Employment Law This Week Episode – Non-Competes Eased, Anti-DEI Rule Blocked, Contractor Rule in Limbo [Video, Podcast]
This week, we’re covering the relaxation of state-level non-compete rules, the recent block of Executive Order 14173’s diversity, equity, and inclusion (DEI)-related certification requirement, and a federal appeals court’s decision to pause a challenge to the Biden-era independent contractor rule.
Non-Competes Eased in Kansas and Virginia
Kansas has enacted a law permitting non-competes while setting requirements for non-solicit provisions. Additionally, effective July 1, 2025, Virginia will prohibit non-compete agreements for non-exempt employees.
Federal Contractor DEI Rule Blocked
In a lawsuit brought by Chicago Women in Trades, a federal judge paused a rule from Executive Order 14173 requiring federal contractors to certify that they don’t operate DEI programs that violate anti-discrimination laws, citing unclear definitions of “illegal” DEI programs.
Independent Contractor Rule in Limbo
The U.S. Court of Appeals for the Fifth Circuit paused a challenge to the 2024 independent contractor rule, allowing the U.S. Department of Labor time to consider revising or replacing it. For now, the Biden-era rule remains in effect.
Second Circuit Reinstates Discrimination Lawsuit of Employee Fired for Unauthorized Removal of Cash From Register
The U.S. Court of Appeals for the Second Circuit recently reinstated a former laundromat employee’s discrimination lawsuit against her employer, even though her employment had been terminated for taking cash from the cash register.
The decision in Knox v. CRC Management Co., LLC, No. 23-121 (2d Cir. 2025), underscores the importance of promptly addressing employee complaints, providing training to supervisors, and ensuring policies are reduced to writing and enforced consistently in the workplace.
Quick Hits
The Second Circuit Court of Appeals reversed a district court’s entry of summary judgment that had been granted in favor of a defendant employer and reinstated the plaintiff’s employment discrimination lawsuit, finding that genuine disputes of material fact existed as to each of the plaintiff’s claims and that the plaintiff was entitled to present the claims to a jury.
The plaintiff, a former laundromat employee whose employer had discharged her for removing cash from the register and refusing to return it, filed a lawsuit in federal court alleging discriminatory and retaliatory termination, hostile work environment, refusal to accommodate a disability, and unpaid wages.
The case highlights for employers the value of carefully addressing employee complaints of discrimination and harassment, enforcing workplace policies consistently, and providing training for supervisors.
Background
Natasha Knox, a Black woman of Jamaican descent, was employed as a customer service attendant at three Clean Rite Center laundromats in the Bronx from December 2018 until her employment was terminated in April 2019. During her employment, Knox allegedly experienced derogatory comments from her supervisor. The supervisor allegedly criticized Knox for being “too hood” and “ghetto” to work at Clean Rite. Knox reported these comments to her district lead, who allegedly took no action.
In late January or early February 2019, Knox sustained a broken thumb in a car accident, and in early March, she was instructed by her doctor not to lift more than twenty-five pounds. Knox’s subsequent requests for accommodation in conformance with her doctor’s instruction were allegedly dismissed. One supervisor reportedly told Knox that she “shouldn’t have this job” if she required an accommodation, and her new district lead also made derogatory comments, including that Knox “looked like Aunt Jemima” and “talk[ed] Jamaican” when she became “upset.” Knox further alleged that she was not compensated for extra shifts that she worked at other Clean Rite locations and that she had filed a formal complaint with the new district lead, who did not follow up on her claims.
On April 14, 2019, after taking a taxi to work, Knox took $15 from the cash register to reimburse herself for the taxi fare and placed her taxi receipt in the register, believing she had permission to do so. She was later confronted by her new supervisor, who asked her to return the money—a request Knox refused. Following this incident, the district lead terminated Knox’s employment, citing her removal of cash from the register and her refusal to return it as the reason for the termination.
The Second Circuit Revives Knox’s Claims
Knox filed a lawsuit in the U.S. District Court for the Southern District of New York against Clean Rite and her supervisors. She alleged racial discrimination, failure to accommodate her disability, retaliation, and unpaid wages.
The district court granted summary judgment in favor of the defendants. The district court concluded that Knox had not provided sufficient evidence beyond her own testimony to demonstrate that Clean Rite’s reason for terminating her employment—specifically, her alleged theft of money—was discriminatory. Additionally, the district court determined that Knox’s testimony and sworn affidavit alone were inadequate to establish factual disputes regarding her claims, including those related to unpaid wages.
On April 9, 2025, the U.S. Court of Appeals for the Second Circuit issued a decision reviving the case, holding that Knox had presented sufficient evidence to survive summary judgment on all her claims. In doing so, the court emphasized that Knox had presented evidence of discriminatory comments near in time to her employment termination that could reasonably support an inference of unlawful discrimination. The court also pointed out that Knox’s supervisors had not taken any action in response to her internal complaints of workplace discrimination, which were protected conduct under Title VII of the Civil Rights Act of 1964.
Importantly, the Second Circuit reasoned that Knox had testified in her deposition that other employees had been permitted to take cash from the register to pay for their taxi fares, so long as they left receipts. This, according to the Second Circuit, was sufficient to create an issue of fact concerning whether the reasons provided by Clean Rite were a pretext for unlawful discrimination.
As for the disability discrimination claims, the Second Circuit focused on Knox’s disclosure of her injury and lifting restrictions and the fact that her accommodation request had been denied, even though arguably she could perform other essential functions of the job.
Finally, the Second Circuit held that Knox’s affidavit stating she had been subjected to daily harassment from her supervisor and had worked hours for which she was not paid was sufficient to create an issue of fact relating to her hostile-work-environment and unpaid-wages claims.
Guidance for Employers
The Knox decision provides a helpful reminder to employers of the importance of ensuring that all complaints of discrimination, harassment, and retaliation are taken seriously and investigated promptly. Knox’s complaints to supervisors about racial harassment and failure to accommodate her disability were allegedly ignored, contributing to the Second Circuit’s decision to reinstate her claims.
