Labor & Employment – Page 4

What California Employers Need to Know About Wage Deductions

It is important for employers in California to understand what is permitted for wage deductions to maintain compliance and avoid potential pitfalls.
Employers in California may lawfully withhold amounts from an employee’s wages if: (1) the employer is required to withhold certain amounts under state or federal law, such as federal and state income taxes, as well as contributions to Social Security and Medicare; (2) the employee expressly authorizes certain deductions in writing, such as the employee’s share of insurance premiums, benefit plan contributions or other deductions not amounting to a rebate on the employee’s wages; (3) the deductions are mandated by Court order, such as child support, alimony, or debt repayment (garnishments); or (4) the deduction is expressly authorized by a wage or collective bargaining agreement, such as union dues or negotiated contributions.
However, there are certain deductions that California law prohibits, and, in many cases, the prohibition applies notwithstanding the employee’s written consent to the deduction.

Employers are not allowed to collect, take, or receive tips or gratuity left for an employee.
Costs associated with taking photographs or obtaining bonds required by the employer must be covered by the employer, as must the cost of uniforms if they are mandatory. Furthermore, employees must be reimbursed for business-related expenses incurred during the performance of their duties.
Employers are generally prohibited from deducting wages for cash shortages, breakages, or losses of equipment that were borne from negligence or regular business operations. Although deductions of amounts borne from losses from an employee’s dishonesty, willfulness, or gross negligence may be permissible, employers should still proceed cautiously and consult with legal counsel before doing so. Moreover, recovering losses from payroll errors or past salary advances garners increased scrutiny from the courts.

Employees are protected from termination solely due to the existence or threat of wage garnishments.
To maintain compliance, employers should focus on clear communication with their workforce, ensuring that wage deductions are well-explained and authorized in writing. It is essential to conduct regular audits of payroll practices to ensure adherence to both state and federal laws.

The One Big Beautiful Bill: SALT Deduction Workarounds Under Fire

On May 12, 2025, House Republicans unveiled a comprehensive 389-page package of tax provisions, setting the stage for a significant tax bill to be debated in the coming weeks. Dubbed the “One Big Beautiful Bill,” this proposal aims to extend and modify many key provisions of the Tax Cuts and Jobs Act of 2017 (TCJA). One specific proposal would aim to restrict the use of workarounds that taxpayers have used to bypass the state and local tax (SALT) deduction limits established by the TCJA.
A key provision targets partners in service-related and investment management partnerships, restricting their ability to leverage state laws – specifically pass-through entity tax (PTET) provisions – to deduct state income taxes paid by partnerships. This move is designed to close the gap that allows these entities to sidestep the SALT deduction cap. Additionally, the proposal seems to disallow deductions for state and local taxes generally required to be paid at the entity level (such as the New York City unincorporated business tax), marking a significant departure from the TCJA’s SALT provisions.
The proposal advanced on May 14 through the House Ways and Means Committee without change, although certain key New York State Republicans continued to express their concerns over the SALT-related provisions. Investment manager clients currently benefiting from PTET provisions should be aware that these deductions may become unavailable starting in 2026.

