On September 29, 2024, California Governor Gavin Newsom signed Senate Bill (SB) 729 into law, creating a significant shift in reproductive health policy for employers statewide by expanding fertility insurance coverage in California. Effective January 1, 2026, SB 729 mandates that fully insured, large group health plans (those with 101 or more covered employees) must provide coverage for the diagnosis and treatment of infertility, including in vitro fertilization (“IVF”). These changes reflect California’s efforts to expand access to fertility care and mirror policies in select other states—which we have previously discussed here.

Background

Previously, California’s Knox-Keene Health Care Service Plan Act did not mandate coverage for infertility or IVF. Insurers typically provided optional riders that employers could purchase, and IVF was frequently excluded from these options. Additionally, coverage was limited by the prior definition of infertility—which did not include LGBTQIA+ couples, single parents, and those with non-traditional paths to parenthood (e.g., surrogacy). Self-funded plans remained outside the scope of these requirements, governed only by federal ERISA law.

SB 729, authored by Senator Caroline Menjivar, was intended to fill these coverage gaps and expand access to fertility benefits for California workers. Advocates for SB 729 emphasized the need for inclusivity and for updating the definition of infertility. Opposition to SB 729 focused primarily on the costs and administrative burden placed on large employers and carriers, as well as concern about the complexity and ambiguity of coverage, particularly for nontraditional family structures.

Details of SB 729

Definition of Infertility

Under SB 729, the definition of infertility has been expanded to include persons who are unable to reproduce—either as individuals or with their partners—without medical intervention. The law also extends coverage to same-sex couples, single parents by choice, certain individuals who have been unable to conceive, and those who experience repeated miscarriages. Additionally, a licensed physician’s diagnosis based on medical, sexual, or reproductive history establishes eligibility for coverage.

Large Group Plans

For fully insured large group health plans covering 101 or more employees, SB 729 requires coverage for the diagnosis and treatment of infertility. Required benefits include up to three completed oocyte (egg) retrievals and unlimited embryo transfers, as well as fertility medications, diagnostic testing, ultrasounds, blood work, artificial insemination, IVF procedures, and medically indicated fertility preservation.

Cost sharing for infertility services must be applied in the same manner as for other covered medical benefits under the plan. While deductibles, copayments, and coinsurance may apply, they may not be more restrictive or applied differently to infertility care. Similarly, the law does not impose a blanket ban on benefit limits but requires parity—meaning infertility benefits may not be subject to limitations or exclusions that are more restrictive than those applicable to other medical services. All benefits must be provided without discrimination based on gender, marital or relationship status, sexual orientation, or similar characteristics.

Small Group Plans

For small group plans with 100 or fewer employees, SB 729 requires carriers to offer at least one plan option that provides comprehensive infertility benefits, though it does not mandate the inclusion of infertility coverage in every small group plan. If employers elect coverage under such a plan, the same standards for benefits and cost sharing apply as for large group policies.

Exceptions

SB 729 does not apply to self-funded or level-funded plans, which are governed by federal law. The mandate also exempts religious employers, specialized health plans, Medi-Cal, certain state contracts, and CalPERS contracts until July 1, 2027. Importantly, the mandate applies to any fully insured plan that covers California employees, regardless of whether the policy is issued in California or in another state.

Impact for Employers

Employers with fully insured large group plans should take steps to confirm that their insurance carriers are complying with SB 729. Employers may also consider educating their employees about eligibility and benefits. Companies that currently provide separate fertility programs should review their offerings to determine whether there is any overlap due to the new mandate. Although self-funded employers are not required to comply with SB 729, they may want to reassess their benefits plans in response to evolving market norms and employee expectations.

Direct Compensation and Legal Implications: Johnson in the Era of the House Settlement

The House settlement permits schools to distribute up to $20.5 million annually to athletes and expands their rights to name, image and likeness (NIL) compensation. With the settlement now a reality, schools are actively preparing to distribute significant settlement funds to their student-athletes. This unprecedented shift, from amateur participation to direct compensation, places increased pressure on institutions to reevaluate how student-athletes should be classified within their organizations.

Institutions affected by the House settlement should consider how the Johnson v. NCAA case reframes the criteria for when a student-athlete may be considered an employee. The Johnson decision moves away from the traditional amateurism defense and introduces the “economic realities” test, which requires schools to assess the nature of their relationship with each student-athlete based on compensation, control, and benefit conferred.

Economic Realities Test:

1. Whether athletes perform services for another party;
2. Whether those services are ‘necessarily and primarily’ for the benefit of the party;
3. Whether the other party controls or has the right to control the athletes; and
4. Whether athletes receive express or implied compensation or in-kind benefits.

