Shortly after taking office, President Trump rescinded Biden’s Executive Order on Safe, Secure, and Trustworthy Artificial Intelligence. Biden’s Executive Order sought to regulate the development, deployment, and governance of artificial intelligence within the US, identifying security, privacy and discrimination as particular areas of concern. Trump signed his own executive order titled “Removing Barriers to American Leadership in Artificial Intelligence,” directing his advisers to coordinate with the heads of federal agencies and departments, among others, to develop an “action plan” to “sustain and enhance America’s global AI dominance” within 180 days.

While we wait to see if and how the federal government intends to combat potential algorithmic discrimination and bias in artificial intelligence platforms and systems, a patchwork of state and local laws is emerging. Colorado’s AI Act will soon require developers and deployers of high-risk AI systems to protect against algorithmic discrimination. Similarly, New York City’s Local Law 144 imposes strict requirements on employers that use automated employment decision tools, and Illinois’ H.B. 3773 prohibits employers from using AI to engage in unlawful discrimination in recruitment and other employment decisions and requires employers to notify applicants and employees of the use of AI in employment decisions. While well-intentioned, these regulations come with substantial new, and sometimes vague, obligations for covered employers.

California is likely to add to the patchwork of AI regulation in 2025 in two significant ways. First, California Assemblymember Rebecca Bauer-Kahan, Chair of the Assembly Privacy and Consumer Protection Committee, plans to reintroduce a bill to protect against algorithmic discrimination by imposing extensive risk mitigation measures on covered entities. Second, the California Privacy Protection Agency’s ongoing rulemaking under the California Consumer Privacy Act will likely result in regulations restricting the use of automated decision-making technology by imposing requirements to mitigate algorithmic discrimination.Continue Reading Passage of Reintroduced California AI Bill Would Result In Onerous New Compliance Obligations For Covered Employers

The wildfires in Los Angeles County have wreaked devastation in the area, with thousands of homes and other structures, vehicles, and more destroyed by the worst wildfire in L.A. history. In response, on January 8, 2025, President Biden approved a Major Disaster declaration for California, allowing impacted communities and survivors to immediately access funds and resources to jumpstart their recovery.

As it stands, impacted individuals are in need of funds, housing, food, clothing, medical care, and other assistance as they navigate their current circumstances and begin to rebuild.  For employers who want to help, there are various tax-free ways to provide housing, cash, food, and other assistance to those affected by the wildfires that will give employees the resources and flexibility they need to get through these incredibly difficult times.

The various forms of assistance with tax-preferred treatment include “qualified disaster relief payments” under section 139, leave sharing programs, and assistance through employer-sponsored private foundations, donor-advised funds, and public charities. While each of these is beneficial, section 139 is the simplest method of assistance to establish, followed by leave-sharing programs, whereas private foundations, public charities and donor-advised funds will take some time to set up for employers that have not done so previously, and have restrictions as to how much assistance can be provided and to whom. 

Section 139

Under section 139 of the Internal Revenue Code, employers can provide employees with assistance, or “qualified disaster relief payments.” Section 139 provides an exclusion for “qualified disaster relief payments” from any source, including from employers, for reimbursement or payment of individuals’ eligible expenses in connection with a “qualified disaster.”  Qualified disaster relief payments are excluded from gross income, net earnings from self-employment, wages, and compensation subject to tax.

Qualified disasters are defined in section 139 to include a Presidentially declared disaster.  

Qualified disaster relief payments include payments to or for the benefit of an individual for:

  • reasonable and necessary personal, family, living, or funeral expenses incurred as a result of a qualified disaster; and
  • reasonable and necessary expenses incurred for the repair or rehabilitation of a personal residence or repair or replacement of its contents to the extent that the need for such repair, rehabilitation, or replacement is attributable to a qualified disaster, to the extent any expense compensated by such payment is not otherwise compensated for by insurance or otherwise. 

Qualified disaster relief payments do not include lost wages or other income replacement or unemployment, and cannot be for expenses that have been otherwise reimbursed, such as by insurance.

It’s important to note that section 139 does not require that any type of policy or plan be in place or that one be established. Moreover, section 139 does not require any tracking or substantiation of the amounts reimbursed to or paid for the benefit of an employee, and does impose any limits on the amount that can be reimbursed to or paid on behalf of an employee as long as the assistance provided is reasonably expected to be commensurate with the amount of unreimbursed reasonable and necessary expenses.  Employees are not required to return amounts or items reimbursed or paid for by their employer for the benefit of the employee.   

