Trump Administration’s Title IX Changes Revert Regulations Back to 2020, and Further Changes Are Possible
On January 31, the U.S. Department of Education (“DOE”) confirmed that, effective immediately and applicable to all open Title IX investigations, it will enforce the first Trump administration’s 2020 Title IX regulations (“the 2020 Rule”).[1]
This comes as no surprise to higher educational institutions, many of whom have been preparing to apply the 2020 rule since January 9, 2025, when a federal district court vacated the Biden-era Title IX regulations in Tennessee v. Cardona, and others of whom never stopped applying the 2020 rule due to a wide-ranging injunction issued by a Kansas U.S. District Court in 2024.[2] However, when viewed in context with other executive orders, the January 31 DCL both clarifies and raises questions as to how those rules apply going forward.
First, the January 31 DCL clarifies that educational institutions are expected to implement the 2020 rule immediately, including for cases that are ongoing. Immediate implementation means that institutions should look at any processes that are currently under way under their 2024 rule, and ensure that the process has not deprived the parties of any rights that they would have had under the 2020 rule.
The January 31 DCL is not explicit as to how DOE defines sex under Title IX, but it seems likely that this definition does not include gender identity. The January 31 DCL as issued initially stated that reading “sex” to include gender identity, sex stereotypes, and sexual orientation was inconsistent with Title IX. However, the DOE issued a revised version of the DCL on February 4 which removed this language. Educational institutions should note that the Kentucky U.S. District Court held in Tennessee vs. Cardona that the definition of “sex” under Title IX did not include gender identity, and the administration is not appealing this decision. They should also be aware that the administration, through a January 20 executive order, has directed all executive agencies including the DOE to interpret “sex” as “an individual’s immutable biological classification as either male or female,” not inclusive of gender identity. What remains to be seen is whether state laws that do protect gender identity will be seen as conflicting with Title IX, or whether institutions in those states will be able to protect discrimination based on biological sex under Title IX, and gender identity under state law.
What does the January 31st DCL mean for higher educational institutions?
Most institutions should have little difficulty turning back to their 2020 policies, but as they do, they should also consider any developments in state law or other regulations, including those requiring protections based on gender identity. Institutions should be mindful that more clarification and guidance is likely forthcoming from the DOE within the coming weeks.
One aspect of the 2024 policies that institutions may wish to keep in place are requirements to accommodate and prohibit discrimination on the basis of pregnancy and related conditions. While the specific requirements of the 2024 rule are no longer in place, courts have long read Title IX as prohibiting discrimination based on pregnancy and related conditions, and the 2024 regulations provided a comprehensive way to prevent such discrimination. The DOE has not issued any guidance on this subject, and does not seem poised to do so.
[1] 85 Fed. Reg. 30026 (2020).
[2] Tennessee v. Cardona, No. CV 2:24-072-DCR, 2025 WL 63795 (E.D. Ky. Jan. 9, 2025), as amended (Jan. 10, 2025)(Finding that the DOE exceeded its statutory authority by redefining “on the basis of sex” inconsistently with what the court found is Title IX’s express language and purpose: to combat discrimination against women, and based on the Spending Clause and First Amendment principles of vagueness and overbreadth, the 2024 Rule is arbitrary and capricious, and constitutionally infirm); See 89 Fed. Reg. 33474 (2024).
Ninth Circuit Affirms ERISA Plan Administrator’s Decision, Validates Use of Industry Guidelines and Medical Evidence
On March 5, 2019, Magistrate Judge Joseph C. Spero of the U.S. District Court for the Northern District of California issued his opinion in Wit v. United Behavioral Health, in which he attempted to significantly change how Employee Retirement Income Security Act (ERISA)–governed health plans were administered, particularly third-party administrators’ reliance on medical necessity guidelines and the application of the abuse of discretion standard. The Ninth Circuit ultimately reversed the portions of the decision that were the most troublesome for ERISA plans and third-party administrators.
In K.K.; I.B. v. Premera Blue Cross, issued on February 6, 2025, the Ninth Circuit provided another indication that the approach taken by the district court in the Wit matter is in the past. There, the Ninth Circuit affirmed the district court’s grant of summary judgment in favor of the ERISA plan administrator and the self-funded plan.
Quick Hits
On February 6, 2025, the Ninth Circuit affirmed a lower court’s grant of summary judgment in favor of an ERISA health benefits plan administrator and the plan, concluding that the denial of benefits for a plaintiff’s treatment was reasonable and based on credible, contemporaneous medical evidence.
The Ninth Circuit’s decision underscores the importance of using validated medical necessity guidelines and supports plan administrators’ discretion in making benefits determinations under ERISA.
The Ninth Circuit emphasized that ambiguity and procedural irregularity in denying a claim do not alone constitute an abuse of discretion unless it affects a claimant’s ability to submit responsive evidence, reinforcing the principle that decisions must be based on reasonable application of plan criteria.
Background
K.K. and I.B., K.K.’s daughter, sued the plan and Premera under ERISA to recover benefits for treatment provided to I.B. at the Eva Carlston Academy (ECA) psychiatric residential treatment center. Premera concluded that the treatment was not medically necessary within the meaning of the plan.
I.B. was admitted to ECA shortly after completing a two-month stay at Pacific Quest, another in-patient treatment facility that provides a combination of therapeutic wilderness programs and residential treatment. Jason Adams, a Pacific Quest therapist, performed a psychological evaluation of I.B. and diagnosed her with nonverbal learning disorder, generalized anxiety disorder with obsessive-compulsive features, major depressive disorder, mild alcohol use disorder, and parent-child relational problems. He concluded that despite I.B.’s progress at Pacific Quest, it would be in her best interest upon discharge to enroll in a therapeutic residential treatment program. Tom Jameson, I.B.’s therapist at Pacific Quest, agreed with this assessment. Based on these recommendations, I.B. enrolled at ECA, where she remained for approximately one year.
K.K. did not seek pre-authorization for I.B.’s treatment at ECA and, in fact, only submitted her first claim for benefits under the plan in October 2017, more than nine months after I.B.’s admission to ECA. Premera denied this claim based on the conclusion that another round of residential treatment was not medically necessary under the terms of the plan. Premera concluded that after discharge from Pacific Quest, I.B. could have been effectively treated at a lower level of care, such as intensive outpatient or partial hospitalization.
The plaintiffs appealed this determination, which resulted in an independent medical review and an external review, as required under Washington State law. Those appeals upheld Premera’s denial determination. The district court concluded that Premera and the plan did not abuse their discretion in concluding that the treatment at ECA was not medically necessary under the terms of the plan. In other words, Premera’s decisions were reasonable.
The Ninth Circuit’s Analysis
In affirming this decision, the Ninth Circuit found that under the plan’s definition, treatment was medically necessary only if it was, among other things, “[i]n accordance with generally accepted standards of medical practice.” The plan provided a description of generally accepted standards, such as standards based on credible scientific evidence published in peer-reviewed medical literature generally recognized by the relevant medical community, physician specialty society recommendations and the views of physicians practicing in relevant clinical areas and any other relevant factors. The plan also provided that Premera had “adopted guidelines and medical policies that outline clinical criteria used to make medical necessity determinations.”
Pursuant to this provision, Premera used the InterQual guidelines—widely accepted guidelines for clinical decision support—which, according to the court, was reasonable, not an abuse of discretion, based on the credibility and validity of the criteria.
Quoting Winter ex rel. United States v. Gardens Regional Hospital & Medical Center, Inc., the court found that the InterQual criteria were “‘reviewed and validated by a national panel of clinicians and medical experts, and represent[ed] a synthesis of evidence-based standards of care, current practices, and consensus from licensed specialists and/or primary care physicians.’”
The court also relied on Norfolk County Retirement System v. Community Health Systems, Inc., where the court found that these criteria “‘were developed by independent companies with no financial interest in admitting more inpatients than outpatients’”; “‘were written by a panel of 1,100 doctors and reference 16,000 medical sources’”; and were used by “‘[a]bout 3,700 hospitals.’”
