executive Order essentially requires parties who wish to do business with the government to agree that a violation of a federal antidiscrimination law — e.g., maintaining a DEI program that violates federal antidiscrimination laws — is material to the government’s decision to pay under the FCA. However, it is unclear that “agreeing” a requirement is material makes it so. For “materiality,” compliance with the provision actually must be material to the government’s decision to pay the claim or its decision to award the contract. In 2016, the Supreme Court held that “designating” a “legal requirement an express condition of payment” is not sufficient to establish materiality under the FCA. Universal Health Services, Inc. v. United States ex rel. Escobar, 579 U.S. 176, 192 (2016). However, the Trump administration will likely argue that its recent halting of federal funding, as the government takes stock of whether the spending complies with its executive orders and policies, is evidence that the antidiscrimination requirement is material to the government’s decision to pay. Crucially, however, the halt of federal funding does not apply to Medicare, nor does it direct that payment be terminated to a contractor for the reason of their DEI program. It does direct the termination of payment as related to DEI actions, initiatives, or programs.
As so often occurs in the FCA arena and elsewhere, many practices targeted by the Department of Justice or relators ultimately will be defensible. In the DEI context, absent a settlement, a court would have to determine the DEI program in question violates current federal antidiscrimination law, and the Department of Justice or relator would have to prove each element of an FCA violation, including materiality and scienter (that the defendant knew or recklessly disregarded or deliberately ignored in its certification that its representation of compliance with federal antidiscrimination laws was false).
As such, it is yet to be seen what kind of teeth the Executive Order will ultimately have. The administration could be counting on a chilling effect, with the potential costs of investigations, enforcement action, and litigation outweighing companies’ willingness to go to battle for their DEI programs in court.
Takeaways for Companies with DEI Programs
We expect more details from the administration, such as regulatory and sub-regulatory actions, in the days and months to come. In the meantime, we recommend companies take action now to mitigate potential risk, even if their programs are ultimately defensible. For example, we recommend the following immediately:
Companies — federal contractors and private sector alike — should consult DEI and labor and employment experts to assess whether their DEI policies and practices may be construed to be out of compliance with existingfederal antidiscrimination laws under a Trump-era lens and what changes (if any) in their policies and practices are necessary to ensure compliance or mitigate risk.
Companies should be cognizant of new developments as they arise under the Trump administration. To assist in this endeavor,
Companies should reach out to legal counsel to discuss how the Executive Order, and likely future orders, may impact their businesses and what specific steps should be taken now to best protect them from any future liability and enforcement actions.
New Era of Uncertainty for U.S. Visa Holders
President Trump’s decision to suspend visa services at the U.S. Embassy in Colombia on Sunday, January 26th as part of an effective effort to pressure the government of Colombia to agree to accept flights of Colombian citizens being deported from the United States, makes it more likely that the same tactic will be used with other countries who fail to comply with U.S. immigration directives and policies. This approach could also be deployed to pressure countries that resist other U.S. demands unrelated to immigration. While the dispute with Colombia was resolved, the fallout lingers, and normal visa operations in Bogota have not resumed as of today (Tuesday, January 28, 2025). When they are restored, delays in obtaining appointments will continue and likely worsen.
Presidential authority under section 212(f) of the Immigration and Nationality Act to order the suspension of visa services to individuals and groups, including specific nationalities, is broad and has been upheld by the courts. Should the administration decide to shut down or severely limit visa services to other countries or groups of individuals in the future, there will likely be little notice, and the potential disruption to normal travel for citizens of those countries will be significant. Possession of valid visas will not insulate these individuals, as the President also has the authority to instruct the Department of State to cancel previously issued visas and to instruct immigration officers at the border to deny entry to them.
Although the cancellation of a valid visa does not automatically serve to terminate the lawfully admitted status of persons already in the United States, it would mean that if those persons had to depart the U.S. for any reason they would not be able to return in valid status until such time as the administration determined to rescind the ban against issuing new visas to them.
This new era of uncertainty poses serious challenges for employers and their employees holding valid employment-authorizing nonimmigrant visas, even those from countries closely allied to the United States. With visa operations now subject to sudden interruption, personal and professional travel outside the United States could become problematic. Both groups must now ask themselves — is this trip really necessary?
