Quick Hits

• On September 17, 2026, eight states (California, Colorado, Illinois, Maryland, Massachusetts, New Jersey, New York, and Wisconsin) prevailed on summary judgment in their lawsuit challenging the Education Department’s February 5, 2025, internal directive mandating the termination of federal education grants involving DEI-related programming. The court vacated the directive in its entirety and declared it unlawful. State of California et al. v. U.S. Dep’t of Education et al., No. 25-CV-10548-AK (D. Mass. Sep. 17, 2026).
• The court found the directive arbitrary and capricious on four grounds and contrary to three independent sources of law, including the governing grant statutes, the General Education Provisions Act’s (GEPA) notice-and-comment requirement, and the Uniform Guidance’s limits on post-award terminations.
• The ruling joins a growing line of federal court decisions blocking anti-DEI funding actions and reinforces the compliance uncertainty facing employers that hold federal grants or contracts.

Background

On January 21, 2025, President Trump issued Executive Order 14173, directing federal agencies to remove references to DEI from grant procedures and to terminate DEI-related mandates. A week later, Executive Order 14190 directed the secretaries of education, defense, and health and human services to develop a plan for eliminating federal funding tied to “discriminatory equity ideology” in K–12 schools.

On February 5, 2025, Acting Secretary of Education Denise Carter issued an internal directive titled “Eliminating Discrimination and Fraud in Department Grant Awards,” instructing all Education Department personnel to review new, pending, and issued grants and to terminate those deemed inconsistent with the administration’s priorities. The directive identified DEI as programming that could constitute discriminatory practices, but did not define “DEI,” did not provide examples of prohibited activities, and was not subject to notice-and-comment rulemaking.

Seven Education Department personnel conducted the reviews over roughly one week. Within two weeks, the Education Department terminated 104 of 109 TQP and SEED grants, more than $600 million, while flagging topics such as cultural responsiveness, anti-racism, social-emotional learning, systemic privilege, and racial justice. As of June 2, 2025, none of the grantees who filed objections had received a response.

The eight plaintiff states, California, Massachusetts, New Jersey, Colorado, Illinois, Maryland, New York, and Wisconsin, collectively held more than forty active TQP and SEED grants totaling over $250 million, funding teacher recruitment, training, and retention in high-need and underserved school districts. The grants were slated to flow to universities, school districts, and nonprofits.

The Court’s Reasoning

The court found the directive unlawful on two independent grounds under the Administrative Procedure Act (APA) and declined to reach the states’ constitutional claims.

First, the directive was arbitrary and capricious. The court identified four defects:

• The directive failed to define “DEI” or explain what it prohibited. The Education Department terminated grants involving anti-racism, social-emotional learning, and “Family and Community in the Classroom,” and defense counsel acknowledged at oral argument that the directive reached practices that do not violate civil rights law, such as affirmative action.
• The directive reversed the Education Department’s longstanding promotion of DEI-related programming through competitive-preference priorities published in the Federal Register, without acknowledging the change or engaging with the evidence that supported the prior approach.
• The Education Department did not weigh the reliance interests of states and institutions that had built infrastructure, hired personnel, and developed programs in reliance on multi-year grants and published priorities.
• The Education Department did not consider the obvious alternative of providing grantees with notice and an opportunity to cure, even though its own regulations and Title VI and Title IX contemplate less drastic measures before funding is discontinued.

Second, the directive was contrary to law on three grounds:

• The TQP, SEED, and GEPA statutes impose substantive requirements on grantees to recruit diverse educators, serve underserved populations, and ensure equitable access. The directive treated those very objectives as grounds for termination.
• The Education Department bypassed GEPA’s notice-and-comment requirement for rules with binding legal effect on education funding.
• Adopting the reasoning of New Jersey v. OMB, the court held that the Uniform Guidance does not authorize terminations based on agency priorities adopted after an award was made.

Scope of Relief

The court vacated the directive in its entirety and declared it unlawful. Rejecting the Education Department’s argument that relief should be limited to the plaintiff states, the court held that APA vacatur operates on the policy itself and is not party-restricted. The court denied a permanent injunction as duplicative, noting that preclusion principles give the states a basis to challenge any replacement directive.

Why This Matters for Employers

The case involves education grants, but three aspects of the court’s reasoning carry over to employers in any federal funding relationship.

• Vagueness. The court’s finding that the Education Department never defined “DEI” echoes a problem employers have faced since the executive orders were issued: the administration’s policies have not drawn a clear line between lawful and unlawful DEI-related programs, hiring practices, and workforce policies. Multiple federal decisions, including the U.S. Department of Agriculture (USDA) ruling and rulings in other Education Department challenges, have now found that vagueness fatal under the APA.
• Reliance interests. The court credited the concrete investments institutions made in recruiting pipelines, training programs, mentoring, and professional development based on existing priorities and multi-year grants. That reasoning applies to any employer-grantee that has built workforce programs around federal funding.
• Post-award termination limits. The Uniform Guidance holding applies government-wide. Any federal agency that has relied on 2 C.F.R. § 200.340(a)(4) to terminate grants based on priorities adopted after the award faces the same constraint, including agencies that fund workforce development, public health, and social services programs run by employers. The GEPA notice-and-comment holding is education-specific, but the principle that agencies cannot use internal directives to effectively repeal published rules with binding effect is consistent with what courts have found in the USDA case and federal contractor cases.

