This sea change comes in two parts. Many readers will already be familiar with the groundbreaking Loper Bright Enterprises, Inc. v. Raimondo decision, which threw out the Court’s long-standing “Chevron deference” doctrine. Chevron required courts to pay special deference to a federal administrative agency’s interpretation of applicable law within its enforcement purview on the theory that an agency specializing in, say, environmental regulation has a special expertise in the environmental laws it enforces. That rule is gone: now, the agency might be right, but so might be any other litigant opposing it.

The real “sleeper,” however, is actually the combined effect of Loper and another decision, SEC v. Jarkesy, issued by the Court just before Loper. In Jarkesy, the Supreme Court held that when the Securities and Exchange Commission (SEC) seeks civil penalties against a defendant in a securities enforcement action, the Seventh Amendment entitles a defendant to a jury trial: it must bring the case in federal court as opposed to before administrative law judges in the SEC’s in-house forum. While Jarskesy applies on its face only to the SEC and the particular enforcement proceeding at issue in that case, there is no real reason its logic would not apply to any administrative proceeding before any federal agency empowered to issue fines.

In fact, Jarskesy is very similar to the Court’s recent decision in Starbucks v. McKinney, where the Supreme Court held that the National Labor Relations Board (NLRB) must adhere to the same test as other parties when seeking a preliminary injunction, as opposed to a more relaxed test that seemed biased in favor of an agency just because it was the enforcer.

So think about that: first, federal agencies’ opinions about what the law means aren’t entitled to any special deference (Loper); and second, federal agencies have to duke it out in court rather than in their own in-house quasi-tribunals that offer fewer procedural safeguards to the party against whom enforcement is sought (Jarskesy). Loper Bright, Jarkesy, and McKinney are all suggestive of a critical trend that ultimately favors employers, not the agencies that are so often perceived as their adversaries in all but name.

Here’s why this matters for employers. Administrative trials are very common in labor and employment law. The kinds of safeguards employers can leverage in real litigation—discovery, evidentiary rules, the right of appeal, and the list goes on—are very much stunted in administrative tribunals, if not entirely absent. If the Supreme Court applies the logic of Loper and Jarskesy to administrative agencies generally, including the EEOC, NLRB, OSHA, and DOL, to name a few—then we are in a whole new landscape, one that afford employers not only a fairer chance to fight in real litigation, but to argue persuasively for interpretations of applicable law that aren’t as likely to be shot down just because a federal agency disagrees.

What Happened in SEC v. Jarkesy?

In 2013, the SEC filed an administrative action against hedge fund manager, George Jarkesy and his company, Patriot28. The administrative judge found that Jarkesy violated the anti-fraud provisions of federal securities law. After Jarkesy appealed, the SEC ordered Jarkesy to pay a civil penalty of $300,000 in addition to other equitable relief. Jarkesy and his company appealed to the Fifth Circuit, which ruled in their favor. The Fifth Circuit held that the use of administrative law judge’s violated Jarkesy’s right to a jury trial. The SEC sought Supreme Court review of the Fifth Circuit’s decision, and the Court granted certiorari.

The Supreme Court agreed with the Fifth Circuit and held that the use of the administrative proceeding where civil penalties were at stake is unconstitutional. The Court’s reasoning was rooted in the Seventh Amendment’s guarantee of the right to a jury trial in suits at common law, including claims where a party seeks monetary relief designed to punish or deter conduct. The Court also concluded that the SEC’s anti-fraud provisions replicate common law fraud claims. In Jarskesy, the SEC sought civil penalties for alleged fraud, implicating the Seventh Amendment right to a jury trial. The Court also reasoned that the “public rights” exception does not apply, which is an exception allowing Congress to assign the matter to an agency without a jury. Thus, since the SEC fraud claim and civil penalties fell within the purview of the Seventh Amendment, the defendant, and now defendants going forward, are entitled to jury trials as opposed to proceedings before the in-house administrative law judge

What Should Employers do Going Forward?

As of now, the impact of Jarkesy combined with Loper Bright remains to be seen. However, with the in-house administrative proceedings under scrutiny, employers should be paying attention to any future cases involving challenges to federal labor and employment law agency actions, particularly those challenging administrative proceedings. Since federal labor and employment law involves administrative proceedings before bodies such as the NLRB and OSHA, any future decisions curtailing the use of those proceedings would alter the landscape of labor and employment law, benefiting employers.

