Senate Passes Bill to Fund Immigration Enforcement Agencies. On June 5, 2026, by a vote of 52–47, the U.S. Senate passed a bill to provide $70 billion in funding for Immigration and Customs Enforcement and U.S. Customs and Border Protection (Republicans used the budget reconciliation process in order to pass the bill with a simple majority, rather than the 60-vote threshold required for most legislation). The two immigration enforcement agencies were left out of the broader funding deal that reopened the U.S. Department of Homeland Security after it was shut down for seventy-five days earlier this year due to a funding lapse. This week’s action, which still needs to be approved by the U.S. House of Representatives, will fund U.S. Customs and Immigration Enforcement (ICE) and U.S. Customs and Border Protection (CBP) through the remainder of President Donald Trump’s term.

Bipartisan Senate Bill Would Set Rules for College Sports. A bipartisan group of senators has introduced the Protect College Sports Act of 2026, a bill that would set some parameters around the volatile world of college athletics. The bill would protect student-athletes’ ability to earn compensation from their name, image, and likeness; establish new requirements for sports agents, and set rules for student transfers and coaching transitions, among other provisions. Readers may recall that the Buzz has been tracking a similar bill—the SCORE Act—in the House, legislation being pushed by Republican leaders that has not come to the floor for a vote. However, unlike the SCORE Act, the Protect College Sports Act does not contain a provision that prohibits student athletes from being classified as “employees” under federal law. In fact, the Protect College Sports Act is specifically agnostic on the issue, as it contains a provision that states that the bill “is neutral on, and does nothing to alter, employee or non-employee status for student athletes.” Tim Walberg (R-MI), chairman of the House Committee on Education & Workforce, issued a statement critical of the Senate bill’s omission of this issue.

EEOC to Scrap Affirmative Action Rule. The U.S. Equal Employment Opportunity Commission (EEOC) has forwarded to the Office of Information and Regulatory Affairs (OIRA) a submission, titled, “Rescission of 1979 Interpretive Rule ‘Affirmative Action Appropriate Under Title VII of the Civil Rights Act of 1964.’” The affirmative action rule sets forth “the circumstances in which persons subject to title VII may take or agree upon action to improve employment opportunities of minorities and women, and describe the kinds of actions they may take which are consistent with title VII.” According to the rule, such actions may be taken after an employer’s reasonable self-analysis to determine whether its policies or practices “exclude, disadvantage, restrict, or result in adverse impact or disparate treatment of previously excluded or restricted groups or leave uncorrected the effects of prior discrimination.” The submission to OIRA, the text of which is not publicly available, is styled as a “final rule,” indicating that the Commission is unlikely to solicit public comments prior to rescinding the rule. The action by the Commission is consistent with its current priority of scrutinizing DEI-related race and sex discrimination.

DOL Final Rule Updates Union Financial Reporting. On June 1, 2026, the U.S. Department of Labor’s (DOL) Office of Labor-Management Standards finalized a rule that makes changes to labor unions’ financial reporting requirements under the Labor-Management Reporting and Disclosure Act (LMRDA). The final rule combines a proposal issued by the Trump administration in October 2020 with a proposal issued by the current Trump administration in July 2025. Significant elements of the new rule are as follows:

• New Form LM–2 Long Form. This new reporting form will apply to labor organizations with $40 million or more in annual receipts (based on 2024 data, this new requirement would impact 99 labor organizations). The new form includes more itemized reporting of receipts and disbursements that were previously required to be reported only as lump sums. The form also includes an entirely new schedule that captures unions’ financial transactions with foreign entities or individuals.
• Revised Form LM–2. The amended LM-2 form includes new, more detailed financial reporting, similar to the new Form LM-2 Long Form. Labor organizations with $350,000 or more in gross annual receipts, but less than $40,000,000, must file the LM-2. The rule increased this minimum threshold reporting figure from the previous $250,000.
• Form LM-3 and Form LM-4. The Form LM-3 filing threshold has been raised from $10,000 or more to $25,000 or more in annual receipts, and the Form LM–4 filing threshold has been raised from less than $10,000 to less than $25,000 in total annual receipts.

According to the preamble, the final rule “supports the LMRDA’s various reporting provisions which are designed to empower labor organization members by providing them with the means and information to maintain democratic control over their labor organizations and ensure proper accounting of labor organization funds.” The rule becomes effective on July 1, 2026, and will apply to labor organizations whose fiscal years begin on or after that date. Because the report is due ninety days after the conclusion of a labor union’s fiscal year, this means the covered unions will have at least one year from the effective date before they have to file a report.

Wage and Hour Division Issues Opinion Letters. The DOL continues to lean into educational outreach and compliance assistance, as the Wage and Hour Division has released four new opinion letters that provide practical guidance on Fair Labor Standards Act (FLSA)–related inquiries. The letters address the following fact-specific situations:

• An employee who is exempt from the FLSA’s overtime requirements who picks up additional work in a position that is eligible for overtime retains his or her exempt status “as long as the employee’s primary duty remains the performance of exempt work and the salary requirements continue to be met.”
• An employer’s quarterly nondiscretionary bonus program qualifies as a “percentage of total earnings” bonus, which includes simultaneous payment of any overtime compensation due on the bonus and satisfies the FLSA’s overtime requirement.
• An employee on an unpaid thirty-minute lunch break is not required to be compensated during that time, even if it is difficult to leave the employer’s premises in the allotted time.
• The final letter presents some guidance—but no specific answers due to lack of information—regarding compensability of an employee’s pre- or post-shift activities, time rounding, and the de minimis exception, in a workplace with thousands of nonexempt employees.

Charles E. McDonald, III, Steven F. Pockrass, and Leah J. Shepherd have additional details.

House Lawmakers Examine NLRB. On June 4, 2026, the House Committee on Education & Workforce’s Subcommittee on Health, Employment, Labor, and Pensions held a hearing, titled, “Examining the Policies and Priorities of the NLRB.” National Labor Relations Board (NLRB) Chairman James R. Murphy and General Counsel Crystal S. Carey provided testimony. According to Subcommittee Chairman Rick Allen (R-GA), Murphy and Carey “are the first sitting General Counsel and Member of the NLRB to appear before the Committee in nearly 20 years.” While lawmakers on both sides offered their opinions on various labor bills and Democrats tried to attack Carey for her employment with a private-sector law firm, both Murphy and Carey remained focused on their efforts to address the Board’s case backlog and need for additional resources. For example, Murphy wrote, “My goal is straightforward: to promote a Board that works—efficiently, expeditiously, and in a way that earns the confidence of employees, employers and unions. Doing so will best fulfill our commitment to protecting the statutory rights of each while ensuring that our administrative agency processes are cost-effective and accountable.”

Maine Event. Senator Susan Collins (R-ME) made history this week when she cast her 10,000th consecutive roll-call vote on an amendment to the aforementioned immigration bill. Collins cast her first vote on January 22, 1997, to confirm Madeleine Albright as secretary of state and has not missed a vote since. In terms of the all-time consecutive vote record, this puts Collins in second place behind the late Senator William Proxmire (D-WI), who cast 10,252 consecutive votes. As far as most votes cast in the Senate’s history, Collins has a long way to go to catch the record holder, the late Senator Robert Byrd (D-WV), who cast 18,689 votes while representing West Virginia in the U.S. Senate from 1959 to 2010.