However, the Uniform Guidance holding may have a short shelf life. On May 29, 2026, the Office of Management and Budget (OMB) published a proposed rule that would rewrite § 200.340 to expressly authorize “discretionary termination” based on program goals, agency priorities, or the national interest” as they exist at the time of the termination.” OMB had targeted an October 1, 2026, effective date, but Congress included a provision in the Continuing Resolution (Section 157) that delays implementation of the proposed rule through December 11, 2026. The proposed rule is also expected to face its own legal challenges.

The court’s ruling does not restore individual grant awards already terminated under the directive. Those claims must be filed with the Court of Federal Claims. The Education Department’s separate June 2025 Guidance governing continuation awards remains in effect under a different regulatory authority (34 C.F.R. § 75.253). The Education Department could appeal.

This ruling is part of a pattern. Courts have blocked anti-DEI funding actions at the Education Department, the USDA, and in the federal contractor space. But the administration is working to change the rules that produced those losses, and the next round of litigation will test whether those changes hold up.

Ogletree Deakins’ Diversity, Equity, and Inclusion Compliance Practice Group, Government Contracting and Compliance Practice Group, Higher Education 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, Government Contracting and Compliance, Higher Education, 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

• The executive order directs the secretaries of state, labor, and homeland security to consider whether an employer conducted layoffs within the prior year or plans future layoffs affecting similarly situated U.S. workers when adjudicating H-1B-related filings.
• Employers could see additional scrutiny at multiple points in the H-1B process, including DOL Labor Condition Application (LCA) review, U.S. Citizenship and Immigration Services (USCIS) petition adjudication, consular visa issuance, and admission at the border.
• Additional agency action may be needed to determine how the directive will be applied in practice.

Background

The H-1B program permits U.S. employers to temporarily employ foreign nationals in specialty occupations. An employer generally must obtain a certified labor condition application (LCA) from the U.S. Department of Labor before filing Form I-129, Petition for a Nonimmigrant Worker, with U.S. Citizenship and Immigration Services (USCIS).

The State Department may become involved in visa processing when the worker is abroad, and U.S. Customs and Border Protection may review the worker’s admissibility at the port of entry. Existing LCA attestations address wages, working conditions, strikes or lockouts, notice, and related employer obligations.

Certain H-1B-dependent employers and willful violators also face additional recruitment and nondisplacement obligations for covered nonexempt H-1B workers. Those nondisplacement rules generally focus on certain layoffs during the ninety-day period before and after the filing of an H-1B petition supported by the LCA.

Key Provisions of the Executive Order

The executive order, “Enhancing Program Integrity and Interagency Coordination in the Administration of the H-1B Nonimmigrant Visa Program,” does not, on its face, amend the Immigration and Nationality Act (INA) or the H-1B regulations. Instead, it directs the agencies to incorporate layoff and labor-market information into H-1B administration to the extent consistent with existing law and authorizes implementing rules, policies, operational guidance, or other guidance.

First, the secretaries of state, labor, and homeland security must consider whether a sponsoring employer directly or indirectly engaged in layoffs during the prior year or plans future layoffs that negatively affect similarly situated U.S. workers. The directive applies when the agencies adjudicate H-1B-related LCAs, petitions, visas, and entries.

Second, DOL, DHS, and the State Department must consult with the U.S. Department of Commerce, the U.S. Department of Education, and the U.S. Small Business Administration to obtain wage, employment, academic, industrial, and other economic information relevant to the administration of the H-1B program.

Third, within thirty days, the DOL’s Wage and Hour Division must begin reviewing data related to previously submitted LCAs to determine whether additional enforcement action is warranted under existing H-1B provisions.

Impact on Employers

The executive order may lead to closer agency review of H-1B filings when a sponsoring employer has recently conducted, or is planning, a reduction in force involving positions similar to sponsored H-1B roles. Employers may need to address the relationship between workforce reductions and sponsored positions across the relevant filing record.

The directive is broader than the existing statutory nondisplacement rules because it reaches layoffs during the prior year and planned future layoffs, rather than focusing only on the existing ninety-day window. It also may apply to all H-1B employers, not only H-1B-dependent employers and willful violators. Employers could face scrutiny at multiple points, including DOL LCA review, USCIS petition adjudication, consular processing, and admission at the border.

For H-1B-dependent employers and willful violators, the executive order may renew attention to existing recruitment and nondisplacement requirements, including inquiries involving secondary employers in third-party placements.

The phrase “similarly situated” may draw on existing regulatory concepts addressing “essentially equivalent” jobs, which compare responsibilities, required qualifications, and area of employment. Consulting, staffing, outsourcing, and other third-party placement models may face particular scrutiny because those arrangements can raise displacement questions at client worksites.

Next Steps

The executive order leaves significant implementation details to forthcoming agency guidance, which will determine how DOL, DHS, and the State Department incorporate layoff-related information into H-1B adjudications. Information on how the directive will apply in practice is not yet known.

Ogletree Deakins’ Immigration Practice Group will continue to monitor developments and will provide updates on the Immigration and Reductions in Force blogs as additional information becomes available.

For additional insight into the critical immigration issues facing employers today, please join our Virtual Immigration Insights Symposium on Wednesday, October 7, 2026, from noon to 2:30 p.m. ET. Register here.

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

• The Second Circuit amended its July 2026 decision, clarifying that the decision was not meant to establish that a heightened motive requirement exists for failure-to-accommodate cases.
• The court clarified that employees need not prove discriminatory animus against religion to substantiate their claims, but they must show that the denial was motivated by a desire to avoid the accommodation.