The Second Circuit’s decision does not alter the “sham affidavit” rule, which prevents a party from creating a genuine issue of material fact by submitting an affidavit that contradicts prior deposition testimony. In Knox’s case, the court found that her affidavit was consistent with her deposition testimony and other evidence presented. This underscores the importance of maintaining consistent and truthful documentation throughout all legal proceedings.
Employers should consider providing regular training to supervisors and managers on antidiscrimination laws, reasonable accommodations, and the proper handling of employee complaints. In Knox’s case, alleged derogatory comments and inconsistent treatment by supervisors played a significant role in the appellate court’s decision. Training can help prevent such behavior and ensure consistency in a respectful workplace.
Finally, employers may want to regularly review and update their antidiscrimination, harassment, and accommodation policies to ensure they comply with current laws and best practices. Clear policies and procedures can help guide employees and managers in handling complaints and accommodation requests appropriately. Relatedly, clear, written policies and procedures concerning items such as expense reimbursement may help reduce or eliminate allegations of selective enforcement, such as those at issue in the Knox case.
Amendment to Virginia Law Prohibits Noncompetes Against Nonexempt Employees
Beginning July 1, 2025, Virginia will provide even more protection to workers against the enforcement of noncompete agreements. Since 2020, Virginia law has prohibited employers from entering into, enforcing, or threatening to enforce a covenant not to compete against a “low-wage employee” (currently any employee earning less than $76,081 per year). However, an amendment to the existing law expands the definition of “low-wage employee” to also include any worker who is classified as nonexempt under the Fair Labor Standards Act (FLSA).
Quick Hits
On March 24, 2025, Virginia Governor Glenn Youngkin signed SB128 into law, which significantly expands the existing scope of protection to low-wage employees against the enforcement of noncompete agreements.
Starting on July 1, 2025, covenants not to compete will be prohibited against any employee who qualifies as a “low-wage employee,” meaning any employee who (i) earns less than the average weekly wage in Virginia (currently $1,463.10 weekly or $76,081 annually) or (ii) is entitled to overtime compensation under the FLSA.
Employers that enter into, enforce, or threaten to enforce a covenant not to compete against a low-wage employee could be subject to injunctive relief, the payment of damages (including liquidated damages), attorneys’ fees, costs, and a civil penalty of $10,000 per violation.
Covenants not to compete that were entered into (or renewed) before July 1, 2025, are not affected by the changes in the law.
Summary of Virginia’s Amended Noncompete Law
Virginia’s decision to ban noncompete agreements against low-wage employees is not entirely new. As we previously reported, Virginia enacted a law in 2020 that prohibits covenants not to compete against “low-wage employees.” Until recently, the term “low-wage employee” had been defined as an employee whose average weekly earnings are less than the average weekly wage in Virginia. In 2020, the salary threshold for a “low-wage employee” was approximately $62,000 per year. By 2025, that amount had increased to $76,081 per year.
In an effort to expand the protection available to Virginia employees, the amended law still prohibits noncompetes against any employee who falls below the salary threshold, but also includes any employee “who, regardless of his average weekly earnings, is entitled to overtime compensation under the provisions of 29 U.S.C. § 207 for any hours worked in excess of 40 hours in any one workweek.” In other words, starting July 1, 2025, employers can no longer enter into or attempt to enforce noncompete agreements with employees classified as nonexempt under the FLSA.
Fortunately for employers, the amendment does not invalidate or otherwise affect covenants not to compete that were entered into (or renewed) prior to July 1, 2025. As such, employers have a narrow window of time to consider entering into noncompete agreements with nonexempt workers, provided those workers earn more than $1,463.10 weekly or $76,081 annually. Furthermore, the new law allows for the continued use of nondisclosure agreements if they are designed to “prohibit the taking, misappropriating, threatening to misappropriate, or sharing of certain information to which an employee has access, including trade secrets” and confidential or proprietary information.
Key Takeaways
Starting July 1, 2025, Virginia employers cannot enter into or attempt to enforce a covenant not to compete with any workers who are (or should be) classified as nonexempt under the FLSA. Thus, the amended law will offer protection to a significantly larger population of employees than in the past.
Employers may want to consider entering into noncompete agreements now, as the amended law does not apply to covenants not to compete entered into before July 1, 2025, provided that the employee earns more than the average weekly wage in Virginia.
Employers that neglect to carefully evaluate employees’ exempt versus nonexempt status under the FLSA for any agreements entered into after July 1, 2025, could face stiff penalties of $10,000 per violation and potential civil actions from employees.
Sixth Circuit Upholds Pay Differential in Equal Pay Act Case: Budget Constraints and Market Forces at Play
The U.S. Court of Appeals for the Sixth Circuit recently upheld a jury verdict against a school psychologist who alleged she was paid less than a male colleague in violation of the Equal Pay Act. Notably, the court found that budget constraints and the market forces of supply and demand each provided an independent basis to uphold the jury’s verdict.
Quick Hits
The Sixth Circuit upheld a jury verdict against a school psychologist who alleged Equal Pay Act violations after she was offered a lower salary than the salary paid to a male psychologist two years earlier.
The court upheld the jury verdict, determining that a reasonable juror could conclude, based on the evidence of budget constraints and market forces, that the pay differential was based on a legitimate business reason other than sex.
The case highlights the fine line between legitimate business reasons and discriminatory practices in setting new hire compensation.
On April 2, 2025, a Sixth Circuit panel issued a decision in Debity v. Monroe County Board of Education. The court upheld a magistrate judge’s decision to deny a female school psychologist’s motion for a judgment as a matter of law as to whether the board successfully established its affirmative defense that the pay differential was based on a reason other than sex. The Sixth Circuit further affirmed a magistrate judge’s decision to throw out the jury’s $195,000 damages award for the plaintiff as it was inconsistent with the jury’s finding on liability.
Much of the Sixth Circuit’s decision focused on whether the magistrate judge had properly handled an inconsistent jury verdict in which the appellate court agreed with the magistrate judge’s ultimate conclusion to throw out the damages award.
