New Artificial Intelligence (AI) Regulations and Potential Fiduciary Implications
Fiduciaries should be aware of recent developments involving AI, including emerging and recent state law changes, increased state and federal government interest in regulating AI, and the role of AI in ERISA litigation. While much focus has been on AI’s impact on retirement plans, which we previously discussed here, plan fiduciaries of all types, including health and welfare benefit plans, must also stay informed about recent AI developments.
Recent State Law Changes
Numerous states recently codified new laws focusing on AI, some of which regulate employers’ human resource decision-making processes. Key examples include:
California – In 2024, California enacted over 10 AI-related laws, addressing topics such as:
The use of AI with datasets containing names, addresses, or biometric data;
How one communicates health care information to patients using AI; and
AI-driven decision-making in medical treatments and prior authorizations.
For additional information on California’s new AI laws, see Foley’s Client Alert, Decoding California’s Recent Flurry of AI Laws.
Illinois – Illinois passed legislation prohibiting employers from using AI in employment activities in ways that lead to discriminatory effects, regardless of intent. Under the law, employers are required to provide notice to employees and applicants if they are going to use AI for any workplace-related purpose.
For additional information on Illinois’ new AI law, see Foley’s Client Alert, Illinois Enacts Legislation to Protect against Discriminatory Implications of AI in Employment Activities.
Colorado – The Colorado Artificial Intelligence Act (CAIA), effective February 1, 2026, mandates “reasonable care” when employers use AI for certain applications.
For additional information on Colorado’s new AI law, see Foley’s Client Alert, Regulating Artificial Intelligence in Employment Decision-Making: What’s on the Horizon for 2025.
While these laws do not specifically target employee benefit plans, they reflect a trend toward states regulating human resource practices broadly, are aimed at regulating human resource decision-making processes, and are part of an evolving regulatory environment. Hundreds of additional state bills were proposed in 2024, along with AI-related executive orders, signaling more forthcoming regulation in 2025. Questions remain about how these laws intersect with employee benefit plans and whether federal ERISA preemption could apply to state attempts at regulation.
Recent Federal Government Actions
The federal government recently issued guidance aimed at preventing discrimination in the delivery of certain healthcare services and completed a request for information (RFI) for potential AI regulations involving the financial services industry.
U.S. Department of Health and Human Services (HHS) Civil Rights AI Nondiscrimination Guidance – HHS, through its Office for Civil Rights (OCR), recently issued a “Dear Colleague” letter titled Ensuring Nondiscrimination Through the Use of Artificial Intelligence and Other Emerging Technologies. This guidance emphasizes the importance of ensuring that the use of AI and other decision-support tools in healthcare complies with federal nondiscrimination laws, particularly under Section 1557 of the Affordable Care Act (Section 1557).
Section 1557 prohibits discrimination on the basis of race, color, national origin, sex, age, or disability in health programs and activities receiving federal financial assistance. OCR’s guidance underscores that healthcare providers, health plans, and other covered entities cannot use AI tools in a way that results in discriminatory impacts on patients. This includes decisions related to diagnosis, treatment, and resource allocation. Employers and plan sponsors should note that this guidance applies to a subset of health plans, including those that fall under Section 1557, but not to all employer-sponsored health plans.
Treasury Issues RFI for AI Regulation – In 2024, the U.S. Department of Treasury published an RFI on the Uses, Opportunities, and Risks of Artificial Intelligence in the Financial Services Sector. The RFI included several key considerations, including addressing AI bias and discrimination, consumer protection and data privacy, and risks to third-party users of AI. While the RFI has not yet led to concrete regulations, it underscores federal attention to AI’s impact on financial and employee benefit services. The ERISA Industry Committee, a nonprofit association representing large U.S. employers in their capacity as employee benefit plan sponsors, commented that AI is already being used for retirement readiness applications, chatbots, portfolio management, trade executions, and wellness programs. Future regulations may target these and related areas.
AI-Powered ERISA Litigation
Potential ERISA claims against plan sponsors and fiduciaries are being identified using AI. In just one example, an AI platform, Darrow AI, claims to be:
“designed to simplify the analysis of large volumes of data from plan documents, regulatory filings, and court cases. Our technology pinpoints discrepancies, breaches of fiduciary duty, and other ERISA violations with accuracy. Utilizing our advanced analytics allows you to quickly identify potential claims, assess their financial impact, and build robust cases… you can effectively advocate for employees seeking justice regarding their retirement and health benefits.”
Further, this AI platform claims it can find violations affecting many types of employers, whether a small business or a large corporation, by analyzing diverse data sources, including news, SEC filings, social networks, academic papers, and other third-party sources.
Notably, health and welfare benefit plans are also emerging as areas of focus for AI-powered ERISA litigation. AI tools are used to analyze claims data, provider networks, and administrative decisions, potentially identifying discriminatory practices or inconsistencies in benefit determinations. For example, AI could highlight patterns of bias in prior authorizations or discrepancies in how mental health parity laws are applied.
The increasing sophistication of these tools raises the stakes for fiduciaries, as they must now consider the possibility that potential claimants will use AI to scrutinize their decisions and plan operations with unprecedented precision.
Next Steps for Fiduciaries
To navigate this evolving landscape, fiduciaries should take proactive steps to manage AI-related risks while leveraging the benefits of these technologies:
Evaluate AI Tools: Undertake a formal evaluation of artificial intelligence tools utilized for plan administration, participant engagement, and compliance. This assessment includes an examination of the algorithms, data sources, and decision-making processes involved, including an assessment to ensure their products have been evaluated for compliance with nondiscrimination standards and do not inadvertently produce biased outcomes.
