Nonprofit News
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Contributors:
Associate | San Diego
Abigail Choi
Associate | Sacramento
Ronni Cuccia
Associate | Los Angeles
Alison R. Kalinski
Senior Counsel | Los Angeles
Stephanie J. Lowe Senior Counsel | Los Angeles
Cynthia O'Neill Partner Emeritus | San Francisco
Casey Williams Partner | San Francisco
GIFTS, GRANTS, & FUNDRAISING
When A Name Becomes A Liability: 5 Things To Think About Before
Conferring Naming Rights.
Few honors feel as permanent as placing a name on a building; think Carnegie Hall, Rockefeller Center, or the Getty Museum, where the name itself has become the institution. To many donors, the gesture is irresistible: a promise that their story will be told long after they are gone. To institutions, the offer is often too generous to decline: a lifeline of capital, secured without the expense of galas, campaigns, or endless fundraising appeals. Naming is often perceived as permanent, embedding a donor’s story into the institution itself.
But permanence has a way of turning precarious. A name that once radiated generosity and honor can harden into controversy when reputations shift.
Take the Sackler family. For decades, the Sacklers were synonymous with philanthropy and cultural patronage. Their name adorned the galleries of the Louvre, the wings of the Met, and the halls of the Smithsonian. Then came lawsuits against the Sackler family and Purdue Pharma, along with investigative reporting that showed much of their wealth came from sales of OxyContin, a drug widely associated with the opioid epidemic. Institutions bearing the Sackler name were then forced to confront a difficult question: honor the original gift agreements and risk reputational harm, or seek ways to remove the name despite potential legal or donor restrictions. Most chose removal.
Now consider a less obvious risk. In 2023, University of Pennsylvania alumnus Stephen A. Levin, whose $15 million pledge had helped create the Levin Building for Neural and Behavioral Sciences, demanded his name be removed. This time, it wasn’t donor misconduct at issue. It was the institution’s alleged misconduct. Levin objected to Penn’s handling of antisemitism on campus and cut off his support, seeking to sever all association with the university.
These examples underscore a simple point: that naming rights are a two-way street. Institutions should plan for both the donor who becomes a liability and the donor who tries to use their name as leverage when they disagree with institutional choices. In today’s polarized climate and with the viral power of social media, these risks are especially heightened. Without clear protections, organizations can find themselves beholden to reputational storms they never anticipated.
With that in mind, here are a few things your organization should consider before accepting a gift that comes with naming rights.
1. Always Use a Written Naming Agreement
A donor’s name quickly becomes part of the institution’s identity. Because of that lasting association, organizations should never rely on informal understandings when granting naming rights.
The most important step is to have a written agreement in place before making a naming decision. Verbal understandings or informal writings can leave the organization exposed if circumstances change. In broad strokes, a written agreement should spell out the donor’s gift, the recognition being granted, and the circumstances under which naming rights may be changed or revoked.
Commonly referred to as a morals clause, it allows the organization to revoke or alter naming rights if donor conduct brings the organization into disrepute or conflicts with its mission. Example language might read as follows:
If, in the reasonable judgment of the Organization, if at any time the Donor is convicted of a felony offense, engages in conduct that is widely considered immoral or unethical, or becomes the subject of a scandal or public controversy that materially undermines the reputation, mission, or values of the Organization, then the Organization shall have the right to remove or alter the naming rights conferred in this Agreement.
Without a written agreement and without language like this, the institution may have no clear authority to act if donor misconduct becomes a public controversy.
2. Duration & Term Limits of Naming Rights
Many naming agreements tend to confer naming rights “in perpetuity,” meaning forever (as in 70 years from now). That language can create a few problems. Buildings age, programs evolve, communities change, and at some point, any given facility will need major renovation, replacement, or even relocation.
If naming rights are promised “in perpetuity,” the organization may not be able to offer a new naming opportunity when it needs funding for that changed circumstance. A future donor could be dissuaded from giving if they cannot attach their name to the project because a perpetual right is already in place.