For questions and guidance about the impact of Jarkesy or administrative proceedings in federal labor and employment law, please contact a member of Kelley Drye’s Labor and Employment team.

On June 28, 2024, the U.S. Supreme Court overruled Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984) (Chevron). The end of Chevron means the end of decades of deference given by courts to federal agencies when an agency’s interpretation of ambiguous or silent text in a federal statute was challenged. That is a big deal. With the ushering in of Loper Bright, courts ​“may not defer to an agency interpretation of law simply because a statute is ambiguous” because courts, rather than agencies, have sole competency to resolve statutory ambiguity. Because countless statutes task federal agencies with administering and enforcing laws, issuing rules and regulations, and deciding disputes—often requiring an agency to fill in a gap or construe statutory text—the end of Chevron deference is truly a once in a generation change in law. No longer will federal agencies waltz into court with the upper hand, expecting to rely upon Chevron to carry the day. Instead, they will need to have another plan.

THE CHEVRON DOCTRINE

Since the Chevron decision in 1984, arguably one of the most influential U.S. Supreme Court decisions in history, federal agencies were given considerable latitude to interpret statutes, and challenges to those agency interpretations were difficult to prevail upon. In short, courts deferred broadly to agency expertise, and did so mechanically as a matter of course. Not surprisingly, over time, federal agencies—for example, the U.S. Equal Employment Opportunity Commission (EEOC), National Labor Relations Board (NLRB), Occupational Health and Safety Administration (OSHA), and U.S. Department of Labor (DOL)—have gotten comfortable regularly invoking the Chevron doctrine, and with great success.

Under the old Chevron guard, a challenge to an existing agency action or interpretation of law played out as follows. When an agency’s action and interpretation of a law (for example, a final rule issued by that agency) was challenged in court, the court followed a two-step analysis.

• First, the court determined ​“whether Congress has directly spoken to the precise question at issue.” If the answer was no—meaning the governing statute was ambiguous or silent—then the court would proceed to step two of the analysis: ​“whether the agency’s answer is based on a permissible construction of the statute,” later formulated as a ​“reasonableness” standard (even if the court would have reached a different conclusion). This standard made it very difficult for challenges to agency actions to prevail. Under the first step, the challenging party would have to prove that the governing statute was ​“unambiguous,” which often was not the case (for example, think about how Title VII has evolved since it was passed in 1964 and did not contemplate the nuances of a modern, evolving workplace). In other words, statutes are often ambiguous, and sometimes purposefully so.
• Moving to step two, the court would then determine ​whether the agency’s interpretation was​ ​“reasonable.” In practice, this meant that agency interpretations of law (even if they pushed the envelope of ​“reasonableness”) were typically upheld, as agencies almost always won on step two. As you can imagine, this further emboldened agencies and shaped their litigation strategies over time, as agencies knew they had a leg up in court.

LOPER BRIGHT – A GENERATIONAL CHANGE IN LAW

Then came Loper Bright, much to the chagrin of federal agencies. In a 6-3 decision across party lines, the U.S. Supreme Court held that the Administrative Procedure Act (APA) requires courts to exercise their independent judgment in deciding whether an agency has acted within its statutory authority, and courts may not defer to an agency interpretation of the law simply because a statute is ambiguous. Agencies, according to the Court, ​“have no special competence at resolving statutory ambiguities. Courts do.” Going forward, courts must do what they do best and ​“use every tool at their disposal to determine the best reading of the statute and resolve the ambiguity.” Without Chevron, no longer will courts ​“mechanically afford binding deference to agency interpretations,” bucking the decades-old trend.

The Court noted that prior decisions relying on the Chevron framework are not overturned, providing some continuity for prior holdings based on Chevron. Of course, it’s not that simple. Shortly after Loper Bright, the U.S. Supreme Court in Corner Post, Inc. v. Bd. of Governors of the Federal Reserve System, No. 22-1008 (July 1, 2024) (Corner Post) issued a decision addressing when claims brought under the APA accrue for purposes of the general six-year statute of limitations under federal law. The Court held that the limitations period for APA claims runs from the time of a plaintiff’s injury. Previously, most circuit courts had held that the limitations period for APA challenges instead began on the date of the final agency action (that is, when a regulation was issued) and without regard to when a plaintiff was injured. Now, Corner Post has breathed (even more) life into an opportunity to file challenges to agency regulations, which, as Justice Ketanji Brown Jackson noted, could cause a ​“tsunami of lawsuits.”

