Tag: government

Chicago Employers: Prepare for New Paid Leave Ordinance Effective 31 December 2023

On 9 November 2023, the Chicago City Council passed the Chicago Paid Leave and Paid Sick and Safe Leave Ordinance1(the Ordinance). The Ordinance takes effect on 31 December 2023, and replaces Chicago’s current paid sick leave ordinance.2 Under the Ordinance, starting 1 January 2024, Chicago employees are entitled to up to 80 hours of paid time off in a 12-month period, with 40 hours allocated to paid sick leave and 40 hours allocated to general paid leave.

The Ordinance comes eight months after the Illinois legislature’s enactment of the Illinois Paid Leave for All Workers Act (PLAWA),3 which goes into effect on 1 January 2024 and guarantees that Illinois workers can earn or accrue up to 40 hours of paid leave per year that may be used for any reason. Although employers covered by the Ordinance are exempt from PLAWA,4 the Ordinance adopts PLAWA’s purpose of providing general paid leave to employees in addition to paid sick leave.

METHOD FOR ACCRUAL, CARRYOVER, AND FRONTLOADING

The Ordinance provides that a covered employee5 will accrue one hour of general paid leave and one hour of paid sick leave for every 35 hours worked. Both general paid leave and paid sick leave are accrued in hourly increments and the total accrual for both forms of leave is capped at 40 hours in a 12-month period. At the end of the 12-month period, covered employees are allowed to carryover up to 16 hours of general paid leave and up to 80 hours of paid sick leave to the subsequent 12-month period. Chicago employers may also choose to “front-load,” or grant, 40 hours of paid leave or 40 hours of paid sick leave (or both) on the first day of employment or on the first day of the 12-month period.  If an employer elects to front-load general paid leave hours, the employer is not required to allow employees to carry over unused general paid leave hours to the following 12-month period. However, employers must allow employees to carry over up to 80 hours of paid sick leave into the next 12-month period even if the leave is front-loaded.

USE OF LEAVE

Employers must allow covered employees to use accrued paid sick leave after completing 30 days of employment, and use accrued general paid leave after completing 90 days of employment. An employer may set a reasonable usage minimum increment, not to exceed four hours per day for paid leave or two hours per day for paid sick leave. If a covered employee’s scheduled workday is less than such minimum increments, then the minimum increment of time cannot exceed the covered employee’s regular scheduled workday.

Similar to the PLAWA, general paid leave under the Ordinance may be used for any reason and employees cannot be required to provide a reason for or documentation to support the leave. Paid sick leave may be used for the same reasons set forth under the current Chicago paid sick leave ordinance, including:

  • For illness or injury, or for the purpose of receiving professional care, which includes preventive care, diagnosis, or treatment for medical, mental, or behavioral issues, including substance use disorders;
  • For a family member’s illness, injury, or order to quarantine, or to care for a family member receiving professional care;
  • For domestic violence, or if a covered employee’s family is the victim of domestic violence;
  • If the covered employee’s place of business is closed by order of a public official due to a public health emergency, or the employee needs to care for a family member whose school, class, or place of care has been closed; or
  • For the covered employee to obey an order issued by the mayor, the governor of Illinois, the Chicago Department of Public Health, or a treating healthcare provider requiring the employee to stay at home to minimize the transmission of a communicable disease; to remain at home while experiencing symptoms or sick with a communicable disease; and to obey a quarantine order or an isolation order issued to the employee.

REQUESTING LEAVE

For general paid leave, an employer may require a covered employee to provide reasonable notice not to exceed seven days prior to the need for leave and may require preapproval to ensure continuity of business operations. An employer may also require seven days’ notice for paid sick leave. If the need for paid sick leave is not reasonably foreseeable, an employer may require a covered employee to give notice as soon as is practicable by notifying the employer by phone, email, or other means. The Ordinance defines “reasonably foreseeable” as including, but not limited to, prescheduled appointments with health care providers and court dates in domestic violence cases.

If a covered employee uses paid sick leave to be absent for more than three consecutive work days, the employer may require certification that the paid sick leave was used for a qualifying purpose. For health-related paid sick leave, this certification can be documentation signed by a licensed health care provider. For domestic violence-related paid sick leave this certification can be a police report, court document, or a signed statement from an attorney, a member of the clergy, or a victim services advocate. An employer may not delay the commencement of paid sick leave or delay payment of wages based on not receiving the required documentation or certification. However, an employer can take disciplinary action, up to and including termination, against a covered employee who uses paid sick leave for purposes other than those described in the Ordinance.

PAYMENT OF PAID LEAVE AND PAID SICK LEAVE

The Ordinance sets forth general requirements relating to the payment of general paid leave and paid sick leave. General paid leave and paid sick leave must be compensated at the employee’s regular rate of pay, including health care benefits. The regular rate of pay for nonexempt or hourly employees is calculated by dividing the employee’s total wages by total hours worked in full pay periods of the prior 90 days of employment.  Wages do not include overtime pay, premium pay, gratuities, or commissions. Employers must pay an employee for their general paid leave and paid sick leave by the next regular payroll period after the time off was taken.

PAYMENT OF PAID LEAVE UPON TERMINATION

Under the Ordinance, an employer with 50 covered employees or less is not required to pay out any accrued, unused general paid leave upon termination. An employer with 51 to 100 covered employees (Medium Employer) must pay out accrued, unused general paid leave, up to 16 hours, until 31 December 2024. On or after 1 January 2025, a Medium Employer must pay all accrued, unused paid general leave upon an employee’s termination for any reason. Unless otherwise provided in a collective bargaining agreement, an employer cannot enforce a contract or a policy that requires the employee to forfeit any earned general paid leave upon separation from employment. Employers are not required to pay out accrued, unused paid sick leave.

Further, all unused paid sick leave and paid general leave is retained by the covered employee if the employer sells, transfers, or assigns the business to another employer and the employee continues to work in the City of Chicago.

EXISTING LEAVE POLICIES AND UNLIMITED PAID TIME OFF PROGRAMS

If a covered employee accrues paid sick leave before 1 January 2024 and the employer’s existing paid time off policy does not comply with the Ordinance, then on 1 January 2024, any paid sick leave that the covered employee is entitled to will rollover to the next 12-month period.