Audit Service Providers: Conduct comprehensive audits of plan service providers to evaluate their use of AI. Request detailed disclosures regarding the AI systems in operation, focusing on how they mitigate bias, ensure data security, and comply with applicable regulations.
Review and Update Policies: Formulate or revise internal policies and governance frameworks to monitor the utilization of AI in operational planning and compliance with nondiscrimination laws. These policies should outline guidelines pertaining to the adoption, monitoring, and compliance of AI technologies, thereby ensuring alignment with fiduciary responsibilities.
Enhance Risk Mitigation:
Fiduciary Liability Insurance: Consider obtaining or enhancing fiduciary liability insurance to address potential claims arising from the use of AI.
Data Privacy and Security: Enhance data privacy and security measures to safeguard sensitive participant information processed by AI tools.
Bias Mitigation: Establish procedures to regularly test and validate AI tools for bias, ensuring compliance with anti-discrimination laws.
Integrate AI Considerations into Requests for Proposals (RFPs): When selecting vendors, include specific AI-related criteria in RFPs. This may require vendors to demonstrate or certify compliance with state and federal regulations and adhere to industry best practices for AI usage.
Monitor Legal and Regulatory Developments: Stay informed about new state and federal AI regulations, along with the developing case law related to AI and ERISA litigation. Establish a process for routine legal reviews to assess how these developments impact plan operations.
Provide Training: Educate fiduciaries, administrators, and relevant staff on the potential risks and benefits of AI in plan administration, emerging technologies and the importance of compliance with applicable laws. The training should provide an overview of legal obligations, best practices for implementing AI, and strategies for mitigating risks.
Document Due Diligence: Maintain comprehensive documentation of all steps to assess and track AI tools. This includes records of audits, vendor communications, and updates to internal policies. Clear documentation can act as a crucial defense in the event of litigation.
Assess Applicability of Section 1557 to Your Plan: Health and welfare plan fiduciaries should determine whether your organization’s health plan is subject to Section 1557 and whether OCR’s guidance directly applies to your operations, and if not, confirm and document why not.
Fiduciaries must remain vigilant regarding AI’s increasing role in employee benefit plans, particularly amid regulatory uncertainty. Taking proactive measures and adopting robust risk management strategies can help mitigate risks and ensure compliance with current and anticipated legal standards. By dedicating themselves to diligence and transparency, fiduciaries can leverage the benefits of AI while safeguarding the interests of plan participants. At Foley & Lardner LLP, we have experts in AI, retirement planning, cybersecurity, labor and employment, finance, fintech, regulatory matters, healthcare, and ERISA. They regularly advise fiduciaries on potential risks and liabilities related to these and other AI-related issues.
American Airlines Breaches Fiduciary Duty of Loyalty with BlackRock ESG Funds in 401(k) Plans
Whether, and the extent to which, a plan fiduciary can consider nonpecuniary environmental, social and governance (“ESG”) objectives in selecting plan investments has been a hot-button issue for many years, with the view on such practices tending to swing back-and-forth with each new administration.
In Spence v. American Airlines, Inc., 2024 WL 733640 (N.D. Tex. 2024), Plaintiff brought a class action suit against American Airlines and its Employee Benefits Committee (“EBC”) alleging breaches of fiduciary duties of loyalty and prudence resulting from the plan fiduciaries’ investment practices. Specifically, Plaintiff argued the plan fiduciaries mismanaged retirement plan assets when the plans’ investment manager, BlackRock Institutional Trust Company, Inc. (“BlackRock”), pursued non-financial and nonpecuniary ESG policy goals through proxy voting and shareholder activism. Plaintiff claimed that including BlackRock as an investment manager harmed the financial interests of plan participants and their beneficiaries due to BlackRock pursuing socio-political outcomes rather than exclusively chasing financial returns.
It is no coincidence that this suit was filed in the Northern District of Texas. That district, and the Fifth Circuit generally, has been a popular forum for those seeking to challenge federal regulations, and the Fifth Circuit recently remanded a suit challenging the DOL’s ESG-friendly regulation back to district court.
Defendants Breached the Fiduciary Duty of Loyalty.
The district court in American Airlines concluded that the plan fiduciaries breached their duty of loyalty by failing to act solely in the retirement plan’s best financial interest when the plan fiduciaries allowed their corporate interests to influence management and investment of plan assets. The court found it apparent that the plan fiduciaries failed to question BlackRock’s ESG activities, either because the plan sponsor’s corporate objectives were aligned with BlackRock’s ESG objectives or because the plan fiduciaries were afraid to question a large shareholder (or both).
The court took note of the following factors that showed the various corporate ties to BlackRock that were inappropriately leveraged to influence management of the plan:
BlackRock was one of American Airline’s largest shareholders.
BlackRock managed billions of dollars in plan assets at a time that it owned 5% of American Airline’s stock.
BlackRock financed roughly $400 million of American Airline’s corporate debt when American Airlines was experiencing financial difficulty.
Defendants Did Not Breach the Fiduciary Duty of Prudence.
Despite finding that the plan fiduciaries breached the duty of loyalty, the court found that their investment monitoring practices were consistent with prevailing industry practices and that the plan fiduciaries acted in a manner similar to other fiduciaries in the industry. Accordingly, the court did not find that the plan fiduciaries breached the duty of prudence when using BlackRock as an investment manager.