WHAT DOES THE END OF CHEVRON MEAN FOR EMPLOYERS, AND THE FUTURE OF LABOR AND EMPLOYMENT LAW?

What does the death of Chevron by Loper Bright mean? In its simplest form, the decision means that it will be more difficult for federal agencies to defend challenges to their regulations going forward. Agencies will increasingly be taken to task for an interpretation of law, or agency action, that strays too far from the statutory language (i.e., agencies will likely be playing defense, not offense). Now, without Chevron to fall back on, agencies will need to carefully consider the positions they take with respect to the statutes they are empowered to interpret and enforce. Undoubtedly, challengers to agency actions will point to the absence of Chevron in support of their position that an agency’s interpretation of law is unfounded (and indeed, already have).

The absence of Chevron will also likely lead to inconsistent results, as challenges to agency actions will be made across jurisdictions, with some federal courts upholding agency interpretations and others rejecting them. This will further complicate matters and pave the way for litigation to funnel to the U.S. Supreme Court. In fact, there are already a number of pending challenges to agency decisions underway, which will likely be affected by the post-Chevron world (such as the FTC’s noncompete ban, the DOL’s overtime rule, the EEOC’s final rule involving accommodations under the Pregnant Workers Fairness Act, and more). Loper Bright also comes at a time when notable changes to federal labor and employment laws are already happening, such as limits on the use of administrative proceedings (see SEC v. Jarkesy), the standard for requesting an injunction under the NLRA (see Starbucks v. McKinney), and a new framework for when employers are required to bargain with a union (see Cemex Construction Materials Pacific, LLC v. NLRB). More on these cases later.

What does the Loper Bright decision itself mean for employers? Today, nothing. Employers do not need to modify their existing policies or implement any changes to their workforce (as they would need to if the FTC’s non-compete ban goes into effect on September 4, 2024). Loper Bright was not even a case that involved labor and employment law. However, with Chevron deference eliminated, employers should be paying attention to decisions involving challenges to federal labor and employment law agency actions and thinking creatively about how Loper Bright can be an asset. Whether an employer finds itself in an administrative proceeding involving a law that is being challenged in the same (or even in a different, non-binding) jurisdiction, or a litigation in which arguments are being framed around existing agency interpretations of law, Loper Bright (and more simply, the elimination of Chevron deference that makes it more likely that an agency action or interpretation will not stand) is an important tool in the toolkit. It’s one that should not be overlooked.

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For questions and guidance about the impact of Loper Bright, please contact a member of Kelley Drye’s Labor and Employment team.

The Impact of Wage Statement Claims Minimized

Background

In Naranjo v. Spectrum Security Services Inc., the California Supreme Court handed a win to employers when it held that employers may use a good faith defense to defend against claims for penalties under California Labor Code Section 226, the statute governing wage statement requirements. The underlying dispute was a wage and hour class action filed by a former security guard, alleging meal and rest break violations. The lower court ruled in favor of the putative class members by holding that meal and rest breaks must be reported on official time sheets.

The narrow issue before the California Supreme Court was whether employees can recover civil penalties against their employers for “knowingly and intentionally” violating the California wage statement statute, even if they have a good faith belief that they are in compliance. The Court concluded employees may not recover statutory penalties for violations that are not knowing and intentional. In reaching this decision, the Court relied on the notion that civil penalties are designed to deter and punish rather than to compensate. A good faith defense negates that a wage statement violation was “knowing and intentional” as required by the statute.

Significance to Employers

Complying with California’s complex wage statement requirements is no easy task. Adding to the risks for employers, claims for wage statement violations is a popular “add-on” cause of action to wage and hour litigations. This decision imposes a higher burden for plaintiffs seeking to recover penalties by requiring them to show that wage statement errors were done “knowingly and intentionally.” This potentially opens the door for the employers to limit liabilities in cases where Plaintiffs claim they worked off the clock, but never reported the off-the-clock work, and the employers can show that they paid according to the time records. Employers may also consider requiring employees to sign off on their timecards to bolster its good faith defense.

Outside of the litigation context, employers should work with counsel to ensure they are properly issuing wage statements.

Stock Options Are Not Wages Under California Law

Background

In Shah v. Skillz, a California Court of Appeal held that stock options are not wages under the California Labor Code. In Shah, a startup terminated an employee who then brought claims of wrongful termination and retaliation. The startup had an IPO after the former employee’s termination, and he was unable to exercise his stock options they were not available to him after his termination for cause. Disgruntled about the missed opportunity to benefit from the IPO, the former employee filed a lawsuit.