For employers that have recently adopted “unlimited paid time off policies,” the Ordinance provides that employers may offer unlimited paid time off policies and so long as the covered employer provides unlimited paid time off at the beginning of employment or the start of a 12-month period, there is no requirement to permit carryover of unused general paid leave to the next year. However, employees must still be allowed to carry over up to 80 hours of paid sick leave. Although the covered employer may still require reasonable notice for both foreseeable and unforeseeable reasons for leave, it may not require preapproval for such leave. Further, if the employer has an unlimited paid time off policy, upon separation from employment (or transfer outside of the City of Chicago’s boundaries), employers must pay the monetary equivalent of 40 hours of general paid leave less the amount of general paid leave used by the covered employee during the prior 12-month period preceding separation of employment (or transfer outside of the City of Chicago’s boundaries). Finally, employers must still comply with the other requirements in the Ordinance related to the administration of general paid leave and paid sick leave.

NOTICE AND POSTING

Similar to the current Chicago paid sick leave ordinance, a covered employer must post in a conspicuous place a notice advising covered employees of their right to paid time off. The Ordinance also sets the following requirements:

  1. The employer must provide the same notice to the covered employee with the first paycheck issued to the employee, as well as on an annual basis with a paycheck issued within 30 days of 1 July.
  2. In every pay stub or wage statement to the covered employee, the employer must provide a written notification stating the updated amount of paid leave and paid sick leave available to the employee.
  3. The employer must notify employees at least five calendar days before any changes to the employer’s paid time off policy are made.
  4. The employer must provide employees with a 14-day written notice of changes to its paid time off policies that affect the employees’ final wages.
  5. The employer must notify the covered employee in writing that the employee may request payout of their accrued, unused paid leave time when the employee has not been offered a work assignment for 60 days.

PENALTIES FOR VIOLATION, DAMAGES, AND PRIVATE CAUSE OF ACTION

Any employer who violates the Ordinance may be subject to fines between US$1,000 and US$3,000 for each separate offense. If the employer violates the notice requirements, then the employer may be fined US$500 for the first violation and US$1,000 for any subsequent violation. Each day a violation occurs constitutes a separate and distinct offense.

Further, an employer who violates the Ordinance may be liable to the affected employee for damages equal to three times the full amount of any leave denied or lost by reason of the violation, plus interest, costs, and reasonable attorney’s fees paid by the employer to the covered employee. The Ordinance also provides for a private right of action, which is available to covered employees on 31 December 2023 for violations related to paid sick leave and 1 January 2025 for violations related to general paid leave.

Chicago employers should review their current paid time off policies and payroll systems for compliance and should consider consulting their labor and employment attorneys for assistance in developing a policy that meets the requirements of the Ordinance. The lawyers of our Labor, Employment, and Workplace Safety practice regularly counsel clients on a wide variety of issues related to paid leave policies and are well positioned to provide guidance and assistance to clients on this significant development in Illinois.

FOOTNOTES

1 Chi., Ill., Mun. C. Chi. § 6-130 (2023).

2 Chi, Ill., Mun. C. Chi. § 6-105 (2023).

3 Paid Leave for All Workers Act, Pub. Act No. 102-1143 (Jan. 1, 2024).

4 See Sang-yul Lee, et al., Illinois Guarantees One Week of Paid Leave for All Workers, K&L Gates (Mar. 15, 2023), https://www.klgates.com/Illinois-Guarantees-One-Week-of-Paid-Leave-for-All-Workers-3-15-2023. Employers covered by local paid sick leave ordinances, such as the Ordinance, are exempt from PLAWA so long as such municipality has an ordinance in place on January 1, 2024. See 820 ILCS § 192/15(p).

5 A “covered employee” is defined as an Employee who works at least two hours for a Chicago employer in any particular two week period. See Chi., Ill., Mun. C. Chi. § 6-130-010 (2023).

Copyright 2023 K & L Gates
For more news on Chicago Paid Leave Policy, visit the NLR Labor & Employment section.

Legal Considerations for Healthcare Providers

Navigating the Physician and Non-Physician Relationship

Relationships between physicians and other healthcare professionals are highly regulated and can be complex to navigate. With non-physicians performing more services, including medical services with physician supervision, a variety of questions arise. What scope of services can be provided? What level of supervision is required? Can a non-physician have an ownership or related
interest in the entity providing services? With licensure on the line, it is critical to understand the legal requirements of the state where your practice operates.

What is the Corporate Practice of Medicine Doctrine (CPOM)?

Aimed at protecting patients, the CPOM restricts private ownership of medical corporations in an effort to prevent interference with a physician’s medical judgment. Although most states prohibit the corporate practice of medicine, every state provides exceptions. As with most laws, the exceptions vary by state.

Is it a Medical Service or Not?

What may seem like a simple question can be anything but. For example, a standard facial may be performed at a spa by a non-physician, but if the facial includes treatment that effects the tissue beneath the skin it crosses into the area of medical services. These nuances inform who can perform the service and with what level of physician supervision. What constitutes physician supervision is an additional area for consideration necessary to defining the physician/non-physician relationship and compensation.

Can Healthcare Providers Manage a Practice?

A Non-medical services provided by a healthcare professional require additional consideration with respect to corporate structure and compensation. Management services agreements are one way to afford a non-physician a greater stake in the practice. These agreements define the relationship and compensation associated with the provision of managerial and administrative services for a practice.

What Should I Know About Restrictive Covenants?

In the competitive medical field of today, healthcare providers should have a clear understanding of any restrictions before entering into a relationship with a physician or non-physician, switching practices, creating a new practice, forming
a relationship with multiple practices or terminating a relationship. It is important to understand any potential restrictive covenants and their impact, as you may want to challenge or negotiate those terms.

©2023 Strassburger McKenna Gutnick & Gefsky
By Danielle L. Dietrich , Erica L. Laughlin , Gerri L. Sperling , Michael G. Nicolella of Strassburger McKenna Gutnick & Gefsky
For more news on Legal Considerations for Healthcare Providers, visit the NLR Health Law & Managed Care section.

Corporate Transparency Act: Implications for Business Startups

Congress passed the Corporate Transparency Act (CTA) in January 2021 to provide law enforcement agencies with further tools to combat financial crime and fraud. The CTA requires certain legal entities (each, a “reporting company”) to report, if no exemption is available, specific information about themselves, certain of their individual owners and managers, and certain individuals involved in their formation to the Financial Crimes Enforcement Network (FinCEN) of the U.S. Department of Treasury. The beneficial ownership information (BOI) reporting requirements of the CTA are set to take effect on January 1, 2024. Those who disregard the CTA may be subject to civil and criminal penalties.

A recent advisory explaining the CTA reporting requirements in further detail may be found here.