Instead, consider tying naming rights to the useful life of a facility, often a 20 to 30-year period, or until a major renovation or replacement occurs. This approach preserves flexibility for the institution and creates new opportunities for future fundraising.
3. Establish a Naming Rights Policy
In addition to individual agreements, it is a good idea for organizations to have a broader policy that sets the ground rules for naming opportunities so they are not made on an ad hoc basis. Although not legally required, it can save a lot of headaches by setting a baseline for how naming is handled and avoiding negotiating every detail from scratch.
A naming rights policy might explain how names are proposed and approved, whether a name goes into effect at the time of a pledge or only after the gift is fully paid, and what minimum levels of giving qualify for specific types of recognition.
The goal of the policy is not to replace the gift agreement but to frame it. An established policy helps manage and clarify expectations and build transparency and fairness with donors.
4. Basic Due Diligence & Community Alignment
Naming decisions should never be made in a vacuum. At a minimum, organizations should consider conducting basic due diligence by scanning news reports, reviewing social media, and considering whether the donor’s reputation aligns with the institution’s values. Additionally, organizations may want to account for how the naming will be perceived by stakeholders and the broader community.
5. Be Specific About Display and Recognition
Of the many details that need to be addressed in a naming rights agreement, one of the most important is spelling out exactly how the donor’s name will be used. To avoid confusion, the agreement should clearly describe the size, font, and placement of any signage, and may even include a rendering with dimensions attached as an exhibit. Organizations should also consider the relative prominence of the recognition, especially when multiple donors are being acknowledged at different giving levels.
The agreement should also address publicity. Some donors may want a dedication ceremony or broad promotion, while others may prefer little or no fanfare. Documenting those expectations in writing helps ensure there are no misunderstandings about how the gift will be celebrated or publicized.
By adopting clear policies and memorializing key rights in written agreements, institutions can protect themselves against future disputes and ensure that their buildings remain symbols of generosity.
NAVIGATING EMPLOYEE MISCONDUCT
Court Affirms Termination Of Employee Over Facebook Posts
On George Floyd Protests.
Jeanne Hedgepeth was a longtime social studies teacher. Hedgepeth was terminated after she posted a series of controversial Facebook posts made during the national unrest following the death of George Floyd. Hedgepeth, who had previously been suspended twice for profane classroom conduct, posted that she “needed a gun and training” because the “civil war has begun,” and in response to a meme about using high-pressure water hoses against civil rights protestors, commented, “You think this would work?” She also stated that she found the term “white privilege” to be as racist as the N-word. Her Facebook friends were about 80% former students, and while her account was set to private, her posts quickly circulated and drew complaints from parents, students, and the media. For example, the school district received over 130 emails in response to the posts, and teachers reported that the controversy disrupted summer school instruction.
The school district placed Hedgepeth on administrative leave, investigated, and ultimately dismissed her after concluding that she had lost the trust and respect of the school community and could no longer function effectively in her role. Hedgepeth challenged her termination on First Amendment grounds, with the case eventually making its way up to the Seventh Circuit, which upheld the termination.
The Court began by outlining the applicable legal framework: public employees retain First Amendment rights, but those rights are balanced against the government employer’s interest in workplace efficiency. The Court must first determine whether the speech addresses a matter of public concern, and if so, weigh the employee’s speech interest against the employer’s interest in avoiding disruption.
There was no dispute that Hedgepeth’s posts touched on public concerns—namely, race, policing, and civil unrest. However, the Court concluded that the District’s interest
in preserving trust, order, and effective public service outweighed her interest in speaking freely on Facebook.
The Court highlighted the actual and significant disruption her posts caused in the school community, including damage to staff relationships and her credibility as a teacher. The Court also noted that Hedgepeth was in a public-facing position requiring community trust and had previously received written warnings that further misconduct could lead to termination. In the Court’s words, this was “not an isolated incident,” it was her third strike.