The former employee filed tort claims of retaliation and wrongful termination tort claims. These claims alleged that the company wrongfully terminated and retaliated against him for complaining about his stock options prior to termination. The former employee could only sustain those tort claims if they arose out of a protected activity, namely complaints about unpaid wages. Since the Court concluded stock options are not considered wages, the employee had no basis for those claims because he did not engage in protected activity. In reaching its decision, the Court relied on 9^th Circuit decisions explaining that stock options are not amounts or money, but rather contractual rights to buy shares of stock.

Significance to Employers

This decision significantly limits the universe of wage claims that former employees can bring, particularly startup employees who are often granted stock options in lieu of higher salaries and other compensation. Since stock options are not wages, they cannot serve as the basis for an underlying wage and hour litigation. Further, employee complaints about stock options do not constitute protected activity, foreclosing another way employees may plead retaliation claims against employers. This decision also provides employers with arguments to limit damages even when the plaintiff prevails on other claims, such as wrongful termination.

Beyond litigation, employers should work with counsel to determine whether they should alter their compensation strategies and employment agreements in light of this decision.

If you have questions about defending against wage and hour claims, please contact a member of Kelley Drye’s Labor and Employment team.

Lactation Breaks

Effective June 19, 2024, employers must provide employees who have a reasonable need to express breastmilk with 30-minute paid lactation breaks. Previously, employers were required to provide an unpaid break time and permit employees to use paid breaks to express breastmilk. The new law specifies that employees are entitled to a lactation break “each time such employee has reasonable need to express breast milk,” meaning that employees may be entitled to multiple paid breaks per day. Under the new law, employees may continue use existing paid breaks, such as a meal break, for lactation. This new requirement is particularly significant for employers with hourly workforces, as an updated lactation break policy is likely necessary to avoid potential wage and hour violations.

Prenatal Leave

Effective January 1, 2025, New York will be the first state to mandate paid prenatal leave. Specifically, employers will be required to provide pregnant employees up to 20 hours of paid leave in a 52-week period. Prenatal leave encompasses leave for healthcare services such as physical examinations, medical procedures, monitoring and testing, and discussions with a health care provider related to the pregnancy. The new law specifies that employees shall be paid for this leave at their regular rate of pay. Significantly, this leave is in addition to the paid sick and safe leave required under New York State and City laws.

COVID-19 Leave

The budget established an end date of July 31, 2025 for COVID-19 sick leave, which previously lacked an expiration date. This leave applies when employees under a mandatory or precautionary order of quarantine or isolation due to COVID-19.

New York employers or any multi-state employers with New York employees should review their existing policies and revise them to comply with these recent changes.

If you have questions concerning these new requirements or NY employment laws, please contact a member of Kelley Drye’s Labor and Employment team.

The state considers workplace violence to be any act of violence or threat of violence that occurs in a place of employment. However, lawful acts of self-defense or defense of others are not considered as workplace violence.

Workplace violence includes and is not limited to the following: “(i) The threat or use of physical force against an employee that results in, or has a high likelihood of resulting in, injury, psychological trauma, or stress, regardless of whether the employee sustains an injury. (ii) An incident involving a threat or use of a firearm or other dangerous weapon, including the use of common objects as weapons, regardless of whether the employee sustains an injury.”

A threat of violence can be verbal, written, behavioral, or physical conduct that conveys or is reasonably perceived to convey an intent to cause physical harm or instill fear of physical harm, without serving any legitimate purpose. California highlights that employers should consider that threats of violence can be via messages or posts on social media, texts, emails, IMs or any other online content.

The law defines four types of workplace violence based on the perpetrator’s relationship to the workplace and outlines specific required components for the workplace violence prevention plans.

• Type 1 violence - workplace violence committed by a person who has no legitimate business at the worksite, and includes violent acts by anyone who enters the workplace or approaches workers with the intent to commit a crime.
• Type 2 violence - workplace violence directed at employees by customers, clients, patients, students, inmates, or visitors.
• Type 3 violence - workplace violence against an employee by a present or former employee, supervisor, or manager.
• Type 4 violence - workplace violence committed in the workplace by a person who does not work there, but has or is known to have had a personal relationship with an employee.