While the CTA includes 23 enumerated exemptions for reporting companies, newly formed businesses (Startups) may not qualify for an exemption before the date on which an initial BOI report is due to FinCEN. As a result, Startups (particularly those created on or after January 1, 2024) and their founders and investors, must be prepared to comply promptly with the CTA’s reporting requirements.

As an example, businesses may want to pursue the large operating company exemption under the CTA. However, among other conditions, a company must have filed a federal income tax or information return for the previous year demonstrating more than $5 million in gross receipts or sales. By definition, a newly formed business will not have filed a federal income tax or information return for the previous year. If no other exemption is readily available, such a Startup will need to file an initial BOI report, subject to ongoing monitoring as to whether it subsequently qualifies for an exemption or any reported BOI changes or needs to be corrected, in either case triggering an obligation to file an updated BOI report within 30 days of the applicable event.

Startups also should be mindful that the large operating company exemption requires the entity to (i) directly employ more than 20 full time employees in the U.S. and (ii) have an operating presence at a physical office within the U.S. that is distinct from the place of business of any other unaffiliated entity. Importantly, this means that a mere “holding company” (an entity that issues ownership interests and holds one or more operating subsidiaries but does not itself satisfy the other conditions of this exemption) will not qualify. Startups may want to consider these aspects of the large operating company exemption during the pre-formation phase of their business.

Fundraising often requires Startups to satisfy competing demands among groups of investors, which can lead to relatively complex capitalization tables and unique arrangements regarding management and control. These features may cause BOI reporting for Startups to be more complicated than reporting for other small and closely held businesses. Founders, investors, and potential investors should familiarize themselves with the CTA’s reporting requirements and formulate a plan to facilitate compliance, including with respect to the collection, storage and updating of BOI.

By ensuring all stakeholders understand the BOI reporting requirements and are prepared to comply, your Startup can avoid conflicts with current and potential investors and ensure that it collects the information that it needs to provide a complete and timely BOI report.

Yezi (Amy) Yan and Jordan R. Holzgen contributed to this article.

© 2023 Varnum LLP
For more news on the Corporate Transparency Act, visit the NLR Corporate & Business Organizations section.

A Time for Clauses – Santa and No Gag

As we approach December, the impending arrival of Santa Claus is no doubt dominating discussions in many households.  However, there is another, perhaps lesser known, “clause”-related item that health plan sponsors need to keep top of mind in the coming month.

Specifically, as discussed in our blog found here, health plan sponsors must remember to file their first annual “no gag clause” attestation on December 31, covering the period from December 27, 2020 through the attestation date.

Here are some quick reminders about the requirement, along with some next steps for plans that are catching up:

  • What is the “No Gag Clause” Attestation?

The “no gag clause” attestation, which must be filed annually by December 31, requires group health plans and issuers to certify that they are not subject to agreements that directly or indirectly restrict them from disclosing provider-specific cost or quality-of-care information to certain parties, electronic accessing de-identified claims and encounter information (consistent with privacy laws) or sharing this information with a business associate.

  • How to File an Attestation

The attestation is filed electronically on CMS’s dedicated website, found here.  Instructions, frequently asked questions and a user manual can be found on CMS’s website here.

  • Who is Responsible for the Attestation?

While self-insured plans retain the ultimate responsibility for ensuring that the attestation is submitted, they can contract with their third-party administrators to file on their behalf.

For fully-insured plans, the insurance issuer’s submission of an attestation will satisfy the attestation requirement for both the plan and the issuer.

  • What Should Plan Sponsors Do Now?

For plans that have not yet begun to address the attestation, there is still time to take the necessary steps as follows:

  • If they have not already done so, plans should review their service agreement(s) to ensure that they do not contain any gag clauses.
  • Plans may also wish to obtain written confirmation from their administrators that no prohibited gag clauses are included in their applicable contracts (and, if any are, that the contracts are amended to remove them effective December 27, 2020).
  • Self-insured plans should contact their administrator(s) to coordinate who will be filing the submission.  At this stage, many administrators already have their processes in place and may not wish to file on the behalf of the plan, in which case the plan will need to do the filing.  This will make accomplishing the first two steps more important.

Getting these tasks accomplished as soon as possible will allow plan sponsors to put these prohibited clauses behind them and focus on the good Clauses of the season—Santa and Mrs.

© 2023 Proskauer Rose LLP.
For more news on No Gag Clauses, visit the NLR Health Law & Managed Care section.

Ohio Legalizes Recreational Use of Marijuana

Earlier this month, Ohio joined the growing number of states to legalize the recreational use of marijuana. The new law, which becomes effective December 7, 2023, allows adults aged 21 and older to (within certain restrictions) use, possess, transfer without renumeration to another adult, grow, purchase, and transport marijuana without being subject to arrest, criminal prosecution, or civil penalties.

A natural question for Ohio employers is whether the new law impacts their drug-free or zero-tolerance workplace policies, e.g., can employment be denied or terminated due to a positive drug test? Although the governor has asked the legislature to make changes (not specifically focused on employer policies) to the new law before it takes effect, the new law expressly states that it does not:

  • Require employers to permit or accommodate an employee’s use, possession, or distribution of adult-use cannabis;
  • Prohibit employers from refusing to hire, discharging, disciplining, or otherwise taking adverse employment action against individuals with respect to hire, tenure, terms, conditions, or privileges of employment because of an individual’s use, possession, or distribution of cannabis that is otherwise in compliance with the law;
  • Prohibit employers from establishing and enforcing drug testing policies, drug-free workplace policies, or zero-tolerance drug policies;
  • Permit individuals to sue employers for refusing to hire, discharging, disciplining, discriminating, retaliating, or otherwise taking an adverse employment action against them with respect to hire, tenure, terms, conditions, or privileges of employment related to their use of cannabis; or
  • Affect the authority of the administrator of workers’ compensation to grant rebates or discounts on premium rates to employers that participate in a drug-free workplace program.

The new law also provides that individuals terminated because of their cannabis use are considered to have been “discharged for just cause” for purposes of eligibility for unemployment benefits if their use violated an employer’s drug-free workplace policy, zero-tolerance policy, or other formal program or policy regulating cannabis use. Thus, the new law makes it clear that employers can still enforce their drug-free and zero-tolerance workplace policies. Ohio employers should consider advising employees that the new law will not impact the enforcement of such policies.

© 2023 Foley & Lardner LLP
By Philip B. Phillips of Foley & Lardner LLP
For more news on Ohio’s Legalization of Recreational Marijuana, visit the NLR Biotech, Food, Drug section.