The Court rejected Hedgepeth’s argument that she was subjected to a “heckler’s veto,” explaining that objections came from stakeholders in the educational system— students, parents, and colleagues—not outside agitators seeking to silence Hedgepeth. The Court also found her privacy arguments unconvincing, noting that even if her Facebook account was set to private, she had a large audience of former students and School community members and should have anticipated that her comments would spread. Finally, the Court emphasized that her use of vulgar, racially insensitive language diminished the constitutional value of her speech in the context of her role as an educator.
Hedgepeth v. Britton (7th Cir. 2025) 2025 U.S. App. LEXIS 23920.
Note:
Although employees of California nonprofits do not have similar free speech rights, this case illustrates how speech made off-duty and out of the workplace, including on private social media accounts, can generate disruption in the workplace. When employee expression undermines trust with employees, patrons, or the community the nonprofit serves, nonprofits may be on stronger ground in taking disciplinary action.
HARASSMENT
Employer’s Poor Responses To Employee’s Complaint Could Support Claim For Hostile Work Environment.
Bakersfield Recovery Service, Inc. (BRS) provides substance use treatment. Steven Kruitbosch was an assistant corporate compliance officer. Lisa Sanders was Kruitbosch’s coworker, though the two did not work together or in the same location often.
Like many BRS employees, Kruitbosch was in recovery, and many employees, including Sanders, knew that about Kruitbosch. After Kruitbosch’s long-term partner passed away, he took leave under the California Family Rights Act.
In the week leading up to Kruitbosch’s return, Sanders began sending Kruitbosch multiple unsolicited nude pictures and propositioning him. Kruitbosch firmly rejected these advances. Sanders went to Kruitbosch’s home uninvited and again propositioned him. Kruitbosch told her to leave. Sanders eventually departed Kruitbosch’s property, but left behind a cucumber with a condom attached in his driveway. Sanders texted Kruitbosch and invited him to a hotel room to have sex and drugs. She sent him multiple sexually explicit images.
Upon returning to work, Kruitbosch immediately complained about Sanders’s conduct to acting program director Stephanie Carroll and HR representative Kimberly Giles. Carroll said there was not much she could do. Giles posted a video to social media depicting dogs whining that made a veiled reference to Kruitbosch’s complaint.
Kruitbosch’s employment became unbearable as he went to great lengths to avoid Sanders. He was fearful that he would
be forced to see Sanders. He was overcome with anger and humiliation, knowing Sanders was free to continue harassing him. Kruitbosch resigned because he felt that continuing to work at BRS would be detrimental to his mental health, grief recovery process, and sobriety.
After resigning, Kruitbosch filed a complaint against BRS and Sanders under the Fair Employment and Housing Act (FEHA). He included a claim for hostile work environment sexual harassment. BRS filed a motion to dismiss the case, arguing that Sanders’s conduct was not attributable to BRS on the basis of their co-working relationship alone. The trial court agreed, holding that although Kruitbosch was unhappy with BRS’s response, the situation was not pervasive, and BRS took no adverse action, dismissing the case. Kruitbosch appealed.
The California Court of Appeal reversed the trial court, holding that while Sanders’s conduct was not sufficiently work-related to be imputed to the BRS, BRS’s response to the Kruitbosch’s complaint—specifically, Carroll and Giles’s failure to act and Giles’s comment and social media post mocking him—could support a claim for hostile work environment sexual harassment.
Giles’s comment, in conjunction with BRS’s ratification of Sanders’s conduct through inaction, materially altered his working conditions. There was no investigation of Kruitbosch’s complaint, no admonition to Sanders to cease her conduct, and BRS took no steps to shield Kruitbosch from having to interact with Sanders.
Kruitbosch v. Bakersfield Recovery Services, Inc., 2025 Cal. App. LEXIS 569 (Sep. 8, 2025).
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FMLA
Court Affirms Dismissal Of Employee’s FMLA Claim After Finding She Was Never Entitled To Leave.
Leigh Holland worked for Texas Christian University (TCU) for over two decades in various staff roles in the Athletics Department, including Facilities and Event Coordinator, Office Manager, and Facilities and Operations Coordinator. In early 2023, she applied for and was granted leave under the Family and Medical Leave Act (FMLA) due to mental health concerns, which she described in her FMLA application as related to anxiety and depression. TCU said that while she was on leave, various problems with her performance became apparent. As a result, on the day she returned from leave, TCU informed her that her employment would be terminated. Holland alleged that the termination was in retaliation for taking FMLA leave and filed suit in federal district court.
