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California employers face an important compliance deadline on March 30, 2026 under the Workplace Know Your Rights Act (SB 294). Before that date, employers must take concrete steps to allow employees to designate or update an emergency contact and to indicate whether that contact should be notified if the employee is arrested or detained. SB 294 places new obligations on employers that go beyond traditional workplace notices.

1. What Employers Must Do By March 30, 2026

By the March 30 deadline, California employers must ensure that all current employees have the opportunity to:

• Designate or update an emergency contact, and

• Indicate whether that contact should be notified if the employee is arrested or detained on the worksite or, in certain off site circumstances, during work hours or the performance of job duties.

For new hires after March 30, 2026, employers must offer the same opportunity at the time of hiring.

If an employee chooses to designate such a contact, employers are legally obligated to notify that contact if the employer has actual knowledge of the arrest or detention.

2. How This Requirement Differs From Typical Emergency Contact Policies

Unlike standard emergency contact information collected for medical or safety purposes, SB 294’s requirement:

• specifically ties the contact designation to arrest or detention scenarios, and

• requires employees to opt in to notification in those situations.

Existing forms that do not include explicit language about notification in arrest or detention scenarios will not satisfy the legal requirement. Employers should update or replace old forms accordingly.

3. Penalties For Non Compliance

Failure to comply with SB 294’s emergency contact requirement can result in civil penalties imposed by the California Labor Commissioner or through civil action, including:

• up to $500 per employee per day that the violation continues after March 30, 2026, and

• up to $10,000 per employee maximum for emergency contact violations.

4. Recommended Employer Action Plan

To meet the March 30 deadline and demonstrate good faith compliance, California employers should:

a. Revise Emergency Contact Forms

Update or create a form that lets employees designate a contact and specify whether they authorize notification in arrest/detention scenarios.

b. Integrate Into HR Processes

Incorporate the updated form into onboarding, annual updates, and any time employees request a change.

c. Train HR And Management

Ensure HR and supervisors understand when notification obligations arise and how to handle requests.

d. Maintain Records

Retain copies of the completed forms in personnel files as proof of compliance.

5. Conclusion

The March 30, 2026 emergency contact designation deadline under SB 294 is a distinct and non negotiable compliance obligation for all California employers. Updating forms, processes, and HR workflows now will help protect employers from potential penalties and demonstrate a commitment to lawful workplace practices.

An updated emergency contact form is included in the new 2026 Book of Human Resources Forms by Sheppard Attorney Richard Simmons. It is now available from Castle Publications, LLC.

To read more articles like this one, subscribe to the ALERT Newsletter today!

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About The Author

Carina Novell is an attorney in Sheppard’s Labor and Employment Practice Group in the firm’s San Diego (Downtown) office. Ms. Novell helps companies navigate complex California employment laws and defends both single-plaintiff and complex class action lawsuits. Carina focuses her practice on labor and employment law matters, as well as advising and representing management clients. Carina handles various types of employment litigation, including wage and hour class actions, discrimination, wrongful termination, retaliation, and harassment lawsuits.

Carina is a contributor to the California Labor and Employment ALERT.

Ms. Novell received her law degree from the University of California, Davis and her undergraduate degrees from Saint Mary’s College of California, summa cum laude.

In Fuentes v. Empire Nissan, Inc., 19 Cal.5th 93 (2026), the California Supreme Court addressed the following question: can an arbitration agreement’s nearly illegible print support a finding of both procedural and substantive unconscionability? The Court held that illegibility can significantly heighten procedural unconscionability, thereby lowering the threshold for the required showing of substantive unconscionability under the sliding scale analysis, but cannot itself render an agreement’s terms substantively unconscionable.

1. Background

When applying to work at Empire Nissan, Evangelina Yanez Fuentes signed a document titled “Applicant Statement and Agreement,” which contained a provision mandating arbitration of “all disputes which may arise out of the employment context.” The document was printed in a very small, blurry font that was nearly unreadable. The arbitration provision itself was a lengthy, densely printed paragraph filled with legal jargon and statutory references, described by the trial court as “visually impenetrable” and at the “limits of legibility.”

The document was part of an employment application packet that Empire Nissan gave Fuentes only five minutes to review. She was told the documents related to her application, that she had to complete them to be hired, and that she should hurry. She was not offered an opportunity to ask questions and did not receive a copy.

Fuentes later signed two confidentiality agreements prohibiting her from disclosing confidential information and trade secrets and from competing with the dealership. After two and a half years, Fuentes went on medical leave for cancer treatment. When she requested a brief extension before returning to work, Empire Nissan terminated her employment. Fuentes then filed suit alleging wrongful discharge and related claims.

The trial court denied Empire Nissan’s motion to compel arbitration, finding a very high degree of procedural unconscionability based on the agreement’s barely legible text and the lack of a meaningful opportunity for her to review or negotiate its terms. The court also found a low to moderate degree of substantive unconscionability, concluding that the agreement’s fine-print terms were indicative of substantive unconscionability and that the confidentiality agreements appeared to carve out from arbitration claims that only Empire Nissan would bring.

Empire Nissan appealed, and the court of appeal reversed. The court concluded that arguments about illegibility go exclusively to procedural unconscionability and, relying on the principle that the law strongly favors arbitration, interpreted the confidentiality agreements as requiring arbitration of claims brought under them. On that basis, it found no substantive unconscionability and directed the trial court to grant Empire Nissan’s motion to compel arbitration.

2. The Supreme Court’s Decision

The California Supreme Court reversed and remanded, clarifying the law on two significant points.

a. Illegibility And Substantive Unconscionability

The Court agreed with the court of appeal that tiny print and an almost illegible format do not indicate substantive unconscionability. An otherwise fair and mutual term is not made substantively unconscionable by being difficult to read. Small font size can require a lesser showing of substantive unconscionability under the sliding scale analysis, but because it does not affect the substance of an agreement’s terms, it cannot render a term substantively unconscionable.

The Court also clarified that “fine-print terms,” as used in OTO, L.L.C. v. Kho, 8 Cal. 5th 11 (2019), refers to substantively unfair or one-sided terms hidden in a legal document, not simply terms printed in a small font.

b. The Confidentiality Agreements And Mutuality

The Court also found that the court of appeal erred by relying on a presumption favoring arbitration over litigation to interpret the confidentiality agreements. The Court reaffirmed that the policy favoring arbitration is not one of promoting arbitration over litigation, but of ensuring that arbitration agreements are treated like other contracts.

Reading the confidentiality agreements’ text, the Court noted that nothing limited Empire Nissan’s right to bring its claims in court. The agreements specified that Empire Nissan could seek any remedies available at law or in equity and that the prevailing party in a “legal action” could recover attorney fees and costs. The Court interpreted “legal action” in its ordinary sense as a court proceeding and found that the agreements’ silence on arbitration suggested the parties did not intend claims under them to be arbitrated.

Reading the agreements together, however, the Court found an ambiguity — the confidentiality agreements stated that they “supersede any and all prior agreements” on the covered subjects, but the arbitration agreement limited modification to writings signed by Empire Nissan’s president. Because the court of appeal’s conclusion lacked an adequate factual foundation on the signature issue, the Court remanded for the trial court to make the relevant findings.

3. Practical Considerations

The Fuentes decision provides important guidance for California employers who use arbitration agreements.

Illegibility is a procedural problem, not a substantive one, but it can still significantly strengthen an unconscionability challenge. To minimize this risk, employers should ensure that arbitration agreements are presented in a legible format and that employees are given adequate time to review them.

Employers should also review their arbitration agreements and any related agreements, such as confidentiality or noncompete agreements, to consider ensuring that the arbitration obligation is genuinely mutual and does not carve out claims that only the employer would bring.

To read more articles like this one, subscribe to the ALERT Newsletter today!

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About The Author

Ryan J. Krueger is a Partner with Sheppard, Mullin, Richter & Hampton LLP in the firm’s Los Angeles office. He specializes in labor and employment matters on behalf of employers, including wage and hour violations, employment discrimination, wrongful termination and sexual harassment. Mr. Krueger has experience in all aspects of employment litigation, including brief writing and oral argument, taking and defending depositions, and negotiating settlements. He has also second chaired multiple trials and arbitrations, and argued before the California Court of Appeal. Mr. Krueger also regularly counsels employers regarding California and federal employment law issues.

Ryan is a co-author of the California’s Private Attorneys General Act (PAGA) Litigation and Compliance Manual, and is a frequent contributor to the California Labor and Employment ALERT Newsletter. He is a co-speaker at the Castle Publications’ Seminars as well as the Labor Law Update for Sheppard.

He received his J.D. from the University of California, Los Angeles and his B.A. from the University of Wisconsin, with distinction. During law school, Mr. Krueger served as extern to the Honorable Morton Denlow, U.S. District Court for the Northern District of Illinois. He is admitted to practice in all California state courts, along with the United States District Court for the Central District of California and the Ninth Circuit Court of Appeals.