New Lawsuit Addresses Eligibility Concerns for US Collegiate Athletes

It has been over two years since the National Collegiate Athletic Association (“NCAA”) lifted its prohibition on college athletes being able to profit from their name, image, and likeness (“NIL”). When people traditionally think of NIL, they think of student athletes at the collegiate level receiving payment for their likeness. However, collegiate athletes are not the only student athletes able to avail themselves of the burgeoning world of NIL.

To date, thirty-three states have enacted some form of legislation or executive order permitting high school athletes to profit from their NIL. As the NIL landscape continues to develop, one of the more interesting questions posed as a result of these new policies is whether or how a student athlete’s engagement in NIL at the high school level might affect their NCAA eligibility. A new lawsuit of first impression could address this very issue.

In November 2023, Matt and Ryan Bewley, twin brothers from Fort Lauderdale, Florida, filed a federal lawsuit against the NCAA in the U.S. District Court for the Northern District of Illinois.

The Bewleys are former basketball players at Overtime Elite Academy (“OTE”). OTE is a professional basketball league and training program for high school players. “In addition to basketball training, OTE places equal importance on education. The league offers a fully accredited curriculum, allowing players to pursue their academic goals alongside their basketball aspirations.”[1] OTE players can either make a career playing for the OTE league, or they can play until they satisfy the coursework necessary to graduate and go to college and perhaps play for a college team.

Established mere months before the NCAA lifted their ban on NIL, OTE, coincidentally, was founded in part to offer an alternative path for athletes to receive compensation for their talents.[2] As such, OTE initially offered their athletes only salaries. After the NCAA changed their NIL policies, however, OTE adjusted the options available to their players. Because accepting a salary can threaten college eligibility, OTE today offers their players one of two options: they can either collect a salary or, for those with collegiate-level aspirations, opt for a scholarship instead thus keeping their eligibility intact.

When the Bewleys signed with OTE, they did not have the option to elect a scholarship. Instead, they were paid a salary. The brothers were later awarded and accepted scholarship offers to play for Chicago State University. As a result of their OTE payments, however, the NCAA, citing amateurism rules, deemed the Bewley brothers to be ineligible. The NCAA reasoned that because the Bewleys’ OTE compensation exceeded their “actual and necessary expenses,” they could not be considered amateur players. Additionally, the NCAA “also said the twins competed for a team that considered itself professional.”[3]

In their lawsuit, the Bewleys argue that the NCAA’s amateurism rules are anticompetitive and violate federal antitrust law; specifically, Section 1 of the Sherman Act. They allege that the NCAA is effectively restraining trade by limiting the amount of compensation that student-athletes can receive. This argument is reminiscent of the arguments raised by the Plaintiffs in the Alston case, which opened the door for NIL. In Alston, the Plaintiffs argued that the NCAA violated federal antitrust law by placing limits on the education-related benefits that colleges and universities can provide to student-athletes. The United States Supreme Court ruled in favor of the Plaintiffs in Alston, applying antitrust law directly to the NCAA and finding that the rule was an anti-competitive restriction on interstate commerce.

Both Alston and now Bewley challenge the NCAA’s authority to regulate student-athletes’ compensation. The Bewley brothers are also alleging that the NCAA’s determination violates state law, specifically, the Illinois Student-Athlete Endorsement Rights Act (“ISAEA”). The ISAEA allows student-athletes in Illinois to monetize their NIL by entering into deals with any company or organization.

The NCAA’s primary rebuttal in Bewley is that, while student-athletes can now profit from their NIL, they are still considered “amateurs” and should not be paid to play for professional teams while at the high school level. Specifically, the NCAA provides that “[p]rospective student-athletes may accept compensation from their club team while in high school, provided payments do not exceed costs for the individual to participate on the team.”[4] In other words, the compensation received must be “actual and necessary,” which the NCAA defines as being: meals, lodging, apparel, equipment and supplies, coaching and instruction, health/medical insurance, transportation, medical treatment and physical therapy, facility usage, entry fees, and other reasonable expenses.

The NCAA believes that the Bewleys’ compensation from OTE exceeded these permissible limits, maintaining that it was not related to legitimate educational expenses and that their participation in the OTE program was akin to playing for a professional team.

The outcome of the Bewley case could have a significant impact on the future of compensation in college athletics, and specifically as it relates to the further application of federal antitrust law to the NCCA as well as nuanced circumstances where high school athletes who received payment before the NCAA permitted NIL now face risks relating to their collegiate eligibility.

[1] What is Overtime Elite?, Fan Arch, https://fanarch.com/blogs/fan-arch/what-is-overtime-elite (last visited November 11, 2023).

[2] Overtime Elite: Basketball Leaguge to Pay High School Players Six-Figure Salaries, Boardroom, https://boardroom.tv/overtime-elite-basketball-league-to-pay-high-school-players-six-figure-salaries/ (March 4, 2021):

OTE sees itself as a solution to the lack of compensation for amateur athletes and will offer every player a minimum salary of $100,000 per year, plus bonuses and equity shares in Overtime. Players will also profit from their likeness, a long-disputed issue in college sports, through sales of jerseys, trading cards, video games, and NFT’s.

Athletes will also be able to sign direct sponsorships with sneaker companies, something that is not allowed for collegiate athletes.

“Paying basketball players isn’t radical,” said Overtime President, Zack Weiner. “What’s radical is telling people who put in thousands of hours of work that they have to do it for free.” OTE will change this.

[3] Twin Brothers Suing NCAA in Federal Court Over Eligibility Dispute Involving NIL Compensation, Associated Press News, https://apnews.com/article/ncaa-nil-lawsuit-3f8cd7d2c6f7b73e816f77741663fb24 (November 3, 2023, 9:10 PM) (internal quotations omitted).

[4] Payment from Sports Team, NCAA, http://fs.ncaa.org/Docs/eligibility_center/ECMIP/Amateurism_Certification/Payment_from_team.pdf (last visited November 11, 2023).

© Copyright 2023 Squire Patton Boggs (US) LLP
For more news on NIL Eligibility Concerns for US Collegiate Athletes, visit the NLR Entertainment, Art & Sports section.

2024 Estate Planning Outlook: Transfer Tax Changes are on the Horizon

The Tax Cuts and Jobs Act of 2017 (TCJA) significantly increased the lifetime estate and gift tax exemption from $5.6 million to $11.18 million for individuals, with adjustments for inflation starting in 2018. For 2023, the lifetime estate and gift tax exemption is $12.92 million (or $25.84 million for married couples). For 2024, the lifetime estate and gift tax exemption will be $13.61 million (or $27.22 million for married couples). This relatively high exemption level has offered substantial relief to many taxpayers in recent years.

