Why the One Big Beautiful Bill Act turns correct worker classification into a payroll advantage — not just a compliance chore

The One Big Beautiful Bill Act (OBBBA, Public Law 119-21, signed July 4, 2025) created a temporary federal deduction — the widely publicized “No Tax on Overtime” — that, for the first time, attaches a concrete tax benefit to being a properly classified, overtime-eligible W-2 employee.

In a workforce defined by long hours and 24-hour shifts, that benefit lands squarely on home care. But it comes with real fine print, a new reporting obligation for agencies, and a genuine risk of over-promising to your caregivers. Here is what the law actually does — and does not — do.

What “No Tax on Overtime” Actually Is (and Isn’t)

Despite the headline, overtime is not tax-free. OBBBA created an above-the-line federal income tax deduction for the premium portion of qualified overtime — the extra “half” of time-and-a-half required by the Fair Labor Standards Act (FLSA). The key parameters:

• Deduction cap: up to $12,500 per year ($25,000 for joint filers).
• Premium only: if a caregiver earns $18/hour regular and $27/hour for overtime, only the $9/hour premium is deductible — not the full overtime wage.
• Above-the-line: available whether the worker itemizes or takes the standard deduction; claimed on the new Schedule 1-A (Form 1040).
• Temporary: tax years 2025 through 2028 only, unless Congress extends it.
• Income phase-out: begins at modified AGI of $150,000 ($300,000 joint), reduced by $100 for every $1,000 above the threshold.
• Still subject to FICA: the deduction reduces federal income tax only. Social Security and Medicare — and generally state income tax — are still owed on every overtime dollar.
• Eligibility limits: a Social Security number valid for work is required, and married-filing-separately taxpayers are excluded.

The deduction belongs to the worker, not the agency. But whether your caregivers can claim a single dollar of it depends entirely on how you classify and pay them — which is exactly where an agency’s payroll decisions come in.

How we can help  The way this deduction interacts with your pay rates, shift differentials, and state overtime rules is not always obvious. We can model the after-tax impact for your caregiving staff and confirm your payroll coding captures the premium correctly.

Why It Lands Hard on Home Care — and Rewards Correct Classification

Home care is one of the most overtime-intensive sectors in the economy. Long shifts, live-in arrangements, and weeks well past 40 hours are routine. That makes the overtime deduction unusually valuable to caregivers — but only when two conditions are met:

1. The caregiver is a W-2 employee, not a 1099 contractor. Independent contractors are not entitled to FLSA overtime, so they have no “qualified overtime compensation” to deduct. A 1099 caregiver gets nothing.
2. The caregiver is actually owed FLSA overtime — and here the ground is shifting. The 2013 Home Care Rule barred third-party employers such as agencies from claiming the FLSA’s “companionship” and live-in exemptions, which is why agency caregivers have generally been overtime-eligible. But in July 2025 the DOL proposed to restore those exemptions for third-party employers and, in Field Assistance Bulletin 2025-4, suspended enforcement of the 2013 rule against agencies. The 2013 rule technically remains on the books and still governs private lawsuits, so for now caregivers who perform substantial hands-on care — more than incidental “companionship” — generally remain non-exempt, and many states require overtime regardless of the federal exemption. In short, whether a given caregiver is owed federal overtime — and can therefore claim the deduction — increasingly turns on state law and the actual duties performed.

The strategic point connects directly to last month’s issue. The 1099 model doesn’t only expose your agency to back taxes and penalties — it now denies your caregivers a tangible, federally sponsored tax break. Proper W-2 classification has quietly become a recruiting and retention argument, not merely a compliance obligation.

A 1099 caregiver working sixty-hour weeks receives no overtime and no overtime deduction. The same caregiver, correctly classified as a non-exempt W-2 employee and owed overtime, receives both. In a tight labor market, that difference is a hiring advantage — one you can put in a job posting.

How we can help  If you’re weighing whether to reclassify contractors — or already planning to — we can pair the reclassification with the payroll setup needed to capture the overtime deduction, so the change becomes a benefit you can advertise rather than a cost you absorb.

The New Reporting Burden Agencies Can’t Ignore

The deduction creates work for employers. To let caregivers claim it, agencies must separately track and report the FLSA overtime premium — not total overtime pay, only the required “and-a-half” half.

• 2025 transition relief: for the 2025 tax year, the IRS is not requiring modified payroll forms and is waiving penalties for employers who don’t separately report qualified overtime, provided a reasonable, documented method is used.
• 2026 onward — mandatory: on the final 2026 Form W-2 (released by the IRS in January 2026), all employers — agencies and household employers alike — must report qualified overtime compensation using the new Box 12, Code TT, beginning with 2026 wages (on W-2s issued in early 2027). Payroll systems must be coded to isolate the FLSA premium so the correct figure lands in that box.
• Withholding: caregivers who want the deduction reflected in take-home pay should file an updated Form W-4. A start-of-2026 withholding review is prudent for both worker and employer.

