Richard Manfredi, Author at Gibson Dunn

In this recorded webcast, seasoned practitioners from Gibson Dunn’s Corporate and Antitrust practices discuss best practices and the latest developments in joint venture formation and operation, including:

1. Hot-button operating agreement provisions
2. Navigating transfer and exit considerations
3. Designing antitrust-compliant contractual provisions
4. Analysis and ramifications from recent antitrust enforcement actions

PANELISTS:

Robert B. Little is a partner in Gibson, Dunn & Crutcher’s Dallas office, and he is a Global Co-Chair of the Mergers and Acquisitions Practice Group. Mr. Little has consistently been named among the nation’s top M&A lawyers every year since 2013 by Chambers USA. His practice focuses on corporate transactions, including mergers and acquisitions, securities offerings, joint ventures, investments in public and private entities, and commercial transactions. Mr. Little has represented clients in a variety of industries, including energy, retail, technology, infrastructure, transportation, manufacturing and financial services.

Christopher M. Wilson is a partner in Gibson, Dunn & Crutcher’s Washington, D.C. office and a member of the firm’s Antitrust and Competition Practice Group. Mr. Wilson assists clients in navigating DOJ, FTC, and international competition authority investigations as well as private party litigation involving complex antitrust and consumer protection issues, including matters implicating the Sherman Act, the Clayton Act, the FTC Act, the Hart-Scott-Rodino (HSR) merger review process, as well as international and state competition statutes. His experience crosses multiple industries and his particular areas of focus include merger enforcement, interlocking directorates, joint ventures, compliance programs, and employee “no-poach” agreements.

Taylor Hathaway-Zepeda is a partner in the Los Angeles office of Gibson, Dunn & Crutcher. Her practice focuses on mergers, acquisitions, divestitures, joint ventures, equity investments, restructuring transactions and general corporate governance. She works with companies in a broad array of industries, and has extensive experience working with media, entertainment and technology companies and private equity sponsors. Ms. Hathaway-Zepeda currently serves on the Board of Directors of the California Chamber of Commerce and the Board of Directors of the Los Angeles Area Chamber of Commerce, where she is also Chair of the Governance Committee.

MCLE CREDIT INFORMATION:

This program has been approved for credit in accordance with the requirements of the New York State Continuing Legal Education Board for a maximum of 1.0 credit hour, of which 1.0 credit hour may be applied toward the areas of professional practice requirement. This course is approved for transitional/non-transitional credit.

Attorneys seeking New York credit must obtain an Affirmation Form prior to watching the archived version of this webcast. Please contact [email protected] to request the MCLE form.

Gibson, Dunn & Crutcher LLP certifies that this activity has been approved for MCLE credit by the State Bar of California in the amount of 1.0 hour.

California attorneys may claim “self-study” credit for viewing the archived version of this webcast. No certificate of attendance is required for California “self-study” credit.

Attorney Advertising: These materials were prepared for general informational purposes only based on information available at the time of publication and are not intended as, do not constitute, and should not be relied upon as, legal advice or a legal opinion on any specific facts or circumstances. Gibson Dunn (and its affiliates, attorneys, and employees) shall not have any liability in connection with any use of these materials. The sharing of these materials does not establish an attorney-client relationship with the recipient and should not be relied upon as an alternative for advice from qualified counsel. Please note that facts and circumstances may vary, and prior results do not guarantee a similar outcome.

On April 20, 2024, New York lawmakers approved the State’s 2024-2025 budget. As a part of the budgetary vote, lawmakers passed three notable amendments to New York Labor Law of which employers should be aware.

PAID PRENATAL LEAVE: In a first-of-its-kind law in the country, lawmakers amended the New York Labor Law’s sick leave provisions to require all employers (regardless of size) to provide employees twenty (20) hours of paid prenatal leave per year. Employees may use this leave to obtain healthcare services during or related to pregnancy – for example, for physical examinations, medical procedures, monitoring and testing, and discussions with a health care provider concerning their pregnancy.

This leave bank must be separate from other leave accruals, including the forty (40) or fifty-six (56)[1] hours of sick leave that New York employers are currently required to provide employees for their own illness or need for medical care (including mental illness), the care or treatment of certain covered family members, and for certain safety concerns (such as domestic violence).

The law prohibits employers from discriminating or retaliating against employees because they requested or utilized prenatal leave and requires employees who use prenatal leave to be restored to the same position they held prior to such leave. The amendment does not address, for example, whether and under what circumstances employers may require advance notice or documentation regarding the use of prenatal leave, though the labor commissioner has the authority to adopt regulations and issue guidance to address these and other questions. The requirements to provide prenatal leave become effective on January 1, 2025.

PAID NURSING BREAKS: The New York Labor Law was also amended to require all employers (regardless of size) to provide paid nursing breaks. This marks a notable change from the current law, which only requires reasonable unpaid breaks for expressing breast milk. Under the new law, which is effective June 19, 2024, employers must provide thirty (30) minute paid breaks each time an employee has a reasonable need to express breast milk for up to three (3) years following childbirth. The law also requires employers to permit employees to use other existing paid break and mealtime (e.g., under wage and hour laws) to express breast milk when breaks longer than thirty (30) minutes are needed.

The statute does not address how often employees may take paid nursing breaks. However, the state interpreted the prior iteration of the statute to allow employees to take unpaid breaks at least once every three hours, with accommodations made for employees that need more frequent breaks. The state might take a similar approach with the new iteration of the law requiring paid breaks.

COVID-19 SICK LEAVE: Finally, New York’s COVID-19 leave law will be deemed repealed as of July 31, 2025. The State’s COVID-19 leave law presently requires employers to provide employees up to fourteen (14) days of paid leave, separate from other leave accruals, when they are subject to a mandatory or precautionary order of quarantine or isolation due to COVID-19. Although employees with COVID-19 may still qualify for leave under the State’s sick leave law after July 31, 2025, New York employers will no longer be required to provide a separate COVID-19 leave bank after that date.

New York employers should review and revise their existing leave and break policies to ensure compliance with these new requirements by the effective dates.

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[1] The State’s sick leave law currently requires: (i) employers with one hundred (100) or more employees to provide fifty-six (56) hours of paid sick leave per year; (ii) employers with between five (5) and ninety-nine (99) employees to provide forty (40) hours of paid sick leave per year; and (iii) employers with less than five (5) employees to provide forty (40) hours of unpaid sick leave per year, unless the employer has a net income of greater than $1 million per year, in which case, such sick leave must be paid.

The following Gibson Dunn lawyers prepared this update: Jason C. Schwartz, Katherine V.A. Smith, Harris M. Mufson, Danielle J. Moss, Alex Downie, and Andrew Webb*.

Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding these developments. To learn more about these issues, please contact the Gibson Dunn lawyer with whom you usually work, any member of the firm’s Labor and Employment practice group, or the following authors:

Harris M. Mufson – Partner, New York (+1 212.351.3805, [email protected])

Danielle J. Moss – Partner, New York (+1 212.351.6338, [email protected])

Jason C. Schwartz – Co-Chair, Washington, D.C. (+1 202.955.8242, [email protected])

Katherine V.A. Smith – Co-Chair, Los Angeles (+1 213.229.7107, [email protected])

*Andrew Webb, a recent law graduate in the New York office, is not admitted to practice law.

This near categorical ban on non-compete agreements marks an abrupt departure from existing law in many jurisdictions and has drawn almost immediate legal challenges.

On April 23, 2024, the FTC voted 3-2 to adopt a sweeping final rule banning the use of non-compete agreements nationwide, impacting 30 million workers by the FTC’s own estimates.[1] The final rule is presently set to become effective 120 days after its publication in the Federal Register, which is expected to occur in the next two weeks, with the possibility that the effective date may be delayed or enjoined in light of the pending litigation challenging the rule. It prohibits any new non-compete agreements and renders existing non-compete agreements with workers unenforceable, with limited exceptions. In addition to banning new non-competes, the rule requires employers to provide workers with notice that their existing non-compete agreements are no longer enforceable, but employers are not required to formally rescind the agreements.[2] Employers should be aware that the rule defines “worker” broadly, encompassing persons working as employees, independent contractors, interns, externs, volunteers, and sole proprietors.[3]

This near categorical ban on the non-compete agreements is an abrupt contrast from a regime in which these agreements had been recognized to have potential procompetitive value and therefore were reviewed for reasonableness. It also marks a sharp departure from the state law in many jurisdictions.

I. Narrow Exceptions

Notably, the final rule does not invalidate existing non-compete agreements with senior executives, one of the few changes from the proposed rule.[4] A “senior executive” is defined as a worker who: (1) earns more than $151,164 annually; and (2) is in a “policy-making position,” which is defined narrowly to mean “a business entity’s president, chief executive officer or the equivalent, any other officer of a business entity who has policy-making authority, or any other natural person who has policy-making authority for the business entity similar to an officer with policy-making authority.” The final rule also does not bar causes of action related to a non-compete that accrued prior to the effective date of the final rule. And enforcing or attempting to enforce a non-compete is not considered an unfair method of competition where an employer has a good-faith basis to believe the final rule is inapplicable.

The final rule’s general prohibition on non-competes is also not applicable to non-competes entered pursuant to the sale of a business. While the Commission had earlier proposed an exception for certain non-competes between the seller and the buyer of a business that applied only to a substantial owner, member, or partner, defined as an owner, member, or partner with at least 25% ownership interest in the business entity being sold, in response to public comments, the final rule no longer includes the proposed requirement that the restricted party be “a substantial owner of, or substantial member or substantial partner in, the business entity” to fall under the exception.

II. Functional Non-Competes

The final rule defines a “non-compete clause” as “a term or condition of employment that prohibits a worker from, penalizes a worker for, or functions to prevent a worker from (1) seeking or accepting work in the United States with a different person where such work would begin after the conclusion of the employment that includes the term or condition; or (2) operating a business in the United States after the conclusion of the employment that includes the term or condition.” In assessing the impact of the final rule on other kinds of restrictive covenants, the FTC emphasizes three prongs of the “non-compete clause” definition—”prohibit,” “penalize,” and “functions to prevent.” Although the FTC declined to create a categorical prohibition on non-disclosure, non-solicitation, and similar restrictive covenants, it explained that the “functions to prevent” language applies to any term or condition of employment adopted by an employer that is so broad or onerous as to have the same functional effect as a term or condition prohibiting or penalizing a worker from seeking or accepting other work or starting a business after their employment ends.

The FTC explained its view that a “garden-variety NDA,” in which a worker agrees not to disclose certain confidential information to a competitor, would not prevent that worker from seeking or accepting work with a competitor after leaving their job. However, the FTC would consider an NDA that spans such a wide swath of information so as to functionally prevent a worker from seeking or accepting other work to be a “non-compete clause.” Examples of problematic NDAs provided by the final rule include: (1) an agreement barring a worker from disclosing any information “usable in” or relating to the industry in which they work; and (2) an agreement barring a worker from disclosing any information obtained during their employment, including publicly available information.

Non-solicitation agreements and training repayment provisions are subject to the same fact-specific analysis. In particular, the FTC stated that agreements that impose substantial out-of-pocket costs upon workers for departing may effectively prevent them from seeking or accepting other work or starting a business and be functionally deemed a non-compete agreement.

The FTC also clarified that in its view a “garden leave” agreement—where the worker is “still employed and receiving the same total annual compensation and benefits on a pro rata basis—is not a non-compete clause,” since such an agreement does not restrict the worker post-employment. For the same reason, the FTC explained that the final rule is not meant to prohibit agreements under which a worker who does not meet a condition foregoes a particular aspect of their expected compensation, which would seemingly remove retention bonuses from the rule’s purview. Similarly, the FTC stated that agreements requiring workers to repay a bonus or forfeit accrued sick leave after leaving a job would not meet the definition of “non-compete clause” under the final rule, so long as they do not penalize or function to prevent a worker from seeking or accepting work or operating a business after the worker leaves the job.

III. Republican Dissents

Yesterday’s Special Open Commission Meeting marked the first for incoming Republican Commissioners Melissa Holyoak and Andrew Ferguson, who both dissented on constitutional and statutory grounds, among other reasons. Although their written dissents are not yet available, they stated in oral remarks[5] that the final rule exceeds the FTC’s authority and is barred by the major questions doctrine because Congress did not authorize the FTC to promulgate legislative rules (much less rules of such sweeping consequence) through either Section 6(g) or Section 5 of the FTC Act. According to Commissioner Ferguson, the FTC majority relies on “oblique or elliptical language that cannot justify the redistribution of half a trillion dollars of wealth within the general economy by regulatory fiat.” Commissioner Ferguson further stated the Rule is (1) unlawful under the non-delegation doctrine, and (2) arbitrary and capricious under the Administrative Procedure Act because the evidence on which the agency relies cannot justify the nationwide ban of non-competes irrespective of their terms, conditions, and particular effects.

IV. Immediate Legal Challenges

Within minutes of the vote, the final rule was the subject of a legal challenge filed by Gibson Dunn in the Northern District of Texas. Consistent with the dissenting views of Commissioners Holyoak and Ferguson, Gibson Dunn’s complaint argues that the FTC lacks the statutory authority to issue the rule, that any such grant of authority would be an unconstitutional delegation of legislative power, and that the FTC is unconstitutionally structured. The U.S. Chamber of Commerce also filed a lawsuit today. These cases raise the substantial questions surrounding the FTC’s authority to promulgate rules in this area and whether the agency’s rulemaking complied with the Administrative Procedure Act.

V. Employer Considerations

The final rule is presently set to become effective 120 days after its publication in the Federal Register. Given the pending litigation challenging the rule, it is possible that this effective date may be delayed or enjoined, and that the rule may ultimately be invalidated and never take effect. Accordingly, employers have, at a minimum, several months before the rule takes effect and may find it appropriate to watch how the pending legal challenges develop. Notwithstanding that uncertainty, however, businesses subject to the final rule[6] should consider using this time to: (1) review their existing non-compete agreements and be prepared to provide the required notice to non-senior executive workers, in accordance with the rule’s requirements, if and when necessary; (2) likewise, be prepared if necessary to amend existing antitrust compliance programs to provide guidance to avoid violating the rule; (3) consult with outside counsel; and (4) carefully consider the potential impact on future mergers and acquisitions, as the Hart-Scott-Rodino Act rules proposed by the FTC last year require disclosure of transaction-related agreements (including non-competes).

Gibson Dunn attorneys are closely monitoring these developments and available to discuss these issues as applied to your particular business.

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[1] The text of the FTC’s “Non-Compete Clause Rule” is available here.

[2] The rule includes model language that satisfies this notice requirement.

[3] The definition also includes persons working for a franchisee or franchisor but does not extend to a “franchisee” in the context of a franchisee-franchisor relationship.

[4] The FTC estimates that fewer than 0.75% of workers will qualify as senior executives according to the rule.

[5] A recording of the Special Open Commission Meeting is available here.

[6] The FTC stated that the “final rule applies to the full scope” of its jurisdiction, which it stated would exclude many non-profits. However, the preamble makes clear that the FTC will not treat an organization’s tax-exempt status as dispositive for purposes of evaluating its authority. Section 5 of the FTC Act also does not apply to the following entities: banks, savings and loan institutions, federal credit unions, common carriers, air carriers, and persons and businesses subject to the Packers and Stockyards Act.

The following Gibson Dunn lawyers prepared this update: Karl Nelson, Svetlana Gans, Andrew Kilberg, Chris Wilson, Claire Piepenburg, and Emma Li.

Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding the issues discussed in this update. Please contact the Gibson Dunn lawyer with whom you usually work, the authors, any leader or member of the firm’s Labor and Employment, Administrative Law and Regulatory, or Antitrust and Competition practice groups, or the following:

Labor and Employment:
Andrew G.I. Kilberg – Partner, Washington, D.C. (+1 202.887.3759, [email protected])
Karl G. Nelson – Partner, Dallas (+1 214.698.3203, [email protected])
Jason C. Schwartz – Co-Chair, Washington, D.C. (+1 202.955.8242, [email protected])
Katherine V.A. Smith – Co-Chair, Los Angeles (+1 213.229.7107, [email protected])

Administrative Law and Regulatory:
Eugene Scalia – Co-Chair, Washington, D.C. (+1 202.955.8673, [email protected])
Helgi C. Walker – Co-Chair, Washington, D.C. (+1 202.887.3599, [email protected])

Antitrust and Competition:
Rachel S. Brass – Co-Chair, San Francisco (+1 415.393.8293, [email protected])
Svetlana S. Gans – Partner, Washington, D.C. (+1 202.955.8657, [email protected])
Cynthia Richman – Co-Chair, Washington, D.C. (+1 202.955.8234, [email protected])
Stephen Weissman – Co-Chair, Washington, D.C. (+1 202.955.8678, [email protected])
Chris Wilson – Partner, Washington, D.C. (+1 202.955.8520, [email protected])

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Gibson Dunn’s Workplace DEI Task Force aims to help our clients develop creative, practical, and lawful approaches to accomplish their DEI objectives following the Supreme Court’s decision in SFFA v. Harvard. Prior issues of our DEI Task Force Update can be found in our DEI Resource Center. Should you have questions about developments in this space or about your own DEI programs, please do not hesitate to reach out to any member of our DEI Task Force or the authors of this Update (listed below).

Key Developments:

On April 17, 2024, the Supreme Court held in Muldrow v. City of St. Louis, No. 22-193, that plaintiffs who challenge employers’ job transfer decisions as discriminatory under Title VII do not need to demonstrate that the harm suffered was “significant,” “material,” or “serious.” But plaintiffs must still show “some harm respecting an identifiable term or condition of employment,” such as hiring, firing, or transferring employees. A plaintiff also must show that her employer acted with discriminatory intent and that the transfer was based on a characteristic protected under Title VII. The Court emphasized that the decision does not reach retaliation or hostile work environment claims. The Court did not address how the decision might impact corporate DEI programs. For a more detailed discussion of this decision, see our April 17 Client Alert .

On April 12, 2024, Arkansas teachers and students, along with the Arkansas State Conference of the NAACP (NAACP-AR), filed a complaint against Governor Sarah Huckabee Sanders, challenging the constitutionality of Section 16 of Arkansas’s Literacy, Empowerment, Accountability, Readiness, Networking and School Safety Act (the “LEARNS Act”) and seeking to enjoin its enforcement. In Walls v. Sanders, No. 4:24-cv-002 (E.D. Ark. April 12, 2024), the plaintiffs allege that the LEARNS Act “expressly bans” the teaching of “Critical Race Theory” (which the Act refers to as “forced indoctrination”) in violation of their First Amendment and Fourteenth Amendment rights. After the Act was passed, Arkansas Secretary of Education Jacob Oliva revoked state approval for the AP African American Studies course, alleging that the course and educational materials violated Section 16. The plaintiffs allege that Section 16 chills speech, impermissibly regulates speech based on viewpoint discrimination, and violates the equal protection guarantees of the Fourteenth Amendment because it was motivated by racial animus and “created, in part, to target Black students and educators on the basis of race.” On April 17, 2024, the court denied the plaintiffs’ request for expedited briefing but scheduled a preliminary injunction hearing for April 30, 2024.

April continues to be a busy month for state legislation on both sides of the DEI debate. On April 22, 2024, Tennessee Governor Bill Lee signed H.B. 2100—a “social credit score” bill—into law. The bill limits factors that insurers and financial institutions can consider in decisions about the provision or denial of services. Specifically, the bill prohibits insurers and financial institutions from denying services or otherwise discriminating against persons for failure to satisfy ESG standards, corporate composition benchmarks, or compliance with DEI training policies. Meanwhile, on April 8, 2024, Virginia Governor Glenn Youngkin signed H.B. 1452 into law. This new law takes effect on July 1, 2024, and will require state agency heads to maintain comprehensive diversity, equity, and inclusion strategic plans. Strategic plans will need to integrate DEI goals into each agency’s mission and detail best practices for addressing equal opportunity barriers and promoting equity in operational activities including pay, hiring, and leadership. Agencies will be required to submit annual reports to enable the Governor and the General Assembly to monitor progress.

Media Coverage and Commentary:

Below is a selection of recent media coverage and commentary on these issues:

- The Wall Street Journal, “Diversity goals are disappearing from companies’ annual reports” (April 21): The Wall Street Journal’s Ben Glickman and Lauren Weber report on shifts in how companies are discussing DEI in their annual reports as a result of increased scrutiny of DEI initiatives. Glickman and Weber conclude that “[d]ozens of companies [have] altered descriptions of diversity, equity and inclusion initiatives in their annual reports to investors,” citing several examples. Glickman and Weber note that these shifts do not necessarily mean companies are abandoning their commitment to DEI, just that they are choosing to be less public about their DEI programs. Ivy Feng, an accounting professor at the University of Wisconsin, observed, “What gets disclosed gets managed. So if they don’t say anything, it’s more difficult for outsiders to find out what’s really going on.” Jason Schwartz, Gibson Dunn partner and co-head of the firm’s Labor and Employment practice group, concludes that many companies are just trying to determine what is lawful: “Forget about any ideological agenda. [Companies are] just trying to figure out, how do I follow the law? You don’t want to overcommit or undercommit or misdescribe where you’ll eventually land.”
The Washington Post, “DEI ‘lives on’ after Supreme Court ruling, but critics see an opening” (April 19): Julian Mark of The Washington Post writes on the potential impact on DEI programs following the Supreme Court’s decision in Muldrow v. City of St. Louis, Missouri. Mark notes the divergence of views on the scope of the Court’s ruling. Some practitioners interpret Muldrow narrowly. But EEOC Commissioner Andrea Lucas contends that DEI programs are now more susceptible to legal challenges than ever. Lucas asserts leadership development or training programs that are restricted to certain racial groups are now “high risk,” as are employers’ efforts to foster diverse hiring slates, opining that “the ‘some harm’ standard will [not] be the saving grace for a DEI program.”
Bloomberg Law, “The Supreme Court Just Complicated Employer DEI Programs” (April 18): Writing for Bloomberg Law, Simon Foxman examines the Supreme Court’s ruling in Muldrow v. City of St. Louis, Missouri, in which the Supreme Court unanimously held that an employee could bring suit under Title VII based on her reassignment to a position of the same pay but less favorable workdays and other benefits. The Court explained that an employee only has to suffer “‘some harm’ under the terms of their employment,” but that harm “doesn’t need to be ‘material,’ ‘substantial’ or ‘serious.’” Foxman reports that racial justice groups like the Legal Defense Fund celebrated the decision but expressed fears that “opponents of DEI programs likely will see this as an opening to launch new attacks on diversity programs.”
- The New York Times, “What Researchers Discovered When They Sent 80,000 Fake Résumés to U.S. Jobs” (April 8): Claire Cain Miller and Josh Katz of The New York Times report on a social experiment performed by a group of economists on roughly 100 of the largest companies in the country. The economists submitted thousands of fake “résumés with equivalent qualifications but different personal characteristics,” changing the name on each application to suggest whether an applicant was “white or Black, and male or female.” Miller and Katz report that the results were striking, with one company contacting “presumed white applicants 43 percent more often” than minority applicants with the same credentials. The study identifies other trends, including potential biases against older workers, women, and LGBTQ individuals. Miller and Katz note the study found various measures companies use in an effort to reduce discrimination, such has employing a chief diversity officer, offering diversity training, or having a diverse board, had no effect on the outcome of their experiment. But there was one thing all the companies who exhibited the least bias had in common: a centralized human resources function.
The New York Times, “With State Bans on D.E.I., Some Universities Find a Workaround: Rebranding” (April 12): Writing for The New York Times, Stephanie Saul reports on what she terms the “rebranding” many state universities have undertaken in the wake of legislation targeting DEI programs in higher education. Saul writes that, as an example, the University of Tennessee’s “campus D.E.I. program is now called the Division of Access and Engagement,” and at LSU, what was once the Division of Inclusion, Civil Rights and Title IX is now called the Division of Engagement, Civil Rights and Title IX. Saul states that some, like LSU VP of Marketing Todd Woodward, celebrate this “rebranding” as an effort to retain the impact of the departments and avoid job cuts. Woodward explained that the switch from “inclusion” to “engagement” better signifies the “university’s strategic plan.” But others, like Professor David Bray at Kennesaw State University, express skepticism, saying moves like this are little more than “the same lipstick on the ideological pig.”
- AP News, “Texas diversity, equity and inclusion ban has led to more than 100 job cuts at state universities” (April 13): Writing for AP News, Acacia Coronado examines the effect that SB17, Texas’ ban on DEI initiatives, has had in higher education. According to Coronado, the bill, which prohibits training and activities that reference race, color, ethnicity, gender identity, or sexual orientation, “has led to more than 100 job cuts across university campuses in Texas.” SB17 does not “apply to academic course instruction and scholarly research” positions, but Professor Aquasia Shaw, the only person of color in the Kinesiology Department at the University of Texas at Austin, suspects SB17 was responsible for the University’s decision not to renew her contract.
The Hill, “Republican states urge Congress to reject DEI legislation” (April 16): The Hill’s Cheyanne Daniels reports on Representatives Ayanna Pressley (D-MA) and Jamie Raskin’s (D-MD) introduction of the Federal Government Equity Improvement and Equity in Agency Planning Acts in the wake of “attempts to limit DEI programs . . . around the country.” These bills are designed to encourage federal agencies to enact policies focused on “providing equal opportunity for all, including people of color, women, rural communities and individuals with disabilities.” The legislation has not been welcomed by all, with Republican West Virginia Attorney General Patrick Morrisey penning a letter to Raskin and Representative James Comer (R-KY), Chairman of the Committee on Oversight and Accountability, declaring the bills “divisive.”
Law360, “Anti-DEI Complaints Filed With EEOC Carry No Legal Weight” (April 15): In an op-ed for Law360, Rutgers law professor and former EEOC counsel David Lopez asserts that the series of EEOC complaints conservative organizations like America First Legal Foundation (“AFL”) are filing against companies “carry no legal weight.” He describes these complaints as mere attempts to “weaponize the [public’s] lack of knowledge as a means of bullying employers into retreating from core values.” He encourages employers “not [to] be intimidated” by AFL’s tactics but to continue “develop[ing] workplace practices focused on rooting out entrenched and ongoing discriminatory practices against Black people, women and others in the workplace.”

Case Updates:

Below is a list of updates in new and pending cases:

1. Contracting claims under Section 1981, the U.S. Constitution, and other statutes:

Suhr v. Dietrich, No. 2:23-cv-01697-SCD (E.D. Wis. 2023): On December 19, 2023, a dues-paying member of the Wisconsin Bar filed a complaint against the Bar over its “Diversity Clerkship Program,” a summer hiring program for first-year law students. The program’s application requirements had previously stated that eligibility was based on membership in a minority group. After SFFA v. Harvard, the eligibility requirements were changed to include students with “backgrounds that have been historically excluded from the legal field.” The plaintiff claims that the Bar’s program is unconstitutional even with the new race-neutral language, because, in practice, the selection process is still based on the applicant’s race or gender. The plaintiff also alleges that the Bar’s diversity program constitutes compelled speech and compelled association in violation of the First Amendment.
- Latest update: Under a partial settlement agreement, the Bar agreed to “make clear that the Diversity Clerkship Program is open to all first-year law students.” In exchange, the plaintiff will drop his claims about the clerkship program and file an amended lawsuit challenging only the mandatory dues and how they are spent.
Do No Harm v. Pfizer, No. 1:22-cv-07908 (S.D.N.Y. 2022), aff’d, No. 23-15 (2d Cir. 2023): On September 15, 2022, conservative medical advocacy organization Do No Harm (DNH) filed suit against Pfizer, alleging that Pfizer discriminated against white and Asian students by excluding them from its Breakthrough Fellowship Program. To be eligible for the program, applicants must “[m]eet the program’s goals of increasing the pipeline for Black/African American, Latino/Hispanic and Native Americans.” DNH alleged that the criteria violate Section 1981, Title VI of the Civil Rights Act, the Affordable Care Act, and multiple New York state laws banning racially discriminatory internships, training programs, and employment. In December 2022, the Southern District of New York dismissed the case for lack of subject matter jurisdiction, finding that DNH did not have standing because it did not identify at least one member by name. On March 6, 2024, the United States Court of Appeals for the Second Circuit affirmed the district court’s dismissal, holding that an organization must name at least one affected member to establish Article III standing under the “clear language” of Supreme Court precedent. On March 20, 2024, DNH petitioned the court for a rehearing en banc.
- Latest update: On April 3, 2024, four amicus briefs were filed in support of DNH’s petition for a rehearing en banc. Briefs were filed by: (1) Speech First, an organization “committed to restoring freedom of speech on college campuses,” (2) Pacific Legal Foundation, an organization which “defend[s] individual liberty and limited government,” (3) Young America’s Foundation, which supports “individual freedom, a strong national defense, free enterprise, and traditional values,” The Manhattan Institute, “whose mission is to develop and disseminate new ideas that foster economic choice and individual responsibility,” and Southeastern Legal Foundation, which is “dedicated to defending liberty and Rebuilding the American Republic,” and (4) the American Alliance for Equal Rights, which is “dedicated to challenging distinctions and preferences made on the basis of race and ethnicity.” The four briefs argue that prohibiting anonymity in sensitive cases with “vulnerable plaintiffs” violates the First Amendment and negates the purpose of associational standing in the public interest litigation context.

2. Employment discrimination and related claims:

Bowen v. City and County of Denver, No. 1:24-cv-00917 (D. Colo. 2024): On April 5, 2024, Joseph Bowen, a sergeant in the Denver Police Department, sued the Department and the City and County of Denver alleging that the Department’s 30×30 initiative, which pledges that 30% of all police recruits will be women by 2030, caused him to lose out on a promotion to captain to three less-qualified women. Bowen alleges that the Department discriminated against him on the basis of his sex, in violation of Title VII of the Civil Rights Act of 1964.
- Latest update: A scheduling conference is scheduled for June 25, 2024.
Renault v. Adidas, No. 2024-CP-420-1549 (Court of Common Pleas, South Carolina, April 15, 2024): On April 15, 2024, pro se plaintiff Peter Renault sued Adidas in South Carolina state court for employment discrimination after he was rejected for a supply chain analyst position. Renault alleges that he was qualified but not hired due to the company’s DEI policies.
- Latest update: The docket does not reflect that Adidas has been served.

3. Challenges to agency rules, laws, and regulatory decisions:

Alliance for Fair Board Recruitment v. SEC, No. 21-60626 (5th Cir. 2021): On October 18, 2023, a unanimous Fifth Circuit panel rejected petitioners’ constitutional and statutory challenges to Nasdaq’s Board Diversity Rules and the SEC’s approval of those rules. Gibson Dunn represents Nasdaq, which intervened to defend its rules. Petitioners sought a rehearing en banc.
- Latest update: On March 21, 2024, petitioners’ briefs were filed. On March 28, 2024, Arizona, Alabama, Alaska, Arkansas, Florida, Indiana, Kansas, Kentucky, Louisiana, Mississippi, Missouri, Montana, Nebraska, Oklahoma, South Carolina, Texas, and Utah filed an amicus brief in support of petitioners, arguing that Nasdaq’s rules violate the Equal Protection Clause and states’ rights. Nasdaq and the SEC will file their briefs on April 29, and oral argument is scheduled for May 14.

4. Actions against educational institutions:

Elliott v. Antioch University, No. 2:24-cv-502 (W.D. Wash.): On April 15, 2024, the plaintiff, a white woman, sued Antioch University for suspending her account after she criticized the school’s decision to have students sign a “civility pledge” committing to anti-racism. Elliott made a series of public videos and online posts expressing her criticisms of the policy changes at Antioch and alleges that when she refused to sign the civility pledge, she was excluded from courses necessary for her to graduate with her degree. Elliott sued Antioch under Title VI of the Civil Rights Act, breach of contract, and defamation.
- Latest update: The docket does not reflect that Antioch University has been served.