How Schools Will Implement Direct Revenue Sharing

The Johnson test can be used as a practical model for deciding how to structure and distribute settlement funds. Schools may analyze whether to allocate funds based on sport revenue, participation level, or other factors that could impact the employment classification. These considerations are no longer theoretical, they are essential as schools determine their financial and legal exposure in dividing settlement funds among athletes.

Ultimately, Johnson places the onus back on colleges and universities, requiring them to proactively review whether their compensation practices, post-House settlement, risk shifting athletes into “employee” status under federal law.

The decision explores the distinction between “work” and “play.” Plaintiffs argue participation in NCAA sports is “work” due to institutional investment and the commercialization of college athletes. The test focuses on the service provided and who primarily benefits, not simply whether an activity is enjoyable or replicable at the professional level. University investment does not automatically convert “play” into “work.” What matters is whether NCAA-level sports constitute economic services for their institution, compared to club sports.

The Third Circuit is clear: the NCAA can no longer rely on “amateurism” as a legal shield. Going forward, it must develop arguments based on the actual economic relationship and realities surrounding student-athletes.

Federal Responses and Regulatory Developments

Amid legislative uncertainty, federal agencies are stepping in to address the legal status of college athletes. On July 24, 2025, the White House issued an executive order directing the Department of Labor, NLRB, and Department of Justice to clarify whether college athletes should be considered employees under federal law. Guidelines are being developed to preserve scholarships, support non-revenue sports, and regulate third-party compensation, aiming to standardize national practices and protect both institutional interests and athlete’s rights.

Agency positions have shifted with the administration. Under the Biden Administration, the NLRB’s general counsel indicated college athletes could qualify as employees, opening the door to unionization and greater labor protections. In contrast, the Trump Administration’s guidance directs agencies to reinforce amateurism and clarify that college athletes are not employees. Reflecting this approach, the current NLRB acting general counsel rescinded earlier memoranda, including those supporting employee status for athletes.

If the NLRB continues its recent pattern, its forthcoming guidance in response to the executive order will likely reinforce the position that college athletes are not employees. This would signal a continued shift away from previous efforts to extend employee status and labor protections to student-athletes. The administration also emphasizes that prioritizing education and amateur competition will maximize the benefits and opportunities student-athletes gain through athletic participation in higher education.

Congressional Responses: The SCORE Act and SAFE ACT

In addition to the forthcoming NLRB guidelines, Congress has also taken action. In response to the House settlement, Congress introduced competing bills addressing athlete employment status. The SCORE Act (Student Compensation and Opportunity Through Rights and Endorsements) sought to standardize college sports rules nationally, offering the NCAA limited antitrust immunity and preempting state NIL laws, while explicitly barring college athletes from employee classification and unionization. Critics argued this would restrict athlete labor and financial rights. The bill also specifically aimed to prohibit athletes from being classified as university employees and would grant immunity to the NCAA, the Commission, conferences, and schools from antitrust and state court lawsuits arising from their rules.

On December 2, 2025 the bill passed a procedural vote, 210-209, but the legislation drew bipartisan backlash as a final vote neared. The SCORE Act was withdrawn from consideration due to insufficient support, reflecting bipartisan concerns about its impact. Many members recognized that the legislation primarily benefited the NCAA and the Power Four conferences, while imposing additional restrictions on student-athletes. Critics noted that the bill failed to address the underlying instability in college athletics and instead would have placed further burdens on athletes.

The SAFE Act (Student Athlete Fairness and Enforcement) takes a different approach, emphasizing athlete protections and broad oversight. The Act proposes a comprehensive federal framework focused on athlete welfare, equitable competition, and long-term medical and educational protections. It addresses media rights, transfer and medical protections, agent regulation, and distribution of revenue, but also maintains a focus on sustaining non-revenue and Olympic sports. Among its provisions, if passed through Congress, the SAFE Act would: provide federal NIL rights, replacing patchwork state-by-state laws; establish health and safety standards for heat exertion, brain injury, asthma; provide five years of post-eligibility medical coverage for sports-related injuries; protect scholarships with a 10-year guarantee; provide NIL contracts that outline what athletes must do under the contract and how much they will be paid; require agents to cap their fees at 5% and to register with a state; and allow students to transfer twice without having to sit out for a year. This legislation is in response to the House introducing the SCORE Act.

Conclusion

As litigation, regulation, and evolving industry regulations converge, direct compensation structures, employee classification, and the potential for collective actions have become central legal concerns in collegiate athletics. Legal counsel and institutions must stay attuned to federal guidance and NLRB decisions to understand and address rapidly shifting risks and duties.

