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Heather DeBlanc
Partner | Los Angeles
Max Sank
Partner | Los Angeles
Casey Williams
Partner | San Francisco
Alison R. Kalinski
Senior Counsel | Los Angeles
Stephanie J. Lowe
Senior Counsel | San Diego
Cindy Allen
Associate | San Francisco
Chase Booth
Associate | San Diego
Hannah Dodge
Associate | San Francisco
Ashlyn Marquez
Associate | San Francisco
Jessica Tam (Lee)
Associate | San Francisco
Hadara R. Stanton
Associate | San Francisco
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wage&Hour
Minimum Wage Set To Increase To $16.50 For All Employers Starting January 1, 2025.
California’s minimum wage has increased to $16.50 per hour for all employers effective January 1, 2025, up from $16.00 in 2024. This change reflects the state’s ongoing efforts to adjust minimum wage rates in response to inflation, as required under California Labor Code section 1182.12. This inflation-based adjustment is part of a broader strategy to ensure that wages keep pace with the cost of living and to protect low-wage workers from economic hardship.
Since January 1, 2023, when the minimum wage for all employers reached $15.00 per hour, the Director of Finance has been tasked with evaluating whether inflation warrants an adjustment. By August 1 each year, the Director calculates the adjustment based on the U.S. Consumer Price Index (CPI) using the lesser of a 3.5 percent increase or the actual rate of inflation. For the period between July 1, 2023, and June 30, 2024, the Department of Finance determined a CPI increase of 3.18 percent. As a result, the minimum wage will rise by 3.18 percent to $16.50 per hour starting in 2025.
The increase in the minimum wage also affects the minimum salary requirements for full-time exempt employees in California. Under state law, exempt employees must earn at least twice the state minimum wage, in addition to meeting other duties related requirements. Accordingly, the minimum salary for an exempt employees went from $66,560 per year ($5,546.67 per month) in 2024 to now $68,640 per year ($5,720 per month) in 2025. Employers should note that this minimum salary requirement applies even to part-time exempt employees, such that the minimum salary requirement cannot be pro-rated for part-time employees.
In addition to the state minimum wage, several California cities and counties have enacted their own local minimum wage ordinances, which may set higher wage floors than that provided by the state law. Employers should verify whether they are located in an area with a local ordinance and ensure compliance with the applicable rates, including minimum rate increases. For example, these cities all have minimum wage rates that went up on January 1, 2025: Belmont, Burlingame, Cupertino, Daly City, East Palo Alto, El Cerrito, Foster City, Half Moon Bay, Hayward, Los Altos, Menlo Park, Mountain View, Novato, Oakland, Palo Alto, Petaluma, Redwood City, Richmond, San Carlos, San Diego (city), San Jose, San Mateo (city), San Mateo County, Santa Clara, Santa Rosa, Sonoma (city), South San Francisco, Sunnyvale, and West Hollywood. Some cities also increase the minimum wage on July 1, so staying informed about local ordinances is especially important for multi-site employers who may face varying wage obligations within the state.
In November 2024, California voters narrowly rejected Proposition 32, a ballot measure that would have raised the minimum wage to $18 per hour for large and medium-sized employers and $17 per hour for small employers with 25 or fewer employees. Despite its rejection, the measure highlighted the ongoing public debate over fair wages and cost-of-living concerns.
Nonprofit organizations and other employers should anticipate steady annual increases in labor costs due to the inflation-based adjustment formula outlined in the Labor Code. Strategic planning and budgeting should account for these changes. Furthermore, minimum wage remains a highly debated issue in California, and similar initiatives to Proposition 32 could reemerge in future elections.
By staying informed and proactive, employers can ensure compliance with both state and local wage laws
while effectively managing the financial impacts of these adjustments.
Taking “Reasonable Steps” To Protect Against PAGA Claims And Penalties In The New Year.
On July 1, 2024, Governor Gavin Newsom signed two bills that reformed the Private Attorneys General Act of 2004 (PAGA). PAGA allows employees to recover substantial penalties on behalf of other employees and the state for violations of California’s wage and hour laws, such as strict laws regarding meal and rest breaks for nonexempt employees. Although PAGA was intended to protect workers, PAGA has come under increased criticism for causing excessive litigation and crippling penalty awards against well-intentioned employers, including nonprofit employers.
Accordingly, the PAGA reform bills were negotiated between business and employee groups to address this criticism while still providing a robust mechanism for employees to recover substantial penalties for wage and hour violations. We do not yet know how effective those changes will be in addressing employer’s concerns, but you can read more about all of the changes in our previous update here
As we embark on the New Year, one of the most discussed reforms were measures that allow employers to take “reasonable steps” to preemptively reduce the penalties an employee can recover in a PAGA. Specifically, built into the reform measures is an incentive to encourage employers to take steps to come into greater compliance with California’s wage and hour laws. Under those measures, if an employer can show that it took certain “reasonable steps” the employer can argue that PAGA penalties should be capped at 15% or 30% of what the employee would otherwise recover. PAGA penalty awards can be substantial, even under the newly reformed PAGA. The basic civil penalty under the reformed PAGA is $100 for each aggrieved employee for each pay period that there was a violation. Penalties are now slightly less in some cases, such as $25 per employee per pay period for certain wage statement violations, but can also be as high as $200 per employee per pay period if an employer acted, for example, fraudulently in violating wage and hour laws.
However, now, under the reform measures, an employer can seek to have the recoverable penalties in a PAGA claim capped at 15% if the employer can show that it took
all “reasonable steps” to comply with the California Labor Code prior to receiving a notice of violation or request for personnel records from an employee. “All reasonable steps” that can be taken before receiving a PAGA notice or personnel records request from a potential PAGA complaint include, but are not limited to:
• Conducting periodic payroll audits and taking action in response to the results of the audit.
• Disseminating lawful written policies.
• Training supervisors on applicable Labor Code and wage order compliance.
• Taking appropriate corrective action with regard to supervisors.
Additionally, employers can also take similar reasonable steps to come into compliance within 60 days after receiving a notice, in which case employers can seek to have potential penalties capped at 30% of the penalties sought, provided the any auditing or dissemination of policies is aimed at the alleged violations in the notice. In either case, the reform measures also explain that whether a particular employer’s actions are reasonable will be based on the totality of the circumstances, taking into consideration the size and resources available to the employer and the nature, severity, and duration of the alleged violations.