Recommended Actions
This case marks the largest victory for opponents of ESG investing to date and could spark a new wave of class action litigation against retirement plans. American Airlines demonstrates the need for employee benefit committees or plan sponsors to closely monitor and perform risk assessments when investing—or relying on others to invest—employee retirement assets toward ESG objectives, as well as to monitor an investment manager’s proxy voting and ESG policy goals.
Texas Business Court: Judges Take on Cases Across Divisions to Equalize Dockets
The Texas Business Court has established patterns after its first 90 days in business from September – November 2024. During that time the court received 50 total cases, comprising 33 new filings and 17 cases removed from Texas district courts. The Eleventh Division, serving Houston and surrounding areas, handles the majority with 26 cases. The remaining cases are distributed across other divisions:
First Division (Dallas area): 13 cases
Third Division (Austin area): four cases
Fourth Division (San Antonio area): four cases
Eighth Division (Fort Worth area): three cases
To help more evenly distribute the docket, on Nov. 25, 2024, Administrative Presiding Judge Dorfman assigned Judges Barnard and Sharp of the Fourth Division to preside over four cases filed in his and Judge Adrogué’s courts in the Eleventh Division. This was done “in order to equalize dockets within the Texas Business Court and to promote the orderly and efficient administration of justice.” The assigned judges will “handle all proceedings including final trial of the case, absent further order of the Administrative Presiding Judge.” The cases are not being transferred from the Eleventh Division to the Fourth Division; Fourth Division judges will preside over cases that will remain in the Eleventh Division.
Docket equalization may become the norm at the Texas Business Court, especially after the court adds divisions for the state’s less populated areas in September 2026. If the current case filing trends hold true, a case filed in Houston and/or Dallas may be administered by a Texas Business Court judge from another division, which will eventually include El Paso, Midland, Lubbock, Corpus Christi, Tyler, and Beaumont.
FTC Secures $5.68M HSR Gun-Jumping Penalty From 2021 Deal
Go-To Guide
FTC announced a $5.68 million penalty against Verdun Oil Company II LLC, XCL Resources Holdings, LLC, and EP Energy LLC for premature control of EP Energy during their 2021 transaction.
FTC took issue with the exercise of certain consent rights and coordination of sales and strategic planning with EP Energy before the deal closed.
The settlement also requires that for the next decade, the companies appoint an antitrust compliance officer, conduct annual antitrust training, and use a “clean team” agreement in future transactions.
The case highlights that maintaining independent operations pre-close is critical, regardless of the merits review of a transaction by the antitrust authorities.
On Jan. 7, 2025, the Federal Trade Commission, in conjunction with the Department of Justice Antitrust Division (DOJ), settled allegations that sister companies Verdun Oil Company II LLC (Verdun) and XCL Resources Holdings, LLC (XCL) exercised unlawful, premature control of EP Energy LLC (EP) while acquiring EP in 2021. This alleged “gun-jumping” HSR Act violation involved Verdun and XCL exercising various consent rights under the merger agreement and coordinating sales and strategic planning with EP during the interim period before closing.
In settling, the parties agreed to pay a total civil penalty of $5.68 million, appoint or retain an antitrust compliance officer, provide annual antitrust trainings, use a “clean team” agreement in future transactions involving a competing product, and be subject to compliance reporting for a decade.
Background
Under the HSR Act,1 an acquiror cannot take beneficial ownership of a target prior to observing a waiting-period, which allows the DOJ and FTC to investigate the transaction’s potential impact on competition in advance of any integration. During the pre-close period, parties to a proposed transaction must remain separate, independent entities and act accordingly. Penalties for HSR Act violations are assessed daily, currently at a rate of $51,744 for each day a party is in violation (amount adjusted annually for inflation).
In July 2021, Verdun and XCL agreed to acquire EP’s oil production operations in Utah and Texas for $1.4 billion. The transaction was subject to the HSR Act’s notification and waiting-period requirements. The transaction closed in March 2022 after an FTC investigation, with a consent decree settlement that required divesting EP’s entire Utah operation (an area where XCL also operated as an oil producer).
The FTC’s current complaint asserts that immediately after signing, Verdun and XCL unlawfully began to assume operational control over significant aspects of EP’s day-to-day business during the HSR Act review period. The complaint alleged Verdun and XCL
required EP to delay certain production activities in return for an early deposit of a portion of the purchase price;
exercised consent rights to discontinue new wells EP was developing;
agreed to assume financial risk of production shortfalls arising from EP’s commitments to customers, and then began coordinating sales and production activity with EP, which included receiving detailed information on EP’s pricing, volume forecasts, and daily operational activity;
required changes to EP’s site design plans and vendor selection;
exercised consent rights for expenditures above $250,000, which the complaint alleged inhibited EP’s ability to conduct ordinary course activities, such as purchasing drilling supplies or extending contracts for drilling rigs; and
exercised consent rights for lower-level hiring decisions, such as for field-level employees and contractors for drilling and production operations.
The complaint also criticized EP for taking “no meaningful steps to resist” XCL and Verdun’s requests for competitively sensitive information and “making no effort” to limit XCL and Verdun employees’ access or use of information, including data room information.
The alleged gun-jumping conduct occurred for 94 days, from July to October 2021, when an amendment to the agreement allowed EP to resume independent operations.