Having validated these criteria, the court then found that Premera’s decision that I.B.’s residential treatment was not medically necessary under these criteria also was reasonable. Premera concluded that I.B.’s condition had improved enough during her time at Pacific Quest that she no longer met the InterQual criteria for residential treatment when she entered ECA. Significantly, the court recognized that Premera’s decision was based on the “most contemporaneous assessments” of I.B.’s condition, assessments that took place a few weeks before I.B. was discharged from Pacific Quest and a psychiatric evaluation that took place within two weeks of I.B.’s admission to ECA.
Premera’s reliance on contemporaneous medical evidence was critical to rebut the plaintiffs’ argument that Premera had failed to specifically address letters of medical necessity from I.B.’s treating providers. Quoting the Supreme Court of the United States’ opinion in Black & Decker Disability Plan v. Nord, the court concluded that “‘courts have no warrant to require administrators automatically to accord special weight to the opinions of a claimant’s physician; nor may courts impose on plan administrators a discrete burden of explanation when they credit reliable evidence that conflicts with a treating physician’s evaluation.’”
The court went on to state that “[b]ecause I.B.’s treating providers wrote their letters of medical necessity one year after I.B.’s admission to Eva Carlston Academy and did not base them on firsthand evaluations of I.B. around the time of her admission, Premera did not abuse its discretion by rejecting their conclusions and instead reaching a contrary conclusion supported by the more contemporaneous, firsthand assessments of Dr. Adams and Dr. Simon.” In other words, even though Adams had recommended further treatment at ECA, Premera was not unreasonable in its conclusion that his clinical notes did not support medical necessity as that term was defined in the plan.
The plaintiffs also argued that Premera abused its discretion because it “failed to engage in a meaningful dialogue and instead only provided vague reasons for denying their claim.” In rejecting this argument, the court concluded that ambiguity alone was not enough to establish an abuse of discretion in this instance. The plaintiffs must also show that the ambiguities affected their ability to submit responsive evidence to perfect their claim, and, if the record were reopened, they could introduce favorable evidence that would call for a different result.
Conclusion
It is not possible to read an opinion addressing the mental health struggles of a child without empathy for the child and the parents who are seeking what they believe is appropriate care. Certainly, it is understandable that parents will want to provide residential treatment in which the child is supervised constantly.
At the same time, I.B. was in residential care for fourteen months. The court noted that the issue was whether I.B. could be treated at a lower level of care after leaving Pacific Quest. Typically, plan administrators offer intensive outpatient or partial hospitalization level of care for a child leaving residential treatment. The issue is not residential treatment or nothing; the issue typically is residential treatment, partial hospitalization, or intensive outpatient.
ERISA does not mandate the extent of the plans that employers can offer. Employers design plans that fit their needs, which often include discretionary language. Employers have to be able to enforce the terms of plans and make medical necessity decisions concerning the level of care to ensure the viability of the plans. The court’s recognition of the reasonableness of the application of the InterQual criteria is an important tool to help plans make this type of decision. After Wit, the finding that the application of such guidelines was reasonable is a welcome result.
In addition, the court’s willingness to uphold the decision based on contemporaneous clinical evidence affirms the importance of clinical facts and the reasonableness of relying on those facts rather than having to follow the opinion of the treating physician when the contemporaneous evidence does not support medical necessity, as defined in the plan.
Finally, the conclusion that an ambiguity alone is not enough—and that the ambiguity must be tied to the outcome of the claim—is significant because it ties the analysis back to where it should be: determining whether the decision was reasonable.
Deregulation of the Administrative State: Opportunities and Risks Presented by Recent Executive Order
Amidst the flurry of Executive Orders (“EOs”) that tends to accompany any new administration, one EO may have flown under the radar. But for the regulated community—which, these days, includes most businesses in some form or another—this EO could be both a source of opportunity and of angst.[1]
The EO, titled “Ensuring Lawful Governance and Implementing the President’s ‘Department of Government Efficiency’ Deregulatory Initiative” (the “Deregulation EO”), was issued on February 19.[2] Consistent with the president’s long-stated goal to streamline and minimize federal agency regulation, the Deregulation EO sets forth a series of directives to federal agencies aimed at reducing regulations and minimizing the administrative state. This client alert summarizes the Deregulation EO and opines on the opportunities for the regulated community to seek reform or deregulation, on the one hand, or to prioritize existing or new regulations, on the other.
The Deregulation EO
The Deregulation EO directs all agency heads to review their existing regulations within 60 days for consistency with law and the administration’s policy aims, in conjunction with the Department of Government Efficiency (“DOGE”) and the Office of Management and Budget (“OMB”), and, as necessary, the Attorney General. The agencies are required to identify for deregulation their regulations that fit within any of seven categories:
Those that are unconstitutional or those that raise serious constitutional questions, such as the scope of power vested in the federal government by the Constitution:
This category is aimed at regulations that exceed the power of the federal government;
Regulations that are based on unlawful delegations of legislative power:
This category stems from the constitutional Nondelegation Doctrine, which has seen renewed interest in recent years by courts and commentators.[3] The Nondelegation Doctrine is the principle that Congress cannot delegate its legislative or lawmaking powers to other entities—including Executive Branch agencies. Historically, to pass constitutional muster, when Congress did delegate to an agency, it was required to do so by providing “intelligible principles” to the agency to guide it in its rulemaking—a relatively lax standard. But in recent years, the Nondelegation Doctrine seems poised to grow some teeth;
Regulations that are based on anything other than the best reading of the underlying statute:
This category aligns with the Supreme Court’s decision last term in Loper Bright that overruled the Chevron doctrine—the principle that if an agency’s interpretation of an ambiguous statute was reasonable, even if not the best reading, the reviewing court should defer to the agency. In Loper Bright, the Court held that reviewing courts should not defer to an agency’s interpretation of an ambiguous statute, but may only view such interpretations as persuasive[4];
Those that implicate matters of “societal, political, or economic significance that are not authorized by clear statutory language”:
This principle appears aimed at the “major questions doctrine,” announced in 2022 by the Supreme Court’s decision in West Virginia v. EPA, 597 U.S. 697. There, the Court held that an agency may not resolve through regulation a question of “vast economic and political significance” without a clear statutory authorization;
Regulations that impose significant costs on private parties that are not outweighed by public benefits;
Those that harm the national interest by “significantly and unjustifiably impeding technological innovation, infrastructure development, disaster response, inflation reduction, research and development, economic development, energy production, land use, and foreign policy objectives”; and
Regulations that impose undue burdens on small business and impede private enterprise and entrepreneurship.
These last three categories appear to be aimed at the business interests this administration has expressed an intention to prioritize. (And as such, provide significant opportunities to clients, as addressed below.)
The Effect of the Deregulation EO
Upon the expiration of the 60-day review period, the Office of Information and Regulatory Affairs (“OIRA”) is directed to consult with the agency heads to develop a “Unified Regulatory Agenda” to rescind or modify any of the regulations the agency has identified as fitting within the seven categories. In other words, the agencies are directed to deregulate, to the extent their existing regulations fall within any of these seven classes.
Further, the Deregulation EO stresses that agency heads should deprioritize regulatory enforcement of any regulations that “are based on anything other than the best reading of the statute” or those that go beyond the powers of the federal government (classes (1) and (3) above). Agency heads, in consultation with OMB, also are directed to review ongoing enforcement proceedings on a case-by-case basis and to terminate those that “do not comply with the Constitution, laws, or administration policy.”
Finally, the Deregulation EO directs agencies to promulgate new regulations, consistent with the process set forth in a separate EO 12866 for submitting new regulations to OIRA for review, and to consult with DOGE about such new regulations. OIRA is directed to consider the factors set forth in EO 12866 as well as the seven principles set forth in the Deregulation EO. The Deregulation EO also directs the OMB to issue implementation guidance as appropriate.
Takeaways for the Regulated Community
Many businesses are subject to federal regulation, in some capacity. On the one hand, the Deregulation EO affords significant opportunities for the regulated community to take aim at regulations that have proven to be problematic to their business, whether because of costs, technical compliance difficulties, or policy differences. With the Deregulation EO, however, clients now have the opportunity to identify such regulations for rescission and submit them to the relevant agency or to OIRA, along with an explanation as to why the regulation fits within one of the seven categories outlined in the Deregulation EO.
