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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 LEXIS 24564 (9th Cir. Sep. 23, 2025), in an unpublished decision, the Ninth Circuit denied the employee’s petition to overturn the new trial order, noting the outsized scale of the award relative to the admissible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.

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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.

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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.

July 1, 2025 marked one year since the amendments to the Private Attorneys General Act (“PAGA”) took effect. Enacted as a compromise to avoid a proposed November 2024 ballot initiative that would have repealed PAGA, the reforms were the result of negotiations between Governor Newsom, labor groups, and business groups. The stated purpose of the amendments was to curb perceived abuses and restore PAGA’s original mission of supplementing state labor enforcement. However, they continue to spark debate as PAGA case filings remain high and the state pushes back against improper tactics.

1. Background

It is no secret that PAGA had been used by some plaintiffs’ attorneys for years as a tool to pursue claims for civil penalties, often with only a tenuous connection to the named plaintiff. As noted by the Legislature itself, this structure invited manipulation by trial attorneys who saw PAGA as a “money-making scheme” rather than a mechanism to bolster labor law compliance. The Court of Appeal in Williams v. Alacrity Solutions Group, LLC, 110 Cal.App.5th 932, 944 (2024), highlighted this concern, observing that the 2024 amendments were enacted because PAGA’s goal to “bolster labor law enforcement” had been “manipulated over its 20-year history by certain trial attorneys as a money-making scheme.”

2. Mechanics Of The Reform

The 2024 reforms enacted on July 1, 2024, introduced a series of targeted amendments to address these concerns. Among other changes, the legislation:

• Increased the employees’ share of PAGA penalties from 25% to 35%;

• Placed caps on penalties for employers who proactively audit, fix, or cure Labor Code issues, with further reductions if they act after receiving notice;

• Limited standing to plaintiffs who actually suffered the alleged violations within the one-year limitations period;

• Created early resolution and cure processes, including special pathways for small employers and a neutral evaluation process for larger employers; and

• Granted trial courts greater authority to manage overlapping or complex PAGA claims.

3. Trends Since The Reform

The amendments did not discourage attorneys from filing claims in batches. In 2024 alone, over 9,400 notices were filed – an all-time record. Critically, from July 1, 2024 through June 2025, nearly 8,800 more notices were filed, amounting to roughly 25 new filings each day. Many of these notices allege broadly stated Labor Code violations without providing sufficient factual details.

In response, the Labor and Workforce Development Agency (“LWDA”) has issued pointed warnings to several plaintiffs’ firms. For example, in February 2025, the agency directed one firm to amend dozens of notices after finding “numerous boilerplate PAGA notices containing seemingly frivolous allegations.” It warned that a continued pattern could result in State Bar referral. Similarly, in April 2025, the LWDA admonished another firm, observing that out of 102 PAGA notices filed by a single attorney in under a year, nearly all appeared to be copied from class action pleadings with no supporting facts.

These agency warnings reinforce the Legislature’s goal of discouraging “professional PAGA plaintiffs” and their counsel from flooding the courts with cookie-cutter claims. Yet, given the still-elevated filing numbers, it remains to be seen whether these efforts will meaningfully reduce meritless litigation in the long run.

4. Looking Ahead

Even after a year, the full impact of the 2024 PAGA amendments remains uncertain. Many of the new provisions are so complex and poorly drafted, they necessitate interpretations by courts and attorneys alike. Employers are working to understand these reforms and whether they help in defending or narrowing PAGA claims.

At the same time, the LWDA’s unchecked criticism of vague, template-style allegations marks a positive step. Employers should consider how to utilize the agency’s stated concerns about boilerplate notices when challenging litigation filed after the reforms took effect. Courts are also likely to continue testing whether a plaintiff’s “aggrieved employee” status is supported by a timely, individualized claim that the plaintiff suffered each alleged violation. This is consistent with the stricter standing requirements imposed by the amendments.

In this evolving post-reform landscape, proactive compliance measures, thorough audits, and a clear litigation strategy to challenge deficient PAGA claims remain employers’ best tools to minimize exposure.

Those seeking a more in-depth analysis of the new PAGA reform legislation are invited to read the new 2025 California’s Private Attorneys General Act (PAGA) Litigation and Compliance Manual by Sheppard Mullin Attorneys Richard J. Simmons, Ryan J. Krueger, and Tyler J. Johnson. Readers can learn to identify high risk areas, audit their policies and practices, understand PAGA litigation, and implement proactive measures to reduce exposure to liability. The Manual will be available soon from Castle Publications.

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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 Mullin.

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.