What does the law require of affected California employers?

• The amendments to the California Labor Code require almost all employers, including contractors, in California to:
• Create a workplace violence prevention plan specific to hazards and corrective measures for each work area and operation
• Create and maintain a violent incident log for every workplace violence incident based on information solicited from employees who experienced the workplace violence, witness statements, and investigation findings. Multiemployer worksites should provide a copy of their own log to the controlling employer
• Train employees when the plan is established and annually going forward
• Provide additional training each time a new or previously unrecognized workplace violence hazard is identified or changes are made to the plan

Who will enforce this new law?

The Division of Occupational Safety and Health (Cal/OSHA) will enforce this new law and must propose standards by December 1, 2025 along with the Occupational Safety and Health Standards board, which must propose its standards by December 31, 2026.

What are the penalties for non-compliance?

This new workplace violence prevention law becomes effective on July 1, 2024 and will apply to virtually all employers in the state. Under certain circumstances, employers who fail to create and implement an effective workplace violence prevention plan or violate the provisions in the law could face a misdemeanor (CA SB 553).

Takeaway

California’s new workplace violence prevention law will require virtually all employers in the state to implement comprehensive plans to prevent, respond to, investigate, and correct workplace violence hazards. By adopting these new standards, California will be the leading state with expanded laws on workplace violence prevention and employee security.

For assistance in navigating the intricacies of compliance with California’s new workplace violence prevention law please contact Kelley Drye’s Labor and Employment attorneys Matthew Luzadder and Judy Juang.

The decision, Christine Savage v. Township of Neptune, involved a former police officer talking about her former employer’s abusive culture on television after the parties had entered into a settlement agreement. There, the Supreme Court ruled that the non-disparagement clause in Christine Savage’s settlement agreement resolving sex discrimination, sexual harassment and retaliation claims against her former employer was against public policy and unenforceable under New Jersey’s #MeToo statute, N.J.S.A.10:5-12.8(a). This case represents the latest in the trend of states eroding employers’ use of confidentiality in settlements.

What Were the Facts of Savage v. Neptune?

Christine Savage, a former police sergeant, initially sued her employer, the Neptune Township Police Department in 2013, alleging sexual harassment, sex discrimination, and retaliation. The first lawsuit settled in 2014. Savage brought another suit in 2016, alleging violation of the settlement agreement and that the harassment, discrimination, and retaliation had increased.

The parties entered another settlement in July 2020, which contained a non-disparagement provision providing that the parties agreed not to make or cause others to make any statements “regarding the past behavior of the parties” that “would tend to disparage or impugn the reputation of any party.” The non-disparagement provision extended to “statements, written or verbal, including but not limited to, the news media, radio, television, . . . government offices or police departments or members of the public.”

After the parties entered into the settlement agreement, Savage participated in an interview as part of a television news show covering her lawsuit. During the interview, Savage made comments such as “you abused me for about 8 years” and that the police department was run under the “good ol’ boy system.”

The police department filed a motion to enforce the settlement on the grounds that Savage’s television interview violated the parties’ non-disparagement clause. The trial court granted the motion. An appellate court reviewed and reversed, ruling that while the non-disparagement clause was enforceable, Savage did not violate it.

Then, the Supreme Court went a step further and held that the non-disparagement clause did violate N.J.S.A.10:5-12.8(a), which provides in part that “[a] provision in any employment contract or settlement agreement which has the purpose or effect of concealing the details relating to a claim of discrimination, retaliation, or harassment (hereinafter referred to as a “non-disclosure provision”) shall be deemed against public policy and unenforceable against a current or former employee.”

The Supreme Court determined that whether the provision is labeled a “non-disparagement”, or “non-disclosure” provision does not control the application of the statute. Rather, the relevant determination is whether the provision has the effect of concealing the details relating to a claim of discrimination, retaliation, or harassment. The Supreme Court held that Savage’s non-disparagement provision had that effect, in violation of the #MeToo statute.

What Should Employers Do Now?

New Jersey employers should pay close attention and work with counsel to carefully craft settlement agreements for employees who have asserted claims of discrimination, harassment, or retaliation. Employers may not include any provision that has the effect of concealing the details relating to a claim, not just non-disclosure provisions. Significantly, this decision likely applies to New Jersey-based employees, so employers located outside of New Jersey may also be affected.

Further, despite having its origins in the #MeToo movement, the decision also does not limit such restrictions to agreements settling only sexual harassment claims, but also places such restrictions on agreements settling discrimination and retaliation claims as well.