Below are some important considerations for employers considering preemptively conducting some or all of these “reasonable steps” in order to be able to argue for reduced penalties in the event of a PAGA claim.
• Periodic Payroll Audits – The PAGA reform measures encourage employers to conduct periodic payroll audits and, importantly, to take action in response to the audit results. It remains to be seen how this provision will be interpreted. For example, it is unclear what qualifies as “periodic.” As another example, it is unclear if an audit must comprehensively cover all aspects of an employer’s wage and hour practices or if targeted audits at certain issues will be sufficient (e.g., classification of nonexempt, overtime practices, meal and rest break compliance). Another issue for the courts to work out and for employers to be aware of is whether an employer will be required to waive the attorney-client privilege in an audit conducted by an attorney, before the employer can rely on that audit to show that it took reasonable steps.
• Disseminating Lawful Written Policies – This reform measure incentivizes employers to adopt and regularly update written policies addressing things such as meal and rest breaks, timekeeping practices, and overtime compliance. The term “lawful” suggests that policies need to be regularly evaluated and updated to ensure they keep up with changes in the law. The term “disseminating” also implies that these policies need to be effectively given to employees, which could involve providing physical and digital copies to employees and making copies easily accessible, such as posting them on an online dashboard or intranet. Having employees sign acknowledgments that they have received the policies is already considered a best practice, and it may now also be helpful in showing that “reasonable steps” were taken under the PAGA reform measures.
• Training Supervisors – The PAGA reform measures encourage employers to provide training to supervisors specifically on wage order compliance. Again, the reform measures do not provide guidance on how often this training should occur or address what topics should be covered, but the measures suggest that the trainings should cover laws and wage orders applicable to an employer. For example, supervisors could be trained on the basics of meal and rest breaks laws under an applicable wage order, so those supervisors will be more effective in setting lawful meal and rest break schedules and ensuring nonexempt employees are being provided compliant meal and rest breaks. Accordingly, employers may want to think about making wage and hour compliance training for supervisors a regular part of their training schedules or practices for employees.
• Taking Corrective Action Against Supervisors – Finally, the PAGA reform measures make it clear that employers are expected to hold their supervisors accountable for wage and hour compliance. Accordingly, it will be even more important to take corrective action against supervisors who violate wage and hour laws, for example, by allowing employees to work off the clock. What will qualify as appropriate corrective action will depend on the specific circumstances, but as in other areas of law, the courts will likely expect the corrective action to be proportional to the violation and sufficient to address and prevent the violation from reoccurring.
By taking this step along with other reasonable measures, the hope is that employers can substantially reduce their exposure to PAGA penalties thanks to these reform measures. Moreover, by taking these sorts of steps, employers may avoid potential claims altogether by having legally compliant policies and practices in place. LCW attorneys regularly assist with conducting payroll audits, preparing lawful written wage and hour policies, and training supervisors. They are available to consult with nonprofit employers on these aspects of the PAGA reform measures.
LCW In The News
To view these article and the most recent LCW attorney-authored articles, please visit: www.lcwlegal. com/news
• Recently published in Nonprofit Quarterly, LCW Partner Casey Williams provides expert guidance on how nonprofit boards can confidently navigate the complex task of determining executive compensation. Williams outlines the legal and practical considerations boards must address, including ensuring compensation is “reasonable and not excessive,” leveraging comparability data, documenting decisions thoroughly, and maintaining ongoing oversight of executive pay and expenses.
Williams emphasizes the importance of aligning compensation decisions with organizational values, stakeholder expectations, and public perception to withstand scrutiny. With IRS regulations requiring boards to justify their decisions, Williams recommends robust governance training and a structured process to create defensible compensation packages that support organizational success.
To access the full article, please click the following link: https://nonprofitquarterly.org/how-boards-canconfidently-assess-executive-pay/
Artificial intelligence
The IRS’s Use Of AI For Enforcement And Compliance And Its Risk Mitigation Strategies.
With the rapid increase of generative artificial intelligence (AI) in all aspects of our lives, there are also significant changes in the use of AI in federal government agencies including to establish overarching parameters to guide federal agencies in using AI ethically and responsibly. For example, in October 2023, Executive Order (EO) 14110, Safe, Secure, and Trustworthy Development and Use of Artificial Intelligence required agencies to develop guidelines, standards, safeguards, and best practices for AI reliability, safety, and security, while promoting innovation and advancing equity. Federal agencies, such as the IRS, were exploring ways to use AI to improve efficiency and enhance capacity. Specifically, the IRS noted that it was striving “to harness the benefits of Al while mitigating its risks.” The IRS issued interim guidance effective May 20, 2024 to communicate AI governance and principles. More, recently the IRS issued a memorandum on Privacy Policy for AI, effective September 30, 2024, to outline privacy requirements and considerations for the IRS’s own use of AI that applies to IRS users, developers, and providers of AI. These IRS policies were intended to ensure the responsible use of AI at the IRS and “to create trust in the use of AI through responsible AI practices, and ensure compliance with federal mandates and legislation.” However, with the change in administrations, EO 14110 was rescinded on January 20, 2025. A recent Executive Order, Removing Barriers to American Leadership in Artificial Intelligence, issued on January 23, 2025, now requires the Assistant to the President for Science and Technology (APST) and others, to review all policies, directives, regulations, and orders, including those taken pursuant to EO 14110, and to propose new plans related to AI. Accordingly, it should be anticipated that in the near future, federal agency heads will take action to “suspend,
revise or rescind such actions, or propose suspending, revising or rescinding such actions,” which may implicate the above IRS guidance.
How the IRS Harnesses the Benefits of AI For Enforcement
Even with these coming changes, it is important to take note that AI has been useful for the IRS’s enforcement work, including auditing, to reach its strategic priorities. Specifically, as part of its recent strategic operating plan, the IRS leaned into using technology “to be more nimble in the administration of complex tax laws,” and “to evolve along with taxpayer needs and expectations.” The IRS has been using a pilot program to leverage AI for auditing complex partnerships, and announced that they opened audits of 76 of the largest partnerships in the U.S. that represent a cross-section of industries.