Under section 139, the provision of both cash and in-kind benefits is permitted. Accordingly, employers who want to assist employees affected by the LA Wildfires are able to provide cash, as well as temporary housing or hotel stays, medical care, food, clothing and other items employees may need as they face evacuations, smoke and other damage to their homes and possessions.

Employers may provide qualified disaster relief payments to employees directly, or via employer-sponsored private foundations or donor-advised funds, as discussed below. 

Practically, while section 139 does not require that a written plan be in place nor that employers obtain any type of substantiation, it’s suggested that employers communicate that any assistance being provided is intended to be qualified disaster relief under section 139. It’s further suggested that employers obtain some sort of confirmation that employees receiving the assistance are affected individuals and that the expenses have not otherwise been reimbursed or paid for by insurance or otherwise.

Section 139 payments are deductible to the same extent as if they were includable in income.

Leave Sharing

While cash and in-kind assistance such as temporary housing, hotel stays, clothing and food are critical, the flexibility that additional leave, or paid time off, provides is often just as necessary as it permits employees to not have to choose between working to get paid, or taking unpaid time off during a period when they are dealing with mounting expenses, required evacuations, and rebuilding, sometimes from scratch. As such, leave-sharing programs are another excellent resource for employers to provide employees affected by the wildfires.

Pursuant to Notice 2006-59, employers can establish leave sharing plans that permit employees to donate a portion of their accrued leave to a pool, which can then be used by employees who have been affected by a declared disaster and need additional leave (beyond what they have individually accrued). If the leave-sharing plan meets certain requirements, the leave donor employee is not taxed on the donated leave, and the leave recipient employee is able to use the extra paid time off (which is taxed as wages to them), as needed.

Notice 2006-59 provides the following requirements in order for the donated leave to not be taxable to the leave donor employee:

  • The plan must be in writing;
  • The plan must permit leave donors to deposit accrued leave in an employer-sponsored leave bank for use by other employees who have been adversely affected by a major disaster (defined to include employees for whom the disaster has caused severe hardship to the employee or a family member of the employee that requires the employee to be absent from work).
  • The plan may not permit a leave donor to deposit leave for a specific employee.
  • The plan must limit the amount of leave that may be donated by a leave donor in any year so that it does not exceed the maximum amount of leave that an employee normally accrues during the year.
  • The plan must allow a leave recipient to receive paid leave at their normal rate of compensation from the leave bank, which leave must be used for purposes related to the disaster.
  • The plan must specify a period with a reasonable limit, based on the severity of the disaster, after the major disaster occurs during which leave may be deposited and received.
  • The plan may not permit leave recipients to convert leave received into cash in lieu of using the leave, though a leave recipient may use leave received to eliminate a negative leave balance resulting from taking advanced leaved as a result of the disaster, or use leave received in lieu of leave without pay.
  • The employer must make a reasonable need-based determination as to how much leave each employee may receive.
  • Leave deposited on account of one major disaster may be used only for employees affected by that major disaster, and other than de minimis amounts, any leave deposited that is not used by leave recipients by the end of the period specified above must be returned to leave donors in proportion to the leave donated within a reasonable period of time so that the donor will be able to use the leave. (If leave donor employees have terminated, the employer may choose to return leave only to currently employed employees.)

Setting up a leave-sharing program that complies with the requirements of Notice 2006-59 is relatively simple. Employers who either have a plan or want to set one up should communicate the plan to employees so that employees who wish to donate, or who are in need of leave, are familiar with the program and can take advantage of it. In practice, senior and other employees with significant amounts of accrued leave that is unlikely to be used, particularly if there are any “use or lose” restrictions on accruing leave, are generally happy to donate to employees affected by disasters.

Leave-based Charitable Donation Programs

Another potential option that is dependent on IRS guidance is to set up a leave-based charitable donation program. Under leave-based charitable donation programs, employees can elect to forgo vacation, sick or personal leave in exchange for cash payments that the employer makes to IRC Section 170(c) charitable organizations, as instructed by IRS guidance.

While the IRS has not yet issued guidance with respect to the current LA Wildfires, it would be normal course for such guidance to be issued.  If so, it would generally permit employers to set up leave-based donation programs, but rather than donating leave to other employees, the employer would make contributions to charities benefitting victims of the LA Wildfires.  The IRS issued similar guidance in Notice 2017-70 with respect to the 2017 California wildfires.  Once guidance is released, employers may want to consider this as an option, particularly if the company’s employees have not been directly affected.  

In general, under these programs, cash payments made pursuant to these programs will not be treated as wages or otherwise be included in the donating employees’ gross income if the payments are made to the IRC Section 170(c) charitable organizations for victims, as specified in IRS guidance, and paid to the IRC section 170(c) organization by the deadline set in IRS guidance.