How we can help  We can audit your payroll coding now — before the 2026 requirements bite — so the FLSA premium is isolated correctly, your W-2s are right the first time, and your caregivers actually receive the benefit you’re telling them about.

A Word of Caution on “No Tax on Tips”

OBBBA’s companion provision — a deduction of up to $25,000 for qualified tips — has generated understandable interest. For most home care agencies it is a limited story. The tips deduction applies only to occupations the Treasury has designated as customarily and regularly tipped as of December 31, 2024. Personal care and home health aides are not traditionally tipped occupations, so most caregivers will not qualify, and gratuities in an agency setting raise their own wage-and-hour questions. Before promoting a “tax-free tips” benefit to staff, confirm eligibility against the published occupation list.

How we can help  We can check your workforce against the Treasury’s tip-eligible occupation list and flag any roles that genuinely qualify, so your communications to caregivers stay accurate.

What OBBBA Means for the Families You Serve

The families who hire caregivers — and the older adults who receive care — have their own set of changes worth flagging:

• The $6,000 senior deduction. For tax years 2025 through 2028, individuals aged 65 or older may claim an additional $6,000 deduction ($12,000 for a couple where both qualify), on top of the existing age-based standard deduction. It phases out above modified AGI of $75,000 ($150,000 joint) and is available whether or not the taxpayer itemizes. For many care recipients on fixed incomes, this is straightforward money.
• Dependent care benefits for adult care. Care for an aging parent or an incapacitated spouse can qualify for the Child and Dependent Care Credit and a dependent care FSA — but only when the care recipient is a “qualifying individual”: a spouse or dependent physically or mentally incapable of self-care. Where the conditions are met, 2026 brings permanently larger benefits: the dependent care FSA cap rises from $5,000 to $7,500, and the maximum credit rate climbs from 35% to 50% of eligible expenses (up to $3,000 for one qualifying individual, $6,000 for two or more).
• Coordination matters. Every dollar run through a dependent care FSA reduces the expenses eligible for the credit dollar-for-dollar. Maxing the FSA can eliminate the credit entirely, so the better choice depends on income, filing status, and the amount of care purchased.

How we can help  If your agency helps families with care coordination, this is a natural value-add. We can review a family’s situation to determine whether the senior deduction, the dependent care credit, or an FSA election produces the best result — and make sure they aren’t misclassifying the caregiver in the process.

Five Steps to Take Now

1. Confirm your caregivers are W-2 employees receiving FLSA overtime. The overtime deduction only reaches correctly classified, overtime-eligible workers. If you’re still running a 1099 model, last month’s issue explains the exposure — this month’s explains what your workers are losing.
2. Isolate the FLSA overtime premium in your payroll system. Total overtime pay is not the reportable figure; only the required “half” premium is. Code for it now.
3. Prepare for mandatory 2026 reporting. Household employers: plan for Box 12, Code TT. Agencies: confirm your payroll vendor will separately report qualified overtime on 2026 W-2s.
4. Prompt a Form W-4 refresh. Caregivers who want the deduction reflected in withholding should update their W-4 for 2026.
5. Advise client families on the senior deduction and dependent care coordination. A brief, accurate conversation can distinguish your agency — and keep families clear of the household-employer traps we covered last month.

The Bottom Line

The “No Tax on Overtime” deduction is modest in size and temporary in duration — but it changes the conversation about worker classification in home care. For years, the case for proper W-2 classification was defensive: avoid audits, back taxes, and penalties. OBBBA adds an offensive case. Correctly classified caregivers now gain a real federal tax benefit that no 1099 arrangement can deliver, while agencies that get their payroll coding and reporting right turn a compliance requirement into a recruiting advantage.

The agencies that move early — clean classification, correct premium tracking, and accurate caregiver communications — will be the ones telling a better story to both their workforce and the families they serve.

Our firm works exclusively with home care and senior living organizations. If you’d like a review of your 2026 payroll coding, help implementing overtime-premium reporting, or guidance for the families you serve on the senior deduction and dependent care benefits, we’re here to help.