In addition to audits, the IRS uses AI to combat tax fraud. At the same time, the government and tech experts have warned about the risks that AI poses in generating tax scams so the IRS is working to increase awareness of scams and identity theft, which may be exacerbated by the use of AI. For example, in February 2024, the U.S. Department of the Treasury announced that it recovered over $375 million as a result of implementing, at the beginning of Fiscal Year 2023, an enhanced fraud detection process that utilizes AI.
What Can Nonprofit Entities Expect Moving Forward with Respect to the IRS and AI
Although the new administrations plans are still under development, creating a bit of uncertainty, it is likely that the IRS will continue to expand its use of AI for auditing and review, and that the AI models can be expected to become more efficient and better at detection. Initially, the IRS prioritized high income cases and the largest and most complex partnerships for leveraging its AI
enforcement. Moving forward, it will likely apply these AI tools to audit and review an increasing number of entities, including smaller entities such as nonprofits. Nonprofits should continue to ensure that they are complying with reporting and filing requirements to reduce the risk of an audit. As the technology and guidance around AI use continues to rapidly develop, it will be critical for entities to be aware of any changing expectations or requirements. We will continue to monitor these changes and any updated policies or guidance. If there are any specific questions about what this means or how to ensure compliance, please contact an attorney.
Wildfires
Frequently Asked Questions Regarding Nonprofits’ Options To Assist Community Members And Employees Impacted By Wildfires.
With wildfires devastating the Los Angeles area, nonprofits that do not normally engage in disaster relief are exploring immediate ways to support their affected employees and community members. This has led to pressing questions about using the nonprofit’s resources, including questions about providing grants of direct financial aid, and about helping the broader community fundraise. These questions pose nuanced and significant issues for nonprofits. They must consider their tax-exempt status under Internal Revenue Code section 501(c)(3), the regulation of charitable solicitations, whether providing direct aid is consistent with their Articles of Incorporation, and more.
The following frequently asked questions provide general guidance about issues related to nonprofits engaging in charitable activity related to disaster relief. However, these issues are very fact specific and determining whether a nonprofit’s proposed actions comply with legal requirements will depend on the circumstances.
Can a Nonprofit That Does Not Engage in Disaster Relief Make a Charitable Contribution to Another Nonprofit Organization Supporting Wildfire Relief Efforts?
Yes. A nonprofit can use its unrestricted funds to donate to an existing disaster relief organization.
The Internal Revenue Service (IRS) has advised here that organizations with 501(c)(3) status that do not themselves engage in disaster relief efforts may still give money to other 501(c)(3) entities as a way to contribute to disaster relief efforts.
Can a Nonprofit That Does Not Engage in Disaster Relief Solicit Money from the Community to Contribute to Disaster Relief Organizations?
Yes, but nonprofits are cautioned that doing so is not without risk. For example, it will create a restricted fund. A restricted fund is money given to a nonprofit that must be used only for a specific purpose chosen by the donor. California law imposes strict duties on nonprofits to use restricted funds solely for their restricted purposes. Accordingly, if a nonprofit takes in donations from community members, promising to donate all of those funds to a disaster relief organization, the nonprofit must follow through on pooling those funds and making that larger donation.
Can a Nonprofit Solicit Money from the Community to Contribute Directly to Those Impacted by the Fires?
Yes, but if a nonprofit represents to the community that they can donate to the nonprofit so the nonprofit can then administer its own program of making individual grants or providing other assistance directly to those impacted by the fires, that would also create a restricted fund. Nonprofits contemplating establishing a restricted fund should consider that, if the community’s generosity exceeds the community’s needs, the nonprofit cannot use excess restricted funds donated by the community for wildfire relief for the nonprofit’s general purposes. Accordingly, nonprofits
may want to consider placing limitations on the amount of donations they will take in, how long they would want to administer such a program, and if they are in a position to adequately document the distribution of the small grants. Indeed, there are many considerations nonprofits should consider when engaging in that kind of direct giving, a few of which are addressed below.
Can a Nonprofit Organized as a Public Charity Provide Disaster Relief Even if it Did not Specify in its Exemption Application that it Was Going to Engage in Disaster Relief?
Yes. The IRS has advised here that organizations with 501(c)(3) status can engage in other charitable activities that accomplish a charitable purpose, even if those activities were not described in its exemption application. That is because providing food, clothing, and other essential resources to victims of a disaster is a quintessential example of charitable activity. Thus, a public charity does not have to obtain permission from the IRS to engage in those activities, but it must report new activities on its annual Form 990 informational tax return.
Can a Nonprofit Make Small Grants or Provide InKind Donations to its Clients, Employees, or Others Connected to the Nonprofit?
It depends on a number of factors. For example, nonprofits may provide financial or in-kind donations if such actions align with their charitable purposes as stated in their Articles of Incorporation and if doing so would not violate the “private benefit” doctrine. The “private benefit doctrine” governs 501(c)(3) entities. It requires the activities of a 501(c)(3) entity to serve the broader community, rather than designated private individuals. When the IRS evaluates whether private benefit concerns exist, it often looks at whether the organization’s activities serve a “charitable class.”
With respect to disaster relief activities in particular, the IRS explains in its publication on providing disaster relief through charitable organizations that charitable donations must benefit a “charitable class.” A charitable class must be either large enough that the potential beneficiaries cannot be individually identified and/or sufficiently indefinite that the community as a whole, rather than a pre-selected group of people, will benefit from a nonprofit’s proposed activity. Thus, a nonprofit that only has a handful or clients, employees, or others impacted by a natural disaster, and no preexisting activities connected to providing disaster relief to the
public, may have a harder time showing that providing grants or in-kind support to them is serving a “charitable class.” On the other hand, if a nonprofit has a preexisting program to provide the community with emergency assistance, and the organization provided assistance to some community members affected by a fire, as it would any other eligible member of the public, it would be easier to establish that a charitable class was benefiting from that activity.
