Federal Regulators Announce Non-Enforcement of the 2024 Rule for Mental Health Parity
On May 9, 2025, the Departments of Labor, Health and Human Services, and Treasury (collectively, “the Departments”) asked the D.C. federal court to suspend litigation while they consider whether to rescind or modify the 2024 Rule implementing the Mental Health Parity and Addiction Equity Act (MHPAEA).
As part of the request, the Departments indicated that they will suspend enforcement of the 2024 Rule.
The 2024 Rule was issued to implement revisions to the MHPAEA statute that were passed as part of the Consolidated Appropriations Act of 2021 (“CAA”) to add specific requirements for the development and enforcement of comparative analyses for non-quantitative treatment limits (“NQTLs”). The Departments’ enforcement suspension was announced as a part of a motion to hold in abeyance a legal challenge to the statutory basis for the 2024 Rule that was filed by the ERISA Industry Committee (“ERIC”) on January 17, 2025.
Specifically, the motion provides that the parties have agreed to the Departments’ request to stay the litigation while the Departments suspend enforcement of the 2024 Rule and “reconsider the 2024 Rule…including whether to issue a notice of proposed rulemaking rescinding or modifying the regulation.” The Departments specifically propose to “(1) issue a non-enforcement policy in the near future covering the portions of the 2024 Rule that are applicable for plan years beginning on or after January 1, 2025 and January 1, 2026, and (2) reexamine the Departments’ current MHPAEA enforcement program more broadly.” The Departments also propose to provide quarterly status reports to the court on progress, starting on or before August 7, 2025. The motion also indicates that ERIC consented to the Department filing the motion, subject to ERIC’s “right to resume litigation at any time if necessary.”
The Departments’ motion leaves unclear whether the non-enforcement policy will apply to all aspects of the regulations or only to selected provisions. At minimum, the non-enforcement policy is likely to address the four aspects of the 2024 Rule that ERIC challenged in its complaint:
1. “Meaningful benefits”
The 2013 MHPAEA regulations provided that if a health plan provides benefits for mental health and substance use disorders (“MH/SUD”) in any classification of benefits, then it must provide MH/SUD benefits in every classification in which medical/surgical benefits are provided. The 2024 Rule expanded this requirement in two ways. First, it clarified that the requirement applies by condition—that is, a service must be covered in every classification for each covered MH and SUD condition. Second, it stipulates that such coverage must be “meaningful,” and defines “meaningful” to mean that coverage must include at least one “core” or “primary” treatment for the condition in each classification.
Under the non-enforcement policy, the Departments are unlikely to require analysis of whether a plan’s coverage for MH/SUD conditions is “meaningful.” However, even prior to the 2024 Rule, the Departments have found that exclusions for certain MH/SUD benefits violate the statutory requirements for non-quantitative treatment limits (NQTLs), so plans and issuers should continue to ensure that MH/SUD exclusions in the plan document can be justified under the statute.
2. “Material differences in access”
The MHPAEA statute requires plans to analyze whether the application of an NQTL to MH/SUD benefits is comparable to its application to medical/surgical benefits “in operation.” Guidance including the 2024 Rule clarified that this generally involves the use of data measures to analyze the impact of the NQTL on access to MH/SUD and medical/surgical treatments and services, including measures like denial rates for claims and authorizations. The 2024 Rule specified that if the plan’s data measures demonstrate outcomes that are more stringent for MH/SUD benefits than for M/S benefits, the plan must take action to remedy any “material difference” in access that is attributable to the NQTL.
The Departments have consistently requested data measures to evaluate comparability “in operation” dating back to the 2013 parity rule, so the forthcoming policy on non-enforcement of the 2024 Rule should not be interpreted to mean that plans and issuers should no longer consider data measures in evaluating their compliance with the MHPAEA statute. Instead, the non-enforcement policy is likely to mean that regulators will provide greater leeway for plans to select and interpret the measures that they use in their analyses.
3. Comparative analysis requirements
The CAA updated the MHPAEA statute to require plans and issuers to develop a 5-step “comparative analysis” to demonstrate that the processes, strategies, evidentiary standards, and other factors used to apply an NQTL to MH/SUD benefits, as written and in operation, are comparable to, and are applied no more stringently than, the processes, strategies, evidentiary standards, and other factors used to apply the NQTL to medical or surgical benefits in each benefit classification. In each of the annual Reports to Congress on MHPAEA that the Departments have published since then, the Departments have found that the comparative analyses that plans and issuers have been creating are insufficient to meet the statutory requirements. The 2024 Rule provided extensive guidance on the specific content that the Departments have determined that plans and issuers should provide within each step of the analysis.
The forthcoming non-enforcement policy does not change the statutory requirement for plans and issuers to create these comparative analyses. However, it most likely signals that the Departments will not focus on the adequacy of documentation with regard to the comparative analyses, and instead will focus their enforcement efforts on identifying substantive disparities in the design or application of NQTLs. In practice, where regulators determine that the comparative analysis submitted by a plan is insufficient to demonstrate compliance with the statute, regulators are likely to continue to request additional policies, data, and other plan documentation sufficient to determine whether the NQTL meets the statutory requirements for comparability and stringency.