Historical Class Certification Standard

Both Rule 23 class actions and FLSA section 216(b) collective actions allow employees to bring suit on behalf of others who are “similarly situated.” Section 216(b) mandates employee-plaintiffs opt-in to the lawsuit, which requires courts to approve and oversee the circulation of class notice to potential plaintiffs. The same process applies to ADEA class actions. In Hoffman-La Roche, Inc. v. Sperling (1989), the U.S. Supreme Court authorized the sending of notice of a FLSA collective action to potential opt-in plaintiffs so long as that notice is neutral, timely and accurate. Following the Supreme Court’s holding in Hoffman-La Roche, most federal courts adopted a plaintiff-friendly, two-step analysis articulated in Lusardi v. Xerox Corp. Under the Lusardi approach, plaintiffs who demonstrate that employees are “similarly situated” based on a “modest factual showing” achieve conditional certification.

Conditional certification permits district courts to oversee the circulation of notice to potential class action members. Courts then consider final certification or decertification at a later point in the case. Practically, this lenient standard has increased class sizes and created pressure for employers to settle early, before incurring the time and expense associated with the seemingly perfunctory “conditional” certification process and, thereafter, the final, evidence-based class certification decision.

Seventh Circuit’s Approach

In August, the Seventh Circuit, in Richards v. Eli Lilly & Company, departed from the two-step Lusardi analysis. There, the Seventh Circuit held that district courts must consider evidence from both sides concerning whether workers are similarly situated enough to proceed together. Under the Seventh Circuit’s approach in Richards, a plaintiff must first make a threshold showing that there is a material factual dispute as to whether the proposed collective is similarly situated. Thereafter, employer/defendants may submit rebuttal evidence. Once the court determines a material dispute exists, the decision to issue notice rests on its assessment of the factual dispute before it. Overall, this standard requires more evidence than Lusardi, which can reduce the pressure employers feel to settle that has traditionally accompanied conditional certification.

Fifth and Sixth Circuit Approach

Like the Seventh Circuit, the Fifth and Sixth Circuits have moved away from the traditional Lusardi standard.

In the Fifth Circuit (Swales v. KLLM Transport Services LLC), plaintiffs must meet a more demanding one-step test, showing it is “more likely than not” that employees are similarly situated. When crafting this standard in Swales, the Fifth Circuit noted the more lenient Lusardi approach resulted in broad circulation of conditional class notice to plaintiffs who were not truly similarly situated. This was frequently used as leverage against employers to compel them to settle. Similar to the Seventh Circuit, the Fifth Circuit now requires lower courts to vet plaintiffs at the outset of litigation and consider all available evidence before authorizing class notices. This standard is far more favorable to employer/defendants.

In the Sixth Circuit (Clark v. A&L Homecare and Training Center, LLC), plaintiffs must demonstrate a “strong likelihood” that the proposed group is similarly situated. The Sixth Circuit rejected the “more likely than not” standard as too high of a bar for plaintiffs, but found the Lusardi approach too lenient. Thus, in the Sixth Circuit, a plaintiff must make a showing that goes beyond creating a genuine issue of fact, but it need not rise to the level of “more likely than not” or a “preponderance”. Accordingly, the standard of proof in the Sixth Circuit falls between Lusardi and Swales.

The Supreme Court Denies Certiorari in Richards

In Richards, Eli Lilly submitted a petition for certiorari—which was joined by several amici—arguing that it was critical the Supreme Court resolve the growing circuit split in class certification standards. Last week, however, the Supreme Court denied certiorari. Richards will now head back to the district court, which will likely apply the new Seventh Circuit standard to determine class certification.

What Employers Need to Know

The Supreme Court’s refusal to hear argument in Richards leaves a variance in class certification standards across jurisdictions. While most federal courts continue to apply the Lusardi approach—a relatively low bar for plaintiffs to obtain condition certification—recent decisions in the Fifth, Sixth, and Seventh Circuits have created stricter, more employer-friendly standards. These varying criteria will almost certainly have the strategic effect of encouraging collective action plaintiffs to file suit—if jurisdictionally possible—in circuits other than the Fifth, Sixth, and Seventh. Until the Supreme Court provides definitive guidance, employers must remain aware of the disparate standards and procedures that accompany collective action lawsuits across the country. Employers seeking more information may contact Sheppard Mullin’s Labor and Employment team for additional insights and strategies.

Overview of the Trapped at Work Act

As we previously covered, on December 19, 2025, Governor Kathy Hochul signed the Trapped at Work Act (the “Act”) into law, prohibiting employers from requiring any worker or prospective worker to sign agreements that obligate the individual to repay moneys paid by the employer if the worker leaves before a designated period. These agreements – commonly referred to as “stay-or-pay” agreements – are deemed unconscionable, contrary to public policy, and unenforceable under New York law.

