United States: Employment – 2025 Highlights And 2026 Outlook

This article outlines some key highlights from 2025 and looks ahead to 2026.

2025: Highlights

Diversity, Equity, and Inclusion

Perhaps one of the most significant developments of 2025 was the increasing scrutiny surrounding diversity, equity, and inclusion (“DEI”) initiatives. On January 21, President Donald Trump issued an Executive Order titled “Ending Illegal Discrimination and Restoring Merit-Based Opportunity.” The Executive Order rescinded affirmative action requirements in government contracting that have been in place since 1965, and instructed federal agencies to take an aggressive stance toward “illegal” DEI programs and policies of government contractors and private employers. For a more in-depth analysis, please see our Legal Alert on the DEI executive order.

Following the Executive Order, the Department of Justice (“DOJ”) issued several memoranda on DEI issues. On February 5, Attorney General Pam Bondi issued a memorandum advising that the DOJ’s Civil Rights Division will “investigate, eliminate, and penalize” illegal DEI “preferences, policies, programs, and activities” in the private sector and at educational institutions. For a more in-depth analysis of this memorandum, please see our Legal Update on AG Bondi’s memorandum.

On March 19, the DOJ and EEOC issued joint guidance announcing two technical assistance documents addressing DEI programs in the workplace. These two documents explain how workers and employers can identify workplace discrimination related to DEI initiatives, clarify existing protections under Title VII of the Civil Rights Act of 1964, and describe what steps employees can take to file a discrimination claim with the EEOC. The stated purpose of these documents is to “help educate the public about how well-established civil rights rules apply to employment policies, programs and practices – including those labeled or framed as ‘DEI.’” For a more in-depth analysis of these technical assistance documents, please see our Legal Update on the guidance.

On July 29, 2025, AG Bondi issued an additional memorandum titled “Guidance for Recipients of Federal Funding Regarding Unlawful Discrimination.” The memorandum is the most tangible guidance on what the Trump administration views as “illegal DEI” and provides a likely roadmap for the DOJ’s False Claims Act investigations under the Civil Rights Fraud Initiative. For more information on this guidance, please see our Legal Update on the DOJ Guidance.

Federal and State Scrutiny of Non-Competes

In April 2024, the Biden Administration’s Federal Trade Commission (“FTC”) issued its “final rule” prohibiting virtually all employment-based non-compete agreements. The final rule, which was scheduled to take effect in early September 2024, provided for limited enforcement of non-competes, such as for non-competes in connection with the bona fide sale of a person’s share of a business, and for certain non-compete agreements with a narrowly defined class of “senior executives” who earned at least $151,164 annually and were in a policymaking position. Following legal challenges filed in several different courts, a federal judge in Texas issued a nationwide injunction in late August 2024 that blocked implementation of the final rule. 

On September 5, 2025, the FTC formally abandoned its efforts to defend the 2024 final rule and indicated it would pivot to targeted, case-by-case enforcement. That same day, the FTC announced it had initiated an enforcement action against a national employer, alleging that the employer imposed noncompete agreements on almost all of its employees, which typically prohibited employees from working in the same industry anywhere in the United States for one year. Under a proposed FTC consent order, the employer would be prohibited from enforcing all existing noncompete agreements. See In re Gateway Services, Inc. (September 4, 2025).

States, meanwhile, continue to enact new statutes restricting or banning non-competes and expanding wage floors, notice requirements, and occupation-specific restrictions. These states include California, Minnesota, North Dakota, Oklahoma, Washington, and Wyoming. Taken together, the FTC’s shift to focus on enforcement and the accelerating crescendo of state legislation means that employers should expect continued scrutiny of broad, untailored restraints and should calibrate restrictive covenant strategies around narrowly defined legitimate interests, role-specific justifications, and state-specific compliance.

Pay Transparency Laws

The Trump Administration has also walked back the Biden Administration’s efforts to require pay equity and pay transparency in federal contracting. On January 30, 2024, the Office of Federal Procurement Policy issued a proposed Government-wide procurement policy that (1) prohibited contractors and subcontractors from seeking and considering information about job applicants’ compensation history when making employment decisions about personnel working on or in connection with a Government contract; and (2) required contractors and subcontractors to disclose, in all advertisements for job openings involving work on or in connection with a Government contract placed by or on behalf of the contractor or subcontractor, the compensation to be offered to the hired applicant. On January 8, 2025, the proposed rule was withdrawn.

A number of states and municipalities have passed laws requiring salary-range disclosures. Laws are currently in effect in California, Colorado, Connecticut, the District of Columbia, Hawaii, Illinois, Maryland, Minnesota, Nevada, New York (statewide and with additional local ordinances in New York City), Rhode Island, Vermont, and Washington, among other jurisdictions. New and expanded pay transparency measures in 2025 include:

• Delaware enacted a comprehensive posting and recordkeeping regime in September 2025 with a delayed effective date.
• Massachusetts’s Act Relative to Salary Range Transparency (effective October 29, 2025) requires ranges in postings and upon promotion/transfer, with separate state pay-data reporting in 2025 for larger employers.
• New Jersey’s Wage/Pay Transparency Act (effective June 1, 2025) requires ranges and benefits in postings and advance notice of promotional opportunities.
• Vermont’s Act 155 (effective July 1, 2025) mandates good-faith minimum and maximum pay in postings, including for certain remote roles.
• Washington refined enforcement in 2025 by adding a cure period and clarifying compliance options.