But the Sixth Circuit additionally found that “a reasonable juror could find that the Board offered” the female school psychologist “a lower salary … for a reason other than sex,” providing an example of how, in some circumstances, budget constraints and market pressures can appropriately influence compensation decisions.
Background
Marina Debity applied for a school psychologist position with Monroe County schools in Tennessee after completing an internship with the district. She alleged she was offered a lower salary than the salary paid to a male psychologist hired two years earlier, who negotiated for his pay. She alleged that when she requested equal pay, the county board of education withdrew her job offer. Debity then brought claims for sex discrimination and retaliation in violation of the Equal Pay Act (EPA), Title VII of the Civil Rights Act of 1964, and the Tennessee Human Rights Act.
Supply and Demand
The Sixth Circuit upheld the jury’s determination that market forces of supply and demand could constitute a legitimate, non-sex-based reason for the pay disparity, an affirmative defense under the EPA. The court’s analysis focused on the testimony of a school district administrator, who testified that when the school hired the previous male school psychologist in 2019, the board was in a “desperate” situation where one of the district’s four psychologists was retiring and another was moving to part-time. This urgency, combined with the lack of applicants, led the board to offer a higher salary. In contrast, Ferguson testified that when Debity applied in 2021, the school already had four full-time psychologists and had not previously employed five.
“It would be reasonable for a juror to conclude that Monroe County had a low demand for psychologists in 2021 with the same supply, one person, to fill the opening,” the Sixth Circuit said. “Therefore, a reasonable juror could believe that market forces of supply and demand caused Debity’s lower offer, not her sex.”
While the Sixth Circuit noted employers “may not use supply and demand as an excuse to discriminate generally by sex just because there are more people from a certain sex applying for a given job,” the school district administrator’s testimony showed there was not this type of “generalized discrimination.” The court said the question of whether Ferguson would have treated a woman applying in 2019 the same as the male psychologist, who was offered more money, was a matter for the jury.
Budget Constraints
The Sixth Circuit further said that an employer’s desire for cost savings can be a legitimate business justification for a pay differential. The school administrator’s testimony showed that the board was “genuinely concerned about the budget.” According to the decision, the administrator “testified that he tried to find enough room in the budget to hire Debity … but could not” because it was a higher priority to hire a full-time teacher at the elementary school.
The court rejected Debity’s arguments that the board could have shifted unused funds from elsewhere, stating that it is not the court’s role to second-guess the board’s budget decisions. “It is irrelevant whether the Board’s budgeting decision was wise or even based on a correct understanding of the facts,” the Sixth Circuit said. “The EPA does not outlaw incompetence—it prohibits discrimination by sex.”
Next Steps
The Debity case highlights the fine line between legitimate business reasons and discriminatory practices in setting new hire compensation. Budget constraints and market forces may, in some situations, be legitimate, nondiscriminatory business reasons that justify certain pay disparities between males and females. In the Debity case, the Sixth Circuit focused on testimony about the low supply of applicants and the immediate need to hire a school psychologist when it hired the male psychologist two years earlier as evidence as to why the male comparator was offered higher pay.
While the Debity decision is a favorable one for employers, employers facing similar market forces and budget limitations when making compensation decisions may still wish to proceed with caution. Employers may want to avoid overreliance on budget constraints and market pressures as vague, general justifications for compensation decisions. Instead, if a pay differential is necessary, despite the employer’s efforts to avoid one, employers may want to keep detailed records of budgetary decisions and the specific circumstances at play.
May 2025 Visa Bulletin Shows Slight Advancement for EB-3 India and Retrogression for EB-5 India
The Visa Bulletin for May 2025 shows slight forward movement in the final action dates for EB-3 India, and retrogression for EB-5 India. The bulletin remains consistent in the EB-1 and EB-2 categories for all countries.
Quick Hits
The May 2025 final action dates in the EB-3 categories are unchanged for all countries except India, which has moved ahead by two weeks.
The May 2025 final action dates in the EB-5 categories are unchanged for all countries except India, which has retrogressed by six months.
U.S. Citizenship and Immigration Services (USCIS) has confirmed it will accept adjustment of status applications based on the final action dates chart in May 2025.
Source: U.S. Department of State, May 2025 Visa Bulletin
The final action dates chart shows only slight movement since the final action dates chart in the April 2025 Visa Bulletin of the following categories and countries:
EB-3 India has advanced two weeks from April 1, 2013, to April 15, 2013.
EB-5 India retrogressed six months from November 1, 2019, to May 1, 2019.
Next Steps
Starting May 1, 2025, individuals with a priority date earlier than the listed final action date can file a Form I-485, Application to Register Permanent Residence or Adjust Status.
Litigating Trade Secret Cases: A Strategic Guide for In-House Counsel
When faced with trade secret misappropriation, swift and strategic action is crucial.
For in-house counsel, understanding the litigation process and available remedies can mean the difference between protecting valuable intellectual property and watching it lose its protected status.
This guide focuses on key litigation strategies and the critical role of injunctive relief in trade secret cases.
The Race to the Courthouse
Trade secret cases often begin with a race to secure immediate court intervention.
Unlike other intellectual property disputes that might benefit from lengthy pre-litigation investigation, trade secret cases frequently require immediate action to prevent irreparable harm. The first 48 to 72 hours after discovering potential misappropriation are critical.
Immediate Action Items
Before or contemporaneous with filing suit, in-house counsel should immediately:
Implement a litigation hold and preserve all relevant evidence
Engage digital forensics experts (internal or external) to document unauthorized access or downloads
Review all relevant agreements (NDAs, employment contracts, etc.)
Document the specific trade secrets at issue and their value
Gather evidence of protection measures in place
Consider whether to engage criminal authorities
Identify key witnesses to provide affidavits supporting injunction filings
Draft preservation letters to all potential parties and witnesses
Remember, courts will scrutinize your company’s response time. Delays in seeking protection can undermine claims of irreparable harm and make obtaining injunctive relief more difficult.