The Act is notable for its expansive scope, which drew criticism for both its ambiguities and the breadth of its coverage. For purposes of analyzing the proposed amendments, the following key provisions are particularly relevant:

• Effective Date: The Act became effective immediately upon being signed into law on December 19, 2025.
• Covered Persons: The Act applies to “worker[s],” which is defined as any “individual who is permitted to work for or on behalf of an employer,” including employees, independent contractors, externs and interns, volunteers, apprentices, and sole proprietors providing services.
• Scope of Permissible Agreements: Employers may not require workers to execute an “employment promissory note” as a condition of employment, which is defined as “any instrument, agreement, or contract provision that requires a worker to pay the employer . . . a sum of money if the worker leaves such employment before the passage of a stated period of time” and specifically includes “reimbursement for training provided to the worker,” whether by the employer or a third party.
• Specific Exceptions: The Act provides several exceptions to its prohibition on “employment promissory notes.” These include: repayment of non-training advances; payment for any property that the employer has sold or leased to a worker; sabbatical leave terms for educational personnel; and agreements that result from collective bargaining negotiations between the employer and the worker’s representative.
• Enforcement: The Act does not grant workers a private right of action. Enforcement rests with the New York State Department of Labor (NYSDOL), which may impose civil penalties ranging from $1,000 to $5,000 per violation.

As the law took effect, its sweeping language and the uncertainty surrounding its enforcement and coverage generated significant discussion among employers, practitioners, and stakeholders.

Summary of Proposed Amendments

On January 6, 2026, the New York Legislature introduced Chapter Amendments (the “Amendments”) to the Act – a legislative mechanism allowing Governor Hochul to sign a bill into law conditioned on the legislature’s agreement to make specified changes during the next legislative session. Among other things, the Amendments suggest the following changes:

• Effective Date: The Amendments push back the effective date by a year to December 19, 2026, which would provide employers time to make changes to existing agreements.
• Covered Persons: The Act would apply only to “employees,” which the Amendments define as “any person employed for hire by an employer in any employment.” Employers would be free to use promissory notes with independent contractors, externs and interns, volunteers, apprentices, and sole proprietors providing services.
• Specific Exceptions: The Act establishes several additional exceptions to its prohibition on employment promissory notes.
  • Bonuses, Relocation Costs, and Non-Educational Incentives: One key exception allows repayment agreements requiring employees to repay financial bonuses, relocation assistance, or other “non-educational” incentives or benefits that are not tied to specific job performance. These agreements are permissible so long as the repayment requirement is not triggered if the employee is terminated for reasons other than misconduct, or if the job’s requirements or duties were misrepresented to the employee.
  • Voluntary Educational-Repayment: Another exception applies to voluntary tuition-repayment agreements related to “transferable” educational credentials. Transferable credentials are defined as degrees, diplomas, licenses, certificates, or documented skill proficiencies or course completions that are “widely recognized” in the relevant industry or “enhance the employee’s employability with other employers in the relevant industry.” Importantly, the Amendments specifically exclude employer-specific or legally mandated safety or compliance training from these exceptions. The Amendments also require that these agreements be separate from any employment contract, set out a prorated repayment schedule that is not accelerated upon separation, and do not provide for repayment if the employee is terminated for reasons other than misconduct.
• Enforcement: The proposed Amendments require the NYDOL to consider employer size, good-faith compliance, and the severity of the violation when assessing the amount of the penalties (which range from $1,000 to $5,000 per violation). The Amendments do not change the provision barring a private right of action.

While the Act clarifies several ambiguities we previously raised – including signing bonuses, relocation allowances, tuition assistance, professional licensing or certification fees, and continuing education – some questions remain. Notably, the Act does not expressly state whether its provisions apply to agreements signed before the Act’s effective date, leaving open the question of how the NYDOL may treat pre-existing employment promissory notes under the new framework. It also remains unclear whether certain educational expenses – such as exam fees – are covered by the “transferable credential” exception, and how broadly the term “widely recognized” will be interpreted in determining which credentials qualify.

Key Takeaways for Employers

Sheppard Mullin is closely monitoring the progress of these Amendments and any forthcoming guidance related to the Act. New York employers should promptly review and, where necessary, revise offer letters, employment agreements, and any other agreements containing “stay-or-pay” language to address these Amendments. We remain available to advise and support employers as they navigate these evolving requirements, review and revise employment agreements and any other contracts containing “stay-or-pay” provisions.

Scope of the Act

“Employer” is broadly defined under the Act to include “any entity that hires or contracts with a worker to perform services,” inclusive of an employer’s subsidiaries. The Act defines a “worker” as any “individual who is permitted to work for or on behalf of an employer,” including employees, independent contractors, externs and interns, volunteers, apprentices, and sole proprietors providing services. The term “worker” does not include individuals whose only connection to the employer is as a vendor of goods, even if they perform incidental services.