Furthermore, if a client is subject to an ongoing enforcement proceeding (or the threat of one), the administration directive to agencies to terminate such proceedings on a case-by-case basis provides a similar opportunity for clients to reach out to the relevant agency to engage on the ongoing lawfulness and/or priority goals of that proceeding.[5]
On the other hand, if there are regulations that are particularly beneficial to a given industry, or in which significant time or capital has been invested to further compliance, the industry may want to ensure these regulatory schemes are preserved. For these regulatory schemes, clients may also want to reach out to the relevant agency proactively to explain why such regulations are consistent with the Deregulation EO, in an attempt to avoid the uncertainty or costs that could accompany any roll back.
As I wrote when Loper Bright, Corner Post, Jarkesy, and Ohio v. EPA were handed down last term, the changing administrative state brings both opportunities and risks.[6] Staying proactive in addressing the regulatory regime applicable to a client’s industry is the best way to “take the bull by the horns”—whether that is in an effort to jettison existing, burdensome regulations, or to retain efficient, functional regulations.
[1] See, e.g., Estimating the Impact of Regulation on Business | The Regulatory Review.
[2] Available at Ensuring Lawful Governance and Implementing the President’s “Department of Government Efficiency” Regulatory Initiative – The White House
[3] E.g., Move Over Loper Bright — Nondelegation Doctrine Is Administrative State’s New Battleground | Carlton Fields
[4] Loper Bright Enterprises v. Raimondo, 603 U.S. 369 (2024).
[5] Nb. There presently are various legal challenges to many of the administration’s EOs, so any client action should be carefully considered (perhaps in conjunction with the relevant agency) to withstand an Administrative Procedure Act or other legal challenge.
[6] Legal Experts to Lay Out Recent SCOTUS Decisions’ Impact on Business – PA Chamber
Powering the Digital Future: Navigating the Nuclear Option for Data Centers
Key Points:
Nuclear energy is well suited to meet the demands of AI data centers and data center customers have multiple options for nuclear power integration, including Small Modular Reactors (SMRs) vs. full-sized units, on-site vs. off-site generation, and new construction vs. reactivating existing facilities – each with distinct trade-offs in terms of cost, scale, and implementation complexity.
Potential developers will need to navigate a welter of state and federal regulations, statues and tariffs regarding grid interconnection, utility rights, and behind-the-meter arrangements. Current rules were not designed for large-scale, single-customer nuclear generation facilities.
We await key developments stemming from:
FERC’s Show Cause Proceeding: There is a 30-day deadline for PJM and PJM Transmission owners to defend why the current tariff is just or propose changes to remedy concerns on reliability impacts and cost causation.
Talen’s petition for review in review in the Fifth Circuit Court of Appeals regarding FERC’s rejection of the Amazon/Pennsylvania connection agreement
Consolidated proceedings
Commissioner-led Technical Conference on Large Loads Co-Located at Generating Facilities (Docket No. AD24-11-000)
Constellation complaint (EL25-20-000)
These will help establish “rules of the road” for co-location arrangements in PJM territory
Modern data centers are the foundation of our information society and now use artificial intelligence to generate new forms of machine intelligence and learning – though at the cost of considerable energy consumption. Their energy demand outstrips the ability of existing generation and transmission systems to meet that demand, making nuclear energy particularly well-suited to supply the shortfall given its base load (round-the-clock) generation profile, low fuel cost and insulation from carbon emissions concerns. Powering data centers with purpose-built, reactivated, or newly-completed nuclear generation is an attractive way to accelerate power supply to meet the needs of the AI economy.
The path for powering data centers with nuclear energy depends on multiple factors including whether the power will come from:
Full-sized units or a series of small modular reactors (“SMRs”).
Existing nuclear units that are already connected to the grid or new nuclear units to be constructed off site.
Nuclear power wheeled to the data center through the grid or new nuclear units to be constructed at or adjacent to the data center site.
The Electric Grid
More than 65 individual balancing authorities manage the United States electric grid, and most are either regional transmission organizations or large investor-owned or publicly-owned power utilities. Many smaller utilities, electric cooperatives, and municipal power systems operate behind those larger balancing authorities.
The commercial and operational terms by which new nuclear capacity will be integrated onto the grid will depend on the laws, regulations and tariffs that apply to each of these entities. This is true even for on-site or ‘behind the meter’ nuclear generation, since connecting data centers to the grid is typically required for emergency or standby generation, moment to moment load balancing, and the export of excess power when power consumption at the data center drops. The costs of operating without a robust grid connection can be quite expensive considering the cost of building and maintaining high-capacity battery or gas-fired generation back up.
Full-Sized Units vs. SMR
Data center developers are increasingly viewing SMRs as an attractive alternative to traditional large-scale nuclear reactors for powering their facilities considering their automatic or ‘walk-away’ safety features, their scalability (300 MW or less per unit vs. approximately 1,000 MW per full-scale unit), and the ability of SMR reactor units to be manufactured in factories and transported fully assembled to their final location for installation.
But substantively, the costs and benefits of the two technologies are closely balanced since, like SMRs, today’s full-scale reactors have comparable walk-away safety features and key components can be built in a series of modules on factory floors. Both SMRs and full-sized units require significant on-site ‘stick built’ construction for balance-of-plant equipment (including steam turbines, condensers, water cooling systems, switchyards, and control, maintenance and administration facilities) as well as site-specific NRC licensing and environmental permitting. Neither represents a true plug-and-play solution. In addition, full-scale units have significant economies of scale in the form of lower per-unit staffing and operating cost and produce less high-level waste for future disposal. Outside of the United States, there have been a number of successful recent projects to build new, full-scale reactors.
In short, SMRs represent nuclear capacity that data center developers can install in smaller increments reducing financial risk (capital costs) and time to start up, while creating the redundancy inherent in multiple units that can produce energy independently of each other. Full-scale reactors have significant operating economies, but in a single generating package.
SMRs represent nuclear capacity that data center developers can install in smaller increments reducing financial risk (capital costs) and time to start up, while creating the redundancy inherent in multiple units that can produce energy independently of each other. Full-scale reactors have significant operating economies, but in a single generating package.
On-Site Nuclear
Locating nuclear capacity on data center sites can create significant cost and time saving if major transmission upgrades can be avoided. But the savings may evaporate if for operational requirements grid connectivity must still match the nuclear facility’s total output or the data center’s peak power needs. These requirements include maintaining reliability standards, managing excess power, balancing loads, or meeting the data center’s full power demands. Where robust standby transmission access is required, the same transmission-related regulatory and construction issues will arise with on-site generation as with generation located elsewhere on the grid. In those cases, the primary operating advantage of on-site nuclear generation, or other onsite generation, may be accelerating availability of capacity or insulation from the effects of curtailments of service or loss-of-load (“LOA”) events on the grid.
Completing or Recommissioning Existing Units
As we will discuss with more depth in an upcoming installment of our “Going Nuclear” series, completing or restarting existing but non-operating units is currently being considered for multiple plants including the Palisades Unit, the Bellefonte Units, Three Mile Island Unit 2, and V. C. Summer Units 2 and 3. Completions and restarts leverage investments already made) and transmission interconnectivity already in place. Assuming land use patterns and the constraints of nuclear exclusion zones would support doing so, building new data centers alongside such completions and restarts can be a powerful strategy for delivering new capacity quickly.
Behind the Meter
State statutes and regulations generally allow customers to build and operate their own generation. But where that generation is connected to the grid (i.e., behind a utility meter) it may fall under the provisions of state distribution energy resources (DER) legislation that typically were drafted for smaller solar and renewable projects and prohibit large behind the meter installation. These caps, however, are not the last word, and can be removed or waived especially if the incumbent utility agrees.
Some jurisdictions may prohibit interconnection behind the meter facilities that do not sell their capacity and energy to the grid, and where the facility will be located inside an RTO or ISO, FERC may have jurisdiction over interconnection. FERC recently rejected an agreement to power an Amazon data center in Pennsylvania through a direct connection with an adjacent operating nuclear station based on the potential impact taking existing nuclear generation out of PJM’s constrained capacity markets.
FERC is also considering a request by Constellation Energy to require PJM to adopt tariff provisions to support co-located or directly connected nuclear and other generation while addressing concerns about effects on reliability and rate payer costs.