The case, Bergin v. New York State Unified Court System, involved an officer of the New York Unified Court System (UCS) who had requested a religious exemption from UCS’s COVID-19 vaccination requirement. UCS denied the request after the employee initially failed to answer supplemental questions and refused to reconsider. The employee was later placed on administrative leave and then discharged.

In its July 15, 2026, decision, the Second Circuit found that the employee failed to bring a prima facie case for failure to accommodate under Title VII of the Civil Rights Act of 1964 and remanded the case back to the district court for reconsideration. The court held that to state a prima facie case, an employee must allege: (1) the need for an accommodation of a religious practice, (2) “the employer’s desire to avoid” the accommodation “was a motivating factor,” and (3) “an adverse employment decision.”

The Second Circuit’s amended opinion adds a footnote clarifying that it does “not suggest that a new, heightened discriminatory motive requirement exists in failure-to-accommodate cases.”

“That is to say, an employee asserting a failure-to-accommodate claim need not show that an employer’s denial of an accommodation was motivated by discriminatory animus against religion,” the Second Circuit stated in the footnote. (Emphasis in original)

The initial ruling relied on the 2015 Supreme Court of the United States decision in EEOC v. Abercrombie & Fitch Stores, Inc. That case held that an employee need not inform an employer of a need for a religious accommodation to assert a Title VII failure-to-accommodate claim, but must show that the employer was motivated by the need for a religious exemption when making an adverse employment decision. The Second Circuit found that Abercrombie overturned its prior rule requiring employees to inform their employer of their need for an accommodation and clarified that what a plaintiff must plead and, ultimately prove, is “that the employer was motivated in part by the desire to avoid offering a religious accommodation.”

“But, consistent with Abercrombie, the employee does have to show that the denial was ‘because’ of the employee’s religion as opposed to, say, the employee’s failure to timely provide sufficient information,” the new footnote stated.

The amended decision also added another footnote clarifying that, in this case, the employee’s discharge alone “constitutes a cognizable adverse employment action.” The court thus “did not need to and did not decide whether the failure to accommodate itself constitutes an adverse employment action.”

Key Takeaways

The Second Circuit’s amendments to its initial opinion are significant. The Second Circuit clarified that it did not adopt a “heightened” motive requirement that would require employees to allege “animus” against a religious practice. Still, the ruling provides employers with authority to defend against claims for denial of a requested religious accommodation. It makes clear that when an employee fails to establish a prima facie case under Abercrombie, their claims could be dismissed prior to an employer having to establish an undue hardship.

Ogletree Deakins’ Leaves of Absence/Reasonable Accommodation Practice Group will continue to monitor developments and will post updates on the Connecticut, COVID-19/Coronavirus, Employment Law, Leaves of Absence, New York, State Developments, and Vermont blogs as additional information becomes available.

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Congress Returns, House Leaves, Midterm Elections Loom. Members of the U.S. Senate and U.S. House of Representatives returned to Washington, D.C., this week after staggered August breaks (the House returned briefly two weeks ago) and convened their respective chambers contemporaneously for the first time since mid-July 2026. The return was short-lived. In the House, Speaker Mike Johnson quickly canceled any remaining votes for the week—as well as for the next two weeks in which the House was scheduled to be in session—and the House adjourned until after Election Day (November 3, 2026). The Senate is currently scheduled to remain in Washington, D.C., for the final two weeks of September.

Federal Court Pauses Effective Date of ‘Duration of Status’ Rule. On September 14, 2026, the U.S. District Court for the District of Massachusetts issued a ruling staying the effective date of the U.S. Department of Homeland Security’s (DHS) Immigration and Customs Enforcement (ICE) rule, “Establishing a Fixed Time Period of Admission and an Extension of Stay Procedure for Nonimmigrant Academic Students, Exchange Visitors, and Representatives of Foreign Information Media.” The rule—slated to have taken effect on September 15, 2026—establishes a strict “period of stay” requirement that limits nonimmigrant students and exchange visitors to four-year stays. (The prior “duration of status” framework allowed such individuals to stay in the United States for the course of their studies or authorized programs.)

The court found that the rule was arbitrary and capricious under the Administrative Procedure Act, reasoning that ICE had not (1) conducted a reasoned cost/benefit analysis; (2) meaningfully considered alternatives; (3) responded to significant public comments; or (4) demonstrated a rational connection between the final rule and its purported objectives.

According to the court, “[I]n support of its own position, [ICE] offered almost entirely conclusory statements, non sequiturs, and statements of ‘belief’ without supporting reasoning.” Regarding relief, the court noted that vacatur of the rule might “ultimately prove to be appropriate” but ultimately chose “the more cautious approach of postponing the effective date of the Final Rule.” Further, to prevent “chaos and confusion that a party-specific order would inevitably generate,” the court held that its injunction applied nationwide. At least for now, the rule is not in effect, and the “duration of status” framework remains in place. Ashley K. Kerr has additional details.

Immigration Regulatory Proposals Advance. This week, two new rules impacting employment-based immigration took significant steps forward in the rulemaking process:

• The Office of Information and Regulatory Affairs (OIRA) completed its review of DHS/ICE’s proposal to implement a fee component for foreign national students’ participation in the Optional Practical Training program. Many expect the fee to be approximately $100,000, consistent with the administration’s efforts to attach this amount to H-1B visa petitions. Now that OIRA has completed its review, DHS/ICE is expected to publish the proposal imminently.