2026: Outlook

Paid Leave Laws

The federal Family and Medical Leave Act (“FMLA”) requires employers with 50 or more employees to provide eligible employees with up to 12 weeks of unpaid leave in a 12-month period to care for a newborn, adopted child, foster child, or to attend to the employee’s own serious health condition or that of a parent, spouse or child. Many states have opted to expand on the FMLA’s baseline standards, particularly in the wake of the COVID-19 pandemic, by implementing paid leave requirements on employers.

Fourteen jurisdictions have passed legislation to broaden paid family and medical leave programs. Those states are California, Colorado, Connecticut, Delaware, Maine, Massachusetts, Maryland, Minnesota, New Jersey, New York, Oregon, Rhode Island, Washington, and the District of Columbia. Many state programs are funded by either employee-paid or employer-paid payroll taxes. New York’s program requires employers to purchase paid-leave coverage from private insurers. 10 states have enacted a voluntary paid-leave option: Alabama, Arkansas, Florida, Kentucky, New Hampshire, South Carolina, Tennessee, Texas, Vermont, and Virginia. Programs in these states involve optional paid-leave coverage that employers can access through private insurers.

Several states also recently enacted additional legislation regarding paid and unpaid leave. For example, Illinois recently enacted the Neonatal Intensive Care Leave Act, which takes effect on June 1, 2026, and which provides unpaid job-protected leave for parents whose newborns are in the Neonatal Intensive Care Unit (“NICU”). This law applies to all employers with at least 16 or more employees and requires up to 10 days of unpaid leave for eligible employees with a child who is a patient in the NICU. New York recently became the first state to offer paid time off for prenatal care or other medical care related to pregnancy. Under this new law, privately employed pregnant New Yorkers can be eligible to receive an additional 20 hours of paid sick leave for prenatal care, in addition to their existing sick leave. California also increased the percentage of income that employees may receive while they bond with a new child or while they care for a family member’s serious health condition. Specifically, as of January 1, 2025, the percentage of eligible income increased from 60% to 70% for Paid Family Leave, and 70% to 90% for State Disability Insurance. Employers with multistate operations should monitor and comply with state-specific changes to paid leave laws.

Section 1 of the Federal Arbitration Act—Flower Foods, Inc. v. Brock

The US Supreme Court is poised to revisit whether certain employment arbitration agreements can be enforced under federal law. On October 20, 2025, the Court granted certiorari in Flower Foods, Inc. v. Brock. The issue before the Court is whether local delivery workers who do not transport goods across state borders, or interact with vehicles that cross borders, are transportation workers engaged in foreign or interstate commerce for purposes of the Federal Arbitration Act’s (“FAA”) Section 1 exemption. Section 1 of the FAA excludes contracts of “seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce” from the FAA’s coverage. In the decision now before the Court, the Tenth Circuit held that Flower Foods’ local bread distributors qualify as transportation workers even though they do not personally cross state lines. The Tenth Circuit reasoned that these distributors complete the last leg of a continuous interstate journey.

If the Court adopts the “continuous interstate journey” approach, the Court’s decision would threaten to place many local delivery drivers within Section 1’s exemption, rendering the FAA’s protections of arbitration inapplicable to those drivers’ arbitration agreements. A narrower approach by the Court—rejecting the Tenth Circuit’s decision—may preserve FAA coverage for many intrastate drivers.

AI & Employment

Artificial intelligence (“AI”) is increasingly being used in hiring, performance management, promotions, compensation decisions, and terminations. While AI can streamline Human Resources departments’ processes, it raises legal risks under long-standing anti-discrimination laws because AI tools can replicate or amplify bias from the data used to train the AI, resulting in disparate impact or disparate treatment claims. In 2023, the EEOC settled its first AI hiring case after an algorithm screened out older applicants. See Equal Employment Opportunity Commission v. iTutorGroup, Inc., No. 1:22-cv-2565-PKC-PK (E.D.N.Y.).

At the same time, states and cities are moving ahead with AI-specific requirements. These laws include: (1) New York City Local Law 144, which requires bias audits and notices for automated employment decision tools; (2) the Illinois AI Video Interview Act, which requires notice and consent before AI is used to analyze recorded video interviews; (3) amendment to the Illinois Human Rights Act, which requires notice if AI is used for employment decisions and avoidance of discrimination; (4) Maryland’s AI facial recognition law, which prohibits an employer from using a facial recognition service without the applicant’s consent to create a facial template during an interview; (5) California’s updates to its employment regulations, which emphasize avoidance of discrimination when using AI in making employment decisions; and (6) the Colorado AI Act, which considers the use and development of an AI system in connection with employment and hiring decisions to be considered high-risk and imposes a number of obligations on developers and deployers depending on their party role (e.g., provision of information, website disclosures, algorithmic discrimination reporting, AI impact assessments, risk management policies, notice and opt-out and appeal rights). The use of automated decision-making technology is also addressed under the new California Consumer Privacy Act regulations in connection with human resources decisions, including requirements to give a pre-AI use notice, right to opt-out and access information regarding the use of such tools and conduct a risk assessment. Guidance from the EEOC also emphasizes reasonable accommodations and adverse-impact analysis when AI is used in hiring selection.

Looking ahead, employers should consider how rapidly evolving AI rules and enforcement trends will shape personnel decisions and practices in 2026. With the Colorado AI Act and amendment to the Illinois Human Rights Act scheduled to take effect in 2026, and other jurisdictions contemplating similar measures, employers operating across states could see greater emphasis on bias audits, notice and disclosure, recordkeeping, and transparency for automated employment tools. At the same time, continued EEOC activity and private litigation may test how “job-related and consistent with business necessity” defenses apply to AI-enabled screening, performance, and compensation decisions, including accommodation workflows for individuals with disabilities.