Under the Act, employers may not require workers to execute an “employment promissory note” as a condition of employment. The Act defines an “employment promissory note” as “any instrument, agreement, or contract provision that requires a worker to pay the employer . . . a sum of money if the worker leaves such employment before the passage of a stated period of time.” This definition specifically includes a contract provision requiring “reimbursement for training provided to the worker,” whether by the employer or a third party. As drafted, the Act could potentially implicate a range of common employment-related repayment arrangements, including signing or retention bonuses, relocation and housing allowances, and technology or equipment advances.

Notable Exceptions

The Act provides for several specific exceptions to its ban on employment promissory notes. In particular, the following types of agreements are not rendered void or unenforceable:

• Repayment of non-training advances: Agreements requiring a worker to repay sums advanced by the employer, provided those sums were not used for training related to the worker’s employment;
• Payment for employer property: Agreements requiring the worker to pay for any property the employer sold or leased to the worker;
• Sabbatical leave terms for educational personnel: Agreements involving terms or conditions of sabbatical leaves granted by employers to educational personnel;
• Collective bargaining agreements: Agreements that are part of a program agreed to between the employer and the workers’ collective bargaining representative.

While these exceptions are clear, several ambiguities remain regarding the definition of “employment promissory notes.” For example, it is unclear what constitutes “training” and whether tuition assistance, professional licensing or certification fees, continuing education, and exam costs fall within the definition.

Retroactivity and Severability

While the Act provides that prohibited employment promissory notes are “null and void,” it does not specify whether the Act will apply retroactively to agreements entered into prior to the Act’s effective date. Thus, retroactive enforcement remains an open question and may be clarified in future guidance or legislative amendments.

It is important for employers to note, however, that the Act explicitly provides for severability where a prohibited promissory note is part of a broader employment agreement. In such cases, the invalidity of the promissory note provision will not impact the validity or enforceability of the remaining terms of the agreement.

Enforcement and Penalties

The Act does not provide workers with a private right of action. Instead, enforcement is handled by the New York State Department of Labor (NYSDOL), which may impose civil penalties ranging from $1,000 to $5,000 for each violation. Each instance where an employer requires a worker or applicant to sign a prohibited employment promissory note, or attempts to enforce such a note, is considered a separate violation. Additionally, the Act permits workers to recover attorneys’ fees if they successfully defend against an employer’s attempt to enforce a void promissory note.

Key Takeaways for Employers

New York’s adoption of the Trapped at Work Act aligns with a broader national movement away from restrictive retention tools that limit worker mobility. Given the immediate effect of the Act, New York employers should promptly review and, where necessary, revise offer letters, employment agreements, and any other agreements containing “stay-or-pay” language. Sheppard Mullin continues to monitor for additional guidance and legislative amendments to the Act. As always, Sheppard Mullin is available to provide guidance and support to employers as they adapt to these new restrictions.

Key Aspects of the EO

The EO’s stated purpose is to encourage AI innovation, reduce barriers to AI development, lessen inconsistencies in state regulation, and target laws deemed to “embed ideological bias within models.” The EO will create an AI Litigation Task Force to challenge state laws considered inconsistent with the EO’s purpose. It is presently unclear which states or specific laws the Task Force may challenge. Accordingly, there is some uncertainty regarding what existing legislation may be implicated—and therefore targeted—by the EO’s Task Force.

Current AI State Laws

At this point, many—if not most—employers use AI in some aspects of the hiring, recruitment, and onboarding process. In response to concerns that employer AI usage could result in discriminatory employment decisions, a number of states—such as California—enacted laws aimed at reducing the potential risk of biased AI-involved employment decisions. For example, California passed the California Consumer Privacy Act, effective January 1, 2026 (the “CCPA”). Among other things, the CCPA requires businesses that use AI (without human involvement) in employment decisions—for example, hiring, promotion, allocation of employees’ work—to prepare a risk assessment, give pre-use notice, and permit opt-out rights.

Other states have passed similar laws targeting AI usage in employment. These include Colorado (effective 2026), Illinois (effective 2026), Maryland, and Texas (effective 2026).

The EO’s interplay with this new patchwork of state AI-in-employment laws creates some uncertainty about whether and how to comply with the state framework, the EO, or both.

What Employers Need to Know

To be clear, the EO does not presently invalidate any state or local AI laws. Thus, unless a court blocks a law via an injunction or Congress enacts a federal law preempting the state or local counterpart, such laws remain enforceable.