Other states have similar #MeToo statutes, and we recently reported on amendments to New York’s law. Among other things, the amendments prohibit settlement agreements from requiring the complainant to pay liquidated damages or forfeit settlement payment for violating a non-disclosure or non-disparagement clause.

Unlike New Jersey, New York has not gone as far as to effectively ban restrictive non-disparagement provisions. It remains to be seen whether this New Jersey decision will serve as an impetus for changes in other states. Thus, all employers should work with counsel to track state laws and court decisions interpreting evolving #MeToo laws and their application to settlement agreements.

If you have questions concerning employee settlement agreements, please contact a member of Kelley Drye’s Labor and Employment team.

As we discussed, the Tims and Cothron decisions made BIPA an unwieldly monster for Illinois employees. The Illinois Supreme Court in Tims held that a 5 year statute of limitations applies to BIPA claims and, in Cothron, the court held that a BIPA violation accrues with each unauthorized use of a biometric device. BIPA allows statutory damages amounts of $1,000 per violation for negligent violations and $5,000 per violation for intentional or reckless violations. Applied to the Rogers case in which Judge Kennelly used the $5,000 reckless standard, the statutory damages award under the Cothron method would have multiplied considerably from the $228 million. In Rogers, the jury held that 45,600 individuals had their biometric information used in violation of the Act, but the number of distinct violations was not calculated.

However, in June 2023, Judge Kennelly vacated his $228 million damages award upon further argument of this issue. He held that the jurors should have determined the award, not the court. Judge Kennelly set the case for a second trial on the issue of damages only. On one hand, this was a tremendous victory for BNSF – the $228 million award disappeared. On the other hand, a damages trial subject to the Illinois Supreme Court’s Cothron interpretation of BIPA could subject BNSF to an even greater damages award (45,600 individuals multiplied by the number of times each individual used the biometric device, multiplied again by the amount of damages the jury could award for each violation).

Considering the legal developments of the Rogers case and the Tims and Cothron decisions in the last year and half, the BIPA landscape still presented risks for both the Rogers class action plaintiffs and BNSF. As a result, the parties agreed to a $75 million settlement in lieu of a damages trial. The settlement amount will be divided between the 46,500 class members after attorneys’ fees and costs.

Employers nationwide remain hopeful for legislative solutions to BIPA’s draconian damage regime, though none immediately materialized in the wake of Tims and Cothron. It has been reported, however, that the Illinois General Assembly is considering the way liability accrues under BIPA.

If you have any questions about BIPA, please reach out to Matthew Luzadder.

All U.S. employers are required to complete a Form I-9 for every individual they hire for employment in the United States, including for U.S. citizens and noncitizens. As of November 1, 2023, Employees must use the new Form I-9 edition. The edition date is located on the lower left corner of the form. A revised Spanish Form I-9 dated “08/01/2023” is also available for use in Puerto Rico only. The new version contains improvements to the layout as well as the following significant changes:

• Moved Section 3, “Reverification and Rehire,” to a standalone Supplement B that employers can use as needed for rehire or reverification. This supplement provides four areas for current and subsequent reverifications. Employers may attach additional supplements as needed.
• Removed use of “alien authorized to work” in Section 1 and replaced it with “noncitizen authorized to work,” and clarified the difference between “noncitizen national” and “noncitizen authorized to work.”
• Ensured the form can be filled out on tablets and mobile devices by downloading it onto the device and opening it in the free Adobe Acrobat Reader app.
• Improved guidance to the “Lists of Acceptable Documents” to include some acceptable receipts, guidance, and links to information on automatic extensions of employment authorization documentation.
• Added a checkbox for E-Verify employers to indicate when they have remotely examined Form I-9 documents.

DHS and USCIS also updated the Form I-9 instructions by including the addition of instructions for a new alternative procedure, which permits employers who participate in E-Verify in good standing to examine employee documents for employment authorization remotely. Employers must comply with several requirements in order to perform a remote examination, including conducting a live video interaction with the individual presenting the document.