The following Gibson Dunn attorneys assisted in preparing this client update: Jason Schwartz, Mylan Denerstein, Blaine Evanson, Molly Senger, Zakiyyah Salim-Williams, Matt Gregory, Zoë Klein, Mollie Reiss, Alana Bevan, Marquan Robertson, Janice Jiang, Elizabeth Penava, Skylar Drefcinski, Mary Lindsay Krebs, David Offit, Lauren Meyer, Kameron Mitchell, Maura Carey, and Jayee Malwankar.

Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding these developments. Please contact the Gibson Dunn lawyer with whom you usually work, any member of the firm’s Labor and Employment practice group, or the following practice leaders and authors:

Jason C. Schwartz – Partner & Co-Chair, Labor & Employment Group
Washington, D.C. (+1 202-955-8242, [email protected])

Katherine V.A. Smith – Partner & Co-Chair, Labor & Employment Group
Los Angeles (+1 213-229-7107, [email protected])

Mylan L. Denerstein – Partner & Co-Chair, Public Policy Group
New York (+1 212-351-3850, [email protected])

Zakiyyah T. Salim-Williams – Partner & Chief Diversity Officer
Washington, D.C. (+1 202-955-8503, [email protected])

Molly T. Senger – Partner, Labor & Employment Group
Washington, D.C. (+1 202-955-8571, [email protected])

Blaine H. Evanson – Partner, Appellate & Constitutional Law Group
Orange County (+1 949-451-3805, [email protected])

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From the Derivatives Practice Group: The Bank of Israel announced that it will cease publication of Telbor next year and four new directors joined ISDA’s board this week.

New Developments

Chairman Behnam Announces CFTC’s First DEIA Strategic Plan. On April 18, CFTC Chairman Rostin Behnam announced the agency’s first Strategic Plan to Advance Diversity, Equity, Inclusion, and Accessibility (DEIA Plan). Chairman Behnam said that the two-year DEIA Plan represents a critical step forward in aligning the CFTC with a collective DEIA vision that not only provides genuine support for team members, but also ensures the CFTC is a source of future leaders. The CFTC designed the DEIA Plan to align with its 2022-2026 Strategic Plan and to focus on the following six goals: Inclusive Workplaces, Partnerships and Recruitment, Paid Internships, Professional Development and Advancement, Data, and Equity in Procurement and Customer Education and Outreach. Each goal includes objectives and strategies/actions to achieve the goal, and identifies the agency division(s)/office(s) that will lead and contribute to the implementation of the goal. The CFTC said that an internal DEIA Executive Council will support and guide the implementation of the DEIA Plan. [NEW]
CFTC Appoints Christopher Skinner as Inspector General. On April 10, the Commodity Futures Trading Commission announced that Christopher L. Skinner has been appointed CFTC’s Inspector General (IG). The CFTC stated that Mr. Skinner brings 15 years of IG experience, including leading and managing Offices of Inspector’s General (OIG), and conducting investigations, inspections, and audits. Mr. Skinner comes to the CFTC from the Federal Election Commission (FEC) where he served as IG since 2019.

New Developments Outside the U.S.

Telbor Committee to Permanently Cease Publication of Telbor. On April 16, the Telbor Committee of the Bank of Israel decided that the publication of all tenor of Telbor will permanently cease following a final publication on June 30, 2025. The announcement constitutes an “Index Cessation Event” under the 2021 ISDA Interest Rate Derivatives Definitions and the November 2022 Benchmark Module of the ISDA 2021 Fallbacks Protocol. In February 2022, the Telbor Committee decided that the SHIR (Shekel overnight Interest Rate) rate would eventually replace the Telbor interest rate in shekel interest rate derivative transactions. The Bank of Israel said that the decision to switch to the SHIR rate is in accordance with the decisions reached in major economies worldwide, according to which IBOR type interest rates will be replaced by risk-free overnight interest rates. ISDA published cessation guidance for parties affected by the announcement. [NEW]
New Report Sheds Light on Quality and Use of Regulatory Data Across EU. On April 11, ESMA published the fourth edition of its Report on the Quality and Use of Data aiming to provide transparency on how the data collected under different regulations is used systematically by authorities in the EU, and clarifying the actions taken to ensure data quality. The report provides details on how National Competent Authorities, the European Central Bank, the European Systemic Risk Board and ESMA use the data that is collected through the year from different legislation requirements, including datasets from European Market Infrastructure Regulation, Securities Financing Transactions Regulation, Markets in Financial Instruments Directive, Securitization Regulation, Alternative Investment Fund Managers Directive and Money Market Funds Regulation.

New Industry-Led Developments

Four Directors Join ISDA Board. On April 18, ISDA announced that four directors have joined its Board, three directors were re-appointed, and 10 others have been re-elected at ISDA’s Annual General Meeting in Tokyo. The new directors are: Erik Tim Mueller, Chief Executive Officer, Eurex Clearing AG; Jared Noering, Managing Director, Head of Fixed Income Trading, NatWest Markets; Brad Tully, Managing Director and Global Head of Corporate Derivatives and Private Side Sales for J.P. Morgan; and Jan Mark van Mill, Managing Director of Multi Asset, APG Asset Management. [NEW]
ISDA Future Leaders in Derivatives Publishes Generative Artificial Intelligence Whitepaper. On April 17, ISDA published a whitepaper from ISDA Future Leaders in Derivatives (IFLD), its professional development program for emerging leaders in the derivatives market. The whitepaper, GenAI in the Derivatives Market: a Future Perspective, was developed by the third cohort of IFLD participants, who began working together in October 2023. According to ISDA, the 38 individuals in the group represent buy- and sell-side institutions, law firms, and service providers from around the world. After being selected for the IFLD program, they were asked to engage with stakeholders, develop positions, and produce a whitepaper on the potential use of generative artificial intelligence (genAI) in the over-the-counter derivatives market. The participants were also given access to ISDA’s training materials, resources, and staff expertise to support the project and their own professional development. ISDA said that, drawing on industry expertise and academic research, the whitepaper identifies a range of potential use cases for genAI in the derivatives market, including document creation, market insight, and risk profiling. ISDA also indicated that it explores regulatory issues in key jurisdictions and addresses the challenges and risks associated with the use of genAI. The paper concludes with a set of recommendations for stakeholders, including investing in talent development, fostering collaboration and knowledge sharing with technology providers, prioritizing ethical AI principles and engaging with policymakers to promote an appropriate regulatory framework. [NEW]
ISDA Publishes Research Paper on Interest Rate Derivatives, Benchmark Rates and Development Financial Markets in EMDEs. On April 17, ISDA published a research paper in which it outlines the role of interest rate derivatives (IRDs) in supporting the development of financial markets in emerging markets and developing economies (EMDEs). It also examines the significance of reliable, robust interest rate (IR) benchmarks. ISDA indicated that the paper draws valuable lessons from the transition from LIBOR to overnight risk-free rates in advanced economies and applies those insights to the context of EMDEs. Through case studies, ISDA attempts to show how various EMDE jurisdictions have successfully adopted and implemented more robust and transparent IR benchmarks. [NEW]
ISDA Extends Digital Regulatory Reporting Initiative to New Jurisdictions. On April 17, ISDA announced that it is extending its Digital Regulatory Reporting (DRR) initiative to several additional jurisdictions in an effort to enable firms to implement changes to regulatory reporting requirements. The DRR is being extended to cover rule amendments being implemented under the UK European Market Infrastructure Regulation and by the Australian Securities and Investments Commission and the Monetary Authority of Singapore. Those rule changes are due to be implemented in the UK on September 30, 2024, and October 21, 2024 in Australia and Singapore. The DRR code for all three sets of rules is currently available for market participants to review and test. ISDA said that the DRR will be further extended to cover rule changes in Canada and Hong Kong, both due in 2025, and the DRR for the CFTC rules will also be updated to include further anticipated updates, currently under consultation at the commission. Firms can either use the DRR as the basis for implementation or to validate an independent interpretation of the rules. [NEW]
ISDA Publishes Margin Survey. On April 16, ISDA published its latest margin survey, which shows that $1.4 trillion of initial margin (IM) and variation margin (VM) was collected by 32 leading derivatives market participants for their non-cleared derivatives exposures at the end of 2023, unchanged from the previous year. The survey also reports the amount of IM posted by all market participants to major central counterparties. [NEW]
ISDA Establishes Suggested Operational Practices for EMIR Refit. On April 16, through a series of discussions held within the ISDA Data and Reporting EMEA Working Group, market participants established and agreed to Suggested Operational Practices (SOP) for over-the-counter derivative reporting in preparation for the commencement of the EMIR Refit regulatory reporting rules on April 29. ISDA said that the SOP matrix was established based on the EMIR Refit validation table, (as published by ESMA), which contains the Regulatory Technical Standards (RTS), the Implementation Technical Standards (ITS) and validation rules. Additional tabs have been added to supplement to SOPs, including product-level SOPs for several of the underlier fields, and listing names of floating rate options. There are also tabs to reflect updates made to the matrix (‘Updates’) and a tab to track questions raised by the ISDA Data and Reporting EMEA Working Group (‘WG Questions’). ISDA indicated that the document will continue to be reviewed and updated as and when required. While the intention of these SOPs is to provide an agreed and standardized market guide for firms to utilize, no firm is legally bound or compelled in any way to follow any determinations made within these EMIR SOPs. [NEW]
ISDA and IIF Respond to BCBS-CPMI-IOSCO Consultation on Margin Transparency. On April 12, ISDA and the Institute of International Finance (IIF) submitted a response to the Basel Committee on Banking Supervision (BCBS), Committee on Payments and Market Infrastructures (CPMI) and International Organization of Securities Commissions (IOSCO) consultation on transparency and responsiveness of initial margin in centrally cleared markets. In their response, the associations expressed support for enhancing transparency on cleared margin for all market participants, which they expect will help with liquidity preparedness and increase resilience of the system, noting it should start with central counterparties (CCPs) making fundamental disclosures about their margin models. In this regard, both associations highlight their support in the response to recommendations one through eight. Regarding recommendation nine, the associations indicated that they are supportive of clients having necessary transparency on clearing member (CM) margin requirements. Regarding recommendation 10, the associations said in the response that they are generally supportive of the principle that CCPs should have visibility into the risk profile of their clearing participants but warned that, in their opinion, the information required under recommendation 10 may raise legal, confidentiality, or competition concerns. Finally, the associations noted that they believe further work should be done on the fundamentals of CCP margin models, for example on the appropriateness of margin periods of risk and the calibration of anti-procyclicality tools, to ensure that margins do not fall too low during low volatility periods. [NEW]
IOSCO Publishes Updated Workplan. On April 12, IOSCO published its updated 2024 Workplan, which directly supports its overall two-year Work Program published on April 5, 2023. The 2024 Workplan announced new workstreams, reflecting increased focus on AI, tokenization and credit default swaps, and additional work on transition plans and green finance. The 2024 Workplan set out priorities under five themes: Protecting Investors, Address New Risks in Sustainability and Fintech, Strengthening Financial Resilience, Supporting Market Effectiveness and Promoting Regulatory Cooperation and Effectiveness. [NEW]
ISDA, AIMA, GFXD Publish Paper on Transition to UPI. On April 9, ISDA, the Alternative Investment Management Association (AIMA) and the Global Foreign Exchange Division (GFXD) of the Global Financial Markets Association published a paper on the transition to unique product identifiers (UPI) as the basis for over-the-counter (OTC) derivatives identification across the Markets in Financial Instruments Regulation (MIFIR) regimes. The paper has been sent to the European Commission, which is working on legislation to address appropriate identification of OTC derivatives under MiFIR.
ISDA Submits Addendum to US Basel III NPR Comment Letter. On April 8, ISDA submitted an addendum to the joint US Basel III ‘endgame’ notice of proposed rulemaking response along with the Securities Industry and Financial Markets Association. The addendum contains a more developed proposal for the index bucketing approach for equity investment in funds and an update to the Fundamental Review of the Trading Book Standardized Approach Quantitative Impact Study numbers. [NEW]
IOSCO Seeks Feedback on the Evolution of Market Structures and Proposed Good Practices. On April 4, the International Organization of Securities Commissions (IOSCO) published a consultation report on Evolution in the Operation, Governance and Business Models of Exchanges: Regulatory Implications and Good Practices. The consultation report analyzes the structural and organizational changes within exchanges, focusing on business models and ownership structures. It highlights a shift towards more competitive, cross-border, and diversified operations as exchanges integrate into larger corporate groups. The consultation report discusses regulatory considerations, particularly in the organization of individual exchanges and exchange groups and the supervision of multinational exchange groups. It addresses potential conflicts of interest arising from matrix structures and the challenges of overseeing individual exchanges within exchange groups. Additionally, it outlines a set of six proposed good practices for regulators to consider in the supervision of exchanges, particularly when they provide multiple services and/or are part of an exchange group. The good practices are also complemented by a non-exclusive list of supervisory tools used by IOSCO jurisdictions to address the issues under discussion, in the form of “toolkits”. While the Consultation Report focuses on equities listing trading venues, the findings are also relevant to other trading venues, including non-listing trading venues and derivatives trading venues. IOSCO is seeking input from market participants on the major trends and risks observed, and the proposed good practices on or before July 3, 2024.
ISDA Submits Response to CFTC Proposed Operational Resilience Rules. On April 1, ISDA submitted comments on the CFTC’s notice of proposed rulemaking on requirements to establish an Operational Resilience Framework for Futures Commission Merchants, Swap Dealers and Major Swap Participants, which was published in the Federal Register on January 24, 2024. ISDA recommended that the CFTC adjust adjust portions of the proposed rules relating to governance, third-party relationships, incident notification and implementation period.

The following Gibson Dunn attorneys assisted in preparing this update: Jeffrey Steiner, Adam Lapidus, Marc Aaron Takagaki, Hayden McGovern, and Karin Thrasher.

Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding these developments. Please contact the Gibson Dunn lawyer with whom you usually work, any member of the firm’s Derivatives practice group, or the following practice leaders and authors:

Jeffrey L. Steiner, Washington, D.C. (202.887.3632, [email protected])

Michael D. Bopp, Washington, D.C. (202.955.8256, [email protected])

Michelle M. Kirschner, London (+44 (0)20 7071.4212, [email protected])

Darius Mehraban, New York (212.351.2428, [email protected])

Jason J. Cabral, New York (212.351.6267, [email protected])

Adam Lapidus – New York (+1 212.351.3869, [email protected])

Stephanie L. Brooker, Washington, D.C. (202.887.3502, [email protected])

Roscoe Jones Jr., Washington, D.C. (202.887.3530, [email protected])

William R. Hallatt, Hong Kong (+852 2214 3836, [email protected])

David P. Burns, Washington, D.C. (202.887.3786, [email protected])

Marc Aaron Takagaki, New York (212.351.4028, [email protected])

Hayden K. McGovern, Dallas (214.698.3142, [email protected])

Karin Thrasher, Washington, D.C. (202.887.3712, [email protected])

We are pleased to provide you with Gibson Dunn’s Accounting Firm Quarterly Update for Q1 2024. The Update is available in .pdf format at the below link, and addresses news on the following topics that we hope are of interest to you:

SEC Voluntarily Stays Climate-Disclosure Rules Pending Appellate Review
PCAOB Issues Proposed Rule on Firm Metric Reporting
SolarWinds Moves to Dismiss SEC Amended Complaint
Alabama Federal Court Declares Corporate Transparency Act Unconstitutional
SEC Adopts Final Rules Relating to SPACs
House Oversight Committee Examines PCAOB Treatment of China-Based Firms
PCAOB Proposes New Rule on False or Misleading Statements Concerning PCAOB Registration and Oversight
PCAOB Reopens Comment Period and Holds Roundtable on NOCLAR Proposal
NCLA Sues PCAOB Claiming Unconstitutional Disciplinary Proceedings
SEC Commissioner Speaks on Materiality and Engagement with the SEC
Illinois Appellate Court Issues Verein Ruling in Legal Malpractice Case
Southern District Rules That PCAOB Inspection Information Is Not “Property”
Other Recent SEC and PCAOB Enforcement and Regulatory Developments

Please let us know if there are topics that you would be interested in seeing covered in future editions of the Update.