The Ninth Circuit Court of Appeals recently confirmed a trial court’s decision to order a new trial after a jury returned a $238 million verdict for an employee. The jury’s verdict was irreparably tainted by repeated use of excluded evidence, which provoked the jury and resulted in an excessive award. In Gratton v. U.S. District Court for the Eastern District of Washington, No. 25-1724, 2025 U.S. App. LEXIS 24564 (9th Cir. Sep. 23, 2025), in an unpublished decision, the Ninth Circuit denied the employee’s petition to overturn the new trial order, noting the outsized scale of the award relative to the admissible proof and to comparable benchmarks.

1. Allegation Of Race-Based Discrimination

The employee, a black package delivery driver, alleged supervisors demeaned him, denied him work opportunities, assigned him more burdensome and less desirable routes, and enforced minor rules against him more strictly than against white coworkers. The employee also had disputes over how to record large-volume pickups, route assignments, equipment, dress-code enforcement involving visible tattoos, and the timing of overtime and penalty payments. He made his grievances known to his union and filed an agency charge asserting discrimination and retaliation.

Later, the employee was terminated following an internal investigation into unwanted physical contact with a female supervisor. The company determined it was an unprovoked assault warranting discharge without warning. However, the employee denied this, stating he lost his balance and briefly braced himself by briefly holding onto the female supervisor. He argued animus and retaliation influenced the outcome of the investigation and sued in federal court in Washington state.

2. The Consistent Use Of Inadmissible Evidence

Before trial, the court established firm evidentiary boundaries for the parties to follow during the trial. The court excluded discrete acts alleged in the employee’s prior agency charge that fell outside the limitations period, including an on-road incident in which a supervisor allegedly used the term “boy” to refer to the employee, and a separate episode where a manager told the employee to leave company premises on a day off. The court further limited counsel to argue only admissible theories, avoiding arguments based on claims that had been dismissed before trial.

The district court also cautioned that compensatory damages cannot be driven by references to corporate wealth or punitive themes. Based on this ruling, the court excluded references to the company’s financial situation. The court explained these issues would risk jury confusion or invite punitive motives during an assessment of compensatory damages. A proper damages assessment must be tethered to admissible proof of the plaintiff’s emotional distress and related harm, not to the size of the employer or its financial wellbeing.

Despite those clear instructions, at trial, the employee’s attorney repeatedly placed excluded material before the jury. His counsel read the prior agency charge verbatim, elicited testimony about previously dismissed or excluded harassment allegations, and highlighted the barred excluded incidents in his opening statement and closing argument. The employee’s counsel also repeatedly referenced the company’s size and financial position.

At the end of trial, the jury awarded $238 million to the employee, with $39.6 million for emotional distress and $198 million in punitive damages. This victory was short lived.

3. New Trial Ordered When Award Based On Inadmissible Evidence

Reviewing the scope of admissible evidence, the trial court vacated the punitive award entirely. The trial court then determined the remaining $39.6 million emotional distress award was shocking and vastly outsized relative to the admissible proof and to comparable awards. The only conclusion was the reliance on excluded material permeated the proceedings, inflamed passion or prejudice, and pushed the verdict toward punitive considerations. As a result, the district court ordered a new trial.

On appeal, the Ninth Circuit agreed with the trial court’s order granting a new trial, pointing to the employee’s counsel’s repeated trial conduct of introducing previously excluded evidence and references to the company’s financial condition. The Ninth Circuit noted the improper conduct likely influenced the verdict, as evidenced by the outsized damage award.

4. Practical Considerations

At trial, parties must treat pretrial rulings as binding guardrails and structure trial strategy around them. Once the court excludes evidence, counsel must be vigilant for any attempt to introduce the evidence or repackage excluded theories as “background” to inflate compensatory damages or to revive claims that have already been excluded from the case.

To read more articles like this one, subscribe to the ALERT Newsletter today!

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About The Author

Luke Bickel is an attorney in Sheppard’s Labor and Employment Practice Group in the firm’s San Diego (Del Mar) office. Mr. Bickel defends employers of all sizes in matters involving discrimination, retaliation, harassment, wrongful termination, and wage and hour. He has experience defending all aspects of employment-related claims, from single plaintiff to class and PAGA matters, in state and federal court. Beyond the realm of litigation, Luke advises clients on employment issues ranging from wage and hour compliance to federal OSHA and Cal/OSHA investigations. Luke’s experience also includes helping clients obtain workplace violence restraining orders and conducting workplace investigations.

Luke is a consistent contributor to Sheppard’s Labor & Employment Law Blog, Trade Secrets Law Blog, and the California Labor and Employment ALERT.

Mr. Bickel received his law degree from the USC Gould School of Law and his undergraduate degrees from Cal Poly State University, San Luis Obispo, magna cum laude.

On February 27, 2026, the U.S. Department of Labor’s Wage and Hour Division (“DOL”) released a Notice of Proposed Rulemaking that would reshape how employee versus independent contractor status is evaluated under federal wage and hour laws. The proposed rule, titled Employee or Independent Contractor Status Under the Fair Labor Standards Act, Family and Medical Leave Act, and Migrant and Seasonal Agricultural Worker Protection Act, would rescind the 2024 independent contractor rule and largely return to the approach published in January 2021. The DOL’s stated goal is to provide a clearer, more predictable framework for employers and workers navigating modern work arrangements, while continuing to apply an “economic reality” analysis focused on economic dependence.

1. From Trump To Biden And Back Again

Federal wage and hour law has long relied on an “economic reality” inquiry to determine whether a worker is an employee entitled to protections like minimum wage and overtime, or an independent contractor who is in business for themselves. In January 2021, in the final days of President Trump’s first term, the DOL issued a rule that aimed to simplify application of this test by prioritizing two “core” factors as the most probative. The first factor was the nature and degree of control over the work, while the second factor was the worker’s opportunity for profit or loss based on initiative or investment.

That 2021 rule was short-lived. The Biden administration attempted to delay and then withdraw it, and after litigation over those actions, the DOL ultimately replaced it with a new rule finalized in January 2024. The 2024 rule adopted a six-factor economic reality test and emphasized a “totality of the circumstances” approach, stating that no factor or subset of factors carried greater weight. Those six factors were: (1) the opportunity for profit or loss depending on managerial skill; (2) investments by the worker and the potential employer; (3) the degree of permanence of the work relationship; (4) the nature and degree of control; (5) the extent to which the work performed is an integral part of the potential employer’s business; and (6) the skill and initiative required. The 2024 rule framed the analysis as holistic and flexible, but critics viewed it as more difficult to apply consistently in real-world planning, especially where factors pointed in different directions.

In May 2025, the DOL announced it would not apply the 2024 rule in its own enforcement investigations and would instead revert internally to older subregulatory guidance–i.e., informal agency materials such as opinion letters, field assistance bulletins, and internal enforcement directives that direct investigators and enforcement staff but have not gone through formal notice-and-comment rulemaking and do not carry the binding legal effect of a published regulation.

2. The Proposed Return To An Economic Reality Test With Two Core Factors

The February 2026 proposal represents the DOL’s formal effort to convert that internal subregulatory guidance into binding regulatory text.

Under the proposed rule, the DOL would rescind the 2024 regulation in 29 C.F.R. Part 795 and readopt the 2021 framework with modest modifications. The central inquiry remains the same: whether, as a matter of economic reality, the worker is economically dependent on an employer for work or is instead in business for themselves. Notably, the proposal clarifies that economic dependence is about dependence for work rather than dependence for income, meaning that the amount a worker earns or whether they have other income sources is not the focus of the analysis.

Consistent with the 2021 approach, the DOL would again elevate two “core” factors as most probative: the nature and degree of control over the work, and the worker’s opportunity for profit or loss based on initiative or investment. The proposal would also retain several secondary guideposts, including the skill required, the permanence of the relationship, and whether the work is part of an integrated unit of production. The proposal further reiterates that actual practice matters more than what is theoretically possible under a contract.

The DOL’s stated rationale for the change is clarity and predictability. By replacing the 2024 framework with a rule “generally similar” to the 2021 approach, the agency contends that workers and businesses will be able to more clearly and predictably structure their relationships in ways that align with how federal courts have historically applied the economic reality test. Public statements accompanying the proposal emphasize the dual objectives of protecting entrepreneurial independence and simplifying compliance for job creators, while maintaining baseline protections for employees under the FLSA.

From an operational standpoint, the proposed rule would also extend this streamlined two-core-factor analysis beyond the FLSA to the Family and Medical Leave Act and the Migrant and Seasonal Agricultural Worker Protection Act. Because both statutes incorporate the FLSA’s broad “suffer or permit to work” definition of employ, the same economic reality framework used to determine independent contractor status for wage and hour purposes would also govern whether a worker qualifies as an employee eligible for FMLA leave protections or covered by the MSPA’s migrant and seasonal worker safeguards. This means that a single classification methodology would apply across all three statutes, reducing the need to conduct separate analyses for wage and hour, leave, and agricultural worker protection compliance at the federal level.

