The NLRB skipped the normal rulemaking process, which typically requires a proper review and comment period, jumping directly to the final rule. It was able to avoid these steps because the final rule isn’t actually changing anything. The 2020 rule applied before the Biden administration tried to change the rule in 2023, but a federal court rejected the 2023 rule, which the Biden administration then withdrew. The result of that withdrawal was that the 2020 rule was still in effect. Last week’s action by the NLRB formalizes that outcome by officially readopting the 2020 joint employer rule.

What’s the rule?

Under the 2020/2026 rule, for joint employment to exist under the National Labor Relations Act (NLRA), the putative joint employer “must possess and exercise … substantial direct and immediate control over one or more essential terms or conditions” of the workers’ employment.

“Essential terms and conditions” means wages, benefits, hours of work, hiring, discharge, discipline, supervision and direction.

Substantial direct and immediate control requires that the putative joint employer directly makes the decisions. Merely exerting influence is not enough.

For example, with respect to wages, direct and immediate control means setting the wages. Entering a cost-plus contract is not enough to support joint employment.

With respect to hours of work, direct and immediate control means setting the schedule for particular employees. Merely establishing a facility’s operating hours or deciding when additional staffing is needed is not enough to support joint employment.

Regarding discharge, direct and immediate control means actually firing the worker from employment. Telling a staffing agency to remove a worker from an assignment is not enough to create joint employment.

Regarding direction, direct and immediate control means “assigning particular employees their individual work schedules, positions, and tasks.” Setting schedules for the completion of a project or describing the work to be completed is not enough.

“Substantial direct and immediate control” means control that “has a regular or continuous consequential effect on an essential term or condition.” Sporadic, isolated or de minimis control is not enough to create joint employment.

Avoiding joint employer status can be critically important in labor relations because a joint employer is obligated to bargain with the primary employer’s employees. The 2020/2026 rule provides better clarity and guidance for companies that wish to avoid joint employer status under the NLRA.

This rule applies only to the NLRA. Different tests for joint employment apply under the Fair Labor Standards Act and other federal and state employment laws.

The rule can be found at 29 CFR 103.40. Will the sun rise again on a new rule that makes joint employment more likely? Not under this administration. But the joint employer standard tends to change with each new administration, so what happens in three years or seven years is anyone’s guess.

Please contact the author of this alert or your BakerHostetler attorney contact if you have any questions.

This is a photo of the sun setting last week over the Tiber River, with St. Peter’s Basilica in the background. I’m not a great photographer, but it’s a nice record shot from last week’s trip to Italy.

• On April 17, the Commodity Futures Trading Commission’s (CFTC) Market Participants Division, the Division of Clearing and Risk, and the Division of Market Oversight (together, the Operating Divisions) issued an advisory to provide guidance on criteria the Operating Divisions will use to determine whether to refer a self-reported violation to the Division of Enforcement (DOE).
• Under the advisory, the Operating Divisions can refer material supervision and non-compliance issues to the DOE. Non-material supervision or compliance issues will be handled by the Operating Divisions and addressed directly with the registrant or registered entity.
• The guidance follows the DOE’s February advisory which announced that registrants and registered entities who self-report violations to an Operating Division can be eligible for mitigation credit.

Background

As we previously reported,[1] in February, the CFTC’s DOE issued an enforcement advisory (the DOE Advisory) to provide guidance to market participants on how the DOE will evaluate a company’s or an individual’s conduct in the context of recommending an investigation or enforcement action. The DOE Advisory presented a first-of-its-kind credit matrix meant to provide transparency into how the DOE will now evaluate self-reporting, cooperation and remediation efforts and award credit pursuant to the nature and quality of those efforts. Specifically, this system utilizes a combination of rubrics to assess the value of the self-reporting, cooperation and remediation, including considerations of timeliness, and keys these assessments to a matrix to determine whether and how much credit will be awarded.  

Following the release of the DOE Advisory, the CFTC noted that the public raised questions on how the credit matrix would operate, including perceived inconsistencies in how material non-compliance issues are referred for enforcement. In response, Acting CFTC Chairman Caroline Pham revealed that a further advisory would be issued that would speak on materiality criteria that would (1) provide clarity to those contemplating a self-report on a non-compliance issue without fear of a referral for enforcement; and (2) ensure other CFTC divisions will appropriately address supervisory or compliance issues that are not material directly with the registrant or entity. 

Weighing an Enforcement Referral

On April 17, the Operating Divisions issued Staff Advisory No. 25-13, “Staff Advisory on Materiality or Other Criteria That Operating Divisions Will Use to Determine Referrals to the Division of Enforcement” (the Operating Divisions’ Advisory).[2]  The Operating Divisions’ Advisory seeks to provide further guidance and transparency on the materiality or other criteria that will be used to determine whether to make a referral to the DOE for self-reported violations or supervision or non-compliance issues.

Generally, the Operating Divisions may refer violations that are material to the DOE. Those include violations involving harm to clients, counterparties, customers, members or participants; harm to market integrity; or significant financial losses. Given this, the Operating Divisions note that registrants and registered entities should “use their own judgment” to determine whether it is appropriate to self-report a material violation, including those involving fraud, manipulation or abuse, directly to the DOE in the first instance. However, the Operating Divisions will address non-material supervision or non-compliance issues directly with the registrant or registered entity without a referral to the DOE.

The Operating Divisions’ Advisory therefore provides key information on how the Operating Divisions will determine materiality of a supervision or non-compliance issue, including, for example, an issue related to systems and controls or risk management and compliance programs. The analysis considers:

1. Especially egregious or prolonged systemic deficiencies or material weakness of the supervisory system, controls or program;
2. Knowing and willful misconduct by management, such as conduct evidencing an intent to conceal a potential violation, or supervision or non-compliance issue; or
3. Lack of substantial progress toward the completion of remediation for an unreasonably lengthy period of time, particularly after a continuous process with the appropriate CFTC division regarding the remediation.

In all circumstances, the appropriate division, when conducting its assessment, will apply a reasonableness standard and consider the registrant or registered entity’s size, activity and complexity. Notably, the Operating Divisions’ Advisory says the “mere failure to meet, or extension of, a deadline for corrective action or remediation plan, on its own, will not be sufficient for a referral to [the Division].”