Additionally, nonprofits should note that, if they want to provide assistance to individuals with substantial influence and control over the nonprofit (such as a Director, Chief Executive Officer, or Department Head), then they should evaluate whether the potential assistance would create issues related to conflicts of interest, self-dealing transactions, private inurement, and excess benefit transactions.
What Process, Documents, and Considerations do Nonprofits Need to Consider Implementing When Providing Direct Disaster
Relief?
If a nonprofit provides direct disaster assistance, especially over the long term, it should put in place formal processes for implementing a disaster relief program. To that end, drawing from the IRS’s publication on providing disaster relief, steps nonprofits should consider putting in place include:
• A system for determining or confirming need. Generally, the IRS suggests that for an activity to be considered charitable, disbursements to victims of a disaster should be based on need. In the immediate aftermath of a disaster, the IRS explains that this is less of a consideration when aid is related to addressing urgent needs. For example, if someone has lost their home to a fire, they will need shelter, food, clothing, etc. According to the IRS, those kinds of things can be provided without considering financial means. However, more rigorous and documented financial need assessments should be implemented as more time passes from the disaster’s occurrence.
• Documentation detailing donations made. Nonprofits need to maintain sufficient documentation detailing the direct aid provided, the purpose of that aid, the criteria for distribution, and amounts.
• Objective criteria and independent selection processes. Nonprofits should establish objective
criteria and independent selection processes for providing assistance. Establishing such processes helps protect against issues related to conflicts of interest and can also help reduce risks around discrimination claims.
If a Nonprofit Provides Assistance to Employees as Part of a Charitable Class in Need Because of a Disaster, is That Assistance Taxable Income to Employees?
Likely no, if the assistance is provided following the requirements of Internal Revenue Code section 139, which allows employers to provide qualified disaster relief payments to employees on a tax-free basis. Qualified disaster relief payments include: (1) any amount paid to or for the benefit of an individual to reimburse or pay for reasonable and necessary personal, family, living, or funeral expenses incurred as a result of a qualified disaster; and (2) reimbursements or payments for reasonable and necessary expenses incurred for the repayment or rehabilitation of a personal residence or its contents that need to be replaced due to a qualified disaster. Qualified disaster relief payments do not include payments for expenses otherwise paid for by insurance or other reimbursements or income replacement payments. A “qualified disaster” includes a federally declared disaster. President Biden approved a Major Disaster declaration for the California fires on January 8, 2025, which means the wildfires affecting the Los Angeles area meet the criteria to be a “qualified disaster.” If a nonprofit wishes to provide disaster relief payments to employees, it should seek the advice of counsel to ensure that the payments are for reasonable and necessary expenses and otherwise comply with the requirements of section 139.
If your nonprofit has questions about these issues, please contact Liebert Cassidy Whitmore’s Los Angeles, San Francisco, Fresno, San Diego, or Sacramento office.
ACCOMMODATING DISABILITIES
Pets In The Workplace: Purrmitted Or Faux Paw?
What nonprofit organizations need to know before approving pets as accommodations for employees in the workplace.
Over the years, public places have become more open to pets and have even advertised themselves as being “pet friendly.” With remote work, many employees have grown accustomed to working with their furry friends by their side. There is even a National Take Your Pet to Work Day. What happens when a nonprofit employee seeks to bring their pet to work as accommodation for a disability? This article explains the process for how nonprofit employers should respond to requests
from employees to bring a pet to the workplace as an accommodation for a disability.
Fair Employment and Housing Act and The Americans with Disabilities Act
California’s Fair Employment and Housing Act (FEHA) applies to employers with five or more employees, including nonprofit organizations. The Americans with Disabilities Act (ADA) is a federal law that applies to all employers in the United States. Under FEHA and the ADA, an employer is required to provide reasonable accommodations for known physical and mental disabilities of a qualified applicant or employee to allow the employee to perform the essential functions of their job. The only exception is if the accommodation would create an undue hardship for the operation of
the nonprofit organization’s business. If a nonprofit organization knows or should have known of an employee or applicant’s disability, it has an obligation to identify and implement a reasonable accommodation.
The Interactive Process and Evaluating Requests to Bring an Animal as an Accommodation
The interactive process is the collaborative method through which the nonprofit organization and employee determine and identify whether a reasonable accommodation would allow the employee with a physical or mental disability to successfully complete their essential job duties. Requests to bring a pet to work as an accommodation for a disability are evaluated the same way as any other accommodation request. The interactive process begins after the employee requests an accommodation or the employer is on notice and inquires about an accommodation. In the case of a request to bring an animal to the workplace as an accommodation for a disability, nonprofit employers may request information demonstrating the relationship between the employee’s disability and how the animal will allow the employee to perform their essential job duties. The employee is not required to disclose their disability, nor may the employer request a diagnosis.
A reasonable accommodation will be unique to each scenario and job duty. A reasonable accommodation does not need to be the “best” accommodation or even the accommodation the employee wants the most; rather the question is whether the accommodation will be effective and not impose an undue hardship.
The Difference Between a Pet as
an Accommodation and a Service Animal
Pursuant to FEHA regulations, an “assistive animal” is defined as an animal that is necessary as a reasonable accommodation for a person with a disability. Under FEHA, “assistive animals” include, but are not limited to, guide dogs (to assist a visually impaired person), signal dogs (to assist a hearing-impaired person), service dogs (trained to assist a person with a disability), and support dogs. A “support animal” is an animal that provides emotional, cognitive, or other similar support to a person with a disability. Support animals are also known as comfort or emotional support animals.
Under the ADA, a “service animal” is any dog that is individually trained to do work or perform tasks for the benefit of an individual with a disability, including a physical, sensory, psychiatric, intellectual, or other
mental disability. Other species of animals, whether wild or domestic, trained or untrained, are not service animals for the purpose of the ADA. The only exception is miniature horses.
Minimum Standards for Animals in the Workplace
Any animal that meets FEHA’s definition can be an “assistive animal.” Nonprofit employers cannot set breed, size, or weight limitations on assistance animals. The employee’s animal does not need to be licensed or certified by a governmental entity. However, the nonprofit employer can set minimum standards for the animal. These standards include that the animal be free from offensive odors and display habits that are appropriate to the work environment. The nonprofit employer may also require that the animal does not engage in behavior that endangers the health and safety of the individual with a disability or others. Similarly, the ADA emphasizes that the handler must have control over the service animals. The service animal shall have a harness, leash, or other tether unless the handler is unable to use and is able to have control over the animal by other means.