• A bit further behind in the regulatory process is the U.S. Department of Labor’s proposal to make changes to the permanent labor certification process (PERM) program, which was just sent to OIRA for review this week. According to the abstract in the most recent Regulatory Agenda, “the Department will seek to modernize the standards and procedures by which the Department receives and reviews employers’ applications for permanent labor certification by improving the minimum standards for recruiting qualified U.S. workers, strengthening safeguards for U.S. workers impacted by layoffs, and enhancing employer compliance with program requirements related to non-discriminatory recruitment and hiring practices.” The OIRA review process can take weeks, and once it is complete, the DOL will release the proposal for public comment.

Bill Would Create Premium Processing for PERM Applications. Speaking of PERM, Representatives Glenn Grothman (R-WI) and Lou Correa (D-CA) have introduced H.R. 10051, the “PERM Backlog Reduction Act of 2026.” The bill would create an optional premium processing program to provide for completion of the DOL’s Permanent Employment Certification Form—which is required for permanent employment-based immigration petitions—within thirty days, for a fee of $1,200. The process is similar to premium processing by U.S. Citizenship and Immigration Services (USCIS). The bill is unlikely to move in the current Congress, but it could be worth watching in 2027. While the administration generally hasn’t been amenable to policies that ease immigration, giving the DOL the authority to collect fees could be enticing and may sway Republicans.

Eschbach Tapped for EEOC GC Role. President Trump has nominated Catherine Eschbach to serve as general counsel (GC) of the U.S. Equal Employment Opportunity Commission. Eschbach currently serves as the Commission’s principal deputy general counsel, a position she has held since September 2025. Prior to her time at the EEOC, Eschbach served as director of the Office of Federal Contract Compliance Programs during the early stages of President Trump’s second term. If confirmed, Eschbach is likely to further the administration’s enforcement priorities with respect to alleged DEI-related race and sex discrimination, anti-American national origin discrimination, and religious discrimination, as well as the enforcement of single-sex spaces in the workplace.

Vice President Spiro Agnew. Former U.S. vice president Spiro Agnew died thirty years ago yesterday, on September 17, 1996. Born and raised in Baltimore, Maryland, Agnew became an attorney specializing in labor law and rose through the local Republican political ranks to serve as Baltimore County executive from 1962 to 1966 and as Maryland governor from 1967 to 1969. Agnew resigned as governor when Richard M. Nixon tapped him to serve as his running mate and eventual vice president. (Ironically, in the 1968 presidential election, which Nixon and Agnew won, the ticket lost Maryland with its ten electoral votes.)

Nixon and Agnew were overwhelmingly reelected in November 1972, but Agnew’s time in office would be short-lived. That year, the U.S. Attorney’s Office for the District of Maryland opened an investigation into alleged kickback schemes involving Baltimore County politicians and local construction firms. The investigation revealed that Agnew had received kickbacks on public contracts awarded to a Maryland construction company and that the bribes persisted during his time as Baltimore County executive, Maryland governor, and even as U.S. vice president. On October 10, 1973, Agnew pled “no contest” to one count of tax evasion and resigned as vice president on the same day. Agnew was the second vice president to resign from office (there have been only two to have done so—John C. Calhoun resigned as President Andrew Jackson’s vice president in 1832 to serve as U.S. senator from South Carolina), and Agnew became the only former vice president with a criminal record.

Quick Hits

• Workplace drug tests show a growing use of marijuana and cocaine in recent years.
• Among all drugs, the rate of positive urine tests has remained roughly the same, more than 4 percent, for more than a decade.
• About 19 percent of workers tested positive for drug use based on hair samples in 2025.

The rate of positive marijuana tests was 4.4 percent in urine testing and 11.1 percent in oral fluid testing in 2025, according to Quest Diagnostics. Hair test positivity for marijuana jumped from 9.5 percent in 2021 to 15.1 percent in 2025.

Likewise, cocaine positivity in hair tests increased from 2.7 percent in 2021 to 4.0 percent in 2025. Hair test positivity for the illicit class of methamphetamine increased from 2.1 percent in 2021 to 2.5 percent in 2025. Conversely, the rate of positive fentanyl tests dropped from 0.55 percent in 2024 to 0.28 percent in 2025.

The rate of positive drug tests was higher in certain industries, such as healthcare (5.8 percent), retail (5.4 percent), and professional and technical services (5.3 percent), but lower in manufacturing (4.2 percent) and transportation and warehousing (4.2 percent), according to Quest Diagnostics.

Federal and State Laws

In April 2026, the U.S. Department of Justice (DOJ) issued an order that reclassified certain marijuana and marijuana-containing products to Schedule III controlled substances. However, it did not legalize marijuana at the federal level.

Meanwhile, forty states and Washington, D.C., have legalized medical marijuana, while twenty-four states and Washington, D.C., have legalized recreational marijuana use for adults. Many states regulate when and how employers may conduct drug tests. Some states have laws protecting employees’ off-duty marijuana use or any off-duty conduct that is legal in the state. The wide variation in state laws may make compliance difficult for multistate employers.

Key Takeaways

These trends in drug test results may reflect a number of societal changes, including wider legalization of cannabis use, a notable decrease in younger adults drinking alcohol, and fewer employers conducting drug testing in certain industries in recent years.

None of the federal or state laws require employers to allow drug use or impairment while at work or during work hours.