Conclusion

Market participants are advised to continue reviewing and updating compliance programs to account for the February and March advisories, including an assessment of which behaviors could warrant a voluntary disclosure to the appropriate Operating Division or to the DOE directly to receive the maximum benefits associated with a timely self-report. Competent legal counsel should be considered to assist participants in evaluating and/or enhancing current compliance programs and assessing whether a potential violation is material, whether to voluntarily self-report, and if so, to which CFTC division.

The BakerHostetler White Collar, Investigations and Securities Enforcement and Litigation team is composed of dozens of experienced individuals, including attorneys who have served in the U.S. Department of Justice and at the U.S. Securities and Exchange Commission. Our team has extensive experience in defending regulatory investigations and actions and in providing regulatory compliance counseling. Please feel free to contact any of our experienced professionals if you have questions about this alert.

[1] Michelle N. Tanney, Isabelle Corbett-Sterling, Shelleah M. Jackson, BakerHostetler, The CFTC Announces a New System to Incentivize Self-Reporting, Cooperation, and Remediation (Mar. 20, 2025), available at https://bakerlawstaging.contentpilot.net/insights/the-cftc-announces-a-new-system-to-incentivize-self-reporting-cooperation-and-remediation/.

[2] Comm. Fut. Trad. Comm’n, Rel. No. 9067-25, Staff Advisory on Materiality or Other Criteria That Operating Divisions Will Use to Determine Referrals to the Division of Enforcement (Apr. 17, 2025), available at https://www.cftc.gov/csl/25-13/download.

• Most states’ mini-WARN Acts follow the general rule that, if a plant closing or mass layoff occurs in conjunction with the sale of a company, affected employees must be notified by the seller when the plant closing or mass layoff occurs before or upon closing, and by the buyer when it occurs after closing.
• State and local laws and regulations generally expand the federal WARN Act’s notice obligations to more employers and may provide for increased penalties for noncompliance.
• In response to artificial intelligence automation, the economic downturn caused by the COVID-19 pandemic and the anticipated diminishment of federal regulations in the workplace, states are adding more protections for affected employees to already complex mini-WARN Act obligations.

As addressed in a prior post, one often-forgotten consideration in many mergers and acquisitions is the federal Worker Adjustment and Retraining Notification Act of 1988 (WARN Act), which generally requires covered employers to provide 60 days’ written advance notice to affected employees and certain public officials in the event of a plant closing or a mass layoff. We also noted that buyers and sellers should be aware of “mini-WARN Acts”: state or local mass-layoff statutes or regulations providing more obligations that could arise upon the sale of a business that results in a reduction in force.

Mini-WARN Act in the Sale of a Business

Previously, we answered the following important question – under the federal WARN Act, is it the buyer or the seller that is required to provide notice to affected employees? Generally, if a plant closing or mass layoff occurs before or upon the acquisition closing, the seller must provide the required notice. If the plant closing or mass layoff occurs after the acquisition becomes effective, the buyer must satisfy the WARN Act’s obligations.

The mini-WARN Acts in Illinois, Iowa, New Hampshire, Vermont, Maryland, and Wisconsin affirm this rule in some form or fashion. The Hawaii mini-WARN Act does not explicitly address this issue, but the state’s Department of Labor and Industrial Relations has ruled that a buyer in a stock purchase of the controlling interest of a covered establishment may be responsible for providing notice to affected employees if the layoffs (1) occur after the stock purchase and (2) result from the stock purchase.

Employers should, however, be aware of several states that have unique obligations in this respect. Connecticut, for one, does not have a mini-WARN Act, but its state law requires certain businesses that are sold to give written notice to their retired employees and the Connecticut Department of Labor at least 30 days before the intended sale. The notice must specify the retired employees’ post-sale health and life insurance benefits.

Furthermore, while the New York mini-WARN Act follows the general rule regarding notice obligations outlined above, if the transfer of employees is a good-faith condition of the purchase agreement and that condition is not upheld by the purchasing employer, the purchasing employer is obligated to provide notice and the selling employer is relieved of such obligation.

Expanded Obligations Under Mini-WARN Acts Throughout the Country

In addition to knowing who is responsible for providing notice under states’ mini-WARN Acts, buyers and sellers should be aware of other obligations arising after the sale of a business that results in a plant closing or a mass layoff. State mini-WARN Acts and similar regulations generally expand upon or add to the federal WARN Act’s directives. However, the scope of obligations varies from state to state, with the differences between the federal WARN Act and states’ mini-WARN Acts generally falling into four categories.

First, there are the mini-WARN Acts that expand notice obligations to more employers with fewer employees, including those in California, Illinois, Delaware, Hawaii, Iowa, Maryland, New Hampshire, New York, Tennessee, Vermont and Wisconsin.

Second, some mini-WARN Acts, including those in California, Illinois, Iowa, New Hampshire, New Jersey, New York, Vermont and Wisconsin, reduce the number of affected employees necessary to constitute a covered mass layoff. For example, in New York, the sale of a business resulting in layoffs of 300 full-time employees constituting less than 33 percent of the full time workforce at a single site would not require advance notice under the federal WARN Act (which sets the number at 500 full-time employees or 50 or more full-time workers who constitute at least 33 percent of the employer’s workforce) but would require it under New York’s mini-WARN Act (which sets the number of full-time employees at 250 or 25 if such number represents at least 33 percent of the workforce).

Third, some mini-WARN Acts expand temporal notice requirements for employers. The Maine, New Jersey and New York mini-WARN Acts require 90 days’ notice to affected employees and government parties rather than the federal counterpart’s requirement of 60 days’ notice. And in Illinois, an owner of an investor-owned electric generating plant or a coal-mining operation is subject to a staggering two-year written notice requirement.

Fourth, some states, including Hawaii, Maine and New Jersey, impose severance or similar obligations on businesses following a plant closing or a mass layoff. For example, employers in Maine must pay affected employees severance pay equal to one week’s pay per year of employment and partial pay for any partial year. And in New Jersey, severance obligations are the greater of one week of pay per year of employment or the severance pay to which they are entitled under a collective bargaining agreement or other employer policy.