Sources: IRS, “One, Big, Beautiful Bill Act: Tax Deductions for Working Americans and Seniors” (2025) • OBBBA / Public Law 119-21 (July 4, 2025) • Treasury & IRS transition-relief guidance on tips and overtime reporting (2025) • IRS Publication 926, Household Employer’s Tax Guide (2026) • U.S. DOL Wage & Hour Division, Home Care Rule (2013) and Field Assistance Bulletin 2025-4 / proposed companionship rulemaking (July 2025) • IRS Publication 503, Child and Dependent Care Expenses • IRC §§ 21 and 129 (dependent care)

This newsletter is for general informational purposes only and does not constitute legal or tax advice. Figures and thresholds reflect guidance available as of June 2026 and may change as the IRS issues further guidance. Consult a qualified advisor regarding your specific circumstances.

Generative artificial intelligence (AI) tools such as ChatGPT, Claude, Gemini, and others are transforming nearly every industry—including employment litigation. While these tools have made legal information more accessible and lowered the barriers for individuals to pursue claims without hiring an attorney, they have also created new challenges for employers defending workplace lawsuits.

Artificial intelligence is changing the way employment disputes begin, but it has not changed the legal standards employers must meet.  Organizations with strong HR practices, compliant payroll processes, accurate timekeeping, and thorough documentation remain in the best position to defend workplace claims whether those claims are drafted by an attorney or generated with AI.

At Forework, we believe the best defense begins long before a claim is filed. Our attorney designed payroll and HR platform helps businesses strengthen compliance processes, improve documentation, and adapt their systems as employment laws and workplace risks evolve.

Today’s pro se (self-represented) litigants are no longer submitting handwritten complaints or informal filings. Instead, many are using AI to generate professionally formatted legal pleadings, motions, discovery requests, and correspondence. Although these documents often contain legal inaccuracies or unsupported arguments, they can substantially increase the time and expense required to defend a case.

For employers, the practical reality is clear: AI is changing not only how lawsuits are filed, but also how they are litigated.

AI Is Fueling an Increase in Pro Se Employment Claims

Employment litigation has seen a noticeable increase in self-represented plaintiffs over the past several years.  According to the LexMachina 2026 Employment Litigation Report, pro se employment filings increased from approximately 2,000 cases in 2021 to more than 4,300 cases in 2025—more than doubling in just four years. Many employment defense firms have similarly reported significant increases in AI-assisted filings.

Although AI has improved access to legal information, it has also made it easier for individuals to draft complaints, respond to motions, and pursue litigation without fully understanding the legal standards governing their claims.

Why AI-Generated Cases Can Cost Employers More

Contrary to what many employers expect, lawsuits filed by unrepresented plaintiffs are not always less expensive to defend.  In fact, many employment defense attorneys report that AI-assisted pro se cases often require more attorney time than traditionally filed cases.  Common challenges include:

• Numerous motions that lack legal merit but still require formal responses;
• Extremely broad or repetitive discovery requests;
• Procedural misunderstandings that prolong litigation; and
• Unrealistic expectations regarding case value and potential damages.

For example, some defense firms have reported cases in which a single pro se litigant filed dozens of motions and hundreds of written discovery requests, requiring significant defense resources simply to manage the litigation process.  The result is longer case timelines and increased litigation costs—even when the underlying claims ultimately lack merit.

Courts Are Responding to AI in Different Ways

Courts across the country have begun developing rules governing the use of AI in legal filings. One of the primary concerns is that AI platforms occasionally generate inaccurate legal analysis or even fabricate court decisions and citations—a phenomenon commonly referred to as “hallucination.”  

To address these risks, courts have adopted a variety of approaches. Some courts now require parties to disclose when AI was used to prepare filings and certify that all legal citations have been independently verified.  Other courts have implemented certification requirements confirming that every cited authority actually exists and has been reviewed for accuracy.  A handful of judges have gone even further by prohibiting the use of AI in certain aspects of legal research or, in some instances, banning AI-generated filings altogether.

Although the approaches vary, the underlying objective is consistent: ensuring that court filings remain accurate, truthful, and professionally prepared.

AI May Also Affect Settlement Negotiations

Another trend employers are beginning to encounter is inflated settlement expectations. Generative AI tools often produce optimistic estimates of damages or suggest legal theories that may not accurately reflect the facts or applicable law. As a result, some self-represented plaintiffs enter negotiations believing their claims are worth substantially more than they realistically are.  This can make early settlement more difficult and, in some cases, encourage litigation that previously might have resolved quickly.  Employers should therefore evaluate settlement opportunities based on the actual legal merits of the case rather than assumptions about how quickly a pro se matter will resolve.

