New York's Employers Are Caught In The Middle: Contending With Diverging Federal And State Employment Law Agendas

As we anticipated at the beginning of last year, the Trump administration ushered in substantial changes to many aspects of the federal government's administrative agenda, which had far-reaching impacts on employers. Even with this prediction, employers may have been surprised by how focused the Trump administration has been on employment practices and the various ways it has pressed federal agencies and private employers to adopt its interpretation of employment laws. At the same time, states and localities like New York State and New York City are responding with legislation that pushes a very different agenda and interpretation of applicable law, thereby leaving employers caught in the middle. In this alert, we recap some of the notable federal employment law developments from last year and the legislative responses by New York State and New York City.

Diversity, equity and inclusion today

Over the course of 2025, President Trump issued several executive orders (EOs) proclaiming his administration's view that diversity, equity and inclusion (DEI) should have little or no place in the federal government or the private sector. On the day of his second inauguration on Jan. 20, 2025, Trump issued EO 14151 ("Ending Radical and Wasteful Government DEI Programs and Preferencing"), directing the elimination of DEI programming in the federal government. The next day, Trump issued EO 14173 ("Ending Illegal Discrimination and Restoring Merit-Based Opportunity"), proclaiming that race- and sex-based preferences under the guise of DEI programming, whether in the federal government or the private sector, violate Title VII of the Civil Rights Act. Among other things, EO 14173 directed the heads of all federal executive agencies to "advance in the private sector the policy of individual initiative, excellence and hard work."

There was a flurry of legal challenges to EO 14151 and EO 14173. But for private employers, none of those challenges meaningfully limited federal agencies from pursuing Trump's anti-DEI agenda.

For instance, the Equal Employment Opportunity Commission (EEOC) and the Department of Justice (DOJ) released a one-pager and "What You Should Know About DEI-Related Discrimination at Work," both of which clearly signal that the EEOC will prioritize prosecuting DEI cases. The Q&A notably advises that an employee may be able to plausibly allege or prove that a DEI-related training created a hostile work environment if the content was discriminatory in application or context. Indeed, claims of this nature have already survived summary judgment in the Second Circuit. (See Chislett v. New York City Department of Education, No. 24-972 (2d Cir. Sept. 25, 2025).) Later, the DOJ announced the creation of the Civil Rights Fraud Initiative, which plans to use the False Claims Act to investigate and pursue claims against recipients of federal funds whose DEI programming violates federal civil rights laws. Such whistleblowers could also claim protection under New York's expanded and largely untested whistleblower law that protects employees against retaliation for disclosing to a public body any policy or practice of the employer that the employee reasonably believes is in violation of any law. Attorney General Pam Bondi followed up with a memorandum (as discussed in a prior memorandum (as discussed in a prior Insight) stating the DOJ's position on what constitutes unlawful DEI and providing a list of recommendations for private employers to avoid enforcement action, such as not using characteristics like cultural background, geography or membership in certain organizations as proxies for race or ethnicity.

Building on the EOs issued in his first month in office, on April 23, 2025, Trump issued EO 1421, "Restoring Equality of Opportunity and Meritocracy." EO 1421 rejects the theory of disparate impact discrimination – whereby a facially neutral policy or practice can nonetheless constitute discrimination if it disproportionately impacts a protected group – on the grounds that so long as everyone has an opportunity to succeed, differences in outcomes among different races, sexes or similar groups should be tolerated. In accordance with EO 1421, the EEOC is closing pending charges alleging only disparate impact claims, although this theory of liability remains open to private litigants under federal law and some state laws.

Finally, in mid-December, EEOC Chair Andrea Lucas posted a video on LinkedIn and X encouraging white men who believe they have claims of employment discrimination to file charges with the agency. In the video, Lucas asks, "Are you a white male who has experienced discrimination at work based on your race or sex? You may have a claim to recover money under federal civil rights law. Contact the EEOC as soon as possible." The overture in the video is the latest in the federal government's persistent effort to eradicate DEI and leaves no mystery about which types of charges the EEOC will prioritize in 2026.