Finally, some states impose civil penalties that surpass those provided under the federal WARN Act, which can be up to $500 per day for noncompliance. Maryland’s mini-WARN Act, for example, subjects noncompliant employers to civil penalties of up to $10,000 per day. And if a Maine-based employer fails to pay affected employees the above-referenced severance following a mass layoff, it could be subject to a civil penalty of $1,000 per violation, in addition to a $500- per-day penalty should the employer fail to provide the required notice.

Given this patchwork of laws and regulations expanding WARN Act-type obligations on employers, it is important for buyers and sellers to know the lay of the land in each state where they intend to transact business so that they can determine early on whether certain obligations could materially impact a deal.

States’ Efforts Early in 2025 to Expand Mini-WARN Act Obligations

Looking forward, in addition to being cognizant of state mini-WARN Acts and similar regulations already in place, buyers and sellers should follow developments in this space as they plan for future deals.

Just a few months ago, New York Governor Kathy Hochul announced that she will direct the New York Department of Labor to amend the New York mini-WARN Act regulations to require that employers disclose in their state WARN notices whether artificial intelligence (AI) automation played a role in reaching a business decision that led to a mass layoff or a plant closing. This requirement would be the first of its kind as it pertains to state-level WARN regulations.

The state of Washington is currently considering a bill (SB5525) that would enact its first mini-WARN Act covering employers with 50 or more full-time employees. And earlier this year, a member of the Illinois General Assembly introduced House Bill 3820, which would amend the Illinois mini-WARN Act to require employers to provide to an employee affected by a plant closing or a mass layoff severance pay equal to one week of pay for each full year of employment. House Bill 3820 would also require Illinois employers to compensate affected employees with an additional four weeks of pay if the employer fails to give the notice to affected employees required under the Illinois mini-WARN Act.

Employers can expect continued efforts to change state-level obligations resulting from a plant closing or a mass layoff, especially as local jurisdictions grapple with continued disruptions to the workplace, such as with AI automation and the COVID-19 pandemic’s lasting impact on work culture.

BakerHostetler’s Employment Deal Team is available to assist buyers and sellers with understanding and navigating these developments and mitigating exposure from state or local laws in any acquisition-related employment termination.

• Starting April 11, certain foreign nationals who are present in the United States for more than 30 consecutive days must register with U.S. Citizenship and Immigration Services (USCIS). However, most foreign nationals do not need to register because they already have evidence of registration.
• All foreign nationals over the age of 18 must carry evidence of registration at all times.
• All foreign nationals must update their address within 10 days of moving.

USCIS’ new registration requirement, which went into effect on April 11, principally applies to foreign nationals who enter the United States and are not issued an I-94 record or other acceptable form of registration. Most nonimmigrant visa holders and business visitors are not required to register because they receive a paper or electronic I-94 record upon their admission to the United States. The foreign nationals described below are already registered and are not required to submit a separate registration:

• Permanent residents (Form I-551 or permanent resident card (green card))

• Foreign nationalswho have been paroled into the United States under INA 212(d)(5), even if the period of parole has expired
• Foreign nationalsadmitted to the United States as nonimmigrants who were issued Form I-94 or I-94W (paper or electronic), even if the period of admission has expired
• All foreign nationalspresent in the United States who were issued immigrant or nonimmigrant visas before their last date of arrival
• Foreign nationalsin removal proceedings
• Foreign nationals who have been issued an employment authorization document
• Foreign nationalswho have applied for lawful permanent residence using Form I-485, I-687, I-691, I-698 or I-700 and provided fingerprints (unless waived), even if the application was denied
• Foreign nationalsissued Border Crossing Cards

The following individuals are subject to this rule and must register:

• Foreign nationals who entered the United States unlawfully and have not filed an application or been encountered by the Department of Homeland Security in a way that would result in the creation of an I-94 record or other acceptable registration document

• Canadian visitors who enter the United States at land ports of entry but are not issued I-94 records

• Foreign nationals who have applied for certain benefits, such as temporary protected status, but were not issued evidence of registration

• All foreign national children within 30 days after their 14th birthday

The registration form is now available through the online myUSCIS system. Most foreign nationals who complete the form will receive a biometrics appointment. Once the registration is completed, foreign nationals can retrieve and print proof of their registration from their myUSCIS account.

All foreign nationals over the age of 18 must carry evidence of registration at all times. A printed I-94 record, an original employment authorization document or any document mentioned in the above list will satisfy this requirement. Foreign nationals who fail to carry evidence of registration are subject to a misdemeanor punishable by a fine of up to $5,000, imprisonment for not more than 30 days or both.

Additionally, the interim final rule reminds foreign nationals of the requirement to notify USCIS of their change of address within 10 days of moving. Foreign nationals who do not comply are subject to a misdemeanor punishable by a fine of up to $5,000, imprisonment for not more than 30 days or both. The interim final rule also states that failure to comply is a deportable offense unless it can be established that the failure to comply was “reasonably excusable or was not willful.”

USCIS’ new registration requirement and change-of-address reminder are clear evidence of the need for companies and foreign nationals to renew their focus on immigration-related compliance to lessen the risk of adverse action being taken by the government.

Please reach out to the authors of this alert or your BakerHostetler attorney contact if you have any questions.

• To prove intent to induce referrals under the AKS, the Seventh Circuit applied the relevant decisionmaker test, which asks: whether the payee is in a position to exert improper influence over healthcare decisions.
• The Court reversed a jury conviction where there was no evidence that third-party marketers (the payees) leveraged or exerted any sort of informal power or influence over any doctors’ independent healthcare decisions.
• This case provides additional theories and arguments that may be raised when defending against AKS allegations, particularly in the Fifth and Seventh Circuits.

