October 2026 saw several significant labor and employment law developments that could affect employers’ compliance obligations, workforce management practices, and hiring strategies. Key updates include new US Department of Labor (DOL) guidance on religious accommodations and tipped employees, ongoing uncertainty surrounding union organizing rules under the Cemex framework, and expanding state regulations governing the use of artificial intelligence (AI) in employment decisions.
Employers should closely monitor these changes, review workplace policies and recordkeeping practices, and ensure hiring, accommodation, and technology-related decisions align with evolving federal and state requirements.
Supreme Court Leaves Untouched Groff‘s Higher, Though Unclear, Undue Hardship Standard in Religious Accommodations Cases
On October 5, the U.S. Supreme Court declined to hear a petition from a group of Washington firefighters asking the Court to clarify whether its 2023 decision in Groff v. DeJoy requires an employer accused of denying a religious accommodation to show that said accommodation would have imposed an actual hardship, rather than having a reasonable basis for believing that such hardship would occur.
Groff settled a long-running division among the federal courts over how heavy a burden employers must bear to accommodate religious practice. Many courts, for decades before Groff, had held that any cost on the employer that is “more than de minimis” constituted an undue hardship in this context. In an unanimous decision, the Supreme Court rejected the “de minimis” reading, holding that an employer denying religious accommodation must show the burden would result in “substantial increased costs in relation to the conduct of its particular business.”
Now, because the Court has declined to rule on how concrete that hardship showing must be, the lower courts will continue to grapple with that question on a case-by-case basis. Employers are best advised to evaluate each religious accommodation request individually, keeping in mind the reality that the undue hardship burden has become tougher to establish.
DOL Formally Withdraws the Opinion Letters Behind the “80/20” Tip Rule
On October 19, the DOL’s Wage and Hour Division (WHD) issued Field Assistance Bulletin No. 2026-1, withdrawing the three opinion letters that gave rise to the so-called “80/20” rule for tipped employees: FLSA-895 (Aug. 8, 1979), WH-502 (Mar. 28, 1980), and FLSA-854 (Dec. 20, 1985).
Under the Fair Labor Standards Act (FLSA), an employer may credit tips toward part of its minimum wage obligation for an employee engaged in an occupation in which he or she customarily and regularly receives more than $30 a month in tips. Tipped employees routinely perform duties that produce no tips directly, however, such as cleaning and setting tables, making coffee, or occasionally washing dishes or glasses. The 80/20 rule was the Division’s measure of how much of that work was too much to receive the tip credit. Under the 80/20 rule, an employer was denied the top credit where tipped employees spent a “substantial amount of time (in excess of 20 percent)” on non-tipped activities, like general preparation or maintenance work.
The Fifth Circuit previously chipped away at the 80/20 rule in Restaurant Law Center v. U.S. Department of Labor, 120 F.4th 163 (5th Cir. 2024), holding that “[t]he FLSA does not ask whether duties composing [a] given occupation are themselves each individually tip producing.” The new Field Assistance Bulletin took things further, concluding that the opinion letters that established the 80/20 rule “no longer reflect Division policy and, in some respects, do not accurately state the law.” Thus, the Field Assistance Bulletin formally withdrew those opinion letters and made clear that “any guidance that contemplates specific time limits on duties performed within a tipped occupation no longer reflects WHD policy.”
For employers taking a tip credit, the immediate change is that WHD enforcement no longer applies a percentage cap to related, non-tip-producing duties. Employers should tread carefully in situations involving employees with multiple job titles, however, because the DOL’s 1967 dual jobs regulation remains in effect. Under that regulation, which concerns employees who hold two distinct jobs for the same employer, a tip credit only applies to the hours worked in the tipped job. Thus, time spent working a genuinely separate, non-tipped occupation still requires the full minimum wage.
Supreme Court Declines To Review Cemex Decision
Last month, the Supreme Court denied Cemex Construction’s application for review of the Ninth Circuit’s decision upholding a National Labor Relations Board (NLRB) order requiring Cemex to bargain with the Teamsters union, after the Board found that the company had committed unfair labor practices during an organizing drive. The Court’s denial leaves intact a split between the Sixth and Ninth Circuits over the legal framework established by the NLRB’s Cemex decision—and continued uncertainty for employers facing union organizing drives nationwide.