Employers have reacted to the anti-DEI EOs and agency measures in various ways, but there is no question that overall, employers are scaling back on DEI. After the U.S. Supreme Court held in Students for Fair Admission v. Harvard College et al., 600 U.S. 181 (2023), that affirmative action in higher education is unconstitutional, most employers eliminated programs that explicitly advantaged or were open only to groups based on protected characteristics, such as internship programs for minorities and workplace affinity groups open to select employee populations. But since the anti-DEI EOs and federal agencies' responses, employers are scaling back on DEI in more significant ways. Many employers have, for instance, stopped using race and gender diversity targets for employees and vendors. They have also put an end to linking executive compensation to diversity hiring goals. Others have adopted new terminology that focuses on "inclusion" and "belonging" rather than "diversity" and accordingly revised mission statements, policies and program descriptions. Public companies are similarly deemphasizing or removing references to DEI in annual reports and other public records and filings. We expect employers to continue to evaluate their personnel programs and practices with an eye toward deemphasizing DEI, or at least the "diversity" and "equity" elements, with "inclusion" becoming broadly applicable to all employees without regard to their characteristics or background.

Artificial intelligence in employment

The law concerning the use of artificial intelligence (AI) in employment is rapidly evolving. While the federal government and the Trump administration are pushing to ease regulation of AI, state legislators are passing laws that increase regulatory and compliance requirements for employers that use AI tools.

As we reported in a recent Insight, on Dec. 11, 2025, Trump signed EO 14179, "Ensuring a National Policy Framework for Artificial Intelligence," attempting to limit state laws that regulate AI. Specifically, EO 14179 instructs the DOJ to establish an AI Litigation Task Force to challenge state laws restricting AI on the grounds that they unconstitutionally regulate interstate commerce and are preempted by federal law. The EO also directs federal agencies to assess their discretionary grant programs to determine whether they can withhold funds to states with onerous AI laws. Finally, the EO directs the Federal Trade Commission (FTC) to issue a policy statement stating that the Federal Trade Commission Act preempts state AI laws and demands the preparation of a legislative recommendation to establish a uniform federal policy framework for AI that preempts state AI laws altogether.

As discussed in a prior Insight, several states and cities have enacted or proposed laws regulating the use of AI in employment decisions, including New York. The main thrust of these laws requires (1) the mandatory disclosure of AI use in employee screening processes and (2) audit requirements when automated tools replace non-AI discretionary decision-making procedures.The primary employment law regulating the conduct of New York employers is a 2021 New York City law that focuses on "automated employment decision tools," which requires employers that use AI in employment decisions to conduct a yearly bias audit of those tools, post the results to their websites and inform job candidates when and how the technology will be used. New York employers should also be mindful that while the Responsible AI Safety and Education Act signed by Gov. Hochul last December did not specifically address employment issues, there are several bills proposed before the state Legislature addressing AI in employment, two of which remain in committee at the Assembly (A768, A3941) and one that passed in the Senate in a prior session (S01169). Thus, employers may anticipate that New York State will extend its regulation of AI to the employment sphere in the coming years.

EO 14179 does not preempt state law even if, and while, the DOJ challenges state AI laws in litigation as the EO directs it to do. Thus, employers remain obligated to comply with applicable state and local AI laws. Importantly, even if Trump can thwart states' ability to regulate AI in employment and the EEOC continues not to prosecute disparate impact claims, Title VII would still permit legal challenges to AI tools based on disparate impact theories of liability. It further remains to be seen whether EO 14179 will ultimately accomplish its goals. Earlier in December 2025 for instance, Congress failed, despite Trump's urging, to enact a law that would have stopped states from enforcing their own AI laws. And states like New York may challenge the EO's coercive federal funding effects, among other aspects of the EO. Employers that use AI tools therefore must comply with state AI laws, which for most means conducting regular bias audits to ensure such tools do not operate with a discriminatory effect. Like DEI was the focus of 2025, we expect AI to be a major focus of employment law developments in 2026.

Notable developments in employment law in New York State and New York City

Against the backdrop of a narrowed and specific federal employment discrimination agenda, New York State and New York City continue to impose obligations that all employers must remain cognizant of and compliant with. The following are the most notable employment developments for employers in New York State and New York City in 2025 and going into 2026.