NLRB Shake-up: President Trump Removes Board Member, Discharges General Counsel
President Donald Trump removed National Labor Relations Board (NLRB) member Gwynne Wilcox in a move that leaves the Board without a quorum to hear cases. The president also, as expected, discharged NLRB general counsel Jennifer Abruzzo.
Quick Hits
President Trump removed NLRB member Gwynne Wilcox and discharged NLRB general counsel Jennifer Abruzzo, marking a significant shift in the Board’s leadership.
Wilcox’s removal leaves the NLRB without a quorum (minimum of three members) to hear cases, raising questions about the legality of the dismissal and potential court challenges.
According to media reports, President Trump removed Wilcox, a President Biden Democratic appointee to the Board, on January 27, 2025. Her term was not set to expire until August 27, 2028. Abruzzo, who commenced a four-year term as general counsel in July 2021, confirmed her discharge in a statement released by the NLRB on January 28, 2025.
President Trump’s removal of Wilcox, whom the Senate confirmed to a second five-year term in September 2023, puts the NLRB at a current standstill. The five-member Board needs at least a quorum of at least three members to decide cases.
Wilcox’s removal leaves the Board with only two sitting members: Republican appointee Marvin Kaplan, whom President Trump named the NLRB Chair on his first day in office, and Democratic appointee David Prouty, whose term is set to end in August 2026.
This is the first time a president has removed a sitting NLRB member, and the move is likely to be challenged in court. While the president’s authority to remove federal officers has been upheld by the Supreme Court of the United States, the removal of a sitting member of the NLRB, an independent federal agency, without an identified cause, is unclear.
Under the National Labor Relations Act, the president has the power to appoint NLRB members “with the advice and consent of the Senate” to five-year terms and may remove “any member … upon notice and hearing, for neglect of duty or malfeasance in office, but for no other cause.”
On the other hand, President Trump’s discharge of NLRB general counsel Abruzzo, who began serving a four-year term under President Biden in July 2021, was expected. The move follows President Biden’s termination of former NLRB general counsel Peter Robb, the general counsel during President Trump’s first term in office, shortly after taking office in 2021. That discharge was upheld in the courts.
Deputy general counsel Jessica Rutter is now acting general counsel.
Next Steps
The NLRB shake-up is in line with President Trump’s policies in his first week in office, which seek to reshape the federal government and overturn many of his predecessor’s actions. Wilcox’s removal is likely to lead to a lengthy court case that could ultimately land before the Supreme Court and could have lasting effects on the NLRB’s makeup.
While we anticipate changes in federal labor policy to be forthcoming, only some changes in approach under the new administration can likely happen swiftly. For example, the incoming NLRB general counsel will likely take enforcement approaches that are more favorable to management, although the specifics of those approaches remain unclear and will likely be detailed in a forthcoming memorandum from a new general counsel.
On the other hand, without a quorum of Board members, current NLRB rules, such as the recently revised election rules, are likely to remain in effect in the short term. Additionally, without a quorum to decide new cases, recent major changes in NLRB precedent remain the law, such as the recent decisions concerning captive audience meetings and lawful management statements, as well as, the recent decision that changed aspects of the union organizing process.
Evidence of a Defendant’s Physical or Digital Retention of Trade Secret Information Is Not Required to Prove Trade Secret Misappropriation Under the California Uniform Trade Secrets Act
A recent federal district court ruling serves as an important reminder that a former employee may be held liable for trade secret misappropriation even if the alleged trade secrets are not physically or electronically taken by the departing employee, but instead retained only in memory.
On November 20, 2024, Citibank NA (“Citi”) applied for a temporary restraining order in the Northern District of California against two of its former private bankers, John Mitchell and Benjamin Carr, who joined a competitor. Citi presented evidence that Carr ran searches for five specific clients on Citi’s customer management platform shortly before his resignation, and Mitchell solicited one of Citi’s high-value clients using Citi’s confidential client account information retained in his memory. Citi presented evidence that Mitchell emailed a Citi client approximately one month after his resignation to solicit the client to move his account on the same date that the client’s multi-million-dollar certificate of deposit matured. Mitchell’s email stated, among other things, that the deposit rates he could offer through his new employer are “better than Citi” and that he thought this was “especially relevant given [the client’s] high cash position.” In opposition, Carr and Mitchell asserted that Citi did not establish a protectable trade secret and they presented undisputed testimony that they did not take, copy, or photograph any documents or files when they left Citi.