On April 14, the Seventh Circuit in United States v. Sorensen[1] issued a decision reversing a jury conviction and narrowing the scope of the Anti-Kickback Statute[2] (AKS) as applied to marketers and advertisers. Specifically, a three-judge panel held that defendant Sorensen, who distributed durable medical equipment (DME), did not violate the AKS because the entities he paid were not in a position to “leverage fluid, informal power and influence” over healthcare decisions. The payees had no special influence over any physicians’ exercise of independent medical judgment or over any patients’ choice of healthcare provider.

To briefly summarize the facts, the payees in this case were two marketing companies that published aggressive advertisements for orthopedic braces. Patients who responded to their advertisements would be contacted by sales agents to discuss ordering braces. If the patient consented, the sales agent faxed prefilled (but unsigned) prescriptions to the patient’s physician, and the physician would then independently determine whether to sign the prescription or ignore it; the physicians, however, rejected 80 percent of the prescriptions. The marketers were paid based on the number of patient leads generated, and the DME manufacturer was paid 79 percent of the Medicare funds collected by defendant Sorensen.

The Seventh Circuit, in reversing defendant Sorensen’s jury conviction, held that there was insufficient evidence that the defendant intended to induce referrals; rather, he intended to compensate marketers for ordinary advertising services. The AKS “primarily targets payments to individuals with influence over or access to patients that lets them control or influence the patients’ choice about medical care.” But here, the marketers lacked the power to authorize medical care, and they did not “unduly influence the doctors’ decisions.”

The key fact the Court pointed to was that the physicians always had ultimate control over the patients’ healthcare choices and applied independent judgment in exercising that control. Unlike in other cases such as Polin,[3] where a sales rep was considered a decision-maker in making referrals because his recommendations to providers had never been questioned in 14 years, the physicians here declined 80 percent of the prescriptions faxed to them (i.e., they were not rubber-stamping orders). Therefore, the payees were not decisionmakers in positions to “leverage fluid, informal power and influence” over healthcare decisions. Instead, the payments made to the marketers were in exchange for ordinary and legal services, not for referrals.

Practically speaking, the government has long prosecuted certain payment arrangements involving independent contractor marketers and sales representatives in the healthcare industry because of the immensely broad scope of the AKS. However, this recent decision provides an additional step in the legal analysis involving payments to non-physicians, at least in the Seventh Circuit – whether the payee leverages fluid, informal power and influence over healthcare decisions.

[1] United States v. Sorensen, No. 24-1557, 2025 WL 1099080, at *1 (7th Cir. Apr. 14, 2025).

[2] In general, the AKS criminalizes the willful and knowing payment of remuneration to induce the referral of patients or the purchase of any item or service reimbursable in part by a federal healthcare program. 42 U.S.C. § 1320a-7b(b).

[3] United States v. Polin, 194 F.3d 863 (7th Cir. 1999).

• Parties to an M&A transaction should carefully consider the potential risks to the target business of the impact of newly imposed or future tariffs that may affect target businesses.
• There is no one-size-fits-all solution to allocating responsibility for tariff-related risks in M&A transactions.
• Insurers are unlikely to cover losses for breaches of representations and warranties related to tariffs, but it may be possible to minimize this representation and warranty insurance (RWI) coverage gap.

Buyers and sellers that are parties to an M&A transaction should carefully consider whether the risks associated with tariffs that have already been imposed or that may be imposed in the future may significantly impact the revenues and net profits of a target company business. If there will be a significant impact, it would be prudent to address those risks through various provisions of the acquisition agreement. For example, a buyer may seek an indemnity, tariff-related representations and warranties (or at least to add specific language on tariffs to existing representations and warranties), a closing condition, or even an earnout, a holdback, or a purchase price adjustment if the risk and/or bargaining power is significant enough. By contrast, a seller may seek to modify the definition of material adverse change (MAC) to expressly exclude the impact of tariffs as an event or circumstance that could give rise to a MAC that enables the buyer to terminate the transaction. A seller may also attempt to negotiate for greater flexibility in the interim operating covenants in case a new tariff is imposed that would otherwise negatively impact the seller’s business.

Indemnities

One approach to affording a buyer some protection in the event a tariff is imposed after signing but prior to closing is to include a specific line-item indemnity in the acquisition agreement. Alternatively, a buyer may choose to incorporate tariff-related language into the more common indemnity for pre-closing taxes. A third alternative would be to incorporate such language on tariffs into the tax-related or other applicable representations and warranties that would be within the scope of indemnification for breaches of such representations and warranties. The latter two approaches may possibly be more favorable in the context of a transaction that includes an RWI policy to minimize the likelihood of an exclusion under the policy specifically for a tariff-related indemnity.

Representations and Warranties

A buyer may seek either to add specific, tariff-related representations and warranties or alternatively to supplement other more traditional representations and warranties with language addressing tariffs. For example, a buyer may desire to include tariff-related language in connection with a seller’s representations about its customers and suppliers, and its and their respective supply chains, including (a) whether any such relationships have been terminated or modified due to new tariffs, (b) if applicable, whether a seller’s inventory has become more difficult to obtain or turn over in a timely fashion, (c) country-of-origin information, (d) current tariff rate, and (e) volume of supply broken down by supplier. A buyer may also seek to expand more traditional tax representations to include language addressing the impact of tariffs on the business. Another possibility would be to expressly include tariff-related language in the common representation concerning the absence of changes to prompt more specific disclosure from the seller about announced, recently effective, or proposed tariffs on various products, goods, and services. In contrast, a seller should take care when preparing its disclosure schedules to consider the impact of tariffs on traditional representations regarding (i) the absence of undisclosed liabilities and (ii) whether the financial statements fairly present the financial condition of the seller’s business in light of any recently enacted tariffs. If a seller takes steps to reduce a target company’s imports, additional disclosures about acting outside of the ordinary course of business may be warranted.

A buyer and seller will also have to negotiate the procedure for a seller to update its representations and warranties at closing to avoid its representations being inaccurate at such time in case new tariffs that may affect the business become effective during the period between signing the acquisition agreement and the closing of the acquisition.