For now, then, employers should continue to comply with all state and local laws regulating AI usage in employment. But given the increase in AI usage in employment decisions and corresponding increase of regulations (both state and federal), employers must stay abreast of the ever-changing legal landscape. Ultimately, any business using AI as a tool to navigate the employment relationship should consult with experienced outside counsel to ensure compliance with both current and foreseeable regulatory developments.

The plaintiff, Annette Lorenzo, worked as an apprentice and later as a staff member at the San Francisco Zen Center, a nonprofit religious organization that operated several temples and rented out overnight rooms and event spaces to the public. After her employment was terminated, Lorenzo brought claims before the Labor Commissioner for unpaid minimum wage, overtime, and related compensation under California law. The Labor Commissioner found the Center, as well as two individual directors, Galijan and Smith, personally liable under Labor Code section 558.1, awarding Lorenzo $149,177.15. On appeal, only the Center posted the required undertaking, resulting in the dismissal of the individuals’ appeals due to noncompliance with the bond requirement.

In its analysis, the Court of Appeal distinguished claims implicating spiritual self-governance from those based on statutory wage rights. Drawing on Tony & Susan Alamo Foundation v. Secretary of Labor, the court reiterated that religious organizations engaging in commercial functions remain subject to neutral wage and hour regulations, emphasizing that statutory requirements such as minimum wage and overtime do not interfere with religious doctrine or create excessive entanglement. Central to the decision was the court’s reliance on Hosanna-Tabor Evangelical Lutheran Church and School v. EEOC, which clarified that the ministerial exception is not an umbrella immunity; rather, it is limited to situations involving inquiries into strictly ecclesiastical matters, such as the selection or removal of ministers.

Notably, the Lorenzo court warned against an expansive reading of the ministerial exception, recognizing that it could inadvertently shield misconduct and undermine the remedial purpose of wage laws. The opinion underscores that labor protections under California law extend to religious workers performing commercial tasks, barring a demonstrated conflict with central religious governance or faith practices. By adopting this nuanced framework, the court harmonized First Amendment considerations with California statutory requirements, ensuring that a ministerial role or religious identity alone does not place commercial activities outside the scope of regulatory oversight.

The decision also clarified that under Labor Code section 98.2, subdivision (b), any employer appealing a Labor Commissioner’s award must post an undertaking equivalent to the full amount of the award as a condition of perfecting an appeal. Because Lorenzo obtained judgments against both the Center and two individual directors—each deemed an “employer” under section 558.1—the court determined that every individually liable party was required to post a separate undertaking to pursue their respective appeals. While the Center satisfied this requirement, the directors failed to do so, resulting in the dismissal of their appeals on jurisdictional grounds.

Going forward, religious organizations and their managers should closely monitor wage and hour compliance for all commercial activities and be prepared to meet all procedural requirements when contesting wage awards. Individual directors and officers also face real risks for personal liability and must meet procedural requirements to exercise appeal rights. Religious organizations should adapt their compliance strategies accordingly, balancing their spiritual mission with the realities of employment law.

Employers with questions about navigating California’s wage and hour laws, particularly in the context of religious or nonprofit organizations, should consult with experienced employment counsel.

Scope of Coverage Under the Amended Act

The 2025 amendments do not modify the definitions of “Employee” and “Employer” in the Illinois Human Rights Act (“IHRA”). The Act continues to apply to employers with one or more employees in Illinois who are employed for 20 or more weeks during a calendar year. Employees are broadly defined to include individuals providing services for remuneration within the state, and the Act’s coverage also extends to contractors and consultants engaged under contract.

Expanded Definition of Unlawful Employment Practice

The 2025 amendments significantly expand the definition of an “unlawful employment practice.” Previously, the Act limited an “unlawful employment practice” to discrimination, harassment, or retaliation. But beginning January 1, 2026, an “unlawful employment practice” means and includes any unlawful practice actionable under federal or state employment law, including those enforced by the Illinois Department of Labor, the Illinois Labor Relations Board, the U.S. Department of Labor, the Occupational Safety and Health Administration, or National Labor Relations Board.

Additional Protection for Concerted Activity

The amendments create express protections for “concerted activity,” which includes collective bargaining, participation in labor organizations, and efforts to address workplace issues such as wages or benefits. Employers may not prohibit, prevent, or other otherwise restrict an employee’s right to engage in concerted activity to address work-related issues through employment agreements or contracts.