3. Next Steps And Timing

The proposed rule is open for public comment through 11:59 p.m. ET on April 28, 2026. After the comment period closes, the DOL will review submissions, potentially revise the proposal in response, and, if it elects to move forward, publish a final rule in the Federal Register. No finalization date has been set, and the timeline will largely depend on the volume and complexity of comments received.

Until a final rule is issued and takes effect, the 2024 rule technically remains on the books, though the DOL has made clear that its Wage and Hour Division investigators are no longer applying the 2024 framework in enforcement actions. That disconnect between the governing regulation and the agency’s stated enforcement posture creates a period of meaningful uncertainty. Employers–particularly those with significant independent contractor workforces or operating across multiple industries–should treat the proposal as a strong signal of regulatory direction rather than an immediate change in the legal standard, and should be prepared for potential litigation risk as the transition unfolds.

4. What This Means For Businesses

If finalized, the proposal would likely be viewed as more favorable to independent contractor models than the 2024 rule, primarily because it refocuses the analysis on control and entrepreneurial opportunity as the most important indicators of being “in business for oneself.” For workers, that could mean some roles are more likely to be classified as independent contractor relationships under federal standards, which generally do not carry minimum wage, overtime, and certain recordkeeping protections under the FLSA. At the same time, the proposal is not framed as eliminating protections, but as better distinguishing true employees from bona fide independent contractors using a familiar test grounded in federal precedent.

For employers and HR teams, the practical impact is that classification decisions will likely hinge more heavily on whether the worker has real control over key aspects of work performance and a genuine ability to affect profit or loss through initiative or investment, rather than simply whether the relationship looks continuous or whether the work is important to the business. The DOL’s repeated emphasis that actual practice controls means that operational realities, including scheduling practices, exclusivity expectations, pay-setting, and how assignments are handled, will matter as much or more than contract language.

5. State Independent Contractor Tests Still Apply

Even if the rule is finalized, it will not eliminate or preempt stricter state standards for employee versus independent contractor status. Many states apply their own tests that can be more restrictive than the federal economic reality analysis, including variations of ABC-style frameworks and other state-specific multi-factor tests. As a result, employers should continue to evaluate worker classification on a jurisdiction-by-jurisdiction basis and should not assume that a more employer-friendly federal rule automatically resolves state wage-hour exposure.

6. Practical Considerations

The DOL’s February 2026 proposal would replace the 2024 independent contractor rule with a modified return to the 2021 framework that emphasizes two core factors: control and opportunity for profit or loss. For employers, the proposal is designed to create more predictable classification outcomes and to better align with the way federal courts apply the economic reality test. However, even if finalized, the rule will not displace stricter state standards, so multi-state employers must continue to manage classification risk under both federal and state law.

To read more articles like this one, subscribe to the ALERT Newsletter today!

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About The Author

Luke Bickel is an attorney in Sheppard’s Labor and Employment Practice Group in the firm’s San Diego (Del Mar) office. Mr. Bickel defends employers of all sizes in matters involving discrimination, retaliation, harassment, wrongful termination, and wage and hour. He has experience defending all aspects of employment-related claims, from single plaintiff to class and PAGA matters, in state and federal court. Beyond the realm of litigation, Luke advises clients on employment issues ranging from wage and hour compliance to federal OSHA and Cal/OSHA investigations. Luke’s experience also includes helping clients obtain workplace violence restraining orders and conducting workplace investigations.

Luke is a consistent contributor to Sheppard’s Labor & Employment Law Blog, Trade Secrets Law Blog, and the California Labor and Employment ALERT.

Mr. Bickel received his law degree from the USC Gould School of Law and his undergraduate degrees from Cal Poly State University, San Luis Obispo, magna cum laude.

Allegations that an employer’s stated reason for termination was “pretext” are nothing new in employment litigation, but they have become a recurring theme for employers in the wake of COVID-19 workplace rules. Vaccine mandates, exemption decisions, and compliance systems can provide a clear, facially neutral rationale for action, yet plaintiffs increasingly argue those policies were selectively invoked, or relied upon as a convenient cover, for discrimination or retaliation tied to earlier complaints or protected characteristics. In the newly filed matter, Stevens v. Netflix Inc., Case No.: 25STCV36193, Superior Court of the State of California, County of Los Angeles, a former production executive alleges the company terminated her employment in January 2021 for refusing a COVID-19 vaccine, but contends that rationale was pretext for retaliation.

1. What Is Pretext?

In the employment-law context, pretext refers to an employer’s stated reason for an adverse employment action (most commonly termination) that the employee alleges is not the actual reason for the adverse employment decision, but rather a justification masking an unlawful motive such as discrimination or retaliation. Put differently, the employer may articulate a legitimate basis–such as a policy violation, performance concerns, or noncompliance with a workplace rule–while the employee contends that rationale is not credible and that the actual decision was driven by protected activity (e.g., reporting harassment) or protected status (e.g., sex, pregnancy, religion, disability).

Pretext is frequently litigated through circumstantial evidence, including temporal proximity between a complaint and the adverse action (a typical claim in retaliation lawsuits), shifting or inconsistent explanations for the employer’s decision, disparate enforcement as compared to other similarly situated employees, departures from established procedures, and documentation gaps suggesting the proffered reason was developed after the fact rather than reflecting the genuine basis for the decision.

2. COVID-19 Policies As Pretext

The former employee’s complaint alleged the company’s stated reason for discharge, noncompliance with a COVID-19 vaccine mandate, was allegedly a pretext for unlawful motives. She alleges she was fired in January 2021 after declining vaccination, and contends the company used her vaccination status “as the pretext it needed” to terminate her because she had complained about a sexually charged workplace environment and about mocking of employees’ religious beliefs related to remaining unvaccinated.

On the underlying workplace culture allegations, the employee reportedly claims she was the first woman hired onto the company’s original series production team in 2017 and that the company promoted a “flirtatious” environment through encouraged one-on-one meetings tied to a stated core value of “curiosity.” She alleges those meetings often became uncomfortable and provided male employees opportunities to flirt and engage in unwanted hugging and touching, and that she complained about what she viewed as a sexually charged workplace. She also alleges off-site events where alcohol “flowed freely” contributed to an “alcohol-fueled” culture of inappropriate sexual behavior, and she cites her director’s alleged 2017 firing after an accusation of inappropriate touching as an example offered to support her contention that management was aware of potential issues.

In support of discrimination claims, the executive claims that after announcing her pregnancy in May 2017, her supervisor removed her from all shows, and that her responsibilities were restored only after she complained to HR and the supervisor was reprimanded. Separately, she alleges that after the pandemic began, the company used a lanyard system identifying vaccination status and created set “red zones” that unvaccinated workers could not enter, which she says enabled bullying and mocking of employees who chose not to vaccinate for religious reasons. She further alleges she sought an exemption from the mandate based on an autoimmune condition and requested remote work, but both were denied.

3. Familiar Claims?

The executive’s allegations echo themes raised in Combs v. Netflix, Case Number 24STCV18761, Superior Court of the State of California, County of Los Angeles, brought by a female director represented by the same company. In Combs, the director likewise described a workplace culture that allegedly encouraged frequent one-on-one meetings and social activity, which she claimed blurred professional boundaries and enabled flirtation or other inappropriate interactions. She also alleged that the company failed to respond meaningfully when concerns were raised internally. Against that backdrop, she framed her later separation, based on vaccination-related compliance rules, was retaliatory and not the true reason for the termination.

Procedurally, Combs turned quickly to a threshold forum dispute. The company moved to compel arbitration based on a signed arbitration agreement, and the employee did not dispute that she had executed the agreement. Instead, she argued that the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act (“EFAA”) barred arbitration because at least one of her claims involved sexual harassment. The court rejected that argument on timing grounds, emphasizing that the EFAA applies only to disputes or claims that “arise or accrue” on or after March 3, 2022. On the allegations presented, the court concluded the employee’s claims accrued and the dispute arose no later than her December 1, 2021 termination.

Because the executive in Stevens alleges a January 2021 termination, also before March 3, 2022, the case may present a similar early arbitration posture if an enforceable pre-dispute arbitration agreement exists. Even if the pleading includes harassment-based allegations, the company would likely argue that the EFAA does not apply where the relevant claims accrued and the dispute arose before the statute’s effective date, making arbitration a viable threshold strategy.

4. What These Cases May Mean To Employers

These cases are a reminder that even neutral workplace rules, like COVID-era mandates and compliance tracking, can get recast as pretext when they are paired with allegations of earlier complaints, culture issues, or perceived bias. Even if an employer thinks it applied the policy the same way across the board, plaintiffs may try to shift the focus from “did you follow the rule?” to “why did you really terminate me?” by pointing to the timing of complaints, alleged uneven treatment, or changes after someone “spoke up.”

Employers are better positioned to defend against a pretext narrative when they can demonstrate a neutral, well-documented decision-making process. Examples include showing the policy requirements and consequences were clearly communicated and applied consistently, that exemption and alternative-work requests were evaluated through an objective framework with contemporaneous documentation, and that internal complaints were promptly addressed with recorded investigative steps and outcomes. In practice, the strength of the defense often turns on whether the employer can point to records that predate or are independent from the protected activity the plaintiff claims triggered retaliation.