Choosing Your Forum
Trade secret cases generally can be filed in either federal or state court, as the federal Defend Trade Secrets Act (DTSA) does not preempt state law claims. This choice requires careful strategic consideration.
Federal courts may offer advantages in cases involving interstate commerce or international parties, while state courts might provide faster injunctive relief or more favorable precedent.
For cases in North Carolina, the North Carolina Business Court has developed substantial trade secret jurisprudence and can be an attractive venue. It provides some of the features of a federal court, such as a single judge assigned to hear all aspects of the case, expedited discovery, dispute resolution, formal briefing for most substantive motions, along with an overall case management order.
Trade secret cases in state court with amounts in controversy over $5 million must be designated to the Business Court, while those under $5 million may be designated there by either party.
Securing Injunctive Relief
Temporary restraining orders (TROs) and preliminary injunctions are crucial tools in trade secret litigation. However, obtaining them requires careful preparation and specific evidence. Courts typically won’t grant injunctive relief based on mere suspicion or generalized allegations of misappropriation.
Elements of a Strong Injunction Motion
Your motion should clearly establish:
The specific trade secrets at issue
How the trade secret derives value from being secret
The reasonable measures taken to maintain secrecy
Clear evidence of misappropriation
Threat of immediate and irreparable harm
Why monetary damages are inadequate
Balance of hardships favoring an injunction
Public interest considerations
Most importantly, be specific about what relief you’re seeking.
Courts are increasingly rejecting vague injunction requests that simply reference “confidential information” or “trade secrets” without more detail.
Crafting Effective Injunctive Relief
Consider requesting specific provisions such as:
Orders to isolate and sequester devices containing trade secret information
Prohibition on accessing or deleting potentially misappropriated information
Required submission of devices for forensic examination
Certification of compliance with injunctions by counsel
Restrictions on specific work activities by former employees that could lead to disclosure
Prohibition on product distribution incorporating trade secrets
Requirements for return or destruction of trade secret information
Remember that courts generally do not prohibit a former employee from working for a competitor solely based on a non-disclosure agreement.
Instead, focus on preventing the use of specific trade secrets while allowing the employee to use their general skills and knowledge.
Discovery Strategies
Trade secret litigation demands a sophisticated approach to discovery, particularly given the complex electronic evidence often involved. A critical threshold issue is the pre-discovery identification of trade secrets.
Many courts require plaintiffs to identify their trade secrets with particularity before obtaining discovery of defendants’ confidential information. This requirement serves to balance the protection of legitimate trade secrets against the risk of plaintiffs using discovery as a fishing expedition to learn competitors’ secrets.
The identification process requires careful consideration of competing interests. You must be specific enough to support your claims and meet court requirements while avoiding public disclosures that could jeopardize trade secret status. Working with outside counsel to obtain entry of an appropriate protective order that allows you to file sensitive information under seal often provides the best solution to this challenge.
The time-sensitive nature of trade secret cases frequently necessitates expedited discovery, particularly in conjunction with temporary restraining orders or preliminary injunction proceedings.
To secure expedited discovery, you must demonstrate why standard discovery timelines would prove inadequate, specifically identify crucial early-stage discovery needs, and explain how the requested discovery relates to preventing irreparable harm. Courts will weigh these factors against the burden expedited discovery would impose on defendants.
When electronic evidence plays a central role, as it often does in trade secret cases, establishing a proper forensic examination protocol becomes essential.
An effective protocol should address the selection and compensation of neutral forensic experts, define the scope of examination, establish procedures for handling privileged and confidential information, and set clear timelines and reporting requirements.
The protocol should anticipate potential disputes and provide mechanisms for their resolution.
Criminal Implications and Parallel Proceedings
The criminal implications of trade secret misappropriation add another layer of complexity to civil litigation strategy.
While potential criminal liability under federal and state law can provide significant leverage, it requires thoughtful handling to avoid ethical pitfalls. Timing of criminal referrals can impact civil discovery and may lead to stays of civil proceedings. Individual defendants may invoke Fifth Amendment protections, complicating both discovery and settlement discussions.
In-house counsel must work closely with outside counsel to navigate these parallel proceedings effectively.
Protective Orders in Trade Secret Cases
Trade secret litigation requires particularly robust protective orders that go beyond standard confidentiality provisions.
Effective orders typically establish multiple tiers of confidentiality, including “attorney’s eyes only” designations for the most sensitive information. They should carefully define access restrictions for individual defendants and establish concrete requirements for information storage and transmission.
The order should anticipate the entire lifecycle of confidential information, from initial disclosure through post-litigation destruction or return.
The Role of Expert Witnesses
Expert testimony plays a pivotal role in trade secret litigation, with three types of experts proving particularly valuable.
Digital forensics experts provide analysis of electronic evidence and documentation of misappropriation patterns. Their work often proves decisive in preliminary injunction proceedings and shapes the overall trajectory of the case.
Damages experts help quantify losses and establish both trade secret value and the improper benefit gained by a defendant.
Industry experts provide essential context about technical aspects, the value of information, and help courts value and distinguish between protected trade secrets and general industry knowledge.
The timing of expert engagement can significantly impact case outcomes. Early involvement of experts, particularly forensic specialists, often proves crucial in preliminary injunction proceedings and shapes the development of the overall case strategy.
These experts can help identify key evidence, develop preservation protocols, and guide discovery requests.
Looking Ahead
The complexity of trade secret litigation demands a balanced approach that combines urgency with strategic planning. While immediate action remains critical, hasty or poorly planned litigation can prove counterproductive.
Success requires gathering key evidence and developing a coherent strategy while moving quickly enough to prevent irreparable harm and preserve available remedies.
OMB Solicits Public Comment on Eliminating Regulations: A Bold New Frontier for OSHA May Await
Every safety professional has an Occupational Safety and Health Administration (OSHA) regulation he or she cannot stand, believes is a waste of time, energy, and/or money, or considers outdated and antiquated.