Takeaways
Gun-Jumping Enforcement is a Bright-Line Issue. The FTC’s action against Verdun, XCL, and EP is consistent with the conduct and “bright-line” enforcement approach in past gun-jumping cases—meaning the agencies will bring an action regardless of the magnitude of the impact on commerce. For example, in 2024, the DOJ brought an action against a buyer involving pre-closing bid coordination;2 in 2015, the DOJ brought an action involving the closing of a target’s mill and transferring customers to the buyer pre-close;3 and in 2010, the DOJ brought an action involving the exercise of merger agreement consent rights with respect to three ordinary course input contracts, one of which represented less than 1% of capacity.4
Significant Penalties May Ensue Regardless of Closing. Even though the parties resolved substantive concerns about the merger with a divestiture, they will have to pay a significant penalty for the gun-jumping violation. Though parties settled for an estimated 40% discount off the statutory maximum penalty, the FTC assessed the penalty to both the buy-side and the sell-side, which, since the deal has closed, leaves the buyer with the full obligation. In the past, both sides have also been assessed in abandoned deals and the authorities also have sought disgorgement when there are financial gains because of the violation.5
Consider Covenants that Allow for Ordinary Course Activities. Sellers should ensure they retain the freedom to operate in the ordinary course of business in purchase agreement interim covenants, which in turn maintains the competitive status quo remains while the deal is pending. As illustrated by this case, parties should be concerned with both the conduct that is allowed—e.g., entering into ordinary contracts, maintaining relationships with customers, or making regular hiring or investment decisions—and the dollar thresholds for any consent rights (ensuring they are sufficiently high).
Clean Team Process Needed Pre- and Post-Signing with Overlap. The FTC criticized EP as the seller for failing to impose restraints on the information it provided for diligence and post-close integration planning. The consent decree settlement obligates the parties to use a “clean team” process for future transactions with product or service overlap that antitrust counsel supervises. It also specifies that information shared must be “necessary” for diligence or integration planning, and where competitively sensitive, not be accessible by those with “direct[] responsibil[ity] for the marketing, pricing, or sales” of the competitive product.
Consult Antitrust Counsel Before Exercising Consent Rights. Even where the parties have agreed to certain interim covenants to protect the acquired assets’ value, the facts and circumstances at the time of exercise should be carefully considered for their impact on the seller’s competitive activities. Accordingly, parties are best served to seek the advice of antitrust counsel prior to either seeking consent or responding to a request for consent. A proactive approach may help avoid delays to closing and penalties.
1 15 U.S.C. § 18a.
2 U.S. v. Legends Hospitality Parent Holdings, LLC.
3 U.S. v. Flakeboard America Limited, et al.
4 U.S. v. Smithfield Foods, Inc. and Premium Standard Farms, LLC.
5 See U.S. v. Flakeboard America Limited, et al.
CHASE: JP Morgan Chase Allowed to Pursue Debt Against TCPA Litigant via Counterclaim
This lady named Gina Henry allegedly owed Chase Bank some money. It made collection calls to her and Henry sued for TCPA violations.
Chase countersued Henry for the debt owed and Henry moved to dismiss the claim.
In Henry v. JP Morgan Chase, 2025 WL 91179 (N.D. Cal. Jan 14, 2025) the court denied this effort and allowed the bank to chase Henry for the debt.
Reasoning that the claim for the debt is related to the same operative facts as the phone calls at issue in the TCPA claim– the calls were made to collect the debt after all– the Court had little trouble concluding the two claims should proceed in one suit.
The Court also rejected the idea that allowing counterclaims might dissuade TCPA suits– Chase is free to sue Henry for the debt in state court regardless. So doing it all in one place will be easier for Henry in the Court’s view.
TCPA suits against debt collectors and servicers are at an all time low right now as Plaintiff lawyers focus their energies on origination and marketing callers. Still it is important to keep in mind that an occasional debt collection TCPA suit might still be filed–especially if prerecorded calls or RVM is used– and when they are pursuing the debt in a counterclaim is a splendid idea.
Nice work Chase.
“A MESS”: Brandon Callier Defeats TCPA Defendant’s Summary Judgment Motion And TCPA Defense Lawyers Need to Do Better
What is going on with the practice of law these days?
I know, I know– I sound like an old guy. And I guess the Czar is getting a bit old.
But back in my day (leaning into it) lawyers took time to prepare quality briefs with well-organized and thoughtful arguments and–importantly– pristinely presented exhibits for the court’s consideration.
But Troutman Amin, LLP may be a dying breed in that respect.
Consider Callier v. Jascott Investments, et al 2025 WL 92391 (W.D. Tex. Jan 14, 2025). There repeat-TCPA litigator Brandon Callier just rose to an easy victory over a TCPA defendant’s summary judgment effort and the poor quality of the motion work by the defense lawyers appears to be the culprit.
Check this out. This is literally how the Court begins its analysis of the motion:
As an initial matter, Investments’ summary-judgment exhibits are a mess. Its opening brief cites to more than 1000 pages of exhibits by letter, but almost all exhibits have no letter label or have exhibit stickers with random numbers. Investments’ “Exhibit A” is 275 pages of discovery Investments apparently produced to Plaintiff, including inoperable placeholder sheets for audio recordings. The Court also received all 248 pages of Plaintiff’s deposition transcript along with its exhibits which contain internally inconsistent exhibit stickers derived apparently from exhibit stickers from discovery, using both numbers and “Plaintiff’s Exhibit” lettering. The Court is satisfied that it was ultimately able to locate the exhibits Investments intended to cite but respectfully requests greater care in future pleadings.