New Requirements for Certain Confidentiality Clauses

As a result of the amendments, the Act imposes new requirements for settlement and termination agreements with confidentiality provisions “related to alleged unlawful employment practices.” Due to the aforementioned expansion of what constitutes an “unlawful employment practice,” these changes could impact virtually any settlement/termination agreement pertaining to an employment dispute. Any confidentiality provisions in qualifying agreements must now be supported by distinct, bargained-for consideration that is separate from the consideration provided in exchange for the employee’s release of claims. Additionally, employers may not incorporate any clause indicating that confidentiality is the employee’s preference unless it is documented, nor may an employer impose such language unilaterally. Confidentiality provisions also cannot restrict current or future concerted activity related to workplace conditions.

Restrictions on Statute of Limitations, Venue, and Choice of Law Provisions

Under the amendments, employment contracts may not unilaterally shorten the applicable statute of limitations, apply non-Illinois law to Illinois-based claims, or require adjudication of Illinois claims outside the state if doing so deprives the employee of any substantive or procedural right or remedy related to unlawful employment practices. These amendments will have significant implications on choice of law and venue provisions in employment contracts. Among other things, the amendments require employers to ensure that employees—including those working remotely for an Illinois employer—retain their rights under Illinois law and have the ability to litigate claims within the state.

In limited circumstances, however, the Act still allows these employer-friendly terms to be included in employment contracts. The aforementioned provisions may be included if they are: (i) “mutual;” (ii) in writing; (iii) demonstrate actual, knowing and bargained-for consideration; and (iv) acknowledge the employee’s right to report unlawful and criminal conduct to any appropriate federal, state or local government agency. In addition, the agreement must also expressly acknowledge the employee’s right to participate in proceedings related to unlawful employment practices, including any litigation brought by any government agency, to make truthful statements or disclosures required by law, and to engage in concerted activity to address work-related issues.

Expanded Rights to Testify and Participate in Proceedings

The amended Act expands testimonial rights in disputes involving alleged unlawful employment practices. Employees, prospective employees, and former employees are permitted to testify not only in administrative, legislative, or judicial proceedings concerning alleged criminal conduct or unlawful employment practices, but also in arbitral proceedings when required by a court order, subpoena, or written request from an administrative agency or the legislature. The Act further clarifies that employees may participate in depositions in any of these proceedings.

Additional Damages

As a result of the amendments, employees, prospective employees, and former employees who successfully challenge a contract that violates the Act—or who successfully defend against a claim for breach of a confidentiality agreement under the Act—may recover consequential damages in addition to reasonable attorney’s fees and costs. Consequential damages mean and include indirect, but reasonably foreseeable, losses that flow from a contractual breach. In this context, consequential damages might encompass such things as lost earnings or other economic harm. Thus, employers should be mindful of expanded damages theories by employees bringing or defending qualifying actions.

Key Takeaways for Employers The amendments to the IWTA significantly expand protections for employees and impose additional requirements on termination and settlement agreements entered into, modified, or extended from January 1, 2026 onward. Illinois employers should take steps to ensure compliance with the amended Act, including reviewing and updating their template agreements and ensuring that contract language aligns with the new legal standards. As always, Sheppard Mullin is available to provide guidance and support to employers as they adapt to these new requirements.

In January 2025, President Trump fired Democratic member Gwynne Wilcox (discussed in prior posts here, here, here, and here). In August 2025, Republican member Marvin Kaplan’s term expired, leaving the Board with only a single member, Democrat appointee David Prouty.

President Trump’s nominees include James Murphy, Chief Labor Counsel at Boeing Co. and Scott Mayer, NLRB attorney; each of whom were confirmed as Board Members. Crystal Carey, from private practice, will serve as the Board’s General Counsel (“GC”) replacing Acting GC William B. Cowen. With the confirmation of these nominees, the Board will now consist of two Republican-appointed members, Murphy and Mayer, and one Democrat-appointed member, Prouty. This restores the required three person quorum necessary for Board functions such as deciding election objections and unfair labor practice cases on exception from administrative law judges.

Given the Republican-appointed majority, many expect the Board will begin overturning Biden-era decisions and issuing employer-friendly rulings. Additionally, under GC Carey, it is expected that the Board puts forth an employer-friendly agenda, prioritizing topics important to employers. We will continue to monitor developments and provide updates as the Board begins to act.

Originally championed in May 2024 under the Biden administration, the Ban would have prohibited most employers from entering into or enforcing noncompete agreements against their employees, declaring them an “unfair method of competition” under Section 5 of the FTC Act.[1] The Ban was met with swift opposition, and in August 2024, the Northern District of Texas struck it down, finding the FTC lacked clear statutory authority.[2] The Commission appealed that ruling to multiple federal appellate courts[3] – but the fight is over.

The FTC, now operating under the Trump administration, “acceded to the vacatur,” meaning that it will no longer defend the Ban or pursue its appeals. In a joint statement, Chairman Andrew N. Ferguson and Commissioner Melissa Holyoak described the Ban’s illegality as “patently obvious,” citing the absence of clear congressional authorization and the Ban’s sweeping scope. Thus, as a practical matter, the Noncompete Ban is dead.