Cash payments made pursuant to IRS guidance under these programs are not be included in Box 1, 3 (if applicable), or 5 of Form W-2 for the donating employee. In addition, employees may not claim a charitable contribution deduction under IRC Section 170 for the value of forgone leave.

Employers may deduct these cash payments in accordance with IRC Section 170 or IRC Section 162 if they otherwise meet the respective requirements.

As noted, these programs are dependent on IRS guidance so we will need to wait and see.

Private Foundations

Like public charities, employer-sponsored private foundations can make need-based distributions to victims of disasters or to members of a charitable class, though they tend to have more restrictions than public charities because of the control the employer has.  However, employer-sponsored private foundations can make qualified disaster relief payments to employees or their family members under section 139, as long as certain safeguards are in place to ensure that such assistance is serving charitable purposes, rather than the business purposes of the employer.

In general, the IRS will presume that section 139 qualified disaster relief payments made by a private foundation to employees (or their family members) of an employer that is a disqualified person (such as a company that is a substantial contributor or manager of the foundation) are consistent with the foundation’s charitable purposes if:

  • the class of beneficiaries is large or indefinite (a charitable class),
  • the recipients are selected based on objective determinations of need, and
  • the selection is made using either an independent selection committee (where the majority of the members are persons who are not in a position to exercise substantial influence over the affairs or the employer) or adequate substitute procedures to ensure that any benefit to the employer is incidental and tenuous.

If these requirements are met, then the foundation’s payments in response to a qualified disaster are treated as made for charitable purposes, do not result in taxable compensation to the employees pursuant to section 139, and do not result in prohibited self-dealing merely because the recipient is an employee (or a family member of an employee) of the employer-sponsor. However, the presumption described above does not apply to payments that would otherwise constitute self-dealing, such as payments made to (or for the benefit of) individuals who are directors, officers, or trustees of the private foundation or members of the private foundation’s selection committee. Such payments would be fully taxable to such individuals and may cause the individuals and managers of the foundation who approved the payments to be subject to the highly punitive self-dealing excise taxes.

To the extent employers would like to utilize a private foundation to assist employees affected by wildfires, it’s suggested that advice be sought to confirm that the payments are excludable and do not subject the foundation’s management and disqualified employees (employees who are substantial contributors to the foundation or serve in a management role at the foundation) to any excise tax.

Donor-advised Funds

While donor-advised funds cannot generally make grants to individual persons, as with private foundations, there is an exception for certain employer-related funds or accounts established to benefit employees and their family members who are victims of a section 139 qualified disaster.

Specifically, a donor advised fund or account can make grants to employees and their family members in the following circumstances:

  • the fund serves the single identified purpose of providing relief from one or more section 139 qualified disasters,
  • the fund serves a charitable class,
  • recipients of grants are selected based upon an objective determination of need,
  • the selection of recipients of grants is made using either an independent selection committee (where a majority of its members consists of persons who are not in a position to exercise substantial influence over the employer’s affairs) or adequate substitute procedures to ensure that any benefit to the employer is incidental and tenuous,
  • no payment is made from the fund to or for the benefit of any director, officer, or trustee of the sponsoring community foundation or public charity, or members of the fund’s selection committee, and,
  • the fund maintains adequate records to demonstrate the recipients’ need for the disaster assistance provided.

To the extent employers wish to provide assistance through a donor-advised fund, it is essential to note that while section 139 does not have substantiation requirements, in order for amounts to remain tax-free to the recipient employees, the fund itself must maintain adequate records to demonstrate the recipients’ need for the disaster assistance provided. It’s suggested that advice be sought to confirm that the payments are excludable and meet the relevant requirements.

Charities

An employer can establish an employer-sponsored public charity to provide assistance programs to respond to disaster or employee emergency hardship situations, subject to restrictions on employer control over the organization. To ensure the program is not impermissibly serving the related employer, the following requirements must be met:

  • the class of beneficiaries must be large or indefinite (a “charitable class”),
  • the recipients must be selected based on an objective determination of need, and,
  • the recipients must be selected by an independent selection committee (where the majority of the members of the committee consists of persons who are not in a position to exercise substantial influence over the affairs of the employer) or adequate substitute procedures must be in place to ensure that any benefit to the employer is incidental and tenuous.

If these requirements are met, the public charity’s payments to the employer-sponsor’s employees and their family members in response to a disaster or emergency hardship are presumed to be made for charitable purposes, and are not taxable to the employees.

Given the restrictions, employers are not able to direct a charity to provide aid to specific employees, and employees would need to seek assistance under normal course. 