Judge Charles R. Breyer in the Northern District of California issued a temporary restraining order against Mitchell, but not Carr. The ruling enjoined Mitchell from using, disclosing, or transmitting for any purpose Citi’s “books, records, documents, and information” pertaining to Citi, its clients, or its employees, and ordered Mitchell to return to Citi any such files in whatever form within 24 hours. In support of the temporary restraining order, the court found Citi would likely succeed in proving trade secret misappropriation against Mitchell as evidenced by his email solicitation to Citi’s client using information retained in his memory, but that Carr’s pre-resignation searches were not sufficient to establish a likelihood of success on the merits. On December 6, 2024, the parties submitted a stipulated preliminary injunction that mostly maintains the status quo of the terms of the temporary restraining order pending the parties’ arbitration regarding Citi’s request for a permanent injunction.
There are two significant takeaways from the court’s ruling. First, non-public information regarding the details of a clients’ specific financial holdings and investments, such as whether a client holds a “high cash position” and when client accounts are set to mature, are protectable trade secrets. Second, whether Mitchell retained or took any documents, writings, or records from his employment with Citi “is not dispositive to Citi’s trade-secrets claim” because, “California law protects against the misappropriation of trade secrets, which covers improper ‘use’ of trade secrets and which does not require the retention of physical documents or records.” Thus, while trade secrets cases often feature “smoking gun” evidence establishing the taking or physical retention of company trade secret information, such evidence is not required to prove trade secret misappropriation. Under California law, trade secret information need not be in writing and may be held in an employee’s memory. See e.g., Morlife, Inc. v. Perry (1997) 56 Cal.App.4th 1514, 1522 – 23.
Trump Transition: Shakeup at National Labor Relations Board Stalls NLRB Action (US)
It’s been a little more than a week since Inauguration Day, but the seismic shifts of presidential change in Washington, D.C. continue, now extending to and impacting the National Labor Relations Board (NLRB or Board). On January 28, President Donald Trump shook up the NLRB with two major personnel decisions: one anticipated, the other unprecedented.
In an expected move, President Trump fired Jennifer Abruzzo, the union-friendly General Counsel of the NLRB appointed under former President Joe Biden. But Trump also fired NLRB member Gwynne Wilcox, a Democrat also appointed by President Biden, leaving the Board with only two members.
In an early morning press release, now former NLRB General Counsel Jennifer Abruzzo announced that Tuesday, January 28, would be her final day on the job. The NLRB General Counsel serves as the agency’s chief prosecutor, selecting the cases to be heard and decided by the Board. Abruzzo’s departure should be welcome news to many employers. During her tenure, among other pro-union moves, she issued a slew of memoranda directing the work of the agency into controversial territory. For example, Abruzzo pursued aggressive enforcement action against employer non-competition and non-solicitation agreements, as guided by a May 2023 memorandum she authored wherein she articulated her view that restrictive covenants like non-competes “generally violate federal labor law.” A new Trump-appointed General Counsel is anticipated to rescind that memorandum and many others in which Abruzzo directed her enforcement efforts in the direction of her overtly pro-union interpretation of the National Labor Relations Act.
Likewise, a Trump-appointee majority NLRB is expected to abandon many of the Biden-era decisions issued by the formerly Democrat-appointee majority Board. However, right now, the Board cannot act, as it does not have a quorum of three members following the ouster of Member Wilcox. The only current Board members are Republican Marvin Kaplan, who President Trump appointed NLRB Chairman shortly after inauguration, and Democrat David Prouty. At least one of the three currently vacant Board positions will have to filled before the Board can resume issuing decisions. When that will happen is unclear.
Trump Alters AI Policy with New Executive Order
On January 23, 2025, President Trump issued an Executive Order entitled “Removing Barriers to American Leadership in Artificial Intelligence.” The Executive Order seeks to maintain US leadership in AI innovation. To that end, the Order “revokes certain existing AI policies and directives that act as barriers to American AI innovation,” but does not identify the impacted policies and directives. Rather, it appears those policies and directives are to be identified by the Assistant to the President for Science and Technology, working with agency heads. The Order also requires the development of a new AI action plan within 180 days. Although the details of the new AI action plan are forthcoming, the Order states that the development of AI systems must be “free from ideological bias or engineered social agendas.”