Quick Hits

• OCR will be divided into three divisions: the Conscience and Religious Freedom Division, the Civil Rights Division, and the Health Information Privacy, Data, and Cybersecurity Division.
• HHS and plan sponsor Star Group (SG) reached an agreement to resolve alleged HIPAA violations related to Star Group’s health plan, imposing $245,000 in fines and an extensive corrective action plan.
• The two-year corrective action plan will require the health plan to conduct a comprehensive HIPAA data security risk analysis, update training materials, and make annual reports to HHS.
• This enforcement action emphasizes the need for employers to prioritize security measures for health plan protected health information (PHI) and electronic protected health information (ePHI), as ransomware incidents can trigger government scrutiny and potential penalties under HIPAA.

OCR Restructuring

In announcing the restructuring, HHS stated that the new structure would prioritize and reorganize enforcement efforts related to health information privacy and security by establishing a separate, dedicated division of its OCR as one of OCR’s three divisions: (1) the Conscience and Religious Freedom Division; (2) the Civil Rights Division; and (3) the Health Information Privacy, Data, and Cybersecurity Division.

According to a statement from OCR Director Paula M. Stannard, each new OCR division will have a team with “subject-matter expertise and distinct senior executive leadership” dedicated to enforcing HIPAA. Director Stannard further stated that the new structure “rightly prioritizes civil rights and conscience and religious freedom alongside health information privacy and security.”

In particular, this change will enable OCR to address its civil rights protections, specifically “to advance the protection of conscience rights, address race-based discrimination in a color-blind manner, eradicate antisemitism and anti-Christian bias, and restore biological truth,” HHS stated. Such a focus aligns with the Trump administration’s broader civil rights enforcement priorities.

SG Health Plan Enforcement Action and Corrective Action Plan

The OCR restructuring comes just weeks after the agency, on April 23, 2026, released a resolution agreement with the Star Group L.P. Health Benefits Plan (SG Health Plan), to resolve alleged HIPAA violations. Notably, the resolution agreement imposed a “Corrective Action Plan” (CAP) that highlights the agency’s focus on HIPAA enforcement and health plans’ duties to prevent and mitigate privacy breaches.

The alleged HIPAA violations stemmed from a reported October 22, 2021, ransomware attack that affected the PHI of approximately 9,316 individuals. After an investigation, HHS found that SG Health Plan “failed to conduct an accurate and thorough assessment of the potential risks and vulnerabilities to the confidentiality, integrity, and availability of electronic protected health information.”

While stipulating that SG Health Plan made no admission of liability, Star Group agreed to pay $245,000 in penalties and to enter a two-year CAP with extensive compliance obligations that go beyond mere payment of the fine.

Specifically, the CAP requires the SG Health Plan to:

• Conduct a comprehensive risk analysis. SG Health Plan must “conduct a comprehensive and thorough Risk Analysis of potential risks and vulnerabilities to the confidentiality, integrity, and availability of” ePHI. SG Health Plan must analyze all its electronic equipment, data systems, and applications that contain, store, transmit, or receive plan ePHI; develop a “Risk Management Plan to address and mitigate any security risks and vulnerabilities”; and provide that risk management plan to HHS for approval.
• Revise policies and procedures to protect the privacy of PHI. SG Health Plan must review and revise its written policies and procedures as necessary to comply with federal standards for protecting ePHI. The review must address whether local devices have up-to-date external firewalls. SG Health Plan must distribute these policies and procedures to all members of its workforce who handle plan ePHI.
• Review and update HIPAA training materials. SG Health Plan must submit its HIPAA training materials to HHS for approval and make any recommended revisions. SG Health Plan must also review its training materials “at least annually.”
• Provide training to employees with access to PHI. After receiving final approval of the training materials, SG Health Plan must “provide training for each workforce member who has access to PHI” and do so at least every twelve months thereafter.
• Report future breaches. SG Health Plan must report incidents in which a member of its workforce may have failed to comply with its policies and procedures with a “complete description of the event,” including facts and the persons involved, a “description of actions taken,” and intended actions to address the matter and mitigate harm.
• Make Annual Reports to HHS. SG Health Plan must submit reports to HHS annually over the term of the CAP that include a training schedule and materials, an attestation that required employees attended the trainings, an attestation that required revisions to policies and procedures were made, and a summary of any reportable events.

Key Takeaways for Employers

The restructured OCR, with its dedicated commitment to HIPAA enforcement, and the recent enforcement action and resolution agreement targeting employer-sponsored health plan compliance, highlight the importance for employers of maintaining a robust compliance program to address HIPAA and protect plan PHI and ePHI.

As such, employers may want to evaluate their most recent comprehensive risk analysis and update it as needed to reflect current processes. Other steps include providing training on privacy protection standards to key personnel who handle PHI and ePHI and reviewing and revising privacy and security policies regarding ePHI.

Ogletree Deakins’ Employee Benefits and Executive Compensation Practice Group and Cybersecurity and Privacy Practice Group will continue to monitor developments and will provide updates on the Cybersecurity and Privacy, Employee Benefits and Executive Compensation, and Healthcare blogs as additional information becomes available.

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Quick Hits

• The EEOC approved a new National Enforcement Plan that rescinds and replaces the Biden-era Strategic Enforcement Plan (FY2024-FY2028).
• The plan represents a formal reorientation of the EEOC’s enforcement strategy and priorities, including the near elimination of disparate impact enforcement and the explicit targeting of DEI programs as potential intentional discrimination.
• The rebranding from “Strategic” to “National” Enforcement Plan reflects a centralized nationwide model with authority to reassign matters across districts and withdraw all local enforcement plans.
• The EEOC reaffirmed its status as an executive branch agency aligned with Administration policy objectives and executive orders.

The NEP, issued under the authority of Chair Andrea R. Lucas, sets out the EEOC’s substantive enforcement priorities and guiding principles for a five-year period, Fiscal Year (FY) 2025–FY2029, directing the agency’s outreach, education, investigations, conciliation, and litigation. The plan took effect immediately upon approval.

The new NEP establishes a three-pronged approach: (1) prevention through education and outreach, (2) voluntary dispute resolution (including ADR, pre-determination settlements, and conciliation), and (3) strong enforcement via litigation. The NEP prioritizes high-impact litigation that has the potential to advance the Administration’s policy objectives and develop antidiscrimination law.

Below is a summary of what the NEP does and how it changes the agency’s enforcement approach.

Key Changes Outlined in the NEP

Prioritization of disparate treatment over disparate impact 

In the NEP, the EEOC acknowledges that Title VII of the Civil Rights Act was amended in 1991 to add disparate impact liability, but the EEOC concluded that intentional discrimination (disparate treatment) is “inherently more egregious” than unintentional disparities arising from neutral policies (disparate impact). The NEP states that the EEOC will thus prioritize disparate treatment theories of liability, including pattern or practice liability, pursuant to Executive Order 14281, “Restoring Equality of Opportunity and Meritocracy.” Specifically, the EEOC will eliminate the use of disparate impact theories in investigations “to the maximum degree possible” and will not commence, develop, or continue to pursue litigation advancing disparate impact claims.

Alignment with administration priorities. 