However, the Commission’s interest in noncompete restrictions is very much alive. Rather than pursuing sweeping rulemaking, the FTC is pivoting to targeted enforcement – evaluating noncompete agreements on a case-by-case basis, with a particular focus on industries where such restrictions may harm consumers or competition. The healthcare sector is at the top of that list.

As Chairman Ferguson put it, the FTC remains committed to “vigorously pursu[ing] firms using practices that harm competition,” noting that the administration’s priority is to “deliver transparent, competitive, and fair healthcare markets.”

This resolve was on display just days later. On September 10, the FTC issued warning letters to several large healthcare employers and staffing firms, urging (if not requiring) them to conduct a comprehensive review of their employment agreements – including any noncompete agreements or other restrictive covenants – for compliance with applicable law. The letters warned that such restrictions may have “particularly harmful effects” in healthcare markets, where they can limit patient choice.

This renewed enforcement push aligns with a wave of recent state-level reforms tightening noncompete rules for healthcare professionals. While several states already restricted physician and healthcare provider non-competes,[4] since early 2025, that group has proliferated, with additional eight states – Arkansas, Louisiana, Maryland, Pennsylvania, Utah, Texas, Indiana, and Wyoming – enacting new restrictions:

• Arkansas: Fully bans physician noncompete agreements.
• Indiana: Bars physician noncompete agreements between doctors and hospitals or their affiliated entities.
• Louisiana: Caps physician noncompete agreements at three years for primary care providers, and five years for specialists, with strict geographic limits.
• Maryland: Prohibits noncompete agreements for healthcare workers earning $350,000 or less annually, and limits higher-earning provider restrictions at one year and 10 miles.
• Pennsylvania: Restricts medical practitioner noncompete agreements to one year and requires patient notification upon practitioner’s departure.
• Texas: Limits physician noncompete agreements to one year and five miles, with mandatory buy-out provisions capped at one year’s salary.
• Utah: Bans digital healthcare platforms from imposing noncompete agreements on independent contractors.
• Wyoming: Voids all noncompete agreements unless tied to a business sale, trade-secret protection, or executive-level employment.

The FTC’s focus is not limited to healthcare. Other industries, too, are subject to the Commission’s selective and heightened scrutiny. For instance, in August 2025, the FTC filed a complaint against Gateway Services, Inc. and its subsidiary – a national pet cremation company. The complaint alleges Gateway required all employees, from hourly workers to executives, to sign sweeping noncompete agreements prohibiting employment in the pet cremation industry anywhere in the United States for one year after separation. The FTC’s proposed consent order would rescind all existing Gateway noncompete agreements and prohibit similar restrictions going forward, underscoring the FTC’s continued willingness to police “unfair methods of competition” even after abandoning its nationwide Ban.

Thus, while the FTC has laid the Noncompete Ban to rest, the agency’s scrutiny of restrictive covenants continues – with litigation, not regulation, as its tool of choice. Employers should treat this moment as a recalibration, not a reprieve. In light of the FTC’s shift to case-specific enforcement, and the patchwork of state laws concerning healthcare provider non-competes, employers should:

• Expect Targeted Enforcement: The FTC is likely to pursue agreements it views as overly broad or anticompetitive, particularly in healthcare, technology, and service sectors.
• Audit Agreements: Review all restrictive covenants for compliance with current federal and state law.
• Tailor Restrictions: Ensure each restriction is proportionate in time, geography, and subject matter, and supported by a legitimate business interest.
• Consider Alternatives: Where possible, use confidentiality or non-solicitation agreements instead of broad post-employment noncompete agreements.
• Consult Legal Counsel: A Sheppard Mullin Labor and Employment attorney can help navigate the evolving patchwork of federal and state noncompete laws, including in the healthcare industry.

FOOTNOTES

[1] See Federal Trade Commission, Non-Compete Clause Rule, 89 Fed. Reg. 38342 (May 7, 2024).

[2] See Ryan, LLC v. Fed. Trade Comm’n, 746 F. Supp. 3d 369 (N.D. Tex. 2024).

[3] See Ryan, LLC v. Federal Trade Commission, No. 24-10951 (5th Cir.); Properties of the Villages, Inc. v. Federal Trade Commission, No. 24-13102 (11th Cir.).

[4] These states include Colorado, Connecticut, Delaware, the District of Columbia, Florida, Illinois, Iowa, Kentucky, Massachusetts, Montana, New Hampshire, New Jersey, New Mexico, Rhode Island, South Dakota, Tennessee, and West Virginia.