4. Fiduciary certification requirement
The 2024 Rule required plan fiduciaries to certify that they have engaged in a “prudent process to select one or more qualified service providers to perform and document a comparative analysis” for each NQTL, and that they have satisfied their duty to monitor those service providers. The preamble explained that the Departments interpret this duty to include, at a minimum, reviewing the comparative analyses, asking questions about them to understand the documented findings and conclusions, and ensuring that the responsible service providers provide assurance that, to the best of their ability, the NQTLs and associated comparative analyses comply with the requirements of MHPAEA and these regulations. The 2024 Rule required the fiduciary certification to be included in each comparative analysis.
The non-enforcement policy is likely to provide that the Department of Labor (DOL) will not require comparative analyses to include certification that the plan fiduciary has engaged in a prudent process to select and oversee the service providers that performed the analysis. However, general fiduciary obligations related to the selection and monitoring of service providers under the Employee Retirement Income Security Act (ERISA) will continue to apply.
The formal policy of non-enforcement, when published, should help to clarify the Departments’ intentions with regard to the scope of the provisions that will not be enforced, but may not fully resolve the ambiguity about which aspects of the MHPAEA statute and accumulated guidance for which they do intend to enforce. The expiration of 2021 funding to support additional staffing for the Department of Labor investigations team and other staffing cuts under the Trump Administration may further impact enforcement practices for employer health plans and their third-party administrators. The Departments’ 2024 MHPAEA Report to Congress provides the most detailed discussion to date of the types of findings and corrective actions that the Departments required prior to the adoption of the 2024 Rule and may be the best guide to the Departments’ enforcement strategy for 2025 unless and until more details are provided in the formal non-enforcement policy. However, although the motion only mentions the 2024 Rule and the Departments were enforcing the CAA prior to its adoption, it is possible that the Departments will go further and suspend all MHPAEA enforcement efforts as a part of the non-enforcement policy.
Health insurance issuers that offer fully-insured health plans should note that the federal policy of non-enforcement does not apply to state regulators, who interpret and enforce both federal and state laws for mental health parity. Fully-insured plans in all states continue to be subject to the MHPAEA statute and the 2024 Rule, in addition to any state law for mental health parity. Some states have already adopted the 2024 Rule into state statute, and others may do so as a result of the Departments’ announcement. Many states have required parity compliance reporting using state-specific data measures and reporting templates. Some state regulators may determine that the federal policy of non-enforcement puts a greater burden and priority on state regulators to enforce parity laws. Insurance issuers should therefore ensure that their parity compliance strategies align with both federal and state data and documentation requirements and enforcement trends.
Finally, employers, third-party administrators, issuers, Medicaid Managed Care Organizations, and other entities subject to, or significantly impacted by, MHPAEA will also need to carefully monitor and engage with any effort by the Departments to rescind and replace the 2024 Rule.
Businesses Get a Break: DOL Won’t Enforce 2024 Independent Contractor Rule
Takeaways
When analyzing employment status under the FLSA, DOL investigators will apply previous subregulatory guidance, instead of the 2024 independent contractor final rule, including a 2019 opinion letter addressing independent contractor status and a 2008 fact sheet.
Several lawsuits challenging the 2024 final rule are pending but the litigation is on hold as the DOL considers whether to rescind the rule.
For now, the 2024 final rule remains in effect “for purposes of private litigation.”
The U.S. Department of Labor (DOL) will no longer apply the 2024 independent contractor final rule when analyzing whether a worker is an employee or independent contractor under the Fair Labor Standards Act (FLSA).
The 2024 final rule revised the standard for determining whether a worker is an employee or independent contractor under the FLSA. (See Labor Department Releases Independent Contractor Final Rule, Revising Standard.) Several lawsuits over the 2024 final rule are still pending, but the DOL has recently sought to put the litigation on hold while it reconsiders whether to defend or rescind the rule. (See Employers Still Need to Abide 2024 Independent Contractor Rule Despite DOL Hints of Dropping It.) In the meantime, the DOL has paused enforcement of the final rule, directing its field staff not to apply the rule in agency investigations.
Field Assistance Bulletin
The DOL’s directive came in a Field Assistance Bulletin issued May 1, 2025, by Acting Administrator of the Wage and Hour Division (WHD) Donald M. Harrison, III. The bulletin, “FLSA Independent Contractor Misclassification Enforcement Guidance,” instructs WHD field staff that instead of applying the standard set forth in the 2024 final rule, investigators must analyze employment status under the longstanding framework set forth in Fact Sheet #13 and Opinion Letter FLSA2019-6, which addresses independent contractor status in the gig economy.
A return to prior guidance “provides greater clarity for businesses and workers navigating modern work arrangements while legal and regulatory questions are resolved,” the DOL announced in a press statement.
The enforcement guidance applies “with respect to any matters for which no payment has been made, directly to individuals or to DOL, for back wages and/or civil money penalties as of May 1, 2025.”
Fact Sheet #13
Issued in 2008, Fact Sheet #13 cites numerous factors courts historically have considered when determining whether an individual “is engaged in a business of his or her own” as a matter of economic reality or is dependent on the entity for which they are performing work. These factors include:
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.