On August 15, 2025, in State of Texas v. Bondi, the Fifth Circuit Court of Appeal overturned a decision from a Texas district court that previously found the Pregnant Workers Fairness Act (“PWFA”) to be unconstitutionally enacted.

As background, the PWFA is a federal law enacted in 2022 that aims to protect pregnant workers or workers who have conditions tied to pregnancy and childbirth by requiring employers with 15 or more employees to offer reasonable workplace accommodations to such employees. The law also prohibits discrimination or retaliation against these employees. The law covers not only pregnancy but also related medical conditions, such as morning sickness, gestational diabetes, and postpartum depression.

The PWFA became law in December 2022 after passing in both the House and the Senate as an amendment to the Consolidated Appropriations Act (a $1.7 trillion bill). The bill was passed using a pandemic-era rule that allowed lawmakers to vote remotely by proxy.

The PWFA went into effect on June 27, 2023.

In February 2023 (before the law took effect), the State of Texas filed a lawsuit against the federal government, challenging the federal government’s omnibus spending package and specifically targeting two provisions of the bill: enactment of the PWFA and funding for unauthorized immigrant social services. The State of Texas focused its lawsuit on the U.S. Constitution’s quorum clause, which requires a majority of members of the House or Senate to be present in order to constitute the necessary quorum to pass legislation.

In February 2024, a federal judge in Texas agreed with the State of Texas and blocked the EEOC from enforcing the PWFA against the State of Texas. Specifically, the judge ruled that the law could not be enforced against the State because the House did not have a proper quorum when it passed the Consolidated Appropriations Act in 2022. The judge ruled that the remote voting by proxy violated the Constitution’s quorum clause.

With this 2024 ruling, the judge issued a permanent injunction, barring the federal government from filing suits under the PWFA against the State of Texas. The injunction would also block the EEOC from accepting state employees’ charges alleging violations of the PWFA, investigating those charges, issuing right-to-sue letters or suing on behalf of employees. The injunction however would not block state employees in Texas from filing suits under the PWFA and did not impact private employers.

This decision was appealed to the Firth Circuit, which held that House lawmakers did not need to vote in person to have a quorum under the Constitution, and that the district court judge adopted an improper interpretation of the quorum clause in ruling that the bill required the physical presence of a majority of House members when it was passed. The Fifth Circuit explained that the constitutional text, history, and tradition indicate that the quorum clause does not contain a physical-presence requirement.

With this decision, the EEOC’s ability to enforce the PWFA against the State of Texas is restored and the decision makes clear that covered employers, both public and private, must comply with the PWFA. Thus, employers must make sure their accommodation policies and related policies address pregnancy-related needs and also take into account medical conditions related to pregnancy.

Those seeking a more in-depth understanding of the PWFA and pregnancy discrimination are invited to read Chapter 5 of the Employment Discrimination and EEO Practice Manual for California Employers by Attorney Richard J. Simmons of Sheppard Mullin. The Manual is available from Castle Publications.

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About The Author

Rachel Patta Howard is an associate in Sheppard Mullin’s Labor and Employment Practice Group in the firm’s Century City office. Ms. Howard represents employers in a variety of industries including financial services, banking, retail, healthcare, manufacturing, and entertainment. She has successfully litigated and favorably resolved cases involving allegations of discrimination, retaliation, harassment, failure to accommodate, wrongful termination, trade secret misappropriation, and defamation, as well as wage and hour cases, including representative and class actions. Additionally, Rachel advises and counsels clients on day-to-day employment issues including internal investigations, discipline and terminations, leaves of absence, the interactive process, reasonable accommodations, personnel policies, and other wage and hour compliance issues.

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

Ms. Howard received her law degree, as well as her undergraduate degree, from the University of California, Los Angeles.

On September 19, 2025, the White House issued a Presidential Proclamation imposing a $100,000 filing fee for certain H-1B workers.

The advent of this Proclamation has created a lot of uncertainty. The Department of Homeland Security (“DHS”) issued some initial clarifying guidance on September 20, 2025, but we are hopeful that more guidance will ensue.

Several groups have already announced that they intend to challenge the legality of the Proclamation, since USCIS filing fees must bear a reasonable relationship to the cost for the agency to provide that service and the agency must also first publish them in the Federal Register.

1. Key Takeaways, In The Interim

1. We are still waiting for more agency guidance as to whether the Presidential Proclamation of Sept 19, 2025 only applies to new H-1B lottery petitions starting in April 2026 and that designate consular processing for brand new workers that are still overseas.

2. The U.S. Citizenship and Immigration Services (“USCIS”) and U.S Customs and Border Protection (“CBP”) issued memos on September 20 indicating that the $100,000 fee only applied to new petitions filed on or after September 21, 2025. However, the memos were silent on all other issues.