Another consideration for buyers and sellers with respect to representations and warranties related to tariffs is that most, if not all, insurers providing RWI are unlikely to provide any insurance coverage for breaches of representations specifically relating to tariffs. This is particularly true for transactions where the target company imports goods, but it may also apply in the case of retaliatory tariffs to businesses that export goods to other countries. RWI policies are expressly intended to cover breaches of historical representations. As a result, M&A parties should push an insurer to limit any tariff-related exclusions to tariffs imposed on or after a specified date in recent proximity to the date of the acquisition agreement. If an exclusion is unavoidable, the M&A parties should try to limit its scope by removing the words “arising out of and resulting from” or similar phrases to ensure that indirect and tangential consequences of tariffs are not also excluded from coverage under the policy. It may also be possible to limit the tariff-related exclusion from the policy by narrowing the circumstances under which the exclusion would be triggered to only those involving increases in supplier pricing caused by a tariff.

Closing Conditions

As an alternative to seeking to expressly include tariffs in the definition of a MAC (addressed below), a buyer may choose to negotiate for a closing condition based on the imposition of new tariffs between signing and closing. For example, if there is a key country from which a target company’s business obtains a majority of its supply, such as China, the closing condition could include a threshold percentage that the tariff rate cannot exceed as of the date of the closing of the acquisition. If the tariff percentage threshold is exceeded, the buyer would have the right to terminate the agreement and the transaction. Alternatively, a closing condition could permit the buyer to terminate the agreement and walk away if, for example, new tariffs were to negatively impact the target company’s operations, revenues and/or net income by certain agreed upon benchmarks. However, doing so may be difficult, particularly if there is not an easy way to measure the direct effect of such new tariffs on a business’s traditional financial metrics.

Earnouts, Holdbacks, and Purchase Price Adjustments

Another tool that may be available to a buyer to protect against new tariffs negatively impacting the enterprise value of a target company during the period between signing and closing is to provide for an earnout, a holdback or even a purchase price adjustment. An earnout or a holdback can be structured to apply upon closing of an acquisition in the case where a tariff has become effective shortly before an acquisition agreement is signed and the impact of such tariff on the financial performance of the business is neither known at signing nor determinable upon consummation of the transaction.

Alternatively, the parties may agree to structure an earnout or a holdback to be triggered in the event that a tariff is proposed to be imposed and/or is to become effective after signing – but before consummating – the acquisition agreement, or otherwise shortly after its consummation. In either case, the parties will need to negotiate the (a) length of the earnout or holdback period, (b) length of any initial trigger period within which a tariff may become effective after signing and/or consummating the acquisition agreement that would cause the earnout or holdback period to terminate early, and (c) scope of the protections to be afforded to the buyer in terms of the degree to which the tariff must negatively impact the financial performance of the target business to enable the buyer to forego any payment to the seller in respect of the earnout or holdback.

If the risk of a tariff imposed prior to, or proposed to become effective after, signing an acquisition agreement were to materially threaten the enterprise value of a target company, a buyer may attempt to negotiate for a purchase price adjustment to address the disconnect between the purchase price negotiated prior to closing and the price paid at closing without the benefit of the impact of such tariff on the target company’s bottom line. Any such purchase price adjustment would need to include specific provisions concerning (a) how to calculate the negative impact of the tariff on the target company’s enterprise value during the post-closing period and (b) the duration of the post-closing period within which the parties agree to consider such negative impact.

Material Adverse Change Definitions

A seller may seek to negotiate with a buyer to expressly exclude tariffs as a basis on which a buyer may claim that there has been an event or circumstance that has had a material adverse effect on the target business that would enable such buyer to terminate the acquisition agreement. However, some may take the position that even without negotiating for their express exclusion, tariffs are not a basis for a MAC under the standard formulaic definitions of the term – the rationale being that such MAC clauses already exclude changes in laws from those changes that, if they were to have a negative impact on the target business, could form the basis of a MAC.

Sellers should keep in mind that it is rare for a court to find the existence of a MAC that would permit the buyer to walk away from a transaction. Nevertheless, in negotiating the definition of a MAC, it is important to include specific language to minimize the risk of a court interpreting the term to mean something different from what the parties intended. To this end, the parties may wish to include a specific time frame for analyzing whether a MAC has occurred. Delaware courts have stated that such a time frame should be a “commercially reasonable period”. This is generally interpreted as years, not months. It is common for the period between signing and closing an acquisition to be months, and so any otherwise carefully drafted language regarding the inclusion or exclusion of tariffs as a basis for a MAC may be inadvertently undone by a misaligned measurement period.

Interim Operating Covenants

Sellers should pay particular attention to the relative flexibility afforded them pursuant to the interim operating covenants in an acquisition agreement in the current tariff environment. This consideration likely becomes more significant the longer the period between signing and closing. Buyers generally loathe the idea that sellers can operate the business during this interim period in any fashion that deviates from the ordinary course of business that sellers engaged in prior to signing the acquisition agreement. However, when faced with circumstances that may fairly be characterized as out of the ordinary and that may have significant consequences on the financial performance of the business, sellers may feel they have no choice but to deviate from the ordinary course consistent with their past practice to adapt to such out-of-the-ordinary circumstances. As has been recently seen with COVID-19, sellers may be forced into hard choices when confined by the inflexibility of strict interim operating covenants. A seller would be well-advised to negotiate in the interim operating covenants the flexibility to take certain actions that deviate from the ordinary course of business based on its past course of conduct with respect to tariffs that would otherwise negatively impact such seller’s business.

Should you have any questions regarding the above, BakerHostetler’s corporate attorneys are ready and willing to assist.

• Under Executive Order 14117, the U.S. Department of Justice’s (DOJ) National Security Division (NSD) has implemented a Data Security Program (DSP) to address national security risks associated with foreign access to sensitive U.S. data.[1]
• The DSP is designed to “prevent China, Russia, Iran, and other foreign adversaries from using commercial activities to access and exploit … Americans’ sensitive personal data to commit espionage, conduct surveillance and counterintelligence activities … and otherwise undermine our national security.”
• The DSP is a national security directive, not a privacy regulation designed to protect individual privacy or interests. As a result, the DSP contains many characteristics that are similar to U.S. sanctions and export control regimes.
• The DSP’s regulations became effective on April 8, 2025, with certain compliance requirements taking effect 90 days later on July 7, 2025.
• Companies that collect this sort of data are now subject to restrictions traditionally reserved for the defense sector and other highly sensitive government contracts. Failure to comply can result in DOJ inquiries and enforcement, including civil and criminal liability under the International Emergency Economic Powers Act (IEEPA) and other statutes. Civil violations can lead to fines of up to $366,136 (or an amount equal to twice the amount of the sanctioned transaction), while criminal penalties can include imprisonment for up to 20 years and a $1,000,000 fine.