The NEP reaffirms the EEOC’s status as an executive branch agency, a characterization the NEP claims has been recognized by EEOC leadership and the U.S. Department of Justice’s Office of Legal Counsel since the 1970s. The explicit commitment to using enforcement discretion to “advance the Administration’s policy objectives and comply with relevant Executive Orders” represents a practical departure from the agency’s historically independent posture.

‘Nationwide Enforcement Model’

The NEP states that the EEOC will use its “constrained resources” to “maximize the impact of the agency’s work” by acting as a “national law enforcement agency.” The NEP replaces the FY2024–FY2028 “Strategic Enforcement Plan.” The shift from “Strategic” to “National” Enforcement Plan is significant in that it reflects the NEP’s centralized model, under which headquarters leadership can reassign matters from one district to another, deploy headquarters personnel to bolster field staffing on priority matters and assign priority cases to multiple districts simultaneously. The NEP also withdraws all prior District Complement Plans and local enforcement priorities, requiring field offices to operate under a single set of national priorities. The NEP further directs collaboration with other federal agencies, Fair Employment Practices Agencies (FEPAs), state attorneys general, and other state and local entities.

Targeted resource deployment for ‘strategic impact’

The NEP states that given the agency’s “budget and staffing constraints” and that it receives on average over 80,000 charges and 250,000 charge inquiries annually, the EEOC will be “strategic about the matters it prioritizes” and will focus resources on specific substantive priority areas rather than treating every charge equally.

Substantive Priority Areas

Matters presenting ‘a substantial likelihood of broader enforcement significance’

Such matters involve allegations of repeated or overt discrimination, including facially discriminatory policies such as race- or national-origin-based job advertisements, staffing agencies that exclude individuals based on protected characteristics, channeling or segregating individuals into jobs based on protected characteristics, mass denials of accommodations, and systemic harassment. 

The NEP references “Commissioner charges” as a mechanism for initiating priority investigations. Because individual Commissioners can file charges without a private complainant, the EEOC can self-initiate investigations into DEI programs or other priority areas without waiting for a worker to file a complaint. 

Programs and practices labeled as DEI

The NEP explicitly identifies as potential targets those policies, programs, or practices that preference guest worker visa holders or PERM applicants, as well as those “labeled or framed” as “diversity, equity, and inclusion” (DEI) or “similar euphemisms.” The use of the word “euphemisms” signals how the agency is likely to frame these programs in investigations and litigation. The NEP characterizes such practices as forms of intentional discrimination. Specific examples include race- or sex-based quotas (even those labeled “aspirational goals”), diverse-slate or hiring-panel policies, diversity statements, candidate evaluation rubrics that consider protected characteristics, employee race or sex data shared with managers or the public, and executive compensation or bonuses tied to demographic goals. Also targeted is limiting access to on-the-job training, internships, fellowships, mentorship, sponsorship, pre-apprenticeship or apprenticeship programs, employer-sponsored groups or events, bonuses, fringe benefits, and other terms of employment on the basis of protected characteristics. 

Cases with ‘the potential of promoting the development of law’

The NEP prioritizes cases that involve the application or scope of recent precedents by the Supreme Court of the United States or that present “unresolved issues of statutory interpretation.” These can be grouped thematically:

• DEI and Affirmative Action—“analysis of voluntary affirmative action programs pursuant to” United Steelworkers v. Weber and Johnson v. Transportation Agency following Ames v. Ohio Dep’t of Youth Services, Muldrow v. St. Louis,  Students for Fair Admissions, and other recent Supreme Court precedent. The framing signals the EEOC views the legal foundation of voluntary affirmative action programs as weakened by recent case law and will pursue cases to test or narrow the permissible scope of such programs;
• DEI Practices and Programs—“analysis under Title VII of certain DEI practices, programs, and policies following” Ames, Muldrow, and Students for Fair Admissions:  The inclusion of Ames is significant because that decision addressed the standing of majority-group plaintiffs to bring Title VII discrimination claims.  Together with the NEP’s “evenhanded enforcement” principle, this indicates the EEOC’s intent to bring enforcement actions on behalf of majority group workers., ;
• Discrimination thresholds—the “application of the ‘some harm’ standard adopted in” Muldrow. While the NEP seeks to narrow Bostock v. Clayton County, the Muldrow standard lowers the threshold for what constitutes an actionable adverse employment action. If the EEOC successfully promotes that standard, it could be invoked by the very workers (including transgender employees challenging exclusion from single-sex spaces) that the Bostock-narrowing effort aims to constrain;
• Religious Liberty—“employers’ obligation under Title VII to reasonably accommodate religious practices” under Groff v. DeJoy; and
• Sex and Gender—“[c]arifying the scope” of Bostock. The NEP identifies four specific areas for clarification: employees’ right to single-sex intimate spaces, employers’ right to provide single-sex spaces, employees’ and employers’ right to express the binary nature of sex, and employees’ right to religious accommodations for sincerely held religious beliefs. The NEP also identifies the scope of liability under the Pregnant Workers Fairness Act (PWFA) as a priority for legal development. 

Vulnerable workers and integrity of enforcement process

The NEP prioritizes the protection of vulnerable workers, including teenage workers, persons with limited literacy, low-wage workers, survivors of sexual assault, and workers with developmental or intellectual disabilities. Further, the NEP focuses on cases “involving the integrity or effectiveness of the Commission’s enforcement process,” including retaliation against participants in EEOC proceedings, challenges to EEOC’s policy documents, subpoena enforcement, and recordkeeping violations.

For amicus purposes, the NEP identifies a specific priority for cases where the agency can “clarify the constitutional and statutory limitations regarding liability under the statutes it enforces in matters involving religious organizations and religious employers.” This indicates the EEOC will file amicus briefs to expand the scope of religious employer exemptions from antidiscrimination liability

Chair Priorities

In the NEP, Chair Lucas identified four ongoing priorities meant to “complement” the NEP’s substantive categories:

• “Remedying DEI-related race and sex discrimination;”
• “Protecting American workers from anti-American national origin discrimination;”
• “Defending women’s rights to single-sex spaces at work and workers’ rights to express the binary nature of sex;”
• “Protecting workers’ religious liberty rights to receive religious accommodations and be free from religious discrimination, harassment, and related retaliation.”

Additional Guiding Principles

Three additional principles in the NEP are relevant to employers:

• Evenhanded enforcement. The NEP instructs all EEOC components to “ensure evenhanded enforcement of the civil rights laws,” reminding staff that “as public servants, EEOC staff are working on behalf of all American workers protected by these laws.” In context, this indicates the agency will pursue claims on behalf of majority-group workers (e.g., white employees, male employees) with the same vigor as claims by minority-group workers.
• Individualized assessment. The NEP requires that prioritization decisions be based on “both the issue raised and an assessment that the strength of the investigation or case supports the decision to prioritize the matter.” The EEOC has thus committed, at least on paper, to not pursuing weak cases simply because they fall within a priority category.
• Broad enforcement caveat. The NEP states that the enumerated priority categories “do not limit the agency from prioritizing any particular investigation or cases” and are “not listed in a particular order of importance.” Employers should not assume they are insulated from enforcement scrutiny simply because their conduct falls outside the listed priorities.

Next Steps

While the NEP largely reiterates the EEOC’s enforcement priorities under the Trump administration and Chair Lucas’s leadership, the NEP represents a formal reorientation of EEOC’s enforcement strategy and priorities.