FAQ: Employee Stock Ownership Plans (“ESOPs”) in the Cannabis Industry

How long have ESOPs been around?The first ESOP was established in 1956 by Louis Kelso for Peninsula Newspapers. The concept was formalized in federal law by the Employee Retirement Income Security Act of 1974 (“ERISA”).
Are ESOPs used for any other businesses or just cannabis?Yes, according to the National Center for Employee Ownership, as of the beginning of 2025, 6,358 ESOP companies exist, collectively employing approximately 10.8 million employees, representing almost 8 percent of the private sector workforce in the United States. Over 50 percent of private ESOP companies are in one of three industry categories: Manufacturing (21 percent), Professional/Sci/Tech Services (19 percent), and Construction (15 percent).
For what size cannabis company does an ESOP make sense?While around $20 million in minimum gross revenues and a minimum of 15 to 20 employees across a cannabis company’s operations is probably ideal, in certain instances an ESOP for a cannabis company with minimum gross revenues of $5–$10 million can be feasible.
What is the average cost to set up an ESOP if you are a five-million-dollar revenue cannabis company?Generally, the costs to set up an ESOP will be more or less the same regardless of the size of revenues. Legal fees are just one component (and generally less than 50 percent of the total costs). For the transaction, the company’s costs in addition to legal fees will also include valuation experts, accountants, and specific cannabis ESOP insurance, as well as costs and fees charged by the ESOP Trustee for negotiating the ESOP terms and the Trustee’s financial and legal advisers. Assuming there are no major complications (such as buying another company to bolt onto the ESOP, dealing with any lender, complex corporate reorganization, etc.), the cost to close the transaction could be around several hundred thousand dollars, all in. Larger cannabis companies may benefit from more complex transaction structuring, which can increase total transaction costs if desired by the cannabis company’s owners.
Can ESOPs be used as a succession planning tool?Yes, under an ESOP, all the founders/owners sell their equity in the cannabis company to a tax-exempt ESOP trust (although each selling equity holder can continue working with the company as an employee for however long they would like). This is one of the major benefits of the ESOP in the cannabis industry, where there are few buyers with the necessary liquidity or licenses to purchase a company.
How do ESOPs compare to other employee benefit plans?An ESOP serves as the purchaser of the cannabis company owners’ stock and also provides a retirement benefit for the company’s employees over time. The retirement benefit provided to employees is similar to a traditional retirement plan, like a 401(k), except that it costs the employees nothing (i.e., employees do not contribute salary into the ESOP) and the value of the benefit is tied to the cannabis company’s stock, which should grow over time. Upon retirement, the cash value of an employee’s ESOP account can be rolled over into an IRA tax-free, just like a 401(k) account.
What are the long-term benefits of an ESOP for a cannabis company?Multiple benefits include not paying any federal or state income tax and completely avoiding 280E. In an industry with a lack of liquidity and low M&A activity, an ESOP provides a means for the company’s owners to be bought out, with payments coming from the company’s tax savings. ESOPs generally create more employee productivity and less turnover as all employees have a beneficial interest in the cannabis company.
How do ESOPs affect the valuation of a cannabis company?ESOP-owned companies generally see increases in valuation after becoming ESOP-owned due to significant tax savings and increases in employee productivity and retention.
What is the typical timeline for doing an ESOP?As the sale of the cannabis company to the ESOP trust generally requires the approval of cannabis regulators, a lot depends on obtaining those approvals. In most instances, the timeline from start to finish is between four and six months.
What is the trustee’s role and responsibilities in an ESOP?The trustee’s role, initially, is to ensure that the ESOP trust purchases the stock from the cannabis company owners for no more than fair market value. After the ESOP has purchased the company’s stock, the trustee is responsible for overseeing the ESOP’s operations and ensuring it serves the best interests of the ESOP participants (i.e., the cannabis company’s employees).
Does the trustee run/control the company?No. The cannabis company’s managers and board of directors are responsible for running the company. The trustee is responsible for ensuring that the ESOP operates in compliance with applicable laws, including ERISA, and in the best interest of the participants/employees. With limited exceptions, the trustee does not actively participate in running or controlling the company.
Can management still be involved if an ESOP is set up?Yes, typically management or the officers stay involved for a period of time with the new ESOP entity.
How do employees in an ESOP trust compare to shareholders in a company?Shareholders in a company are the direct owners of the company and, in many instances, have the ability to vote on certain matters. Employees in an ESOP are awarded a beneficial interest in the company, which might vest over time, providing some payout to employees upon their retirement or termination of employment. Employees in an ESOP trust are not direct owners of the company and do not have the same rights as direct owners of a company.
What is this about ESOPs being easier in Maryland all of a sudden?In Maryland, there was generally a five-year restriction on selling, transferring, or assigning control over licenses unless such sale, transfer, or assignment was approved in the context of a receivership. Recently, Governor Wes Moore signed SB215, which allows another exception to the five-year restriction.