The Data Security Program (DSP) recently implemented by the U.S. Department of Justice (DOJ) will have far-reaching implications for many businesses that transfer the personal data of U.S. citizens outside the United States. This client alert highlights key features of the DSP and recommends steps that companies can take to prepare for enforcement.

The Data Security Program’s Key Provisions

Types of Covered Data – The DSP creates two categories of covered data: bulk sensitive personal data of U.S. persons and government-related data. The rule establishes six categories of “sensitive personal data”:

1. Covered personal identifiers (e.g., demographic information, contact information, and device identifiers when combined with other covered personal identifiers)
2. Precise geolocation data (more expansive than most state privacy law definitions)
3. Biometric identifiers
4. Human ‘omic data
5. Personal health data
6. Personal financial data

The DSP does not exempt pseudonymized, anonymized or de-identified data from the definition of personal sensitive data.

For each of the above categories, thresholds are established to quantify “bulk.” To make the determination of whether a transaction meets the bulk threshold, all transactions for the preceding 12 months are aggregated.

Covered Data Transactions – The DSP defines covered data transactions as those transactions involving bulk U.S. sensitive personal data or government-related data.

• Each type of transaction is categorized as either prohibited or restricted.
  • The DSP provides specific definitions for data brokerage, vendor agreements, employment agreements and investment agreements.
  • The DSP prohibits data brokerage transactions but provides allowances for vendor agreements, employment agreements, and investment agreements – as long as the transfers are subject to certain security requirements.
• Exemptions – The DSP provides for certain types of transactions which are otherwise covered data transactions but are exempt transactions (e.g., personal communications, financial services, telecommunication services, and corporate group transactions).

Countries of Concern and Covered Persons

• Countries of Concern – The DSP identifies the countries of concern as China, Russia, Iran, North Korea, Cuba and Venezuela.
• Covered Persons – Those entities which are 50 percent or more owned, directly or indirectly or in the aggregate, by one or more countries of concern or covered persons or that are organized or chartered under the laws of, or have their principal place of business in, a country of concern.

“Know-Your-Data” and Diligence Requirements

• Know-Your-Data Requirement – This provision goes into effect October 6, 2025. By that time, companies that participate in restricted transactions must design and implement a compliance program which contains the following elements:
  • Risk-based procedures to verify data flows that are auditable and identify: (i) the types and volume of covered data involved in that transaction; (ii) the transaction parties; and (iii) the ultimate use of the data and how the data was transferred.
  • A risk-based process for identifying vendors.
  • Written data compliance program policies that are certified annually by an officer, executive, or other employee who has responsibility for compliance.

The DSP’s April 11, 2025 Guidance

On April 11, 2025, DOJ announced the next steps in the implementation of DSP.[2] NSD also issued a Compliance Guide,[3] an initial list of over 100 Frequently Asked Questions,[4] and an Implementation and Enforcement Policy for the first 90 days.[5] An initial Covered Persons List that identifies and designates people and entities “subject to the control and direction of foreign adversaries” is forthcoming.

It is important to note that the DSP is a national security directive, not a privacy regulation designed to protect individual privacy or interests. Not surprisingly, in issuing the April 11, 2025 guidance, DOJ noted that the DSP “establishes what are effectively export controls” governing the sensitive data and foreign parties at issue.

Indeed, compliance practitioners and litigators who handle sanctions and export control matters will find much about the DSP that is familiar: the DSP closely tracks the restrictions, oversight, licensing and enforcement frameworks used by the Department of the Treasury’s Office of Foreign Assets Control (OFAC) and the Department of Commerce’s Bureau of Industry and Security (BIS) governing the flow of goods and funds to and involving foreign entities.

Next Steps for Your Company

Given this context and precedent, there are steps that U.S. businesses should consider taking to ensure compliance with the DSP and minimize potential disruptions to their business.

• Know Your Data: Identify and classify categories of data that fall under the rule and assess whether it is stored, processed or transmitted in ways that could be accessed by covered persons. Per the April 11, 2025 guidance, the covered persons analysis mirrors the “50% Rule” OFAC uses to identify sanctioned parties. The guidance also describes how combinations of data can trigger the rule, including things like IP addresses, mobile device IDs, MAC addresses and mobile advertising IDs together with other identifiers.
• Restrict Access: Review relationships with vendors and identify potential access by foreign subsidiaries and third parties, such as IT service contractors, data analytics providers and offshore cloud storage. Where appropriate, implement access controls and logging mechanisms.
• Gap and Security Assessments: To ensure compliance with the CISA security requirements (which were updated in conjunction with the DSP), conduct a gap assessment to identify noncompliant processes and procedures (including the requirement for asset inventories, updated software and hardware, and remediation timelines for vulnerability patching).
• Prepare for Audits and Reporting: Document your organization’s data flow and ensure appropriate policies and procedures to identify potentially covered transactions. At a minimum, when conducting due diligence on data transfers to prevent unauthorized downstream access, make sure that such efforts are preserved and can be retrieved in the future.
• Update and Revise Contract Language: Contractual protections can be effective tools to manage and allocate compliance risk when sharing data with third parties, vendors or foreign affiliates. The April 11, 2025 Compliance Guide provides model contractual language that should be implemented immediately and, where possible, incorporated into existing relationships. Should a relationship or contract require termination to comply with the DSP, companies must be mindful of litigation risks, as compliance with EO 14117 and the DSP will not necessarily constitute a force majeure event.
• Contact NSD with Questions and Requests for Clarification: During this 90-day period, NSD encourages the public to contact them with informal inquiries about the DSP. While NSD will not be able to respond to every inquiry, the mere fact that a company sought clarification about the DSP or guidance regarding a third-party relationship or transaction, evinces good faith and reasonableness that, in the event of an inadvertent breach, can be cited as evidence of attempted compliance.
• Prepare Specific License Requests: The DSP tracks OFAC’s approach to “general” and “specific” licenses. Companies should prepare any specific license applications as far in advance as possible, as similar requests with BIS and OFAC typically take months to be processed and frequently require extensive communications between the government and the applicant.