Denying a Request for an Animal in the Workplace
To be compliant with FEHA and the ADA, nonprofit employers need to make a good faith effort to implement the accommodation. Nonprofit employers cannot deny an accommodation based on speculation. For example, wondering whether other employees may have allergies or fear of the animal are not sufficient grounds to deem an accommodation unreasonable. If an employee’s animal is not complying with the employer’s minimum standards for animals in the workplace, the employer should speak to the employee about the concerns and give the employee - and animal - an opportunity to come into compliance.
A nonprofit employer may deny a request to bring an animal as an accommodation when the employer determines it is not a reasonable accommodation to allow the employee to perform their essential job duties, or the employer determines allowing the animal in the workplace will be an undue hardship. An undue hardship exists where an action requires significant difficulty or expense in implementing a disputed accommodation, and is a high standard to meet.
Finding an accommodation that works for everyone may take some time and nonprofit employers may feel nervous when an employee’s requests to bring
an animal into the workplace as an accommodation. By going through the interactive process and having minimum standards for assistive animals, nonprofit employers can feel confident it will identify a reasonable accommodation to allow employees to perform their essential job duties, keep the workplace clean and safe, an allow the nonprofit to focus on “purrfecting” its do-good mission.
governance
Director Wins Injunction, Halting Board's Attempt To Remove Him Over Financial Inquiries.
Barry Fenchak is a member of the Pennsylvania State University Board of Trustees, specifically, one of nine directors elected by alumni of Penn State. Fenchak joined the Board in July 2022 and has since been involved in a contentious relationship with the University administration and other Board members.
As an investment advisor by profession, Fenchak raised concerns about what he perceived as unusually high advisory fees on the University's $4.5 billion endowment. These fees have reportedly tripled since 2018. Additionally, Fenchak sought detailed information about a planned $700 million renovation of Penn State's Beaver Stadium.
Throughout his tenure, Fenchak alleged that he faced retaliatory behavior, including repeated denials of his requests for information that he, as a director, had the right to access. The tension between Fenchak and the University administration escalated to the point where the Board accused him of violating its code of conduct. In particular, in July 2024, Fenchak allegedly made an off-color remark to a University staff person. This incident was cited as the basis for the Board's attempt to remove Fenchak from his position.
Fenchak filed a lawsuit against the Board over access to financial information. He also sought a preliminary injunction to prevent the Board from voting on his removal.
A preliminary injunction is a temporary remedy that is granted until the parties’ underlying dispute can be fully resolved. The Court considered the following preliminary injunction factors in making its
determination: (1) immediate and irreparable harm; (2) likelihood of success on the merits; (3) greater injury from refusing the injunction; and (4) public interest.
1. Immediate and Irreparable Harm: The Court found that Fenchak would suffer immediate and irreparable harm if removed from the Board. The Court emphasized that the harm extends beyond mere reputational damage or loss of position— Fenchak's removal would impair his ability to defend his claims and prosecute his underlying lawsuit. The Board's attempt to remove Fenchak was ostensibly based on an alleged violation of its code of conduct. However, the Court suggested that this accusation may have been a pretext for retaliatory action against Fenchak due to his probing questions about University finances, especially because the attempt to remove Fenchak came only three days after he filed a lawsuit and a director has never been removed from the Board before.
2. Likelihood of Success on the Merits: The Court determined that Fenchak demonstrated a reasonable probability of success on the merits of his case. This assessment was based on the evidence of retaliatory behavior presented by Fenchak, including repeated denials of his requests for information that he likely had a right to receive as a director. The Court's analysis suggested that Fenchak's claims of retaliation and breach of fiduciary duty have substantial legal merit.
3. Greater Injury from Refusing the Injunction: The Court concluded that greater injury would result from refusing the injunction than from granting it. In particular, the Board’s conduct would go unchecked and Fenchak may be unable to continue with his lawsuit if he was removed from the Board.
4. Public Interest: The Court determined that granting the injunction serves the public interest. The Court reasoned that preventing the potentially retaliatory termination of a director who is inquiring into University operations upholds principles of transparency and accountability in public institutions.
Therefore, the Court granted the preliminary injunction and stated that it would remain in effect until Fenchak's lawsuit against the Board over access to financial information is resolved, his elected terms have ended, or until it is otherwise lifted by the Court. The Court also noted that steps have already been taken to sanction Fenchak, including prohibiting his in-person attendance at meetings and revoking his social privileges as a director.
Fenchak v. Pa. State. Univ. Board of Trustees (Pa. R. Centre Cty. Ct. C.P. October 9, 2024) No. 2024-CV-1843-CI.
Note:
This case is an important reminder that attempts to remove board members who raise questions about financial practices may be viewed as retaliation.
privacy
California Court Orders Sealing Of Name Change Records For Transgender Individual.
M.T. is a transgender woman who was assigned male at birth but has presented as female since she was a minor. In 2017, when she was 19 years old, M.T. filed a petition in Stanislaus Superior Court to legally change her name and gender marker to align with her gender identity.
As part of her petition, M.T. included the required physician's affidavit confirming she had undergone clinically appropriate treatment for gender transition. No objections were filed to her petition. In 2018, the trial court granted M.T.'s petition after she appeared at a hearing. The trial court issued a decree changing her name and gender using the standard Judicial Council form.
After this legal change, M.T. kept her transgender identity private. She did not disclose it at her workplace or school and only used her previous legal name when required by law.
In 2022, M.T. discovered that her case record was publicly available online when she searched for her current name. The online information included her private medical details, contact information, and former name. In 2023, M.T. was publicly "outed" on social media. A post was made with her photograph, disclosing her former name and referring to her using a derogatory term for
transgender individuals. The post also revealed her current and former workplaces, home address, and phone number.
Following this incident, M.T. experienced repeated harassment by anonymous social media users. She received transphobic messages and had to shut down all her social media accounts due to cyberbullying and repeated publishing of her private information.