Even the average person on the street probably thinks there is some silly OSHA regulation that should be done away with. Now the aggrieved (even only the mildly annoyed) safety professional and individual has a chance to have that regulation eliminated, but only if they act soon.
Quick Hits
OMB is seeking the public’s input on deregulation, including public comment on and recommendations for potentially outdated or burdensome OSHA regulations, with a submission deadline of May 12, 2025.
Safety professionals and the public now have the opportunity to suggest the elimination or revision of specific OSHA regulations.
Potential targets for deregulation pursuant to OMB’s request for information include OSHA’s “walkaround rule,” electronic recordkeeping regulations, and the proposed heat injury and illness prevention program.
On April 11, 2025, the Office of Management and Budget (OMB) published a notice, titled, “Request for Information: Deregulation,” soliciting the public’s comments and deregulatory recommendations with respect to rescinding or replacing agency regulations, including OSHA rules. This request for information (RFI) is in keeping with the Trump administration’s regulatory freeze issued at the outset of the president’s term of office.
On its face, the request for information (RFI) states that “OMB solicits ideas for deregulation from across the country. Commenters should identify rules to be rescinded and provide detailed reasons for their rescission. OMB invites comments about any and all regulations currently in effect.” The RFI continues and states the following:
OMB seeks proposals to rescind or replace regulations that stifle American businesses and American ingenuity. We seek comment from the public on regulations that are unnecessary, unlawful, unduly burdensome, or unsound. Comments should address the background of the rule and the reasons for the proposed rescission, with particular attention to regulations that are inconsistent with statutory text or the Constitution, where costs exceed benefits, where the regulation is outdated or unnecessary, or where regulation is burdening American businesses in unforeseen ways.
Without any parameters or limitations on RFI submissions, it is possible that someone might recommend that all OSHA regulations be eliminated, that the construction standards (29 C.F.R. 1926) be eliminated, or that the recordkeeping requirements be eliminated. It is unlikely that any of these would take place, as the Occupational Safety and Health (OSH) Act requires the agency to issue regulations and collect data concerning workplace injuries and illnesses.
Section 2 of the OSH Act states:
(b) The Congress declares it to be its purpose and policy, through the exercise of its powers to regulate commerce among the several States and with foreign nations and to provide for the general welfare, to assure so far as possible every working man and woman in the Nation safe and healthful working conditions and to preserve our human resources —
…
(3) by authorizing the Secretary of Labor to set mandatory occupational safety and health standards applicable to businesses affecting interstate commerce, and by creating an Occupational Safety and Health Review Commission for carrying out adjudicatory functions under the Act[.]
Section 24 of the OSH Act states:
(a) In order to further the purposes of this Act, the Secretary, in consultation with the Secretary of Health and Human Services, shall develop and maintain an effective program of collection, compilation, and analysis of occupational safety and health statistics. Such program may cover all employments whether or not subject to any other provisions of this Act but shall not cover employments excluded by section 4 of the Act. The Secretary shall compile accurate statistics on work injuries and illnesses which shall include all disabling, serious, or significant injuries and illnesses, whether or not involving loss of time from work, other than minor injuries requiring only first aid treatment and which do not involve medical treatment, loss of consciousness, restriction of work or motion, or transfer to another job.
Consequently, OSHA is effectively obligated by the OSH Act to issue occupational safety and health standards to “assure so far as possible every working man and woman in the Nation [a] safe and healthful” workplace and to collect data concerning workplace safety and health matters. Seeking to eliminate all OSHA standards or recordkeeping rules would require revising the OSH Act.
Which OSHA regulations are probable targets of these efforts? The so-called “walkaround rule” related to who can accompany an OSHA compliance officer during an inspection seems a very likely candidate. Similarly, the electronic recordkeeping regulations may be subject to deletion or elimination. To the extent that OSHA is seeking to implement a heat injury and illness prevention program, it, too, could fall prey to this RFI.
There is no limit on the agency, regulation, or topic that may be submitted pursuant to the RFI. Undoubtedly, there will be an enormous number of suggestions related to OSHA and other agencies—from the U.S. Department of Justice’s Bureau of Alcohol, Tobacco, Firearms and Explosives, to the U.S. Department of the Interior’s Bureau of Indian Affairs, to the U.S. Food and Drug Administration (a federal agency of the U.S. Department of Health and Human Services)—to name but a few. Many suggestions will likely be dismissed out of hand, but there will also likely be well-reasoned, thoughtful submissions that do receive at least some attention. The deadline for submissions in response to the RFI is May 12, 2025, and submissions may be made through the website Regulations.gov.
Colorado Passes Bill Banning Most Physician Non-Compete Agreements
Ever since a reference to a “legislative ban on physician non-compete agreements” was made in the Colorado attorney general’s Stipulated Consent Agreement and Judgment with U.S. Anesthesia Partners of Colorado, Inc., filed Feb. 26, 2024, health law practitioners in Colorado have waited to see if the Colorado General Assembly would enact such a ban. On April 21, 2025, the General Assembly made good on the promised legislative ban when it enacted Senate Bill 25-083. If the governor signs it into law, SB 25-083 would broadly impact the use of most restrictive covenants in agreements with physicians, physician assistants, dentists, and advanced practice registered nurses entered or renewed after SB 25-083’s expected effective date of Aug. 6, 2025.
Prior to SB 25-083, subsection (5)(a) of the statute had rendered “void” a restrictive covenant that “restricts the right of a physician to practice medicine,” but permitted enforcement of “provisions that require the payment of damages in an amount that is reasonably related to the injury suffered by reason of termination of the agreement,” including “damages related to competition.” That is, under subsection (5)(a) of the statute prior to SB 25-083’s enactment, it was not possible to obtain an injunction preventing a physician from going to work for a competitor, but it was possible to enforce a damages provision.
SB 25-083 deletes altogether the prior language in subsection (5)(a) of the statute, thereby eliminating the prior exception for physician restrictive covenants. Instead, subsection (5)(a) now provides that “[a] provision of an employment agreement or any other agreement enforceable at law that does not include an unlawful restrictive covenant remains enforceable and subject to any damages or equitable remedy otherwise available at law.”