Practical Steps Employers Can Take

As AI becomes increasingly common in employment litigation, employers can reduce risk by adopting a proactive approach.  Consider the following best practices:

1. Carefully review legal citations.  AI-generated filings occasionally cite cases or legal authorities that do not exist or inaccurately describe the law. Employers and their counsel should verify all authorities cited in litigation and promptly raise any inaccuracies with the court when appropriate.
2. Manage discovery early. When discovery requests become excessive or disproportionate, early communication with opposing parties—and, when necessary, motions for protective orders—can help control costs before discovery expands unnecessarily.
3. Set realistic litigation expectations. Not every pro se case will settle quickly. Employers should recognize that AI-generated legal documents may encourage plaintiffs to pursue litigation longer than they otherwise might have, making early case evaluation and litigation strategy increasingly important.
4. Focus on compliance before litigation begins. Regardless of who prepares a complaint, the strongest defense remains the same: well-documented employment decisions, compliant wage-and-hour practices, consistent policy enforcement, and accurate recordkeeping.

Forework is the ONLY attorney-designed and operated payroll and HR SaaS company, automating compliance in a dynamic way as the laws change. If your company wants to be in a strong position for the rapidly changing, but never less complicated, workplace landscape, work with Forework.

Employment law changes often require more than simply updating a handbook. They can affect payroll configuration, leave tracking, employee notices, recordkeeping, offboarding, and other day to day HR procedures.

At Forework, we anticipate regulatory changes that affect payroll and HR administration and work to incorporate those changes into the systems, policies, and procedures our clients rely on. The goal is to help businesses stay ahead of new requirements rather than discover too late that their processes are no longer aligned with the law.

The new NYC Paid Safe and Sick Leave rules are a timely example of why that proactive approach matters.

The New York City Department of Consumer and Worker Protection (DCWP) has issued final regulations implementing the 2026 amendments to the Earned Safe and Sick Time Act (ESSTA). While many of the final rules mirror the agency’s proposed regulations released earlier this year, several important revisions create new administrative, payroll, and recordkeeping obligations for employers. The new rules take effect July 23, 2026, giving employers a limited window to review policies, update payroll systems, and modify leave administration procedures.

What’s Changing?

The 2026 amendments significantly expanded employees’ protected leave rights by:

• Creating a new 32-hour annual bank of unpaid protected time off that is available immediately;
• Expanding the qualifying reasons employees may use protected leave;
• Codifying up to 20 hours of paid prenatal leave; and
• Updating notice, payroll, and recordkeeping requirements.

The newly finalized regulations provide additional guidance on how employers are expected to administer these expanded leave entitlements.

New Offboarding Requirement for Former Employees

One of the most significant changes affects how employers provide leave records after an employee leaves the company.  Under the final rules, employers that maintain electronic payroll or leave tracking systems must now either:

• Continue allowing former employees to access their leave information electronically for six months after separation, or
• Provide a written statement showing the employee’s required leave information within one week after the employee’s final payday.

This is a new compliance obligation that was not included in the original proposal.

What Employers Should Do

Many employers automatically deactivate employee access to HR and payroll systems immediately upon separation. Those employers should review their offboarding procedures to ensure they can either maintain limited post-employment access or timely provide the required written leave statement.

Unused 32-Hour Leave Must Be Restored Upon Rehire

The final regulations also clarify an employer’s obligations when rehiring former employees. If an employee leaves employment and is rehired during the same calendar year, the employer must restore any unused portion of the employee’s 32-hour unpaid protected leave bank. This requirement is separate from the existing ESSTA rules governing reinstatement of accrued paid leave.

Clarification on the New 32-Hour Unpaid Leave Bank

The regulations provide additional guidance regarding the administration of the new unpaid leave entitlement. Employers may choose to provide some—or even all—of the required 32 hours as paid leave instead of unpaid leave. However, the regulations make clear that doing so does not eliminate the employer’s separate obligation to provide paid sick and safe leave under ESSTA’s existing accrual or frontloading requirements. In other words, employers cannot substitute the new 32-hour leave entitlement for their existing paid sick leave obligations.

Paid Leave Generally Must Be Used First

The final rules also explain how employers should administer leave when employees have both paid and unpaid protected leave available.  In most situations, if an employee requests leave for a qualifying reason and has available paid protected leave, the employer must apply the paid leave first unless the employee specifically elects to use unpaid leave instead. Only after available paid leave has been exhausted may the employer rely on the separate unpaid 32-hour leave bank.

Updated Recordkeeping and Payroll Requirements

The final regulations continue the City’s emphasis on accurate leave administration and documentation.  Among other changes, employers should ensure their systems can:

• Track paid and unpaid leave separately (unless all protected leave is provided as paid leave);
• Reflect the expanded categories of protected leave;
• Maintain required payroll and leave records; and
• Comply with updated notice and pay statement requirements.