The degree of independent business organization and operation.
In 2024, the DOL revised Fact Sheet #13 to conform to the new final rule. The DOL on May 1 restored the 2008 version to conform to its current enforcement position.
The 2024 final rule adopts and details six similar “economic reality” factors. The 2024 final rule does not include “degree of independent business organization and operation” among the delineated factors. It allows for consideration of other factors beyond this non-exclusive list, although allowing for greater flexibility in evaluating the “totality of the circumstances” of the relationship. This flexibility, however, has made it more challenging for businesses seeking clear criteria for ensuring their intended independent contractors are not classified as employees under the DOL standard.
Opinion Letter
Opinion Letter FLSA2019-6 is referenced in the Field Assistance Bulletin as additional guidance informing the independent contractor analysis. The opinion letter addresses the employment status of gig workers who contract with customers through a virtual marketplace company’s (VMC) platform.
Applying the traditional six factors, the wage and hour administrator determined that the workers in question did not fit “any traditional paradigm” covered by the FLSA. The VMC is merely a “referral service,” and the platform users do not have a working relationship with the company. Rather, they work for the consumers with whom they match on the platform.
The DOL withdraw the opinion letter during the Biden Administration. The acting wage and hour administrator recently reinstated the guidance and redesignated it as Opinion Letter FLSA2025-2 (May 2, 2025).
Takeaway
The Field Assistance Bulletin indicates that WHD will not enforce the 2024 final rule while it develops the “appropriate” independent contractor standard. It also states, however, that DOL may exercise its enforcement authority in specific cases as explicitly directed by the wage and hour administrator.
The DOL did not attempt, in the meantime, to restore a streamlined independent contractor final rule published by the first Trump Administration. The Trump rule focused on two “core” factors that DOL considered most probative of independent contractor status. That final rule, issued in early 2021, was rescinded by the Biden DOL before it took effect. To resurrect the Trump final rule would require the DOL to undertake formal notice-and-comment rulemaking.
The 2024 final rule remains in effect “for purposes of private litigation” relating to independent contractor status under the FLSA, the WHD noted. Businesses also need to comply with the more restrictive state laws defining independent contractor status in the jurisdictions where they operate.
Workplace Strategies Watercooler 2025: The Election Is Over, What’s Next? Part I [Podcast]
In part one of this two-part Workplace Strategies Watercooler 2025 podcast series on changes employers can expect from the new administration, Jim Plunkett (shareholder, Washington, D.C.) sits down with Scott Kelly (shareholder, Birmingham) to discuss the current status and challenges faced by federal contractors following changes at the Office of Federal Contract Compliance Programs (OFCCP) due to President Trump’s Executive Order 14173, including the revocation of EO 11246, compliance options, and ongoing obligations under federal anti-discrimination laws. Next, Jim speaks with John Merrell (shareholder, Greenville) regarding expected changes in traditional labor policy, including the makeup of the National Labor Relations Board (NLRB), the role of the general counsel, and the NLRB’s case priorities, standards, and decisions. Finally, Jim talks with Wayne Pinkstone (shareholder, Philadelphia) about anticipated changes within the Occupational Safety and Health Administration (OSHA) during President Trump’s second term, including the administration’s regulatory agenda, the fate of the heat stress rule proposed under the previous administration, and the overall leadership and enforcement of the agency.
Colorado Legislature Fails to Amend Recent Artificial Intelligence Act
In 2024, Colorado passedthe first comprehensive state-level law in the U.S. regulating the use of artificial intelligence, the Artificial Intelligence Act (the Act). It imposed strict requirements on developers and users of “high-risk” AI systems, particularly in sectors like employment, housing, finance, and healthcare. The Act drew criticism for its complexity, breadth, and potential to stifle innovation.
In early 2025, lawmakers introduced Senate Bill (SB) 25-318 as a response to growing concerns from the tech industry, employers, and even Governor Jared Polis, who reluctantly signed the Act into law last year.
SB25-318 aimed to soften and clarify some of the more burdensome aspects of the original legislation before its compliance deadline of February 1, 2026.
Amendments proposed under SB 25-318 included:
An exception to the definition of “developer” if the person offers an AI system with open model weights and meets specified conditions.
Exemptions for specified technologies.
Elimination of the duty of a developer or deployer to use reasonable care to protect consumers from known or reasonably foreseeable risks of algorithmic discrimination and the requirement to notify the state attorney general of such risk.
An exemption from specified disclosure requirements for developers if they meet certain financial and operational criteria.
Despite its intention to strike a balance between innovation and regulation, SB25-318 was voted down 5-2 by the Senate Business, Labor, and Technology Committee on May 5, 2025.
With SB25-318 dead, the original Act remains intact, and the next step is for the Colorado Attorney General to issue rules and/or guidance. As it now stands, businesses and developers operating in Colorado must prepare for full compliance by early 2026 unless this date is otherwise extended.