Employers may anticipate continued heightened scrutiny of DEI-related policies, diversity hiring targets, voluntary affirmative action programs and any practices that use race or sex as factors in employment decisions, while also preparing for strengthened enforcement of religious accommodation obligations and protections for workers in single-sex spaces. Although labeled as covering FY 2025–FY 2029, the NEP will remain in effect until superseded, modified, or withdrawn by vote of a majority of members of the Commission.  As a result, employers may wish to evaluate and potentially revise or refresh policies and practices that relate to the priorities outlined in the NEP, revisit and enhance training of supervisors and managers regarding related workplace policies and legal obligations, and monitor internal complaints to ensure that timely investigations are conducted so that appropriate corrective or remedial measures are implemented when warranted.  

Ogletree Deakins Diversity, Equity, and Inclusion Practice Group and Workforce Analytics and Compliance Practice Group will continue to monitor developments and will provide updates on the Diversity, Equity, and Inclusion Compliance, Employment Law, and Workforce Analytics and Compliance blogs as additional information becomes available.

This article and more information on how the Trump administration’s actions impact employers can be found on Ogletree Deakins’ Administration Resource Hub.

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Quick Hits

• Employers have begun enrollment in Minnesota’s Secure Choice Retirement Program according to a phased schedule with the first deadline on June 30, 2026.
• All Minnesota employers with five or more employees that do not offer a retirement plan will be required to facilitate this state program for employees via payroll contributions. 
• Employees are automatically enrolled in the 5 percent contribution unless they affirmatively opt out.
• Minnesota employers that already have a retirement plan must file for an exemption.

On May 19, 2023, Governor Tim Walz signed a law establishing the Minnesota Secure Choice Retirement Program. Employers doing business in Minnesota with five or more employees are required to register for the program, or file for an exemption if they already offer a retirement benefit to employees. Employers can find more resources and information about the program here.

Employers must enroll by using the program portal. The deadline to enroll is staggered:

Employers will need to set up an account, add payroll information, company bank information, and employee information. Thereafter, the state will communicate with the employees about their options. Employees have thirty days to opt out or customize their contributions. After thirty days, the employer begins to make the payroll deductions and submit information concerning the contributions for employees who did not opt out.

Employers will need to create a new deduction in their payroll system, create a contribution file, and enter the contribution in the portal. Thereafter, employers must remit payroll contributions for active employees each pay period, update contribution rates if the employee makes a change, and keep the employee list up to date.

Employees must be automatically enrolled, but they can discontinue, decrease or increase their contribution level at any time. The initial contribution rate is 5 percent of total wages, with an annual automatic escalation of 1 percent until the contribution rate reaches 8 percent.

Each employee’s contribution will be deposited into a Roth individual retirement account (IRA). The program does not require or permit employers to contribute matching funds to these retirement accounts.

An employer can request an exemption if it currently provides a qualified retirement plan, such as a 401(k), 403(a), 403(b), 457(b), SEP IRA, or SIMPLE IRA plan.

Employers must provide notices to employees at least fourteen days before the date of the first paycheck from which employee contributions could be deducted.

After the second year, a covered employer may face fines of up to $100 per covered employee for failure to enroll employees or distribute notices. The fines increase in amount in subsequent years. A covered employer also could face criminal penalties for willful and intentional failure to remit contributions.

Next Steps

To register before the deadline, employers need to have their employer identification number (EIN), payroll schedule, banking information, and employee information, such as names, Social Security numbers, and birth dates.

Covered employers are not considered fiduciaries and are not responsible for establishing the IRAs for employees, making decisions about plan design, processing investment change requests, or processing divestments from the IRA accounts.

A covered employee or the state attorney general may bring a civil lawsuit against a covered employer for failure to enroll covered employees, distribute notices, or remit contributions.

Ogletree Deakins’ Employee Benefits and Executive Compensation Practice Group will continue to monitor developments and will post updates on the Employee Benefits and Executive Compensation and Minnesota blogs as additional information becomes available.

Corie J. Anderson is a shareholder in Ogletree Deakins’ Minneapolis office.

Stephen A. Riga is Counsel in Ogletree Deakins’ Minneapolis and Indianapolis offices.

This article was co-authored by Leah J. Shepherd, who is a writer in Ogletree Deakins’ Washington, D.C., office.

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Quick Hits

• The DOL’s Wage and Hour Division recently published four opinion letters that address several complex wage-and-hour issues under the Fair Labor Standards Act (FLSA).
• Employees do not need to be compensated for meal breaks even when distance makes it difficult for them to leave the worksite for a meal in the allotted amount of time.
• Waiting in line to clock in or clock out at timekeeping stations generally is not compensable time.

Meal Breaks

Under the FLSA, a bona fide meal break is not compensable time when a nonexempt employee is freed from all work duties. FLSA2026-7 concerned a meal-break question from an employer with a large facility with controlled access points and parking located a considerable distance from work areas. The opinion letter states, “The fact that an employee is required to eat his or her meal on the employer’s premises or is minimally restricted in the activities they may perform does not convert this meal period into compensable time.”

Thus, an employer is not legally obligated to pay for time voluntarily spent travelling off-site to obtain or eat a meal. It also is not required to extend a thirty-minute meal period to accommodate time an employee may spend leaving and returning to his or her work area from off-site before and after a meal. State meal break laws may differ from the FLSA requirements.

Pre-Shift and Post-Shift Activities

Employees must be paid for pre-shift or post-shift activities that are indispensable and integral to the employee’s principal work. FLSA2026-8 addressed whether certain pre-shift activities by hospital workers constitute compensable work and, if so, whether rounding employees’ clock-in time to their scheduled shift start time is permissible. In this scenario, the pre-shift activities included locating work assignments, completing accountability documentation, assigning employees to work locations via communication devices, and receiving handoff reports regarding patient status.

The DOL clarified that some of the pre-shift activities, such as receiving handoff reports and locating work assignments, qualify for compensable time because they are integral and indispensable to the principal work duties. However, waiting in line to clock in or out at a timekeeping station is not compensable time if it occurs before an employee’s first principal activity of the day or after the last principal activity of the day.

The hospital in the scenario permitted employees to clock in up to seven minutes before their shifts started to avoid tardiness, but it did not pay them for that time because it claimed the time was de minimis, according to the employee who requested the opinion letter. The hospital rounded up to the shift start time, but it did not use other rounding practices. The employee did not present information as to whether the hospital’s rounding practice was facially neutral and benefited employees in other circumstances. 

If employees regularly perform compensable work before their scheduled shifts begin, then an employer’s rounding practice at the beginning of the day “may result in minimum wage or overtime violations, because it exclusively benefits the employer by rounding early arrivals to the scheduled shift time,” the opinion letter notes. However, if employees are engaged in noncompensable activities, like getting coffee, socializing, checking phones, or storing personal belongings, the time may be considered de minimis and the rounding practice may be acceptable. The opinion letter only addresses federal law, not state laws that may be more restrictive.

One Employee in Two Different Roles

FLSA2026-5 discussed whether an overtime exempt employee can perform additional work in a secondary, nonexempt role at an hourly rate, and if so, what overtime implications arise. The letter addressed a question from an academic medical center with a nonprofit hospital, which employs nonexempt staff nurses who sometimes work as nursing professional development specialists, a role typically classified as exempt.