Off-Site New Nuclear
If a data center plans to purchase power from an offsite nuclear unit, a power purchase agreement (PPA) with the owner and operator of the unit will determine the terms of sale. If the unit will operate in a competitive retail market, then the PPA delivery will take place under the open access transmission tariff (OATT) of the resident transmission operator, and retail power delivery tariffs of the local distribution entity. However, the structure of most deregulated markets involves all generation being sold into a single market, with contracts for differences giving end-users the economic benefit of their PPA transactions. A data center customer will want some assurance that service will not be curtailed so long as the nuclear capacity it is providing is online and supplying power to the grid. The terms of existing tariffs should not be considered to be the last word on what is possible. It may be possible to negotiate and obtain regulatory approval for contractual terms or special tariff provisions tailored to the specific transaction.
A data center customer will want some assurance that service will not be curtailed so long as the nuclear capacity it is providing is online and supplying power to the grid.
State Regulation: Certificates of Public Convenience and Necessity (“CPCNs”), Territorial Assignment and Retail Tariffs
Most states require electric generation developers to obtain some form of CPCN to construct systems sized at 75-85 MW or more, and nuclear construction would almost certainly require certification under those statutes. These requirements often apply whether or not the new unit is considered self-generation, i.e., it is owned by and serves only the data center owner. These statutes were not typically drafted with single customer, large-scale generation in mind, and so adapting a new nuclear project under their terms may require some creativity.
State Regulation
Vertically Integrated Markets: If the state follows a vertically integrated utility service model (i.e., non-deregulated), then the local utility will likely have territorial service rights which extend to generation construction. This may allow the utility to block the construction of new generation to serve a customer within its service territory, especially if it is to be owned by an entity other than the data center and its customers. However, there can be exceptions. Some states have statutes or tariffs that allow industrial choice, distribution energy resources (DER), or voluntary renewable energy projects (“VREPs”). Otherwise, regulatory support from the incumbent utility and a one-off agreement may be needed with to site new nuclear generation. Further , the incumbent utility’s public service commission will need to approve, and such agreement would be a contractual exception to the utility’s generally applicable tariffs.
State Regulation: Retail Standby Service
A data center that is connected to the grid for backup power purposes will be a retail customer of the incumbent electric utility. The upside of being a retail tariff customer is that the data center can use its grid connection to buy standby power to deal with fluctuations in its energy demand (and to sell excess power onto the grid when necessary). But the presence of a retail meter will make the data center subject to the costs built into its retail tariff. The tariff may be out of alignment with the standby nature of the service being purchased and may include services that do not benefit the data center owner (e.g., cost for renewable portfolio standards, demand side management (DSM) programs, and other social or environmental costs). Depending on the tariffs, the data center may be subject to curtailment in times of system emergency even if the nuclear plant is producing sufficient power to meet its demands.
Looking Ahead
Nuclear power presents a compelling solution for meeting the exponentially growing energy demands of modern data centers, particularly those supporting AI operations. However, successful implementation requires careful navigation of multiple regulatory and licensing complexities.
Whether choosing SMRs or full-scale reactors, data center operators must carefully evaluate their specific needs against various factors: initial capital costs, operational economies, regulatory requirements and uncertainties, and grid integration challenges. The decision between on-site and off-site generation, or whether to participate in recommissioning existing facilities, requires thorough analysis of federal, regional, and local regulations, transmission infrastructure, and operational requirements.
First Circuit Joins Sixth and Eighth Circuits in Adopting “But-For” Causation Standard Under the Federal Anti-Kickback Statute for False Claims Act Liability
In 2010, as part of the Affordable Care Act, Congress resolved a highly litigated issue about whether a violation of the Anti-Kickback Statute (AKS) can serve as a basis for liability under the federal False Claims Act (FCA).
Specifically, Congress amended the AKS to state that a “claim that includes items or services resulting from a violation of [the AKS] constitutes a false or fraudulent claim for purposes of the [FCA].”
This amendment, however, did not end the debate over the relationship between the AKS and the FCA. Over the last several years, multiple courts have been called upon to interpret what it means for a claim to “result from” a violation of the AKS. Courts across the country are split on the correct standard. On February 18, 2025, the U.S. Court of Appeals for the First Circuit joined the Sixth and Eight Circuits in adopting a stricter “but-for” standard of causation—while the Third Circuit has previously declared that the government must merely prove a causal connection between an illegal kickback and a claim being submitted for reimbursement.
In United States v. Regeneron Pharmaceuticals, the First Circuit acknowledges that while the Supreme Court has held that a phrase like “resulting from“ imposes a requirement of actual causality (i.e., meaning that the harm would not have occurred but for the conduct), this “reading serves as a default assumption, not an immutable rule.” At the same time, the First Circuit found that nothing in the 2010 amendment contradicts the notion that “resulting from” required proof of but-for causation.
The First Circuit agreed that the criminal provisions of the AKS do not include a causation requirement but observed that different evidentiary burdens can exist for claims being brought for purposes of criminal versus civil liability. The First Circuit concluded that while the AKS may criminalize kickbacks that do not ultimately cause a referral, a different evidentiary burden can and should be applied when the FCA is triggered. As a result, the First Circuit affirmed the lower court’s decision that “to demonstrate falsity under the 2010 amendment, the government must show that an illicit kickback was the but-for cause of a submitted claim.”
Although the U.S. Supreme Court denied a petition to review this specific issue in 2023, it may once again be called upon to weigh in on this issue, as there inevitably will continue to be a division in how the courts interpret this “resulting from” language. Look for our upcoming Insight, where we explore the First Circuit’s decision in detail.
Epstein Becker Green Attorney Ann W. Parks contributed to the preparation of this post.
Dictionary Definitions Prove Decisive – SCOTUS Today
Today was a day of unanimity at the U.S. Supreme Court, and what the Justices were unanimous about was a textually literal approach to applying dictionary definitions to resolve statutory disputes.
Several years ago, in a lecture series named after the late Justice Antonin Scalia at Harvard, Justice Elena Kagan pronounced, “We’re all textualists now.” And at least on some days, that declaration proves true. Today is one of those days.
We start with Dewberry Group, Inc. v. Dewberry Engineers Inc. Dewberry Engineers successfully sued the similarly named Dewberry Group, a competing real estate developer, for trademark infringement under the Lanham Act. The Lanham Act provides for a prevailing plaintiff to recover the “defendant’s profits” derived from the improper use of a mark.15 U. S. C. §1117(a). Dewberry Group provides services that facilitate the generation of rental income from properties owned by separately incorporated affiliates, and that goes on the affiliates’ books. Dewberry Group is only paid fees, and because those fees are set below market rate, it has operated at a loss for many years, surviving only because the owner of both Dewberry Group and its affiliates has made infusions of cash. Given what it saw as an “economic reality,” the U.S. District Court for the Eastern District of Virginia treated Dewberry Group and its affiliates “as a single corporate entity” for purposes of calculating the profit-based award, totaling the affiliates’ profits from the years in which the infringement took place. This produced an award of almost $43 million. Writing for a unanimous Court, the avowed textualist Justice Kagan opined that “[i]n awarding the ‘defendant’s profits’ to the prevailing plaintiff in a trademark infringement suit under the Lanham Act, §1117(a), a court can award only profits ascribable to the ‘defendant’ itself. And the term ‘defendant’ bears its usual legal meaning: the party against whom relief or recovery is sought—here, Dewberry Group.” Because Dewberry Engineers did not include Dewberry Group’s affiliates as defendants, the affiliates’ profits are not disgorgeable “defendant’s profits” as the term is ordinarily understood. In other words, only the profits attributable to the actual defendant were subject to award.
Separately concurring, Justice Sotomayor cautioned that there might be other cases in which “principles of corporate separateness do not bind courts to economic realities.” She goes on to describe two ways in which a defendant’s profits might be calculated despite certain “accounting arrangements” that might obscure actual profits. But that is for future cases. Here, Dewberry Engineers lost 9-0.