Cal/OSHA Standards Board Considers Subcommittee in Response to NIOSH Cuts
The California Occupational Safety and Health Standards Board (OSHSB) is considering the formation of a subcommittee to tackle challenges arising from the dismantling of the National Institute for Occupational Safety and Health (NIOSH).
During the OSHSB meeting on April 17, 2025, board members discussed reports of significant layoffs within NIOSH due to federal government budget cuts. These cuts would “eliminate 92% of the NIOSH’s workforce,” effectively leading to a shutdown of the agency. Earlier this month, NIOSH was hit with even more layoffs.
NIOSH conducts occupational safety and health research, recommends safety standards, and provides training and educational resources. The near elimination of NIOSH is expected to disrupt these essential services and create a gap, particularly affecting the certification of personal protective equipment (PPE). Federal regulations require the use of NIOSH-approved respirators and mandate certain comprehensive respiratory protection programs.
Without NIOSH certification, California faces challenges in protecting workers, especially in high-risk industries such as fire protection, healthcare, and mining. The absence of a certifying body could impede the development and sale of new respiratory protection technologies, which the OSHSB is concerned would pose significant risks to worker safety. The board expressed urgency regarding potential risks to firefighters’ health and safety, given recent wildfire and urban interface fires within the state.
The proposed subcommittee would explore NIOSH’s overall functions and consider alternatives, including potential legislation, partnerships with other states, and leveraging existing expertise in the field. The subcommittee would also investigate the current situation in Washington D.C., assess the impact on California workers, and evaluate actions the state or OSHSB can take to mitigate these issues. The OSHSB plans to continue these discussions with Cal/OSHA during its upcoming meeting in Redding.
Use of AI in Recruitment and Hiring – Considerations for EU and US Companies
1. Use of AI in Recruitment and Hiring
AI is transforming the recruitment landscape across the globe, making processes such as resume screening and candidate engagement more efficient by:
using keyword searches to automatically rank and eliminate candidates from a pool of applicants with minimal human oversight;
performing recruitment tasks via chatbots that interact with candidates;
formulating skills and aptitude tests; and
analyzing video interviews to assess a candidate’s suitability for a particular position.
In addition to maximizing efficiency, AI may also be used to make automated, substantive decisions related to recruitment, hiring, and performance through the use of predictive analytics that forecast a candidate’s success in a specific role.
2. Regulation of AI Use in the European Union and United States
The European Union has taken a united approach to AI regulation, and all EU member states are currently governed by the EU Regulation on Artificial Intelligence (EU AI Regulation), which took effect on Aug. 1, 2024. The EU AI Regulation’s scope applies to all providers and deployers based in the EU, as well as those that place an AI system on the EU market or use the results of an AI system in the EU. Parties located outside the EU should therefore be aware that the EU AI Regulation may apply to them, as well.
The EU AI Regulation categorizes AI systems into different risk categories, with the applicable rules becoming stricter as the risk to health, safety, and fundamental rights increases (for example, “minimal” regulation for spam filters; “limited” regulation for chatbots; “high” regulation for use in recruitment; and “unacceptable” use of AI for social scoring and facial recognition). HR tools are considered high-risk AI systems if they (1) are used for recruiting or selecting candidates; and/or (2) provide the basis for HR employment-related decisions, e.g., promoting or terminating employment or monitoring and evaluating performance and behavior.
As of Feb. 2, 2025, the EU AI Regulation requires companies to eliminate “unacceptable” AI systems (as defined by the law) and to thoroughly and comprehensively train all employees using AI systems with respect to compliant AI use under the regulation.
In contrast to the EU, the United States does not currently have uniform AI regulations on a federal level. Though the Biden administration had tasked government agencies such as the Department of Labor and the Equal Employment Opportunity Commission with monitoring the use of AI tools and issuing guidance to enhance compliance with anti-discrimination and privacy laws, in January 2025, President Trump expressed his support for deregulation, issuing an executive order entitled “Removing Barriers to American Leadership in Artificial Intelligence Issues.” Federal agencies have since removed all previously issued guidance on AI use.
In response to the executive order advocating for AI deregulation, regulations governing the use of AI have been introduced and passed on the state level. However, legislation passed does not always become legally binding. For example, in February 2025, the Virginia legislature passed the High-Risk Artificial Intelligence Developer and Deployer Act, which would have required companies creating or using “high-risk” AI systems in employment as well as other areas to implement safeguards against “algorithmic discrimination” for such systems. However, the governor vetoed the Act on March 24, 2025, and so the Act does not currently apply.
3. AI Use May Trigger Other Legal Violations
Aside from complying with laws such as the EU AI Regulation, which specifically regulates the use of AI, companies using AI in their recruiting and hiring processes should be careful such use does not trigger a violation of other laws. For example:
Bias and Discrimination: Algorithms used by AI in recruitment and hiring may inadvertently perpetuate bias, leading to discrimination against candidates based on race, gender, age, or other protected characteristics. Discrimination is prohibited in the EU under Council Directive 2000/78/EC, which bans discrimination in employment, education, and public safety, as well in the United States via more than one hundred federal, state, and local anti-discrimination laws.