The FLSA provides an exemption from overtime and minimum wage requirements for employees working in a “bona fide executive, administrative, or professional capacity.” The DOL clarified that if an employee performs work in both exempt and nonexempt roles in the same workweek, the employee can be properly classified as exempt if the exempt role remains the employee’s primary duty. When a substantial majority of the employee’s time is spent in the exempt role, that generally satisfies the primary duties requirement for an exemption. This will be a factual determination.

Bonus Pools

FLSA2026-6 addresses how a quarterly bonus program can remain compliant with the FLSA’s overtime pay requirement for nonexempt workers. For the purposes of determining overtime pay, an employee’s regular rate is the total of “‘all remuneration for employment paid to, or on behalf of, the employee’” for the workweek, divided by the total number of hours worked. Nondiscretionary bonuses must be included in the regular rate calculation, but discretionary bonuses do not need to be included.

With a bonus pool, some employers compare each employee’s total earnings to the total earnings of all the employees in the pool to determine the share of the bonus pool to pay each participating employee. Thus, each employee receives a different percentage of the bonus pool. The DOL clarified that this practice is acceptable “so long as the earnings for each employee include any required overtime premiums and do not include any amounts previously excluded from the regular rate of pay when determining those overtime premiums.” (Emphasis in the original.)

Next Steps

Employers may wish to review their wage-and-hour pay policies and practices in light of these recent opinion letters. The DOL noted in FLSA2026-8 that employers “should expect exacting scrutiny of de minimis claims where employees perform off-the-clock work with any degree of regularity.”

Ogletree Deakins’ Wage and Hour Practice Group will continue to monitor developments and will post updates on the Healthcare and Wage and Hour blogs as additional information becomes available.

Charles E. McDonald, III, is a shareholder in Ogletree Deakins’ Greenville office.

Steven F. Pockrass is a shareholder in Ogletree Deakins’ Indianapolis office.

This article was co-authored by Leah J. Shepherd, who is a writer in Ogletree Deakins’ Washington, D.C., office.

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Quick Hits

• A bill in the California Legislature would establish a pilot program in Alameda and Santa Clara counties that would make district attorneys responsible for directing workplace accident investigations and prosecuting cases of workplace fatalities and other serious accidents.
• The bill would require “immediate” notification by the Cal/OSHA Bureau of Investigation to the Alameda or Santa Clara district attorney’s office for immediate investigation in cases involving accidents “resulting in a death or permanent total disability.”
• The bill, if enacted, would remain in effect until 2032.

Assembly Member Liz Ortega (D-District 20), chair of the California State Assembly’s Committee on Labor and Employment, amended her bill in May 2026, Assembly Bill (AB) No. 2321, introduced in March 2026 and which originally would have applied statewide.   

The bill would require “immediate” notification by the California Division of Occupational Safety and Health (Cal/OSHA) Bureau of Investigation to the Alameda or Santa Clara district attorney’s office for immediate investigation in cases involving accidents “resulting in a death or permanent total disability.”

The amended bill borrows the workers compensation code term “total permanent disability,” but it remains unclear how the referral would occur from the workers compensation system to Cal/OSHA and then to the district attorney. 

It is unclear how the two Bay Area counties would receive funding for the proposed state-mandated local program with these additional investigation and prosecution duties.  

The bill has passed the Assembly and is now in the California State Senate proceeding to committees.

Ogletree Deakins’ California offices and Workplace Safety and Health Practice Group will continue to monitor developments and provide updates on the California and Workplace Safety and Health blogs as additional information becomes available.

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Quick Hits

• The Third Circuit ruled that the FLSA does not recognize claims for “gap time,” which refers to unpaid hours that do not exceed overtime limits. 
• The court declined to rely on the DOL’s guidance suggesting gap time claims are cognizable, finding the FLSA to be unambiguous and the DOL’s guidance otherwise unpersuasive. 
• This decision eliminates certain gap time claims in the Third Circuit, an area of aggressive DOL enforcement.

The Third Circuit ruling in Secretary of United States Department of Labor v. Comprehensive Healthcare Management Services LLC is a significant win for employers in finding that claims for gap time—or uncompensated time worked that does not exceed the overtime limit—are not cognizable under the FLSA.

The appellate court further handed the employer a partial win in finding that the district court applied improper standards in determining that certain employees were nonexempt, remanding that issue to the district court for proper analysis. However, the appellate court found that the district court had applied the proper burden of proof and did not err in certain disputed factual findings related to the employer’s recordkeeping practices that were based on testimony from employees.  

Background

The case stems from the DOL’s investigation of Comprehensive Healthcare Management Services, which owns and operates fifteen residential nursing, rehabilitation, and assisted living facilities across Pennsylvania. The investigation began in 2017 and resulted in the DOL filing suit in 2018 on behalf of nearly 6,000 employees, alleging multiple FLSA violations. After a bench trial in January 2024, the district court found in favor of the DOL and awarded $35,804,438.20 in damages.

The district court ruled against the employer on several FLSA violations, including failures to maintain accurate time and pay records, paying employees based on scheduled hours rather than hours actually worked, failing to compensate employees for working through meal breaks, miscalculating overtime rates by excluding shift differentials and bonuses from the regular rate, and misclassifying certain employees as exempt from overtime.

Overtime Gap Time Claims Are Not Cognizable Under the FLSA

A panel for the Third Circuit ruled 2–1 that the claims for gap time are not cognizable under the FLSA. Gap time refers to uncompensated time that does not exceed the overtime limit, where the employee’s pay rate is sufficiently above the minimum so that the employee is still paid a minimum wage when averaged across all time worked in the period.

In the majority opinion, Chief Judge Michael Chagares recognized that while the circuit has previously rejected claims for “pure” gap time, meaning unpaid work during pay periods without overtime, this case presented the issue of “overtime” gap time, which involves compensation for nonovertime hours worked during pay periods when the employee did work overtime. For example, a situation in which an employee works forty-three hours in a week, but the employer only pays the employee for thirty-eight hours of work and three hours of overtime work.

The majority held that the FLSA’s text is clear. Employers must pay a minimum wage under Section 206 and overtime pay under Section 207, but the statute “does not contemplate overtime gap time.” In reaching this conclusion, the majority rejected the DOL’s argument that since the FLSA requires the overtime calculation be based on an employee’s “regular rate” of pay, employees must be paid at their “regular rate” for all hours worked before overtime. The majority said that “the statutory text simply does not support that inferential leap.”

The majority also declined to defer to the DOL’s longstanding interpretive guidance that overtime compensation has not been paid unless all straight-time compensation has been paid first. The majority found the FLSA to be unambiguous and, as such, found no need to look to agency guidance. The majority opinion further noted that even under so-called Skidmore agency deference (which finds that “an agency’s interpretation is ‘entitled to respect …, but only to the extent that it has the power to persuade.’”), the DOL’s guidance was unpersuasive.

“While the Department’s reading may better serve the policy objective of the FLSA overtime provision by ensuring employers do not mitigate or skirt the financial pressures of working their employees above the forty-hour threshold, that does not allow us to read into the FLSA a remedy that Congress did not create,” the majority opinion stated.