Twenty States Sue the Trump Administration for HHS Program Eliminations and Staff Layoffs

Nineteen states plus the District of Columbia filed a federal Complaint in U.S. District Court for the District of Rhode Island on May 5, 2025 alleging that the Trump Administration’s recent activities to downsize and restructure the Department of Health and Human Services (HHS) are unlawful under both the U.S. Constitution and the Administrative Procedure Act (APA). The coalition of states, led by New York, is asking the judicial branch for declaratory and injunctive relief “to prevent the unconstitutional and illegal dismantling of the Department.” In addition to New York and the District of Columbia, states joining the lawsuit comprise Arizona, California, Colorado, Connecticut, Delaware, Hawai’i, Illinois, Maine, Maryland, Michigan, Minnesota, New Jersey, New Mexico, Oregon, Rhode Island, Vermont, Washington, and Wisconsin (together, the Plaintiff States). This is but one among multiple legal challenges to the ongoing programmatic and research cuts within HHS and its sub-agencies, such as the National Institutes of Health, Food and Drug Administration, and Centers for Medicare and Medicaid Services.
In their Complaint, the Plaintiff States emphasize that the department was both created by Congress via statutory enactments and that many of its mandates are congressionally directed, with significant federal appropriations allocated to HHS every year. They point out that “[i]ncapacitating one of the most sophisticated departments in the federal government implicates hundreds of statutes, regulations, and programs.” The plaintiffs allege, therefore, that the restructuring and reduction in force (RIF) actions taken by HHS Secretary Kennedy and the other named defendants, which ignore those statutory mandates and refuse the spend funds appropriated to HHS for designated purposes, violate the U.S. Constitution’s appropriations clause as well as separation of powers principles.
We have previously blogged about HHS’s recent restructuring and RIF actions, as well as the Trump administration’s plans for reducing the overall HHS discretionary budget. In its factual allegations, the Plaintiff States’ Complaint sets out a detailed timeline of actions taken by the Trump administration to dismantle the department, beginning on January 21, 2025 immediately after the presidential inauguration. It also points to the White House Office of Management and Budget (OMB) fiscal 2026 internal HHS budget document, dated April 10 and leaked on April 16 (which we discussed here), as evidence that the administration’s plan from day one of its tenure was to eviscerate the department.
The Plaintiff States further argue that the Trump administration’s actions in this area have been arbitrary and capricious under the APA’s legal standard “because the department’s stated reasons for the layoffs and reorganization – to promote ‘efficiency’ and ‘accountability’ – are pretext for Secretary Kennedy’s stated goal of attacking science and public health.” In support of this contention, the Plaintiff States summarize Secretary Kennedy’s long history of public statements criticizing HHS and various of its public health functions using vitriolic language and baseless claims about global conspiracies.
The Complaint also highlights specific examples of injuries that have already occurred to the Plaintiff States and their citizens as a result of the March 27, 2025 HHS reorganization announcement and the subsequent actions since then to terminate employees, programs, and offices. Among other things, it notes that “employees who remain at HHS have been prevented from collecting and reviewing new applications; designing, distributing, and implementing new policies and guidance; collecting and distributing scientific data; issuing obligated funds to the Plaintiff States and others; investigating for program integrity; and responding to any manner of public inquiry.” One specific example cited in the Complaint relates to the closure of infectious disease laboratories run by the Centers for Disease Control & Prevention (CDC). Without those specialized CDC testing labs, state public health laboratories throughout the country are being directed via CDC’s webpage to send their patient samples to New York State’s Wadsworth Center, which has “elite capabilities” and can test for rare and complex diseases “that cannot be done anywhere else in the country except for the CDC before April 1,” the Plaintiff States explain. However, they point out that the New York lab “was not built to replace the CDC and it simply could never fill that hole.” With a halt to so much testing by CDC, including for widespread public health needs such as foodborne pathogens and tuberculosis, our public health infrastructure is undoubtedly being damaged, and outbreaks will become more frequent. The terminations also are directly at odds with Congress’s legislative directives to CDC to protect the public health.
Throughout U.S. history to date (as we approach the country’s 249-year birthday this coming Independence Day), and as envisioned by the authors of our constitution, the three branches of the federal government are treated as “co-equals,” with due respect accorded to one another and the critical roles each one plays in the delicate balance that is our tri-partite system of federal governance. So, although the federal courts should be an effective way to curtail perceived lawlessness by the executive branch, the current administration has demonstrated a willingness to ignore injunctions and other judicial orders (for example, see here). We will monitor the outcome of this important legal challenge in the Rhode Island District Court, as well as any future appeals. However, it is very possible that the Plaintiff States will not get the relief they are requesting, even if the federal courts agree with them regarding the nature of the executive’s actions to dismantle much of HHS without prior notice to Congress or a chance to ensure that mandatory public health functions can continue.
This very real potential outcome of the federal court litigation strongly suggests that Congress must get involved to exert effective oversight and some form of a “check” on the executive branch if we are to retain many of our nation’s critical health and human services functions. These include critical HIV prevention, environmental health, and tobacco control functions that have been substantially damaged (although ending such programs is seemingly incompatible with much of Secretary Kennedy’s Make America Healthy Again agenda that seeks to reduce the burden of chronic diseases). Health care and life sciences stakeholders can contact their congressional representatives and can also submit comments to any open HHS or OMB docket that affects their interests, rather than relying solely on the outcome of judicial processes, given the extraordinary political times we are experiencing in 2025.