For employers using HRIS or payroll software, these changes may require system updates before the July 23 effective date.

What Employers Should Do Now

Before the new rules become effective, employers should:

• Review and update employee handbooks and leave policies;
• Confirm that payroll and HR systems properly track the expanded leave entitlements;
• Update offboarding procedures to address post-separation leave record requirements;
• Review rehire procedures to ensure unused leave is restored when required; and
• Train HR personnel, payroll staff, and supervisors on the new rules.

When was the last time your payroll company through so far ahead for your business, and actually programmed the new law into payroll and HR, without you having to ask?  With Forework, clients always have peace of mind that they are on track.

As artificial intelligence becomes increasingly integrated into workplace operations, employers are beginning to face a new and unexpected compliance issue: employees requesting religious accommodations to avoid using AI tools. 

The Emerging Issue

Recent reports have highlighted employees who claim that using artificial intelligence conflicts with their sincerely held religious beliefs.  Some objections are rooted in concerns about human dignity, automation replacing human judgment, environmental impact, or broader ethical considerations that employees connect to their religious convictions.  As religious leaders and organizations continue to weigh in on the societal implications of AI, employers should be prepared for an increase in accommodation requests from employees who believe AI use conflicts with their faith.

What Does the Law Require?

Under Title VII of the Civil Rights Act, employers with 15 or more employees must provide reasonable accommodations for an employee’s sincerely held religious beliefs unless doing so would create an undue hardship on the business.  Importantly, courts interpret “religion” broadly. Protected beliefs may include what are thought of as “traditional” religious beliefs, but also individually held religious convictions, or other forms of what would be considered non-traditional religious beliefs.  This means an employer cannot automatically dismiss an AI-related objection simply because it appears unusual or unfamiliar, or non-religious.

What Employers Should Not Do

One of the biggest mistakes employers make is evaluating whether an employee’s belief makes sense.  Employers generally should not ask whether the purported religious belief is truly religious by questioning the employee’s belief system, whether the employee has a letter or certificate from their religious leader endorsing the employee’s perspective, or to prove that the employee is generally religious.   

Practical Steps When an Employee Requests Exemption from the Business’s Requirement to use AI

Initially, all requests for an accommodation at work based on religious grounds should be taken seriously.  Even if the request appears unusual, managers should avoid dismissing it outright. Accommodation requests involving religion should be routed through HR or legal counsel for evaluation.

The employer should then discuss which AI tools are involved, and what specifically about the AI tool conflicts with the employee’s religious beliefs.  The parameters of the objection should be discussed, and the employee should be asked if he/she specific accommodations in mind (short of entirely avoiding the use of AI).  

Once the employer and employee have had sufficient dialogue to discuss the employee’s request for an accommodation, and the employer understands the limitations and the employee’s request in the context of the employee’s job and the overall work environment, the employer needs to actually consider the request.  

Not every accommodation will be reasonable, but employers should document their process and analysis.  Employers are not required to eliminate essential job functions or create significant operational burdens.  If accommodating the request would substantially impact productivity, customer service, compliance, or business operations, the employer may have grounds to deny the accommodation.  The key is to conduct a thoughtful analysis rather than issuing an automatic denial.  

Ultimately, whatever decision is reached must be conveyed to the employee.  While only some states and localities require the decision to be provide in writing (such as in New York City), if the employer will deny the request, it would be prudent to convey the employer’s decision verbally and explain the employer’s rationale.  Employees who understand that a process was followed and who are given information, in a transparent fashion, are less likely to sue and create additional challenges for the employer if their request is denied.   

The Forework Perspective

Artificial intelligence is transforming the workplace, but traditional employment laws still apply. Religious accommodation obligations existed long before AI, and employers should expect those obligations to evolve alongside new technologies.  If the business is leaning towards integrating AI or already heavily leans on AI, or it builds forms of AI, it should be prepared to deal with employees’ pushback on the use of such tools.  Forework’s team of employment attorneys and HR professionals are here to help for those clients who utilize Forework’s Human Resources services. 

In EEOC v. A&A Appliance, Inc., a Colorado federal court not only dismissed the Equal Employment Opportunity Commission’s (EEOC) disability discrimination claims against an employer, but also ruled that the EEOC’s case was so lacking in factual support that the employer may recover its attorneys’ fees.  While fee awards against the EEOC remain relatively uncommon, the decision highlights several best practices that employers should incorporate into their leave management and accommodation processes, so that they too can prevail in a EEOC (or a State-level agency) discrimination, accommodation, harassment or retaliation case. 

What Happened?