However, absent Congressional action, the lifetime estate and gift tax exemption is scheduled to sunset after 2025 to its pre-2018 amount (adjusted for inflation). If this sunset does in fact occur, we anticipate that the lifetime estate and gift tax exemption will revert to around $7 million ($14 million for couples) for 2026, effectively reducing the exemption by about one-half. This substantial reduction in the lifetime estate and gift tax exemption will cause many more people to be potentially subject to federal estate tax at death.

The potential substantial reduction in the lifetime estate and gift tax exemption could have several significant impacts on estate planning:

  1. Increased Number of Estates Subject to Estate Tax. A much higher number of individuals could be subject to estate tax at death due to the new lower estate tax exemption threshold. Proper planning is crucial to minimize this impact.
  2. Increased Estate Tax Liability. Individuals with estates valued in excess of the new lower estate tax exemption threshold could be subject to higher estate taxes at death. Proper planning is crucial to minimize this impact.
  3. Gifting Strategies. If the lifetime gift tax exemption is reduced, then individuals will have a diminished ability to make significant gifts during their lifetime and greater care will need to be given to maximizing the tax benefits of the lower exemption.
  4. Reviewing Existing Plans. Individuals who designed their estate plans based on the current lifetime estate and gift tax exemption should consider revisiting their plans to ensure those plans remain aligned with their goals and objectives.

The big question in the estate planning world today is whether, when, and to what extent Congress will enact changes to gift, estate, and income tax laws. With many challenges facing the current Biden Administration and a heavily divided Congress, it is not certain that major tax legislation even will be considered in 2024. Nevertheless, the tax proposals endorsed by the Biden Administration provide signals for actions clients should consider during the current year.

Executive Summary

  • The time to gift is 2024 — change is potentially on the horizon.
  • The timing and extent of potential changes to gift and estate tax laws are unclear.
  • Some potential changes could include reducing the exemption, increasing the estate tax rate, increasing the capital gains tax rate, and eliminating the basis adjustment.
  • Consider “locking in” the 2024 exemption amount by gifting to irrevocable trusts and continuing to take advantage of planning opportunities to shift appreciation out of your estate with techniques such as GRATs and intra-family loans.

Potential Legislative Tax Changes[1]

Potential Transfer Tax Changes – Lowered Transfer Tax Exemptions & Increased Transfer Tax Rate

The Biden Administration has proposed lowering the current lifetime estate and gift tax exemption amount to around $3.5 million per individual and increasing the estate tax rate from 40% to 45% on amounts exceeding the exemption. Instead, we may see Congress simply let the exemption sunset back to around $7 million (adjusted for inflation), which was the exemption amount before the substantial increase enacted under the TCJA.

For what it’s worth, the exemption has never been lowered. Despite this, the doubling of the exemption under the TCJA was a dramatic departure from past policies. Thus, reducing the exemption to $7 million (adjusted for inflation) may seem like an easier path, particularly since Congress is so heavily divided. In other words, Congress may opt to treat the last seven years as a fluke and return to “normal.”

Potential Income Tax Changes – Repeal Basis Adjustment & Capital Gains Taxed as Ordinary Income

The Biden Administration also signaled that it might seek repeal of the basis step-up at death and tax capital gains as ordinary income. Although the basis step-up is an income tax planning concept, it is also an important consideration in transfer tax planning. Under current law, gifts of low basis assets can be detrimental because the donee receives the donor’s basis. Taxpayers often decide to retain certain low basis assets, rather than sell them or gift them, to obtain the basis step-up at death. The family members or trusts receiving those assets then can sell those assets with little or no capital gains tax.

The Biden Administration has proposed to eliminate this basis adjustment. An alternative proposal involves treating the transfer of appreciated property at death or by gift as a taxable event causing the gain to be recognized, but many commentators think this is unlikely.

The Biden Administration proposal to tax long-term capital gains and qualified dividends as ordinary income on all income over $1 million would further exacerbate the impact of a repeal of the basis step-up.

Planning Ahead

2024 is an opportune time to make the most of your estate and gift tax exemption.

“Locking In” the Estate and Gift Tax Exemption

Many ultra-high net worth individuals have used most, if not all, of their exemption. Under current tax laws, in 2024, individuals may gift up to $13.61 million during their lives ($27.22 million for married couples). If the exemption decreases from $13.61 million to $3.5 million and the estate tax rate is raised from 40% to 45% percent, the cost of inaction is more than $4.5 million (if an individual makes a gift of $13.61 million while the exemption is $3.5 million and gifts beyond the exemption are taxed at a rate of 45%, the resulting gift tax amounts to roughly $4.5 million; $9 million for married couples). If individuals and married couples have not used their exemption(s) and can afford to, they should give serious consideration to completing gifts equal to their remaining exemption(s) in 2024, ideally to a generation-skipping trust for the benefit of their descendants, particularly since these exemptions are scheduled to sunset in 2025.

Depending on your and your family’s goals, circumstances, remaining exemption, and cash flow needs, gifting up to $27.22 million, or even $13.61 million, to a trust for your beneficiaries may not be feasible. A long-accepted way to address this concern is to create a trust that benefits both the Grantor’s spouse and descendants. This type of trust is commonly referred to as a Spousal Lifetime Access Trust (SLAT). A SLAT is a simple and effective way to address the possible need of the senior generation to access the property transferred. It provides direct access for the beneficiary spouse and indirect access for a Grantor spouse. Grantor Trust provisions, such as ones allowing the Grantor of the trust to swap assets or take loans from the trust without full and adequate consideration, offer tax flexibility, and access to funds by loan.

SLATs have become so popular that couples have created trusts for each other. This is not without risk and should only be done with different trust provisions and with creation of the trusts separated in time. Finally, it is important to remember that potential estate tax savings should never be the sole determinate of your financial planning decisions. Individuals who have stretched themselves thin to make significant gifts sometimes have profound “gifter’s remorse.” Thus, make gifts if you can, but, more importantly, make them if you’re comfortable doing so.

Freezing the Size of the Estate

Perhaps you and your spouse have already utilized your exemptions and are seeking ways to further reduce the tax burden on your estate, or you are not ready to commit large transfers of your property. In either situation, an excellent alternative is to freeze the growth of your estate with strategies like Grantor Retained Annuity Trusts (GRATs) and installment sales with trusts or family loans. GRATs and installment sales have thrived in the past low interest rate environment because assets have often grown in value at a rate above the rate of the annuity, in the case of GRATs, or the interest rate on a promissory note. However, in today’s current higher rate environment, the tax benefits of these planning opportunities may be more restrictive as the appreciation hurdle for a GRAT is now substantially higher than before, and the interest rate on an installment sale is also substantially higher. However, these strategies will still essentially “freeze” the size of one’s estate and transfer potentially significant appreciation, which would have otherwise remained in the client’s estate, out of his or her estate.