The trial court granted summary judgment in favor of TCU, and the Fifth Circuit affirmed. The key issue on appeal was whether Holland was actually entitled to FMLA leave in the first place. Under the FMLA, an eligible employee may take FMLA leave if they are unable to perform the essential functions of their position due to a “serious health condition.”
Both Holland and her treating physician, however, admitted that she was never unable to perform her job functions. Holland testified that she remained capable of working throughout her leave and continued to engage in daily activities such as driving, self-care, and managing a rental property. Because she failed to show incapacity, the Court held that she did not qualify for leave under the statute.
Holland also argued that she had a “chronic serious health condition” under the FMLA, but the Court rejected this theory as both waived (because it was not raised before) and unsupported by evidence. Even under the chronic condition standard, FMLA protection requires proof of episodic incapacity or treatment-related limitations, which Holland did not provide. The Court emphasized that “incapacity” means the inability to work, attend school, or perform other regular daily activities due to a serious health condition—a threshold Holland did not meet.
The Court also considered and rejected Holland’s alternative argument that TCU should be estopped from challenging her FMLA eligibility. Under the Fifth Circuit’s test for equitable estoppel in the FMLA context, an employer may be barred from denying leave eligibility if (1) it represented that the employee was eligible, (2) the employee reasonably relied on that representation, and (3) the employee suffered detriment as a result. Here, while TCU had approved Holland’s FMLA request, the Court found no evidence that Holland had detrimentally relied on that approval. In fact, she testified that she would have taken the full amount of leave regardless of whether it was formally approved. This undercut any claim of reliance and defeated her estoppel theory.
The Court of Appeals affirmed the trial court’s dismissal of her claims in full.
Holland v. Texas Christian University (5th Cir. 2025) 2025 U.S. App. LEXIS 23484.
Note:
This case underscores the importance of verifying FMLA eligibility at the outset of a leave request. In addition, even if leave is approved, an employee must still meet the definitions for leave under the statute.
Riley Jacobs is an Associate in the San Diego office of Liebert Cassidy Whitmore, where she advises clients on a variety of labor and employment and educational matters.
Meg Berkowitz joins our Los Angeles office, bringing extensive experience in complex litigation and regulatory matters. She has successfully led pre-suit investigations, negotiated settlements, and managed litigation.
Hiring
Don’t Let AI Put Your Organization At Risk—FEHA Compliance In Hiring Explained.
Artificial intelligence (AI) and other automated decision systems (ADS) are becoming more common in public sector hiring. Resume screeners, video interview platforms, and other algorithmic tools promise efficiency—but they also bring legal risk.
Starting October 1, 2025, new regulations under the Fair Employment and Housing Act (FEHA) will go into effect. These rules clarify how FEHA applies to AI and ADS in employment decisions, to prevent discrimination.
The Legal Framework: FEHA and Automated Decision Systems
FEHA prohibits employment discrimination based on protected characteristics such as race, gender, age, disability, religion, and more. The new regulations make clear that this prohibition extends to AI and ADS tools used in hiring, promotion, and other employment decisions.
Key Points Include
• Disparate impact counts: Even if bias is unintentional, employers can be liable if an ADS disproportionately excludes a protected group.
• Examples of risk: Tools that screen applicants by schedule availability, assess reaction times, or analyze speech or facial expressions in virtual interviews may disadvantage individuals with disabilities, religious obligations, or language differences.
• Pre-employment inquiries: Pre-employment inquiries, limited under FEHA, also apply to inquiries made through ADS.
• Liability extends to agents: If an outside vendor or recruitment partner uses a discriminatory ADS on your behalf, your agency is still responsible under FEHA.
• Recordkeeping required: Employers must retain records of ADS use—including data, selection
criteria, and employment decisions—for at least four years.