Noncompete agreements

During the Biden administration, the FTC issued a nationwide rule banning noncompete agreements, which was met with immediate judicial challenge for exceeding the FTC's power. After Trump's election, the FTC abandoned defending the lawsuits and the ban did not go into effect. Shortly after Trump's inauguration, the New York State Senate passed S4641, which would have, in sum, banned the use of noncompete agreements for any worker earning less than $500,000 per year other than in a "sale of business" context. The bill has not yet been voted on by the New York Assembly. Mayor Zohran Mamdani also appears poised to potentially enact a ban on at least some noncompete agreements for employees in New York City. Indeed, Mamdani appointed former FTC Chair Lina Khan, who spearheaded the failed nationwide ban, to co-chair his mayoral transition team. In the absence of any expected federal movement on noncompete agreements, there may be new laws coming from New York State and New York City that will address the use of restrictive covenants.

Zohran Mamdani elected mayor of New York City

In addition to potential legislation around noncompete agreements, we can expect Mayor Mamdani to push a pro-employee legislative agenda that will have compliance and regulatory effects on employers in New York City.

Mamdani's campaign platform promised to raise the minimum wage to $30 by 2030, which would then automatically increase based on the cost of living and productivity increases. Regardless of whether Mamdani is successful in this pursuit, the minimum wage continues to rise. The hourly minimum wage for employees in New York City, Westchester and Long Island increased from $16.50 to $17 effective Jan. 1, while the minimum wage in the rest of New York State increased from $15.50 to $16.

Mamdani made other campaign promises that employers should note. For example, Mamdani plans to increase the budgets of the Department of Consumer and Worker Protection and the NYC Commission on Human Rights, which could mean more enforcement actions around wage and worker misclassification laws as well as employment discrimination laws. Mamdani also pledged to implement free childcare from age 6 weeks to 5 years, which would in theory boost workforce participation, but it remains to be seen how Mamdani's vision for no-cost care will be funded. Mamdani's tax plan, however, proposes raising the corporate tax rate to 11.5% and imposing a 2% income tax on New York City taxpayers earning more than $1 million annually.

New York State legislation

New York Bill S3072: Prohibition on using credit history in making hiring decisions, effective April 18, 2026

On Dec. 19, 2025, Gov. Hochul signed S3072, amending the New York Fair Credit Reporting Act and prohibiting employers from requesting or using a job applicant's consumer credit history or otherwise discriminating against an applicant based on their consumer credit history. The term "consumer credit history" under the law means an "individual's credit worthiness, credit standing, credit capacity or payment history," including their credit score. There are several narrow exceptions to the law, including when employers are required by other laws to rely on credit history reports and for specific jobs. Notably, the new law applies to in-state applicants applying for out-of-state jobs. The new law mirrors New York City's Stop Credit Discrimination in Reporting Act in effect since 2015 and therefore does not mark a meaningful change for the city's employers. The law will take effect on April 18, 2026.

New York Bill S8338: Codifying the theory of disparate impact liability, effective Dec. 19, 2025

As a direct result of EO 1421 and the EEOC's decision to abandon the disparate impact of discrimination liability, Gov. Hochul signed S8338 into law on Dec. 19, 2025, codifying disparate impact liability for employers under the New York State Human Rights Law (NYSHRL). Under the new law, an unlawful discriminatory practice may be "established by a practice's discriminatory effect, even if such practice was not motivated by a discriminatory intent." Notably, such practice may still be lawful if (1) it is job related and consistent with business necessity and (2) that business necessity could not be served by another practice that has a less discriminatory effect. Before the passage of S8338, disparate impact was a common law theory of liability but was not statutorily established under New York State law, as it is under Title VII (per the Civil Rights Act of 1991) and the New York City Human Rights Law (NYCHRL). The law takes effect immediately.

New York is not the only state that codified disparate impact liability after EO 1421. The New Jersey Division on Civil Rights adopted rules on Dec. 15 codifying disparate impact discrimination liability under the New Jersey Law Against Discrimination covering employment as well as housing, lending, places of public accommodation and contracting.