In the A&A Appliance case, an employee requested and received a period of protected leave during the COVID-19 pandemic. After her approved leave expired, the employer and employee continued communicating regarding a possible extension.  But when the employee did not return to work and the employer determined there was insufficient information demonstrating a qualifying disability requiring accommodation under the Americans with Disabilities Act (ADA), the employer terminated the employee’s employment.

The employee later filed a charge with the EEOC alleging disability discrimination and retaliation. After investigating the claim, the EEOC filed suit against the employer.

The court ultimately dismissed all of the EEOC’s claims, finding that the agency could not establish a critical element of its case: that the employer had sufficient knowledge of a qualifying disability that would trigger ADA accommodation obligations.

Why This Matters for Employers

The decision reinforces an important principle that many employers misunderstand: An employee’s medical condition is not automatically a disability under the ADA. Likewise, an employer’s awareness that an employee has a medical condition does not automatically mean the employer has notice of a legally protected disability requiring accommodation. Employers must evaluate accommodation requests and seek information out.  A statement or representation, even by a doctor, might not be enough.  Follow-up is permitted, and required in many instances, before an employer can make a decision regarding requested accommodations.

Key Compliance Lessons

The employer prevailed in part because it maintained records of communications regarding leave approvals, leave expiration dates, extension requests, and return-to-work expectations. Employers should maintain written documentation whenever discussing, investigating or processing medically-necessitated leave from work or accommodations. 

The court noted that the employer followed a consistent process regarding leave administration and extensions.  Inconsistent treatment of employees often creates legal risk, even when an employer’s intentions are good.

Clear communication and documented follow-up efforts remain critical.

One notable aspect of the decision is that the employer repeatedly identified factual and legal weaknesses in the EEOC’s claims throughout the litigation.  The court specifically noted that the employer consistently raised these issues, which helped support its request for attorneys’ fees.

Bottom Line for Forework Readers

Employee leave situations cannot be put on auto pilot and often require months-long delicate handling between Human Resources and employment counsel well versed in accommodation and leave issues.  This case serves as a reminder that employers who maintain strong documentation, administer leave consistently, and carefully evaluate accommodation requests are in a far stronger position when employment disputes arise. 

As a reminder, Forework provides employers with 10 hours of employment attorney support each month, as well as leave of absence management, to ensure employers handle these, potentially expensive litigation-sensitive, cases and reduce employers’ exposure to lawsuits.

A recent California appellate court decision serves as a cautionary reminder that employee departures can create significant legal and operational risks when confidential information, customer relationships, and business opportunities are involved.  In Guild Mortgage Co. v. CrossCountry Mortgage LLC, the California Court of Appeal reinstated numerous claims brought by an employer that alleged a competitor business orchestrated a coordinated effort to recruit its employees, divert customers, and obtain valuable business information before those employees resigned.

What Happened?

According to the lawsuit, Guild Mortgage alleged that a competing mortgage company engaged in an 18-month effort to recruit key employees from one of Guild’s branches while those employees were still actively working for Guild.  The complaint alleged that employees accessed company systems and copied confidential business information, including customer data, employee information, and prospective borrower information, before resigning and joining the competitor.  Guild further alleged that the competitor used this information to gain a competitive advantage and facilitate the transition of customers and business opportunities. The alleged effort ultimately resulted in the departure of virtually the entire branch workforce.

Guild previously obtained nearly $11 million in damages against its former employees through arbitration and pursued separate claims against the competing company.  While a lower court initially dismissed those claims, the California Court of Appeal reinstated them, allowing the case to move forward.

Why This Matters for Employers

The decision highlights several risks that employers face when key employees leave for a competitor:

• Loss of confidential business information
• Unauthorized access to company systems
• Customer diversion before employee departures
• Misuse of prospect and lead data
• Coordinated team resignations
• Disruption of operations and client relationships

The court also reaffirmed that employees owe duties of loyalty to their employer while they remain employed and that employers may have multiple legal avenues available when those duties are violated.

Compliance and Risk Management Lessons

1. Restrict Access to Sensitive Information

Employers should regularly review who has access to:

• Customer lists
• Prospect pipelines
• Pricing information
• Payroll and employee data
• Financial records
• Strategic business information

Access should be limited to employees with a legitimate business need.