Download Full Newsletter

Warmest regards,
Jim Farrell
Monica Loseman
Michael Scanlon

Chairs, Accounting Firm Advisory and Defense Practice Group, Gibson, Dunn & Crutcher LLP

In addition to the practice group chairs, this update was prepared by David Ware, Timothy Zimmerman, Benjamin Belair, Adrienne Tarver, and Monica Limeng Woolley.

Accounting Firm Advisory and Defense Group:

James J. Farrell – Co-Chair, New York (+1 212-351-5326, [email protected])

Monica K. Loseman – Co-Chair, Denver (+1 303-298-5784, [email protected])

Michael Scanlon – Co-Chair, Washington, D.C.(+1 202-887-3668, [email protected])

Gibson Dunn lawyers contributed nearly 170,000 hours to pro bono work in 2023, including assisting asylum seekers, defending the right to protest, and working to fight racial injustice and discrimination. Gibson Dunn’s pro bono platform provides important opportunities for our lawyers to use their considerable talents to serve the communities in which we live and work.

You can read about the important work of our pro bono practice in our 2023 Pro Bono Report.

On April 15, 2024, the U.S. Equal Employment Opportunity Commission (“EEOC”) issued regulations implementing the Pregnant Workers Fairness Act (“PWFA”). The final rule comes after considering extensive comments on the August 2023 draft rulemaking, and will go into effect on June 18, 2024.

The PWFA was signed into law on December 29, 2022. It was intended to fill gaps in the federal and state legal landscape regarding protections for employees affected by pregnancy, childbirth, or related medical conditions. Specifically, the PWFA requires most employers with 15 or more employees to provide reasonable accommodations for a qualified employee’s or applicant’s known limitations related to, affected by, or arising out of pregnancy, childbirth, or related medical conditions, unless the accommodation will cause an undue hardship on the operation of the employer’s business. The requirements apply even when the medical limitations giving rise to the need for an accommodation would not constitute a disability under the Americans with Disabilities Act (“ADA”). (For a detailed analysis of the PWFA’s requirements and differences between the PWFA and existing federal and state law with respect to the accommodation of pregnancy-related medical restrictions, please see our prior alert.)

The PWFA has been in effect since June 27, 2023, but the final rule and accompanying guidance clarify (and in some ways expand) the obligations that were explicit in the statute itself. Below are 10 key takeaways for employers.

10 Key Takeaways for Employers

Certain Identified Accommodations Are Assumed To Be Reasonable: The final rule specifies that the following four pregnancy accommodations are reasonable and should be granted in almost every circumstance without documentation: (1) additional restroom breaks, (2) food and drink breaks, (3) allowing water and other drinks to be kept nearby, and (4) allowing sitting or standing, as necessary. Other possible reasonable accommodations specified by the final rule, although not presumptively required, include job restructuring, modifying work schedules, use of paid leave, and reassignment to a vacant position.
Broad Scope of Covered Conditions: The EEOC’s “non-exhaustive list” of conditions that can give rise to a request for accommodation under the PWFA include: current pregnancy, past pregnancy, lactation (including breastfeeding and pumping), use of birth control, menstruation, postpartum depression, gestational diabetes, preeclampsia, infertility and fertility treatments, endometriosis, miscarriage, stillbirth, and having or choosing not to have an abortion, among other conditions. The breadth of this list has drawn criticism for exceeding the EEOC’s authority—including a public dissent from EEOC Commissioner Andrea Lucas—and the abortion-related aspect in particular has attracted strong attention (and is likely to be litigated).
Applicants/Employees May Need To Be Excused From Essential Functions For Extended Periods: Under the ADA, only a “qualified individual” is entitled to a reasonable accommodation, and a qualified individual is one who can perform the essential functions of the job with or without a reasonable accommodation. By contrast, under the PWFA, an individual is still qualified—and therefore entitled to a reasonable accommodation—even if they cannot perform an essential function of the job now, so long as the limitation is for “a temporary period” and the essential function can be performed in the “near future.”
Employers Cannot Seek Documentation For Certain Requests: The final rule generally prohibits employers from seeking documentation in many circumstances, including: (1) when the limitation and need for a reasonable accommodation is obvious; (2) when the employer already has sufficient information to support a known limitation related to pregnancy; (3) when the request is for one of the four identified reasonable accommodations listed above (i.e., additional restroom breaks; food/drink breaks; beverages near the work station; and sitting or standing as needed); (4) when the request is for a lactation accommodation; and (5) when the accommodation is available without documentation for other employees seeking the same accommodation for non-PWFA reasons.
Informal Requests Can Trigger Statutory Obligations: The guidance accompanying the final rule indicates that verbal conversations with direct supervisors can trigger accommodation obligations, and an employee’s failure to fill out paperwork or speak to the “right” supervisor or designated department is not grounds for either delaying or not providing the accommodation. In other words, the initial request (or statement of need for an accommodation) alone may be sufficient to place the employer on notice and trigger the interactive accommodation process.
Account For Accommodations In Reporting And Metrics: Where a reasonable accommodation is granted (e.g., extra bathroom or water breaks), employers should ensure that technologies are appropriately adjusted to integrate the accommodation. Given that employers are increasingly using technology in the workplace for purposes such as monitoring attendance or tracking productivity and performance, it is important that employers develop policies that contemplate how a reasonable accommodation might impact the accuracy of these tools. For example, the EEOC suggests that calculations on productivity for a given shift may need to be adjusted to account for the additional excused break periods.
Act With Expediency And Consider Interim Accommodations: Although the PWFA’s interactive process largely tracks that of the ADA, the final rule provides that employers must respond to requests under the PWFA with “expediency” and notes that granting an interim accommodation will decrease the likelihood that an unnecessary delay will be found.
Unpaid Leave As A Last Resort: As the PWFA itself makes clear, employers may only require an employee to take leave as a last resort if there are no other reasonable accommodations that can be provided absent undue hardship. The final rule and guidance continue this theme, underscoring that requiring an employee to take unpaid leave or to use their leave after they ask for an accommodation and are awaiting a response could also violate the PWFA if, for example, there is paid work that the employee could have been provided during the interactive process.
Overlap With The ADA: Overlap With The ADA: The final rule acknowledges that there may be circumstances in which a qualified individual may be entitled to an accommodation under either the PWFA or the ADA for a pregnancy-related limitation. The interpretive guidance emphasizes that employees are not required to identify the statute under which they are requesting a reasonable accommodation, so employers should train human resources and management professionals to identify and apply the applicable framework.
Don’t Forget About Applicants: The PWFA prohibits employers from refusing to hire a pregnant applicant because they assume that the applicant will soon need to leave to recover for childbirth. In addition, the interpretive guidance flags that the accommodation process is often more difficult to navigate for applicants than for existing employees. As such, employers should consider training recruiting and onboarding professionals on how to best ensure that an applicant understands the process for requesting a reasonable accommodation during the hiring process. The guidance notes that an applicant may not know enough about, for example, the equipment used by the employer or the application process itself to request an accommodation and the employer may likewise not have enough information to suggest an appropriate accommodation. Accordingly, employers might consider trying to anticipate potential hurdles to accessibility during the hiring process and either remedy the obstacles, if feasible, or provide advanced notice during the early stages of the process so that the applicant can identify any potential issues and request a reasonable accommodation.

The following Gibson Dunn lawyers prepared this update: Jason C. Schwartz, Katherine V.A. Smith, Molly Senger, David Schnitzer, and Emily M. Lamm.

Molly T. Senger – Partner, Labor & Employment
Washington, D.C. (+1 202.955.8571, [email protected])

Jason C. Schwartz – Partner & Co-Chair, Labor & Employment
Washington, D.C. (+1 202.955.8242, [email protected])

Katherine V.A. Smith – Partner & Co-Chair, Labor & Employment
Los Angeles (+1 213.229.7107, [email protected])

Gibson, Dunn & Crutcher LLP has appointed Mark Leverkus as Of Counsel in its Global Finance and Transportation and Space Practice Groups in London.

Mark is recognised by The Legal 500 Rankings in Finance: Transport Finance and Leasing, and has been named a “Rising Star” by Airfinance Journal. He was previously a senior associate in the transportation and space group of Milbank, and he has also been seconded to the legal department of a major UK bank, and to a regional aircraft lessor in Dublin.

Madalyn Miller, Co-chair of the Transportation and Space Group and Partner in the Global Finance Group at Gibson Dunn, said: “Mark’s experience on some of the largest and most complex aviation and space matters make him a great addition to the team and we’re pleased to welcome him to the firm. We are continuing to expand our Global Finance and Transportation and Space Groups and the London office is particularly important as we grow.”

Mark’s hire follows a period of growth for the firm’s Global Finance Practice Group, with other recent arrivals including partners David Irvine, Trinh Chubbock, Kavita Davis and Ben Shorten in London, Jin Hee Kim and Doug Horowitz in New York, Chad Nichols in Houston/New York, Frederick Lee in Dallas, and Darko Adamovic in Paris.

About Mark Leverkus

Mark is an Of Counsel in the London office of Gibson Dunn & Crutcher, and is a member of the firm’s Transportation and Space and Global Finance practice groups. His deals have won numerous awards from transport industry publications and ratings services, and include acting for financiers, arrangers, equity investors, leasing companies, export credit agencies and operators on a range of sophisticated financing, leasing and sale and purchase transactions, involving aircraft, satellites and other moveable equipment. He also has extensive experience in the trading and repackaging of such transactions, as well as in restructurings, disputes, work-outs and repossessions.

About the Gibson Dunn Transportation and Space Practice Group

The Transportation and Space Practice Group serves some of the largest aerospace, defence and satellite companies in the world as well as cutting-edge emerging technology businesses, and the private equity and financial institutions that support and enable their growth. Our aerospace and related technologies lawyers have a wide cross-section market knowledge and offer a strong and longstanding track record serving the traditional aerospace industry and supporting clients in various new and emerging technologies and markets.

About the Gibson Dunn Global Finance Practice Group

The Global Finance Practice Group serves clients around the world, including private equity sponsors, corporate borrowers, major financial institutions, and hedge funds. It includes more than 85 lawyers in our offices worldwide, advising on a broad array of financing transactions. The group works closely with mergers and acquisitions colleagues on acquisition financings and with the firm’s capital markets team. The group also draws extensively on the knowledge and skills of other specialist practice areas, such as environmental, tax, employee benefits, and litigation.

A recent global survey of dealmakers by BCG and Gibson Dunn reveals a striking consensus: conducting environmental, social, and governance (ESG) due diligence is now indispensable for M&A transactions.

Dealmakers say that the insights gained from these assessments are crucial not only for mitigating risks but also for preserving and enhancing deal value. Although Europe has spearheaded more stringent ESG regulations, dealmakers in all surveyed countries, including those in the US, recognize the importance of performing such assessments before closing a deal.

“The Payoffs and Pitfalls of ESG Due Diligence” report was authored by Jens Kengelbach, Jana Herfurth, Dominik Degen, Dirk Oberbracht, Ferdinand Fromholzer, and Jan Schubert. Download the report here.

About the Survey

To understand the prevailing ESG due diligence practices in M&A transactions, BCG and Gibson Dunn surveyed 115 dealmakers in Europe, North and South America (including in the US), and Asia. The dealmakers are in various industries and participate in different deal sizes. (See the exhibit below.) The survey participants, who hold positions ranging from managers to roles in the C-suite, have been personally involved in deals during the past three years and are familiar with ESG due diligence practices. Approximately two-thirds of the respondents are corporate executives, while the others are from private equity or venture capital firms or financial institutions.

Muldrow v. City of St. Louis, No. 22-193 – Decided April 17, 2024

Today, the Supreme Court held that a Title VII plaintiff challenging a forced job transfer as discriminatory must show some harm from the transfer, but need not show that the harm was “significant,” “material,” or “serious.”

“Although an employee must show some harm from a forced transfer to prevail in a Title VII suit, she need not show that the injury satisfies a significance test.”

Justice Kagan, writing for the Court

Background:

The Civil Rights Act of 1964 (“Title VII”) prohibits discrimination in the “terms, conditions, or privileges of employment” because of an individual’s race, religion, sex, or national origin. 42 U.S.C. § 2000e-2(a)(1). In 2017, following a change in leadership in the St. Louis Police Department, Sergeant Jatonya Muldrow was transferred from the Intelligence Division to another unit. The transfer did not affect Muldrow’s regular pay or rank, but she was allegedly “moved from a plainclothes job in a prestigious specialized division giving her substantial responsibility over priority investigations and frequent opportunity to work with police commanders . . . to a uniformed job supervising one district’s patrol officers, in which she was less involved in high-visibility matters and primarily performed administrative work. Her schedule became less regular, often requiring her to work weekends; and she lost her take-home car.” She alleged that no male sergeants were transferred out of the Intelligence Division and that she was replaced with a male sergeant.

Muldrow brought a Title VII claim against the Department, alleging that the transfer was discriminatory because of her sex. The district court and the Eighth Circuit held that the transfer was not an adverse employment action because it did not result in a “materially significant disadvantage” to Muldrow.

Issue:

Does Title VII prohibit discrimination in transfer decisions where the transfer does not result in a “materially significant disadvantage”?

Court’s Holding:

To prevail on a Title VII claim challenging a forced job transfer, a plaintiff must show some harm from the transfer, but need not show that the harm was “significant,” “material,” or “serious.”

What It Means:

The Court’s decision is a win for Title VII plaintiffs who challenge employers’ job-transfer decisions as discriminatory based on race, sex, or some other protected characteristic. According to the six Justices who joined the Court’s decision, “this decision changes the legal standard used in any circuit that has previously required ‘significant,’ ‘material’ or ‘serious’ injury. It lowers the bar Title VII plaintiffs must meet.” Majority op. 7 n.2.
At the same time, the Court noted that there is “reason to doubt that the floodgates will open” for new Title VII claims, and that lower courts “retain multiple ways to dispose of meritless Title VII claims challenging transfer decisions.” Majority op. 9, 10. Most significantly, Title VII plaintiffs must show “some harm respecting an identifiable term or condition of employment,” such as hiring, firing, or transferring employees. Id. at 6. Justice Alito, concurring in the Court’s judgment, predicted that this requirement will mean that “careful lower court judges will mind the words they use but will continue to do pretty much just what they have done for years.” Alito op. 2.
The Court also held that a Title VII plaintiff still must show that her employer acted with discriminatory intent and the internal transfer was made on the basis of a protected characteristic such as race, color, religion, sex, or national origin. Employers should document the business reasons for an internal transfer, which will assist in defeating allegations that a transfer was based on a protected characteristic.
The Court also noted that lower courts “may consider whether a less harmful act is, in a given context, less suggestive of intentional discrimination.” Majority op. 10. Thus, lower courts appear to retain latitude to consider whether the facts alleged in a Title VII complaint are more suggestive of lawful conduct than unlawful conduct, consistent with ordinary pleading standards.
The Court emphasized that its holding did not reach Title VII retaliation claims, for which the “materially adverse” standard still applies. Majority op. 9. Nor did the Court’s decision address hostile work environment claims, or the application of ordinary pleading standards at the motion to dismiss stage.
Finally, the Court did not address how its new standard might apply to corporate Diversity, Equity, and Inclusion (“DEI”) programs. Plaintiffs challenging DEI programs under Title VII must still show that such programs caused them some harm because of a protected characteristic and with respect to a term or condition of employment.

Gibson Dunn represented the Chamber of Commerce of the United States of America, National Federation of Independent Business Small Business Legal Center, Inc., Restaurant Law Center, Inc., and National Retail Federation as Amici Supporting Respondent.

The Court’s opinion is available here.

Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding developments at the Supreme Court. Please feel free to contact the following practice leaders:

Appellate and Constitutional Law Practice

Thomas H. Dupree Jr. +1 202.955.8547 [email protected]	Allyson N. Ho +1 214.698.3233 [email protected]	Julian W. Poon +1 213.229.7758 [email protected]
Lucas C. Townsend +1 202.887.3731 [email protected]	Bradley J. Hamburger +1 213.229.7658 [email protected]	Brad G. Hubbard +1 214.698.3326 [email protected]

Related Practice: Labor and Employment

Jason C. Schwartz
+1 202.955.8242
[email protected]

Katherine V.A. Smith
+1 213.229.7107
[email protected]

Molly T. Senger
+1 202.955.8571
[email protected]

This alert was prepared by associates Cate McCaffrey and Salah Hawkins.

Under the final rule, domestic or foreign “resource extraction issuers” are required to annually disclose information about certain payments made to foreign governments or the U.S. federal government on Form SD.

As previously reported on our Securities Regulation and Corporate Governance Monitor on December 16, 2020 (available here), the Securities and Exchange Commission (the “SEC”) adopted the final rule (available here) requiring additional disclosures by public companies that engage in the commercial development of oil, natural gas or minerals. Under the final rule, domestic or foreign “resource extraction issuers” are required to annually disclose information about certain payments made to foreign governments or the U.S. federal government on Form SD.

The final rule became effective on March 16, 2021 allowing for a two-year transition period after the effective date, with initial Form SD filings due no later than 270 calendar days after the end of an issuer’s next completed fiscal year (e.g., September 26, 2024 for issuers with a December 31, 2023 fiscal year end). While the adopting release specifically referred to September 30, 2024 as the due date for a company with a fiscal year end of December 31, 2023 (274 days after year end), we recommend filing the Form SD by September 26, 2024 to ensure timely compliance with the rule’s deadline. We note that for 2025, 2026 and 2027, the form will be due by September 27 for companies with a December 31 fiscal year end (270 days after the fiscal year end in non-leap years), unless September 27 is a Saturday, Sunday or holiday, in which case the deadline is the next business day.

What kind of information is required to be disclosed?

The final rule implements Section 13(q) of the Securities Exchange Act of 1934, as amended, which requires disclosure of company-specific, project-level information on Form SD (available here and on page 212 of the adopting release), including the:

type and total amount of payments made for each project of the resource extraction issuer relating to the commercial development of oil, natural gas or minerals;
type and total amount of such payments for all projects made to a government, as well as the country in which each such government is located;
currency used and the fiscal year in which the payments were made;
fiscal year in which the payments were made;
business segment of the issuer that made the payments;
specific projects to which such payments relate and the resources that are being developed;
method of extraction used in the project and the major subnational political jurisdiction of each project; and
payments made by a subsidiary or entity controlled by the issuer.

What kinds of activities does the rule apply to, and to whom does the rule apply?

The adopted rule applies to any resource extraction issuer. Resource extraction includes: the commercial development of oil, natural gas or minerals; the exploration, extraction, processing and export of oil, natural gas or minerals; or the acquisition of a license for any such activity.

For example, companies engaged in oil exploration and production operations and the mining industry will generally be subject to the rule.

For resource extraction joint ventures or arrangements where no one party has control, the operator of the venture or arrangement must report all of the payments. Non-operator members are only required to report payments that, as resource extraction issuers, they make directly to governments.

Who is exempt from the rule?

There are exemptions for:

issuers that are unable to comply with the final rule without violating the laws of the jurisdiction where the project is located;
issuers that are unable to comply with the final rule without violating the terms in a contract that became effective before the final rule was adopted;
smaller reporting companies, meaning issuers with a public float of less than $250 million and issuers with annual revenues of less than $100 million for previous year and public float of less than $700 million; and
emerging growth companies, meaning issuers with total annual gross revenues of less than $1,235,000,000 during their most recently completed fiscal year and that have not sold common equity securities under a registration statement.

We note that the final rule includes transitional relief for recently acquired companies that were not previously subject to the rule and for issuers that completed their initial public offering within their last full fiscal year.

What relief is afforded to acquisitions?

Form SD reporting obligations for an acquired entity will depend on whether the acquired entity was subject to Section 13(q) for the fiscal year prior to the acquisition. If the acquired entity was not subject to Section 13(q) (or an alternative reporting regime) for the issuer’s last full fiscal year prior to the acquisition, then the issuer will be required to begin reporting payment information for that acquired entity starting with the Form SD submission for the first full fiscal year immediately following the effective date of the acquisition. The issuer will therefore not be required to provide the (excluded) payment disclosure for the year in which it acquired the entity.

However, this transition period does not apply to acquisitions of entities that were already subject to Section 13(q)’s disclosure requirements. In these instances, disclosure is required for the fiscal year of the acquisition.

By way of example, if an acquisition of an entity that was not subject to Section 13(q) closes in November 2024, assuming a December 31 fiscal year end, then the acquired entity’s payments will be first reported on the Form SD covering fiscal year 2025, which must be filed by September 28, 2026, given that September 27, 2026 is a Sunday. However, if the acquired entity was already subject to Section 13(q), then the acquired entity’s payments will be reported on the Form SD covering fiscal year 2024, which must be filed by September 29, 2025, given that September 27, 2025 is a Saturday.

What about interpretive questions raised by the rule and adopting release but left unanswered?

As resource extraction issuers analyze their disclosure obligations on Form SD, various interpretative questions have arisen. We recommend coordinating discussions on these questions with your peers and industry groups. In addition, Gibson Dunn lawyers are available to assist in addressing any questions that you may have regarding compliance with this new rule and related Form SD filing requirements, as we have been working through questions with our various clients that operate in the oil and gas and mining industries.

Read More

The following Gibson Dunn lawyers assisted in preparing this update: Hillary Holmes, James Moloney, Harrison Tucker, Malakeh Hijazi, and Meghan Sherley.

Gibson Dunn’s lawyers are available to assist with any questions you may have regarding these developments. To learn more, please contact the Gibson Dunn lawyer with whom you usually work in the firm’s Securities Regulation and Corporate Governance practice group, or the following authors:

Hillary H. Holmes – Houston (+1 346.718.6602, [email protected])
James J. Moloney – Orange County (+1 949.451.4343, [email protected])
Harrison Tucker – Houston (+1 346.718.6643, [email protected])

Please also view Gibson Dunn’s Securities Regulation and Corporate Governance Monitor.

Washington, D.C. partner George Hazel and Houston partner Gregg Costa, both former judges, are joined by the Hon. Paul Grimm, a former trial lawyer and judge in the U.S. District Court in Maryland who left the bench in 2022. Judge Grimm is now a professor of law and director of the Bolch Judicial Institute at Duke Law School. He writes extensively and lectures on the topics of evidence and discovery.

The three former judges have a lively discussion about their expectations regarding trial lawyers’ knowledge of evidentiary rules and how it has been affected by less frequent trials; examine how district judges must balance their analytical examination of evidentiary rules without disrupting proceedings; and consider the new challenges for judges and trial lawyers arising from artificial intelligence applications, including deepfakes.

Previous Episode | Next Episode

HOSTS:

Gregg Costa is co-chair of the firm’s Trials Practice Group. Gregg offers clients a unique perspective as a former federal trial and appellate judge. His broad experience—having handled complex civil and criminal matters, at trial and on appeal, as advocate and judge—allows him to offer invaluable skills and strategic insights for both trials and investigations.

George Hazel is a partner in the Washington office of Gibson, Dunn & Crutcher and a member of the firm’s Litigation and White Collar Defense and Investigations Practice Groups. A former federal trial judge and criminal prosecutor, Mr. Hazel brings a broad range of trial experience, having presided over approximately 50 jury trials in federal court and handled 20 jury trials and 30 bench trials as an attorney in federal and state court. Since his return to private practice, Lawdragon has named him one of the “500 Leading Global Litigators” of 2024.

The Climate Change Cases are the first of their kind decided by the Court and constitute a significant legal development requiring considered analysis and reflection.

On 9 April 2024, the Grand Chamber of the European Court of Human Rights (“Court”) rendered its rulings in the “Climate Change Cases”: (i) Verein KlimaSeniorinnen Schweiz and Others v. Switzerland (“KlimaSeniorinnen”), (ii) Carême v. France (“Carême”), and (iii) Duarte Agostinho and Others v. Portugal and 32 Others (the “Portuguese Youth Climate Case”). The Climate Change Cases are the first of their kind decided by the Court. They constitute a significant legal development requiring considered analysis and reflection.

In KlimaSeniorinnen, the Court held that Switzerland had not implemented the measures necessary to fulfil its positive obligations to cut greenhouse gas (“GHG”) emissions in conformity with the requirements under Article 8 (the right to private and family life and the right to a home) of the European Convention on Human Rights (“Convention”). The Convention does not spell out an autonomous right to a clean and healthy environment. However, KlimaSeniorinnen creates what may be seen as a novel right accompanied by a new positive duty on the 46 member States of the Council of Europe (“Convention States”) in the field of climate change. As the Convention is incorporated into the national laws of all Convention States, this finding may directly affect domestic legislation within these jurisdictions.

By contrast, the applications in both Carême and the Portuguese Youth Climate Case were declared inadmissible. In the former, the Court held that the applicant did not have victim status as he no longer had a link to Grande-Synthe, the area of France allegedly affected by the climate crisis where he had served as mayor. In the latter case, the application was dismissed on both jurisdictional grounds and for non-exhaustion of domestic remedies. Below, these decisions are considered separately to KlimaSeniorinnen although it is important to view these rulings as a trilogy of climate cases decided by the Court on the same date.

Overall, the judgment in Klimaseniorinnen, which is the most significant of the three rulings, may have the potential to reverberate on a global level—including exerting a considerable influence on other pending climate change cases both nationally and internationally. Inversely, the findings in Carême and the Portuguese Youth Case are well in line with the existing case law of the Court.

This alert provides an overview of the Court’s findings in each of the three Climate Change Cases and offers our thoughts on some of the potential impacts.

1. KlimaSeniorinnen

(a) Background

The KlimaSeniorinnen proceedings against Switzerland began over nine years ago before the Swiss national courts. The claims were dismissed at all levels (including before the Swiss Federal Supreme Court) on jurisdictional grounds, including for lack of standing (the claims constituting an actio popularis), and were therefore not examined on the merits. Proceedings were then lodged before the Court in 2020.

The applicants (“Applicants”) in the case were: (i) “KlimaSeniorinnen”, a Swiss-registered association established to promote and implement effective climate protection on behalf of its 2,000 female members who all live in Switzerland, and who have an average age of 73 years (the “Association”), and (ii) four individual women who are members of the Association (“Individual Applicants”).

The Applicants argued that they were part of the most vulnerable group affected by climate change owing to their age and sex. They submitted testimony and medical evidence demonstrating, in their view, the negative effects of global warming on their health (including suffering from cardiovascular and respiratory diseases). According to the Applicants, there was no doubt that climate change-induced heatwaves in Switzerland had caused, were causing and would cause further deaths and illnesses to older people and particularly women, in Switzerland.

The Applicants further submitted that Switzerland’s actions to tackle climate change through domestic legislative measures were inadequate, despite being aware of the relevant risks and scientific evidence such as reports by the United Nations Intergovernmental Panel on Climate Change (“IPCC”).

Against this background, the Applicants contended that Switzerland had failed and continued to fail to protect them effectively in violation of Articles 2 (right to life) and 8 of the Convention. Specifically, they argued that the State had a positive duty to put in place the necessary regulatory framework to mitigate climate change, taking into account its particularities and the level of risk. Further, the Applicants complained of a lack of access to a court in violation of Article 6(1) of the Convention, and the lack of an effective remedy in violation of Article 13.

As an evidentiary matter, the Court began by accepting that “anthropogenic climate change exists” and that “the relevant risks are projected to be lower if the rise in temperature is limited to 1.5^oC above pre-industrial levels and if action is taken urgently, and that current global mitigation efforts are not sufficient to meet the latter target”. The Court attached importance to relevant international standards, the decisions of domestic courts and the conclusions of reports and studies by relevant international bodies, such the IPCC (the findings of which had not been called into doubt by Switzerland or intervening States (of which there were a number)). On this basis, the Court examined the admissibility and merits of the complaints.

(b) The Issue of Standing Before the Court

“Victim status”, which is the Court’s threshold standing requirement as set out in Article 34 of the Convention, was one of the salient issues in all three of the Climate Change Cases.

Under Article 34 to the Convention, the Court may receive applications from any person, NGO or group of individuals claiming to be the victim of a violation under the Convention. Therefore, the Court’s well-established case law requires an applicant to establish causation between the alleged violation and the harm allegedly suffered. A complaint to the Court must thus identify a concrete and particularised harm directly or indirectly suffered by the applicant. A so-called actio popularis, in which the applicant only asserts a general public interest in bringing proceedings, is in principle prohibited.

In KlimaSeniorinnen, the Court emphasised that, in accordance with its case law, victim status “cannot be applied in a rigid, mechanical and inflexible way” and that the concept of “victim” must be interpreted in an “evolutive” fashion. The Court considered that in the climate change context, a special approach to victim status was warranted, reasoning that there exists a causal link between State actions or omissions (causing or failing to address climate change) and the harm affecting individuals.

The Court then went on to establish novel tests to be applied to the victim status of applicants in the context of climate change. First, with respect to individual applicants, the Court established the following “Individual Victim Status Criteria”:

(a) the applicant must be subject to a high intensity of exposure to the adverse effects of climate change, that is, the level and severity of (the risk of) adverse consequences of governmental action or inaction affecting the applicant must be significant; and

(b) there must be a pressing need to ensure the applicant’s individual protection, owing to the absence or inadequacy of any reasonable measures to reduce harm.

The Court emphasised that the threshold for fulfilling the Individual Victim Status Criteria “is especially high” and will depend on circumstances such as the prevailing local conditions and individual specificities and vulnerabilities. The Individual Applicants in KlimaSeniorinnen did not, in the Court’s view, meet the high threshold, as it could not be said that they suffered from any critical medical condition whose possible aggravation linked to climate change could not be alleviated through adaptation measures available in Switzerland.

Second, with respect to associations, the Court took an inverse approach, setting out a new and accommodating test for determining their standing in the climate change context—the Court considering that associations play a particularly important function in this context since recourse to such bodies may be “the only mean[s] available” to certain groups of applicants (such as “future generations”, a consideration borrowed from environmental law). Namely, the association must fulfil the following “Associations Victim Status Criteria”:

(a) be lawfully established in the jurisdiction concerned or have standing to act there;

(b) be able to demonstrate that it pursues a dedicated purpose in accordance with its statutory objectives in the defence of the human rights of its members or other affected individuals within the jurisdiction concerned; and

(c) be able to demonstrate that it can be regarded as genuinely qualified and representative to act on behalf of members or other affected individuals within the jurisdiction who are subject to specific threats or adverse effects of climate change on their lives, health or well-being as protected under the Convention.

However, the Court then also went further, holding that the standing of an association to act on behalf of members or other affected individuals will not be subject to a separate requirement of showing that those on whose behalf the case has been brought would themselves have met the Individual Victim Status Criteria.

Applying this novel Criteria to the Association, the Court found that these were met, and noted that this represented “a vehicle of collective recourse aimed at defending the rights and interests of individuals against the threats of climate change in the respondent State”. Therefore, the Court proceeded with examining the merits of the application on this basis.

(c) The Merits: Articles 2 and 8

Assessing the Court’s margin of appreciation (i.e., the deference that it would accord to Convention States) in the climate change context, the Court made a distinction between (i) the State’s commitment to the necessity of combating climate change, and the setting of the requisite aims and objectives in this respect on the one hand, and, on the other, (ii) the choice of means designed to achieve those objectives. As regards (i), the Court explained that the nature and gravity of the threat of climate change, and the general international consensus around the need to reduce GHG emissions through targets, called “for a reduced margin of appreciation”. However, as regards (ii)—the choice of means (including operational choices and policies)—Convention States should be accorded a wide margin of appreciation.

The Court then set out the scope of the Article 2 and 8 Convention rights as considered in previous environmental harm cases before the Court but noted that given the special nature of climate change “the general parameters of the positive obligations must be adapted to th[is] specific context”.