Employment Law This Week – Episode 390 – Independent Contractor Rule, EEO-1 Reporting, and New York Labor Law Amendment [Video, Podcast]

This week, we’re covering the U.S. Department of Labor’s (DOL’s) decision to halt enforcement of the Biden-era independent contractor rule, the upcoming EEO-1 reporting season (starting on May 20), and New York State’s new labor law amendment, reducing damages for first-time frequency-of-pay violations.

DOL Halts Enforcement of Independent Contractor Rule
The DOL will no longer enforce the Biden-era independent contractor rule, which sought to tighten the criteria under which a hired worker can be considered an independent contractor for purposes of the Fair Labor Standards Act. The agency will now revert to the less stringent “economic realities” test.
EEO-1 Reporting Begins Soon
The proposed 2024 EEO-1 Component 1 data collection season is scheduled to begin on May 20, with a deadline to file by June 24. As expected, Component 2 pay data collection will not be required this year or in the coming years.
New York Amends Labor Law to Limit Damages in Frequency-of-Pay Lawsuits
New York Governor Kathy Hochul signed into law a budget bill that includes an amendment to the New York Labor Law that dramatically limits the relief employees can seek for first-time violations of frequency-of-pay provisions.

Withdrawal Liability: Third Circuit Paves New Path for Pension Funds to Collect from Affiliated Employers

Takeaways

The Third Circuit recently held in Laguna Dairy that, under certain circumstances, a settlement agreement over a withdrawal liability dispute can constitute a revised withdrawal liability assessment under ERISA.
Employers should be mindful that all trades or businesses under common control are treated as a single employer and are jointly and severally liable for withdrawal liability under ERISA.
Withdrawal liability under ERISA is an evolving area of law, and some courts are willing to broadly construe the statutory language in favor of multiemployer pension plans.