Earlier in the week, Trump also signed an executive order revoking 78 executive orders signed by President Biden, including Biden’s Executive Order on Safe, Secure, and Trustworthy Artificial Intelligence, issued on October 30, 2023. Biden’s Executive Order sought to regulate the development, deployment, and governance of artificial intelligence within the United States, and the document offered insight into the types of issues that concerned the previous Administration (specifically, AI security, privacy and discrimination). More information on Biden’s Executive Order can be found here.
As relevant to employers and developers of AI tools for employers, the revocation of Biden’s Executive Order is largely symbolic, because it did not directly impose requirements on employers who use AI. Instead, it directed federal agencies to prepare reports or publish non-binding guidance on topics such as:
“the labor-market effects of AI,”
“the abilities of agencies to support workers displaced by the adoptions of AI and other technological advancements,” and
“principles and best practices for employers” to “mitigate AI’s potential harms to employees’ well-being and maximize its potential benefits.”
Biden’s Executive Order had also directed agencies to provide anti-discrimination guidance to federal benefits programs and federal contractors over their use of AI algorithms and to coordinate on best practices for investigating and enforcing civil rights violations related to AI.
While employers may not experience any immediate effects from the two new Executive Orders this week, taken together, they lend support to predictions that the new Administration would take a more hands-off approach to regulating AI. We will continue monitor how the AI legal landscape evolves under the new Administration and continue to report on AI developments that affect employers.
January 2025 California Employment Law Notes
Plaintiff May Defeat Federal Question Removal With An Amendment To Complaint
Royal Canin USA v. Wullschleger, 604 U.S. ___, 2025 WL 96212 (2025)
In this non-employment-related opinion with important implications for litigation throughout the country, the United States Supreme Court held that after a defendant removes a case from state to federal court based on federal question grounds, the plaintiff may in an amended complaint delete all references to federal law and thereby deprive the federal court of supplemental jurisdiction over the remaining state-law claims, resulting in a remand back to state court. Since most plaintiffs prefer to litigate their cases in state court, this opinion will likely result in fewer successful removals to federal court by employers.
Disability Discrimination Claims Were Properly Dismissed Though Invasion Of Privacy Claims Survive
Wentworth v. Regents of the Univ. of Cal., 105 Cal. App. 5th 580 (2024)
Blake Wentworth, formerly a professor at the University of California, Berkeley, sued the University for failure to engage in the interactive process and failure to reasonably accommodate an alleged disability in violation of the Fair Employment and Housing Act (FEHA), as well as for violating the California Constitution and the Information Practices Act (the “IPA”) (Cal. Civ. Code § 1798, et seq.) by disclosing private information involving Wentworth’s medical history and the investigation of multiple student complaints that had been lodged against him. The Court of Appeal affirmed summary adjudication of the disability-related claims based on evidence that the University properly engaged in the interactive process and offered Wentworth a reasonable accommodation. As for the invasion of privacy claims, the Court held that there are triable issues of fact as to whether the University invaded Wentworth’s privacy by disclosing he had been offered a paid medical leave of absence and that 10 student complaints had been made against him and investigated by the University. The appellate court rejected Wentworth’s challenge to orders denying his motion to compel responses to discovery requests and his motion for a retrial but reversed the trial court’s order denying his motion for attorney’s fees and remanded the case for further proceedings.
Lowest Standard Of Proof Applies To Employer’s Defense Against FLSA Claims
EMD Sales, Inc. v. Carrera, 604 U.S. ___, 2025 WL 96207 (2025)
The question in this case is what standard of proof an employer must satisfy in defending against claims asserted under the federal Fair Labor Standards Act (FLSA). Several EMD sales representatives sued the company for violating the FLSA by failing to pay them overtime. EMD defended against the claims on the ground that the employees were exempt from overtime under the FLSA’s outside-sales exemption. The lower courts held that EMD needed to prove its case under the “clear-and-convincing” evidence standard, which is higher than the “preponderance-of-the-evidence” standard that is (according to the Supreme Court) the “default standard of proof in American civil litigation.” The Supreme Court reversed the lower court (specifically, the Fourth Circuit) and held that the preponderance-of-the-evidence standard does indeed apply and that the higher standard only applies when mandated by a statute, the Constitution, or in “other uncommon cases” in which the government seeks to take “unusual coercive action” against an individual. The Supreme Court’s holding is consistent with long-standing law in the Ninth Circuit. See Coast Van Lines, Inc. v. Armstrong, 167 F.2d 705 (9th Cir. 1948).