Additionally, prior to SB 25-083, the statute also had permitted restrictive covenants designed to protect trade secrets or to bar solicitation of customers in certain limited circumstances. In SB 25-083, the General Assembly exempted from the trade secret and non-solicitation provisions any “covenant not to compete that restricts the practice of medicine, the practice of advanced practice registered nursing, or the practice of dentistry.” A covenant is “deemed” to be as much if it “prohibits or materially restricts a health-care provider” from disclosing to existing patients prior to the provider’s departure the following information: “(a) the health-care provider’s continuing practice of medicine; (b) the health-care provider’s new professional contact information; or (c) the patient’s right to choose a health-care provider.” As a result, a covenant not to compete that is deemed to restrict the practice of medicine, the practice of advanced practice registered nursing, or the practice of dentistry in the manner SB 25-083 defines cannot instead be labeled and enforced as a provision to protect trade secrets or to bar the solicitation of customers.1
To which types of licensed professionals these provisions would relate is not entirely clear. Although SB 25-083 refers to “a covenant not to compete that restricts the practice of medicine, the practice of advanced practice registered nursing, or the practice of dentistry,” it also defines “health-care provider” to include an individual licensed as a certified midwife. It also defines the “practice of medicine” to include practice as a physician assistant.
Finally, the General Assembly revised and narrowed the portion of the statute permitting a restrictive covenant related to purchasing and selling a business, a direct or indirect ownership share in a business, or all or substantially all of the assets of a business. Specifically, the General Assembly narrowed the duration of years an individual who “owns a minority ownership share of the business and who received their ownership share in the business as equity compensation or otherwise in connection with services rendered” may be subject to a restrictive covenant, according to a specific formula set forth in SB 25-083. Notably, however, the General Assembly did not except from this provision any “covenant not to compete that restricts the practice of medicine, the practice of advanced practice registered nursing, or the practice of dentistry,” as it did with the trade secrets and non-solicitation provisions. Accordingly, a restrictive covenant entered in connection with the sale of a medical or dental practice, or the like, may still be permissible under the statute.
By the terms of SB 25-083, the changes to the statute would apply to only covenants not to compete entered or renewed on or after the bill’s effective date of Aug. 6, 2025. This means that SB 25-083 should not be interpreted to invalidate restrictive covenants in agreements that predate Aug. 6, 2025. However, going forward, Colorado employers using restrictive covenants in their agreements with “health-care providers” should evaluate whether contract templates comply with the new provisions of SB 25-083.
1 Nothing in SB 25-083 authorizes the misappropriation of trade secrets.
Supreme Court Establishes Lower Pleading Standard for Prohibited Transaction Claims
In a unanimous decision, the U.S. Supreme Court ruled in Cunningham v. Cornell University that plaintiffs can satisfy the requirements for pleading prohibited party-in interest transactions under ERISA section 406(a) without alleging facts disproving the availability of a statutory exemption for such transactions, such as where no more than reasonable compensation is paid for necessary services. No. 23-1007 (U.S. Apr. 17, 2025). As a result, plaintiffs may be able to withstand motions to dismiss such claims even where the underlying pleadings are found insufficient to sustain a fiduciary breach claim based on the same conduct. Recognizing the risks posed by potentially frivolous claims proceeding into discovery, the Supreme Court coupled its ruling with specific advice as to how district courts can mitigate these risks.
Lower Court Proceedings
As explained in a previous post, the case was brought by participants in two Cornell University retirement plans, who alleged that plan fiduciaries breached their fiduciary duties of prudence and loyalty and caused the plans to engage in prohibited transactions by: (i) offering certain investment products in the plans; (ii) failing to monitor and offer appropriate investment options; and, relevant here, (iii) failing to monitor and control recordkeeping fees paid to a third-party service provider. Plaintiffs’ prohibited transaction claim regarding recordkeeping fees was brought under section 406(a) of ERISA, which provides that a fiduciary may not cause a plan to enter into certain transactions with a party in interest if he knows or should know that the transaction constitutes a furnishing of goods or services. Section 408 of ERISA contains various exemptions for otherwise prohibited transactions, including one in subsection (b)(2) permitting contracts between plans and service providers for necessary services for no more than reasonable compensation.
The district court dismissed or granted summary judgment to defendants on all but one of plaintiffs’ claims, which the parties later resolved through a settlement. The Second Circuit affirmed. With respect to the prohibited transaction claim based on the plans’ recordkeeping fees, the Second Circuit held that to survive a motion to dismiss, plaintiffs must plead that a transaction “was unnecessary or involved unreasonable compensation” such that it was not exempt under ERISA section 408(b)(2). In so holding, the Second Circuit took a position like that of the Third, Seventh, and Tenth Circuits, which all have required plaintiffs to plead something more than the bare elements of a prohibited transaction claim, such as allegations of self-dealing. Its ruling conflicted, however, with a ruling in the Eighth Circuit that the availability of a statutory exemption is an affirmative defense not properly considered at the pleading stage.
The Supreme Court’s Opinion
The Supreme Court, in a unanimous opinion written by Justice Sotomayor, reversed and remanded the Second Circuit’s decision. The Court resolved the existing circuit split by holding that plaintiffs need only plausibly allege the basic elements of a prohibited transaction claim to overcome a motion to dismiss. The Court held that section 406(a)(1)(C)’s prohibition on a furnishing of services between a plan and a party in interest is “categorical,” and does not carve out transactions that are necessary or for reasonable compensation. Relying primarily on ERISA’s structure, the Court found that the statutory exemptions are affirmative defenses for which defendants bear the burden of proof, and thus do not impose any additional pleading requirements. Accordingly, the Court rejected Cornell’s argument (embraced by the Second Circuit) that the exemptions are incorporated into section 406.