The Partial Dissent Finds FLSA ‘Regular Rate’ Ambiguous

Judge Jane Roth concurred in part but dissented from the majority on the overtime gap time issue. Judge Roth argued that the term “regular rate” is ambiguous because it is unclear whether it refers to the rate at which the employer contracted with the employee or the rate the employer actually paid, and that the only way to resolve that ambiguity is to require employers to pay all forty hours of straight time before calculating overtime. She also would have given Skidmore deference to the DOL’s longstanding guidance.

The majority addressed this argument in a footnote, acknowledging that they “agree that these rates should be the same” but that the question before it was “what happens when, due to the employer’s errors, they are not [the same]—and, more specifically, does the FLSA provide a remedy for that error.” The majority said they “do not believe that it does.”

Other Holdings

Proper Burden-Shifting

The Third Circuit found no reversible error in how the district court applied the burden-shifting framework to the DOL’s claims. The court concluded that the damages for the disputed claims—pay-by-scheduled work versus hours worked and incorrect regular rate calculations—were based on the employer’s own records and were not determined by the burden-shifting framework applied when an employer has inadequate recordkeeping.

Factual Findings—No Clear Error

The appellate court further found no clear error on the three challenged factual findings of the district court: (1) that the pay-by-schedule practices had continued past 2018; (2) that the regular-rate miscalculations had continued past July 2019; and (3) the conclusion that employees worked through unpaid meal periods; finding that these conclusions were backed by DOL witness testimony, including the testimony of fourteen employees. While the employer argued that the DOL’s evidence was “quantitatively insufficient because only a small number of witnesses testified on behalf of the nearly 6,000 employees on whose behalf the Secretary brought claims,” the appellate court stated that it “often endorsed the practice of using ‘representative employees to prove violations with respect to all employee,’” and that “’there is no brightline test establishing the percentage of employees necessary to achieve a representative sample.’” 

Exempt Status Findings Remanded

The employer partially prevailed on its challenge to the district court’s findings that certain employees were nonexempt, despite the DOL’s arguments to the contrary. The court found the district court had applied outdated standards that exemptions are to be “construed narrowly against the employer” and that an employer must “demonstrate that an employee ‘plainly and unmistakably’ falls within an exemption.” The Third Circuit explained that, in accordance with rulings by the Supreme Court of the United States, FLSA exemptions “must be given a fair reading,” not construed narrowly against the employer, and that “an employer bears the burden of proving an employee’s exempt status by a preponderance of the evidence, not plainly and unmistakably.” The appellate court remanded the issue to the district court to apply the correct standards.

Key Takeaways

This decision is a significant development for employers in the Third Circuit. The rejection of overtime gap-time claims narrows potential FLSA liability and eliminates a category of damages that the DOL has aggressively pursued. The decision also makes clear the burden of proof employers must meet to establish an employee’s exempt status is less burdensome than previously applied. The decision also underscores that courts may credit the testimony of a small number of employees to find systemic FLSA violations for a much larger class of employees. 

Ogletree Deakins’ Morristown office will continue to monitor developments and will provide updates on the Employment Law, Healthcare, and Wage and Hour blogs as additional information becomes available.

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Quick Hits

• A federal district court in New Jersey ruled that adult performers on an online streaming platform are independent contractors under the FLSA but qualify as employees under New Jersey’s stricter ABC test.
• The court found that the performers could not be classified as independent contractors under the ABC test because they operated within the operator’s usual course of business and not outside its places of business by providing services on the operator’s online digital platform.
• The court explained that under New Jersey’s ABC test, an enterprise’s place of business includes any location where core commercial services are being executed, including online digital platforms.
• This decision highlights how it may be more difficult for employers to classify workers as independent contractors under New Jersey’s ABC test than under FLSA and has implications for gig economy companies.

In the case, Tomasello v. ICF Technology Inc., a group of adult entertainers who livestream on the “Streamate” digital platform asserted collective and individual claims under the FLSA, the New Jersey Wage and Hour Law, and the New Jersey Wage Payment Law. They alleged the platform operator misclassified them as independent contractors, retained 65 percent of their online tips, and paid them less than minimum wage. The platform operator argued that the performers are independent contractors and thus not employees under the FLSA or New Jersey wage-and-hour laws.

The federal district court held that while the performers were independent contractors under the FLSA’s “economic reality test,” they did not meet New Jersey’s “ABC test.” Specifically, the court found that the operator could not show that the performers’ livestreamed performances on the operator’s digital platform were “outside of all places of [its] business” nor outside its “usual course of business.”

“Although Plaintiffs possess the operational hallmarks of independent contractors under federal law, this Court finds that they remain statutory employees under New Jersey’s unyielding ABC framework,” Judge Madeline Cox Arleo wrote in the court’s decision.

Notably, the decision comes just weeks after the New Jersey Department of Labor and Workforce Development (NJDOL) adopted final regulations on New Jersey’s ABC test, set to go into effect on October 1, 2026. The court noted these new regulations do not govern the claims in this case, but do not “disrupt” its analysis since the “statutory ABC test remains the mandatory framework.”

FLSA Economic Reality Test

The court examined the FLSA claims under the Third Circuit’s six-factor economic reality test, under which courts balance out the factors looking at the overall economic reality of the worker-putative employer relationship. The court explained that under the test, no single factor is dispositive, and courts should look at the totality of the circumstances.

According to the decision, the performers provided livestream content on the Streamate platform, offering some free and some paid content. The platform took a share of the revenue generated by the paid-for content. The performers were bound by “Performer Agreements” and certain rules and guidelines for streaming.

While the platform required employers to comply with some rules on content and production, performers were allowed to use their screen name across various platforms and were not restricted from performing on competitor websites. Performers could also set their own schedules and prices. Per the decision, performers also purchased their own equipment.

Under these facts, the court found that the “[p]erformers operate as independent economic entities in business for themselves.” In particular, the court noted that they set their own shooting locations and managed their own businesses, including their own digital marketing.

“This lack of economic dependence is fundamentally confirmed by the fact that Performers retain the absolute right to livestream concurrently on the Streamate website and alternative[ly], [the right to] stream on competing digital platform[s],” the court said.

New Jersey’s Three-Pronged ABC Test

While the court found the performers independent to be contractors under the FLSA, the court came to a different conclusion when analyzing the facts under New Jersey’s ABC test. The three-pronged test looks at whether: (A) the worker is free from control or direction; (B) a worker’s services are outside of the putative employer’s business or “outside of all the places of business of the enterprise,” and (C) the worker is engaged in an independently established trade, occupation, profession, or business.

The court recognized that the ABC test is a “conjunctive standard,” meaning that a putative employer must prove all three prongs, A, B, and C, to “secure independent contractor classification.” While the court found that the adult performers had sufficient control over their workers to satisfy Prong A, the court found the operator failed to satisfy Prong B, and thus the performers were not independent contractors. Since the operator failed Prong B in the conjunctive test, the court declined to analyze Prong C.

The court explained that “Prong B requires Defendants to show either that the service performed by the worker is entirely outside the usual course of the hiring entity’s business, or that such service is performed outside of all the places of business of the enterprise.” (Emphasis added).

The operator had argued that since the performers work in an entirely digital, gig-economy platform with performances actually being performed at the performers’ own locations, the performers were outside of the usual course of business and not in any of the operator’s physical places of business.