Takeaways

  • Now that President Biden has declared the LA Wildfires a disaster, it is possible to provide employees, contractors, and others impacted by the wildfires with non-taxable disaster relief under section 139. 
  • Section 139 relief can be implemented through various vehicles.
  •  Direct section 139 qualified disaster relief payments programs are simplest to set up, as they require no written plan and no substantiation, and permit employers to provide assistance such as cash, housing, food, medical care, and clothing immediately as long as it is reasonable to do so.
  •  Other vehicles, such as assistance through private foundations, require more planning and set up to ensure that payments made through them remain excludable and meet the relevant requirements.

Regardless of the vehicle(s) used, given the destruction wrought by these wildfires and the long road affected employees will face in rebuilding and recovering what they’ve lost, both materially and emotionally, assistance and support from employers in helping employees move forward will have a positive impactContinue Reading How Employers Can Help Employees Affected by the Wildfires Tax-Free

As you plan your to-dos for the year ahead, our “2025 Top 10” will guide you through the material employment law changes ahead in the Golden State. While we have not included all new California employment laws effective 2025, we’ve highlighted the major changes our clients need to know.

Key California ChangeEmployer To-Dos
(1)Minimum

Join our AI and Cyber CLE Series

If your last name starts with A-G, you are probably well aware that your (recently extended) MCLE compliance deadline is on March 30, 2025. In addition to the general credit requirement, the state of California requires all attorneys to complete:

  • At least four hours of legal ethics
  • At least two hours on competence issues
  • At least two hours on the elimination of bias in the legal profession and society. Of the two hours, at least one hour must focus on implicit bias and the promotion of bias‑reducing strategies.
  • At least one hour on technology 
  • At least one hour on civility

Continue Reading California’s CLE Compliance Deadline Is Approaching – We can help!

2024 was a ‘super year’ for elections. Half of the world’s population – some 4.7 billion people – went to the polls in 72 countries. Political shifts often lead to significant changes in employment laws. We’re here to help you prepare for the changes ahead and to stay ahead of the curve on employment law developments

We are clearly (and thankfully) well past the pandemic, and yet demands for flexible and remote work press on. While the overall global trend of transforming the traditional 9-to-5 work model is consistent, laws governing flexible work arrangements can vary significantly by jurisdiction.

We monitor this space closely (see our previous update here) and advise multinational companies on a multitude of issues bearing on remote, hybrid and flexible arrangements, including health & safety rules, working time regulations, tax and employment benefit issues, cybersecurity and data privacy protections, workforce productivity monitoring and more.

Key recent updates around the globe (organized by region) include:

Asia Pacific

  • Australia: Right to disconnect – Working 9 to [to be determined…]?
    In August 2024, a Full Bench of the Fair Work Commission finalized the new “right to disconnect” model term, which will soon be inserted into all modern awards. Whilst we wait for the Fair Work Commission to issue its guidance on the new workplace right, here’s what you should know, and what we think you should do to prepare for the introduction of the right to disconnect

Continue Reading HR Trend Watch: Maintaining compliance while unlocking the talent rewards of flexible work arrangements

On July 1, 2024 California Governor Newsom signed “compromise” PAGA reform bills into law (AB 2282 and SB 92) (PAGA Reform), which took the PAGA repeal initiative we told you about in May (see here) off the November 5, 2024 ballot.  

On the bright side for employers, the new law shows leniency toward employers who can show they have taken reasonable steps toward PAGA compliance, through (among other things) caps on damages and expanded cure provisions. That said, employers will still need to be diligent to avoid wage and hour violations. One reason: while the ballot initiative (if passed) would have prevented plaintiffs’ attorneys from recovering fees, the PAGA Reform still allows plaintiffs to collect reasonable attorneys’ fees and costs. In addition, the PAGA Reform allows employees to keep a greater percentage of the recovery than before, meaning there is still plenty of incentive for employees to file PAGA claims–even with the employer-friendly changes.

We hit the highlights of the PAGA Reform here.

Effective date

The PAGA Reform applies to PAGA civil complaints and notices of PAGA claims provided to the California Labor & Workforce Development Agency (LWDA) on or after June 19, 2024. Prior PAGA rules will apply to claims pending on or before June 19 or based on notices sent prior to June 19. (Though note that certain cure provisions do not take effect until October 1, 2024–see more below.)