• Bias testing is encouraged: While not mandatory, anti-bias testing and proactive efforts, such as selfauditing, can support a defense if a claim arises. Recency, scope, and quality of such efforts will be considered.
You can view the full regulations through the California Civil Rights Council’s official announcement here.
Why this Matters for Nonprofit Employers
As leaders in fairness and justice, society expects nonprofits to embody those values and to be transparent in their hiring decisions. These new rules emphasize that automated tools are subject to the same antidiscrimination standards as human decision-makers.
Nonprofits must balance the benefits of efficiency with the obligation to maintain equal opportunity. Failure to comply could result in litigation, reputational harm, and reduced public trust.
Practical Steps Toward Compliance
Nonprofits can continue to use AI and ADS technology in hiring, but steps should be taken to ensure compliance with FEHA.
1. Inventory and Assess AI Tools
• List all automated tools used in recruitment, hiring, and decisions regarding pay, benefits, or leave.
• Determine whether each tool directly or indirectly screens candidates.
2. Audit for Bias
• Test for disparate impact on protected groups.
• Request documentation from vendors showing validation studies and fairness testing.
3. Update Policies and Vendor Contracts
• Require vendors to certify FEHA compliance.
• Ensure contracts include shared responsibility for compliance.
• Clarify that human review supplements automated results.
4. Strengthen Recordkeeping
• Retain ADS-related records for at least four years, including data, selection criteria, and outcomes.
• Document all compliance steps to establish a paper trail of diligence.
5. Train HR and Hiring Teams
• Educate staff about the limitations and risks of AI hiring tools.
• Guide recognizing and addressing potential bias.
6. Provide Transparency and Accessibility
• Ensure accessible processes for individuals with disabilities.
• Offer accommodations or alternative application methods when needed; this includes both disabilityrelated and religious accommodations.
AI and automated decision systems will continue to shape the future of hiring, but compliance with FEHA remains essential.
RELIGIOUS ACCOMMODATIONS
Seventh Circuit Revives Employee’s Religious Accommodation Claim Over Refusal To Use Names Of Transgender Students.
John Kluge was an orchestra teacher at Brownsburg High School, a public school in Indiana, who resigned after a dispute with his school district over how he addressed transgender students in his classroom. The controversy arose in 2017 after the School adopted a policy requiring teachers to use students’ names and pronouns as listed in the School’s PowerSchool database. This included updates to accommodate transgender students who provided parental and medical authorization for a name and gender change. Kluge, a Christian, objected on religious grounds, believing that affirming a student’s gender identity conflicted with his religious convictions. He requested an accommodation allowing him to use students’ last names only, which the School initially approved for the 2017-18 academic year.
As the year progressed, students, parents, and faculty raised concerns. Transgender students in Kluge’s class reported feeling alienated, dehumanized, and targeted. They asserted that his refusal to use their names undermined their identities and singled them out. Faculty members shared concerns with School leaders that the practice caused discomfort and disrupted the classroom environment. Two students submitted complaints, and others shared that Kluge’s practice drew attention to transgender students, making them feel excluded. At the same time, some witnesses—including students and a co-teacher—stated they did not observe
any disruption or discriminatory behavior from Kluge. Following the complaints, administrators reevaluated Kluge’s accommodation and concluded that the lastname-only practice was untenable.
In early 2018, the School rescinded Kluge’s accommodation and told him he must comply with the name policy or face termination. Kluge submitted a resignation letter, which he later sought to rescind. The School declined to allow his return and posted his position as vacant. Kluge filed suit under Title VII of the Civil Rights Act of 1964, alleging religious discrimination and retaliation. He claimed the School failed to accommodate his religious beliefs and retaliated against him for exercising his religious rights.
The trial court initially granted summary judgment to the School, finding that allowing Kluge to use last names only imposed an “undue hardship” on its mission to provide a safe and inclusive environment. The trial court also found that Kluge’s actions risked exposing the School to Title IX liability for discrimination against transgender students.