Failure to comply with Form I-9 requirements can have severe consequences for employers, including civil and even criminal penalties. In recent years, U.S. Immigration and Customs Enforcement (ICE) has increased the number of investigations and enforcement actions taken against Form I-9 violators. Employers who fail to comply with Form I-9 requirements can be fined anywhere from $272 to $2,701 for each incorrect Form I-9. In 2022, the Office of the Chief Administrative Hearing Officer (“OCAHO”) issued one of the largest I-9 penalty decisions, ordering a staffing company with over 2,000 Form I-9 violations to pay penalties of $1,527,308. The amount of the fine depends upon the size and if the conduct was intentional, seriousness of the violation, individuals’ work authorization status, and the employer’s history of previous violations.

The new changes simplify and streamline the review process by reducing the length of the Form I-9 and permitting remote verification of documents. It is highly recommended that companies review Form I-9 training and procedures to ensure compliance with the latest I-9 verification rules. If you have any questions concerning Form I-9 compliance, please contact a member of Kelley Drye’s Labor and Employment Team.

As we reviewed in earlier posts, the Supreme Court’s June 2023 decision in Students for Fair Admissions, Inc. v. President and Fellows of Harvard College (SFFA) promised to be a game changer not just in education but in the employment context as well. While the SFFA decision did not directly apply to private employers, its strong language criticizing affirmative action has had the effect many argued the Court wanted it to have: it caused universities and employers to reevaluate their DEI programs. The decision further prompted potential plaintiffs and members of the plaintiff’s bar to challenge employment decisions allegedly made on the basis of a lack of membership in a group viewed as diverse and inclusive.

Now, nearly six months after the Court’s decision, we are finally starting to see the ramifications of this holding in the private sector and are better able to predict how the burgeoning legal landscape may continue to take shape.

By way of review, the SFFA decision struck down the race-conscious admissions programs of Harvard University and the University of North Carolina at Chapel Hill. The Court found that the universities violated both the Equal Protection Clause and Title VI of the Civil Rights Act by utilizing race as a stand-alone “plus” factor in admissions evaluations. Ultimately, the majority opinion concluded that the programs “lack sufficiently focused and measurable objections warranting the use of race, unavoidably employ race in a negative manner, involve racial stereotyping, and lack meaningful end points.”

While a significant development in the field, the decision remains—at least technically —restricted to the field of higher education. However, in the months since the decision, aggressive organizations and plaintiffs have been actively attacking diversity programs beyond the realm of higher education.

DEI Under Attack

In the aftermath of the SFFA decision, DEI programs have been under attack, both in the court of public opinion and actual court system.

Federal courts are beginning to see a small uptick in claims that seek to challenge DEI initiatives. Critically, there appear to be two different cohorts of potential plaintiffs emerging in these litigation efforts: (1) organized, well-funded, and committed activist/political advocacy groups pursuing injunctions and non-monetary resolutions; and (2) traditional single- or multi-plaintiff efforts seeking to recover more traditional damages.

At this point in time, the first group is more actively litigious. Indeed, within just months of the SFFA decision, the American Alliance for Equal Rights—the same organization that brought suit against Harvard and the University of North Carolina in the SFFA decision—began to aggressively challenge diversity initiatives at private employers, which they argued are illegal and discriminatory. Unsurprisingly, large firms and companies with public-facing and prominently displayed DEI initiatives proved to be primarily targeted by these initial efforts. Worth noting is that these groups tend to first engage with the employer prior to filing suit, although these efforts are often accompanied by publicly-released media statements.

Interestingly, the American Alliance first targeted the legal industry and law schools, both writing to and then suing several multinational law firms. They also challenged DEI programs at large companies. The group filed lawsuits that resulted in those institutions having their scholarship and recruitment efforts publicly scrutinized via the filing of three prominent complaints. The group’s efforts seek to challenge companies that fund award programs, diversity scholarships, and grants to minority-led employees, applicants, or businesses.

The American Alliance may argue that these efforts have been largely successful. In response to the charges and lawsuits, several defendants have already opted—publicly or privately—to revise their internal policies in an effort to avoid active or threatened litigation. Many of these programs have been revised to no longer outwardly identify race as a factor in the selection of applicants for DEI fellowships and other internal programs. Indeed, in recent public comments the American Alliance has declared a brief pause in the group’s planned activities, citing the belief that many organizations revised policies that the group viewed as objectionable. For example, a recent stipulation of dismissal in one of the lawsuits identified the removal of the phrase “membership in a disadvantaged and/or historically underrepresented group in the legal profession” from the targeted DEI program.