With the upward trend in marijuana use, employers may see an uptick in the number of employees requesting a disability accommodation for off-duty medical marijuana use to treat a medical condition, such as chronic pain, nausea, muscle spasms, insomnia, anxiety, or post-traumatic stress disorder. Employers may wish to train managers on how to handle suspected drug use or impairment while on duty and how to respond to requests for disability accommodations.

Ogletree Deakins’ Drug Testing Practice Group will continue to monitor developments and will post updates on the Drug Testing, Healthcare, Multistate Compliance, Retail, and Trucking & Logistics blogs as additional information becomes available.

In addition, the Ogletree Deakins Client Portal provides subscribers with timely updates on drug/alcohol testing and marijuana testing under state and federal law. Premium-level subscribers have access to comprehensive law summaries and policies. 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.

Allison E. McDevitt is an associate in Ogletree Deakins’ Indianapolis office.

Michael S. O’Malley is an associate in Ogletree Deakins’ Stamford 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

• The IRS and the Treasury Department issued guidance that addresses the employer tax credit for paid family and medical leave, which Congress made permanent and expended under the Working Families Tax Cuts Act (WFTC), a part of the comprehensive omnibus budget reconciliation bill of 2025.
• The employer’s leave policy must permit at least two weeks of paid family and medical leave to qualify for the tax credit.
• The WFTC introduced a new option for calculating the employer’s tax credit by the amount of premiums paid for paid leave insurance.

Employers that provide paid family and medical leave to their employees may be eligible for a tax credit. Section 45S of the Internal Revenue Code provides a general business credit for employers that maintain a written paid leave policy that meets certain statutory requirements. Originally enacted as a temporary provision under the Tax Cuts and Jobs Act (TCJA) of 2017, the credit was made permanent and expanded by the budget reconciliation bill signed into law on July 4, 2025. With important changes taking effect in 2026, now is the time for employers to understand how this credit works, whether they qualify, and what steps to take to claim the credit.

Background

The U.S. Congress created the Section 45S credit as part of the TCJA in 2017 to incentivize employers to offer paid leave benefits to lower-compensated employees voluntarily. Originally temporary, the credit was extended twice before the WFTC made it permanent. There is no employer size threshold. Employers of all sizes may qualify, regardless of whether they are subject to the federal Family and Medical Leave Act (FMLA).

The WFTC introduced several significant changes effective for tax years beginning after December 31, 2025, including a new premium method for calculating the credit, expanded definitions of qualifying employees, revised aggregation rules, and updated treatment of state and local leave mandates.

Who Is an Eligible Employer?

An employer may qualify for the credit if it has a written policy in place that meets three core conditions:

• Minimum leave duration: At least two weeks of annual paid family and medical leave for full-time qualifying employees, with a proportionate amount for part-time employees.
• Minimum rate of payment: A rate of payment of at least 50 percent of the wages normally paid to the employee (excluding overtime and discretionary bonuses).
• Noninterference protections: The policy must include language ensuring the employer will not interfere with employees’ FMLA rights under the policy or retaliate against employees who exercise their FMLA rights.

Who Is a Qualifying Employee?

Beginning in 2026, a qualifying employee must meet three criteria: (1) employed by the employer for at least one year (or at least six months at the employer’s discretion), (2) earned pay that did not exceed $96,000 or 60 percent of the highly compensated employee threshold under federal law in the prior year, and (3) customarily worked at least twenty hours per week.

What Qualifies as Family and Medical Leave?

The credit applies only to leave taken for purposes described in the FMLA, such as the birth or adoption of a child; caring for a spouse, child, or parent with a serious health condition; the employee’s own serious health condition; qualifying military exigencies; or caring for a covered servicemember. The leave may be provided under the FMLA or the employer’s own time off policy. General-purpose vacation, personal, or undifferentiated sick leave does not qualify. Leave under a short-term disability program may qualify if it otherwise meets the requirements.

For tax years beginning after 2025, state or locally mandated leave now counts toward the employer’s eligibility (i.e., meeting the minimum leave requirements). However, it remains excluded from the credit calculation itself. For example, if a state mandates two weeks of paid leave, and the employer provides four weeks total, only the nonmandated two weeks may be used to compute the credit amount.

How Is the Tax Credit Calculated?

• The Wage Method: The credit equals the applicable percentage of the wages paid to qualifying employees while on leave. The applicable percentage starts at 12.5 percent when the policy pays 50 percent of normal wages and increases by 0.25 percentage points for each percentage point above 50 percent, up to a maximum of 25 percent (when the employer pays 100 percent of the employee’s normal wages). For example, an employer paying 75 percent of normal wages has an applicable percentage of 18.75 percent. On $3,000 of leave wages, the credit would be $562.50.
• The Premium Method (new for 2026): The WFTC introduced an alternative calculation. Employers that maintain an insurance policy for paid leave may compute the credit based on the applicable percentage of premiums paid or incurred during the tax year, rather than on actual wages. Per Notice 2026-28, only premiums funding benefits that would qualify under the wage method are eligible. Employers may use both methods in the same year, but may not double-count the same leave.

Wages taken into account per employee cannot exceed the employee’s normal hourly wage rate multiplied by hours of leave taken, and no more than twelve weeks of leave per employee per year may be counted.

Section 280C(a) requires the employer to reduce its wage deduction by the credit amount. Employers may elect not to take the credit and instead preserve the full deduction. Wages used for the Section 45S credit cannot support other payroll-based tax credits.