Employee Is Not Entitled To New Trial After Jury Awards Her No Emotional Distress Damages
Howell v. State Dep’t of State Hosps., 107 Cal. App. 5th 143 (2024)
After three years of litigation and a two-week trial, a Napa County jury found Ashley Howell’s former employer (the Department of State Hospitals) liable for disability discrimination and awarded her $36,751 in lost earnings and health insurance benefits but nothing for her alleged emotional distress/pain and suffering. In addition, the trial court awarded Howell $135,102 in fees and costs. The trial court denied Howell’s motion for a new trial on her claim for noneconomic (emotional distress) damages. The Court of Appeal held that the trial court had not abused its discretion by failing to grant a new trial based in part on the fact that Howell had previously been diagnosed with major depressive disorder and posttraumatic stress disorder following a sexual assault she suffered three years before she began employment with the Department. Some of the physicians who testified at trial attributed Howell’s mental distress largely to the pre-employment sexual assault and concluded that by February 2020 (less than a month after the termination) Howell “presented essentially the best [her qualified medical evaluator] had ever seen her” notwithstanding her “continued… mild to moderate PTSD.” The appellate court also held that the trial court properly struck the jury’s award for lost health insurance benefits because Howell failed to prove she suffered a loss (e.g., paid insurance premiums or out-of-pocket costs related to the loss of insurance). Finally, the appellate court affirmed the trial court’s award of $135,102 in fees and costs despite Howell’s request for $1.8 million on the ground (according to the trial court) that the fee request was “striking” and “unsupportable” and the time spent on various matters was “shocking” and “beyond all reason.” The Court of Appeal did, however, remand the case to the trial court to consider Howell’s unopposed request for prejudgment interest. Cf. Pollock v. Kelso, 2025 WL 47533 (Cal. Ct. App. 2025) (employee was properly awarded $493,577 in prevailing-party attorney’s fees after application of 1.8 multiplier).
Employer Could Not Recover Costs Under CCP § 998 In Wage/Hour Case
Chavez v. California Collision, LLC, 107 Cal. App. 5th 298 (2024)
Before trial on Samuel Zarate’s wage/hour claims, the employer (California Collision, LLC (“CCL”)) made an offer of settlement pursuant to Cal. Code Civ. Proc. § 998. After Zarate failed to recover at trial more money from CCL than it had offered before trial, the trial court awarded the company $54,473 in costs pursuant to Section 998. The Court of Appeal reversed, holding that the “to the extent they conflict, the specific one-way cost and fee shifting provisions [in favor of an employee] in Labor Code sections 1094 and 218.5 (absent a finding of bad faith [by the employee]) take precedence over the more general ones in Code of Civil Procedure sections 998 and 1032.”
Surgeon’s Whistleblower Claim Was Properly Rejected
Slone v. El Centro Reg’l Med. Ctr., 106 Cal. App. 5th 1160 (2024)
Johnathan Slone, M.D., sued his former employer (El Centro Regional Medical Center) for violation of Health & Safety Code § 1278.5 for retaliating against him after he reported his concerns about patient care. The case proceeded to a four-day bench trial after which the court found in favor of the Medical Center and against Slone. The Court of Appeal affirmed, holding that the trial court had properly concluded that the Medical Center did not discriminate or retaliate against Slone in any manner because of his “grievances, complaints, or reports” about patient care. Further, the trial court properly found no economic or noneconomic damages even assuming the Medical Center had unlawfully retaliated against Slone. The appellate court further noted that Slone’s opening appellant’s brief stated facts “almost exclusively in his favor” and “omitted material evidence favorable to [the Medical] Center that supported the judgment in its favor” contrary to the appellant’s duty to “fairly summarize all of the facts in the light most favorable to the judgment.” Finally, the Court held that “substantial evidence supports the [trial] court’s finding that [the Medical] Center did not discriminate or retaliate against Slone because of his complaints about health care safety in violation of section 1278.5.” See Winston v. County of Los Angeles, 107 Cal. App. 5th 402 (2024) (prevailing whistleblower was entitled to recover his attorney’s fees based on amendment to whistleblower statute (Cal. Lab. Code § 1102.5(j)) that became effective while the action was pending).