2. Monitor Unusual Data Activity

Many employee-raiding disputes involve allegations of downloading, copying, emailing, or transferring company information shortly before resignations.  Employers should consider implementing controls that monitor:

• Large file downloads
• External email forwarding
• USB device activity
• Cloud storage uploads
• Unusual system access patterns

3. Strengthen Offboarding Procedures

A well-designed offboarding process can help minimize risk when employees leave.  Best practices include:

• Immediate termination of system access upon separation
• Recovery of company devices
• Review of confidentiality obligations
• Exit certifications confirming return of company information
• Documentation of customer and account transitions

4. Protect Customer and Employee Data

Whether information qualifies as a trade secret is often heavily litigated. Employers should not rely solely on trade secret laws for protection. Instead, organizations should maintain written policies addressing:

• Confidential information
• Acceptable technology use
• Data security
• Employee privacy
• Information retention and destruction

5. Coordinate HR, IT, and Leadership Teams

Employee departures frequently involve issues that extend beyond HR.  Effective protection requires coordination among:

• Human Resources
• Information Technology
• Payroll and Operations
• Legal Counsel
• Executive Leadership

A unified response can help identify risks before they become costly disputes.

The Forework Perspective

This case illustrates the importance of understanding what the key business assets are, and how to protect them.  It’s a matter of business survival.  Businesses cannot sleep on these practices; asset protection is a daily obligation of the business C-suite executives and ownership.  At Forework, when onboarding clients, we take a detailed approach to understanding your business and your key assets.  We automate the protections discussed her whenever possible (e.g., proper confidentiality agreements and procedures, careful off-boarding procedures, and carefully written nonsolicitation agreements), but we also counsel our clients to ensure they are watchful of what is happening in their businesses, so that they can respond quickly and properly to any situations that involve employees (current or former) attempting to “steal” employees, vendors, patients, customers, or otherwise unfairly gain a competitive advantage. 

Employers may soon see a shift in federal guidance on voluntary affirmative action programs.  On May 27, 2026, the Equal Employment Opportunity Commission (EEOC) submitted a proposal to rescind its 1979 interpretive guidance on voluntary affirmative action under Title VII of the Civil Rights Act. The existing guidance, found at 29 C.F.R. Part 1608, explains when employers may voluntarily adopt affirmative action measures to address workforce imbalances or barriers to equal employment opportunity.

The current guidance also provides a framework for when employers may rely on the EEOC’s interpretation as a defense in certain Title VII matters, including where the employer acted in good faith and in reliance on the agency’s written guidance.

What This Means

The EEOC’s proposal does not immediately change the law. OIRA review is only one step in the regulatory process, and the EEOC would need to take further action before any rescission becomes effective.

The proposal also does not amend Title VII or overturn U.S. Supreme Court decisions recognizing that voluntary affirmative action plans may be permissible in limited circumstances. However, it signals that federal agencies are continuing to reassess employment programs that consider race, sex, or other protected characteristics.

This development follows broader federal scrutiny of diversity, equity, and inclusion initiatives, affirmative action programs, and other employment practices tied to protected characteristics.

Why Employers Should Pay Attention

If the EEOC ultimately rescinds the guidance, employers may have less agency guidance to rely on when evaluating or defending voluntary affirmative action plans. The change could also affect how the EEOC reviews these programs in future enforcement matters.

Employers should be especially cautious with programs that involve hiring goals, representation targets, preferences, set-asides, or other practices that reference protected characteristics.

Forework Takeaway

Employers with voluntary affirmative action plans, DEI initiatives, representation-focused programs, or hiring practices tied to protected characteristics should:

• Review whether the program is legally required or voluntary.

• Confirm the business and legal basis for the program.

• Avoid rigid quotas, preferences, or set-asides.

• Ensure employment decisions remain individualized and merit-based.

• Monitor further EEOC action before assuming the guidance has been rescinded.

Employers with operations in Philadelphia should be aware of a recent development under the city’s Fair Criminal Record Screening Standards Ordinance (FCRSSO), commonly known as Philadelphia’s “ban-the-box” law.

Earlier this year, significant amendments to the FCRSSO took effect, expanding employer obligations regarding the use of criminal history information in employment decisions. While the amendments gave the Philadelphia Commission on Human Relations discretion to issue an updated “Summary of Rights” notice, it was unclear whether the Commission would do so.

The Commission has now published an updated Summary of Rights notice for applicants and employees.

Why This Matters

Under the FCRSSO, employers must provide applicants and employees with a summary of their rights before taking adverse employment action based on criminal history information. With the release of the updated notice, employers should strongly consider using the newly issued version to satisfy this requirement.

Additionally, Philadelphia employers are required to post a Commission-approved summary of the law in a conspicuous location on both their premises and websites. Employers should review existing postings and replace older versions with the newly issued notice.

Potential Confusion Remains

The Commission’s website currently contains multiple versions of FCRSSO notices and posters, including older versions from 2021 and 2024. Some of these materials contain language that may no longer align with the amended ordinance, creating potential confusion for employers attempting to comply with the law.