While the case was pending appeal, the Supreme Court decided Groff v. DeJoy, which clarified the Title VII standard for undue hardship in religious accommodation cases. Under Groff, an employer must show that an accommodation would impose a substantial burden on the business’s conduct, not merely a “de minimis” cost. Applying Groff, the Seventh Circuit reversed the trial court’s summary judgment ruling and reinstated Kluge’s claim.
The Court of Appeals held that there were genuine disputes of material fact about whether allowing Kluge to use last names caused undue hardship. It found conflicting evidence about whether students were harmed or if the learning environment was meaningfully disrupted. Some evidence suggested that students understood the practice and felt stigmatized, while others said they saw no issues
Importantly, the Court distinguished the standard for religious accommodation claims from other types of discrimination claims under Title VII. Under Groff, the employer’s good faith belief in hardship is not enough; it has to objectively demonstrate that the accommodation itself causes substantial disruption or cost. The Court declined to defer to the School’s judgment without further fact-finding and remanded the case for trial.
The Court also upheld the trial court’s decision to deny Kluge’s motion for summary judgment on the question of his religious sincerity, citing factual disputes about whether he consistently adhered to the last-name-only accommodation or selectively applied it. The School had presented evidence suggesting that Kluge occasionally used first names, particularly when communicating with students who were not transgender, which it argued undermined the sincerity of his claimed religious belief. Because Title VII requires that a religious belief be sincerely
held to trigger accommodation obligations, and because the evidence raised a credibility issue, the Court found that a jury should resolve the matter.
The Court also affirmed summary judgment for the School on Kluge’s retaliation claim, finding no evidence of pretext behind the School’s decision to end the accommodation. It reasoned that the repeated complaints from parents and teachers about the last-name-only accommodation were a legitimate non-discriminatory action that led to the School’s decision to rescind the accommodation.
Kluge v. Brownsburg Cmty. Sch. Corp. (7th Cir. Aug. 5, 2025) ___ F.4th ___, 2025 U.S. App. LEXIS 26098.
Note:
LCW has previously covered this case. Although the case is not a California or Ninth Circuit case, it underscores the complexities of religious accommodations in the workplace settings, particularly where such accommodations may affect the rights or well-being of others in the workplace. The Court’s application of Groff illustrates the high bar employers must meet to show undue hardship when assessing the viability of religious accommodations under federal law. This creates complexities with respect to California laws that require employers to respect employees’ gender identity, preferred name, and pronouns. All of these concerns highlight the growing and shifting complexities around employers' obligations under federal and state anti-discrimination laws.
Benefits Corner
The New ACA Affordability Percentage For 2026 Is 9.96 Percent.
The IRS has set the new Affordable Care Act (ACA) affordability percentage to 9.96% for 2026. This new affordability percentage is 0.94% higher than the current 2025 affordability percentage (i.e., 9.02%). (Rev. Proc. 2025-25 (July 18, 2025).)
While the Internal Revenue Code originally set the affordability threshold to 9.5%, the Internal Revenue Service (IRS) retains the authority to release an adjusted percentage each year. (See 26 U.S.C. section 36B(c)(2) (C)(i).) From 2015 to 2022, the IRS set an affordability percentage above 9.5%, going as high as 9.86% in 2019. For 2023, the IRS dropped the affordability percentage below 9.5% for the first time by setting it at 9.12% and then
dropped it even lower at 8.39% for 2024. The new 2026 affordability percentage of 9.96% is the highest it has ever been.
Applicable large employers are advised to check whether their offers of employer-sponsored health coverage for 2026 are affordable using the 9.96% threshold. To determine whether an offer of health coverage is affordable, an employer must run an affordability calculation to determine whether an employee’s “Required Contribution” toward the premium for the lowest cost employee-only coverage exceeds or does not exceed 9.96% of the employee's household income for the 2026 taxable year. Since employers typically do not know the total household income of each of their employees, the ACA provides three affordability safe harbor options an employer may adopt and apply on a reasonable and consistent basis:
1. Under the Form W-2 Safe Harbor, coverage is affordable if the employee’s Required Contribution is less than or equal to 9.96% of the employee's wages reported in Box 1 of Form W-2.