Oh man, that’s just awful. Anytime a court refers to your filing as a “mess” you know you’re not going to win– and Investments did not win. Not even close.
Indeed it appears the court thought the defense was basically wasting its time.
The Defendant argued Callier’s phone number was not residential in nature, but since Callier attested he used it for residential purposes the Defendant wasn’t going to in that one.
Defendant argued the number wasn’t on the DNC list– but again Callier attested that it was. So a jury needs to figure it out.
And Defendant argued Callier consented to receive calls but that assessment relied on a declaration that did not comply with the rules and was stricken. So… yeah.
Meanwhile Callier moved for cross-judgment on his own claims. The Court came close to granting judgment to Callier but determined a jury needed to confirm whether the ownership of his number was for residential or business purposes.
So yeah, bottom line– do better guys! A guy like Callier shouldn’t be skating to easy wins over bad motions.
Fourth Circuit Allows Nurse’s Religious Discrimination Suit Over COVID-19 Vaccine Mandate
On January 7, 2024, the U.S. Court of Appeals for the Fourth Circuit reversed the dismissal of a complaint by a Christian nurse who alleged religious discrimination after being discharged over her refusal to comply with a Virginia hospital system’s mandatory COVID-19 vaccination policy. The ruling sends the claims back to the lower court for further consideration on the merits.
Quick Hits
The Fourth Circuit reinstated a religious discrimination lawsuit by a nurse who alleged wrongful discharge after her request for a religious exemption from a COVID-19 vaccination mandate was denied by her employer.
This ruling underscores that sincerely held religious beliefs conflicting with employer policies and job requirements can be a valid basis for religious discrimination suits over a failure to accommodate.
In Barnett v. Inova Health Care Services, the Fourth Circuit disagreed with the trial court that the lawsuit could be immediately dismissed at the start. The court of appeals found that a former registered nurse had sufficiently alleged religious discrimination claims against her former employer, Inova Health Care Services—at least enough to survive an early motion to dismiss.
The court revived all three claims that alleged Inova failed to provide a reasonable accommodation under Title VII of the Civil Rights Act of 1964 and subjected her to disparate treatment under both Title VII and the Virginia Human Rights Act (VHRA) based on her religious beliefs.
The case centers on a COVID-19 vaccine policy Inova first implemented in July 2021 to comply with the U.S. Centers for Medicare and Medicaid Services’ (CMS) former vaccine mandate for healthcare facilities. Inova’s policy required employees to receive the vaccine unless they had a religious or medical exemption.
Kristen Barnett, who was a registered nurse and the pediatric intensive care unit supervisor for INOVA, initially requested and was granted a medical exemption from the vaccine mandate related to lactation and nursing. In December 2021, when Inova required employees to reapply for exemptions, the nurse then requested a religious exemption, citing religious objections based on her beliefs as a devout Christian.
According to the decision, the nurse had explained that “[w]hile she was not ‘an anti-vaccine person’ and believed ‘there is a place in this world for both Science and Religion,’ she nonetheless believed ‘it would be sinful for her to consume or engage with a product such as the vaccination after having been instructed by God to abstain from it.’” Among Barnett’s religious objections was that her body is a “temple,” an argument seen by many employers with some frequency during and since the pandemic. However, after multiple requests, Inova denied her religious exemption and eventually discharged her in July 2022 for noncompliance with the policy.
Barnett also alleged that the body Inova tasked with analyzing exemption requests, the “Exemption Committee,” essentially “pick[ed] winners and losers” from the employees who sought exemptions based on whether it thought the “religious beliefs were legitimate.” She further alleged the committee favored more “prominent” or “conventional” religious beliefs in granting exemption requests and treated “certain religious beliefs as sufficiently acceptable to qualify for a COVID-19 policy exemption, while rejecting others.”
With respect to the Title VII religious accommodation claim, the district court immediately dismissed the claim after finding, among other things, that Barnett’s body-is-a-temple argument “amounted to a ‘blanket privilege … that if permitted to go forward would undermine our system of ordered liberty[.]’”
However, the Fourth Circuit reversed the dismissal of Barnett’s claims and remanded the case back to district court on the basis of having sufficiently pled facts to support plausible religious discrimination and accommodation claims. Importantly, however, the court noted that it was “take[ing] no position as to whether Barnett’s religious discrimination claims will ultimately succeed.” Basically, the court only found that she had sufficiently alleged a sincerely held religious belief, alleging that she was a “devout Christian” and that her refusal to get the vaccine was based on her religious beliefs.
Key Takeaways
With the Barnett decision, the Fourth Circuit joins a growing number of circuit courts that have not allowed early dismissal of these claims and are requiring employers to do more to demonstrate that an employee’s allegedly sincere religious belief is either not sincere or not religious. This makes handling the reasonable accommodation process more complicated and requires sufficient investigation and documentation before a religious belief can be discounted or an accommodation denied.
Still, the decisiondoes not represent a sea change in how courts will ultimately address the myriad pending religious accommodation cases working their way through the courts. While the Fourth Circuit sent the claims back to the district court for further consideration on the merits, it is yet to be seen whether Barnett’s claims will ultimately survive summary judgment or prevail at trial. However, employers may want to take note of the trends in how courts are evaluating religious discrimination and accommodation claims so they know how to best handle and resolve religious accommodation requests from employees.
D’ART OF WAR: Family Favorite Food Supplier Prepares For TCPA Battle.
Hey TCPAWorld!
Things are heating up as we’re less than two weeks away from one-to-one consent starting January 27, 2025.