New York Bill S4070B: Trapped at Work Act, effective Dec. 19, 2025

On Dec. 19, 2025, Gov. Hochul signed the Trapped at Work Act (the Act), which prohibits employers from entering into an "employment promissory note" with any worker or prospective worker as a condition of employment. An "employment promissory note" is defined as any agreement or contract provision that requires a worker to pay an employer a sum of money if the worker leaves such employment before the passage of a stated period. While the bill specifically refers to and focuses on reimbursement for costs related to training when workers separate, the law is vague and, on its face, encompasses other types of repayment obligations. The law also identifies four types of agreements that are permissible between an employer and a worker: (i) repayment of any sums advanced by the employer to the worker, (ii) payment by the worker to the employer for any property it sold or leased to the worker, (iii) requirements for educational personnel to comply with sabbatical leaves, and (iv) terms pursuant to a collective bargaining agreement. Workers do not have a private right of action under the new law, but the New York State Department of Labor may charge civil penalties up to $5,000 per violation and also is authorized to promulgate rules to carry out the provisions of the law. The law amends the NY Labor Law and takes effect immediately.

Gov. Hochul stated in her approval memorandum of the Act that she reached an agreement with the state Legislature to address concerns in the upcoming legislative session about the Act's ambiguity and that she signed it into law based on this agreement. Until the Act is amended, and out of an abundance of caution, employers should consider framing certain compensation arrangements that includes clawback or repayment obligations as "advances" to ensure compliance with the law.

New York Bill S3398: Reasonable Accommodation Anti-Retaliation Act, effective Dec. 5, 2025

On Dec. 5, 2025, Gov. Hochul signed the Reasonable Accommodation Anti-Retaliation Act, which clarifies that retaliation based on a request for a reasonable accommodation is unlawful under the NYSHRL. Before the passage of this law, requesting an accommodation was not statutorily protected activity and state courts have affirmatively held that it was not protected under the NYSHRL. However, requesting an accommodation has long been recognized under common law as protected activity under the Americans with Disabilities Act, and it is codified as protected activity under the NYCHRL. The law takes effect immediately.

New York Bill S940: Employers prohibited from requiring individuals to provide criminal history records, effective March 22, 2025

As of March 22, 2025, employers have been prohibited from requiring individuals to provide a copy of their criminal history record. This prohibition builds on the unlawful discriminatory practices enumerated in the NYSHRL that include denying employment to any individual by reason of a criminal conviction unless (1) there is a direct relationship between one or more of the previous criminal offenses and the specific employment sought or held or (2) employment would involve unreasonable risk to property or to the safety or welfare of specific individuals or the general public. It also builds on the New York Clean Slate Act, which took effect in November 2024 regarding automatic sealing of certain convictions and was the subject of a prior Insight.

Effective Jan. 2, 2025, reproductive healthcare decision-making policy was required to be in employee handbooks

New York employers that provide an employee handbook or similar compendium of policies to employees must include a notification to employees of their rights and remedies under New York's Reproductive Health Bias Law (N.Y. Lab. Law § 203-e). As we reported in a prior Insight, this requirement became effective Jan. 2, 2025, when the U.S. Court of Appeals for the Second Circuit in CompassCare v. Hochul vacated a lower court's injunction that had forestalled the requirement.

New York City legislation

Amendments to the Earned Sick and Safe Time Act (ESSTA), effective Feb. 22, 2026

Effective Feb. 22, 2026, amendments to the ESSTA require employers to provide 32 hours of unpaid safe/sick leave that is immediately available for use upon hire and on the first day of each calendar year. As discussed in a prior Insight, this unpaid leave requirement is in addition to the 40 or 56 hours of paid safe/sick leave already provided under the law. However, employers are not required to allow employees to carry over any unused unpaid safe/sick leave to the following calendar year like they are for paid safe/sick leave. Employers are permitted to set a reasonable minimum increment of use for the unpaid leave, which cannot exceed four hours. Employees may use their unpaid safe/sick leave balance when paid safe/sick leave is unavailable or if the employee specifically requests to use it in lieu of their existing paid safe/sick leave balance. Employers must also track the use and availability of the unpaid safe/sick leave balance and provide such information on employee pay stubs, or another form of written documentation, each pay period.