3. The White House press secretary issued a clarification on X on September 20 indicating that the fee will first apply to H-1B lottery cases starting in April. See the X posting below.

4. Petitions filed before September 21, 2025 should not be impacted, nor should H-1B travel or visa stamping be impacted at this time for petitions that were filed prior to that date.

5. The USCIS website makes no mention of any $100,000 filing fee for any H-1B petition filing. Indeed, at this time there appears to be no way to even pay the fee if it were required.

6. H-1B workers with petitions filed before September 21, 2025 should be able to travel abroad and return with a valid H-1B visa stamp and passport based on the White House posting on X and the agency memos from September 20. And to date we have not heard of any H-1B workers having difficulty returning to the U.S.

7. Non-lottery petitions filed on or after September 21, 2025 might incur a $100,000 filing fee but the guidance on this question is unclear. Therefore H-1B workers who are the beneficiary of a new petition filed on or after September 21, 2025 should not travel abroad at this time until more guidance is given by the federal agencies.

8. It also remains unclear how the Courts will look at this Proclamation and subsequent agency actions – whether it is within the Executive Branch’s authority or only that of Congress.

9. Assuming the Courts uphold most or all of the Proclamation, it also remains unclear whether the Secretary of Homeland Security will use the discretion granted to her in the Proclamation to exempt certain industries, companies, or individuals from the $100,000 filing fee on the basis of national interest.

10. While there is no guarantee, this is what we know about the new fee at this time. It could change. We will keep readers apprised as developments occur.

2. White House Clarification Posted On X On September 20

To be clear:

1.) This is NOT an annual fee. It’s a one-time fee that applies only to the petition.

2.) Those who already hold H-1B visas and are currently outside of the country right now will NOT be charged $100,000 to re-enter.

H-1B visa holders can leave and re-enter the…

— Karoline Leavitt (@PressSec) September 20, 2025

3. Additional Guidance And Commentary

• While not a certainty, it appears the primary intent of the Proclamation is to target IT workers who are overseas and hope to be selected in the March 2026 H-1B lottery. If they are overseas and their visa number is selected in the lottery, then the employer will have to file an I-129 petition, indicate consular processing, and pay the $100,000 filing fee prior to filing the petition.

• When Congress created the H-1B program in 1990, it did not tie it to proving that there was a shortage of U.S. workers. At the time there was a known shortage of IT workers, so Congress only mandated that the position require a 4-year degree related to the duties of the position and that wages would not adversely affect U.S. workers. Congress also set an annual quota on the number of new H-1B visa holders.

• The Proclamation also directs the Department of Labor (“DOL”) to review and prioritize H-1B petitions and visas for the most highly skilled and highly paid workers. The lottery will give four selection opportunities for a position where the employer is willing to pay a Level 4 wage, three selection opportunities for a Level 3 wage offer, etc. The Proclamation cites the H-1B Labor Condition Application (“LCA”) requirement as outlined in 8 U.S.C. 1182(n). The congressional statute cited in the Proclamation requires that H-1B wages be on par with what U.S. workers are being paid for the same position and job requirements and that the H-1B wage not adversely impact U.S. worker wages.

• Limiting the H-1B lottery program to only the highest paid and highest skilled workers may thwart the intent of Congress which limited the H-1B program to professional occupations involving at least a relevant 4-year degree. Therefore, this area seems ripe for litigation as Congress wrote in the statute that the program must protect American wages, but it did not require that only the highest skilled and highest paid workers (“Level 4”) be accepted. On the other hand, if the White House feels that U.S. wages are being adversely affected by the current H-1B lottery selection method, the Courts could uphold the new H-1B lottery selection method.

• It is also likely that the DOL will attempt to increase the prevailing wage for all H-1B petitions (including not lottery petitions) and start commencing more H-1B wage and hour audits to determine if employers are paying at least what the agency believes is the correct prevailing wage level for the position.

• It remains to be seen how this will play out. Since the DOL sets the 4 level prevailing wage already, the presumption is they are already accurate and protecting U.S. workers. https://flag.dol.gov/wage-data/wage-search

4. Conclusion

The intent of the Proclamation is primarily to stem the future flow of IT workers from overseas, which the Administration feels causes U.S. wages to drop and is leading to rising unemployment in this sector. Also, generally employers should expect to pay higher wages to H-1B workers in the future.

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 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.

Jonathan Meyer is a Partner in the Governmental Practice Group with the law firm of Sheppard, Mullin, Richter & Hampton LLP in the firm’s Washington DC offices. He counsels clients on their interactions with federal and state government, as well as national and homeland security, Congressional oversight, cybersecurity, AI, high tech, and transportation security, among other issues.