With that being said, the TCPA complaint we’re covering this week includes a familiar name. D’Artagnan Inc., renowned for its gourmet food, has recently become the target of a TCPA lawsuit. Ariane Daguin, its CEO and founder, has revolutionized the culinary world as a female chef and entrepreneur, championing high-quality and ethically sourced ingredients since 1985. While its reputation for quality endures, the gourmet food giant now finds its telemarketing operations tested at the forefront of a TCPA dispute.
In MCGONIGLE v. D’ARTAGNAN, INC., No. 1:25-CV-00052 (E.D. Va. Jan. 11, 2025), McGonigle (“Plaintiff”) alleges that even though Plaintiff has been listed on the National Do-Not-Call Registry (“DNCR”) for over 10 years, D’artagnan, Inc. (“Defendant”) delivered at least eight telemarketing text messages to Plaintiff’s residential number, on at least seven separate days in September 2024. One example reads:
D’Artagnan: Don’t miss out! Enjoy $15 flat rate shipping + 10% OFF on all orders. Sale ends tonight. Shop now: https://dartagnan.attn.tv/agwvswGzqaA7
Id. at ¶ 13. Due to these accusations, Plaintiff filed a Complaint in the Eastern District of Virginia alleging Defendant violated the DNC provisions, 47 U.S.C. 227(c)(5) and 47 C.F.R. § 64.1200(c), by delivering telemarketing messages to Plaintiff, while Plaintiff was listed on the DNCR.
Plaintiff seeks to represent the following class:
All persons throughout the United States (1) who did not provide their telephone number to D’Artagnan, Inc., (2) to whom D’Artagnan, Inc. delivered, or caused to be delivered, more than one voice message or text message within a 12-month period, promoting D’Artagnan, Inc. goods or services, (3) where the person’s residential or cellular telephone number had been registered with the National Do Not Call Registry for at least thirty days before D’Artagnan, Inc. delivered, or caused to be delivered, at least two of the voice messages or text messages within the 12-month period, (4) within four years preceding the date of this complaint and through the date of class certification.
Id. at ¶ 21.
California Court of Appeal Ends Headless Paga Actions in Leeper v. Shipt
The California Court of Appeal, Second Appellate District, in Leeper v. Shipt, Inc., No. B339670, 2024 WL 5251619 (Cal. Ct. App. Dec. 30, 2024) (Leeper) issued a significant decision benefiting employers seeking to enforce arbitration agreements in cases involving the Private Attorneys General Act (PAGA). Ever since Balderas v. Fresh Start Harvesting, Inc., 101 Cal. App. 5th 533 (2024) (Balderas), a decision concerning PAGA standing by the same appellate district, plaintiffs began to artfully plead “headless” PAGA actions, wherein they allege PAGA claims purely on behalf of the state and other employees to avoid arbitration of their individual PAGA claim. However, in Leeper, the court confirmed that by statute, every PAGA claim includes both an individual and representative claim and, thus, a plaintiff cannot choose to abandon the individual component to avoid arbitration.
Balderas v. Fresh Start Harvesting: Rise of the Headless PAGA Actions
In Balderas, the plaintiff’s complaint alleged that she was “not suing in her individual capacity” but “solely under the PAGA, on behalf of the State of California for all aggrieved employees.” 101 Cal. App. 5th at 536. Balderas did not involve an arbitration agreement. Nonetheless, the trial court, on its own motion and in accordance with the US Supreme Court’s analysis of PAGA standing in Viking River Cruises, Inc. v. Moriana, 596 US 639 (2022), struck the plaintiff’s complaint for lack of standing because she had not specifically and separately alleged an individual claim under PAGA. Id. at 536-537.
The Second District reversed and held that the trial court improperly relied on the US Supreme Court’s “observations about PAGA standing,” which had since been corrected by the California Supreme Court in Adolph v. Uber Technologies, Inc., 14 Cal. 5th 1104 (2023) (Adolph). Id. at 538-539. The Second District further noted that, under Adolph, “the inability for an employee to pursue an individual PAGA claim does not prevent that employee from filing a representative PAGA action.” Id. at 537. Plaintiffs have since pointed to this language to support headless PAGA actions to circumvent arbitration of their individual PAGA claim.
Leeper v. Shipt
As with other headless PAGA actions, Plaintiff Christina Leeper (Plaintiff) filed a PAGA lawsuit against Shipt, Inc. (Shipt) in “a representative, non-individual” capacity only. Leeper, 2024 WL 5251619 at *2. Accordingly, when Shipt moved to compel Plaintiff’s individual PAGA claim to arbitration, Plaintiff argued that her arbitration agreement did not apply because she did not seek any individual claims against Shipt. Id. Plaintiff relied on Balderas to argue that she can choose not to bring or abandon her own individual PAGA claim. Id. at *5. The trial court, in denying Shipt’s motion, agreed and found that there were no individual claims to compel to arbitration because the “action [was] solely a representative PAGA suit without any individual causes of action.” Id. at *2.
The Second District reversed and confirmed that the plain language of the statute requires a PAGA action to be “brought by an aggrieved employee on behalf of the employee and other current or former employees.” Id. at *3 (emphasis added). The court noted that the word “and” unambiguously requires all PAGA actions to be brought on both an individual and representative
basis. Id. at *4. The Second District further clarified that while Balderas, Adolph, and Kim v. Reins International California, Inc., 9 Cal. 5th 73 (2020) (Kim) addressed various issues of PAGA standing, they did not endorse a plaintiff’s ability to excise their individual claim from PAGA actions. Id. at *5-6.