Uncertainty Doesn’t Preclude Planning

It is absolutely within the power of Congress to enact retroactive tax legislation if it is rationally related to a legislative purpose, but on a practical level, Congress usually avoids that option. It is almost always unpopular and adds only nominal additional revenue for budgeting purposes. Biden Administration officials already have stated they are not interested in seeking retroactive tax changes. Given the low probability, the threat of retroactive tax law changes should not prevent clients from implementing new estate planning strategies. For those who remain worried, a number of strategies can be structured in a manner that limits potential gift tax liability in the unlikely event legislative changes are enacted retroactively. In 2024, clients should consider reviewing their existing plan to determine whether they can employ certain strategies to maximize use of their exemption and achieve their planning objectives. If the lifetime estate and gift tax exemption is reduced, clients will lose the ability to give away that excess amount (and all subsequent appreciation on that amount).

[1] The following list of potential legislative changes is not all-inclusive. Instead, it focuses on the transfer tax and income tax proposals that would have the most significant impact on the practice of wealth transfer.

© 2023 ArentFox Schiff LLP
For more news on 2024 Transfer Tax Changes, visit the NLR Tax section.

MoCRA Enforcement Pushed Six Months

Key Takeaways

  • What Happened: FDA announced delayed enforcement for MoCRA facility registration and product listing information.
  • Who’s Impacted: Cosmetic product manufacturers
  • What Should You Do: Keep up to date with the ongoing updates and prepare to register your facilities and list your products by July 1, 2024.

As described in our previous alert, Congress enacted the Modernization of Cosmetics Regulation Act of 2022 (MoCRA) in December 2022. MoCRA amended the Federal Food, Drug, and Cosmetic Act (FFDCA) to add several new provisions, including requiring manufacturers and processors of cosmetic products to register their facilities with the Food and Drug Administration (FDA) and submit product lists to FDA. FFDCA § 607. Prior to the November 8, 2023 announcement, every person who owns or operates a facility that engages in manufacturing or processing a cosmetic product for distribution in the U.S. was required to register with FDA starting on December 29, 2023. FFDCA § 607(a)(1)(A). Additionally, the responsible person for each cosmetic product sold in the U.S. was required to submit a cosmetic product listing to the FDA starting on December 29, 2023. FFDCA § 607(c)(2). The FDA’s announcement pushed back the enforcement of these requirements for six months to ensure that the industry had time to comply. The new deadline for both facility registration and product listing information is July 1, 2024.

The accompanying guidance document indicates that FDA still intends to be ready to accept registration and listing information by the statutory deadline of December 29, 2023. Companies will be able to submit their information then.

The delay was precipitated by industry comments to FDA indicating that companies needed more time to gather the required information for facility registration and product listing. The commenters cited concern about the timeframe required to obtain facility registration numbers for cosmetic product listings, to access the electronic submissions database (which at the time of this alert, is not live), and to enter and submit accurate registration and listing information.

Cosmetic product manufacturers should ensure they are on track to meet the new July 1, 2024 deadline, and also note that the December 29, 2023 deadline remains in effect for other MoCRA requirements, including the requirement that FDA propose regulations for standardized testing methods for the detection and identification of asbestos in talc-containing cosmetic products, and the requirement that responsible persons ensure adequate safety substantiation.

© 2023 Beveridge & Diamond PC
For more news on MoCRA requirements, visit the NLR Biotech, Food, Drug section.

Sharing Scientific Information with HCPs on Unapproved Uses of Medical Products: Dos and Don’ts Under FDA’s New Draft Guidance

In October 2023, the FDA released draft guidance entitled “Communications From Firms to Health Care Providers Regarding Scientific Information on Unapproved Uses of Approved/Cleared Medical Products: Questions and Answers Guidance for Industry” (“2023 Draft Guidance”).[1] The 2023 Draft Guidance supersedes previous draft guidance from 2014 entitled “Distributing Scientific and Medical Publications on Unapproved New Uses–Recommended Practices” (“2014 Draft Guidance”), which was a revision of a 2009 final guidance entitled “Good Reprint Practices for the Distribution of Medical Journal Articles and Medical or Scientific Reference Publications on Unapproved New Uses of Approved Drugs and Approved or Cleared Medical Devices.”

All three of these FDA guidance documents provide recommendations for industry regarding the sharing of scientific information with Health Care Providers (“HCPs”)[2] on unapproved uses of approved or cleared drugs and medical devices, termed “SIUU communications” by the 2023 Draft Guidance. HCPs are permitted to prescribe medical products for unapproved uses when the unapproved use is determined to be medically appropriate for a given patient. However, manufacturers may not promote their products for an unapproved use. For this reason, FDA’s position (which is articulated to some extent across all of the above-mentioned guidance documents, but most clearly and emphatically in the 2023 Draft Guidance) is that firm[3] communications to HCPs regarding unapproved uses of approved or cleared products should include all of the information necessary for HCPs to evaluate the strengths, weaknesses, validity, and utility of the information about the unapproved use in order to make determinations regarding medical appropriateness.

In the 2023 Draft Guidance, FDA seeks to balance the interests of HCPs in learning, and manufacturers in sharing, truthful and non-misleading information about unapproved uses of approved medical products, with the intent to inform clinical practice decisions against the government’s interest in protecting patients from medical product uses that have not met applicable safety and effectiveness standards required under FDA’s premarket approval framework.

While the 2023 Draft Guidance reiterates many of the recommendations from the 2014 Draft Guidance, the 2023 Draft Guidance leverages a new “Q&A” format to provide firms with more detailed and specific recommendations, including hypothetical scenarios, around SIUU communications. Below, we restate the four Q&A questions included in the 2023 Draft Guidance and then highlight key aspects of the responses provided by FDA through brief commentary and recommended Dos and Don’ts.

Q1. What should firms consider when determining whether a source publication is appropriate to serve as the basis for an SIUU communication?