Prior to returning to Sheppard Mullin, Jon was nominated by President Biden and confirmed by the Senate as the Sixth General Counsel of the U.S. Department of Homeland Security, serving from 2021 to 2024.

Jon is regularly sought out by the media – including CBS News, NPR, The Wall Street Journal, The New York Times, The Washington Post and Politico – on issues including national security, homeland security, government investigations, cybersecurity, immigration, politics and Congress.

On May 1, 2025, the U.S. Department of Labor’s (“DOL”) Wage and Hour Division announced it would not enforce or apply the Biden-era 2024 Final Rule regarding independent contractor classification (“2024 Rule”). Specifically, the DOL directed its investigators “not to apply the 2024 Rule’s analysis” in enforcement matters. The DOL’s announcement will undoubtedly make it easier to classify workers as independent contractors at the federal level—and continues a seesaw of regulatory pull-back from Biden-era directives. While the 2024 Rule does remain in effect for private litigation and certain state-specific tests still impose higher worker classification standards than the current federal guidelines, the DOL’s announcement bodes well for employers seeking to classify workers as contractors under federal law. However, it does not affect the status of workers under state law, such as California’s AB 5.

1. The 2024 Rule

Under the 2024 Rule, classifying workers as independent contractors was somewhat akin to threading a needle. Imposed on March 15, 2024, the 2024 Rule mandated a complex, employee-friendly analysis that focused on a holistic review of the “totality of the circumstances” to ascertain whether a worker was “economically dependent” on an employer and, therefore, not an independent contractor. These six factors included:

1. The nature and degree of an employer’s control over the worker;

2. The worker’s opportunity for profit or loss;

3. Any investments by the workers and the employer;

4. The degree of permanence of the working relationship;

5. The extent to which the work performed is integral to the employer’s business; and

6. The amount of specialized skill and business initiative required.

Under the 2024 Rule, no factor was assigned more weight than another. Thus, the 2024 Rule was commonly referred to as the “totality of the circumstances” test. The net result was a high degree of both difficulty and uncertainty for employers seeking to classify workers as independent contractors.

2. Legal Challenges To The 2024 Rule

Business groups quickly challenged the 2024 Rule in courts across the country. At present, five lawsuits are pending. In each, the main argument is that the 2024 Rule was arbitrary, capricious, and imposed an undue burden on businesses. No court has halted or enjoined the 2024 Rule. While the Biden-era DOL mounted a vigorous defense in each case, the current DOL’s retreat from the 2024 Rule renders the ultimate outcome of these cases unclear. For example, in one case pending before the Fifth Circuit (Frisard’s Transp., LLC v. United States), the Court of Appeals stayed the proceeding after the government submitted a status report noting the DOL was in the process of reconsidering the 2024 Rule-at-issue in the litigation. Ultimately, the DOL’s pivot to the more lenient standard could have massive implications for these proceedings.

3. The DOL Retracted The 2024 Rule

In its May 1 announcement, the DOL directed investigators to analyze a worker’s status under the longstanding “economic reality” test, described in the DOL’s 2008 Fact Sheet 13 and 2019 Opinion Letter. The more traditional economic realities test looks at various factors to determine whether workers are actually in business for themselves (and therefore contractors) or dependent on the hiring entity (and thus an employees). These factors include:

1. Whether the work is integral to the hiring entity’s business;

2. The permanency of the parties’ relationship;

3. The contractor’s investments in facilities or equipment;

4. The degree of control by the hiring entity over the contractor;

5. The contractor’s opportunity for profit or loss;

6. The amount of independent judgment or initiative required in marketplace competition for the contractor to succeed; and

7. The degree of independence with which the contractor organizes and operates their business.

This traditional economic reality test is widely considered more employer-friendly. It is highly-likely that the DOL under President Trump will issue new, formal rulemaking on the subject in the near future.

4. Practical Considerations

Regardless of the DOL’s announcement, employers should remain careful and ensure they comply with other applicable classification rules; which greatly vary by jurisdiction.

For example, many state laws establish classification standards that are stricter than the federal guidelines. California uses the much stricter “ABC test” to determine whether a worker is an independent contractor. Under that test, employers must prove (1) a worker is free from the hiring entity’s control and direction, (2) the work is outside the hiring entity’s usual course of business, and (3) the worker is customarily engaged in an independently established trade, occupation, or business. Employers must prove all three elements to properly classify a worker as an independent contractor.