Employment Claims Against Religious Institution Are Barred By The First Amendment
Markel v. Union of Orthodox Jewish Congregations of Am., 124 F.5th 796 (9th Cir. 2024)
Yaakov Markel was employed by the Union of Orthodox Jewish Congregations of America (OU) as a mashgiach to supervise food preparation for kosher compliance. Markel’s relationship with OU and his supervisor, Rabbi Nachum Rabinowitz, “soured” after he did not receive a promotion and a raise that he claims he was promised. Markel resigned from his position and filed suit, alleging wage and hour violations and misrepresentation claims against OU and Rabbi Rabinowitz. The district court granted summary judgment to the defendants and the Ninth Circuit affirmed dismissal on the grounds that Markel was a “minister” within Orthodox Judaism and that OU is a religious organization. Based on the general principle of church autonomy in the First Amendment to the Constitution, the “ministerial exception” precludes the application of “laws governing the employment relationship between a religious institution and certain key employees” (citing Our Lady of Guadalupe Sch. v. Morrissey-Berru, 591 U.S. 732, 737 (2020)).
Employee Cannot Avoid Arbitration With “Headless” PAGA Claim
Leeper v. Shipt, Inc., 2024 WL 5251619 (Cal. Ct. App. 2024)
Christina Leeper entered into an independent contractor agreement with Shipt, Inc. (“Shipt”), a subsidiary of Target Corporation (“Target”), as well as an arbitration agreement that required her to arbitrate any personal/individual claims. She subsequently filed a purported “representative” lawsuit against Shipt and Target, alleging a “representative” PAGA claim – i.e., exclusively seeking penalties incurred by others (but not herself) stemming from alleged violations of the statute. Leeper opposed Shipt’s motion to compel arbitration on the ground that she had not alleged any individual claims and, therefore, her PAGA claim could not be compelled to arbitration. The trial court agreed and denied the motion to compel. However, the Court of Appeal reversed, finding that “the unambiguous language in [Labor Code] section 2699, subdivision (a), [states that] any PAGA action necessarily includes both an individual PAGA claim and a representative PAGA claim” (emphasis added). Further supporting its holding, the Court looked to the statute’s legislative history, noting that the legislature deliberately chose the word “and” after rejecting a prior version of the bill that phrased the language in the disjunctive. Accordingly, the Court directed the trial court to grant Shipt’s motion to compel arbitration and to stay any representative component of the PAGA claim pending the outcome of the arbitration. See also Huff v. Interior Specialists, Inc., 2024 WL 5231468 (Cal. Ct. App. 2024) (trial court erroneously dismissed and failed to stay representative action pending outcome of arbitration).
Non-Parties To Arbitration Agreement May Compel Arbitration Based On Equitable Estoppel
Gonzalez v. Nowhere Beverly Hills LLC, 107 Cal. App. 5th 111 (2024)
Edgar Gonzalez worked for Nowhere Santa Monica at its Erewhon market for approximately five months before filing a putative class action for wage-and-hour violations under the California Labor Code. Gonzalez filed suit against 10 Nowhere entities in response to which the 10 entities filed a motion to compel arbitration based upon an arbitration agreement between Gonzalez and Nowhere Santa Monica. The trial court granted the motion as to the Santa Monica entity but denied it as to the other entities because they were not parties to the agreement. The Court of Appeal reversed on the ground that “all of Gonzalez’s claims against [the other entities] are intimately founded in and intertwined with the employment agreement with Nowhere Santa Monica, an agreement which contains an arbitration agreement.” The Court held that the inextricable entwinement was based on Gonzalez’s joint employment theory and equitable estoppel principles. See also Trujillo v. J-M Mfg. Co., 107 Cal. App. 5th 56 (2024) (Code Civ. Proc. § 1281.98 (requiring payment of arbitration fees within 30 days) does not apply to post-dispute stipulation to arbitrate that was not drafted by the employer).