M.T.'s transgender identity was also anonymously disclosed to her workplace and school. This led to her employer's human resources department contacting her, which made M.T. uncomfortable as she had not previously shared this information. As a result of these events, M.T. ultimately left her job.
In response to these experiences, M.T. filed an application in 2023 to seal the entire record of her name and gender correction, arguing that the public availability of this information had subjected her to discrimination, harassment, and violence.
The trial court partially granted M.T.'s request, sealing her application to seal, her supporting documentation, and a physician's letter from her initial petition. However, the court denied sealing the entire record. M.T. appealed this decision.
On appeal, the Court of Appeals evaluated whether the trial court improperly denied the request to seal M.T.’s entire record.
The Court of Appeals examined the case in light of the common law and First Amendment rights of public access to court records. It noted that while court records are generally public, this presumption of openness can be overcome if there's an overriding interest that necessitates closure.
The court considered the factors outlined in California Rules of Court, Rule 2.550(d), which govern the sealing of court records. These factors include:
1. The existence of an overriding interest that overcomes the right of public access
2. A substantial probability of prejudice if the record is not sealed
3. That the proposed sealing is narrowly tailored
4. No less restrictive means exist to achieve the overriding interest
The Court of Appeals considered that the right to privacy is protected in the California Constitution. This right encompasses informational privacy, including an interest in limiting disclosure of confidential information about a bodily condition.
The Court of Appeals concluded that whether a transgender person’s gender identity conforms with their assigned sex at birth is intimate personal information entitled to protection under the right to privacy. A transgender person has a privacy interest in concealing their transgender identity.
The Court of Appeals determined that M.T. had demonstrated a substantial probability of prejudice if the record was not sealed, given the harassment and threats she experienced after her information was made public.
Finally, the Court found that sealing the entire record was narrowly tailored and the least restrictive means to achieve the overriding interest. Partial sealing was insufficient to protect M.T.'s interests because the unsealed records necessarily revealed that M.T.’s gender marker was changed.
The Court of Appeals concluded that under the specific circumstances of this case, M.T. had made a sufficient showing that her records should be sealed pursuant to Rule 2.550(d). Therefore, the Court of Appeals reversed the trial court's decision and remanded the case, instructing the lower court to seal all records that reveal M.T.'s name change or gender marker correction.
In re M.T. (Oct. 29, 2024) 106 Cal.App.5th 322.
Note: This decision shows that an individual’s right to privacy under the California Constitution can extend to keeping their gender identity private.
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nlrb
NLRB Rules That Captive Audience Meetings Are Unlawful And That Amazon Engaged In A Number Of Unfair Labor Practices.
In April 2021, employees at Amazon founded the Amazon Labor Union and began organizing at an Amazon fulfillment center and storage center in Staten Island, New York. Amazon responded with an anti-union campaign that included mandatory meetings for employees, known as "captive-audience meetings,” where they urged employees to reject union representation.
During these meetings, Amazon representatives solicited and impliedly promised to remedy employees' grievances, telling employees statements such as, “we rely on your feedback to improve the workplace” and that “we can’t make improvements if we don’t know your concerns.” Amazon representatives encouraged employees to take their concerns up the chain of command.
Also, during two of these meetings, Amazon managers stated that Amazon would withhold improvements in wages and benefits during bargaining and/or the preelection period.
Then, on July 8, 2021, employees Dana Miller and Connor Spence delivered a petition to management seeking to make Juneteenth a paid holiday. On July 9, Miller posted a message on Amazon's internal "Voice of Associates" (VOA) digital message board about the Juneteenth petition and inviting employees to sign it at the union tent.
Amazon managers discussed removing Miller's post, and on July 12, Miller was called to a meeting where she was told such posts violated the company's solicitation policy. Miller's post was removed multiple times when she attempted to repost it. Evidence showed that Amazon had not removed other posts, including those related to the union campaign, from the VOA board.
The National Labor Relations Board (Board) found that Amazon violated the National Labor Relations Act (Act) by:
1. Discriminatorily enforcing its solicitation policy against Miller.
2. Soliciting and impliedly promising to remedy employees’ grievances during captive-audience meetings.
3. Threatening employees that it would withhold benefits during captive-audience meetings.
4. Compelling employees to attend captive-audience meetings where Amazon expressed its views on unionization.
Miller & Solicitation Policy
Regarding Miller’s posts on the VOA and the solicitation policy, the Board found that Amazon discriminatorily enforced its policy because it had allowed other posts, including those related to the union campaign, to remain on the VOA board while removing Miller's post about the Juneteenth petition.
The Board considered Miller’s testimony, which stated that she had seen hundreds of "vote yes" and "vote no" posts related to unionization on the VOA board, none of which were removed. Similarly, a March 2022 post advertising "VOTE NO" t-shirts in the break room was not removed, despite the solicitation policy prohibiting distribution of materials. The Board therefore found that Amazon discriminatorily enforced the solicitation policy against union-related activities.
Solicitation of Grievances
The Board reversed the Administrative Law Judge's dismissal of allegations that Amazon violated the Act by soliciting and impliedly promising to remedy employees' grievances. The Board reasoned that Amazon’s statements clearly created an implied promise to remedy
the concerns because the statements told employees that by bringing their concerns up the managerial chain, they would be resolved. This type of promise during a union campaign is considered a violation of the Act because it discourages union support, unless the employer has a past practice of soliciting grievances in a similar manner. In this case, the Board found that Amazon's solicitation of grievances during the captive audience meetings was not consistent with any past practice. In fact, the statement encouraging employees to escalate their concerns was a sea change in Amazon’s approach. Therefore, the Board found this statement was a violation of the Act.
Threatening to Withhold Benefits
Threatening to withhold benefits during a union organizing campaign is also considered an unfair labor practice, as it can interfere with employees' rights to freely choose whether or not to unionize. The Board affirmed the ALJ’s ruling on this issue, agreeing that these statements constituted unlawful threats under the Act.
Captive Audience Meetings
In terms of the captive audience meetings, the Board overruled its previous decision in Babcock & Wilcox Co., which had allowed employers to mandate attendance at such meetings. The Board found that the holding in Babcock & Wilcox was not compelled by the text or legislative history of the Act and was flawed as a matter of statutory policy.