But the court explained that in a “digital platform economy, an online entity’s ‘usual course of business’ is defined not by the code running its servers, but by the specific consumer-facing services it holds out to the open marketplace.” In this case, the “operational reality of the Streamate platform demonstrates that Defendants’ entire business model is dependent on the continuous generation of web-based adult content Performers create.” While the platform operator argued it is a “technology company,” the facts indicate that it curates a market, monetizes, and profits from the performers’ livestreaming services and that the performers are “integral” to the business, the court said.

Further, the court explained that an entity’s “place of business” under Prong B “is not bounded by brick-and-mortar walls; it extends to any proprietary digital infrastructure that serves as the

primary commercial venue for the company’s operations.” In this case, the platform is not simply “a passive internet utility” but a “highly integrated, proprietary workplace where customers are aggregated, financial transactions are executed, and live content is distributed and policed,” the court said.  

“Because the digital platform functions as the indispensable commercial venue where the business operates, the services are not performed ‘outside of all places of business’ of the enterprise,” the court said. “[B]y logging into Streamate, Plaintiffs are effectively performing their services within the virtual footprint of the enterprise.”

Key Takeaways

The decision highlights differences in the analyses to assess independent contractor status between the Third Circuit’s “economic reality test” under the FLSA and New Jersey’s “more stringent” three-pronged “ABC test.” The decision demonstrates that courts can reach divergent conclusions when analyzing the same set of facts under the FLSA and under New Jersey’s wage and hour laws.  It also demonstrates how New Jersey’s ABC test, which requires employers to satisfy all three factors, makes it difficult for employers to classify workers as independent contractors.

Employers with workers in New Jersey classified as independent contractors may want to review the extent to which those workers may be considered employees under New Jersey law. In particular, the decision suggests that workers who only use a company’s online platform to generate content, and who are typically considered independent contractors under federal law, may be considered employees under the ABC test. This could have serious implications for technology platform companies or others that participate in the so-called gig economy.

Ogletree Deakins’ Morristown office will continue to monitor developments and will provide updates on the Class Action, Employment Law, New Jersey, Sports and Entertainment, Technology, and Wage and Hour blogs as additional information becomes available.

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Quick Hits

• The NJDOL released its final “ABC test” regulations, which are used to determine whether a worker is an employee or an independent contractor under various New Jersey laws.
• The final regulations, which become effective on October 1, 2026, purport merely to codify court and agency interpretations of the three ABC test prongs, but many in the business community believe the new regulations unfavorably expand existing law.
• While the NJDOL removed some of the more controversial provisions found in the proposed regulations, the final regulations will inevitably constrain many businesses’ efforts to classify workers as independent contractors.

The “ABC test” is used to determine whether a worker is an independent contractor or an employee under various New Jersey laws, including the New Jersey Wage and Hour Law, Wage Payment Law, and Unemployment Compensation Law. The NJDOL’s final rule largely mirrors the April 2025 proposed regulations, while moderating some of the proposed regulations’ more onerous provisions. Even with these adjustments, however, many New Jersey businesses will still be challenged to lawfully classify workers as independent contractors and insulate themselves from the risk of significant liability upon a misclassification finding by state regulators or employees’ lawyers.

ABC Test Framework

Several New Jersey laws rely on the ABC test to distinguish a covered employee from an excluded independent contractor, including the New Jersey Wage and Hour Law (which, among other things, requires overtime wages for nonexempt employees), the New Jersey Wage Payment Law (which, among other things, strictly limits deductions from employees’ wages), and the New Jersey Unemployment Compensation Law (which requires employers to withhold and remit to the state contributions for unemployment benefits). Under the ABC test, a worker is presumed to be an employee, unless the business can show:

• (A) it “does not exercise control or direction over the individual’s work in fact, and that it does not reserve the right to control or direct the individual’s work”;
• (B) the worker’s “services are outside of the putative employer’s usual course of business or that such services are performed outside of all the putative employer’s places of business”; and
• (C) the worker “is customarily engaged in an independently established trade, occupation, profession, or business.”

The final regulations, N.J.A.C. 12:11, purport to simply gather and combine court and agency interpretations of the ABC test’s historically exacting requirements. But many in the business community believe the new regulations expand existing law and make it even more difficult for employers in New Jersey to classify workers as independent contractors. Some of the more notable provisions of the final regulations are discussed below.

Prong A – Identification of ‘Control’ Factors

Control “Solely” for Compliance Purposes Not Indicative of an Employment Relationship

Prong A of the ABC test focuses on the degree of control the business exercises over the individual’s work. The proposed regulations provided that any control or direction that the putative employer exercised “in order to be in compliance with a law or rule [would] be considered; that is, it [would] be given equal weight to what would be given any other control or direction that the putative employer … exercised.” In response to comments critical of this language, which appeared to penalize a business for complying with the law, the final regulations were revised to provide that “[a]ctions taken by a putative employer solely to comply with federal, state, or local, laws or regulations shall not, standing alone, be considered evidence of control or direction under Prong A.” (Emphasis added.)

While this language sounds helpful, any benefit may be more apparent than real. The agency’s comments to the final regulations even state that this change is “not inconsistent with what was originally proposed.” Stated differently, control that is mandated by legal requirements is still a factor that, in conjunction with other indicia of control, may destroy satisfaction of Prong A. Thus, this “tweak” by the NJDOL is no game-changer favoring the business community.

Removal of Employer-Owned Software Use Sub-Factor

The proposed regulations included a list of nine factors (and many subfactors) that the NJDOL would consider when evaluating whether a worker was free from control or direction. The final regulations removed one sub-factor (i.e., “whether the putative employer requires the individual to use a digital application or software in the course of performing the services that is primarily or unilaterally controlled by the putative employer”) but retained all the others. This change benefits certain gig economy businesses, but it does not provide a safe harbor from all risk under Prong A.

Prong B – ‘Outside of All the Places of Business’ or ‘Outside the Usual Course of the Business’

A company can establish a worker’s independent contractor status under Prong B in two separate ways, either by showing that the worker’s services are outside of the company’s “usual course of business” or that the services performed are outside of all the company’s “places of business.” The final regulations state that “the phrase ‘places of business’ refers to locations where the enterprise has a physical plant or conducts an integral part of its business.” (Emphasis added.)

To address commenters’ concerns about confusion over what may be considered a company’s “places of business,” the final regulations removed examples of locations where a putative employer conducts “an integral part of its business.” Commenters also expressed concern that the examples compelled a certain result to the Prong B analysis, contrary to what is supposed to be a fact-sensitive inquiry.

However, the final regulations retained examples of services that would “typically be outside of the putative employer’s usual course of business” and services that “typically” would not. The use of the word “typically” reinforces the point that the resolution of the issue will depend on the particular facts at issue. (Emphasis added.)

The final rule also added language making clear that a remote worker’s “personal residence where they perform remote work … shall not be considered among the putative employer’s places of business.”

“This is especially true where the putative employer has a physical office, plant, or other location from which the individual also works and from which the putative employer conducts an integral part of their business,” the final regulations state.