Arbitration Agreement Was Unconscionable And Thus Unenforceable
Jenkins v. Dermatology Mgmt., LLC, 107 Cal. App. 5th 633 (2024)
The employer in this case sought to compel to arbitration a putative class action that was filed by former employee Annalycia Jenkins who claimed unfair competition pursuant to Cal. Bus. & Prof. Code § 17200. The trial court denied the employer’s motion to compel because the arbitration agreement was substantially unconscionable based on a lack of mutuality (only Jenkins was required to arbitrate all potential claims); the purported shortening of the applicable statute of limitations to one year; the imposition of unreasonable restrictions on the parties’ discovery rights; and the requirement that Jenkins pay for an equal share of the arbitrator’s fees and costs. The trial court also found the agreement to be procedurally unconscionable and declined to sever the unconscionable terms because of their pervasiveness. The Court of Appeal affirmed.
Arbitrator’s Findings Barred SOX Claim Filed In Court
Hansen v. Musk, 122 F.4th 1162 (9th Cir. 2024)
Karl Hansen sued Tesla, Inc., its CEO (Elon Musk) and another entity alleging he was retaliated against for reporting “misconduct” at Tesla. The district court ordered most of Hansen’s claims to arbitration except his claim under the Sarbanes-Oxley Act (SOX), which cannot be compelled to arbitration pursuant to a predispute arbitration agreement (18 U.S.C. § 1514A(e)). Following the arbitrator’s decision in their favor, defendants filed a motion before the district court to lift the stay of proceedings and to confirm the arbitration award, which was granted. Defendants then filed motions to dismiss the entire suit (including the SOX claim), arguing that the arbitrator’s findings precluded Hansen from relitigating the issues that were key to his SOX claim. The district court granted the motion to dismiss. The Ninth Circuit affirmed the dismissal.
Analyzing President Trump’s Latest Executive Order Titled “Ending Illegal Discrimination and Restoring Merit-Based Opportunity”
On January 21, 2025, President Trump signed an Executive Order titled “Ending Illegal Discrimination and Restoring Merit-Based Opportunity.” This Executive Order is a major pivot in federal policy regarding affirmative action and diversity initiatives, which have been in place for decades, particularly within federal contracting. The implications of this Executive Order are far-reaching, affecting both federal contractors and private employers across the United States.
Key Aspects of the Executive Order
A significant component of the Executive Order is the revocation of Executive Order 11246. Enacted in 1965 by President Lyndon B. Johnson, Executive Order 11246 mandated that federal contractors and subcontractors implement affirmative action programs to ensure equal employment opportunities for women and minorities. According to the Department of Labor, this requirement has become deeply embedded in the operational frameworks of approximately 25,000 firms and 120,000 establishments, impacting nearly 20% of the U.S. workforce. By revoking this order, President Trump’s Executive Order effectively dismantles the federal mandate for race and gender-based affirmative action.
The Executive Order further instructs all federal agencies to eliminate any programs, policies, or mandates that are deemed discriminatory or illegal under what the Executive Order characterizes as the guise of DEI (Diversity, Equity & Inclusion). This encompasses the cessation of activities such as promoting diversity initiatives and holding contractors accountable for affirmative action measures. Contractors “may” continue complying with the existing affirmative action requirements under Executive Order 11246 until April 20, 2025. Additionally, the Office of Federal Contract Compliance Programs (OFCCP) is specifically directed to stop engaging in workforce balancing based on race, color, sex, sexual preference, religion, or national origin. The overarching goal, as stated in the Executive Order, is to promote individual initiative, excellence, and hard work, aligning employment practices more closely with merit-based principles.
Despite these sweeping changes, it is crucial for federal contractors and subcontractors to remain compliant with existing anti-discrimination laws, such as Title VII of the Civil Rights Act, the Equal Pay Act, the Age Discrimination in Employment Act and the Americans with Disabilities Act. Moreover, the obligations under the Vietnam Era Veterans Readjustment Assistance Act (VEVRAA) and Section 503 of the Rehabilitation Act remain intact. These statutes continue to require affirmative action and non-discriminatory practices specific to employees who are veterans or are disabled, underscoring the nuanced landscape of compliance that employers must navigate.