Conclusion

As with other national security-focused initiatives, the DSP creates a variety of compliance challenges that transcend traditional practice areas and implicate a variety of cybersecurity, international trade and white collar litigation issues. As U.S. businesses adjust, the touchstones for compliance are, and will remain, good faith, reasonable and proportionate steps, and due diligence. Such an approach, consistent with the April 11, 2025 guidance, will not only minimize the risk of noncompliance with the DSP but also help protect a company and its partners in the event of a government inquiry down the road.

[1]               https://www.federalregister.gov/documents/2024/03/01/2024-04573/preventing-access-to-americans-bulk-sensitive-personal-data-and-united-states-government-related. The DOJ issued a Final Rule implementing EO 14117 on January 8, 2025. See https://www.federalregister.gov/documents/2025/01/08/2024-31486/preventing-access-to-us-sensitive-personal-data-and-government-related-data-by-countries-of-concern.

[2]               https://www.justice.gov/opa/pr/justice-department-implements-critical-national-security-program-protect-americans-sensitive

[3]               https://www.justice.gov/opa/media/1396356/dl

[4]               https://www.justice.gov/opa/media/1396351/dl

[5]               https://www.justice.gov/opa/media/1396346/dl?inline

• The U.S. Department of Justice (“DOJ”) recently announced a new policy to “stop participating in regulation by prosecution” in the digital asset industry. Instead, it will focus on prosecuting bad actors in the space and otherwise support the “vibrant and inclusive digital economy.”[1]
• The new policy heeds the Trump Administration’s Executive Order 14178 directing the DOJ to protect and promote “the ability of individual citizens and private-sector entities alike to access and use for lawful purposes open public blockchain networks without persecution.”[2]
• To that end and in light of the existing regulatory uncertainty, the policy directs prosecutors, as a matter of discretion, not to charge regulatory violations in cases involving digital assets unless there is evidence of willful violations of licensing or registration requirements. 
• The DOJ will also pursue illicit financing of those bad actors, including when it involves digital assets, but will not pursue actions against the platforms that the bad actors utilize to conduct their illegal activities.
• The DOJ will also fully participate in the President’s Working Group on Digital Asset Markets, which aims to provide regulatory clarity for the crypto industry.

The Blanche Memorandum

On April 7, 2025, Deputy Attorney General Todd Blanche announced in a memorandum to all DOJ employees (the “Blanche Memorandum”) that the DOJ “will stop participating in regulation by prosecution” and “no longer pursue litigation or enforcement actions that have the effect of superimposing regulatory frameworks on digital assets.”[3] Instead, the DOJ made clear that it will refocus its resources on clear criminal activity rather than situations where Congress has not yet clearly defined unlawful conduct with respect to digital assets.

The Blanche Memorandum marks a complete pivot from the prior administration and states the DOJ will refrain from “target[ing] virtual currency exchanges, mixing and tumbling services, and offline wallets for the acts of their end users or unwitting violations of regulations.”[4] Instead, the DOJ will concentrate on “conduct victimizing investors,” including “embezzlement and misappropriation of customers’ funds on exchanges, digital asset investment scams, fake digital asset development projects such as rug pulls, hacking of exchanges and decentralized autonomous organizations resulting in theft of funds, and exploiting vulnerabilities in smart contracts.”[5] The DOJ “will also prioritize cases involving the use of digital assets in furtherance of unlawful conduct by cartels, Transnational Criminal Organizations, Foreign Terrorist Organizations, and Specially Designated Global Terrorists.”[6]

The Blanche Memorandum lists specific regulatory violations the DOJ should refrain from prosecuting, provided there is no evidence an individual knew of and willfully violated the applicable regulation.[7] This list includes unlicensed money transmitting under 18 U.S.C. § 1960(b)(1)(A) and (B), Bank Secrecy Act violations, unregistered securities offerings violations, unregistered broker-dealer violations, and other similar violations under the Commodity Exchange Act.[8] The DOJ will also no longer be charging violations of the Securities Act of 1933, the Exchange Act of 1934, and Commodity Exchange Act, or the regulations promulgated thereunder, if doing so would require it to litigate the issue of whether a digital asset is a “security” or a “commodity” and there is an adequate alternative criminal charge available (e.g., mail or wire fraud).[9]

The Blanche Memorandum rescinds all prior policies and directives that are inconsistent with these new policies, instructs federal prosecutors to close any ongoing investigations or actions that are similarly inconsistent, and disbands the National Cryptocurrency Enforcement Team.[10]

Other Regulators Appear to Follow DOJ’s New Policy

One day after the Blanche Memorandum was published, the Acting Chairman of the Commodity Futures Trading Commission (“CFTC”) issued a statement directing CFTC staff and the Director of Enforcement to “adhere to the [DOJ]’s policy on digital assets enforcement priorities and digital assets charging considerations” set forth in the Blanche Memorandum and not to charge regulatory violations in cases involving digital assets unless the individual knew of and willfully violated the regulation at issue.[11]

As of the date of this Client Alert, the U.S. Securities and Exchange Commission (“SEC”) has not issued a statement commenting on the Blanche Memorandum. Yet, its recent dismissals of enforcement actions against several exchanges and other digital asset actors indicate that the SEC’s enforcement efforts will follow the spirit of this new DOJ policy.

Conclusion

The DOJ’s new digital asset policy of targeting bad actors in the crypto industry rather than the crypto platforms and exchanges themselves marks another demonstrable step toward fulfilling the Administration’s campaign promise to make the United States the “crypto capital of the world.” However, the policy does not grant the crypto industry carte blanche to disregard U.S. law. Federal prosecutors and regulators seem ready to continue investigating and charging individuals or entities that know they are subject to certain regulations but nevertheless willfully disregard them. Thus, it remains important that digital asset participants understand whether and to what extent they are subject to U.S. law, craft regulatory programs to ensure they are in compliance as necessary, and – where it remains unclear – engage with the Administration and regulators to help them achieve the market structure appropriate for the crypto industry.