Until further clarification is provided by the Commission, the most conservative compliance approach is to utilize the newly published notice for both adverse action communications and required workplace postings.

Forework Takeaway

Philadelphia continues to aggressively regulate the use of criminal background information in hiring and employment decisions. Employers should:

• Review current Philadelphia fair chance hiring procedures.
• Replace outdated FCRSSO posters and notices.
• Ensure recruiting, HR, and management teams are using the updated forms.
• Confirm that adverse action workflows include the required notice before final employment decisions are made.

As jurisdictions continue expanding fair chance hiring protections, employers should regularly review their hiring processes to ensure compliance with evolving local requirements.

The U.S. Department of Labor (DOL) has officially removed the now-invalidated 2024 federal overtime rule and restored the Fair Labor Standards Act (FLSA) exemption regulations to their prior form.

The 2024 rule would have significantly increased the minimum salary required for employees to qualify for the executive, administrative, and professional (EAP) exemptions. The rule was scheduled to raise the salary threshold from $684 per week to $844 per week in July 2024 and then to $1,128 per week in January 2025, with automatic increases every three years thereafter. It also would have substantially increased the compensation requirement for the Highly Compensated Employee (HCE) exemption.

However, a federal court in Texas struck down the rule in November 2024, finding that the DOL exceeded its authority by placing too much emphasis on salary levels rather than an employee’s job duties when determining exempt status.

The DOL’s latest action simply removes the invalidated rule from the federal regulations and formally reinstates the standards established under the 2019 rule.

What Employers Need to Know

For now, the federal salary thresholds remain:

• $684 per week for most executive, administrative, and professional exempt employees

• $107,432 annually for the Highly Compensated Employee (HCE) exemption

Employers should remember that meeting the salary threshold alone does not create an exemption. Employees must also satisfy the applicable duties tests under federal law.

Forework Takeaway

While the federal exemption salary threshold remains unchanged, employers must take into account State-specific salary thresholds, including New York and California, which impose higher salary requirements and additional exemption standards under State law.  And, those levels are not stagnant. 

Now is a good time to review employee classifications, confirm compliance with applicable state requirements, and ensure exempt employees satisfy both the salary and duties tests.

The City of Chicago has issued updated regulations interpreting its Paid Leave and Paid Sick and Safe Leave Ordinance, providing employers with important guidance on paid leave  administration, employee discipline, joint employment, and business transitions. The revised rules took effect on June 1, 2026, and clarify several areas that have created compliance challenges for employers since the ordinance was enacted.

Combined PTO Policies Remain Permitted

One of the most significant clarifications confirms that employers may maintain a single paid time off (PTO) bank instead of separate Paid Leave and Paid Sick Leave banks. However, employers should proceed carefully. To comply, a combined PTO policy must satisfy all requirements of the ordinance, including accrual, carryover, usage, and recordkeeping obligations. Simply offering a generous PTO policy does not automatically satisfy Chicago’s requirements.

Expanded Definition of Childcare Closures

The updated rules clarify that employees may use Paid Sick Leave when a child’s “place of care” unexpectedly closes. Importantly, the definition of “place of care” extends beyond schools and daycare facilities and may include informal caregiving arrangements, such as babysitters or family members who regularly provide childcare.

Employers May Discipline Abuse of Sick Leave

The revised regulations confirm that employers may discipline employees who misuse Paid Sick Leave, including in appropriate cases terminating employment.

Examples of potential abuse include repeated patterns of using sick leave:

• Adjacent to weekends, holidays, or vacation periods.

• After a request for another type of leave was denied.

• To avoid undesirable work assignments.

Employers should exercise caution before taking disciplinary action and ensure decisions are supported by documented facts rather than assumptions.

Joint Employers Share Responsibility

The updated rules make clear that joint employers are both individually and jointly responsible for compliance with Chicago’s paid leave requirements. This clarification is particularly important for employers that utilize staffing agencies, professional employer organizations (PEOs), or other workforce-sharing arrangements. Businesses should review these relationships to ensure responsibilities are clearly understood and documented.

Business Sales and Acquisitions Create Additional Obligations

The regulations also address mergers, acquisitions, and business transfers. When employees move to a successor employer as part of a transaction, accrued and unused Paid Leave and Paid Sick Leave generally must transfer with the employee. Both the seller and purchaser may face liability if these obligations are not properly addressed during the transaction process.

Forework Takeaway

Chicago continues to maintain some of the most complex paid leave requirements in the country. Employers should not assume their existing PTO policies automatically comply with the ordinance and they should proactively audit their written policies and actual procedures to confirm that they are in compliance.