California Civil Rights Council Finalizes Regulations Aimed to Curb Employment Discrimination in the Use of AI Tools

Recently, the California Civil Rights Council, which is the arm of the California Civil Rights Department that is responsible for promulgating regulations, voted to approve final “Employment Regulations Regarding Automated-Decision Systems” (“Regulations”). The Regulations attempt to curb discriminatory practices that can arise when using AI tools in the workplace. If they are approved by the Office of Administrative Law, the Regulations will become effective on July 1, 2025. The Regulations have undergone several revisions since they were initially proposed in May 2024, and their adoption would make California one of the first states to implement anti-discrimination regulations pertaining to automated-decision technology.
The updated Regulations define “Automated-Decision Systems” (ADS) as “[a] computational process that makes decisions or facilitates human decision making regarding an employment benefit,” that “may be derived from and/or use artificial intelligence, machine-learning, algorithms, statistics, and/or other data processing techniques.” Examples of functions that ADS can perform include resume screening, computer-based assessments, and analysis of applicant or employee data from third parties.
Both employers and “agents” are covered under the Regulations. Agents are defined as “any person acting on behalf of an employer, directly or indirectly, to exercise a function traditionally exercised by the employer or any other FEHA-regulated activity . . . .” Such functions could include applicant recruiting and screening, hiring, or decisions pertaining to leaves of absence or benefits.
The Regulations provide that it is unlawful for a covered entity to use an ADS that discriminates against an applicant, employee, or a class of applicants or employees based on a protected characteristic, but also indicates that discrimination based on accent, English proficiency, height, or weight is prohibited. In defending against claims of such discrimination, the employer can point to any due diligence performed by the company, such as anti-bias testing. Lack of testing is also relevant to determine liability. Under the new Regulations, covered entities must retain personnel records and ADS data for four years.
Given the intense focus on the use of AI in employment in recent years, employers across the country who use AI tools should ensure that they understand how these tools work and whether they have been properly tested for bias. Employers should review their policies to ensure that the use of AI is adequately covered. Prudent employers will also review contracts with any third parties (such as AI developers or any consultants) to determine whether they are protected against liability arising from AI-related discrimination claims.

Landmark Texas Supreme Court Case Finds No “Direct Liability” for Franchisor Arising Out of Franchisee Employee’s Actions