The NLRB’s 2023 Cemex decision significantly changed the process by which most private-sector employee unions seek recognition. In short, the new framework makes union organizing easier by providing two paths to mandatory recognition that bypass or override employee voting in an NLRB-conducted secret-ballot election. Under Cemex, a union may demand recognition based on a claim of majority support. The employer then may: (1) recognize the union immediately without an NLRB election; (2) file its own petition seeking an election within two weeks after receiving the demand; or (3) take no action, in which case it will be required to recognize and bargain with the union once the two-week period expires. The decision also effectively eliminates the right to a secret-ballot election if conduct occurring between the filing of an election petition and the election is found unlawful.
The Republican-led NLRB is working to dismantle the Cemex framework but has not yet formally reversed it or restored the traditional standard requiring secret-ballot elections in nearly all cases. For now, the Cemex framework technically remains binding law outside the Sixth Circuit.
Employers Subject To Evolving State Regulations on Use of AI In The Workplace
As companies continue to consider how to integrate AI into their operations and employee performance metrics, they also must be mindful that an evolving patchwork of state-specific laws dictate where and how employers can use AI tools with respect to employment decisions and personnel matters.
For example, Illinois employers now are required to issue notices when utilizing AI “with respect to” any employment decisions in the employment lifecycle, ranging from recruitment and hiring, to promotion, to discipline or termination. This requirement is embedded in the Illinois Human Rights Act and makes clear that the law has broad application for virtually anything AI-related in the workplace, such as drafting of job posts, screening of resumes, scheduling of interviews, and preparation of performance review or disciplinary materials.
These changes in Illinois law follow the AI laws of Colorado, which in 2024 issued the first comprehensive AI statutory framework impacting employers. Colorado’s law initially required employers using AI for employment decisions to meet a duty of care to avoid algorithmic discrimination and to conduct impact assessments, while also imposing reporting obligations to the Attorney General. Various other states have followed with their own AI requirements impacting employers.
For example, as of October 1, Connecticut employers are subject to the provisions of the Connecticut Artificial Intelligence Responsibility and Transparency (CART) Act, which amends the state’s Fair Employment Practice to apply to any AI-related outputs used by employers which are a substantial factor impacting employment decisions such as recommendations, classifications, rankings, or scoring within the workplace.
California has several AI laws slated to take effect January 1, 2027. These newest California provisions regulate: (1) use of “workplace surveillance tools” that might “make inferences or predictions about an individual’s emotional state” or even collect “neutral data” about employees relative to his or her central or peripheral nervous system; (2) using systems that observe or assess employees’ performance and data, time-tracking, relative work activities or biometrics, unless such AI tools are affirmatively deactivated with respect to bathrooms; (3) “Robo Bosses” within the workplace, such that employers may not use AI or related automated decisions systems to predict or take adverse action against a worker for exercising legal rights and, in the event an Automated Decision System provides output suggesting disciplinary action (including termination), a human must review and corroborate the conclusion based upon assessment of the underlying data.
These are just a few examples of states’ ongoing efforts to govern AI in the workplace. The bottom line is that employers, particularly those with multi-state operations, must understand the patchwork of developing AI laws which regulate employment-related activities.
Supreme Court Agrees to Resolve Dispute About Disparate Impact Theory of Liability
In April 2026, President Trump issued a non-binding Executive Order expressing the Administration’s “disfavor” of a disparate impact theory of liability in employment and other discrimination cases, whereby an otherwise facially neutral employment policy or practice is attacked on the grounds that it discriminates against members of a certain protected classification. On October 19, the nation’s top court agreed to review a dispute in which a Maryland school district is accused of implementing a “neutral” lottery-based admissions process that disproportionately favors African American and Hispanic students at the expense of Asian American students.
Although the Maryland case arises in the educational context, it likely will have repercussions in the employment setting. As a threshold matter, the justices will be required to address and resolve whether disparate impact is a viable theory of liability, and if it answers in the affirmative, which would be consistent with decades of federal legal precedent, employers will be required to consider and ensure that its employment policies and practices do not disproportionately impact members of certain protected groups. While President Trump’s Executive Order is not legally binding, the Supreme Court’s decision to hear this case is a referendum, of sorts, on the Executive Order and will likely result in the “restoration” of disparate impact theory of liability.
If you have any questions about navigating the latest developments in the labor and employment landscape, please contact Kristin Michaels or your Neal Gerber Eisenberg attorney.
The content above is based on information current at the time of its publication and may not reflect the most recent developments or guidance. Neal, Gerber & Eisenberg LLP provides this content for general informational purposes only. It does not constitute legal advice, and does not create an attorney-client relationship. You should seek advice from professional advisers with respect to your particular circumstances.