Data Security and Ownership: Companies that enter the personal data of potential candidates into an AI system have certain legal obligations with respect to maintaining the security of such data, as well as considerations with respect to the ownership of such data. Such obligations are governed by the EU General Data Protection Regulation (GDPR), which took effect on May 25, 2018. In the United States, more than 20 jurisdictions have passed laws imposing obligations on employers that use AI to collect and process candidate and employee data.
Invasion of Privacy: Employers that collect candidate and/or employee data via AI tools may inadvertently be invading the privacy of such candidates and employees, and should be mindful of applicable privacy laws, which may require the company to obtain consent from the candidate or employee prior to running certain searches.
4. Penalties for Non-Compliance
An EU employer that violates the above discrimination, data security, and privacy laws risks significant (yet lower than U.S.) damage awards, as well as high administrative penalties from agencies such as the European AI Office and national data protection authorities.
Damages claims for individual breaches can vary significantly between jurisdictions, and EU member states retain national autonomy in determining award sums. However, European Court of Justice (ECJ) landmark judgments emphasize the importance of issuing awards that correspond to the nature and extent of the EU-protected rights violated.
Certain European nations, such as Estonia, Hungary, Ireland, Sweden, Austria, and Finland, have established statutory or customary upper limits on awardable damages to employees in the event a company fails to comply with applicable anti-discrimination regulations, with such damages ranging from the payment of EUR 500 to 104 weeks’ pay. In contrast, in Poland, Germany, and the Netherlands, damages are not formally limited, although in practice the awards are relatively low compared to the United States. The national laws of some European countries, such as UK, provide for punitive damages, which would further increase the sum of damages awarded.
In addition to the above, administrative fines for data security and privacy law violations under GDPR may reach up to the higher of EUR 20,000,000, or 4% of a company’s annual worldwide turnover for the preceding financial year.
Under the EU AI Regulation, both an EU employer and a non-EU employer using the results of an AI system in the EU can be fined up to the higher of EUR 35,000,000 or 7% of a company’s annual worldwide turnover for the preceding financial year. In the United States, penalties range depending on the jurisdiction. In New York City, for example, an employer may incur a fine of up to $500 for a first violation, and between $500 and $1,500 per day for each subsequent or continuing violation.
5. Considerations for Employers
To minimize exposure, employers should consider taking the following steps:
For the EU (including non-EU companies subject to EU laws as provided above):
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Eliminate AI use deemed to be “unacceptable” under the EU AI Regulation.
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Train employees to use AI in accordance with the EU AI Regulation, applicable data security and privacy laws, and company policies.
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Prepare for additional new requirements scheduled to take effect in August 2026.
For the United States:
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Inform candidates when using AI in recruiting and hiring and obtain informed written consent from a candidate prior to using AI for processing sensitive data.
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Provide an alternate method of screening should the candidate decline the use of AI.
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Use AI systems (including testing procedures) that provide clear parameters that can later be verified.
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Conduct periodic independent bias testing of AI systems and recruitment tools.
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Include human oversight in the decision-making process.
Thilo Ullrich and Dorothee von Einem also contributed to this article.
Disparate-Impact Liability Gets Cancelled: Trump Executive Order Seeks to Eradicate Disparate-Impact Liability From Federal (And State) Law
On April 23, 2025, President Donald Trump issued an executive order titled “Restoring Equality of Opportunity and Meritocracy” (“the EO”).
The EO, by its own terms, seeks to “to eliminate the use of disparate-impact liability in all contexts to the maximum degree possible” through several avenues, including eliminating enforcement at the federal level and advocating for preemption at the state level.
Disparate-impact liability is a legal theory by which facially neutral policies or practices may nonetheless violate antidiscrimination laws if they disproportionately affect members of protected classes. Disparate impact claims are typically raised in the context of reductions-in-force and challenges to hiring criteria.
Recognized initially by the U.S. Supreme Court in the 1971 case Griggs v. Duke Power Co., 401 U.S. 424 (1971), disparate-impact liability was later codified into Title VII of the Civil Rights Act by Congress in 1991. Although disparate-impact liability usually centers on federal law and authorities, many states have also codified versions of disparate-impact liability throughout state statutes and regulations.
The EO represents a significant shift in federal enforcement priorities, directing all federal agencies to “deprioritize enforcement of all statutes and regulations” that include disparate-impact liability. For employers, this most acutely signals that the Equal Employment Opportunity Commission (EEOC), among other federal agencies, will no longer pursue enforcement of disparate impact liability in administrative proceedings.
Beyond federal enforcement priorities, the EO seeks to lay the groundwork for preemption of state-law disparate-impact protections. Specifically, the EO instructs the Attorney General and all federal agencies to “determine whether any Federal authorities preempt State laws, regulations, policies or practices that impose disparate-impact liability” based on federally protected characteristics. (In doing so, the EO also explicitly telegraphs the Trump administration’s interest in designating the lack of a college education as a protected trait for equal employment purposes.) Accordingly, the EO’s stated interest in preemption could potentially pave the way for more to challenges to state-level disparate-impact protections.