Next Steps

The IRS and Treasury indicated that proposed regulations are forthcoming. Notice 2026-28 provides interim guidance that employers may rely on until new regulations are issued.

Employers may wish to adopt or update a written paid leave policy. Those without a qualifying policy, or with a policy that falls short of the statutory requirements, may want to draft or amend their policies before leave is taken.

Employers also may wish to evaluate which employees meet the tenure, compensation cap, and twenty-hour-per-week requirements. Consider whether electing the new six-month employment threshold captures additional eligible employees. It is important to carefully maintain records of leave taken, wages paid, and the applicable rate of payment per employee. The credit is claimed through IRS Form 8994.

Employers funding leave through insurance may want to assess whether computing the credit based on premiums, rather than wages paid, offers a simpler or more advantageous approach. In states with paid leave mandates, it is important to carefully distinguish mandatory leave benefits from voluntary leave benefits, as this affects both eligibility and the credit calculation.

Ogletree Deakins’ Employment Tax Practice Group will continue to monitor developments and will post updates on the Employee Benefits and Executive Compensation, Employment Tax,  Leaves of Absence, and Military Workforce blogs as additional information becomes available.

Michael K. Mahoney is a shareholder in Ogletree Deakins’ Morristown office.

Stephen Kenney is an associate in Ogletree Deakins’ Dallas 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

• The average UK employment tribunal claim now takes nearly sixty weeks from receipt to disposal, with some hearings listed for 2029.
• Explosion of AI useage is likely a key factor.
• Even though hearings may be delayed for a year or more, employers may want to gather and preserve key documents and other evidence up front.

The AI Effect

Many commentators in the United Kingdom cite the recent widespread use of artificial intelligence (AI) as a key reason for the escalation in claims. AI can give employees confidence to pursue claims believing that they effectively have a free lawyer, with an encyclopedic knowledge of employment law at their side. In reality AI-generated complaints and claims tend to provide false hope to employees due to AI’s natural bias towards the user, and the fact it has only been fed one side’s version of events, which may omit key facts favourable to the employer. We explore this further in our article, “In an AI World, Is It Time to Impose World Limits on Employee Complaints?’.

Government initiatives are being considered to increase judicial capacity through:

• increasing sitting day allocations;
• operating virtual, remote hearings;
• recruitment of new employment judges; and
• investing in case management.

The delays often mean disappointment for an employee who may go from feeling pleased with how an AI-generated lengthy complaint probing internal grievances and appeals has put the employer on the back foot, to then discovering the subsequent employment tribunal claim has been listed for 2029, effectively pressing the pause button on the dispute for a couple of years and taking the wind out of the employee’s sails. The increased delays are creating challenges for employers too in terms of resources and costs being diverted to lengthy case management.

Delays can also be challenging when preparing a case. Employers may want to gather and preserve key documents and other evidence up front even if it may be a year or more before they need to be disclosed. This includes identifying key employees who may give evidence for the employer and obtaining their draft statements whilst facts are fresh in the memory and mindful that the key employee may have left by the time of the hearing.

Ogletree Deakins’ Artificial Intelligence and Innovation Practice Group and London office will continue to monitor developments and will provide updates on the Artificial Intelligence and Innovation and United Kingdom blogs as additional information becomes available.

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Quick Hits

• On 8 September 2026, the Court of Appeal held that TUPE Regulation 4(2)(a) must be read in light of the EU Acquired Rights Directive, whose purpose is to protect and ensure the continuity of employee rights upon a change of employer.
• TUPE is legislation that exists to benefit employees. It does not enable third parties to pursue transferees (in this case, Active Young People Limited) for the transferors’ (in this case, Huntercombe (No. 12) Limited) pre-transfer liabilities.

In ABC v Huntercombe (No.12) Limited and Others, the Court of Appeal considered whether non-employee third parties who had claims against the transferor, Huntercombe (No. 12) Limited, could benefit from the principle of transferred liability so that they could claim against the transferee, Active Young People Limited.

It held that the transferor’s vicarious liability to a third party for the tortious acts of its employees does not transfer to the transferee under Regulation 4(2)(a) of the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE). The court dismissed an appeal by a former psychiatric patient (ABC) of Huntercombe Manor Hospital, who argued that the hospital’s vicarious liability for alleged abuse by its employees had transferred from Huntercombe to the transferee (Active Young People Limited), following a TUPE transfer of the hospital business in March 2021.

Background

ABC claimed that during a four-month stay at Huntercombe Manor Hospital between 2018and 2019, she was subjected to mental and verbal abuse by members of staff and was restrained on more than 200 occasions. Following a relevant transfer for the purposes of TUPE in March 2021, Huntercombe entered liquidation. ABC subsequently discovered that Huntercombe’s public liability insurance carried a £250,000-per-claim deductible, which in practice would exhaust most, if not all, of her claim for damages. Faced with Huntercombe’s insolvency and no realistic prospect of recovery from the insurer, ABC raised an argument, described by the Court of Appeal as “opportunistic,” that the liability had transferred to the transferee, Active Young People Limited (AYPL) under TUPE Regulation 4(2)(a).

Legal Framework

The TUPE 2006 Regulations stem from the EU Acquired Rights Directive (2001/23), whose preamble states that it is necessary to “provide for the protection of employees in the event of a change of employer, in particular to ensure that their rights are safeguarded.” Regulation 4(2)(a) states that upon a relevant transfer, “all the transferor’s rights, powers, duties and liabilities under or in connection with [a transferring contract of employment] shall be transferred … to the transferee.” The question in ABC v Huntercombe was whether that phrase extended to include an employer’s vicarious liability to a third party.