According to the 2023 Draft Guidance, any study or analysis described in a source publication that serves as the basis for an SIUU communication should be scientifically sound,[4] and should provide information that is relevant to HCPs engaged in making clinical practice decisions for the care of an individual patient; in other words, these sources should be clinically relevant.[5] While the 2014 Draft Guidance suggested that scientific or medical journal article reprints intended for distribution to HCPs should describe studies that are considered “scientifically sound” by appropriate experts, the 2023 Draft Guidance builds out this standard and provides greater insight into what types of source material would meet (and not meet) the standard.

Do:

  • Choose scientifically sound studies that provide clinically relevant information to support your SIUU communications
    • For human and animal drugs, randomized, double-blind, concurrently controlled superiority trials are most likely to provide both scientifically sound and clinically relevant information (though other well-designed and well-conducted studies may also be appropriate)
    • For medical devices,[6] look to well-controlled investigations, partially controlled studies, studies and objective trials without matched controls, well-documented case histories conducted by qualified experts, reports of significant human experience with a marketed device as sources of scientifically sound and clinically relevant information
  • Consider studies with real-world data and associated real-world evidence, which may meet the scientifically sound and clinically relevant threshold depending on the nature of the data and underlying analyses

Don’t:

  • Rely on studies without an adequate control group, isolated case reports, or studies that lack sufficient detail to permit scientific evaluation as the sole basis for an SIUU communication
  • Rely on studies with “unreliable” data, even if you include disclaimers noting the limitations (e.g., studies that fail to control for confounding factors or fail to clearly define study endpoints)
  • Rely on articles focused on non-clinical studies as the sole basis for an SIUU communication
  • Rely on scientific data generated in early stages of medical product development as the sole basis for an SIUU communication, as such data can produce results that are inconsistent with later studies
  • Distort studies in SIUU communications or base SIUU communications on publications that distort studies or include fraudulent data
  • Continue to share an SIUU communication that is based on a study or analysis that is no longer clinically relevant (ex: subsequent research has established the findings from the study are not reliable)

Q2. What information should firms include as part of SIUU communications?

Like the 2014 Draft Guidance, the 2023 Draft Guidance emphasizes the importance of providing certain disclosures with SIUU communications to ensure such communications are not misleading and provide all the information necessary for HCPs to interpret the strengths and weaknesses and validity and utility of the information. The recommended disclosures in the 2023 Draft Guidance are similar to those recommended in the 2014 Draft Guidance, but are more detailed and extensive.

Do:

  • Provide a disclosure statement with any SIUU communication, which should include:
    • A statement that the use described in the communication is unapproved and the safety and effectiveness of the medical product for the unapproved use(s) has not been established
    • Disclosure of the FDA approved use of the medical product, including any limitations and contraindication(s) specified by the product’s FDA-required labeling[7]
    • Disclosure of any limitations, restrictions, cautions, warnings, or contradictions described in the FDA-required labeling about the unapproved use(s)
    • Disclosure of any serious, life-threatening, or fatal risks posed by the medical product that are relevant to the unapproved use(s) (that are either in the FDA-required labeling or known by the firm and relevant to the unapproved use)
    • Disclosure of any financial relationships between the firm and any authors, editors, or other contributors to the publications in the SIUU communication
    • A copy of the most current FDA-required labeling (or a mechanism for obtaining the labeling)
    • The publication date of any referenced or included publication(s) (if not specified in the publication or citation)
  • For an SIUU communication based on a source publication that is primarily focused on a particular scientific study or studies, for each such study where the following information is not included in the publication, provide a description of:
    • All material aspects of study design, methodology, and results
    • All material limitations related to the study design, methodology, and results
    • Any conclusions from other relevant studies, when applicable, that are contrary to or cast doubt on the results shared, including citations for any such studies

Don’t:

  • Omit any risk evaluation and mitigation strategy (REMS) applicable to the medical product (firms should disclose any REMS and should describe the goal(s) of the REMS)

Q3. What presentational considerations should firms take into account for SIUU communications?

The 2023 Draft Guidance offers a number of presentation-focused recommendations to ensure that SIUU communications are conveyed in a manner that enhances and does not interfere with HCP understanding of the underlying scientific information, and to avoid such SIUU communications being confused with promotional communications about approved uses.

Do:

  • Clearly and prominently present all recommended disclosures, considering type size, font style, layout, contrast, graphic design, headlines, spacing, volume, articulation, pace, and any other techniques to achieve emphasis or notice
  • For SIUU communications with both audio and visual components, present disclosures in both the audio and in text at the same time using the same/substantially similar language
  • Keep SIUU communications (including those relayed via email) separate and distinct from promotional communications about approved uses of medical products
  • Use dedicated vehicles, channels, and venues for sharing SIUU communications that are separate from the vehicles, channels, and venues used for promotional communications about approved uses of medical products. For example –
    • Present SIUU communications on a separate web page from the web page that hosts promotional communications about approved uses
    • At conferences and similar venues, ensure that SIUU communications are clearly identified and distinct from promotional communications about approved uses (e.g., by dividing booth space to allow a dedicated space for SIUU communications)
  • Use plain language in the content developed for SIUU communications to facilitate comprehension (i.e., clear and concise language that does not include technical jargon and clearly explains any scientific or technical terms)

Don’t:

  • Use persuasive marketing techniques, such as the use of celebrity endorsements, premium offers, and gifts. According to FDA, a firm’s choice to use persuasive marketing techniques suggests an effort to convince the HCP to prescribe or use the product for the unapproved use based on elements other than the scientific content of the communication
  • Include direct links from web pages that host promotional communications about approved uses to webpages that host SIUU communications
  • Utilize platforms with character limits that do not enable the firm to include the recommended disclosures for sharing SIUU communications (however, such platforms could be used to direct an HCP to an SIUU communication, subject to certain restrictions)

Q4. What additional recommendations apply to specific types of SIUU communications?

The 2023 Draft Guidance offers additional recommendations related to certain specific types of SIUU communications including journal reprints and clinical reference resources (such as clinical practice guidelines and reference texts). Of note, the 2023 Draft Guidance provides recommendations for a category of SIUU communications that is not specifically addressed in the 2014 Draft Guidance – “firm-generated presentations of scientific information from an accompanying published reprint.”

Discussion of such firm-generated presentations in the 2023 Draft Guidance represents a departure from the 2014 Draft Guidance, which stated that reprints (as well as clinical reference resources) regarding unapproved uses (of cleared or approved medical products) should not be “marked, highlighted, summarized, or characterized” by medical product manufacturers to emphasize or promote an unapproved use. The 2023 Draft Guidance provides new flexibility in this regard, expressly acknowledging that firms may develop their own presentations of scientific information from an accompanying reprint provided such presentation is truthful, non-misleading, factual, unbiased, and provides all the information necessary for HCPs to interpret the strengths and weaknesses and validity and utility of the presented information. The 2023 Draft Guidance includes a number of recommendations for firms to follow to prepare and distribute firm-generated presentations of information from an accompanying reprint.