Stricter standing requirements, and statute of limitations questions clarified

Under PAGA Reform, employees are now required to show they “personally suffered” each of the violations of the Labor Code they seek to pursue in a representative capacity under PAGA. Before the new law, if an employee could prove a single Labor Code violation, the employee could sue in a representative capacity on the same or any other Labor Code violation–even if the employee had not been personally affected by the other violations. (Note, the new standing requirement does not apply to certain nonprofit legal aid organizations that have served as counsel of record for PAGA civil actions for at least 5 years prior to January 1, 2025.)

In addition, PAGA Reform clarifies that the statute of limitations to bring a PAGA claim is one year (the period prescribed under Section 340 of the Code of Civil Procedure)–dismissing interpretations that stemmed from the California Court of Appeals decision in Johnson v. Maxim Healthcare Services, Inc. that the PAGA statute of limitations defines the liability period for a PAGA claim, but otherwise places no time restriction on who may pursue a PAGA claim.

However, even if an employee meets the statute of limitations under PAGA, if the LWDA (or any of its departments, divisions, commissions, boards, agencies or employees) has already–on the “same facts and theories”–timely cited an employer for violation of the same section of the Labor Code under which the employee is attempting to recover a civil penalty, or initiated a proceeding under Section 98.3 (allowing the Labor Commissioner to prosecute certain violations, including wage-related violations), the employee is barred from pursing that civil penalty. This restriction remains from prior PAGA rules, and helps to ensure employers are not penalized twice for the same conduct.

Courts’ power to manage PAGA claims clarified

Under PAGA Reform, courts have specified power to manage PAGA claims, including by limiting the scope of any claim to ensure it can be effectively tried, and limiting the evidence presented at trial–following the lead of the California Supreme Court decision Estrada v. Royal Carpet Mills, Inc., which held that though trial courts do not have inherent authority to strike PAGA claims on manageability grounds, a trial court can use its case management procedures to ensure that PAGA claims can be tried effectively.

Injunctive relief and attorneys’ fees

PAGA plaintiffs can now seek injunctive relief in any circumstances under which the LWDA could seek injunctive relief–in addition to the civil penalties and reasonable attorneys’ fees and costs PAGA plaintiffs can seek. However, injunctive relief is not available for violation of a posting, notice, agency reporting or filing requirement, unless the filing or reporting requirement involves mandatory payroll or workplace injury reporting.Continue Reading PAGA Reform: A Breath of (Some?) Fresh Air for Employers

This fall, California voters will have the opportunity to decide the fate of the state’s Private Attorneys General Act (PAGA). After receiving more than the 700,000 signatures in support, the “California Employee Civil Action Law and PAGA Repeal Initiative” has qualified for the November 5, 2024 state ballot. If the initiative passes, PAGA will be repealed and replaced with the “Fair Pay and Employer Accountability Act,” which will double the statutory and civil penalties for willful state labor law violations, require 100% of monetary penalties be awarded to employees, and provide resources to employers to ensure compliance with wage and hour laws. The new law will preclude plaintiffs’ attorneys from recovering any fees in actions brought under the statute and impose other requirements to effectively “de-deputize” citizen attorneys general.

What Would the New Law Do?

In response to wide ranging criticism of PAGA, the ballot initiative seeks to repeal and replace PAGA with the Fair Pay and Employer Accountability Act. If passed, the initiative would:

  • Double statutory and civil penalties for willful violations;
  • Award 100% of monetary penalties to employees (instead of the current 25%);
  • Provide resources to employers to ensure labor compliance and allow employers opportunities to cure violations without penalties;
  • Require that the Division of Labor Standards Enforcement (DLSE) be a party to all labor complaints;
  • Prohibit award of attorneys’ fees (which are currently permitted under PAGA); and
  • Require that the state legislature fully fund the DLSE to meet the division’s requirements by law.

Continue Reading Is the End in Sight for PAGA Actions? Californians May Vote “YES” on November 5, 2024.

As a consistent trend-setter in passing employee-friendly legislation, California has enacted the country’s first workplace violence prevention safety requirements applicable to nearly all employers in the state.

SB 553 requires California employers to adopt a comprehensive workplace violence prevention plan, train employees on workplace violence, and begin logging incidents by July 1, 2024.

Detailed Requirements for a Written Plan

The workplace violence prevention plan must be written, available and easily accessible to employees (as well as authorized employee representatives and Cal/OSHA representatives).Continue Reading California Employers: Prepare Your Workplace Violence Prevention Plan (Deadline In T-Minus 3 Months)

California’s regulators have made employment noncompetes (and knowing which employees are bound by them and how!) a key compliance item.

Effective January 1, 2024, AB 1076 amends Section 16600 of the state’s Business and Professions Code to “void the application of any noncompete agreement in an employment context, or any noncompete clause in an employment