Employers should also closely monitor regulatory developments. As noted above, it is likely that the DOL will implement a new final rule in the near future. If and when that occurs, employers should be prepared for accompanying changes and evaluate their existing worker classifications. Given the shifting administrative environment, it is crucial that employers stay flexible in order to both maximize opportunities presented by favorable changes and, conversely, be prepared if—or when—the regulatory winds shift once more.

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

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About The Author

Jonathan E. Clark is a Partner in the law firm of Sheppard, Mullin, Richter & Hampton LLP in the Firm’s Dallas office. He is an experienced, strategic, and aggressive trial lawyer who specializes in “employee departure” litigation. To that end, Jonathan frequently represents businesses seeking to enforce restrictive covenants against high-level, departing employees who gained access to their former employer’s most valuable confidential information, trade secrets, and customer relationships. Conversely, he also defends companies seeking to hire personnel who may be bound by restrictive covenants with a former employer. These scenarios often require immediate and precise legal maneuvers. Accordingly, Jonathan often spearheads emergency injunction actions in state and federal court designed to halt contractual and legal violations before the damage is done and it’s too late.

Jonathan is a contributor to the California Labor and Employment ALERT Newsletter and Sheppard Mullin’s Labor & Employment Law blog. Mr. Clark received his J.D. from Texas A&M University School of Law, Dean’s List and his B.A. from Southwestern University.

California law requires employers to provide an off-duty meal period of at least 30 minutes to an employee who works more than five hours in a day and a second meal period to an employee who works more than 10 hours. However, it also authorizes employees to waive meal periods under limited circumstances. In the April 21, 2025 decision of Bradsbery v. Vicar Operating, Inc., 110 Cal. App. 5th 899 (2025), a California Court of Appeal concluded that revocable, prospective waivers signed by employees are enforceable in the absence of evidence they were unconscionable or unduly coercive.

1. Background Of Case

In 2014, two employees sued their former employer, Vicar Operating, Inc., alleging claims on behalf of a class of employees. They alleged Vicar failed to provide them with the meal periods required by Labor Code Section 512 and Wage Orders 4 and 5. In response, Vicar asserted the employees signed a valid, written agreement that prospectively waived all waivable meal periods throughout their employment. The agreement provided the employees could revoke it at any time.

Vicar moved for summary adjudication regarding the validity of the waiver under Labor Code Section 512 and the wage orders. The trial court found the waivers valid and ruled for Vicar. The court of appeal affirmed the decision, finding that prospective written waivers of a 30-minute meal period for shifts between five and six hours accords with the text and purpose of Section 512. The legislative and administrative history confirmed the legislature and Industrial Welfare Commission determined such waivers are consistent with the welfare of employees.

2. Vicar Operated A Network Of Veterinary Hospitals

The two plaintiffs worked for Vicar, which operated a network of veterinary hospitals. In April 2009, both plaintiffs signed a written meal period waiver.

The parties stipulated that Vicar could file a motion for summary adjudication to determine whether its blanket meal period waivers to prospectively waive meal periods on qualifying shifts are enforceable under California law. Vicar asserted as an affirmative defense to liability that the employees validly waived the disputed meal periods. Oddly, the employees argued the prospective waivers were prohibited by California law. They further argued employees could waive meal periods for a given shift only after they were scheduled to work that shift. Neither argument appeared logical, let alone persuasive. The trial court granted Vicar’s motion for summary adjudication based on the plain language in the law.

The employees conceded that Section 512 and the wage orders were silent as to when the first meal period could be waived, yet argued that prospective waivers were impermissible. This argument was ill-fated. The employees argued that other features of the wage orders expressly stated that waivers could apply prospectively and, by negative implication, the failure of the meal period provisions in dispute to do the same thing implied that prospective waivers were unlawful. The court determined that the employees read too much into an assumed “implication” as meal period waivers did not expressly need to be written for shifts of five to six hours.

3. Conclusion

The court summarized its conclusion by stating: “Plaintiffs have not demonstrated Vicar’s use of prospective written waivers violates the Labor Code or the applicable wage orders at issue in this case.” On a practical level, this means that employers can enter into waivers with employees who work 5 to 6 hours to voluntarily waive their meal period. While the waiver in issue was written and revocable on its face, the court declined to opine whether a written waiver is necessary or whether it can be oral. Employers may prefer to avoid the risk of using an oral agreement to waive a meal period where employees work 6 or fewer hours and instead use written waivers that document the consent of both parties.

The topics of meal periods and meal period waivers are addressed in Section 4.2 of the Wage and Hour Manual for California Employers (27th Edition) by Attorney Richard J. Simmons of Sheppard Mullin. The book is available from Castle Publications, LLC.

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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.