Do:

  • Include the full reprint with the firm-generated presentation
  • Include the disclosures outlined above in Q2, and clearly disclose what portions of the communication are firm-generated
  • Follow the presentational considerations outlined in Q3

Don’t:

  • Imply that the study, analysis, or underlying data or information from the reprint(s) represents larger or more-general experience with the medical product than it actually does
  • Present information, such as excerpts, quotes, etc., from the reprint(s) out of context, without the information necessary for HCPs to interpret the strengths and weaknesses and validity and utility of the information
  • Include representations or suggestions about the safety or effectiveness of the medical product for the unapproved use(s) that are not consistent with the reprint
  • Present any conclusions or representations about safety or effectiveness for the unapproved use without expressly attributing such statements to the reprint, and without immediately following such statements with a disclosure of any financial relationships between the firm and any authors, editors, or other contributors to the publications in the SIUU communication
  • Use statistical analyses or techniques to indicate clinical significance or validity of a finding not supported by the data or information in the reprint
  • Use tables or graphs or other presentational elements to distort or misrepresent the relationships, trends, differences, or changes among the outcomes evaluated in the reprint

Conclusion

While the 2023 Draft Guidance veers from the 2014 Draft Guidance in some respects, many of the same principles have been pulled through into the current guidance. As such, a medical product manufacturer who has already implemented the recommendations from the 2014 Draft Guidance should not face too heavy of a lift to adjust its activities to align with the 2023 Draft Guidance. While the landscape has not shifted drastically overall, firms should still closely review the additional detail and clarifications provided by the 2023 Draft Guidance to mitigate potential risk in navigating the often murky regulatory waters of engaging in off-label and pre-approval communications.

ENDNOTES

[1] Comments on the 2023 Draft Guidance are due by December 26, 2023.

[2] The 2023 Draft Guidance only applies to HCPs engaged in making clinical practice decisions for the care of an individual patient. Per the 2023 Draft Guidance, HCPs include physicians, veterinarians, dentists, physician assistants, nurse practitioners, pharmacists, or registered nurses who are licensed or otherwise authorized by law to prescribe, order, administer, or use medical products in a professional capacity. The 2014 Draft Guidance applied to “health care professionals,” but the term was not specifically defined.

[3] As defined by the 2023 Draft Guidance, firms are the “persons legally responsible for the labeling of medical products, and includes applicants, sponsors, requestors, manufacturers, packers, and distributors of medical products, and licensees of such persons, and any persons communicating on behalf of these entities.”

[4] To be “scientifically sound,” at a minimum, studies should meet generally accepted design and other methodological standards for the particular type of study performed, taking into account established scientific principles and existing scientific knowledge.

[5] Additionally, statistical robustness is generally necessary, though not sufficient, to determine if a study or analysis is appropriate for an SIUU communication. While statistical robustness factors into the rigor of the design and methodology of a study, it does not assure that the study relates to outcomes of clinical relevance to HCPs.

[6] Notably, while the 2014 Draft Guidance stated that journal articles discussing significant non-clinical research could fall within FDA’s enforcement discretion policy under the guidance, the 2023 Draft Guidance clarifies that, generally, sharing articles focused on non-clinical studies alone would not be consistent with FDA’s enforcement discretion policy as a non-clinical study alone is unlikely to provide information that is clinically relevant.

[7] “FDA-required labeling” includes, but is not necessarily limited to, the labeling reviewed and approved by FDA as part of the medical product premarket review process. For a prescription human drug (including biological products), this consists of the FDA-approved prescribing information that meets the requirements of 21 CFR 201.100. For a device, it includes the labeling approved during the review of a premarket approval application or De Novo classification.

©2023 Epstein Becker & Green, P.C. All rights reserved.
For more news on FDA Guidance on Medical Products, visit the NLR Health Law & Managed Care section.

What Employers Need to Know about the White House’s Executive Order on AI

President Joe Biden recently issued an executive order devised to establish minimum risk practices for use of generative artificial intelligence (“AI”) with focus on rights and safety of people, with many consequences for employers. Businesses should be aware of these directives to agencies, especially as they may result in new regulations, agency guidance and enforcements that apply to their workers.

Executive Order Requirements Impacting Employers

Specifically, the executive order requires the Department of Justice and federal civil rights offices to coordinate on ‘best practices’ for investigating and prosecuting civil rights violations related to AI. The ‘best practices’ will address: job displacement; labor standards; workplace equity, health, and safety; and data collection. These principles and ‘best practices’ are focused on benefitting workers and “preventing employers from undercompensating workers, evaluating job applications unfairly, or impinging on workers’ ability to organize.”

The executive order also requested a report on AI’s potential labor-market impacts, and to study and identify options for strengthening federal support for workers facing labor disruptions, including from AI. Specifically, the president has directed the Chairman of the Council of Economic Advisers to “prepare and submit a report to the President on the labor-market effects of AI”. In addition, there is a requirement for the Secretary of Labor to submit “a report analyzing the abilities of agencies to support workers displaced by the adoption of AI and other technological advancements.” This report will include principles and best practices for employers that could be used to mitigate AI’s potential harms to employees’ well-being and maximize its potential benefits. Employers should expect more direction once this report is completed in April 2024.

Increasing International Employment?

Developing and using generative AI inherently requires skilled workers, which President Biden recognizes. One of the goals of his executive order is to “[u]se existing authorities to expand the ability of highly skilled immigrants and nonimmigrants with expertise in critical areas to study, stay, and work in the United States by modernizing and streamlining visa criteria, interviews, and reviews.” While work visas have been historically difficult for employers to navigate, this executive order may make it easier for US employers to access skilled workers from overseas.

Looking Ahead

In light of the focus of this executive order, employers using AI for recruiting or decisions about applicants (and even current employees) must be aware of the consequences of not putting a human check on the potential bias. Working closely with employment lawyers at Sheppard Mullin and having a multiple checks and balances on recruiting practices are essential when using generative AI.

While this executive order is quite limited in scope, it is only a first step. As these actions are implemented in the coming months, be sure to check back for updates.

Copyright © 2023, Sheppard Mullin Richter & Hampton LLP.
By Carina L. Novell of Sheppard, Mullin, Richter & Hampton LLP
For more news on the Impact of the Executive Order on AI for Employers, visit the NLR Communications, Media & Internet section.