5. Practical Considerations

The Stevens and Combs matters illustrate how employers’ enforcement of neutral workplace rules may be challenged as pretext when an employee can point to prior complaints, alleged culture issues, or perceived bias and then argue termination was the predictable endpoint. For employers, the practical focus is less on whether a policy existed and more on whether the organization can show it was applied consistently and through a neutral process, with well-supported decisions on exemptions and alternative work arrangements, and a documented, timely response to internal complaints.

To read more articles like this one, subscribe to the ALERT Newsletter today!

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About The Author

Luke Bickel is an attorney in Sheppard’s Labor and Employment Practice Group in the firm’s San Diego (Del Mar) office. Mr. Bickel defends employers of all sizes in matters involving discrimination, retaliation, harassment, wrongful termination, and wage and hour. He has experience defending all aspects of employment-related claims, from single plaintiff to class and PAGA matters, in state and federal court. Beyond the realm of litigation, Luke advises clients on employment issues ranging from wage and hour compliance to federal OSHA and Cal/OSHA investigations. Luke’s experience also includes helping clients obtain workplace violence restraining orders and conducting workplace investigations.

Luke is a consistent contributor to Sheppard’s Labor & Employment Law Blog, Trade Secrets Law Blog, and the California Labor and Employment ALERT.

Mr. Bickel received his law degree from the USC Gould School of Law and his undergraduate degrees from Cal Poly State University, San Luis Obispo, magna cum laude.

Recently, the Federal Trade Commission (“FTC”) pursued a sweeping prohibition on employee noncompete agreements. That effort has now concluded. In early September 2025, the FTC formally abandoned its appeals and acquiesced to court orders vacating its proposed nationwide noncompete rule. The practical result is that noncompete agreements are once again governed primarily by a patchwork of state statutes and common law, with a renewed overlay of targeted federal enforcement when an agreement crosses the line into an unfair method of competition. While abandoning its appeals, the FTC has made clear that it views broad or indiscriminate noncompetes as harmful to worker mobility and competition and will seek to invalidate them under Section 5 of the FTC Act.

1. Attempted FTC Noncompete Ban And Texas Challenge

Beginning in 2024, the FTC, under prior leadership, advanced a rulemaking effort to prohibit most postemployment noncompete agreements nationwide. The final rule adopted in the spring of 2024 would have voided nearly all existing and future noncompete clauses for employees across nearly all industries. The rule marked a significant departure from the FTC’s traditional case-by-case enforcement posture and rested on the assertion that the FTC possessed substantive authority to define and ban categories of business conduct as unfair methods of competition.

Legal challenges followed immediately. In August 2024, the Federal Court for the Northern District of Texas set the rule aside before it could take effect. The court concluded the FTC lacked substantive rulemaking authority with respect to unfair methods of competition and held the rule was arbitrary and capricious. The court recognized the FTC only had authority to adopt rules of agency organization, procedure, or practice, and rejected the FTC’s attempt to use rulemaking to prohibit a broad class of business agreements. A separate federal court in Florida also blocked enforcement of the rule.

While the FTC initially noticed appeals in the Fifth and Eleventh Circuits, on September 5, 2025, the FTC formally withdrew its appeals. In a public statement, the FTC Chair characterized the final rule as overbroad and announced that FTC would return to policing noncompete agreements through targeted enforcement actions rather than through universal rulemaking.

2. Noncompetes Under Section 5 Of The FTC Act

Although the blanket federal rule is gone, the FTC stated it will continue to police noncompete agreements under 15 U.S. Code Section 45, also known as Section 5 of the FTC Act. Section 5 prohibits unfair methods of competition or deceptive acts affecting commerce. In determining whether an act is prohibited, the FTC uses a reasonableness analysis focused on duration after employment ends, the geographic reach, the scope of roles or industry covered, and most importantly whether the agreement is narrowly tailored to protect a legitimate business interest rather than to broadly restrain worker mobility.

The FTC said a noncompete is more likely to be viewed as fair when the obligation lasts one to two years, reaches only the territories where the employer operates or where the employee regularly worked, and confines the restriction to the employer’s line of business and the employee’s role. It is also material whether the agreement is deployed only for positions where the employer has a legitimate interest to protect such as trade secrets, long lead research and development, or substantial investments in training. On the other hand, the FTC warned noncompetes are likely unfair when they sweep far beyond two years, extend to territories where the employer does not operate or where the employee did not perform their duties, attempt to bar work in unrelated industries, or apply to low wage workers and others with limited access to sensitive information.

This has been exemplified in a recent action by the FTC against Gateway Services and its subsidiary Gateway US Holdings, Inc. The company reportedly required nearly all United States employees, including drivers, customer service representatives, and other hourly workers, to sign noncompete agreements that barred work anywhere in the country in the pet cremation industry for one year after employment ended. Those terms applied across the workforce regardless of access to sensitive information. The FTC determined that, while noncompetes may be appropriate for certain senior managers and employees with meaningful access to confidential information so long as the agreement is limited in time, place, and scope, the company’s blanked noncompete constituted an unfair method of competition.

3. Where Things Stand Now

The end of the rulemaking means employers are back in a world governed primarily by state law, with federal enforcement targeted at particular practices that the FTC considers unfair. In practical terms, employers should expect a case by case enforcement approach aimed at practices that are broad, indiscriminate, or difficult to justify. Agreements that apply to large numbers of low wage or hourly employees, or that are imposed without tailoring to role and responsibilities, are likely to draw attention.

Even without the federal rule, a number of states have enacted comprehensive prohibitions or significant limitations on noncompetes. Several states have effectively banned most noncompetes including California, Minnesota, North Dakota and Oklahoma. Other states have adopted salary or wage thresholds that preclude noncompetes for low income or hourly workers, such as Illinois and Nevada. Some states, such as Massachusetts and Colorado, have layered in procedural requirements such as early written notice. Employers should also be cautious about choice of law clauses that select jurisdictions viewed historically as friendly to noncompetes, as several states, like California, have moved to limit or refuse enforcement of foreign law and forum selection related to restrictive covenants.

Certain industries have also received heightened scrutiny. Healthcare has seen especially active legislation. In recent months, the states of Arkansas, Louisiana, Maryland, Pennsylvania, Utah, Texas, Indiana, and Wyoming have narrowed the circumstances in which healthcare employers can enforce noncompetes. Many states bar enforcement of noncompetes against physicians based on concerns about patient choice. Virginia recently prohibited noncompetes for employees who are eligible for overtime pay under the Fair Labor Standards Act.

There are also outliers moving in the opposite direction. For example, recent decisions in Delaware reflect growing reluctance to rewrite overbroad agreements. Florida enacted the Contracts Honoring Opportunity Investment Confidentiality and Economic Growth Act, which permits most noncompetes and allows for a postemployment period up to four years. The statute also requires courts to issue injunctions at the outset of disputes over covered provisions, a feature that dramatically shifts leverage in litigation.

4. Practical Considerations

The FTC has shifted away from its pursuit of a universal ban on noncompete agreements but remains focused on scrutinizing those that unjustifiably restrict worker mobility. In response, employers should elevate the quality of their agreements by carefully identifying roles where noncompetes are essential, ensuring terms such as duration and geography are reasonable and defensible, and aligning with both state law and FTC guidance. Employers should consider removing noncompetes from lower wage positions or roles with limited access to confidential information. Documenting the legitimate interests behind each agreement, like safeguarding trade secrets or protecting substantial investments in training, and opting for less restrictive alternatives when possible, such as nondisclosure or nonsolicitation provisions, will help support their use.

Employers must also ensure compliance with varying state laws, particularly regarding pay thresholds, role carveouts, and notice requirements, and be mindful of heightened risks in certain sectors such as healthcare. Agreements should be regularly reviewed for enforceability, especially where remote or distributed workforces are involved, confirming the correct application of state law. With federal scrutiny increasing and the FTC actively pursuing feedback and enforcement, employers should prepare to justify and demonstrate tailored, fair agreements, and discontinue those that are purely anticompetitive.

To read more articles like this one, subscribe to the ALERT Newsletter today!

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About The Author

Luke Bickel is an attorney in Sheppard’s Labor and Employment Practice Group in the firm’s San Diego (Del Mar) office. Mr. Bickel defends employers of all sizes in matters involving discrimination, retaliation, harassment, wrongful termination, and wage and hour. He has experience defending all aspects of employment-related claims, from single plaintiff to class and PAGA matters, in state and federal court. Beyond the realm of litigation, Luke advises clients on employment issues ranging from wage and hour compliance to federal OSHA and Cal/OSHA investigations. Luke’s experience also includes helping clients obtain workplace violence restraining orders and conducting workplace investigations.

Luke is a consistent contributor to Sheppard’s Labor & Employment Law Blog, Trade Secrets Law Blog, and the California Labor and Employment ALERT.