The dictionary played an even more pronounced role in another unanimous opinion in the case of Waetzig v. Halliburton Energy Services, Inc. Mr. Waetzig was terminated from employment by Halliburton and brought suit claiming a violation of the Age Discrimination in Employment Act, 29 U. S. C. §§ 621 et seq. (ADEA). Waetzig agreed with Halliburton to submit his claim for arbitration, but he did not ask the District of Colorado to stay his ADEA lawsuit. Instead, he dismissed the case under Fed. R. Civ. P. 41(a), under which a plaintiff may dismiss his case “without a court order” if he serves “a notice of dismissal before the opposing party serves either an answer or a motion for summary judgment.” Rule 41(a)(1)(A)(i). Halliburton had not yet served an answer or otherwise filed motions, so the dismissal was effective without any court action. Moreover, since this was the first time Waetzig had dismissed his claims, his dismissal was presumptively “without prejudice.” Rule 41(a)(1)(B). Thus, he had preserved his right to refile the same claims in the future. When he lost the arbitration, he returned to court, not to file a new case but to reopen and argue in the old, dismissed one that the arbitrator’s decision should be vacated because of certain alleged rules violations. The problem that the lower court faced was the fact that the Rule 41(a) dismissal without prejudice terminated his case. So, how could he file a motion in a case that no longer existed? Fed. R. Civ. P. 60(b) provides the answer, and that answer saved the day for Mr. Waetzig. To quote Justice Alito, writing for the whole Court, Rule 60(b) permits a court, “[o]n motion and just terms,” to “relieve a party . . . from a final judgment, order, or proceeding.” A court may do so for six enumerated “reasons,” including “mistake, inadvertence, surprise, or excusable neglect.” See Rule 60(b)(1). The general “purpose” of the Rule, we have said, is “to make an exception to finality.” Gonzalez v. Crosby, 545 U. S. 524, 529 (2005). The Rule “attempts to strike a proper balance between the conflicting principles that litigation must be brought to an end and that justice should be done.” 11 C. Wright, A. Miller, & M. Kane, Federal Practice and Procedure §2851, p. 286 (3d ed. 2012).
The essence of the holding is that text, context, history, and the dictionary mandate that a case that is voluntarily dismissed without prejudice under Rule 41(a) counts as a “final proceeding” under Rule 60(b). Thus, the Court reversed the U.S. Court of Appeals for the Tenth Circuit and remanded the case to the District Court, which could then address certain jurisdictional arguments made by Halliburton.
One parting note: Following the release of today’s opinions, the Court heard arguments in Ames v. Ohio Department of Youth Services, in which the issue presented is “[w]hether, in addition to pleading the other elements of an employment discrimination claim under Title VII of the Civil Rights Act of 1964, a majority-group plaintiff must show ‘background circumstances to support the suspicion that the defendant is that unusual employer who discriminates against the majority.’” I mention this case not just because it will be of interest to the many lawyers who read this blog who counsel and litigate with respect to Title VII but also because recent executive orders issued by President Trump concerning diversity, equity, and inclusion, as well as other affirmative action efforts, are likely to foment reverse discrimination cases brought by individual plaintiffs and government agencies pursuant to the employment discrimination laws and even as false certification claims under the federal False Claims Act. Indeed, we are already seeing such cases. So, watch the Ames case carefully to see whether heightened standards of proof might be required in similar cases.
Statute and Precedent Support Special Counsel’s Challenge to Termination
Late on February 7, President Donald Trump fired Special Counsel Hampton Dellinger, the head of the Office of Special Counsel (OSC). Dellinger quickly challenged his termination in court, arguing that the White House did comply with the for-cause removal protections afforded to the Special Counsel.
On February 12, the U.S. District Court for the District of Columbia issued a temporary restraining order (TRO) in favor of Dellinger preventing the White House from removing him from his position as Special Counsel. While the Trump administration appealed this order to both the D.C. Circuit and the Supreme Court, both courts chose not to weigh in on the issue before the TRO expires on February 26.
The termination of Special Counsel Dellinger is a dangerous decision which undermines the whistleblower system for federal employees, whistleblowers who are critical to rooting out waste, fraud and abuse in the federal government.
However, the statutory language is clear in protecting the Special Counsel from removal without-cause, and the constitutionality of that protection is in line with Supreme Court decisions on related protections.
The District Court ruling found that a TRO was suitable in this case because “there is a substantial likelihood that plaintiff will succeed on the merits,” pointing to the clear statutory language and the Supreme Court’s positioning on the constitutionality of the statute.
A hearing is scheduled for February 26, where the District Court Judge may issue a ruling on Dellinger’s motion for a preliminary injunction requesting the court to permit him to stay in his job and complete his 5-year term of office.
The Office of Special Counsel’s Statutory Background
The OSC, headed by the Special Counsel, was first established as part of the Merit Systems Protection Board (MSPB) with the passage of the Civil Service Reform Act of 1978. The Whistleblower Protection Act of 1989 expanded the powers of the OSC and removed it from within the MSPB, establishing the OSC as an independent agency.
The OSC increases transparency and accountability within the federal government by protecting federal employees from whistleblower retaliation and providing a secure channel for federal employee whistleblowers to report wrongdoing.
Under federal statute (5 U.S. Code § 1211) the Special Counsel “shall be appointed by the President, by and with the advice and consent of the Senate, for a term of 5 years.”
And the statute clearly states that “The Special Counsel may be removed by the President only for inefficiency, neglect of duty, or malfeasance in office.”
In its brief notice to Dellinger alerting him of his termination, the White House did not point to any issues with his performance as Special Counsel and has not raised any cause for doing so subsequently.
In its ruling, the District Court notes that “the effort by the White House to terminate the Special Counsel without identifying any cause plainly contravenes the statute. It further states that the statute’s language “expresses Congress’s clear intent to ensure the independence of the Special Counsel and insulate his work from being buffeted by the winds of political change.”
The White House’s firing of Special Counsel without cause is thus a clear violation of the law.
Constitutionality of For-Cause Removal Protections
According to the District Court ruling, the White House’s “only response to this inarguable reading of the text is that the statute is unconstitutional.” However, as the ruling elucidates, the Supreme Court has upheld for-cause removal protections for positions similar to the OSC and even recently explicitly carved the OSC out of a pronouncement about the President’s removal authority.
For close to a century, the Supreme Court has repeatedly weighed in on whether statutory protections for federal officials appointed by the President counter the removal powers of the Executive and are therefore unconstitutional. The Court’s rulings are clear that positions at independent agencies which exercise some level “quasi-judicial” powers can be protected through some form of for-cause removal limits.
In 1926, the Supreme Court ruled in Myers v. United States that the President had authority to remove a postmaster without Senate approval and that an 1876 law requiring Senate approval was unconstitutional as it interfered with the President’s constitutional duty of seeing that the laws be faithfully executed.
In subsequent rulings, however, the Supreme Court has clarified and narrowed this precedent by ruling that “the character of the office” at hand determined whether for-cause removal protections were constitutional.
In Humphrey’s Executor v. United States and Wiener v. United States, the Supreme Court held that the Myers precedent only held for executive officers restricted to the performance of executive functions. The Court ruled that for-cause protections are constitutional for officers at independent agencies who carry out quasi-legislative or quasi-judicial duties.
In its ruling, the District Court pointed to recent Supreme Court decisions striking down for-cause removal protections for specific offices and noted the clear distinctions drawn out by the Supreme Court between those posts and the Special Counsel.
For example, in striking down for-cause removal protections for the head of the Consumer Finance Protection Bureau (CFPB) in 2020 in Seila Law LLC v. Consumer Fin. Prot. Bureau, the Court affirmed that the OSC is distinct and not implicated in that ruling because the Special Counsel “exercises only limited jurisdiction to enforce certain rules governing Federal Government employers and employees” and “does not bind private parties at all.”
The District Court also pointed to the Supreme Court’s 2021 ruling in Collins v. Yellin, which found that a statute prohibiting the President’s firing of the Federal Housing Finance Agency (FHFA) director violated the separation of powers. In that ruling, the Supreme Court pointed to the FHFA’s ability to impact ordinary Americans through direct regulation or action. The OSC by contrast, “is not an agency endowed with the power to articulate, implement, or enforce policy that affects a broad swath of the American public or its economy,” according to the District Court ruling.