Additionally, the Executive Order calls for the development of a new contract term, likely replacing the current Equal Employment Opportunity clause, for inclusion in federal contracts. This term will require contractors to agree that compliance with all applicable federal anti-discrimination laws is essential to the government’s payment decisions. Contractors must certify that they do not operate any programs promoting DEI that violate federal anti-discrimination laws. The White House Fact Sheet on the Executive Order describes this certification as a clear statement that contractors will not engage in illegal discrimination, including any DEI practices the order characterizes as illegal. This certification is expected to be published in the upcoming weeks.
Employers should carefully review their current employment practices to ensure compliance with nondiscrimination statutes, such as Title VII of the Civil Rights Act of 1964. Any policies or practices that might be inconsistent with existing law should be revised to ensure compliance. Additionally, employers should review their Equal Employment Opportunity policies and communications to assess potential risks of enforcement agency investigations.
Employers should also stay informed about potential challenges to the Executive Order and look for additional information about sectors, industries, and organizations that federal agencies may identify for investigation. Guidance from the Attorney General, Secretary of Education, and other federal agencies will be essential as these changes unfold.
The Executive Order “Ending Illegal Discrimination and Restoring Merit-Based Opportunity” represents a pivotal shift in federal policy, reshaping the landscape of affirmative action and DEI initiatives. As the ramifications of this order unfold, it is imperative for employers to remain vigilant and proactive in adjusting their compliance strategies. Staying informed about these developments and seeking guidance from legal advisors will be crucial in navigating this new era of employment practices.
The High Court’s Low Bar: FLSA Exemption Disputes and the Standard of Review
On January 15, 2025, the U.S. Supreme Court issued its unanimous decision in E.M.D. Sales, Inc. v. Carrera, authored by Justice Kavanaugh, and held FLSA exemptions should be analyzed under the “preponderance of the evidence” standard, rather than the higher “clear and convincing evidence” standard applied by the Fourth Circuit, which hears appeals from the federal district courts in Maryland, North Carolina, South Carolina, Virginia, and West Virginia, and from federal administrative agencies.
EMD is a food distributor which employs sales representatives to manage inventory and take orders at grocery stores that stock EMD’s products. Several of those sales representatives filed a collective action against EMD, alleging the company violated the Fair Labor Standards Act (“FLSA”) by failing to pay them overtime. EMD argued the sales representatives were exempt from the FLSA’s overtime-pay requirement under the outside sales exemption. For that exemption to apply, EMD had to prove: (i) the employees’ main duty involved making sales or obtaining orders and contracts for service, and (ii) they were “customarily and regularly engaged away from the employer’s place or places of business in performing such primary duty,” according to FLSA regulations.
After a bench trial, the District Court found EMD liable for unpaid overtime because the company did not prove by “clear and convincing evidence”—i.e., that it is “highly probable”—that its sales representatives were outside salesmen. On appeal, EMD argued the District Court should have instead used the less stringent “preponderance-of-the-evidence” standard—which would have required EMD only to prove that its claims are more likely to be true than not. Applying Circuit precedent, the Fourth Circuit disagreed and affirmed the District Court’s judgment.
On appeal, the Supreme Court noted the “preponderance” standard is the default in civil trials, and the Court only deviates from that standard in three circumstances: (i) when a statute requires a heightened standard of proof, (ii) when the U.S. Constitution requires it, and (iii) under Supreme Court precedent in cases in which the government pursues “coercive” (i.e., drastic) action against a person, such as taking citizenship away. The Court noted the FLSA is silent as to the standard of proof for exemptions, and FLSA-exemption disputes do not involve constitutional rights or unusual or coercive government action; thus, none of the three scenarios that would justify applying a heightened standard are present in FLSA exemption cases. Justice Gorsuch’s concurring opinion, joined by Justice Thomas, affirmed that “courts apply the default standard unless Congress alters it or the Constitution forbids it.”
The Court was also not persuaded by the employees’ policy-laden arguments that the FLSA protects the public interest, opining, “Other workplace protections, like those under Title VII, also serve important public interests but are subject to the preponderance standard.” Justice Kavanaugh wrote, “If clear and convincing evidence is not required in Title VII cases, it is hard to see why it would be required in Fair Labor Standards Act cases.”
Burdens of proof in civil trials are of make-or-break importance, and the Supreme Court’s confirmation that no heightened standard applies when evaluating employees’ qualification for an FLSA exemption is an important win for employers defending misclassification claims.