On May 2, 2025, the Texas Supreme Court reversed a Texas Court of Appeals’ decision that had affirmed a jury’s verdict finding a franchisor directly liable to the customer of a franchisee for actions undertaken by the franchisee’s employee. The Supreme Court found that the franchisor did not owe a duty to the franchisee’s customer. This is a major ruling in the ongoing developments regarding potential franchisor liability for actions by independently owned and operated franchisees and franchisees’ employees.
Texas Supreme Court Reverses Franchisor Liability Ruling in Massage Heights Case
In Massage Heights Franchising, LLC v. Hagman, the Texas Supreme Court held that the franchisor, Massage Heights, did not owe a duty of care to a customer of the franchisee-owned location. The customer was sexually assaulted by Mario Rubio, a licensed massage therapist hired by the franchisee, MH Alden Bridge, LLC, despite his criminal background. The customer sued Massage Heights and other parties, asserting claims of negligence and gross negligence.
The jury found all defendants negligent, found a negligent undertaking by Massage Heights, attributed 15 percent responsibility to Massage Heights, and awarded Plaintiff both actual and exemplary damages. The court of appeals reversed the exemplary damages award but otherwise affirmed the trial court’s judgment, concluding that Massage Heights owed a duty of reasonable care to customers at franchise locations as a matter of law due to its general control over franchisee’s operations. The court also found there was sufficient evidence that Massage Heights was negligent in failing to provide a list of disqualifying offenses to its franchisees and allowing MH Alden Bridge to hire Rubio despite his criminal background.
Franchisor Duty of Care Hinges on Specific Control Over the Activity that Caused the Injury
The Supreme Court of Texas reversed. It recounted that the question of whether a franchisor owes a duty to a customer of a franchisee turns on control. The Texas Supreme Court held that the Court of Appeals erred by evaluating the franchisor’s “general right to control” instead of assessing the “specific control over” the “alleged… defects that led to [the plaintiff’s] injury,” as required. Exxon Corp. v Tidwell, 867 S.W.2d 19, 23 (Tex. 1993). The analysis and control “must relate to the activity that actually caused the injury.” Coastal Marine Servs. Of Tex., Inc. v. Lawrence, 988 S.W.2d 223, 226 (Tex. 1999). The Court then analyzed whether Massage Heights had control over the injury-causing conduct, which it found to be the hiring of Rubio.
The Supreme Court evaluated both the franchisor’s contractual right to control and actual control from the record and found that Massage Heights did not control Rubio’s hiring and thus owed no duty to Plaintiff. The Court found (1) Massage Heights did not have a contractual right to control MH Alden Bridge’s hiring of Rubio as the Franchise Agreement made MH Alden Bridge “solely responsible for all employment decisions,” and (2) the jury failed to find MH Alden Bridge was subject to Massage Height’s actual control by conduct, and Plaintiff had not proven as a matter of law that Massage Heights actually controlled Rubio’s hiring or that its safety instructions unreasonably increased Plaintiff’s risk of injury. Therefore, there was no proof of control over the specific injury-causing conduct.
Franchise Agreements Play Critical Role in Determining Legal Responsibility
The Court focused much of its reasoning on the language of the parties’ franchise agreement. The Franchise Agreement between Massage Heights and MH Alden Bridge provided that MH Alden Bridge was an independent contractor with sole responsibility for all employment decisions, subject to two conditions: all massage therapists had to (1) be licensed by the State (of Texas), without any suspensions or licensing offenses reported and (2) undergo an oral interview, a practical interview and a background check by MH Alden Bridge’s selected third-party provider. The franchise agreement also stated that MH Alden Bridge had sole responsibility for customer safety and security on its premises as well as compliance with Texas laws regarding hiring, training and supervising therapists. It was not sufficient that Massage Heights provided guidance and advice about certain “standards, specifications, processes, procedures, requirements or instructions,” particularly through the Operations Manual.
The Court found that aside from Rubio’s own criminal intent, the only plausible proximate cause of the assault was MH Alden Bridge’s decision to hire Rubio, which Massage Heights did not control. Therefore, Plaintiff’s alternative argument that Massage Heights had a duty to refrain from entering into a franchise agreement with MH Alden Bridge also failed. Lastly, the Court found there was legally insufficient evidence to support a finding of negligent undertaking—when a defendant undertakes to render services it knows are for another’s protection—as the franchise agreement contractually assigned all safety responsibilities to MH Alden Bridge, and Massage Heights had no duty to “investigate the operations” of MH Alden Bridge and its owners.

Workplace Strategies Watercooler 2025: Bringing People Together During Changing Times [Podcast]

In this installment of our Workplace Strategies Watercooler 2025 podcast series, Luther Wright offers listeners an engaging discussion on how employers can create a cohesive and resilient workforce in the face of change, conflict, and uncertainty. Luther, who is the office managing shareholder of Ogletree’s Nashville office and the firm’s Assistant Director of Client Training, shares strategies for strengthening team connections, enhancing communication, and maintaining a positive work culture during uncertain times. He also provides actionable insights on leading through change while promoting unity and collaboration throughout the organization.

New York State Bill Would Ban Employer Inquiries About Salary Expectations

A bill in the New York State Legislature would prevent employers from questioning job seekers about their salary expectations and permit job seekers to ask about employee benefits offered with the position.
Quick Hits

A bill in the New York State Assembly would prohibit employers from inquiring about applicants’ salary expectations.
The bill also would prohibit employers from refusing to interview, hire, or promote workers based on their stated salary expectations.
New York law already prohibits employers from asking for an applicant’s salary history.