“In sum, the OSC is an independent agency headed by a single individual, but otherwise, it cannot be compared to those involved when the Supreme Court found the removal for cause requirement to be an unconstitutional intrusion on Presidential power,” the District Court ruled.
Conclusion
The role of the Special Counsel is critical to the functioning of the system of whistleblower protections in place for federal employees. Recognizing the need for his position to be free from Presidential interference, Congress explicitly prohibited the termination of the Special Counsel without cause, a prohibition backed up by Supreme Court precedent.
This dangerous decision to terminate Special Counsel Dellinger should thus be struck down in court. In doing so, the Special Counsel can continue its critical work in protecting federal employee whistleblowers and empowering federal employees to expose corruption, fraud, waste, and abuse and, in turn, save taxpayers billions of dollars.
The District Court’s TRO is an important first step, and future court rulings should follow suit given the clear statutory language and the Supreme Court’s previous rulings on Presidential removal authority.
Geoff Schweller also contributed to this article.
Claims Court Breathes Life into Another Path to Protest OTAs
On Monday, February 24, 2025, the Court of Federal Claims (“COFC”) released the public version of a February 13 decision declining to dismiss Raytheon Company’s protest of a $648.5 million award under the Missile Defense Agency’s (“MDA”) interceptor development program. Judge Armando O. Bonilla held that the award was within the court’s jurisdiction over Other Transaction Authority agreements (“OTAs”).
Unsuccessful offerors have had difficulty finding a tribunal with jurisdiction over post-award protests involving OTAs. Under COFC and U.S. General Accountability Office (“GAO”) precedent, an offeror’s ability to protest an OTA award is limited. OTAs are not considered procurement contracts. They are considered non-traditional acquisitions usually involving innovative research and development or prototyping services. They are not based on the Federal Acquisition Regulation (“FAR”) or Defense Federal Acquisition Regulation Supplement (“DFARS”) and are not subject to the Competition in Contracting Act (“CICA”). Under CICA and the GAO’s Bid Protest Regulations, GAO’s bid protest jurisdiction is limited to protests concerning alleged violations of federal agency procurement statutes or regulations in the award or proposed award of contracts for the procurement of goods and services, and solicitations leading to such awards. Under the COFC’s Tucker Act bid protest jurisdiction, COFC’s review is limited to protests “in connection with a procurement or a proposed procurement.” Disappointed OTA competitors also have been unsuccessful seeking relief in U.S. Federal District Courts.
Judge Bonilla’s decision in Raytheon navigates COFC precedent to find jurisdiction over a post-award OTA based on what the judge coined a “working definition.” Judge Bonilla found that the COFC can hear disputes over non-traditional acquisition deals if they are “intended to provide the government with a direct benefit in the form of products or services.” Judge Bonilla crafted his “working definition” of the COFC’s Tucker Act bid protest jurisdiction based on COFC decisions going back to 2019. According to the judge, these decisions “charted a more direct and interlinked path” from initial OTA award leading to a government purchase, and show that jurisdiction turns on the agency’s “immediate endgame.”
Judge Bonilla found that the $648.5 million MDA missile interceptor development OTA protested by Raytheon and earlier OTAs awarded by MDA provided for research and development services leading to production and delivery. According to Judge Bonilla, it did not matter that MDA “had not yet formally committed to purchasing an end product.” MDA’s intent to purchase was enough. MDA’s actions and communications regarding the interceptor program showed it intended to award a follow-on contract contemplated in the protested OTA if the awardee demonstrated its proposed solution works.
Judge Bonilla’s “working definition” will likely be challenged on appeal to the Federal Circuit. Thus, we do not know whether the expansion of COFC’s post-award protest jurisdiction over OTAs is here to stay.
District Court Dismisses Trade Secrets Claim Lacking Explicit Expectation of Privacy
On February 20, 2025, the U.S. District Court for the Western District of Pennsylvania dismissed a trade secret misappropriation claim for failing to identify explicit language establishing an expectation of privacy to the protected information.
Plaintiffs in Vertical Bridge REIT LLC v. Everest Infrastructure Partners Inc., Case No. 23-1017 (W.D. Pa. 2024), own and operate telecommunications towers and lease space on those towers to telecommunications tenants. These towers sit on leased property, and Plaintiffs contend that their ground-lease agreements with individual landlords are based on “[Plaintiffs’] proprietary financial model, and other similar financial information.”
In 2023, Plaintiffs filed suit claiming that Defendants misappropriated trade secrets protected by federal and state law by inducing landlords “to share [Plaintiffs’] valuable, proprietary, and confidential financial information in their ground leases” as part of an “illegitimate tower aggregation scheme” to “directly and wrongfully compete with [Plaintiffs].”
In May 2023, Judge W. Scott Hardy dismissed Plaintiffs’ trade secret claims without prejudice on the grounds that they “lacked sufficient detail to determine what information [Plaintiffs] sought to protect and whether they had been secretive enough with respect to such information to avail themselves of trade-secret protections.”
Seeking to cure these deficiencies, Plaintiffs filed a Second Amended Complaint on June 6, 2024, alleging that their trade-secret protected information “include[d] site-specific rent amounts, licensing fees, escalator amounts, and rent sharing from tower tenants, all of which is developed with the [] Plaintiffs’ proprietary financial model and is specific to a particular site.” Plaintiffs further alleged that they had taken reasonable measures to protect the secrecy of this information, demonstrated in most instances by non-disclosure/confidentiality provisions in their leases. However, the Court held that it would “not find a trade secret claim” where Plaintiffs “failed to include or add any explicit provision to leases reflecting an expectation of privacy.” This ruling raises questions about the extent to which a plaintiff must allege that it took reasonable measures to ensure the secrecy of their trade secrets.
Minnesota Court Rules Websites are Public Accommodations under ADA
Joining a number of courts across the country that have ruled similarly, the District Court for District of Minnesota held recently that the Americans with Disabilities Act’s (ADA) prohibition against discrimination in “places of public accommodation” applies to websites. In Frost v. Lion Brand Yarn Company, the plaintiffs, who are both legally blind, asserted that the functionality of the defendant’s retail website was “limited,” at best, for individuals with vision-related disabilities. The plaintiffs, who have filed numerous similar cases against other national retailers, filed a class action lawsuit in federal court, alleging that the defendant violated Title III of the ADA, as well as state law, by failing to provide its website’s content and services in a manner that is compatible with screen reading aids.
Quick Hits
A federal court in Minnesota recently ruled that the ADA’s “public accommodations” provision applies to websites, aligning with other courts that have made similar decisions.
The plaintiffs who filed the suit claimed that the defendant’s website was not accessible to individuals with vision-related disabilities.
The court rejected the argument that the ADA only applies to physical places of public accommodation, emphasizing the law’s broad evolving nature and denying the defendant’s motion to dismiss the case.
The defendant filed a motion to dismiss the lawsuit, arguing that Title III of the ADA only applies to “places of public accommodation,” and that a website is not a “place.” Although the issue was one of first impression in the Eighth Circuit Court of Appeals, which includes Minnesota, several other circuit courts have addressed the issue, and while the Third, Sixth, and Ninth Circuits have ruled that places of public accommodation include only places with physical structures, the First and Seventh Circuits have ruled that the law is not so limited. Those circuit court decisions all involved insurance benefits, rather than websites, however. In contrast, many federal district courts across the country have addressed the issues specifically as to websites but have issued inconsistent decisions.
The Minnesota District Court analyzed the issue by examining, and rejecting, those cases from other jurisdictions that had held “places of public accommodation” did not include websites. The court concluded that the circuit courts’ “physical structure” requirement was dicta, i.e., not essential to the decisions and therefore not entitled to any deference. Moreover, to the extent that those decisions were on point, the court respectfully disagreed with them for several reasons.
First, the court reasoned, by reading the ADA so narrowly, those courts had failed to consider the law’s broad, remedial nature. Second, the court noted that Congress had not expressly limited the law to places with physical structures. Third, the court rejected any reliance on dictionary definitions of “place,” finding those definitions to be inconclusive. In addition, the court noted that the legislative history of the ADA, which Congress enacted prior to the advent of the internet, indicated that lawmakers intended the act to “adapt to changes in technology.” Finally, the court found it insignificant that Congress has failed to amend the ADA to expressly include websites, noting that the lack of any amendment “could just as easily reflect Congress’ understanding that no amendment was necessary.”