Mr. Bickel received his law degree from the USC Gould School of Law and his undergraduate degrees from Cal Poly State University, San Luis Obispo, magna cum laude.

Beginning February 1, 2026, all California employers must provide to all new hires and each existing employee on an annual basis written notice of employee’s workplace and constitutional rights. Prompted by the recent enforcement actions by United States Immigration and Customs Enforcement personnel in California, the notice specifies that labor laws apply to all workers in the state regardless of immigration status. It also requires employers to request from employees a designated emergency contact and to indicate whether that contact should be notified if the employee is arrested or detained at the workplace, Cal. Labor Code § 1555. Additionally, the notice includes an anti-retaliation clause to protect employees from being retaliated against based on their immigration status.

The law comes out of California Senate Bill 294, the Workplace Know Your Rights Act, which aims to ensure transparency surrounding employee immigration-related protections and constitutional rights in the workplace. It also establishes a process for emergency contact notification in the event of workplace arrests or detentions.

To remain compliant, employers must (1) provide the notice to all current employees; (2) provide the notice at the time of hire; and (3) if applicable, provide the notice annually to the employee’s authorized representatives (i.e., union representative).

1. The Notice Includes The Following Protections:

a. Employees’ Right To Notice Of Immigration Inspections (Cal. Labor Code § 90.2)

If an employer receives notice of an upcoming immigration agency’s inspection of I-9 Employment Eligibility Verification forms or other employment records, the employer must post a notice informing workers and their union representative, if applicable, within 72 hours of receiving that notice.

b. Employees’ Right To Designate An Emergency Contact (Cal. Labor Code § 1555)

Employees may request notifications in the case of arrest or detention at work. Employers must allow employees to provide them with emergency contact information and to indicate if that employee prefers their emergency contact be notified upon arrest or detention at work.

If an employee is arrested or detained at work and an employer has knowledge of it, they must notify the employee’s designated emergency contact if the employee has chosen that option.

c. Employees’ Right To Organize A Union Or Engage In Protected Activity In The Workplace

Most employees in California have the right to organize, join, or participate in union activities. Employees similarly have the right to not participate in union activities or protected activities where they so choose.

These rights include employees’ ability to jointly act with co-workers to address work-related issues and concerns, to improve working conditions or for the purpose of collective bargaining. This means employees have the right to join with co-workers to request better working conditions or to raise work-related concerns, including about wages, hours, health and safety, and other terms of employment.

Note that it is illegal for employers to do the following:

• Interfere with or discourage employees’ union activity or protected activities.

• Threaten, retaliate against, or discriminate against employees because of their union support or participation in protected activities.

d. Employee Protections Against Unfair Immigration-Related Practices (Cal. Labor Code §§ 1019–1019.2)

An employer may not retaliate* against employees for exercising their rights, including:

• Filing a complaint with the California Labor Commissioner, Cal/OSHA, the California Civil Rights Department, or another government agency.

• Asking about an employer’s compliance with federal, state, or local law.

• Talking with others about their rights or helping them exercise their rights under federal, state, or local law.

*Examples of illegal retaliation include firing employees, reducing employees’ work hours, or threatening to report employees or a relative to immigration authorities because the employees exercised their rights.

2. Enforcement And Penalties

Employers who fail to comply with the emergency contact notification requirement may be subject to significant penalties. These penalties include fines of up to $500 per employee per day, with a maximum total penalty of $10,000 per employee.

To read more articles like this one, subscribe to the ALERT Newsletter today!

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About The Authors

Greg L. Berk is a Partner in the law firm of Sheppard, Mullin, Richter & Hampton LLP in the firm’s Orange County office. He leads the Firm’s immigration practice and is a Certified Specialist in Immigration and Nationality Law by the State Bar of California Board of Legal Specialization. He has over 25 years of experience advising on all aspects of U.S. immigration matters. He assists employers worldwide with the hiring and retention of foreign national executives and highly talented individuals that are needed in their U.S. workforce. He also works with investors on E-2, L-1, and EB-5 matters. He also handles I-9 and other immigration compliance matters.

Greg frequently lectures on immigration issues and is a regular contributor to the California Labor and Employment ALERT Newsletter and Sheppard’s Labor & Employment Law blog. Mr. Berk received his J.D. from Western State University College of Law, his M.B.A. from George Washington University and his B.A. from California State University.

Mia Ndalugi is associate in the Labor and Employment Practice Group with the law firm of Sheppard, Mullin, Richter & Hampton LLP in the firm’s Orange County office. She is a frequent contributor to the California Labor and Employment ALERT Newsletter and Sheppard’s Labor & Employment Law blog. Ms. Ndalugi received her J.D. from Georgetown University, and her B.S. from University of California, Berkeley, magna cum laude, Highest Honors Distinction.

California law imposes numerous requirements on employers, including minimum wage and paid sick leave rules, among others. It also allows employees to enforce their rights by bringing lawsuits in court, but that is not their only recourse. In some instances, employees pursue administrative claims before the California Labor Commissioner under a cost-free vehicle, called the “Berman process.” Employees have access to this administrative process without the need to retain an attorney or incur any legal fees. When employees pursue such claims, the losing party has the opportunity to appeal the decision to the superior court.

1. The Supreme Court’s Iloff Decision

These issues converged in the Supreme Court’s August 21, 2025 decision in Iloff v. LaPaille, __ Cal. 5th __ (2025), a case initiated by a maintenance worker (Iloff) against Bridgeville Properties and a manager, Cynthia LaPaille (together, the “employers”). Iloff lived rent-free in a house owned by his employers and performed maintenance services under the employers’ directions. He was not provided any benefits or compensation for his services. When the relationship ended, Iloff brought an action against the employers with the Labor Commissioner, initiating the Berman process for adjudicating wage claims.

In response to Iloff’s claim, the employers argued he was an independent contractor. The Labor Commissioner disagreed. It issued an “order, decision, or award” finding Iloff was an employee and, as such, was entitled to unpaid wages, liquidated damages, penalties, and interest.

The employers appealed, seeking review of the ruling in the superior court under Labor Code Section 98.2. In response, Iloff – who was now provided free representation by an attorney from the Labor Commissioner’s office, filed a notice of claims. In the notice, Iloff reasserted the wage claims he had raised before the Labor Commissioner and added new claims, including a claim for penalties under California’s paid sick leave law in Labor Code Sections 245 – 249.

2. The Supreme Court Addressed Two Questions

The Supreme Court examined two issues. First, it considered whether the employers were liable for “liquidated damages” (a form of double damages) based on their minimum wage violations. Second, it addressed the question whether the employee could add new claims, such as a paid sick leave claim, after the employer appealed the Labor Commissioner’s ruling.

The Supreme Court concluded that the employers were vulnerable to an award of liquidated damages for the minimum wage claims because they had no defense. They did not establish a “good faith” defense to liquidated damages by showing they took reasonable steps to comply with their minimum wage obligations. It stated that mere “ignorance of the law” was insufficient to negate such an award.

Notably, the Supreme Court recognized for the first time that no “private right of action” existed to seek administrative penalties under California’s paid sick leave law, Labor Code Section 248.5. Nevertheless, the Supreme Court reasoned that a Berman appeal is not a “private right of action.” Instead, it is a procedure for de novo reconsideration of the Labor Commissioner’s ruling in the administrative stage of the Berman process. Thus, even though the employee did not have a private right of action allowing him to file a paid sick leave claim directly in court, he could pursue a paid sick leave claim (or another wage claim) as part of his response to his employer’s appeal.

3. The Minimum Wage And Liquidated Damage Claims

a. Employers Must Take Reasonable Steps To Comply With The Minimum Wage Law To Establish Good Faith

Because the employers did not pay Iloff any compensation for his services, they were liable for minimum wage violations. The next question was whether they were also liable under Labor Code Sections 1194-1194.2 for liquidated damages in an amount equal to the wages unlawfully unpaid, i.e., double the minimum wage liability. Based on the Labor Code, liquidated damage liability must be imposed unless the employer establishes a “good faith” defense under Section 1194.2(b).

The Supreme Court stated, “When a court finds an employee is entitled to unpaid minimum wages, . . . , the court must award the employee ‘liquidated damages in an amount equal to the wages unlawfully unpaid and interest thereon.’” The employer then has the burden “to establish the defense by proving that ‘the act or omission giving rise to the action was in good faith and that the employer had reasonable grounds for believing that the act or omission was not a violation.’ (Ibid.) If the employer carries this burden, the provision authorizes the court, ‘as a matter of discretion’ to deny a request for liquidated damages or order less than the full amount to which the employee would otherwise be entitled.”

b. Employers Must Attempt To Determine Their Minimum Wage Obligations

As explained by the Supreme Court, the employer must show that it made (1) a reasonable attempt to determine the requirements of the law governing minimum wages and (2) a good faith effort to comply with those requirements. In the case before it, the employers failed to meet the standards because they did not show they made any attempt to make certain they met their minimum wage obligations. The employers’ independent contractor defense was developed in response to the claim, not because the employers had looked into their minimum wage obligations earlier.