Prong C – Independent Business

The final regulations largely mirror the proposed regulations for Prong C—that the “individual is customarily engaged in an independently established trade…”—with one exception. The final regulations omit the following “exclusivity” language that appeared in the proposed regulations:

[W]hat is relevant is not whether an individual was free to work for others, but rather, whether the individual did perform services for, and receive remuneration for the performance of such services from others during the relevant period. (Emphasis added.)

Although this omission might appear to helpfully indicate that mere freedom to work for others is relevant, not actual work and income from others is required to satisfy Prong C, the NJDOL’s comments accompanying the final regulations dispel such optimism. According to the NJDOL, the deleted language is “superfluous” because other language in the final regulations makes clear that “at all times, including during the time the individual is performing work for and receiving remuneration from the putative employer, the individual is not dependent on that work and that remuneration for the survival of the individual’s independently established enterprise.”

Statutory Exemptions Preserved

The final regulations add a new subsection to preserve specific statutory exemptions from coverage under specific statutes. The new subsection states that nothing in the regulations “should be construed to alter or eliminate statutory exemptions from coverage,” such as covered “employment” under the Unemployment Compensation Law and Temporary Disability Benefits Law or overtime exemptions under the Wage and Hour Law. The NJDOL explained that while nothing in the rule was meant to override these existing exemptions, the added language should “allay the commenters’ concerns” that the rule could be read to do so.

More Recent Cases Interpreting the ABC Test

Since the NJDOL released the final regulations, courts in New Jersey have issued noteworthy decisions interpreting New Jersey’s ABC test, at least as under principles in place prior to the final regulations. The U.S. District Court for the District of New Jersey issued a decision concluding that web performers, or streamers, on a streaming platform were not independent contractors under the ABC test, even if they were properly classified as such under the Fair Labor Standards Act (FLSA). Notably, in interpreting Prong B, the court found that the streamers’ performances on the digital platform were not outside the putative employer’s usual course of business or places of business.

Further, the Superior Court of New Jersey, Appellate Division, released an unpublished decision that remanded a case to the NJDOL for further factfinding under Prong C, noting that the NJDOL did not satisfactorily address the putative employer’s degree of control over customer pricing, which the court held to be relevant to whether the workers operated an independent business.

Key Takeaways

The final regulations codify existing law in a number of ways and reinforce the challenges of seeking to classify workers as independent contractors. The hurdle to “pass the test” remains high.

The NJDOL will continue to evaluate how workers are managed and function to determine whether they are independent contractors, as opposed to how the employer classifies its workers in employment, tax, or other legal documents.

Employers may want to begin reviewing their policies and independent contractor relationships to ensure compliance with the ABC test.

Ogletree Deakins’ Morristown office will continue to monitor developments and will provide updates on the New Jersey and Wage and Hour blogs as additional information becomes available.

In addition, the Ogletree Deakins Client Portal provides subscribers with timely updates on state independent contractor laws, including in New Jersey. Premium-level subscribers have access to comprehensive law summaries; Snapshots and Updates are complimentary for all registered client users. For more information on the Client Portal or a Client Portal subscription, please email clientportal@ogletree.com.

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Quick Hits

• In Khatabi v. Car Auto Holdings LLC, the Eleventh Circuit recently held that an auto dealership failed to plead the statutory damages cap under Title VII of the Civil Rights Act of 1964, so it waived its right to the cap.
• The Eleventh Circuit reversed a federal district court’s ruling that applied the statutory damages cap to the sexual harassment claim.
• Sexual harassment claims cannot be sent to arbitration, so they are more likely to result in a jury trial.

Under Title VII, the employee-headcount damages cap is $50,000 for employers with 15 to 100 employees; $100,000 for employers with 101 to 200 employees; $200,000 for employers with 201 to 500 employees; and $300,000 for employers with more than 500 employees.

The Eleventh Circuit held that the statutory damages cap is a waivable affirmative defense in a Title VII case. However, in this case, Car Auto Holdings, a car dealership in Miami, failed to preserve the application of the cap in its pleadings—or even raise it at any time before the trial—and was therefore not entitled to it.

Under the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021 (EFFA), employers cannot compel arbitration of a sexual assault or sexual harassment claim. In the Eleventh Circuit (a jurisdiction composed of federal courts in Alabama, Florida, and Georgia), if a Title VII case goes to a trial before a jury, the potential punitive damages in a jury verdict can be as much as $300,000, unless the applicable employee-headcount cap on damages is applied.

Background and Court Rulings

The plaintiff worked at Car Auto Holdings, a dealership with about twenty employees, for about four months. She claimed her supervisor and colleagues frequently sexually harassed her, including calling her “hot for an 18-year-old,” suggesting she should hand out business cards in a bikini, and asking her to “use her good looks” while accompanying male customers on test drives to persuade them to buy cars. She claimed her supervisor and other managers touched her backside, massaged her shoulders, and grabbed and kissed her in the parking lot after work. The plaintiff resigned and sued the dealership for unpaid minimum wages under the Fair Labor Standards Act and sex discrimination under Title VII and the Florida Civil Rights Act (FCRA).

In an unallocated verdict under Title VII and the FCRA, a jury awarded the plaintiff $81,028 in compensatory damages and $750,000 in punitive damages for her sex discrimination claims, for a total of $831,028. The U.S. District Court for the Southern District of Florida, however, ruled that the applicable damages cap should apply and that the plaintiff was entitled to recover maximum punitive damages ($100,000) under the FCRA alone (“the larger of the two caps”), thereby reducing the sex-discrimination damages from $831,028 to $181,028. The plaintiff appealed the decision and judgment.

Reviewing the record on appeal, the Eleventh Circuit Court of Appeals held that the statutory damages cap had never been raised as an affirmative defense (and thus was never preserved) and that the district court had miscalculated the damages award. Because the benefit of the Title VII specific headcount damages cap had not been preserved, and because the jury had not aligned the damages with each statute, the Eleventh Circuit held that the maximum caps on damages available under each statute should apply: $300,000 under Title VII (i.e., Title VII’s uppermost limit) and $100,000 under the FCRA. Because the FCRA doesn’t limit compensatory damages (but does limit punitive damages), the Eleventh Circuit calculated that the correct damages amount should have been $481,028 ($81,028 in compensatory damages + $100,000 in FCRA damages + $300,000 in Title VII damages).

Next Steps

To be safe and effectively utilize the damage caps, employers must plead a statutory damages cap as an affirmative defense in an answer to a Title VII lawsuit and include it in pretrial stipulations. Courts may deem the applicable statutory damages cap waived if an employer waits until after a jury verdict to raise it. Dual-filed claims, such as this one under Title VII and the FCRA, may result in stacked maximum damage caps if a jury awards unallocated damages for violations of both statutes.

Employers may wish to train managers and employees on state and federal laws prohibiting sexual harassment and sex discrimination in the workplace, investigate internal reports of harassment or discrimination, and take the appropriate steps to prevent any harassment or discrimination from continuing.

Ogletree Deakins will continue to monitor developments and will provide updates on the Employment Law and State Developments blogs as additional information becomes available.

William E. Grob is a shareholder in Ogletree Deakins’ Tampa office.

Gretchen M. Lehman is a shareholder in Ogletree Deakins’ Tampa office.

James M. Paul is a shareholder in Ogletree Deakins’ St. Louis office and Tampa office.

This article was co-authored by Leah J. Shepherd, who is a writer in Ogletree Deakins’ Washington, D.C., office.

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