The bill, 2025-A1289, would also prohibit employers from relying on pay expectations that the applicant voluntarily shares in determining whether to offer employment and how much to pay the individual. Many states have enacted similar laws in recent years, aiming to promote pay equity and close the gender and racial wage gaps.
The bill is currently in committee in the New York State Assembly.
The bill builds upon the existing New York salary history ban, which took effect in 2020, and which prohibits employers from asking applicants about their salary history. The bill would further restrict pre-offer compensation discussions by prohibiting inquiries into applicants’ salary expectations, the theory being that this further enhances pay equity and potential biases in the hiring process.
The bill would bar employers from requiring applicants to submit their salary expectations as a condition for securing an interview, being hired, or being promoted. Employers would also be prohibited from refusing to interview, hire, or promote a worker based on their stated salary expectations.
There are two clauses in 2025-A1289 that may seem at odds and cause confusion: one allows job applicants to voluntarily share their salary expectations, including for the purpose of negotiating their wages or salary; and the other prohibits employers from relying on that information when determining the compensation ultimately offered. While applicants retain the right to advocate for themselves, employers must ensure compensation decisions are based on objective, articulable, job-related factors, and not influenced by what applicants say they hope to earn. If the bill is enacted with those two clauses intact, employers may want to tread carefully, such as by listening respectfully, but building offers based on, for example, standardized pay structures and market data, and not applicants’ pay expectations.
Under 2025-A1289, employers would also be required to provide employment benefits information when requested. Unfortunately, the bill does not define “employment benefits.” Presumably, benefits such as health insurance, 401(k) plans, stock purchase plans, and commission structures would be included. It is less clear if other benefits, such as paid time off, discretionary bonuses, flexible work schedules, employee assistance plans, and tuition reimbursement, are included as employee benefits.
The bill would create a private right of action for an applicant or employee to bring a civil lawsuit for a violation by an employer. If successful, plaintiffs may be entitled to compensatory damages, potential injunctive relief and reasonable attorney’s fees.
Next Steps
If 2025-A1289 passes the state legislature and is signed by the governor, it would take effect nineteen days after it becomes law. The legislative session is scheduled to end on June 13, 2025.
Employers in New York must comply with current state law prohibiting questions about salary history. Additionally, some employers may need to confirm compliance with similar local laws, such as those in New York City, Ithaca, Albany County, Suffolk County, and Westchester County, and even laws of other states, if a position is remote.
Employers may want to be prepared to comply with the bill, if enacted, including by reviewing interview protocols, training hiring managers and recruiters, updating job descriptions, and generally ensuring that compensation and other employment decisions are based on objective, lawful criteria.
Leah J. Shepherd contributed to this article

A Bit of Mental Health Parity Relief for Employers Sponsoring Group Health Plans

Takeaways

Even though we have the promise of a non-enforcement policy applying to the 2025 and 2026 deadlines of at least some provisions of the 2024 Final Regulations, the 2013 Final Regulations, the Consolidated Appropriations Act, 2021, and other MHPAEA requirements remain enforceable.

The Department of Labor (DOL), together with the Departments of Treasury and Health and Human Services) have decided to suspend enforcement of certain provisions of the nonquantitative treatment limitations (NQTL) final regulations issued in September 2024. Those regulations had been challenged in federal court by the ERISA Industry Committee (ERIC) last year, and the Departments’ answer to ERIC’s complaint was due May 12, 2025. In a motion filed May 9, 2025, the Departments instead asked the court to suspend the legal proceedings while they “reconsider the 2024 Rule at issue … including whether to issue a notice of proposed rulemaking rescinding or modifying the regulation.” The court granted the Department’s motion, to which ERIC had consented.
The Departments also said that they intend to issue a non-enforcement policy for the 2024 final regulations and to “reexamine” their current MHPAEA enforcement programs “more broadly.” The Departments conferred with ERIC regarding their draft non-enforcement policy and finalized it the same day that the motion was filed. While it was not part of the filing, the nonenforcement policy is expected to be issued by the Departments to the public soon. We will not know, until it is issued, what portions of the rule (with some provisions effective for 2025 and other provisions effective for 2026) still will be enforced, if any.
Regardless, it is important to note that the requirement to prepare a nonquantitative treatment limitation comparative analysis for each NQTL, as required by the Consolidated Appropriations Act, 2021, and other MHPAEA requirements (including those under the 2013 final regulations) remain in effect.