In addition, in a change that benefits employers, the ESSTA amendments remove the existing obligation under the New York City Temporary Schedule Change Act to grant two temporary schedule changes to an employee's work schedule when requested by the employee due to a personal event. The amended law now provides that when an employee requests such a schedule change, the employer is required only to respond to the request as soon as practicable and that the employee is protected from retaliation for having made the request. The employer is not required to grant the requested schedule change.

New York City pay equity laws require large employers to report pay data by race and gender

On Dec. 5, 2025, the New York City Council overrode Mayor Adams' vetoes and passed two complementary bills (Int. 982A and Int. 984A) that will require employers with 200 or more employees working in New York City to annually report pay and demographic data for their employees. Employers must also submit a separate, signed statement confirming the submission and accuracy of the pay reports.

While the law took effect immediately upon enactment, the law first requires the mayor to designate an agency to collect certain information from covered employers, which he must do within one year (i.e., by Dec. 5, 2026). Once designated, the agency must develop a "standardized fillable form" for covered employers to submit pay information, which it must do within a further one year. The form must include pay and demographic data, though the law allows modifications to the categories for reporting different genders. Within one year after the form is published, and annually thereafter, all covered employers must submit the form to the agency. Therefore, it could be several years before employers must comply with this new law. Importantly, covered employers will be able to submit the form anonymously, though every covered employer must submit a separate, signed statement identifying themselves and verifying the accuracy of the information reported. Employers are not required to provide personal information regarding individual employees.

Employers will face penalties associated with noncompliance. For a first-time offense, a covered employer will be subject to a written warning if the employer provides, within 30 days of the service of summons, documentation indicating that the violation has been cured. If the first-time offense is not cured, the employer will be subject to a civil penalty of $1,000. For any subsequent offense, a covered employer will be subject to a civil penalty of $5,000. In addition, the state agency is directed to publish on its website a list of covered employers that have failed to comply with their obligations under the law.

Additional 2025 laws that require employer compliance

Effective Jan. 1, 2025, pursuant to an amendment to N.Y. Labor Law Section 196-b, employees in New York have been entitled to take up to 20 hours of paid time off in every 52-week period for "leave taken for the health care services received by an employee during their pregnancy or related to such pregnancy, including physical examinations, medical procedures, monitoring and testing, and discussions with a health care provider related to the pregnancy."

On May 30, 2025, New York City published rules incorporating the state's 20 hours of prenatal leave law into the ESSTA and expounded upon the state's requirements. The City rules went into effect on July 2, 2025. As explained in a prior Insight, the rules include employee obligations to provide advance notice before taking leave, the minimum increments of prenatal leave use, an employer's right to request documentation, recordkeeping requirements and notice obligations. Under the City's rules, employers are also required to distribute a paid prenatal leave policy to employees (1) upon hire, (2) within 14 days of the effective date of any changes to the policy and (3) upon request by the employee. Because the new rules went into effect on July 2, 2025, and effectively required changes to employers' ESSTA policies, employers were required to update and distribute their ESSTA policies by July 16, 2025.

In addition and as discussed in a prior Insight, New York City employers are required to provide 30 minutes of paid break time and permit employees to use existing paid break time or meal time for time in excess of 30 minutes to express breast milk. As of May 9, 2025, employers were required to update their written lactation room policy to reflect the new paid break time allotment. Employers must now not only distribute the policy to employees upon hire but also post the policy in an area accessible to employees and electronically on the employer's intranet, if one exists.

Finally, as discussed in a prior Insight, New York City employers were required to distribute by Aug. 1, 2025, an updated Notice of Employee Rights published by the New York City Department of Consumer and Worker Protection, which details employee rights to paid safe and sick leave along with paid prenatal leave. Employers must also (i) record the date the Notice of Employee Rights was provided to the employee and (ii) collect and record proof that the Notice of Employee Rights was received by the employee. These records must be kept for three years.

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