Based on those considerations, the court agreed with those courts that have held that a stand-alone website falls within the meaning of a “place of public accommodation” as defined in Title III of the ADA. Therefore, the court denied the defendant’s motion to dismiss the case.
Key Takeaways
While district court decisions are not binding in other jurisdictions, or even district court judges in the same district for that matter, this Minnesota case is an example of what the court described as a “growing number” of district courts that have issued similar holdings. Certainly, the case sends a strong message to businesses whose goods or services are available to online shoppers in Minnesota, regardless of the business’ location, that if their websites do not function properly for visually-impaired consumers using screen-reader technology, they could be named as defendants in a class action lawsuit, particularly given the litigious nature of the certain “serial plaintiffs” in such Title III cases. Businesses that sell their products or services nationwide via websites may want to audit those sites to make sure they function smoothly with such technology, to try to avoid that risk.
Michigan Legislature Passes Last-Minute Amendments to Earned Sick Time Act, Minimum Wage Laws
Highlights
The Michigan Legislature recently made amendments to the state’s Earned Sick Time Act, which became effective Feb. 21, 2025
Large employers have until March 23, 2025, to comply with the statute’s notice requirements
The legislature also amended the states minimum wage laws, increasing from $10.56 to $12.48. However, the amendment salvages the tipped minimum wage, though it will increase to 50 percent of the minimum wage rate by 2031
The Michigan Legislature recently passed amendments to the Earned Sick Time Act and those amendments were signed into law by Gov. Gretchen Whitmer. Except for delays regarding notice requirements and the application of the law on certain small employers and some other minor changes, the amendments became effective Feb. 21, 2025. Required accruals of earned sick leave for large employers begin on that date. Large employers otherwise now have until March 23, 2025, to comply with the statute’s notice requirements.
Earned Sick Time
Sometimes procrastination pays. In the latest example, many employers across Michigan spent the last several months drafting policies and preparing for the Earned Sick Time Act (ESTA) to become effective following last summer’s Michigan Supreme Court decision in Mothering Justice v. Attorney General, only to wake up on Feb. 21 this year, the planned effective date, to learn many requirements of the law had changed. While the changes are not everything the employer community hoped for, the changes did offer some improvement.
The amendments eliminated some of the most problematic provisions of ESTA, including those creating presumptions of guilt and providing individual rights to bring a lawsuit and recover attorney fees if successful. However, ESTA remains one of the most aggressive paid leave statutes in the country and continues to contain unclarified ambiguities, and the amendments still are applicable (without delay) to most Michigan employers despite only a few hours’ notice.
As a result, despite the amendments effective Feb. 21, 2025, most employers in Michigan still are required to begin accruing for and provide their employees one hour of paid time off, which can be used for ESTA required purposes, for every 30 hours they worked. Salaried staff are still assumed to work 40 hours each week unless their normal workweek is less, in which case they are presumed to accrue time based on their normal workweek. However, the amendments revised the definition of who is an employee to confirm the following individuals are outside ESTA’s requirements:
Those employed by the U.S. government
Unpaid trainees and interns (under a rather strict and ambiguous definition)
Individuals employed in accordance with the Youth Employee Standards Act
An individual who works in accordance with a “self-scheduling policy” if both of the following conditions are met:
The policy allows the individual to schedule the individual’s own working hours and
The policy prohibits the employer from taking adverse personnel action against the individual if the individual does not schedule a minimum number of working hours
The state’s updated FAQs also confirm that, generally, elected public officials, members of public boards and commissions, and other similar holders of public office are not considered employees for ESTA purposes unless the entity treats those individuals as employees.
Small businesses (i.e., those who average 10 or fewer, previously was defined as fewer than 10, employees over any 20 or more calendar weeks in a calendar year) were likely the biggest beneficiaries of the recent amendments. For them, the application of ESTA is postponed until at least Oct. 1, 2025, and the amendments also limit their leave obligations to 40 hours of paid leave in a 12-month period, eliminating the prior requirement that they provide 32 hours of unpaid leave in addition to the paid leave requirements.
Lastly, for small employers who did not employ an employee before Feb. 21, 2022, they are not required to comply with ESTA until three years after the date the employer employs their first employee, which means that some small businesses will not be subject to ESTA until well after the Oct. 1, 2025 deadlines, and new small businesses will have the benefit of a three year grace period before ESTA applies.
In addition to these changes, the amendments also provided the following:
Confirms that all employers may frontload benefits to satisfy ESTA requirements and doing so removes any carryover obligations.
Employers can frontload time for part-time staff based on the hours they are expected to work so long as if the individual works more than the hours expected, they provide additional leave in an amount no less than they would have earned under the normal ESTA accrual rates.
Confirms that an employer is not required to include overtime pay, holiday pay, bonuses, commissions, supplemental pay, piece-rate pay, tips or gratuities in the normal hourly wage or base wage upon which paid earned sick time compensation is based.
Caps carryover requirements at 72 hours (40 for small businesses) annually and allows an employer to avoid carryover obligations by paying the employee the value of any unused accrued paid sick time at the end of the year in which it was earned.
Maintains the ability for unforeseeable absences an employer can require employees to provide notice of an absence immediately after the employee becomes aware of the need for paid sick time so long as the employer:
Provides employees with a written copy of the policy requiring notice and setting for the procedures for providing notice of the need for leave (and any changes thereto within five days)
The notice requirement allows the employee to provide notice after they become aware of the need for ESTA qualifying leave
Absent satisfaction of these two requirements, ESTA continues to limit an employer’s ability to require notice of an absence to “as soon as practicable” and:
Allows an employer to require employees to return reasonably required documentation related to absences of more than three consecutive days within 15 days of the employer’s request.
Provides special rules for employers who are subject to a collective bargaining agreement that requires contributions to a multi-employer plan.
Allows an employer to require employees hired after Feb. 21, 2025, to wait up to 120 calendar days to use accrued benefits.
Reduces the period of time an employee can leave and be re-hired without obligating an employer to honor previously accrued benefits from six months to three months, and confirms that it is not required at all if an individual is paid the value of their accrued but unused benefits at the time of transfer or separation.
While employers are still prohibited from awarding attendance points for ESTA related absences, they can now undisputedly discipline employee who uses paid time for purposes other than those provided by ESTA. Not only does this change better allow employers to use a single bank of time, but it opens the door to allow employers to discipline staff who might be tempted to use paid leave fraudulently subject to adequate employer proof.
Confirms that employees covered by a collective bargaining agreement are only exempt from ESTA to the extent the collective bargaining agreement “conflicts with” the statute.
Maintains the requirement that successor employers honor the benefits accrued under predecessor employers, but removes that requirement if employees are paid the value of their accrued but unused benefits at the time of succession.
Confirms that individuals covered by an employment agreement (contract) that conflicts with ESTA and was in place before Dec. 31, 2024, are not subject to ESTA for the period of the agreement (up to three years) so long as the employer notifies the Department of Labor and Economic Opportunity of the existence of the agreement.
Gives employers the option to require employees use paid time off in one-hour increments or smaller increments used by the employer to account for absences.
Confirms that the state is solely responsible for enforcement and that employees must pursue complaints within three years from when they know of an alleged violation.
In addition to the prior civil remedies and fines provided, provides additional liability for civil remedies for any employer failing to provide earned sick time to an employee in an amount not more than eight times the employee’s normal hourly rate.
Minimum Wage and Tip Credit
The Michigan Department of Labor and Economic Opportunity has already updated the English version of the required notice postings, which can also be used for the individual notice required for all employees and new hires. However, the department has not yet completed the Spanish version or other documents related to ESTA. Employers subject to the act must post these notices and provide notice to employees and new hires, in both English and Spanish (as well as any other language spoken by 10 percent or more of its workforce), by March 23, 2025.
In addition to the ESTA amendments, the legislature also passed an amendment to Michigan’s Improved Workforce Opportunity Wage Act. In doing so, the minimum wage still increased from $10.56 an hour to $12.48 an hour on Feb. 21, 2025. However, the tipped minimum wage was retained, though it will increase by 2 percent each year beginning in 2026 until it hits 50 percent of the minimum wage in 2031.