As regards Article 2, the Court referred to the established test that there must be a “real and imminent” risk to life, which may extend to complaints of State action and/or inaction in the context of climate change. In the climate change context, it would be possible to assume this threshold had been met where victim status had been established. That said, the Court examined the Association’s complaint primarily on the basis of Article 8, noting that to a great extent the Court had in its case law applied the same principles to both articles in the context of environmental claims. As such, the Court found that it was unnecessary to examine the applicability of Article 2 in the present case.

Then, for the first time in its history, the Court prescribed the content of the States’ positive obligations under Article 8 in the context of climate change. Significantly, the Court held that Article 8 affords individuals a right to enjoy effective protection by State authorities from serious adverse effects on their life, health, well-being and quality of life arising from the harmful effects and risks caused by climate change. Accordingly, under Article 8, States must “do [their] part” to ensure such protection. As such, States’ primary duty is to adopt, and to effectively apply in practice, “general measures specifying a target timeline for achieving carbon neutrality and the overall remaining carbon budget for the same timeframe”. This includes setting out intermediate GHG emissions reduction targets and pathways (to be updated through due diligence), including by sector, and providing evidence that States have duly complied with the relevant GHG reduction targets. Importantly, States’ positive obligations include acting in “good time and in an appropriate and consistent manner when devising and implementing the relevant legislation and measures”. Unprecedently, the Court then held that States should have “a view to reaching net neutrality within, in principle, the next three decades”.

Furthermore, the Court explained that effective protection of the rights of individuals from serious adverse effects on their life, health, well-being and quality of life requires that the above-noted mitigation measures be supplemented by adaptation measures aimed at alleviating the most severe or imminent consequences of climate change, taking into account any relevant particular needs for protection.

Applied to the case, the Court concluded that Switzerland had failed to fulfil its positive obligation derived from Article 8 to devise a regulatory framework setting out the requisite objectives and goals. In particular, the Court pointed to the fact that the 2025 and 2030 period remains unregulated in Switzerland in terms of GHG emissions, pending the enactment of new legislation, and that Switzerland had not quantified national GHG emissions limitations through, for example, a carbon budget. Furthermore, Switzerland had previously failed to meet its past GHG emission reduction targets. As such, the Court found that there had been a violation of Article 8 of the Convention.

(d) Articles 6 and 13: Victim Status and the Merits

In addition to the substantive complaints made under Articles 2 and 8 of the Convention, the Applicants brought complaints under Articles 6 and 13 alleging a failure of the Swiss national courts to grant them access to court. In KlimaSeniorinnen, the Applicants complained that they had been denied being heard on the merits on jurisdictional grounds, including for lack of standing.

The Court examined the Applicants’ victim status with respect to Article 6 finding that the Association had victim status under this provision because the domestic litigation was “directly decisive” for its “rights” under the Convention. By contrast—and in line with its victim status findings pursuant to Articles 2 and 8—the Court found that the Individual Applicants lacked standing because the dispute they pursued was not directly decisive for their specific rights, and had a tenuous connection with the rights relied upon under national law.

Applied to the merits of the Association’s case, the Court found a violation of its Article 6 right of access to the national courts. The Court furthermore found it unnecessary to examine the Association’s Article 13 complaint, having found in its favour on Article 6.

(e) The Dissenting Opinion of Judge Eicke

Judge Eicke of the United Kingdom issued a strongly worded dissent in KlimaSeniorinnen, opining that the majority had gone “well beyond what I consider to be, as a matter of international law, the permissible limits of evolutive interpretation”. In particular, he questioned the Court’s unnecessary expansion of “victim status” and unjustifiable creation of (i) “a new right (under Article 8 and, possibly, Article 2)”; and (ii) a new “primary duty” on Convention States. He was of the view that neither of these “have any basis in Article 8 or any other provision of or Protocol to the Convention”.

He further expressed concern that, at a policy level, there is a significant risk that the new right / obligation created by the majority (alone or in combination with the much enlarged standing rules for associations) would prove an unwelcome and unnecessary distraction for the national and international authorities in that “it detracts attention from the on-going legislative and negotiating efforts being undertaken as we speak to address the – generally accepted – need for urgent action”. He specifically referred to the “significant risk” that national authorities “will now be tied up in litigation about whatever regulations and measures they have adopted (whether as a result or independently) or how those regulations and measures have been applied in practice…”.

As regards Article 6, although Judge Eicke agreed with the majority that there had been a violation of the right of access to court, his conclusion was on a different (and what he called “more orthodox”) approach. In Judge Eicke’s view, the Individual Applicants’ victim status as it related to Article 6 had been clearly established and not challenged by the Swiss Government. As such, it would “have been more obvious and more appropriate to address the complaint about the denial of access to court first; before then, if necessary, moving on to consider the complaint(s) under Articles 2 and 8 of the Convention”. In his view, such an approach could have vitiated the need for developing a “novel approach” to the issue of the Applicants’ victim status under Articles 2 and 8.

(f) Key Takeaways

As stated at the outset, the Climate Change Cases are the first of their kind decided by the Court. They constitute a significant legal development. At this stage, there are a number of observations which can be highlighted.

First, due to the fact that the Convention is incorporated into the national laws of all 46 Convention States, the findings of the Court in KlimaSeniorinnen may require such States to consider amending national laws to take account of the expansion of victim status. In other words, some Convention States may have to amend their standing laws to reflect the Association Victim Status Criteria in cases leveraging Convention rights in the context of climate change cases.

Second, the Court in KlimaSeniorinnen found, for the first time, an independent actionable right to effective protection by the State for climate change-related harms under Article 8 (leaving the scope and content of any such right under Article 2 undetermined for the time being). This right includes the imposition of positive obligations on Convention States. While these positive obligations remain general on their face, they may be interpreted to require that climate change mitigation measures are “incorporated into a binding regulatory framework”, and, the Court expressly referred to the aim of reaching net neutrality “within, in principle, the next three decades”. This finding may prompt Convention States to enact more rigorous national legislation relating to GHG reductions. This could, in turn, have a significant impact on the private sector operating within those States.

Third, such regulatory changes could also prompt new investor State claims, if such legislative changes (for example, the phase out of production of electricity from certain fossil fuels) were implemented in such a manner that could be considered a breach of the States’ investment treaty obligations. In that context, Convention States may attempt to use the positive obligations imposed by the Court in KlimaSeniorinnen as a defence to such claims. However, we note that the Court’s judgment seems to leave States flexibility in how they seek to accomplish their climate targets.

Lastly, this ruling may influence other pending climate change litigation—especially where claimants are advancing human rights-based arguments. This includes cases pending before the Court which have been adjourned awaiting the rulings in the Climate Change Cases, including Greenpeace Nordic and Others v. Norway (no. 34068/21) (which relates to the issuance of new licenses for oil and gas exploration in the Barents Sea), amongst others—but also proceedings against State parties currently pending before national European courts. In addition, whilst the judgment in KlimaSeniorinnen is limited in application to Convention States as a jurisdictional matter, NGOs and other claimants may seek to leverage the judgment to support new and existing climate lawsuits against private parties. This could, in turn, have an effect on domestic standing laws related to climate change actions. Notably, there have already been examples of claims against private actors in the climate change context in Convention State courts where Convention-based arguments have been put forward.

In jurisdictions outside of the Council of Europe, Klima Seniorinnen may also prove influential where human rights arguments have been raised by the claimant(s). Further, on the international plane, KlimaSeniorinnen may have a persuasive effect on the International Court of Justice’s (“ICJ”) pending decision in connection with UN General Assembly’s request for an advisory opinion relating to States’ international law obligations to ensure protection from climate change for present and future generations. The ICJ is expected to deliver its opinion in this judgment in early 2025.

2. Carême and The Portuguese Youth Climate Case

(a) The Court’s Findings

Carême concerned an action by an individual, Mr Carême, acting on his own behalf and in his capacity as mayor of Grande-Synthe, and in the name and on behalf of the latter municipality. In proceedings before the French courts, the Conseil d’État declared admissible the action brought by the municipality and inadmissible the action brought by Mr Carême. The Conseil d’État found that the measures taken by the French authorities to tackle climate change had been insufficient and ordered the authorities to take additional measures by 31 March 2022 to meet the GHG emissions reduction targets set out in the domestic legislation and Annex I of Regulation (EU) 2018/842.

The Grand Chamber concluded that the complaint in Carême was inadmissible on the basis that Mr Carême lacked “victim status” as required by Article 34 of the Convention. This was because Mr Carême had moved away from Grande-Synthe, the area in France that he alleged was affected by climate change, to Brussels, and otherwise had no other links to Grande-Synthe for the purposes of Articles 2 and 8 of the Convention (which were the articles upon which Mr Carême relied).

Meanwhile, the Portuguese Youth Climate Case was brought by six young persons (who all resided in Portugal) against Portugal and 32 other Convention States, alleging that the respondents had violated human rights by failing to take sufficient action on climate change in violation of Articles 2 and 8, with particular reference to forest fires and heatwaves in Portugal in 2017 and 2018. The applicants sought an order from the Court requiring the respondent States to take more ambitious climate change action.

The Court concluded that although Portugal had territorial jurisdiction for the purposes of Article 1 of the Convention, extra-territorial jurisdiction could not be established in respect of the other 32 respondent States. The Court thus confirmed its existing jurisprudence on extra-territorial jurisdiction and refused to expand that jurisprudence in the climate change context. The claims against the 32 other respondent Convention States were declared inadmissible on that basis. Additionally, the Court declared the claim inadmissible on a second ground: that the applicants had not exhausted domestic remedies available in Portugal.

(b) Key Takeaways

First, and importantly, the Court’s refusal to extend its case law on extraterritorial jurisdiction in the Portuguese Youth Climate Case on the basis of specific arguments grounded on climate change considerations means that climate change related claims brought under the Convention will, in principle, have to be directed at and first resolved in the State in which the individual persons alleging harms are situated.

Second, the Court’s emphasis that domestic remedies must be exhausted in the context of climate change confirms that climate change litigation is, first and foremost, a matter for the national courts in the respective Convention State.

The Gibson Dunn team would be very happy to discuss the wide-ranging ramifications of the Climate Change Cases in more detail with clients.

The following Gibson Dunn lawyers prepared this update: Robert Spano, Stephanie Collins, and Alexa Romanelli.

Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding these issues. Please contact the Gibson Dunn lawyer with whom you usually work, any leader or member of the firm’s International Arbitration or Transnational Litigation practice groups, or the following authors:

Robert Spano – London/Paris (+33 1 56 43 14 07, [email protected])
Stephanie Collins – London (+44 20 7071 4216, [email protected])
Alexa Romanelli – London (+44 20 7071 4269, [email protected])

We are pleased to provide you with Gibson Dunn’s ESG monthly updates for March 2024. This month our update covers the following key developments. Please click on the links below for further details.

I. GLOBAL

France and Brazil launch EUR 1.1 billion program to protect Amazon rainforest

On March 26 in Belém, Brazil, the Brazilian and French presidents launched a joint investment program to protect the Brazilian and Guyanese Amazon rainforest “with the aim of leveraging EUR 1 billion in public and private investments in the bioeconomy over the next four years.” The investment plan will involve Brazilian state-run banks, such as the National Bank for Economic and Social Development (BNDES) and Banco da Amazonia (BASA), as well as the French investment agency.

According to the signed declaration the presidents “consider it urgent to focus our efforts on establishing, by COP30, a bioeconomy model that considers the three dimensions of sustainable development — social, economic, and environmental — and allows us to reverse biodiversity loss and tackle climate change.” This pledge to stop deforestation in the Amazon by 2030 comes two years before Brazil hosts the COP30 climate negotiations talks in Belém.

Net Zero Banking Alliance tightens guidelines for banks’ climate targets

On March 13, members of the bank-led, UN-convened Net-Zero Banking Alliance (“NZBA”) voted to adopt a new version of the Guidelines for Climate Target Setting for Banks. One key change is the expanded scope, which now includes not only lending and investment activities but also capital markets arranging and underwriting activities. This extension aims to provide a more comprehensive approach to climate target setting, acknowledging the significant role these activities play in banking portfolios as well as the scientific, regulatory, and methodological changes that have occurred since the original April 2021 Guidelines.

According to the UNEP FI website, the guidelines are a product of an NZBA member bank-led review informed by their own experience of applying the original guidelines, setting and implementing climate targets, and financing transitions in different sectors. The new version “reinforces the guidelines, further outlining key principles to underpin the setting of credible and ambitious targets in line with achieving the objectives of the Paris Agreement”. The updated version of the guidelines will apply to all new targets and any new iterations of existing targets set by NZBA member banks after April 22, 2024.

Saudi Arabia introduces Green Financing Framework to drive sustainability

On March 28, Saudi Arabia announced its Green Financing Framework, which seeks to attract funding for a range of sustainable investment opportunities. The Framework identifies eight types of projects eligible for funding from so-called “green” debt sales, ranging from support for cleaner transportation and renewable energy to projects that may help the desert kingdom adapt to climate change.

The Ministry of Finance stated the structure will allow the government to sell green bonds and sukuk (Sharia compliant bonds) for projects that meet the criteria. Any sale of such debt would be a first for the central government as it aims to cut its greenhouse gas emissions by 278 million tonnes per year by 2030 and have net zero emissions by 2060.

This announcement follows a number of recent initiatives which include the Saudi Green Initiative (“SGI”) to combat the adverse effects of climate change over the past few years. On March 27, the Kingdom celebrated its first Saudi Green Initiative Day organised under the theme “For Our Today and Their Tomorrow: KSA Together for a Greener Future” which aimed to highlight the collaboration of the more than 80 public and private sector projects that are part of the SGI.

II. UNITED KINGDOM

HM Treasury announces consultation on new regulatory regime for ESG ratings

The UK Government confirmed on 6 March, as part of the Spring Budget, that it will regulate providers of ESG ratings to users within the UK. ESG ratings providers will fall within the regulatory perimeter of the Financial Conduct Authority.

This follows the UK Government’s publication in March 2023 of a consultation on the future regulatory regime for ESG ratings providers alongside an updated Green Finance Strategy. Both publications were part of a wider set of ESG-related publications such as the Powering Up Britain – Net Zero Growth Plan and Energy Security Plan and the more recent consultation on addressing carbon leakage risk to support decarbonisation.

UK to enforce tougher emission reduction rules on the oil and gas industry

On March 27, the North Sea Transition Authority (“NSTA”), the UK government’s oil and gas regulator, published new guidelines for emissions reduction in the North Sea. These stricter guidelines for oil and gas producers follows from the 2021 NSTA (then “OGA”) strategy which placed an obligation on the industry to assist “in meeting the net zero carbon by 2050 target”.

The NSTA’s new guidelines set out “four clear contributing factors to decarbonising the industry” — including asset electrification, investment and efficiency and action on flaring and venting. It will also look at “inventory as a whole”, ramping up scrutiny on assets with high emissions intensity. New developments with “a first oil or gas after 1 January 2030 must be either fully electrified or run on alternative low carbon power with near equivalent emission reductions”, the NSTA said. New developments with a first oil or gas date before 2030 should be electrification-ready at minimum.

III. EUROPE

European Council approves Corporate Sustainability Due Diligence Directive

On March 15, the EU Council approved a revised version of the Corporate Sustainability Due Diligence Directive (“CS3D”). The CS3D imposed obligations on companies to conduct thorough due diligence encompassing identification, assessment, prevention, and mitigation of negative environmental and human rights impacts. To mitigate these, the CS3D stipulates that a broad range of elements must be addressed, including child and forced labour, greenhouse gas emissions and deforestation. Importantly, companies are required to examine and document findings beyond their immediate operations, encompassing both indirect business partners and subsidiaries.