In so ruling, the Court took note of the “serious concerns” that requiring plaintiffs to plead merely that the plan contracted with a service provider would lead to “an avalanche of meritless litigation” and subject defendants to costly discovery in every case. But the Court concluded that these concerns could not overcome ERISA’s text and structure, which provide the exemptions in the “orthodox format of an affirmative defense.” The Court stated these concerns could be mitigated by other procedural safeguards, such as: Article III’s injury-in-fact requirement; the district court’s ability to require plaintiffs to reply to an answer under Federal Rule of Civil Procedure 7; and the district court’s ability to impose attorneys’ fees or sanctions. In a concurring opinion joined by Justices Thomas and Kavanaugh, Justice Alito recognized that “untoward practical results” were likely to flow from the Court’s decision, and suggested that the potential requirement of replies to answers under Rule 7 was “[p]erhaps the most promising” of the alternative safeguards available.
Proskauer’s Perspective
As both the Supreme Court’s opinion and the concurrence acknowledged, the pleading bar set in Cunningham gives rise to increased risks of litigation and higher settlement costs to any plan that outsources plan management services to a third-party provider. And, as Justice Alito recognized, it “remains to be seen” whether the Court’s suggested procedural safeguards will “adequately address” these concerns. Until now, Rule 7 has not been commonly invoked in ERISA cases, but the Court’s invitation will likely prompt an increased resort to that procedural device. In the face of this lower pleading standard, courts must be prepared to more aggressively manage litigation so that the ability to plead a bare-boned prohibited transaction claim does not become a cudgel to extract unwarranted settlement payments.
District courts might also wish to consider permitting early, targeted discovery on the reasonableness of the fees paid to service providers, as a means of facilitating early motions for summary judgment. Conceivably, a trend in this direction could work to the advantage of plan sponsors and fiduciaries, in that it could lead to surgical discovery approaches to address other discrete factual issues, such as whether the plaintiffs have satisfied Article III’s injury-in-fact requirement; or whether, notwithstanding any procedural imprudence alleged, there was no basis for a claim because the challenged decisions were objectively prudent.
Compliance with Labor and Wage Laws Critical to Avoid Crippling Fines and Statutory Penalties by the New York State Department of Labor
Running a profitable small business in New York State is no easy task. Juggling finances, employee relations, and the day-to-day operations has become increasingly difficult in a turbulent, uncertain economy. And that is why being conscious of New York State’s labor and wage laws, which are often nuanced and confusing, is critical. A failure, even if unintentional, to abide by the state’s labor and wage laws could result in an unanticipated audit by the New York State Department of Labor (NYSDOL), and the fines that may follow from that audit could be described as shocking and crippling.
These failures, which are subject to a NYSDOL audit, could be unintentional, but in some instances, the NYSDOL will treat genuine mistakes much like it will treat intentional errors. For instance, if a business mistakenly pays an employee the incorrect overtime rate or neglects to meet the weekly salary threshold for overtime-exempt employees per state law, then the business may be subject to an audit from the NYSDOL. An honest mistake like this could be dangerously costly – well beyond what it would take to make the employee “whole.”
Penalties under the NYSDOL Audit
Under Labor Law §219, the NYSDOL has the ability to direct payment for interest on all wages owed, which is currently set to 16 percent via Banking Law §14-a. That, unfortunately, is just the tip of the iceberg.
Should the NYSDOL audit uncover that an employer owed wages to employees, it will seek to assess liquidated damages pursuant to Labor Law §218. These amounts could be devastating depending on the circumstances. The statute allows for damages of up to 100 percent of the unpaid wages “plus the appropriate civil penalty.” Labor Law §§198 (1-a) and 662 (2) provide that liquidated damages shall be assessed unless the employer provides a good faith basis for believing that the underpayment was in compliance with the law. The civil penalty can be just us much as the wages owed – or, in the worst cases, up to 200 percent of the wages owed.
The NYSDOL is technically supposed to consider statutory factors pursuant to Labor Law §218 (1) before assessing civil penalties, including “size of the employer’s business, the good faith basis of the employer to believe that its conduct was in compliance with the law, the gravity of the violation, the history of previous violations and, in the case of wages, benefits or supplements violations, the failure to comply with record-keeping or other non-wage requirements.”
Example Cases
But what does this look like in practice? Let’s take as an example In the Matter of Port Café, a New York State Industrial Board of Appeals (IBA) decision from December 2024. In that case, the NYSDOL found that Port Café owed $174,757.91 in unpaid wages. On top of those wages, the NYSDOL assessed 100 percent of liquidated damages – so another $174,757.91 – along with a civil penalty in the amount of another $174,757.91, increasing the total amount owed to approximately $690,500. Luckily (if you can say that) for the business in Port Café, the IBA affirmed the liquidated damages but revoked the civil penalties due to the company’s “size … good faith of the employer, gravity and type of monetary violations.” Port Café is a cautionary tale.
Once you are subject to a NYSDOL audit, there is a real cause for concern that the NYSDOL will assess damages and penalties that far exceed the amount of unpaid wages – sometimes up to 200 percent more. As hard as it is to believe, much of a NYSDOL decision to assess these extreme penalties is discretionary. The NYSDOL advises that it will give consideration to the size of a business, the good faith of the employer, and other factors, but some businesses still end up better off than others. The business in Port Café resorted to challenging the 200 percent of civil penalties with the IBA, which ultimately agreed that these penalties were excessive, but other times the IBA has affirmed these penalties.
In In the Matter of the Petition of Lookman Afolayan and Buka NY Corp, a June 2021 IBA decision, the business was subject to a NYSDOL audit that found unpaid wages amounting to $27,851.75. Even with the considerations as discussed above (e.g., size of business), the NYSDOL assessed 100 percent liquidated damages and 100 percent civil penalties – raising the amount owed to an astonishing $116,138.77. What was once a somewhat manageable amount to be owed by this business had snowballed into devastating fines and penalties.
Takeaways
With all of that said – and with the “bad news” aside – what should a business do if it is subject to a NYSDOL audit? An attorney can help guide the next steps, including gathering documentation that is responsive to the NYSDOL audit and ensuring “good faith” compliance so that the business has a stronger likelihood of avoiding the fullest extent of statutory liquidated damages and civil penalties. If penalties have already been assessed, having an attorney evaluate the totality of the audit and how the discretionary factors were applied by the NYSDOL, if at all, is critical to potentially reducing the damages owed on appeal.