DOL Abandons 2024 Independent Contractor Test

What You Need to Know

The U.S. Department of Labor has announced it will no longer enforce the 2024 independent contractor rule under the Fair Labor Standards Act (FLSA), reverting to the more employer-friendly 2008 “economic reality” test.
The 2008 Rule and a reinstated 2019 Opinion Letter—favorable to app-based and gig economy businesses—will guide enforcement actions, emphasizing factors like control, investment, and profit/loss potential to determine worker status.
While the shift is seen as beneficial to businesses, employers must continue to monitor developments and ensure compliance with federal, state, and local classification standards to avoid misclassification penalties.

On May 1, 2025, the Wage and Hour Division of the U.S. Department of Labor (“DOL”) announced that it will no longer enforce its 2024 independent contractor rule under the Fair Labor Standards Act (“FLSA”). The nixed 2024 rule previously set forth a six-factor test to classify workers as employees or independent contractors based on a “totality of the circumstances test” of non-exhaustive factors.
The 2024 rule had been subject to numerous legal challenges in district courts across the country because employers considered it to skew towards classifying workers as independent contractors. Now, the DOL will revert back to the framework set out back in 2008 in Fact Sheet #13 (the “2008 Rule”) until it can develop a revised standard.
The DOL’s Guiding Independent Contractor Standard (for now)
The 2008 Rule asserts that “an employee, as distinguished from a person who is engaged in a business of his or her own, is one who, as a matter of economic reality, follows the usual path of an employee and is dependent on the business which he or she serves.” Under this 2008 Rule, the employer-employee relationship under the FLSA is tested by “economic reality” rather than “technical concepts.” It also states that the following factors are considered significant in determining whether there is an employee or independent contractor relationship:

The extent to which the services rendered are an integral part of the principal’s business;
The permanency of the relationship;
The amount of the alleged contractor’s investment in facilities and equipment;
The nature and degree of control by the principal;
The alleged contractor’s opportunities for profit and loss;
The amount of initiative, judgment, or foresight in open market competition with others required for the success of the claimed independent contractor; and
The degree of independent business organization and operation.

Finally, the 2008 Rule provides that certain factors, such as (i) where work is performed; (ii) the absence of a formal employment agreement; (iii) whether an alleged independent contractor is licensed by a state or local government; and (iv) the time or mode of pay, are immaterial to determining whether there is an employment relationship.
Impact of the DOL’s Recent Departure from the 2024 Test
The DOL’s announcement does not formally revoke the 2024 rule, but it does indicate that changes to the rule will be forthcoming. The DOL will now utilize the Fact Sheet #13 and a 2019 Opinion Letter (which was previously withdrawn) to conduct audits and other enforcement actions.
The 2019 Opinion Letter re-instituted by the DOL on May 2, 2025, addresses whether the workers of a virtual marketplace company that provides an “online and/or smartphone-based referral service that connects service providers to end-market consumers” are independent contractors or employees. In essence, the 2019 Opinion Letter concludes that these “on-demand” workers for virtual marketplace companies, who perform services for users (such as transportation, delivery, shopping, moving, etc.), are independent contractors, not employees. App-based rideshare companies and other similar technology-based service companies will be directly impacted by the DOL’s announcement.
While these recent DOL announcements are generally viewed as more employer-friendly, time will tell if that is the practical reality of these changes. Don’t forget – state and local laws can impact the analysis of proper worker classification, so employers need to stay vigilant to ensure they are not making any major changes that would violate those pesky geographic nuances.
Employers Should Proactively Monitor This Area
Employers should evaluate their existing employee classifications in light of these recent developments to ensure that employees are properly classified to avoid violations of the FLSA’s requirements, including minimum wage, overtime, and recordkeeping. This is particularly important for employers to consider because misclassification issues can be costly. Additionally, employers need to stay alert for any further changes because the DOL has signaled that additional rulemaking regarding independent contractor classification under the FLSA is expected.