The Court’s Ruling

The High Court had earlier rejected ABC’s argument, holding that, for liability to transfer, the connection between the transferor’s liability and the contract of employment must be direct, in the sense of being a liability owed to an employee. Vicarious liability to a third party did not satisfy that test of “directness.” ABC was granted permission to appeal to the Court of Appeal. The Court of Appeal unanimously dismissed the appeal on the basis that only employee liabilities transfer to the transferee.

The ruling now carries practical significance. The Court of Appeal was mindful that more than fifty claims of a similar nature against the same parties will be considered at a case management conference this autumn and delivered its judgment with that timetable in view.

Key Takeaways

The purpose of TUPE is to safeguard employees’ rights in the event of a transfer; its purpose is not to transfer third-party claims to transferees. Irrespective of TUPE, the claims in the case all arose from pre-transfer events, so AYPL could not be held responsible.

ABC v Huntercombe (No.12) Limited and Others sets a timely precedent, as more than fifty claims of a similar nature against the same parties are to be considered at a case management conference this autumn.

Ogletree Deakins’ London office and Global Reorganizations Practice Group will continue to monitor developments and will provide updates on the Cross-Border and Global Reorganizations blogs as additional information becomes available.

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Quick Hits

• The Tenth Circuit is reviewing an antitrust class action that alleges the NCAA’s Five-Year Eligibility Rule imposes unreasonable restraints on 2022-enrolled college athletes in violation of Section 1 of the Sherman Antitrust Act.
• A federal district court found that the NCAA likely holds monopsony power, potentially suppressing competition for athlete services and harming overall compensation for athletes.
• The NCAA argues that the college athletes failed to meet their burden for a preliminary injunction and did not properly consider the Five-Year Rule’s procompetitive benefits.

The NCAA’s Five-Year Rule, adopted in June 2026, allows athletes to play five seasons within a student-athlete’s five-year period of full-time enrollment. As written, the rule does not grant five years of eligibility to athletes who enrolled in 2022.

A class of 2022 college athletes filed a challenge seeking an additional year of eligibility, alleging that the rule violates Section 1 of the Sherman Antitrust Act by imposing unreasonable restraints on college athletes who enrolled in 2022.

A federal district court issued a preliminary injunction, blocking enforcement of the rule. The district court found that the NCAA and its member universities likely exercised “monopsony” power, treating the NCAA and member universities as a single buyer of labor. The court also found that the rule, as applied to 2022 enrollees, likely suppresses competition for athletes’ services.

The NCAA appealed the case, and last month, the Tenth Circuit stayed the district court’s preliminary injunction. The athlete challengers have moved for expedited appellate briefing with the NCAA football and other fall sports seasons already in full swing.

The NCAA argued in an appellate brief that “the district court accepted an illogical market definition and stretched Plaintiffs’ limited evidence far beyond what it actually established. The district court then compounded its error by disregarding the NCAA’s legitimate procompetitive interests and ordering relief that does not protect those aims.”

The case is the latest in a flurry of antitrust challenges to NCAA eligibility rules and transfer restrictions. The NCAA is pushing the U.S. Congress to pass the Protect College Sports Act (S.4668) to regulate college sports; that bill is currently under consideration in the U.S. Senate.

Anticompetitive Effects on Athlete Compensation

The district court sided with the plaintiff class, who invoked antitrust liability under a “monopsony” theory, which in this case involves allegations of wage restrictions imposed by market-controlling buyers (i.e., the NCAA and member institutions) on labor supplied by many sellers (i.e., Division I athletes who enrolled in 2022).

The district court ruling treated the NCAA and its member universities as a single buyer, or a coordinated group of buyers, in a defined labor market for the services of Division I college athletes. Failure to extend five years of eligibility to this class of plaintiffs likely has anticompetitive effects on “overall wages,” the district court found. The district court held that Section 1 of the Sherman Act—which prohibits illegal restraints of trade—permits claims that challenge market abuse on the buyer side. The district court further noted that the Wisne plaintiffs’ Section 1 challenge is to the NCAA’s alleged anticompetitive monopsony.

Though a 2024 settlement agreement that was approved by the court in House v. NCAA allows schools to share revenue directly with college athletes (while capping revenue sharing by the schools themselves), the district court in Wisne recognized that college athletes may now earn unlimited compensation for use of their names, images, and likenesses (NIL) from other sources.

Thus, the district court reasoned that the NCAA should not be permitted to “categorically argue” that there will be no impact on overall wages if the 2022 athletes are barred from continuing to compete. In monopsony terms, artificially restricting the supply of experienced athletes could depress the total compensation available to the labor force as a whole.

NCAA’s Procompetitive Justifications

When the NCAA opposed the injunction at the district-court level, it argued that the Five-Year Rule, as written, has procompetitive benefits because it ensures that a class of Division I college athletes exits each year, thereby opening opportunities for high school graduates. The rule also purportedly preserves the uniqueness of Division I sports and protects the “reliance interests” of athletes who planned around roster spots opening up for the 2026 season.