The regulatory landscape for the U.S. digital assets market continues to rapidly evolve in 2025. BakerHostetler is here to help market actors navigate this ever-changing environment and seize opportunities through our interdisciplinary attorneys on our Web3 and Digital Assets team, Digital and Innovative Markets team, Federal Policy team, Corporate and Securities team, Financial Services team, and White Collar, Investigations, and Securities Enforcement and Litigation team. Please feel free to contact any of our experienced professionals if you have questions about this alert.

[1] Mem. from Todd Blanche, Deputy Att’y Gen., Dep’t of Justice, to all DOJ Employees (Apr. 7, 2025), available at https://www.justice.gov/dag/media/1395781/dl?inline.

[2] Executive Order 14178, § 1 (Jan. 23, 2025).

[3] Blanche Mem. at 1.

[4] Id.

[5] Id. at 2.

[6] Id.

[7] Id.

[8] Id. at 2–3.

[9] Id. at 3. The Blanche Memorandum provides two permissible positions under this policy: (1) Bitcoin or Ether is a “commodity” under the CEA; and (2) filing securities fraud charges where the “security” at issue is a digital asset company’s stock. Id.

[10] Id. at 2, 4.

[11] Release No. 9063-25, Acting Chairman Pham Lauds DOJ Policy Ending Regulation by Prosecution of Digital Assets Industry and Directs CFTC Staff to Comply with Executive Orders, Commodity Futures Trading Comm’n (Apr. 8, 2025), https://www.cftc.gov/PressRoom/PressReleases/9063-25.

• The DOJ’s new Anticompetitive Regulations Task Force aims to eliminate certain federal and state laws and regulations that it believes undermine competition. This is the first significant initiative under new Assistant Attorney General Gail Slater.
• The Task Force will initially focus on key sectors, including housing, transportation, food and agriculture, healthcare, and energy.
• The Task Force will take a whole-of-government approach and will include attorneys and economists from across the Antitrust Division as well as individuals from other agencies.
• There will be a 60-day public comment period to assist Division efforts in identifying laws and regulations that decrease competition.

Aims of the New Task Force

On March 27, 2025, the Department of Justice (DOJ) announced the formation of an Anticompetitive Regulations Task Force. The Task Force broadly aims to eliminate anticompetitive state and federal laws and regulations that “undermine free market competition and harm consumers, workers, and businesses.” The announcement comes on the heels of a February 19, 2025, Executive Order directing federal agencies to identify regulations that “impose undue burdens on small businesses and impede private enterprise and entrepreneurship.” Notably, following the “whole-of-government approach” taken by the previous administration, the Task Force will combine the efforts of attorneys, economists and staff from across the Antitrust Division as well as other “interagency partners.”

The DOJ announcement identifies five key markets that will be the focus of the Task Force – housing, transportation, food and agriculture, healthcare, and energy – and provides examples of the types of “laws and regulations that make it more difficult for businesses to compete effectively.” For example, in the transportation industry, the announcement highlights that “laws and regulations in areas like airlines, rail, and ocean shipping can grant antitrust immunities, outright monopolies, or safe harbors for conduct that undermines competition. As a result, Americans pay more for travel, fuel, and a variety of other products.”

The announcement invites public comments on the Task Force plans to help identify laws and regulations that are impacted by anticompetitive state or federal laws and regulations. Stakeholders, including any member of the public, will have until May 26, 2025, to submit comments.

Finally, the announcement suggests that its genesis relates to a similar effort from the first Trump administration in 2018, when the DOJ issued a report describing how certain regulations can harm competition. As part of this 2018 effort, the DOJ submitted comments to federal agencies in an effort to remove what it deemed as “unnecessary regulations,” including those relating to energy and “making it easier for individuals and small businesses to navigate the federal government bureaucracy.” The announcement also noted that the Task Force will file amicus briefs and statements of interest in private litigation to support its efforts.

Open Questions and Takeaways

The announcement of the Task Force raises a number of questions.

First, the breadth of the Task Force’s mandate is notable. Virtually all statutes or regulations could be viewed as having an impact on free market competition. For example, while consumer protection has traditionally been the primary focus of antitrust legislation, recent antitrust efforts have been directed at labor issues and such efforts may be seen as diametrically opposed to the traditional goal of consumer protection – that is, primarily lowering prices for consumers.

Further, it is not clear what jurisdiction the federal Task Force will have over state laws and regulations. Typically, conflicts between federal antitrust law and policy and state law are rare, given that state law largely reflects the familiar tenets of federal antitrust law. But new preemption battles may loom to the extent state laws or regulations are deemed to “impose undue burdens on small businesses and impede private enterprise and entrepreneurship,” particularly if laws and regulations can be construed as furthering monopolistic conduct or agreements in restraint of trade.

For example, it will be important to see how the Task Force interacts with the state action immunity doctrine. The state action immunity doctrine shields state and local governments from federal antitrust claims for actions taken pursuant to a clearly articulated and affirmatively expressed state policy. Notably, state and local governments are protected, even if their actions are anticompetitive. How the Task Force will interact with local utility monopolies, for example, will be crucial to watch.

Many questions remain considering the ever-changing legal landscape and it will be important to watch how the Task Force will treat its broad directive to decrease the barriers to competition. Companies should stay up to date to ensure compliance as well as overall preparedness. The BakerHostetler Antitrust and Competition Team as well as the Cartel and Government Antitrust Investigations Task Force are comprised of attorneys with extensive experience in proactive antitrust compliance counseling and regulatory investigations and litigation. Our Cartel Task Force includes former DOJ prosecutors, as well as attorneys who are part of both the Antitrust and Competition and White Collar, Investigations and Securities Enforcement and Litigation teams. Please feel free to contact any of our experienced professionals if you have questions about this alert.