Being subject to a NYSDOL audit and the potential statutory penalties is undoubtedly an uncomfortable and costly scenario, and the best way to dodge this situation is to comply with the relevant New York State wage and labor laws. Small miscalculations and errors could result in harsh penalties – and the one true way to avoid it altogether is to properly follow each applicable labor and wage law in New York State. This includes the overtime laws, the exemption laws, and the child labor laws, to name a few. An attorney can assist with assessing the applicability of these laws to a business to confirm compliance, and while that may appear painstaking, it is a way to safeguard compliance with the law to avoid an unexpected NYSDOL audit and the excruciating penalties that may follow.
District Court Holds Withdrawal Liability Claim Not Barred by Employer’s Dissolution
In Central States, Southeast & Southwest Areas Pension Fund v. Sheets Enterprise, No. 24 cv 2277 (N.D. Ill.), a district court held that an employer could not avoid being held liable for withdrawal liability simply because it had been dissolved under state law. The decision is instructive because it shows the limits that state law dissolution proceedings may have in avoiding obligations like withdrawal liability that are created by federal law.
Background
Sheets Enterprises (“Sheets”) was a Kentucky corporation that contributed to the Central States Pension Fund (the “Fund”). In late-2016, Sheets ceased all operations for which contributions were required to the Fund, thereby effecting a complete withdrawal, and the next year, Sheets filed a notice of dissolution with the Kentucky Secretary of State. The Fund only learned of Sheets’ withdrawal and its subsequent dissolution in May 2023, nearly six years later. In November 2023, the Fund assessed Sheets with $675,000 in withdrawal liability and commenced suit when Sheets failed to pay.
Sheets did not commence arbitration to challenge the withdrawal liability and instead presented two principal arguments in the collection litigation. First, it argued that the court lacked personal jurisdiction to entertain suit against a dissolved corporation. Second, Sheets argued that the Fund’s claim had been extinguished as part of dissolution proceedings under Kentucky state law. Those laws provide that a dissolved corporation may dispose of claims against it if it publishes notice of its dissolution and no potential claimants sue within two years. Sheets argued that because it published its notice in 2017, and the Fund had failed to file suit to collect the withdrawal liability within the next two years, any further efforts by the Fund to collect the liability were time-barred.
The District Court’s Ruling
The district court rejected both defenses and entered judgment in favor of the Fund. The Court held that dissolved corporations retain the capacity to sue and be sued under Kentucky law, and thus there was no basis for Sheets’ contention that the Court lacked personal jurisdiction over it. The Court also held that ERISA preempted any limitations period under Kentucky’s dissolution statutes. Under ERISA, suits to collect withdrawal liability must be brought within six years after the cause of action arises or within three years of the date the plaintiff acquires knowledge of the cause of action. The Court held that the statutory limitations period could not be shortened by Kentucky state law.
Proskauer’s Perspective
The Court’s ruling is another example of the broad scope of ERISA’s preemptive reach. Employers that intend to dissolve and wind up their affairs should be especially mindful of the decision, as those proceedings may not be sufficient to dispose of claims for withdrawal liability owed to multiemployer pension plans.
ERISA in the Supreme Court: Implications of Cunningham v Cornell University
On April 17, 2025, the U.S. Supreme Court issued a unanimous opinion in Cunningham v Cornell University, addressing the pleading standard applicable to prohibited transaction claims under the Employee Retirement Income Security Act (ERISA).
Which Party Must Address Prohibitive Transaction Exemptions in a Motion to Dismiss?
Plan participants filed suit against plan fiduciaries, alleging that the fiduciaries had engaged in a prohibited transaction by retaining two of its recordkeepers and paying excessive recordkeeping fees to keep them. The question presented to the Supreme Court is an important procedural question: Who—at the motion to dismiss stage—had the burden of pleading and proving whether the service provider exemption applies?
The Supreme Court resolved a lower court split by ruling that it is not the participants’ responsibility to plead the absence of a prohibited transaction exemption. Instead, the plan sponsor must show that a prohibited transaction exemption applies as an affirmative defense. Exemptions are not—as the defense argued and the Second Circuit held—elements of the pleading, such that plaintiffs must demonstrate their absence to survive a motion to dismiss.
What are Prohibited Transactions and Why Are Exemptions Needed?
ERISA categorically bars certain “prohibited transactions” between a plan and a related party (a so-called “party-in-interest”) to prevent conflicts of interest subject to several detailed exemptions, which allow plans to interact or conduct business with a party-in-interest if certain requirements are met. Because of the extremely broad nature of the prohibited transaction rules, the retirement industry would have difficultly functioning without the prohibited transaction exemptions. For example, in the absence of the exemptions, virtually every payment of fees to a plan vendor for services would be a prohibited transaction. However, there is a commonly used statutory exemption for reasonable arrangements with service providers for the provision of necessary services as long as no more than reasonable compensation is paid.
Supreme Court Decision May Lead to More Litigation
As the concurring opinion noted, the motion to dismiss stage has become “the whole ball game” because the cost of discovery can often drive defendants to settle meritless suits based on purely financial considerations. The Supreme Court acknowledged that this lower standard for plaintiffs could open the floodgates to more litigation, and directed trial courts to use other methods and civil litigation rules to attempt to weed out meritless cases.
Recommended Actions
This is a procedural ruling steeped in technical principles of statutory construction and interpretation of civil litigation rules. Nonetheless, there is a simple takeaway for plan sponsors. The hurdle for participants to survive a motion to dismiss in a suit against plan fiduciaries just got easier, so it is more important than ever for plan sponsors to manage litigation risk by making themselves unattractive targets. This means plan sponsors and fiduciaries should focus on engaging in prudent, compliant and well-documented actions and plan administration processes, particularly in the areas of vendor selection and management and investment selection.