The effect of the SFFA decision is also still being felt in the realm of higher education. In October, SFFA filed suit against both the U.S. Naval Academy in Annapolis and West Point Academy, arguing that affirmative action in its admissions processes violates the Fifth Amendment. No. 1:23-cv-02699-ABA (D. Md. Oct. 5, 2023); No. 7:23-cv-08262 (S.D.N.Y. Sept. 19, 2023). Beyond the question of admission, other institutions have been sued by aggrieved students for allegedly using race, sex, or gender preferences in selecting members for particularly prestigious organizations within the University. Doe v. New York University, No. 1:23-cv-09187 (S.D.N.Y. 2023).

In addition to the above, individual employees are pursuing legal challenges to adverse decisions that the employee believes were motivated by the employer’s desire to advance internal diversity and inclusion targets. Meyersburg v. Morgan Stanley & Co. LLC, No. 1:23-cv-07638 (S.D.N.Y. Aug. 29, 2023). Such claims are likely continuing to work their way through enforcement agencies such as the EEOC before appearing on public dockets.

What is the Future of DEI Initiatives?

Recognizing this trend is important for several reasons:

1. First, DEI programs are still lawful. As it stands, employers are more likely to receive pressure from advocacy groups to revise and remove DEI programs such groups perceive as unfair. The best way to circumvent similar challenges is for employers to proactively review existing DEI initiatives and programs to make sure they are compliant with the law. It is critical that the review is conducted through a litigation lens, but important to recognize that such challenges are unlike traditional plaintiffs seeking to bring causes of action for violations of Title VII, hostile work environment, or retaliation. There are comparatively minimal efforts needed to create and maintain policies that will not draw the ire of the first class of plaintiffs; and
2. Second, more traditional “reverse discrimination” claims—i.e., an individual plaintiff seeking to recover monetary damages—are incredibly fact specific and at this time more uncommon. In fact, proper preemptive measures may well prevent the second group of plaintiffs from establishing a “legal foothold” at all. Absent additional developments to the case law on a federal level, there may not be an opening of the proverbial floodgates via a one-size-fits-all formula for plaintiffs seeking to recover monetary damages.

While a true “explosion” of DEI-centric litigation has not yet occurred, the current trend unmistakably indicates that companies need to be aware of their litigation risks going forward. Firms that wish to continue adopting a best-practices approach should review internal and public-facing DEI communications and avoid statements that explicitly mention protected characteristics as “plus” factors for employment decisions. In line with these recommendations, executives and other high-ranking officers should exercise care in making statements that indicate any sort of racial or ethnic preference. This is not to say that diversity programs must be abandoned—indeed, the opposite remains true—however, it is important for businesses to remain educated about the realities imposed by the current DEI climate and properly protect themselves.

In the interim, employers will continue to grapple with the potential exposure that DEI programs may create and the public relations implications that accompany litigation. Through what is likely a combination of tightening economic conditions and the specter of potential litigation, there has been a growing dearth in DEI practitioners at the management level. When DEI programs are not directly targeted for budgetary concerns, certain industries—particularly information and technology—have experienced significant turnover in DEI team leaders and other officer roles. In addition, job postings for DEI positions fell 19% in 2022, a trend that appears to have continued into 2023. In fact, since 2018, the average tenure of a DEI role within an S&P 500 company has been less than two years.

What Should Employers be Doing?

Ultimately, if and until the Supreme Court weighs in on the legality of DEI programs within the private sector, the controlling advice has not changed—employers who value diversity need not immediately abandon their initiatives. However, employers should be prepared and even expect that their programs may come under public scrutiny or even be challenged in court.

Here are some points to consider:

• At the very least, employers must ensure that any programs and initiatives they wish to maintain are compliant with the law and do not facially promote favorable treatment of one group over another.
• There should never be a mandate or directive that “favors” or “targets” certain groups for hiring or promotion within an organization.
• Employers should avoid or eliminate all direct numerical targets or incentives, as such initiatives are likely to come under the most scrutiny going forward.
• Look closely at any program or opportunity that provides a direct “prize” or “reward”, like scholarship or training programs. Those should be open to all, or membership should be chosen from applicants of all backgrounds.
• While employers may still set goals for diversity, they should avoid any link between meeting those goals and financial compensation.

While such statistics are disconcerting, the SFFA decision should not ultimately be a cause for panic for private sector employers. Simple, easily replicable steps will likely allow for the majority of entities to avoid potential litigation.

If you have questions concerning your company’s DEI program, please contact a member of Kelley Drye’s Labor and Employment team.