The Board found that compelling attendance at these meetings interfered with employees' rights under the Act because it compelled employees to attend these meetings under threat of discipline or discharge. The Board reasoned that these meetings have a reasonable tendency to interfere with and coerce employees in the exercise of their rights under the Act because they interfere with an employee’s right to freely decide whether, when, and how to participate in a debate concerning union activity, or refrain from doing so. The Board also reasoned that an employer’s ability to compel attendance at such meetings contributes to a coercive message regarding unionization that employees are forced to receive. An employer’s ability to require attendance at such meetings demonstrates the employer’s economic power over its employees and tends to inhibit employees from acting freely in exercising their rights.
However, the Board made clear that an employer may lawfully hold meetings with workers to express its views on unionization so long as workers are provided reasonable advance notice of: the subject of any such meeting, that attendance is voluntary with no adverse consequences for failure to attend, and that no attendance records of the meeting will be kept. The Board also made clear that this decision will only apply prospectively. The Board ordered Amazon to cease and desist from engaging in all of these practices, and post notices about this decision to all employees at the Staten Island facilities.
Amazon.Com Services LLC, 373 NLRB No. 136.
Note: This decision represents a significant shift in NLRB policy regarding captive audience meetings, limiting employers, including nonprofit organizations, from mandating attendance at meetings where they express anti-union views.
benefits corner
New ACA Affordability Percentage For 2025 Is 9.02 Percent.
The IRS has set the new Affordable Care Act (ACA) affordability percentage to 9.02% for 2025. This new affordability percentage is 0.63% higher than the current 2024 affordability percentage (from 8.39% to 9.02%).
While the Internal Revenue Code originally set the affordability threshold to 9.5%, the Internal Revenue Service (IRS) retains the authority to release an adjusted percentage each year. (See 26 U.S.C. section 36B(c)(2)(C)(i).)
From 2015 to 2022, the IRS set an affordability percentage above 9.5%, going as high as 9.86% in 2019. For 2023, the IRS dropped the affordability percentage below 9.5% for the first time by setting it at 9.12% and then dropped it even lower at 8.39% for 2024.
Applicable large employers are advised to check whether their offers of employer-sponsored health coverage are affordable using the 9.02% threshold. To determine whether an offer of health coverage is affordable, an employer must run an affordability calculation to determine whether an employee’s “Required Contribution” toward the premium for the lowest cost employee-only coverage exceeds or does not exceed 9.02% (2025) of the employee's household income for the taxable year. Since employers typically do not know the total household income of each of their employees, the ACA provides three affordability safe harbor options an employer may adopt and apply on a reasonable and consistent basis:
1. Under the Form W-2 Safe Harbor, coverage is affordable if the employee’s Required Contribution is less than or equal to 9.02% of the employee's wages reported in Box 1 of Form W-2.
2. Under the Rate of Pay Safe Harbor, coverage is affordable if the employee's Required Contribution is less than or equal to 9.02% of the monthly wage amount for hourly employees (the hourly rate multiplied by 130 hours), or the monthly salary for salaried employees.
3. Under the Federal Poverty Line Safe Harbor, coverage is affordable if an employee's Required Contribution does not exceed 9.02% of the Federal Poverty Line for a single individual.
Please note that there are additional factors, such as health flex contributions and cash in lieu, that can greatly impact the amount of an employee’s Required Contribution and the affordability calculation. For more information about how to run the affordability calculation and whether your agency needs to revise its employer contribution to maintain affordable offers of health coverage, please reach out to us.
labor relations corner
Labor relations is an important aspect of the operations of all private sector employers, including nonprofit organizations, whether the workplace is unionized or non-unionized.
The National Labor Relations Act (NLRA).
In 1935, Congress passed the National Labor Relations Act (NLRA), a federal law that protects the rights of most employees in the unionized and non-unionized private sector, which includes non-profit schools. At its core, the NLRA provides private-sector employees the fundamental right to seek better working conditions and designate labor representation without fear of retaliation. The NLRA grants private-sector employees the freedom to join or form labor unions, the right to engage in protected, concerted activities to address working conditions, and the right to bargain collectively through chosen representatives. The NLRA also provides employees the right to refrain from participating in these activities.
The National Labor Relations Board (NLRB).
The National Labor Relations Board (NLRB) is an independent federal agency created in 1935 to enforce the NLRA. The NLRB’s primary functions include investigating and remedying unfair labor practices, enforcing the rights established by the NLRA, and conducting secret-ballot elections for union representation.
The NLRB is a bifurcated agency governed by both a five-member Board and a General Counsel. The President appoints Board Members and the General Counsel, with the consent of the Senate. Each Board Member is appointed to a four-year term and the term of one member expires each year. The General Counsel is appointed to a four-year term.
The General Counsel is responsible for the investigation and prosecution of unfair labor practices and supervises the NLRB field offices in the processing of cases. The Board appoints Administrative Law Judges, who hear, settle, and decide unfair labor practice cases. A decision and recommended order by an Administrative Law Judge can be appealed to the Board.
Did You Know?
Whether you are looking to impress your colleagues or just want to learn more about the law, LCW has your back! Use and share these fun legal facts about various topics in labor and employment law.
• On October 16, 2024, the U.S. Department of Labor issued formal principles to guide employers as they introduce artificial intelligence platforms into their workplaces. The guidance provides ways that AI can assist with worker well-being and likewise responds to President Biden's Executive Order. It emphasizes the importance of engaging workers in the AI design process, ensuring ethical development, maintaining transparency, and protecting labor rights. The principles can be found here.
• The U.S. Department of Labor and the Partnership on Employment & Accessible Technology (PEAT) recently published the AI & Inclusive Hiring Framework. The framework is a tool designed to help employers use artificial intelligence in their hiring technology, specifically to increase benefits for job seekers with disabilities. The framework has 10 focus areas, including practices, goals, and sample activities that employers can adopt. The framework can be found here.