However, the district court rejected that reasoning, emphasizing a principle central to monopsony analysis: “antitrust law does not endorse—or sustain—this understanding of markets or market output, i.e., that reducing laborers in a market is somehow procompetitive.” In other words, suppressing the available labor pool does not result in a competitive benefit, because it instead causes exactly the harm that antitrust law aims to prevent when buyers coordinate their conduct, the district court found.

Further, the district court criticized the NCAA’s attempt to characterize its reliance-interest argument as “equitable” in nature rather than as a true “procompetitive” rationale required under antitrust law. Relying on the Supreme Court of the United States’ decision in NCAA v. Alston, the district court stated that whether “a restraint has an equitable or social benefit for a class of individuals, such as incoming Division I student-athletes, bears little relevance to an antitrust inquiry” (emphasis in original). From a monopsony perspective, the district court suggested, the fact that some workers may benefit from restricted competition does not justify buyer-side coordination that harms the labor market overall.

The district court also found that even had the NCAA demonstrated legitimate procompetitive benefits, the plaintiffs would still prevail because they had “shown there are substantially less restrictive means for realizing any purported rationale.” This is because the NCAA’s own bylaws already provide for eligibility waivers, the district court noted, undermining any claim that the all-or-nothing approach was necessary.

Key Takeaways for Employers

The Tenth Circuit’s forthcoming decision could extend the line of post-Alston case law by rigorously applying antitrust scrutiny to any labor-market restraint imposed through collective buyer action—whether by a sports association or any other group of competing employers (including employers affiliated through some industry association or that may utilize certain shared vendors). The district court’s explicit use of monopsony analysis is significant, signaling that organizations acting collectively to set eligibility or participation rules for their workforce may face a similar framework traditionally applied to price-fixing among sellers of a product.

Significantly, the case highlights how labor-eligibility rules can be treated as commercial restraints even when framed as eligibility standards, credentialing requirements, or membership conditions. Organizations that set or rely on such rules may want to consider that arguments based on protecting incumbents or creating orderly turnover could be viewed skeptically under the antitrust laws.

The district court ruling suggested that reducing the labor pool is the harm that monopsony law addresses, not a justification for it. Further, when an organization provides exceptions or waivers to a hard rule, the district court’s ruling highlights how a court may view those same mechanisms as less restrictive alternatives that could undermine the claimed necessity of the restriction in the first place.

Ogletree Deakins’ Higher Education Practice Group and Unfair Competition and Trade Secrets Practice Group will continue to monitor developments and will provide updates on the Higher Education, Sports and Entertainment, and Unfair Competition and Trade Secrets blogs as additional information becomes available.

A version of this article was previously published by the American Bar Association Litigation Section: Corporate Counsel.

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Quick Hits

• The German government plans to introduce an additional category of self-employment under social security law.
• To qualify for New Self-Employment status, at least two of four legally defined criteria would have to be met, while the right to issue instructions and integration into the client’s operations would no longer be considered and an overall assessment would no longer apply.
• New Self-Employed individuals would be subject to mandatory pension insurance, with the client responsible for registration and contribution payments.

Background: Status Determination

Under current German social security case law, the classification of a working relationship as dependent employment or self-employment is based on an overall assessment of all circumstances of the individual case. Various criteria are considered, including the compensation model, the extent to which the individual uses his or her own infrastructure, liability arrangements, the right to issue instructions (Weisungsgebundenheit), and integration into the client’s work organization. In practice, the latter two criteria are typically decisive.

The determining factor is not the contractual arrangement but rather the actual performance of the working relationship. This frequently creates uncertainty in practice, particularly in long-term engagements. If dependent employment is determined retroactively, the client may face significant back payments of social security contributions and late payment surcharges.

Content of the Draft Bill

The German government intends to create greater legal certainty for all parties involved. The ministerial draft (Referentenentwurf) (as of March 26, 2026) proposes an additional form of self-employment (“New Self-Employment”) in Section 7 (5) of Book Four of the German Social Code (Sozialgesetzbuch Viertes Buch (SGB IV)). This new category would not replace the existing criteria for classification but would exist alongside them as a new form of self-employment.

To establish New Self-Employment status, at least two of the following four criteria (which would be codified by statute) would have to be met. The contractor would:

1. bear the risk of loss and have the opportunity for profit,
2. not work predominantly for only one client,
3. incur expenses typical of an entrepreneur, and
4. actively market his or her own services.

In addition, the parties would be required to submit a joint declaration, observe a six-month waiting period (in cases of prior employment with the client), and register the engagement after work begins. In exchange for this classification, New Self-Employed individuals would be required to make statutory pension insurance contributions.

The existing law on status classification would remain in effect alongside the new provisions. The draft bill also provides that employment law status determinations would not be affected by the reform.

Takeaways

The proposed New Self-Employment category is intended to provide legal certainty. Whether it will achieve this goal remains to be seen. While the error-prone overall assessment would no longer apply, legal uncertainty may persist because the new statutory classification criteria would also require interpretation.

As a result, companies engaging independent contractors may want to continue analyzing their contractual arrangements early and take appropriate measures to avoid potential employment law and social security law disputes.

Ogletree Deakins’ Berlin and Munich offices will continue to monitor developments regarding (Pseudo-)Self-Employment among freelancers and status determination and will post updates on the Cross-Border and Germany blogs as additional information becomes available.

Karl Melzer is an associate in Ogletree Deakins’ Berlin office and advises companies on status determination matters, with a particular focus on freelancers and new work.

Lela Salman, a law clerk in Ogletree Deakins’ Berlin office, contributed to this article.

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