When an employer has made a reasonable effort to determine the requirements of the law governing minimum wages, a court may consider evidence of the nature of the parties’ relationship, e.g., whether there was an independent contractor relationship, their agreements with each other, and the legal landscape in determining whether the employer made a good faith effort to comply with those requirements. However, where, as here, the employers did not show they made ‘any attempt to determine whether their arrangement with Iloff complied with the law governing minimum wages, they could not rely on arguments regarding the unsettled state of the law to prove that they acted in good faith in failing to comply with its requirements.

c. Neither Ignorance Of The Law, Nor Waivers Are Substitutes For “Good Faith”

The Supreme Court also refuted other proposed defenses. It determined it did not matter whether an employee agreed to be paid less than the minimum wage because the right to minimum wages cannot be waived. Finally, it recited the age-old adage that “ignorance of the law is no excuse.” Consequently, the fact that the employers did not understand they were required to pay Iloff the minimum wage was not a defense, as “ignorance alone” does not prove good faith. Again, an employer must show it made a reasonable attempt to determine the requirements of the minimum wage law. Because the employers did not make this showing, Iloff was entitled to an award of liquidated damages.

The Supreme Court added emphasis to its holding, making it clear that, to establish the “good faith” defense to liability for liquidated damages under Labor Code Section 1194.2(b), an employer must show that “it made an attempt to determine what the law required. . . . While the form and extent of the required attempt is context dependent, the burden is on the employer to show it made an attempt to determine what the law required that was reasonable under the circumstances and a good faith effort to comply with the requirements of the law.”

4. Employees Can Raise Paid Sick Leave (Or Other Wage) Claims If An Employer Appeals A Labor Commissioner Ruling

a. Iloff’s Paid Sick Leave Claim

The second question addressed by the Supreme Court relates to the paid sick leave law, the Healthy Workplaces, Healthy Families Act, Labor Code §§ 245, et seq. The Act requires California employers to provide employees paid leave from work for health-related reasons or to care for sick family members.

Although Iloff did not allege a violation of the Act in his initial claim before the Labor Commissioner, he raised a claim for penalties in the notice of claims he filed in the superior court in response to his employers’ appeal of the Labor Commissioner’s ruling. The question was whether the superior court may consider a paid sick leave claim raised in this manner. The Supreme Court determined that it could.

b. Employees Can Raise New Sick Leave Claims If Employers Appeal

As a preliminary matter, the Supreme Court agreed the law authorizes employees to raise paid sick leave claims before the Labor Commissioner, which has authority to adjudicate such claims under Labor Code Section 248.5. However, it disagreed with the court of appeal’s conclusion that an employee may not raise a new claim in response to an employer’s appeal from the Labor Commissioner’s ruling.

It previously held in Murphy v. Kenneth Cole Productions, Inc., 40 Cal. 4th 1004 (2007), that a superior court can allow an employee to raise additional claims (such as additional wage claims) that the Labor Commissioner did not consider during the Berman process. It was therefore easy to extend the Murphy decision to paid sick leave claims.

c. A Berman Appeal Is Not A Private Right Of Action

The Supreme Court concluded “there is no private right of action to seek administrative penalties under section 248.5.” Citing Seviour-Hoff v. LaPaille, 80 Cal.App. 5th 427, 450 (2022), there is nothing in the Section 248.5 that “indicates a private right of action.” A Berman appeal, however, “is not a private right of action. Instead, it is a procedure for de novo reconsideration of the Labor Commissioner’s ruling in the administrative stage of the Berman process.” The Supreme Court added, “[w]ithout a private right of action, employees are left with the Berman process as their sole avenue for vindicating their rights under the Paid Sick Leave Law. See Wood v. Kaiser Foundation Hospitals (2023) 88 Cal.App.5th 742, 757.”

In short, an employee can raise a paid sick leave claim either directly in a Labor Commissioner claim or in response to the employer’s appeal of the Labor Commissioner’s ruling. The Supreme Court then commented about PAGA claims in a footnote, stating that Wood held Section 248.5 does not preclude an employee from bringing a PAGA action based on a failure to comply with the paid sick leave law; however, as proxy of the labor law enforcement agencies in a PAGA action, the employee may recover “only civil penalties” that would otherwise be assessed and collected by the state.

5. Conclusion

The Iloff decision addresses issues that appear fairly limited in scope and significance in an era marked by massive class action and PAGA litigation. Instead of cases that dissect claims involving hundreds or thousands of individuals, Iloff focused on a Labor Commissioner hearing resolving a minimum wage and liquidated damages claim of a single maintenance worker who was not paid any benefits or compensation, but was provided rent-free housing. In an unanimous decision, the Supreme Court disagreed with the court of appeal’s conclusion that the employers qualified for the good faith defense to liquidated damages. It returned the case to the lower court to take further proceedings consistent with the decision.

One can only wonder how the legal fees engendered by the litigation compared to the wages Iloff was eventually awarded. From a philosophical perspective, it would have been far less expensive for the employers to have investigated their legal obligations before entering into the working relationship rather than seeking to dig themselves out of a legal hole for years.

To read more articles like this one, subscribe to the ALERT Newsletter today!

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About The Author

Richard J. Simmons is a Partner in the law firm of Sheppard, Mullin, Richter & Hampton LLP in Los Angeles. He represents employers in various employment law matters involving litigation throughout the country and general advice regarding state and federal wage and hour laws, employment discrimination, wrongful discharge, employee discipline and termination, employee benefits, affirmative action, union representation proceedings, and arbitrations. Mr. Simmons received his B.A., summa cum laude, from the University of Massachusetts, where he was a Commonwealth Scholar and graduated in the Phi Kappa Phi Honor Society. He received his J.D. from Berkeley Law at the University of California at Berkeley where he was the Editor-in-Chief of the Industrial Relations Law Journal, now the Berkeley Journal of Employment and Labor Law.

Mr. Simmons argued the only case before the California Supreme Court that produced a victory for employers and business in 2018. He was recently recognized as the Labor and Employment Attorney of the Year by the Los Angeles Business Journal and was inducted into the Employment Lawyers Hall of Fame. He has lectured nationally on wage and hour, employment discrimination, wrongful termination, and other employment and labor relations matters. He is a member of the National Advisory Board to the Berkeley Journal of Employment and Labor Law, published by Berkeley Law at the University of California at Berkeley. He was also appointed by the California Industrial Welfare Commission as a member of three Minimum Wage Boards for the State of California.

A former high school teacher brought a 42 U.S.C. § 1983 action against her school district and board members, alleging that her termination for posts on a social networking site violated the First Amendment. In Hedgepeth v. Britton, No. 24-1427, 2025 WL 2447077 (7th Cir. Aug. 26, 2025), the U.S. Court of Appeals for the Seventh Circuit affirmed summary judgment for the school district, holding that the termination did not violate the First Amendment because the teacher’s “inflammatory” Facebook posts caused widespread disruption in the school community and beyond. Emphasizing both the substantial fallout from her posts and her prior disciplinary history, the panel concluded that the school district’s efficiency interests outweighed her speech interests.

1. Background

Jeanne Hedgepeth had taught social studies at Palatine High School for twenty years before her dismissal in 2020. The termination followed a series of Facebook posts made during the height of national protests, expressing controversial opinions and vulgar suggestions. Her posts—visible to an audience comprised of roughly 80% former students—elicited more than 130 complaints, media attention, and public criticism, disrupting the Palatine High School community and forcing the school district to divert significant resources to address the situation. Hedgepeth’s speech followed two prior disciplinary suspensions, both involving profanity aimed at students and violations of school district policies regarding professional conduct.

After her termination, Hedgepeth first requested an Illinois State Board of Education review hearing. While that administrative matter was pending, she filed a Section 1983 action against the school district and individual board members. After discovery, the district court granted summary judgment for defendants, holding Hedgepeth was collaterally estopped by the state administrative proceedings and, alternatively, that her First Amendment claim failed on the merits. She appealed.

2. The Court’s Legal Analysis

The panel framed the dispute under the public-employee speech doctrine. Public employees do not “relinquish their First Amendment rights as a condition of entering government service.” Instead, “the First Amendment protects a public employee’s right, in certain circumstances, to speak as a citizen addressing matters of public concern.” But just like “private employers, the government needs to exercise control over its employees to provide public services effectively,” so public employees still have “certain limitations on [their] freedom,” which may be particular to that employee’s role and whether it is a public-facing role of “trust.”

There was no dispute that Hedgepeth spoke as a citizen on matters of public concern; thus the question was whether the district’s interest in “promoting the efficiency of the public services” outweighed her speech interest under balancing-interests test from Pickering v. Board of Education, 391 U.S. 563, 568 (1968). The court reiterated that the employer bears the burden and that the oft-cited seven factors are guideposts, not a “straitjacket,” with the touchstone in the school context being “the effective functioning of the public employer’s enterprise.”