• The General Counsel for the National Labor Relations Board recently released a memo warning employers that “Stay-or-Pay” provisions (i.e., provisions requiring employees to remain at an employer for a specific period of time or otherwise repay certain costs) are generally unlawful. The memo also discusses potential remedies for unlawful and overly broad non-compete provisions, including lost pay for being without a job, the difference in pay from a job with lesser compensation, moving costs to relocate, and retraining costs to obtain a job in another industry. The full memo can be found here
• A Carlsbad church recently donated $950 each to two local school board candidates. The church’s pastor also gave a sermon to a congregation urging them to donate to the two candidates. In the sermon, the pastor laid out a plan to regain the majority of the five-member school board from candidates endorsed by the teacher’s union. The church realized that they had stepped out of the IRS guidelines for a 501(c)(3) and asked the candidates to return the donations, which they did. More information about the IRS’s restrictions on political campaign interventions by tax-exempt organizations can be found on the IRS’s website.
cases we are watching
• A number of affirmative action cases have been working their way through the courts since the U.S. Supreme Court’s ruling on affirmative action last summer. The Supreme Court is currently considering whether to hear a case involving a temporary K-12 admission policy meant to diversify student bodies at three Boston schools. Earlier this month, a lawsuit was filed in Illinois about a scholarship program meant to diversify the education workforce and narrow the achievement gap. The individual named in that lawsuit is a nonminority high school senior who plans to pursue an education degree and is qualified for the scholarship program except for her race. A few months ago, a federal judge in Virginia dismissed a proposed class action lawsuit accusing a newspaper publisher of adopting diversity policies that allegedly led to five journalists’ terminations or other adverse employment actions. In that case, the journalists sued under section 1981 of the Civil Rights Act, which prohibits race discrimination in making and enforcing contracts.
• The University of California (UC) was recently sued by a former undocumented UCLA student and UCLA lecturer, alleging that UC has the authority to hire undocumented students to fill campus jobs, but its refusal to exercise that authority results in discrimination against thousands of students enrolled at campuses across the state. The complaint alleges that the UC Regents are relying on a mistaken interpretation of the Immigration Reform and Control Act, a federal law that prohibits the hiring of undocumented immigrants. The complaint alleges that the law does not apply to state government employers, and the impact is that students cannot pursue advanced degrees because they are unable to complete the necessary teaching or other employment requirements, like working a medical residency. In their petition, the complainants are seeking relief under two theories. The first, that UC’s policy is an abuse of discretion. The second, that the policy violates the Fair Employment and Housing Act’s prohibition on immigration status discrimination.
• Catholic Charities Bureau v. Wisconsin: Wisconsin exempts from its state unemployment tax system certain religious organizations that are "operated, supervised, controlled, or principally supported by a church or convention or association of churches" and that are also "operated primarily for religious purposes." The Catholic Charities Bureau of the Diocese Superior, Wisconsin, a nonprofit corporation, is the social ministry arm of the Catholic Church. Catholic Charities applied for an exemption from having to pay unemployment tax to cover their employees. The Wisconsin state labor commission denied the application on grounds that their activities were "not religious per se.” The Wisconsin Supreme Court agreed finding that Catholic Charities’ activities were mostly secular and noted it "did not proselytize, did not conduct worship services, religious outreach, or religious education." On December 13, 2024, the United States Supreme Court granted certiorari (i.e. to hear the case) to determine whether Wisconsin’s decision violates the First Amendment’s guarantee to the free exercise of religion and separation of church and state. Oral arguments are expected for spring 2025 with a decision by summer. This case is important because the decision could impact nonprofit religious organizations by demonstrating what the U.S. Supreme Court thinks about the government’s ability to define what is religious, which can have big implications from employment laws to nonprofit tax laws.
• We are watching two cases about challenging the Johnson Amendment, which prohibits 501(c)(3) organizations from taking a position for or against candidates for public office. In March 2024, Students & Academics for Free Expression, Speech, & Political Action in Campus Educ. (SAFE SPACE) filed a petition with the United States Tax Court against the Internal Revenue Service regarding its qualification to be a 501(c) (3) nonprofit organization. The petition states that SAFE SPACE will exist for charitable and educational
purposes, though it will also participate in lobbying activities and candidate endorsements, and claims those activities are crucial to its mission, and argues that the Johnson Amendment is unconstitutional. The parties have recently dismissed the case to allow the IRS more time to evaluate its application for exempt status. Similarly, in National Religious Broadcasters and Three Churches v. Commissioner, a lawsuit filed in federal court in Texas, the National Religious Broadcasters and two Baptist Churches and a conservative group, are suing the IRS arguing the Johnson Amendment prevents restricts their freedom of speech and religion. If the Johnson Amendment is overthrown on First Amendment grounds, it could radically impact the nonprofit sector and American political and civil life more broadly.
Featured Consortium Call
Members of Liebert Cassidy Whitmore’s consortiums are able to speak directly to an LCW attorney free of charge to answer direct questions not requiring in-depth research, document review, written opinions or ongoing legal matters. Consortium calls run the full gamut of topics, from leaves of absence to employment applications, student concerns to disability accommodations, construction and facilities issues and more. Each month, we will feature a Consortium Call of the Month in our newsletter, describing an interesting call and how the issue was resolved. All identifiable details will be changed or omitted.
Question:
A nonprofit administrator reached out to LCW to ask how the Fair Labor Standards Act’s (FLSA) new classification for highly compensated employees impacts private nonprofit organizations.
Answer:
The LCW attorney provided the following background: the Highly Compensated Employee exemption (HCE) is an alternative way under the federal Fair Labor Standards Act (FLSA) that certain employees may be exempt from minimum wage and overtime protections provided that their salaries meet a certain threshold for this exemption as defined by the FLSA.
The attorney advised that there was a change earlier this year that significantly increased the salary threshold to qualify for HCE exemption from overtime under the FLSA, though this change was recently blocked by a federal court in Texas. That said, the change is largely irrelevant for California nonprofit organizations because California private employers, including California nonprofit organizations, have to comply with California wage and hour laws, and California does not recognize the HCE exemption. So, while there was significant publicity recently surrounding this change on the national stage, California private employers need to adhere to California’s wage and hour requirements.
For more information about the updates to the FLSA and the limited impact on California nonprofit organizations, please see LCW’s Special Bulletin.
Liebert Cassidy Whitmore