The CS3D has two key objectives: (i) to require companies to carry out due diligence to avoid adverse environmental and human rights impacts and (ii) to ensure accountability in case of actual adverse impacts being caused. The key obligations endorsed by the council in relation to due diligence are set out below:

“Chain of activities”: This definition of a company’s downstream and upstream activities in respect of due diligence obligations has now been further narrowed, by excluding downstream activities performed by indirect business; and downstream activities at the product disposal stage (such as dismantling, recycling, composting and landfilling).

Financial institutions: The provisional agreement was stated to cover only the upstream but not the downstream activities of financial institutions (thus excluding the investment and lending activities of such institutions). The review clause of the compromise text nonetheless continues to provide that the Commission shall prepare, within two years of the directive’s adoption, a report on the need for additional due diligence requirements tailored to the financial sector.

Groups of companies: As per the provisional agreement, ultimate parent companies are responsible for meeting the due diligence obligations of the directive, save where the parent company’s main activity is holding shares in operational subsidiaries—and now, pursuant to an additional exemption introduced in the concession text, where the parent company does not engage in taking “management, operational or financial decisions” affecting the group or its subsidiaries. The parent company must also now apply to the competent supervisory authority for any such exemption.

Civil liability: The civil liability regime has been further adjusted by making it clear that Member States are free to decide the conditions under which trade unions, non-governmental organizations or national human rights institutions can initiate collective redress mechanisms on behalf of victims. In particular, language referring to the ability of such a body to bring a claim “in its own capacity” has been deleted and the possibility for third-party intervention in support of victims in lieu of direct representation explicitly provided for.

Corporate Sustainability Reporting directive and disclosure of climate risk information

Another of the key obligations endorsed by the European Council under CS3D is the requirement to “adopt and put into effect a transition plan for climate change mitigation” (“Climate Plan”), which must have specific features. Paragraph 50 of the Directive states that Climate Plan must aim “to ensure, through best efforts, that the business model and strategy of the company are compatible with” (i) the transition to a sustainable economy; (ii) limiting global warming to 1.5 °C in line with the Paris Agreement; (iii) the objective of achieving climate neutrality as established in the EU Climate Law, including its intermediate and 2050 targets; and (iv) where relevant, the exposure of the undertaking to coal, oil and gas-related activities.

It must include the following company-specific targets and reporting standards: (i) climate targets including specifically in terms of Scopes 1-3; (ii) identification of decarbonisation levers; (iii) an explanation of transition funding for the Climate Plan; and (iv) description of leadership accountability which must be defined specifically with regard to the Climate Plan.

IV. NORTH AMERICA

U.S. Securities and Exchange Commission adopts final Climate Change Rules

On March 6, the U.S. Securities and Exchange Commission (“SEC”) approved final climate change rules. More information on these rules is available in our client alert available here. The rules were immediately challenged in court by various parties, including several states and the Sierra Club. On March 15, the Fifth Circuit Court of Appeals granted an emergency administrative stay of the SEC’s rules. On March 21, the Judicial Panel on Multidistrict Litigation selected the Eighth Circuit as the court that will consider the petitions for review challenging the SEC’s rule, and on March 22, the administrative stay was dissolved when the Fifth Circuit cases were transferred to the Eighth Circuit. (Subsequently, on April 4, the SEC issued an Order a stay of its final rule “pending the completion of judicial review” of the consolidated Eighth Circuit petitions.)

U.S. introduces bill to exclude ESG factors from Retirement Investment Plans

On March 21, Congressman Greg Murphy introduced the Safeguarding Investment Options for Retirement Act, legislation to prohibit tax-advantaged retirement plan trustees from considering factors other than financial risk and return when making investment decisions on behalf of workers, retirees, and their beneficiaries. In his official press release, the Congressman explained the background to his decision. He stated that in recent years some retirement plans prioritising ESG factors had “performed more poorly compared to traditional investments, raising questions about trustees’ priorities for investment.” Under this legislation, if plans are found to be using non-financial risk and return factors, they risk losing their tax-advantaged status.

The bill proposes to counteract “the left’s environmental and equity agendas”. Specifically, the Department of Labor’s (“DOL”) reversal under the Biden administration of the restrictions imposed under predecessor Donald Trump on retirement plans considering ESG factors when selecting investments. In November 2022, the DOL finalised rules under ERISA that permit fiduciaries of retirement plans governed by ERISA to consider ESG in the selection process for investments of such retirement plans. Congressman Murphy’s bill is indicative of much of the wider Republican response to the DOL’s 2022 rule and follows the January 2023 lawsuit filed in the Northern District of Texas by attorney generals from 25 states which challenges the 2022 rule.

U.S. Government commits $750 million for growth of hydrogen industry in U.S.

On March 14, the Department of Energy (“DOE”) announced that it will allocate $750 million to a series of projects aimed at dramatically reducing the cost of clean hydrogen. Focused on advancing electrolysis technologies, manufacturing and recycling capabilities for clean hydrogen systems, this commitment is indicative of the Biden Administration’s approach to hydrogen as crucial in reducing fossil fuels and emissions from hard to decarbonize industries such as aluminium and cement.

The announcement follows the Biden administration’s release in June 2023 of the U.S. National Clean Hydrogen Strategy and Roadmap, aimed at significantly increasing the production, use, and distribution of low carbon hydrogen in energy intensive industries. It outlines the commitment to scale U.S. clean hydrogen production and use to 10 million metric tonnes by 2030, and as much as 50 million tonnes by 2050.

The new allocations by the DOE will be funded by the Bipartisan Infrastructure Law, which was passed in November 2021 and allocates $9.5 billion to clean hydrogen. The law gives authority to the DOE to allocate the funding, which includes up to $1 billion for research and development of reducing the cost of clean hydrogen produced via electrolysis; as well as $500 million to research and development of improved processes and technologies for manufacturing and recycling clean hydrogen systems and materials.

V. APAC

South Korea unveils $313 billion green financing plan to combat climate change

South Korea has vowed to provide loans worth $313.4 billion to finance carbon-cutting projects, in a joint statement by the government and major banks on 19 March. By 2030, five state financial institutions including Korea Development Bank (“KDB”) will provide those loans to encourage companies to switch to low carbon production, the announcement said. By 2030, these measures are anticipated to achieve a reduction of 85.97 million metric tonnes of greenhouse gases, fulfilling nearly 30% of the government’s ambitious target.

The plan to step up the fight against climate change was unveiled in a meeting between government officials and heads of South Korea’s five major banks. The KDB and other big banks including Woori Bank and Kookmin Bank, will also create a new fund worth KRW 9 trillion for building new green energy facilities, the government added.

Chinese stock exchanges consult on mandatory sustainability reporting requirements for listed companies

China’s three major stock exchanges, the Shanghai Stock Exchange, the Shenzhen Stock Exchange and the Beijing Stock Exchange, have announced new sustainability reporting guidelines for listed companies to begin mandatory disclosure on ESG related topics in 2026.

The reporting requirements will cover four core topics, including governance, strategy, impact and risk and opportunity management, along with indicators and goals. The exchanges are taking a “double materiality” approach, which includes reporting on both the risks and impacts of sustainability issues, along with the companies’ impacts on the environment and society.

The mandatory reporting requirements will capture more than 450 companies listed across the three exchanges, with the reporting set to begin in 2026 for the 2025 reporting period.

Warmest regards,
Susy Bullock
Elizabeth Ising
Perlette M. Jura
Ronald Kirk
Michael K. Murphy
Selina S. Sagayam

Chairs, Environmental, Social and Governance Practice Group, Gibson Dunn & Crutcher LLP

For further information about any of the topics discussed herein, please contact the ESG Practice Group Chairs or contributors, or the Gibson Dunn attorney with whom you regularly work.

The following Gibson Dunn lawyers prepared this update: Lauren Assaf-Holmes, Grace Chong, Elizabeth Ising, Cynthia Mabry, Patricia Tan Openshaw, Charlie Osborne, Selina S. Sagayam, and Helena Silewicz*.

Gibson Dunn lawyers are available to assist in addressing any questions you may have regarding these developments. Please contact the Gibson Dunn lawyer with whom you usually work, the authors, or any leader or member of the firm’s Environmental, Social and Governance practice group:

Environmental, Social and Governance (ESG):
Susy Bullock – London (+44 20 7071 4283, [email protected])
Elizabeth Ising – Washington, D.C. (+1 202.955.8287, [email protected])
Perlette M. Jura – Los Angeles (+1 213.229.7121, [email protected])
Ronald Kirk – Dallas (+1 214.698.3295, [email protected])
Michael K. Murphy – Washington, D.C. (+1 202.955.8238, [email protected])
Patricia Tan Openshaw – Hong Kong (+852 2214-3868, [email protected])
Selina S. Sagayam – London (+44 20 7071 4263, [email protected])

*Helena Silewicz, a trainee solicitor in the London office, is not admitted to practice law.

Macquarie Infrastructure Corp. v. Moab Partners, L.P., No. 22-1165 – Decided April 12, 2024

On April 12, the Supreme Court unanimously held that a company’s failure to disclose information required under SEC regulations—such as Item 303 of Regulation S-K—cannot support a private securities-fraud claim unless the omission makes the company’s affirmative statements misleading.

“Pure omissions are not actionable under Rule 10b-5(b).”

Justice Sotomayor, writing for the Court

Background:

Regulation S-K requires public companies to provide disclosure on certain prescribed topics. Item 303 of the regulation, the “Management’s Discussion and Analysis of Financial Condition and Results of Operation” (MD&A), specifically requires companies to disclose “known trends or uncertainties that have had or that are reasonably likely to have” a material impact on net sales, revenue, or income. 17 C.F.R. § 229.303(b)(2)(ii). And Rule 10b-5(b) makes it unlawful for companies “[t]o make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading.” Id. § 240.10b-5(b). Both the SEC and private parties can sue companies for violations of Rule 10b-5(b).

Several circuits had held that failure to make a disclosure under Item 303 cannot support a securities fraud claim under Rule 10b-5(b) without an affirmative statement that is made misleading by the omission. But the Second Circuit disagreed, holding that an Item 303 violation alone can give rise to a securities-fraud claim. The Supreme Court granted review to resolve the conflict.

Issue:

Whether a failure to make a disclosure required under Item 303 of Regulation S-K can support a private claim under Rule 10b-5(b) even in the absence of an otherwise misleading statement.

Court’s Holding:

No. Rule 10b-5(b) does not prohibit pure omissions, so a failure to disclose information required under Item 303 does not support a private securities-fraud claim under Rule 10b-5(b) without an affirmative statement made misleading by the omission.

What It Means:

The Court’s holding clarifies that Rule 10b-5(b) does not allow private lawsuits based on pure omissions, including omitted information required to be disclosed under SEC regulations like Item 303. Instead, Rule 10b-5(b) permits lawsuits based only on affirmative misrepresentations and “half-truths” that are misleading because they omit critical qualifying information.
The Court rejected the plaintiff’s and government’s argument that the omission of any information required by Item 303 is necessarily misleading because investors expect companies to disclose all known trends or uncertainties. The Court clarified, however, that “private parties remain free to bring claims based on Item 303 violations that create misleading half-truths.” The Court also contrasted Rule 10b-5(b)’s language with Section 11(a) of the Securities Act of 1933, under which the Court observed that Congress expressly imposed liability for pure omissions.
The Court’s decision represents an important check on claims under Rule 10b-5(b), reaffirming that the private right of action the Court recognized many decades ago should not be further extended.
Although the Court framed the question presented in terms of “private” rights of action, the Court’s interpretation of Rule 10b-5(b) does not appear to be limited to that context. Accordingly, the Court’s decision likely means that the SEC itself also will not be able to bring enforcement actions alleging fraud under Rule 10b-5(b) based on a pure omission theory. The Court did make clear, however, that the SEC retains authority to prosecute violations of Item 303 and the SEC’s other regulations that mandate what disclosures must be made in public filings.
The Court did not opine on any issue other than whether a pure omission is actionable under Rule 10b-5(b). It did not address what would qualify as a statement made misleading by an omission, or whether the other parts of Rule 10b-5—the “scheme liability” provisions of Rules 10b-5(a) and 10b-5(c)—support liability for pure omissions. Those issues will likely be the subject of further litigation.

The Court’s opinion is available here.

Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding developments at the Supreme Court. Please feel free to contact the following practice leaders:

Appellate and Constitutional Law Practice

Thomas H. Dupree Jr. +1 202.955.8547 [email protected]	Allyson N. Ho +1 214.698.3233 [email protected]	Julian W. Poon +1 213.229.7758 [email protected]
Lucas C. Townsend +1 202.887.3731 [email protected]	Bradley J. Hamburger +1 213.229.7658 [email protected]	Brad G. Hubbard +1 214.698.3326 [email protected]

Related Practice: Securities Litigation

Monica K. Loseman +1 303.298.5784 [email protected]	Brian M. Lutz +1 415.393.8379 [email protected]	Craig Varnen +1 213.229.7922 [email protected]
Jason J. Mendro +1 202.887.3726 [email protected]	Michael D. Celio +1 650.849.5326 [email protected]

Related Practice: Securities Regulation and Corporate Governance

Elizabeth Ising +1 202.955.8287 [email protected]	James J. Moloney +1 949.451.4343 [email protected]	Lori Zyskowski +1 212.351.2309 [email protected]
Thomas J. Kim +1 202.887.3550 [email protected]	Brian J. Lane +1 202.887.3646 [email protected]	Ronald O. Mueller +1 202.955.8671 [email protected]

This alert was prepared by associates Patrick Fuster, Matt Aidan Getz, and Robert Batista.

Bissonnette v. LePage Bakeries Park St., LLC, No. 23-51 – Decided April 12, 2024

Today, the Supreme Court unanimously held that the applicability of the Federal Arbitration Act’s exemption for transportation workers in interstate commerce turns on whether a worker is a transportation worker, not whether they work in the transportation industry.

“A transportation worker need not work in the transportation industry to fall within the exemption from the FAA provided by §1 of the Act.”

Chief Justice Roberts, writing for the Court

Background:

The Federal Arbitration Act (“FAA”) broadly requires courts to enforce arbitration agreements but exempts from its application arbitration “contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.” 9 U.S.C. § 1. The Supreme Court in Circuit City Stores, Inc. v. Adams, 532 U.S. 105 (2001), held that this exemption applies only to transportation workers.

Neal Bissonnette and Tyler Wojnarowski worked as distributors for Flower Foods, Inc., a baked-goods producer and marketer. After they sued Flowers for allegedly violating state and federal wage laws, Flowers moved to compel arbitration under the FAA pursuant to the arbitration clauses in their distribution agreements.

Bissonnette and Wojnarowski resisted arbitration, arguing that they were exempt under Section 1 of the FAA because they were “workers engaged in foreign or interstate commerce.”

The district court compelled arbitration on the ground that the distributors were not transportation workers but had much broader responsibilities. The Second Circuit affirmed, but on different reasoning: it held that the distributors worked in the bakery industry, not the transportation industry, and therefore did not qualify for the Section 1 exemption.

Issue:

Whether a transportation worker must work for a company in the transportation industry to qualify for the arbitration exemption in Section 1 of the FAA.

Court’s Holding:

No. To qualify as a transportation worker under Section 1 of the FAA, a worker does not have to work for a company in the transportation industry, and can qualify for the exemption if they play “a direct and ‘necessary role in the free flow of goods’ across borders.”

What It Means:

The Court’s decision is narrow. The Court rejected a “transportation industry” test for Section 1 of the FAA. The Court’s decision largely follows from Southwest Airlines Co. v. Saxon, 596 U.S. 450 (2022), which held that Section 1 “focuses on the performance of work, rather than the industry of the employer.”
The Court’s decision did not address whether the workers at issue were transportation workers or whether they were engaged in interstate commerce.
This ruling does not meaningfully alter the FAA Section 1 landscape, given that Saxon had already held that the Section 1 inquiry focuses on whether the workers’ job duties render them “transportation workers.” Regardless of industry, employers who use arbitration agreements should consider workers’ job duties when assessing whether the Section 1 exemption might apply.

The Court’s opinion is available here.

Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding developments at the Supreme Court. Please feel free to contact the following practice leaders:

Appellate and Constitutional Law Practice

Thomas H. Dupree Jr. +1 202.955.8547 [email protected]	Allyson N. Ho +1 214.698.3233 [email protected]	Julian W. Poon +1 213.229.7758 [email protected]
Lucas C. Townsend +1 202.887.3731 [email protected]	Theane Evangelis +1 213.229.7726 [email protected]	Bradley J. Hamburger +1 213.229.7658 [email protected]
Brad G. Hubbard +1 214.698.3326 [email protected]

Related Practice: Labor and Employment

Jason C. Schwartz
+1 202.955.8242
[email protected]

Katherine V.A. Smith
+1 213.229.7107
[email protected]

Theane Evangelis
+1 213.229.7726
[email protected]

Related Practice: Class Actions

Christopher Chorba
+1 213.229.7396
[email protected]

Kahn A. Scolnick
+1 213.229.7656
[email protected]

This alert was prepared by associates Elizabeth Strassner and Salah Hawkins.

Sheetz v. County of El Dorado, No. 22-1074 – Decided April 12, 2024

Today, the Supreme Court held unanimously that land-development permit exactions subject to the Takings Clause must bear an essential nexus and rough proportionality to the expected impacts of the development, even if the exaction is imposed pursuant to legislation.

“The Takings Clause … prohibits legislatures and agencies alike from imposing unconstitutional conditions on land-use permits.”

Justice Barrett, writing for the Court

Background:

The Supreme Court’s prior decisions in Nollan v. California Coastal Commission and Dolan v. City of Tigard held that certain land-development exactions violate the Fifth Amendment’s Takings Clause unless the government can show that the exaction bears (1) an “essential nexus” and (2) a “rough proportionality” to the expected impacts from the development.

George Sheetz applied for a permit from the County of El Dorado, California to build a house on his property. County legislation required Mr. Sheetz to pay a traffic impact mitigation fee as a condition of obtaining a permit, which was set according to a legislatively determined fee schedule that did not account for an individual project’s actual impact on roads. Mr. Sheetz challenged the exaction as an unconstitutional taking under Nollan and Dolan. The California Court of Appeal held that the exaction was immune from constitutional scrutiny because it was authorized by generally applicable legislation, as opposed to an administratively imposed exaction.

Issue:

Is a building permit exaction authorized by legislation exempt from constitutional scrutiny under the test set forth in Nollan and Dolan?

Court’s Holding:

No. The Takings Clause does not distinguish between legislative and administrative land-use permit conditions, and therefore legislatively mandated exactions are not exempt from the “essential nexus” and “rough proportionality” standards established by Nollan and Dolan.

What It Means:

The Court’s decision means that land-development exactions do not evade review under Nollan and Dolan merely because they are authorized pursuant to legislation.
The Court’s ruling gives property developers more opportunities to challenge legislative exactions as unconstitutional takings. The decision could lead to greater predictability in legislative exactions and a reduction in the types and amounts of impact fees and other exactions imposed, as local governments will need to assess whether legislation imposing exaction fees on private property development, if subject to the Takings Clause, comply with Nollan and Dolan’s mandates.
The Court’s decision unanimously declares that “[t]he Constitution’s text does not limit the Takings Clause to a particular branch of government,” which is consistent with the conclusion of Justice Scalia’s 2010 plurality opinion in Stop the Beach Renourishment, Inc. v. Florida Department of Environmental Protection that judicial actions are subject to the Takings Clause.
Justice Kavanaugh’s concurring opinion, joined by Justices Kagan and Jackson, emphasized that the Court today expressly left open the question whether a permit condition imposed on a class of properties is subject to the same standard as a permit condition that targets a particular development. Justice Gorsuch, in another concurrence, offered his answer: Nollan and Dolan should not operate differently when an alleged taking affects a class of properties rather than a specific development, as neither of those precedents involved the targeting of a particular development.
Justice Sotomayor’s concurring opinion, joined by Justice Jackson, expressed the view that the Court had not decided the threshold question whether the traffic impact fee in this case would be a compensable taking if imposed outside of the permitting context.

The Court’s opinion is available here.

Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding developments at the Supreme Court. Please feel free to contact the following practice leaders:

Appellate and Constitutional Law Practice

Thomas H. Dupree Jr. +1 202.955.8547 [email protected]	Allyson N. Ho +1 214.698.3233 [email protected]	Julian W. Poon +1 213.229.7758 [email protected]
Lucas C. Townsend +1 202.887.3731 [email protected]	Bradley J. Hamburger +1 213.229.7658 [email protected]	Brad G. Hubbard +1 214.698.3326 [email protected]

Related Practice: Real Estate

Eric M. Feuerstein
+1 212.351.2323
[email protected]

Alan Samson
+44 20 7071 4222
[email protected]

Jesse Sharf
+1 310.552.8512
[email protected]

Related Practice: Land Use and Development

Mary G. Murphy
+1 415.393.8257
[email protected]

Benjamin Saltsman
+1 213.229.7480
[email protected]

This alert was prepared by associates Connie Lee and Robert Batista.

From the Derivatives Practice Group: The CFTC has appointed a new Inspector General, Christopher Skinner. The Office of the Inspector General is an independent organizational unit of the CFTC, with the mission to detect waste, fraud, and abuse and to promote integrity, economy, efficiency, and effectiveness in the CFTC’s programs and operations.

New Developments

CFTC Appoints Christopher Skinner as Inspector General. On April 10, the Commodity Futures Trading Commission announced that Christopher L. Skinner has been appointed CFTC’s Inspector General (IG). The CFTC stated that Mr. Skinner brings 15 years of IG experience, including leading and managing Offices of Inspector’s General (OIG), and conducting investigations, inspections, and audits. Mr. Skinner comes to the CFTC from the Federal Election Commission (FEC) where he served as IG since 2019. [NEW]
SEC Adopts Reforms Relating to Investment Advisers Operating Exclusively Through the Internet. On March 27, the SEC adopted amendments to the rule permitting certain internet investment advisers to register with the Commission (the “internet adviser exemption”). The amendments will require an investment adviser relying on the internet adviser exemption to have at all times an operational interactive website through which the adviser provides digital investment advisory services on an ongoing basis to more than one client. The amendments will also eliminate the current rule’s de minimis exception by requiring an internet investment adviser to provide advice to all of its clients exclusively through an operational interactive website and to make certain corresponding changes to Form ADV.

New Developments Outside the U.S.

New Report Sheds Light on Quality and Use of Regulatory Data Across EU. On April 11, ESMA published the fourth edition of its Report on the Quality and Use of Data aiming to provide transparency on how the data collected under different regulations is used systematically by authorities in the EU, and clarifying the actions taken to ensure data quality. The report provides details on how National Competent Authorities, the European Central Bank, the European Systemic Risk Board and ESMA use the data that is collected through the year from different legislation requirements, including datasets from European Market Infrastructure Regulation, Securities Financing Transactions Regulation, Markets in Financial Instruments Directive, Securitization Regulation, Alternative Investment Fund Managers Directive and Money Market Funds Regulation. [NEW]
UK’s Accelerated Settlement Taskforce Publishes Report on the Path to T+1. On March 28, the UK’s Accelerated Settlement Taskforce published its report on the path to a T+1 settlement cycle. The report finds there is a clear consensus on the need for the UK to move to a T+1 settlement cycle and this shift will require substantial investment in greater automation and standardization. In addition, the report emphasizes a need for ongoing engagement with stakeholders during the transition period and the opportunity to learn from the U.S. move to T+1 in May 2024. The report recommends the immediate creation of a technical group to identify the challenges of transition and formulate solutions and suggests a two-step transition to T+1 before the end of 2027, with the exact date to be determined by the technical group.
ESMA Clarifies Application of Certain MIFIR Provisions, Including Volume Cap. On March 27, the European Securities and Markets Authority (ESMA) published a statement, including practical guidance supporting the transition and the consistent application of the revised Markets in Financial Instruments Regulation (MiFIR).The statement covers guidance on equity transparency and non-equity transparency; the systematic internaliser (SIs) regime; designated publishing entities (DPEs); and reporting. Regarding the volume cap, following the publication by the European Commission, ESMA confirmed that DVC data will continue to be published, with the next publication scheduled for early April.
ESMA Provides Market Participants with Guidance on the Clearing Obligation for Trading with 3rd Country Pension Schemes. On March 27, ESMA issued a public statement on deprioritizing supervisory actions linked to the clearing obligation for third-country pension scheme arrangements (TC PSA), pending the finalization of the review of EMIR. ESMA expects National Competent Authorities (NCAs) not to prioritize supervisory actions in relation to the clearing obligation for derivative transactions conducted with TC PSAs exempted from the clearing obligation under their third-country’s national law. Additionally, ESMA recommends that NCAs apply their risk-based supervisory powers in their day-to-day enforcement of applicable legislation in this area in a proportionate manner. The Council and the European Parliament reached a provisional agreement on February 7. The political agreement on the EMIR 3 text provides for an exemption regime from the EMIR clearing obligation when the TC PSA is exempted from the clearing obligation under that third country’s national law.
ESMA Finalizes First Rules on Crypto-Asset Service Providers. On March 25, ESMA published the first Final Report under the Markets in Crypto-Assets Regulation (MiCA). ESMA stated that Tthe report, which aims to foster clarity and predictability, promote fair competition between crypto-asset service providers (CASPs) and a safer environment for investors across the Union, includes proposals on: (1) information required for the authorization of CASPs; (2) the information required where financial entities notify their intent to provide crypto-asset services; (3) information required for the assessment of intended acquisition of a qualifying holding in a CASP, and (4) how CASPs should address complaints.
ESMA Launches the Third Consultation Under MiCA. On March 25, ESMA published its third consultation package under the MiCA. In the consultation package, ESMA is seeking input on four sets of proposed rules and guidelines, covering: (1) detection and reporting of suspected market abuse in crypto-assets; (2) policies and procedures, including the rights of clients, for crypto-asset transfer services; (3) suitability requirements for certain crypto-asset services and format of the periodic statement for portfolio management; and (4) ICT operational resilience for certain entities under MiCA.
SGX Issues Consultation on Revised Limit on Clearing Members’ Liability for Multiple Defaults. On March 22, Singapore Exchange (SGX) issued a consultation paper proposing to refine the existing cap on a clearing member’s liability to meet default losses arising from multiple events of default. The cap is imposed on clearing members of Singapore Exchange Derivatives Clearing Limited (SGX-DC) and The Central Depository (Pte) Limited (CDP). The proposal purports to limit a non-defaulting clearing member’s liability to meet multiple default losses arising within a 30-day period to three times the aggregate of its funded and unfunded clearing fund contributions (prescribed contribution) as determined at the start of the 30-day period. The revised limit is intended to be independent of the clearing member’s resignation. SGX has also proposed changes to the SGX-DC clearing rules set out in Appendix B of the consultation. SGX is seeking views and comments on: (1) capping the limit for multiple defaults at three times a clearing member’s clearing fund contribution amount for all defaults occurring within a 30-day period; (2) the methodology for calculating the amount of a non-defaulting clearing member’s clearing fund contributions available to meet losses suffered by the SGX central counterparty arising from or in connection with an event of default (as set out in SGX-DC Clearing Rule 7A.06.9.2); and (3) the rule amendments to effect the proposed change. The consultation closes on April 24, 2024.
SFC and HKMA Further Consult on Enhancements to Hong Kong’s OTC Derivatives Reporting Regime. On March 22, 2024, the Securities and Futures Commission (SFC) and the Hong Kong Monetary Authority (HKMA) launched a joint-further consultation on enhancements to the over-the-counter (OTC) derivatives reporting regime in Hong Kong. This further consultation follows an earlier joint-consultation in April 2019, in which the SFC and HKMA proposed a requirement to identify transactions submitted to the Hong Kong Trade Repository (HKTR) for the reporting obligation by a Unique Transaction Identifier. The current joint-further consultation consults on the implementation of the Unique Transaction Identifier, together with the mandatory use of Unique Product Identifier and Critical Data Elements for submission of transactions to the HKTR. The Interested parties are encouraged to submit responses to the SFC or HKMA on the consultation by May 17, 2024.

New Industry-Led Developments

ISDA, AIMA, GFXD Publish Paper on Transition to UPI. On April 9, ISDA, the Alternative Investment Management Association (AIMA) and the Global Foreign Exchange Division (GFXD) of the Global Financial Markets Association published a paper on the transition to unique product identifiers (UPI) as the basis for over-the-counter (OTC) derivatives identification across the Markets in Financial Instruments Regulation (MIFIR) regimes. The paper has been sent to the European Commission, which is working on legislation to address appropriate identification of OTC derivatives under MiFIR. [NEW]
IOSCO Seeks Feedback on the Evolution of Market Structures and Proposed Good Practices. On April 4, the International Organization of Securities Commissions (IOSCO) published a consultation report on Evolution in the Operation, Governance and Business Models of Exchanges: Regulatory Implications and Good Practices. The consultation report analyzes the structural and organizational changes within exchanges, focusing on business models and ownership structures. It highlights a shift towards more competitive, cross-border, and diversified operations as exchanges integrate into larger corporate groups. The consultation report discusses regulatory considerations, particularly in the organization of individual exchanges and exchange groups and the supervision of multinational exchange groups. It addresses potential conflicts of interest arising from matrix structures and the challenges of overseeing individual exchanges within exchange groups. Additionally, it outlines a set of six proposed good practices for regulators to consider in the supervision of exchanges, particularly when they provide multiple services and/or are part of an exchange group. The good practices are also complemented by a non-exclusive list of supervisory tools used by IOSCO jurisdictions to address the issues under discussion, in the form of “toolkits”. While the Consultation Report focuses on equities listing trading venues, the findings are also relevant to other trading venues, including non-listing trading venues and derivatives trading venues. IOSCO is seeking input from market participants on the major trends and risks observed, and the proposed good practices on or before July 3, 2024.
ISDA Submits Response to CFTC Proposed Operational Resilience Rules. On April 1, ISDA submitted comments on the CFTC’s notice of proposed rulemaking on requirements to establish an Operational Resilience Framework for Futures Commission Merchants, Swap Dealers and Major Swap Participants, which was published in the Federal Register on January 24, 2024. ISDA recommended that the CFTC adjust adjust portions of the proposed rules relating to governance, third-party relationships, incident notification and implementation period.
ISDA Submits Response to IOSCO Consultation on Post-Trade Risk Reduction. On March 29, ISDA submitted a response to IOSCO consultation on post-trade risk reduction (PTRR) services. According to ISDA, PTRR services are intended to optimize bilateral and cleared derivatives portfolios to minimize the build-up of notional amounts and trade count, counterparty risk, and basis risk respectively, which in turn reduces systemic risk. ISDA stated that it is broadly supportive of IOSCO’s proposed sound practices.
ISDA Submits Joint Response to PRA on Approach to Policy. On March 28, ISDA and the Association for Financial Markets in Europe (AFME) submitted a joint response to the Prudential Regulation Authority (PRA) consultation on its approach to policy. The associations highlighted the importance of considering UK market specificities in meeting the secondary competitiveness and growth objective, and in the implementation of international standards. The associations expressed support for the continuation of structured policy development in dialogue with the industry, while also advocating for the enhancement of the PRA’s stakeholder engagement by re-establishing standing groups and horizon risk scanning groups, and greater industry cooperation during the initiation phase of the policy cycle. ISDA highlighted certain other points in the response, including recommendations on clustering regulatory principles and suggested improvements to the cost-benefit analysis and data collection processes to achieve greater transparency.
ISDA Submits Joint Response to BCBS Crypto Standard Amendments Consultation. On March 28, ISDA, with the Global Financial Markets Association, the Futures Industry Association, the Institute of International Finance and the Financial Services Forum, submitted a joint response to the Basel Committee on Banking Supervision (BCBS) consultation on proposed crypto asset standard amendments. ISDA and the other trade associations stated that they welcome the BCBS’s continued focus on designing and improving the prudential framework for crypto assets. The key topics in the consultation response include public permissionless blockchains, classification condition 2 and settlement finality and Group 1b eligibility.