2. Under the Rate of Pay Safe Harbor, coverage is affordable if the employee's Required Contribution is less than or equal to 9.96% of the monthly wage amount for hourly employees (the hourly rate multiplied by 130 hours), or the monthly salary for salaried employees.
3. Under the Federal Poverty Line Safe Harbor, coverage is affordable if an employee's Required Contribution does not exceed 9.96% of the Federal Poverty Line for a single individual.
Please note that there are additional factors, such as health flex contributions and cash in lieu, that can greatly impact the amount of an employee’s Required Contribution and the affordability calculation. For more information about how to run the affordability calculation and whether you need to revise the employer contribution to maintain affordable offers of health coverage, please reach out to us.
IRS Increases ACA Employer Mandate Penalties For 2026.
The IRS has announced the adjusted 2026 penalty amounts for violations of the Affordable Care Act’s employer shared responsibility provisions (otherwise known as the “ACA Employer Mandate”). The ACA Employer Mandate authorizes the Internal Revenue Service (IRS) to assess a penalty on applicable large employers under one of the following two circumstances:
A. Penalty A: The applicable large employer fails to offer “substantially all” of its full-time employees and their dependents the opportunity to enroll in minimum essential coverage, and any full-time employee receives a subsidy for coverage through Covered California (26 U.S.C. section 4980H(a)(1)); or
B. Penalty B: The applicable large employer offers coverage to full-time employees and their dependents that is “unaffordable” or does not offer “minimum value,” and a full-time employee receives a subsidy for coverage through Covered California. (26 U.S.C. 4980H(b)(1).)
The amount of the penalties changes year-to-year. For plan years beginning after December 31, 2025, Penalty A will be $3,340 per year ($278.33 per month) multiplied by the
number of full-time employees employed by the employer, less 30. Penalty B will be $5,010 per year ($417.50 per month) multiplied by the number of full-time employees who obtain subsidized coverage through Covered California. These penalty amounts for 2026 are higher than the amounts currently in place for 2025 ($2,900 per year for Penalty A and $4,350 per year for Penalty B).
Here are some examples of how Penalty A and Penalty B are calculated based on the penalty amounts for 2026:
Penalty A Example: If an applicable large employer has 200 full-time employees and fails to offer “substantially all” of its full-time employees and their dependents the opportunity to enroll in minimum essential coverage and at least one of those employees receives a subsidy for coverage through Covered California for 12 months, then the IRS could assess a Penalty A at $3,340 multiplied by 170 (200 minus 30 full-time employees), which is $567,800.
Penalty B Example: If an applicable large employer has 200 full-time employees and fails to offer coverage that that is affordable and provides “minimum value”, and 10 of those employees receive a subsidy for coverage through Covered California for 12 months, then the IRS could assess a Penalty B in the amount of $50,100 ($5,010 multiplied by 10 employees who obtain the subsidy).
While employers who intend to offer full-time employees and their dependents affordable minimum essential coverage hope to never face these penalties, it helps to be aware of the adjusted amounts year-to-year as part of staying up to date on the ACA. For more information, see IRS Revenue Procedure 2025-26.
Benefits Compliance Question.
Question: Should an employer keep requests for donated leave hours anonymous under a catastrophic leave donation program?
Answer: Yes, an employer should keep the identity of the employee who requests donated leave hours anonymous and keep the details of their medical emergency confidential. Employers have a duty to keep an employee’s medical information confidential, including information about why an employee is out on medical leave. Additionally, keeping the requesting employee’s identity anonymous will help an employer defend against any potential discrimination or disparate treatment claims should an employee feel like they received fewer donated leave hours than other employees based on a protected classification. IRS Rev Ruling 90-29 requires
donating employees to donate leave hours to an employer-sponsored leave bank, rather than earmarking or designating donations to a particular employee. Since the donated leave hours are placed into one big employer-run catastrophic leave bank, it creates a wall of separation to keep the recipient employee’s identity private.
Did You Know?
Whether you are looking to impress your colleagues or just want to learn more about the law, LCW has your back! Use and share these fun legal facts about various topics in labor and employment law.