The amendments also added a $2,500 fine for employers who fail to ensure tipped workers get paid at least minimum wages and increases the minimum wage to $13.73 effective Jan. 1, 2026, and $15 effective Jan. 1, 2027. Thereafter, annual increases to the minimum wage rate will occur based on inflation.
Takeaways
While these amendments would appear to finally put an end to the disputes related to ESTA which have occurred since signatures were initially submitted to put the provision on the ballot in 2018, we may not be done yet. Groups supporting the original ballot proposals have already announced plans for statewide referendums restoring the amendments. However, such an effort would require they gather signatures from over 223,000 Michigan voters to qualify for a spot on a future ballot.
Acting General Counsel of NLRB Issues First GC Memorandum, Rescinding Controversial Pro-Labor Memoranda
On February 14, 2025, the Acting General Counsel of the National Labor Relations Board (“NLRB”) William B. Cowen issued his first General Counsel Memorandum (“GC Memo”) GC 25-05 rescinding nearly all of the Biden administration General Counsel’s substantive prosecutorial guidance memos, which furthered a pro-union and pro-employee agenda. While these memoranda do not have the weight of law or regulation, they do set out the agency’s priorities and key interpretations of the National Labor Relations Act (“NLRA”).
There were generally two types of rescissions. In addition to simply rescinding certain GC memos, Cowen also rescinded additional memos “pending further guidance” – suggesting those areas where the new administration will be placing its focus. Cowen cited the Board’s backlog of cases as one of the reasons necessary for the rescission of the GC memos.
Cowen’s GC Memo did not address the impact of the NLRB’s current lack of a quorum on the Acting GC’s prosecutorial agenda. President Trump’s unprecedented firing of former NLRB Chair Gwynne Wilcox, which deprived the NLRB of a quorum, is currently being litigated.
Which Memos Were Rescinded?
While we include a complete list of the memos that were rescinded by Cowen’s GC Memo below, of note, the memo rescinded the following key GC memos:
Confidentiality and Non-Disparagement Provisions in Severance Agreements – GC Memo 23-05 endorsed prosecuting employers that imposed on employees broadly worded severance agreements with expansive non-disparagement and confidentiality clauses. A link to earlier articles about the issuance of GC Memo 23-05 can be found here and here.
Damages – GC Memo 24-04 had greatly expanded the scope of consequential damages regional offices should seek in unfair labor practice proceedings, including pursuing make-whole remedies for employees harmed, regardless of whether the employees are identified in an unfair labor practice charge. A link to an earlier article about the issuance of GC Memo 24-04 can be found here.
ULP Settlements – GC Memo 21-07 had instructed regional offices to seek no less than 100 percent of the backpay and benefits owed in cases that are settled, and required regional offices to include front pay in settlements for cases where a discharged employee waived reinstatement to his or her former position. This memo was rescinded pending further guidance from the Board.
Electronic Monitoring and Automated Management – GC Memo 23-02, in this memo, Abruzzo had advocated for zealous enforcement and NLRB adoption of a “new framework” to protect employees from intrusive or abusive forms of electronic monitoring and automated management that interfere with protected activity. A link to an earlier article about the issuance of GC Memo 23-02 can be found here.
“Stay-or-Pay Provisions” – GC Memo 25-01 had directed regional offices to find “stay-or-pay” provisions and employee non-solicit agreements unlawful under the NLRA and called for employers to go beyond mere rescission of the provision and directed regions to seek traditional make-whole remedies for unlawful provisions consistent with Board law.
Non-Competes – GC Memo 23-08 had expressed Abruzzo’s opinion that the use of non-compete provisions in employment agreements violated section 7 of the NLRA and that the proffer, maintenance, and enforcement of such agreements violated section 8(a)(1). A link to an earlier article about the issuance of GC Memo 23-08 can be found here.
10(j) Injunctions – GC Memo 24-05 in which Abruzzo reaffirmed her commitment to seeking 10(j) injunctions in federal court against employers to protect employee rights from remedial failure due to the passage of time. This memo was issued following the Supreme Court decision in Starbucks Corp. v. McKinney, 144 S. Ct. 1570 (2024), where SCOTUS resolved a circuit split and set a uniform four-part test applicable to Section 10(j) injunction petitions.
Rescinded GC Memos:
GC 21-02 Rescission of Certain General Counsel Memoranda
GC 21-03 Effectuation of the National Labor Relations Act Through Vigorous Enforcement of the Mutual Aid or Protection and Inherently Concerted Doctrines
GC 21-04 Mandatory Submissions to Advice
GC 21-08 Statutory Rights of Players at Academic Institutions (Student-Athletes) Under the National Labor Relations Act
GC 22-06 Update on Efforts to Secure Full Remedies in Settlements (Revised Attachment)
GC 23-02 Electronic Monitoring and Algorithmic Management of Employees Interfering with the Exercise of Section 7 Rights
GC-23-04 Status Update on Advice Submissions Pursuant to GC Memo 21-04
GC 23-05 Guidance in Response to Inquiries about the McLaren Macomb Decision
GC 23-08 Non-Compete Agreements that Violate the National Labor Relations Act
GC 24-04 Securing Full Remedies for All Victims of Unlawful Conduct
GC 24-05 Section 10(j) Injunctive Relief and the U.S. Supreme Court’s Decision in Starbucks Corp. v. McKinney
GC 24-06 Clarifying Universities’ and Colleges’ Disclosure Obligations under the National Labor Relations Act and the Family Educational Rights and Privacy Act
GC 24-06 Attachment
GC 25-01 Remedying the Harmful Effects of Non-Compete and “Stay-or-Pay” Provisions that Violate the National Labor Relations Act
GC 25-02 Ensuring Settlement Agreements Adequately Address the Public Rights at Issue in the Underlying Unfair Labor Practice Allegations
GC Memos Rescinded Pending Further Guidance from the Board:
GC 21-05 Utilization of Section 10(j) Proceedings
GC 21-06 Seeking Full Remedies
GC 21-07 Full Remedies in Settlement Agreements
GC 22-01 Ensuring Rights and Remedies for Immigrant Workers Under the NLRA
GC 22-01 (en Español) Asegurando los Derechos y Remedios para Trabajadores Inmigrantes Bajo la NLRA
GC 22-02 Seeking 10(j) Injunctions in Response to Unlawful Threats or Other Coercion During Union Organizing Campaigns
GC 22-03 Inter-agency Coordination
GC 22-05 Goals for Initial Unfair Labor Practice Investigations
GC 23-01 Settling the Section 10(j) Aspect of Cases Warranting Interim Relief
GC 23-07 Procedures for Seeking Compliance with and Enforcement of Board Orders
GC 24-01 (Revised) Guidance in Response to Inquiries about the Board’s Decision in Cemex Construction Materials Pacific, LLC
GC 25-03 New Processes for More Efficient, Effective, Accessible and Transparent Casehandling
GC 25-04 Harmonization of the NLRA and EEO Laws
GC Memos Rescinded Due to Board Precedent:
GC 22-04 The Right to Refrain from Captive Audience and other Mandatory Meetings
GC Memos Rescinded and Replaced by Prior GC Memos:
GC 23-03 Delegation to Regional Directors of Section 102.118 Authorization Regarding Record Requests from Federal, State, and Local Worker and Consumer Protection Agencies and GC Memo 18-01 was restored
GC Memos Rescinded as COVID-19 Is No Longer a Federal Public Health Emergency:
GC 21-01 Guidance on Propriety of Mail Ballot Elections, pursuant to Aspirus Keweenaw, 370 NLRB No. 45 (2020)
Key Takeaways
Acting General Counsel Cowen’s GC Memo signals the Board’s agenda is progressing towards overturning many of the key controversial and pro-labor Biden-era Board decisions. Employers should consult labor counsel to discuss the updated guidance and the issues presented by the GC Memo, particularly if employers are still dealing with the previous guidance of the rescinded GC memos related to non-compete agreements, settlement agreement provisions, “stay-or-pay” provisions, electronic surveillance, and others.
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