Framing the inquiry around the “effective functioning” of the school system, the court held the school district met its burden to show that its operational interests outweighed Hedgepeth’s speech interests. The record contained undisputed evidence that her posts “threw school and district operations into disarray,” unsettled classrooms, derailed summer school discussions, drew local and international media attention, and forced a costly, time-consuming public relations response that diverted staff and resources. In the court’s view, these concrete impacts on work, personnel relationships, and instructional programs squarely implicated the employer’s efficiency interests.

Context carried substantial weight as well. Hedgepeth was a public-facing educator in a position of trust, which affords school employers greater leeway when speech undermines effectiveness and public confidence. The school district also properly considered her two prior suspensions and explicit warnings for similar decorum violations; it was not required to “wait around for a fourth violation,” and could account for both actual and reasonably predictable disruption supported by evidence.

As for Hedgepeth’s numerous alleged defenses, the court rejected her reliance on nominal Facebook privacy: with roughly 80% of her curated audience tied to the PHS community, any claim to private speech was “illusory.” Her posts, “though not technically public, functioned more like a stage whisper than a secret,” predictably circulating among students and faculty and shaping perceptions of her as a teacher. The court also declined to treat the case as a “heckler’s veto.” Students, parents, and staff are essential participants in public education, not outsiders seeking to silence speech, and the school district responded to disruption, not viewpoint. Nor did the speech gain added protection from “special knowledge” or whistleblowing value; by her own account, the posts were jokes or shared views, and her vulgar tone weakened her interest given her role-model responsibilities. On this record, the scale and timing of the fallout created an “insurmountable barrier” to the learning environment, and the court concluded her posts were not protected in this public-employment context.

3. Practical Considerations

Hedgepeth underscores that First Amendment defenses will not insulate off-duty social media speech where employers can demonstrate contemporaneous, objective disruption to operations. Employers should maintain a concrete record of internal complaints, instructional or workflow impacts, diversion of staff and public-relations resources, media attention, and evidence-based forecasts of further disruption. Role and context are decisive: public-facing, trust-dependent positions—particularly where prior discipline and explicit warnings exist—afford greater latitude for employer action when speech undermines effectiveness, workplace relationships, or public confidence. Posts shared with stakeholder-heavy audiences should be treated as effectively public when amplification is foreseeable. Disciplinary decisions should be grounded in operational disruption and policy violations, not viewpoint, and implemented pursuant to clear, consistently enforced social media and decorum policies through a thorough, documented process. Timing is critical: prompt, well-supported action tied to imminent operational needs is more likely to withstand scrutiny.

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About The Author

Rachel Schuster is an associate in Sheppard’s Labor and Employment Practice Group in the firm’s San Diego (Del Mar) office. Ms. Schuster defends employers of all sizes in a broad range of employment matters, including claims of discrimination, retaliation, harassment, wrongful termination, wage and hour disputes, and contract issues. She has experience handling single-plaintiff lawsuits, class actions, and PAGA cases in both state and federal courts, as well as representing clients in mediation and arbitration. In addition to her litigation practice, Rachel conducts workplace investigations, conducts employment law training sessions, and advises employers on compliance with wage and hour laws, Cal/OSHA regulations, and other employment-related requirements. She drafts, reviews, and updates employee handbooks and workplace policies to ensure legal compliance and best practices.

She has written a number of articles for the Sheppard Labor and Employment Blog and is a contributing author of the ALERT Newsletter.

Ms. Schuster received her law degree, as well as her undergraduate degree, from the University of California, Berkeley.

E-Verify is an online query system which allows employers to submit I-9 information received from a new hire to verify the accuracy of the documents by comparing them with available records from the U.S. Department of Homeland Security (“DHS”) and Social Security Administration (“SSA”). It is however important to keep in mind that an employer’s enrollment in E-Verify does not replace the employer’s obligation to complete Form I-9 for every new hire. E-Verify is simply a supplement to the I-9 process, not a replacement.

First enacted by Congress in 1997 as a pilot program, E-Verify was intended to facilitate compliance with U.S. immigration laws by streamlining and standardizing document verification methods. In 2007, the program was expanded and made mandatory for federal contractors. Several years later, DHS made it mandatory for employers of STEM OPT workers. Since then, several states have mandated that it be used for all new hires by employers operating in their state (e.g., Alabama, Arizona, Florida, etc.).

1. The Benefits Of Using E-Verify

• E-Verify applies to foreign students educated in the U.S.: Allows employers to hire workers on STEM Optional Practical Training (“OPT”) who were foreign students educated in the U.S.

• E-Verify applies to contractors: Allows a company to be a federal contractor or sub-contractor, and in some cases a state contractor.

• E-Verify is generally fast: 98% of all initial submissions are approved in minutes. Of the remaining 2% that receive tentative non confirmations, the majority are not work authorized and receive final non-confirmation findings.

2. The Drawbacks Of Using E-Verify

• Cannot detect stolen identities: It has recently come to light that E-Verify does a poor job detecting stolen identities. For example, an employer can have a new hire that is not work authorized but is using the name and social security number of a U.S. citizen in another state. If the new hire presents a driver’s license with the stolen name but with the new hire’s own photo, and a social security card with the stolen number, E-Verify will often approve the documents. Since E-Verify does not have state driver’s license photographs in their database, E-Verify is unable to provide a thorough and entirely accurate photo match, thus leaving an employer open to a potential false-positive of a new-hire authorization.

• ICE I-9 audits: Recently as part of the Trump Administration’s uptick in immigration enforcement, during ICE raids, employers who regularly use E-Verify have been surprised to find out that during the ICE audit, ICE has determined that a large number of employees are not work authorized. Moreover, an employer’s use of E-Verify generally does not impact ICE’s decision to conduct I-9 audits. Additionally, some critics of the Administration’s current policies have raised concern that E-Verify creates a significant amount of digital data for U.S. Citizenship and Immigration Services (“USCIS”) which allows ICE to data mine and target companies for I-9 audits.

• Conclusion: Unless mandated by state or federal law (as in the case of federal contractors), employers should seriously weigh the pros and cons of enrolling in the current version of E-Verify. To the extent USCIS improves the database in the future to better flag stolen identifies, we anticipate that more employers will make use of the program, and more states (and possibly the federal government) will require widespread adoption.

3. Checklist For Employers Using E-Verify

1. The employer enrolls if they have not done so already.

2. The employer adds any worksites to the account as needed.

3. The HR representative completes an on-line tutorial with E-Verify on the USCIS website, unless they have previously completed the tutorial.

4. The new hire completes Section 1 of the I-9 by the first day of hire.

5. The employer completes Section 2 of the I-9 by the fourth day of hire — the so-called “Monday-Thursday rule.”

6. 1099 contractors are not employees and not required to complete and I-9 and thus not E-Verified.

7. E-Verify is for new hires only, not existing employees unless they are working on a covered federal contract.

8. The employer must copy and retain all work authorization documents.

9. By the fourth day of hire, the employer submits the I-9 data to E-Verify.

10. If E-Verify issues a tentative non confirmation (“TNC”) the employee has eight business days to resolve the TNC with SSA or DHS. During this time the employer must pay the employee.

11. In some cases, E-Verify will give an extension for the employee to resolve the issue.

12. On the 10th business day or later, if the employer receives a Final Non-Confirmation (“FNC”) from E-Verify, they must terminate the employee.

13. Any confirmation or non-confirmation should be printed out and stapled to the I-9.

14. The employer must place posters in the workplace indicating that they are enrolled in E-Verify.

4. E-Verify Requirements:

• Registration: Employers can register online at https://www.e-verify.gov/employers/enrolling-in-e-verify

• Mandatory tutorial: Before using E-Verify, HR or other managers responsible or inputting data into the system must take a mandatory online tutorial.

• MOU and posters: Employers are required to sign a Memorandum of Understanding (“MOU”) and also place posters in the workplace advising employees that the employer is enrolled in E-Verify.

5. E-Verify Additional Information:

• Help Desk: When an E-Verify employer has questions about the system, they can call the E-Verify Help Desk at: 888-464-4218.

• New hires only unless Federal Contractor: If the employer is not a federal contractor, then E-Verify is only to be used for new hires, not for existing employees.

• Federal Contractors: The Federal Acquisition Rules (“FAR”) state that E-Verify is mandatory both for new hires and for pre-existing employees working under a covered federal contract. It applies to both the prime contractor and all sub-contractors in the chain. See later discussion regarding subcontractors.

• Federal Contractors can E-Verify the entire workforce: An E-Verify employer that is a federal contractor has the option of E-Verifying all existing employees—both those working on a covered contract and those that are not. This would include pre-November 7, 1986, hires. All employees must complete an I-9 before the E-Verification process. If a federal contractor is E-Verifying the entire workforce, then employees who were hired previously would have expired documents. This will require employers to collect new I-9s before submitting them to E-Verify.

• Subcontractors: Section 6.2 of the federal E-Verify FAR mandates that subcontractors also enroll and use E-Verify.