• Starting October 1, 2025, new California regulations under the Fair Employment and Housing Act (FEHA) will take effect, clarifying that AI and other automated decision systems (ADS) used in hiring must comply with state anti-discrimination laws. Employers, including nonprofits, can be liable for disparate impact discrimination and are responsible for the conduct of vendors using AI tools on their behalf. While bias testing is not mandatory, maintaining documentation, auditing for disparate impact, and ensuring accessibility are all encouraged practices to mitigate legal risk. See our longer article above about the new regulations.
• On August 28, 2025, President Trump issued a memorandum directing the Attorney General to investigate whether federal grant funds are being “illegally used to support lobbying activities and to take appropriate enforcement action.” The memorandum focuses on the use of federal funds for grants with political overtones, which, according to the administration, raises concerns that grantees are unlawfully using the funds for lobbying or political advocacy. The Fact Sheet accompanying the memorandum provides examples of grants that the administration intends to investigate, including the U.S. National Science Foundation funding a grant to advance racial justice in elementary mathematics. The memorandum directs the Attorney General to provide a report on her investigation to the President within 180 days. Thus, the memorandum will not have an immediate impact on the availability of federal funds.
• On September 30, 2025, the United States Department of the Treasury released its 2025-2026 Priority Guidance Plan. The Treasury Priority Guidance Plan is an annual publication issued jointly by the U.S. Department of the Treasury and the IRS, setting out the government’s priorities for tax guidance and regulations for a given year. The Plan effectively provides a roadmap or window into what the IRS will be doing in terms of issuing tax guidance, including regulations, revenue rulings, revenue procedures, and notices, and can help us anticipate upcoming changes in tax law interpretation and compliance obligations. Related to nonprofits, the Department issued the following guidance on Section 501(c)(3) Issues: “Guidance on the statutory prohibition in section 501(c)(3) against participation or intervention in political campaigns (the “Johnson Amendment”). This guidance will also likely relate to and may impact the National Religious Broadcasters case currently pending in a Texas federal district court, relating to religious organizations engaging in electioneering, and reported in our summer issue.
• California Government Code section 12954 makes it unlawful for an employer to discriminate against or otherwise penalize an employee or applicant based upon the person’s use of cannabis off the job and away from the workplace, or based on an employerrequired drug screening if the person tested positive for non-psychoactive cannabis metabolites. California Government Code section 12954, however, does not give employees a right to possess, use, or be impaired by cannabis on the job, nor does it affect the employer’s right and obligation to maintain a drugand alcohol-free workplace.
Featured Consortium Call
Members of Liebert Cassidy Whitmore’s consortiums are able to speak directly to an LCW attorney free of charge to answer direct questions not requiring in-depth research, document review, written opinions or ongoing legal matters. Consortium calls run the full gamut of topics, from leaves of absence to employment applications, student concerns to disability accommodations, construction and facilities issues and more. Each month, we will feature a Consortium Call of the Month in our newsletter, describing an interesting call and how the issue was resolved. All identifiable details will be changed or omitted.
Question:
A Human Resources Manager of a nonprofit organization called, explaining they submitted an E-Verify to verify a new employee’s authorization to work in the United States, and received a mismatch, and wanted to know if the employee could continue working while the E-Verify mismatch is being resolved.
Answer:
E-Verify is an online system operated by the U.S. Department of Homeland Security (DHS) in partnership with the Social Security Administration (SSA). It allows employers to confirm that newly hired employees are legally authorized to work in the United States.
After completing the federal Form I-9, employers enter certain information (like name, date of birth, and Social Security number) into E-Verify. The system then checks this data against government records to ensure it matches and that the individual is authorized for employment.
Sometimes, employers may receive a “Tentative Nonconfirmation” (TNC), commonly referred to as a “mismatch.”
The LCW Nonprofit Attorney explained that once the employee chooses to take action to resolve the mismatch (or TNC), they are allowed to continue working while the case is pending. Employers should not take adverse action— such as suspending, delaying the start date, or terminating employment—while the employee is actively resolving the issue.
Liebert Cassidy Whitmore