However, employees can still bring private lawsuits alleging disparate impact claims under both federal and state law, barring further developments in federal case law or statutes.[1] In other words, employers would be ill-advised to eliminate disparate impact analyses when conducting reductions-in-force or considering applicant testing or similar broad-scale hiring criteria.
Ultimately, the law surrounding disparate-impact liability promises to continually change in the months and years ahead. Employers should keep an eye on these developments and consult with counsel if they have questions as to their compliance with federal and state law.
[1] Notwithstanding the EO’s stated changes to federal enforcement and the current administration’s appetite for preemption, employees must still allege disparate-impact claims in their EEOC charge in order to exhaust administrative remedies under federal law — even if the EEOC ceases to investigate or enforce disparate-impact claims. In other words, an employee’s failure to assert disparate-impact claims at the EEOC level could result in dismissal of those disparate-impact claims later on for failure to exhaust administrative remedies. Additionally, employees may continue to assert state-law claims (as applicable), notwithstanding the EO’s demonstrated appetite for federal preemption of state laws on disparate-impact liability. However, employers challenging such state-law disparate-impact claims may take the EO’s invitation and make a preemption argument against such claims — which may then lead to further developments in the case law in this area.
DOL Alters Enforcement Position on Independent Contractors
On May 1, 2025, the Wage and Hour Division (WHD) of the U.S. Department of Labor (DOL) issued a Field Assistance Bulletin stepping back from a restrictive independent contractor rule issued under the Biden administration — a move that should be welcomed by manufacturers and franchisors who depend on workforce models including independent contractors. Although the 2024 rule remains on the books, the DOL has issued an enforcement guidance signaling a shift back toward a more business-friendly framework.
Specifically, the DOL position in the 2024 Fact Sheet and the 2024 regulations (“2024 Rule”) stated that the “economic realities” of the worker’s relationship with the purported employer would determine whether that worker was an employee or an independent contractor. Specifically, in the 2024 Rule, the DOL’s enforcement position was that, if the worker was economically dependent on the employer for work, then worker would be considered an employee. If the worker was truly in business for themselves, then the worker would be an independent contractor. Under this rule, business were required to examine the totality of the working relationship to determine the worker’s status. This 2024 Rule went through numerous, detailed examples that left little doubt that the intention was to make it more difficult to classify a worker as an independent contractor. Once the worker was deemed an employee, that worker was entitled to minimum wage, overtime, and other protections under the Fair Labor Standards Act.
In its May 1, 2025, announcement, the DOL directed WHD investigators not apply the 2024 Rule in their current enforcement matters. The announcement further stated that the WHD would return to the enforcement position from its 2008 Fact Sheet and 2019 Opinion Letter, returning to the more traditional “economic realities” test. The factors described are significantly more lenient than the 2024 Biden-era rule. This signals a return to a more predictable and flexible standard, allowing for more workers to be considered as independent contractors.
The New (Old) Test Is Effective Immediately
Effective May 1, DOL investigators will evaluate independent contractor status under traditional “economic realities” principles. This means weighing several factors to determine whether a worker is truly in business for themselves or dependent on the hiring entity.
The factors are:
Whether the work is integral to the business;
The duration and permanency of the relationship;
The worker’s investment in equipment or materials;
The business’s degree of control over the worker;
The worker’s opportunity for profit or loss;
The level of market competition and initiative exercised; and
The degree of independent business operation.
The 2024 Rule Still Exists (For Now)
Five DOL enforcement actions over the 2024 Rule remain pending, but the DOL has sought to pause those lawsuits while it reconsiders the 2024 Rule. It is important to note that, while the DOL will no longer enforce the 2024 Rule, it has not yet been rescinded or revised. Therefore, it remains in place for private litigants until the DOL takes further action. But, in its May 1 announcement, the DOL stated its intention to develop regulations for how workers should be classified. Companies, including franchisors and manufacturers, should stay vigilant, particularly in industries prone to misclassification claims.
Businesses should be cautious about making changes to their classification of workers based on the May 1 announcement, given that the 2024 Rule remains the law. They should also continue to monitor the DOL’s potential repeal/revision to the 2024 Rule. As always, they should reach out to counsel on these issues, as re-classifying workers can have significant consequences.
Implications for Companies, Including Franchisors and Manufacturers
This more balanced framework allows businesses to structure relationships with franchisees and service providers in a way that better reflects operational needs without automatically triggering employee status under federal wage laws.
Don’t Ignore State-Level Rules
Federal flexibility doesn’t equal nationwide relief. Many states — especially California, New Jersey, and Massachusetts — have adopted more rigid standards, like the ABC test, making it harder to maintain contractor classifications.
Key Takeaways
Audit your workforce by jurisdiction, even if your national strategy aligns with federal guidance. Local laws could create hidden landmines.
Reassess current contractor relationships in light of the relaxed enforcement stance, especially in roles involving logistics, field services, and third-party distribution.
Work with legal counsel to create classification models that align with both federal and applicable state law.
Monitor regulatory developments as the DOL is likely to propose a formal rescission or new rule later this year.
Be flexible and prepared for any changes you implement now should be easy to reverse in case the political winds shift again.