Leeper rejects the argument that a PAGA plaintiff may disclaim the individual component of their PAGA action to avoid arbitration. Id. at *6. But it does not conflict with Balderas. Balderas does not disturb the statutory requirement that an aggrieved employee must bring the PAGA action on behalf of themselves in order to do so on behalf of other employees. Rather, Balderas implicitly recognized that a representative complaint under PAGA includes both components, thereby eliminating the need to separately file an individual claim to maintain standing. 101 Cal. App. 5th at 538-539.
Leeper marks a pivotal moment for California employers defending PAGA claims, effectively putting an end to the “headless” PAGA cases and loophole to circumvent mandatory arbitration.
Key Legal Developments on Enforcement of the Corporate Transparency Act
In recent weeks, significant developments have unfolded regarding the implementation of the Corporate Transparency Act (CTA) and its beneficial ownership information (BOI) reporting requirements to the Financial Crimes Enforcement Network (FinCEN), which remain subject to a nationwide injunction.
As discussed in our previous Alert, on December 3, 2024, the U.S. District Court for the Eastern District of Texas granted a nationwide preliminary injunction in Texas Top Cop Shop, Inc., et al. v. Garland, et al., temporarily halting enforcement of the CTA and its BOI reporting requirements, including the January 1, 2025, filing deadline. The U.S. Department of Justice (DOJ) appealed, requesting a stay of the injunction or, alternatively, a narrowing of the injunction to apply only to the named plaintiffs and members of the National Federation of Independent Business.
In a flurry of year-end decisions, a panel of the Fifth Circuit Court of Appeals granted DOJ’s emergency motion on December 23, 2024, lifting the injunction. Three days later, a separate Fifth Circuit panel reversed the earlier decision, vacating the stay and reinstating the nationwide injunction. As a result, FinCEN again updated its guidance, stating that reporting companies may voluntarily submit BOI filings but are not required to do so during the pendency of the injunction.
On December 31, 2024, DOJ filed an emergency “Application for a Stay of the Injunction” with the U.S. Supreme Court, seeking to stay the injunction pending the Fifth Circuit’s review of the matter. Alternatively, DOJ invited the Court to “treat this application as a petition for a writ of certiorari before judgment presenting the question whether the district court erred in entering preliminary relief on a universal basis.”
The ongoing legal challenges have left the status of the BOI reporting requirement in flux. For the time being, unless the Supreme Court intervenes, the nationwide injunction is likely to remain in place through at least March 25, 2025, the scheduled date for oral arguments before the Fifth Circuit. Businesses that have not yet complied with the reporting requirements should remain alert to any changes. If the injunction is lifted, or if the Supreme Court grants a stay, reporting companies may be required to submit their beneficial ownership information promptly, subject to any deadline extensions provided by FinCEN. In the meantime, voluntary submissions of BOI reports to FinCEN are still accepted, but companies should be prepared to meet any new deadlines should the situation change. The next few months could prove critical for the future of the CTA and its enforcement.
Health Care Providers Should Seriously Consider Claims Under Two Antitrust Class Actions
Now is the time for health care providers to consider participating in the recent Blue Cross Blue Shield (BCBS) antitrust class action settlement and the newly filed antitrust cases alleging widespread price fixing for out-of-network claims by MultiPlan and health insurers.
Health care provider antitrust litigation challenging health insurer anticompetitive conduct is on a recent hot streak, with health care providers securing billions of dollars in a class action settlement with BCBS health plans for alleged anticompetitive price-fixing in the prices they pay health care providers. Additionally, last year, health care providers filed antitrust suits seeking damages from MultiPlan and health insurers due to MultiPlan’s alleged price-fixing of out-of-network medical claims.
These two cases deserve providers’ attention right now before important deadlines pass.
First, a nationwide settlement was preliminarily approved in the class action of providers alleging that BCBS health plans around the country conspired to fix payment rates to providers. The details of the settlement are available at www.bcbsprovidersettlement.com.
Key deadlines in the BCBS settlement are coming up soon:
March 4, 2025: Opt Out/Objection Deadline
July 29, 2025: Provider Claims Submission Deadline
July 29, 2025: Final Approval Hearing
As a result, it is critical that health care providers — both facilities and physicians — promptly consider:
Whether they have claims at issue subject to the settlement.
Whether they want to participate in the settlement or opt out.
If they choose to participate, what information and data they need to obtain and should submit that could increase their settlement payment.
Analyze the scope of the class action settlement releases and how those provisions may impact future legal claims against the settling BCBS health plans.
Meanwhile, another potentially massive antitrust class action is gearing up right now in In re Multiplan Health Insurance Provider Litigation, Civ No. 1:24-CV-06795 (N.D. Ill.), where the American Medical Association and dozens of health care facilities and providers allege that nearly all of the largest US health insurers engaged in price-fixing for the payment of out-of-network claims by using a single vendor, MultiPlan, to share pricing information and set common, low prices. These cases are still quite early in the litigation process. But health care providers with out-of-network claims affected by the alleged price-fixing could recover a significant monetary award or settlement if the litigation proceeds and is successful.
If you have significant commercial health plan out-of-network claims exposure, now is the time to evaluate participating in the MultiPlan litigation in Illinois federal court.
Key Employment Law Issues Employers Need to Watch in 2025
As the United States enters a new administration, changes in workplace regulations and enforcement priorities are on the horizon.