Evidence required for all subcontractors to prove that they are enrolled in E-Verify would be printed from the “Edit Company Profile” page.

• Use if only remote employee in state with mandatory E-Verify: If the employer only hires one remote employee that lives in a mandatory E-Verify state, they must enroll in E-Verify and run that employee’s I-9 through E-Verify. Having no physical location and no other employees in that state is irrelevant. The employee’s home office would be the “hiring site” and the corporate office in another state would be the “verification site.”

• Paper or digital I-9 gets completed first: With E-Verify, the employee must complete Section 1 of the I-9 on or before the first day of hire. And the employer verifies the original work authorization documents and completes Section 2 of the I-9 by the fourth day of hire (the so-called “Thursday rule”). Both sections should be completed before the E-Verify case is submitted. It is recommended that the employer staple the I-9 supporting documents to the I-9 or upload it if digital. Photo ID documents must be copied for E-Verify employers.

• Mandatory photocopying and retention of photo identity documents: E-Verify users must photocopy and retain all List A photo identity documents. They must be used as part of the photo matching tool and retained with the I-9 after verification. Since List A documents must be copied, it is recommended for E-Verify employers to copy all documents.

• Photo Matching Tool: If the photo matching is triggered, the system will force employers to confirm that the photo displayed in the E-Verify system is identical to the photo on the I-9 documents the employee presented. Photo matching is only triggered if an employee presents the following documents:

• U.S. passport or U.S. passport card;

• Permanent Resident Card (Form I-551); or

• Employment Authorization Document (Form I-766).

E-Verify users must photocopy and retain all List A photo identity documents. They must be used as part of the photo matching tool and retained with the I-9 after verification.

If an employee presents a Permanent Resident Card, Employment Authorization Document or U.S. passport or passport card as the verification document, employers must copy the front and back of the document (or in the case of a U.S. passport, copy the Passport ID page and the Passport Barcode page) and retain the copies with the employee’s Form I-9.

If the employer indicates that the photo displayed on the E-Verify screen does not match the photo on the employee’s document, E-Verify prompts the employer to attach and submit copies of the front and back of the employee’s document electronically.

• Timing of E-Verify submission: The I-9 case must be submitted to E-Verify by the fourth day of hire.

• Social Security Number (“SSN”): E-Verify requires a social security number. If a new hire is work authorized but does not yet have their SSN (i.e., a new H-1B worker from abroad), the E-Verify system has a temporary procedure for handling.

• Recording E-Verify info on I-9 or attaching E-Verify closure confirmation: When an employer successfully confirms work authorization or closes the case for other reasons, they should record the case number on the I-9 or print out the Case Details page and attach it to the I-9.

• Tentative Non-Confirmation (“TNC”): If the employer receives a TNC, they must give the employee eight business days to go to SSA and get confirmation, or in some cases they are referred to DHS. The employer then has two business days to submit the data.

• Final Non-Confirmation (“FNC”): If the employer receives an FNC, they must terminate the individual. If there are extenuating circumstances, the employer can call the E-Verify Help Desk and request additional time.

• E-Verify reminders—Reverifications for Box 4 foreign nationals: As of 2018, E-Verify does provide an e-mail notification to the employer regarding expiring documents of a foreign national (Box 4 on the I-9). However, E-Verify advises that the reminder will only relate to the initial document on which an employee was hired. For example, if an employee was hired on a one-year OPT, E-Verify will issue the reminder 90 days out. However, when an employee is reverified with a STEM OPT or H-1B I-94, they are no longer a new hire. In this case, that information will not be submitted to E-Verify and therefore the E-Verify system will not be able to give a renewal notification. It is recommended to use the I-9 software for tracking purposes. If the employer does not have a digital I-9 software program, they must manually track these expiration dates. Regardless, the paper or digital I-9 does need to be updated in Section 3 for those individuals.

• Termination of E-Verify account / disenrollment: Unless an employer is mandated to enroll in E-Verify by a state, or they are a federal contractor, or STEM OPT employer, they are free to terminate their E-Verify account, or drop some worksites and keep others. The only exception would be if, as part of an I-9 audit, the employer entered into a settlement with ICE where they agreed to enroll and use E-Verify.

6. Additional Practice Pointers

• Employers must pay salary during TNC period until FNC received and issue W-2 the following year: Where the employer is using E-Verify and the new hire receives a TNC they must remain on the payroll until a FNC is received. In that situation, the employer must pay the employee for all time spent on the payroll until they are terminated on the day they receive the Final Non-Confirmation. The employee would be a W-2 employee during that time until they are terminated. The employer could still use the SSN the employee gave them on the W-2 in the following year. The employer might get a no-match letter from the government in the following year but the employer should indicate they were terminated on x date.

• Digital I-9 is not E-Verify: Some employers think that a digital I-9 is E-Verify. The digital I-9 is merely the legal record of the employee’s authorization to work in the United States. E-Verify on the other hand involves submitting the data from the I-9 (either paper or digital I-9) to USCIS for additional verification that the employee truly is in fact work authorized.

• Desk audit: USCIS administers the E-Verify program. They conduct desk audits from the E-Verify headquarters in Syracuse, New York. This involves calling the employer and advising them that a particular E-Verify practice is noncompliant. The desk audits are non-punitive and there are no fines. They are meant to help the employer be fully compliant.

• Data reports: E-Verify employers may use the E-Verify system to run many data reports about their company. This can be very helpful in looking at trends.

• E-Verified employee but employer cannot complete ¬E-Verify: In some cases, with a new hire, the employee will present a receipt for renewal of an acceptable I-9 document which will buy 90 days of employment (the “90-day receipt rule”). The employer will then indicate on the drop-down menu in E-Verify at the time of hire. The employer must then update the I-9 and go back into E-Verify before the 90 days expires. Similarly, the employer should follow this process if someone is work authorized but has not received their social security number.

• Late E-Verify/Employee I-9’d but not E-Verified: The general rule is a late E-Verify is better than not at all. Employers should not attempt to E-Verify employees that were hired before the company enrolled in E-Verify unless the employer is a federal contractor and the employee is working on a “covered contract.” When E-Verifying someone late, use the drop-down menu to indicate it is late and the reason. The employer can also indicate they noticed this based on an internal audit. When running an I-9 through the E-Verify system late (after the fourth day of hire):

• If the employer is missing an I-9, complete one now.

• If the employee was already E-Verified before, do not run them through E-Verify again, just complete the missing I-9.

• Use the drop-down menu to indicate it is late and the reason. (e.g., “Noticed E-Verify not done upon internal audit.”)

• Other possible reasons for not being able to close an E-Verify case includes waiting for an SSN, or if a new hire is invoking the 90-day receipt rule. Use the drop-down menu to indicate those options as well.

• Sample clause in company handbook regarding E-Verify: “Our company uses E-Verify to confirm your authorization to work in the United States. E-Verify is a digital online query system where a paper or digital I-9 is completed. The employer will electronically submit additional data to verify the accuracy of the documents received from the employee.”

• Company with multiple business units and Federal Employer Identification Numbers (“FEINs”): If a company has multiple business units and FEINs, care must be taken that both the I-9 and E-Verify submission corresponded to the correct employer and FEIN.

7. E-Verify’s Recent Changes

On April 2, 2025, the USCIS released a revised version of Form I‑9 (edition 01/20/25, expiration 05/31/2027). Employers using electronic I-9 systems who had the older edition that expired 07/31/26 must update their systems to reflect the new expiration date (05/31/27) by July 31, 2026.

From October 1–8, 2025, the E-Verify system was shut down due to the 43-day government shutdown. Employers were notified of the suspension on October 1, 2025 and had until October 14, 2025, to create cases for employees hired during the outage.

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About The Authors

Greg L. Berk is a Partner in the law firm of Sheppard, Mullin, Richter & Hampton LLP in the firm’s Orange County office. He leads the Firm’s immigration practice and is a Certified Specialist in Immigration and Nationality Law by the State Bar of California Board of Legal Specialization. He has over 25 years of experience advising on all aspects of U.S. immigration matters. He assists employers worldwide with the hiring and retention of foreign national executives and highly talented individuals that are needed in their U.S. workforce. He also works with investors on E-2, L-1, and EB-5 matters. He also handles I-9 and other immigration compliance matters.

Greg frequently lectures on immigration issues and is a regular contributor to the California Labor and Employment ALERT Newsletter and Sheppard Mullin’s Labor & Employment Law blog. Mr. Berk received his J.D. from Western State University College of Law, his M.B.A. from George Washington University and his B.A. from California State University.

Mia Ndalugi is associate in the Labor and Employment Practice Group with the law firm of Sheppard, Mullin, Richter & Hampton LLP in the firm’s Orange County office. She is a frequent contributor to the California Labor and Employment ALERT Newsletter and Sheppard Mullin’s Labor & Employment Law blog. Ms. Ndalugi received her J.D. from Georgetown University, and her B.S. from University of California, Berkeley, magna cum laude, Highest Honors Distinction.