DOL to Scrap Prior Independent Contractor Rule
The U.S. Department of Labor’s Wage and Hour Division will stop enforcing the prior administration’s rule to determine whether workers are “independent contractors” or “employees” under federal wage-and-hour laws.
The definition of “independent contractor” is important because it determines whether the Fair Labor Standards Act (“FLSA”) applies to particular workers. Only employees (not independent contractors) are covered under the FLSA’s regulations on minimum wages, overtime, and record-keeping. So, in order to comply with federal labor laws, employers need to understand the difference between employees and independent contractors in order to correctly classify workers.
On May 1, the DOL issued a field assistance bulletin announcing that, when conducting FLSA investigations over worker classifications, the Wage and Hour Division will stop applying a rule established only last year. The “2024 Rule” had been the controlling standard for audits and compliance actions. And while the 2024 Rule remains in effect for purposes of private litigation, the DOL will not apply the rule in department investigations. Instead, the DOL will once again enforce the FLSA based on guidance in Fact Sheet 13, first published in July 2008, and an Opinion Letter that was first published on April 29, 2019, later withdrawn, and reissued on May 2.
Enforcing the FLSA Based on Guidance From 2008
In enforcing the FLSA, the DOL will look to Fact Sheet 13, which outlines seven non-determinative factors for worker classification. Among the factors the DOL will consider significant are:
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.
Leading Up To the DOL’s Decision
Historically, the DOL did not define the term “independent contractor” through regulation and, instead, relied on informal guidance, such as Fact Sheet 13. In 2020, the DOL proposed a five-factor test for when a worker is an independent contractor, emphasizing the principal’s right to control and the worker’s opportunity for profit or loss. The rule was finalized in 2021, under current President Donald Trump’s first administration. However, almost immediately the new rule faced legal challenges and was later rescinded under the subsequent administration.
Then, on January 9, 2024, the DOL published a different final rule defining the term “independent contractor” under the FLSA. The rule, established under former President Joe Biden, introduced a six-factor “economic realities” test. The six-factor test focused on the economic dynamics between employers and workers by examining: opportunity for profit or loss depending on managerial skill; investments by the worker and the employer; degree of permanence of the work relationship; nature and degree of control; extent to which the work performed was an integral part of the employer’s business; and skill and initiative.
The 2024 Rule triggered a number of lawsuits challenging the legality of the rule. These suits are currently pending in district courts across the country and, with a new administration in place, the DOL is taking the position in those lawsuits that it is reconsidering the 2024 Rule and considering rescinding the regulation. In its field assistance bulletin on May 1, the DOL reiterated that it is “currently reviewing and developing the appropriate standard for determining FLSA employee versus independent contractor status.”
Since the 2024 Rule has not yet been rescinded, employers should take a cautious approach for now and continue to monitor the situation for further developments. At the same time, employers should be mindful of the new guidance when it comes to enforcement actions.
Seventh Circuit Affirms that Employer’s Withdrawal Liability Cannot Be Based on Post-Rehabilitation Plan Contribution Increases
We recently reported on a district court decision holding that the Central States Pension Fund’s calculation of withdrawal liability should not have included contribution rate increases imposed after the Fund’s implementation of a rehabilitation plan. In Central States, S.E. & S.W. Pension Fund v. Event Media Inc., Nos. 24-1739 & 1740-42, 2025 WL 1185368 (7th Cir. Apr. 24, 2025), the Seventh Circuit affirmed two prior district court rulings that had reached the same conclusion.
The Multiemployer Pension Reform Act of 2014 (“MPRA”) requires rate increases to be excluded from the withdrawal liability calculation unless the increases satisfy one of two statutory exceptions. The parties agreed that the first exception (pertaining to increases due to increased levels of work, employment, or compensation) did not apply, and the Seventh Circuit affirmed that the plan could not satisfy the second exception. The second exception applies if: (i) the plan is amended to increase benefits, and (ii) the plan’s actuary certifies that the increase will be paid for out of contribution rate increases not contemplated by the rehabilitation plan. The court held that the plan could not satisfy either requirement because the increase in benefits predated the rehabilitation plan, and even if it did not, there was no actuarial certification that the benefits would be paid using the increased contributions or that those increases were not contemplated by the rehabilitation plan. In so ruling, the court rejected the plan’s urging to interpret the exceptions to effectuate the purposes underlying MPRA, concluding that the statutory text was unambiguous, and such policy considerations were left to Congress.
Proskauer’s Perspective
Employers have been challenging the Central States Pension Fund’s efforts to include post-2014 contribution rate increases in its withdrawal liability calculations for several years. Barring a subsequent appeal and reversal, the Seventh Circuit’s decision stands to conclusively resolve those cases, and provide interpretive guidance for other plans administered in the Seventh Circuit. Regardless of location, employers that contribute to or have withdrawn from plans that have adopted funding improvement or rehabilitation plans should closely review their withdrawal liability assessment to determine whether rate increases are being excluded in accordance with MPRA.
Tips for Staying Legally Compliant in Summertime Hiring
As many employers are hiring summer staff, now is a good time to brush up on new developments in child labor, wage and hour, and workplace safety laws. These legal compliance matters may be particularly relevant to employers in the hospitality, retail, and tourism industries, since they tend to hire a lot of seasonal employees for the summer months.