For employers, this means staying prepared for potential shifts in federal policies, heightened oversight, and new legislative initiatives. Whether you’re navigating changes in wage laws, addressing pay transparency, or adapting to evolving labor relations, staying ahead is essential.
Partnering with a human resources attorney or a labor and employment law firm is more critical than ever to successfully manage these challenges. Below, we outline the key employment law issues employers should prioritize in 2025.
Overtime Pay
With the change in administration, workplace policies are expected to shift to reflect new leadership priorities. In November 2024, we reported on a federal judge in Texas striking down the U.S. Department of Labor’s (DOL) rule that significantly raised the minimum salary thresholds for executive, administrative, and professional employees.
The rule proposed two increases: the first, effective July 1, 2024, raised the threshold from $684 per week ($35,568 annually) to $844 per week ($43,888 annually). The second increase, scheduled for January 1, 2025, would have raised the threshold to $1,128 per week ($58,656 annually).
The court’s ruling vacated the entire rule, including the July 1 increase.
While the 2024 rule is unlikely to be revived, the Trump Administration could support a moderate increase above the current $684 weekly threshold.
This potential shift in overtime pay regulations is just one example of how workplace policies may evolve under the new administration. Another key area to watch is the classification of independent contractors, which has long been a focus of labor and employment law.
Independent Contractors
The 2021 Rule, issued under President Trump’s first term, simplified worker classification by emphasizing two primary factors: the degree of control over work and the worker’s opportunity for profit or loss. If these core factors didn’t provide a clear classification, additional considerations—such as the skill required, the permanence of the relationship, and whether the work was integral to the employer’s production—were applied. This pro-employer framework allowed businesses greater flexibility in classifying workers as independent contractors.
We previously detailed the 2024 rule, which reinstates the long-established economic reality test used by the DOL and courts. This test evaluates six factors:
The worker’s opportunity for profit or loss based on managerial skill
Investments made by both the worker and the employer
The permanence of the work relationship
The nature and degree of control exercised
The extent to which the work is integral to the employer’s business
The worker’s skill and initiative
This shift reflects a return to a more traditional, worker-focused standard. Employers should monitor developments as policy priorities evolve under the new administration.
Non-Competes Ban
Another significant area of concern for employers is the regulation of non-compete agreements, which could see substantial changes under the new administration.
In October, we wrote on the Federal Trade Commission’s appeal of a Texas District Court ruling that blocked its proposed nationwide ban on non-compete agreements. If implemented, the rule would:
Prohibit employers from creating or enforcing non-competes with all workers, including employees, independent contractors, volunteers, and others providing services.
Invalidate most existing non-competes, except for those involving senior executives.
Require employers to notify current and former workers (excluding senior executives) that their non-competes are no longer enforceable.
Now, with the rule likely stalled, appeals are being reviewed by the Fifth and Eleventh Circuits. In the meantime, employers should ensure their restrictive covenants align with evolving state laws in all jurisdictions where they operate.
Union Restrictions, Maybe?
While non-compete agreements remain in legal limbo, another area likely to face scrutiny under the new administration is union-related activities, as shifts in leadership at the National Labor Relations Board (NLRB) could significantly impact labor relations and worker protections.
President-elect Trump has a history of opposing unions, with his previous appointees to the National Labor Relations Board (NLRB) favoring employers. He has also publicly criticized the Protecting the Right to Organize Act (PRO Act). While the next General Counsel of the NLRB has not been named, recent decisions, including the February 2024 Home Depot USA, Inc. v. Morales case that we covered, could face reconsideration.
In that case, the NLRB ruled Home Depot violated the National Labor Relations Act (NLRA) by “constructively” terminating Antonio Morales. Morales refused to remove the initials “BLM” from his company-issued apron, which he used to express support for the Black Lives Matter movement.
The Board found that his actions qualified as protected concerted activity under Section 7 of the NLRA due to the context of his statement.
The Home Depot decision serves as a reminder to private employers about the limits of lawful workplace policies. Employers cannot prohibit employees from making public statements about workplace conditions, even through written expressions on company-provided apparel. This case highlights the importance of carefully reviewing dress codes and related personnel policies to ensure compliance with the NLRA.
As union-related policies face potential changes, another area likely to experience shifts under the new administration is Diversity, Equity, and Inclusion (DEI) initiatives, particularly in light of recent court rulings and evolving federal priorities.
More Rollback of DEI Initiatives
Last year, several major U.S. companies scaled back or eliminated their Diversity, Equity, and Inclusion (DEI) programs following the U.S. Supreme Court’s ruling that race-based considerations in college admissions are unconstitutional. Under President Trump, we could see the revival of a previous executive order that restricted federal contractors from implementing certain DEI initiatives. Additionally, the administration may roll back other executive orders designed to advance equal employment opportunities.
However, DEI initiatives, if implemented properly, still are important and should be considered a valuable tool to foster an inclusive workplace environment.
Staying Ahead of Employment Law Changes
As workplace regulations continue to evolve under the new administration, employers must remain proactive to ensure compliance and mitigate risks. Regularly reviewing and updating policies—such as wage and hour classifications, non-compete agreements, DEI initiatives, and workplace conduct guidelines—is essential to staying aligned with federal and state laws.
Employers should also monitor legal developments, especially in areas like worker classification, union-related activities, and restrictive covenants, and adapt accordingly. Implementing robust training programs for managers and human resources personnel can further help maintain compliance and address emerging legal requirements.