Quick Hits
Some states have changed their laws regulating child labor in the past two years.
Overtime and minimum wage laws typically apply to part-time, seasonal workers.
Seven states (California, Colorado, Maryland, Minnesota, Nevada, Oregon, and Washington) have a heat regulation for workplaces.
Child Labor Considerations
State laws vary on details like the number of hours minors are allowed to work per week, the nighttime hours permitted, and the definitions of hazardous work prohibited for minors.
In the past two years, some states have enacted more restrictive child labor laws, and other states have loosened child labor restrictions. Illinois increased limits on the hours that minors can work. Colorado, Nebraska, Oregon, and Virginia passed laws to heighten penalties on employers that violate existing child labor laws. Florida, Indiana, Iowa, New Hampshire, New Jersey, and Ohio loosened rules related to the hours that minors can work.
Wage and Hour Considerations
Many seasonal employees are hourly workers who qualify for overtime pay and minimum wage, which varies by state. However, the minimum wage and overtime provisions of the federal Fair Labor Standards Act (FLSA) do not apply if the employer is an amusement or recreational establishment that does not operate for more than seven months in any calendar year, or if the employer’s average receipts for any six months during the preceding calendar year were less than one-third of its average receipts for the other six months. Examples of this may include amusement parks, summer camps, and beachside concessions.
The FLSA does not require meal and rest breaks, but some states mandate meal and rest breaks that may be paid or unpaid, depending on the state.
Some employers partner with local universities to work with summer interns who receive academic credit for their work. These internships may be paid or unpaid, if the internship meets the “primary beneficiary test” under the FLSA, which generally requires the internship to provide training related to the academic program.
Workplace Safety Considerations
Summertime heat can pose health risks for workers, whether they work outside or inside. The federal government does not have a workplace safety regulation on heat, but the Occupational Safety and Health Act has a general duty clause that requires employers to provide a workplace free of hazards that could cause death or serious harm.
Some states have their own workplace heat standards. Nevada recently implemented a heat illness prevention regulation that applies to employers with more than ten employees. Likewise, California has a new heat illness prevention regulation for indoor workplaces.
Next Steps
Employers that have started summer hiring may want to consider:
reviewing the state-level maximum hours and time-of-day restrictions applicable to minors;
ensuring that tasks assigned to minors do not fall into the category of “hazardous” occupations, such as driving, cooking with hot oil, meat processing, and operating heavy machinery;
keeping accurate records of minor employees’ dates of birth;
keeping the employee manual and employee training materials up to date;
clearly communicating that a worker is a full-time, part-time, or temporary employee;
ensuring that seasonal workers are adequately trained in workplace safety and heat illness prevention; and
ensuring that independent contractor agreements have been reviewed and updated, if plans include hiring independent contractors.
Approved New York State Budget Bolsters Child Labor Protections
On May 9, 2025, Governor Kathy Hochul signed into law numerous provisions under the FY26 New York State Budget that, among other things, increase the civil penalties for employers that violate state child labor laws and modify existing permitting and reporting requirements for employers and minor employees. Other changes include eliminating the coverage exemption for newspaper carriers, as well as the allowance for “employment of a minor fifteen years old who is found to be incapable of profiting from further instruction available and who presents a special employment certificate[.]”
Child Labor Protections
Under the New York Labor Law and existing New York State Department of Labor (“NYSDOL”) guidance, employers are subject to strict requirements when employing minors. Minor employees may not work beyond a maximum number of hours per week, depending on their age and whether school is in session. In addition, minors are limited in working at night, with specific restrictions depending on the time of year, the employee’s age, and their specific profession. Minor employees are further restricted in the types of work they can perform.
To work, minor employees are required to obtain “working papers,” which they must apply for in-person through either their school or the NYS Department of Education’s issuing offices. Employers with minor employees are also required to post a schedule of hours for all minors, including the hours they start and end as well as allotted meal periods.
Civil Penalties
Effective immediately, the New York Labor Law is amended to dramatically increase the civil penalties levied on employers for violating child labor laws. The increases are as follows:
First violation: up to $10,000 (previously up to $1,000);
Second violation: between $2,000 and $25,000 (previously up to $2,000); and
Third and subsequent violations: between $10,000 and $55,000 (previously up to $3,000).
In situations where a violation results in serious injury or death to a minor, the previous penalty was triple the maximum penalty. The amendments enact a new penalty scale for such violations:
First violation: between $3,000 and $30,000;
Second violation: between $6,000 and $75,000; and
Third and subsequent violations: between $30,000 and $175,000.
Permitting for Minor Employees
The amendments also enact several additional and/or revised requirements for employers and minor employees. Among other things, the amendments amend the Labor Law to require the creation a database of both employers and their minor employees and would require employers to provide a certification that they are only allowing minors to work in positions that are permitted by law. In addition, the amendments will allow minor employees to electronically register and apply for their working papers, a departure from the current in-person filing requirement. These changes take effect two years from becoming law.
What’s Next? Employers should review their employment practices to ensure compliance with these new provisions.