Labor & Employment Law Daily Wrap Up, WORTH NOTING—Federal appeals court cases of note, (Feb 13, 2026)

By WK Editorial Staff

A roundup of recent federal appeals court decisions of interest to the labor and employment law community.

3d Cir.: Independent contractor payments were not ‘payroll costs’ under PPP. A staffing company received a $7 million Paycheck Protection Program loan after reporting more than 350 workers as “employees,” although many were independent contractors, and later sought full loan forgiveness based on those contractor payments. Although the lending bank approved forgiveness, the Small Business Administration (SBA) conducted a review, and concluded “ineligible payroll expenses were included in the calculation of the loan amount,” namely, “1099 Contractor costs.” The SBA forgave only $3,703,011.60 of the loan, prompting the company to file suit alleging that the SBA’s decision violated the Administrative Procedure Act. The district court found for the company, finding the SBA’s decision to be “arbitrary and capricious.” On appeal, the Third Circuit held that the SBA’s definition of “payroll costs” did not violate the Administrative Procedure Act. Additionally, the court noted that the CARES Act contains two alternative definitions of “payroll costs,” one for businesses with employees and another for “a sole proprietor or independent contractor,” and that neither definition covered the company’s payments to contractors. Applying the text and structure of the statute, the court concluded that it did not apply to the company’s payments to independent contractors. The court reversed the district court’s ruling and remanded (Essintial Enterprise Solutions, LLC v. The United States Small Business Administration, No. 25-1367 (3d Cir. Feb. 3, 2026)).

11th Cir.: Suit over abuse at government-run childcare center revived on appeal. Three children were repeatedly physically and emotionally abused at a government-run childcare center on an Air Force base. The Air Force had voluntarily adopted criteria to “prevent physical and psychological child abuse, report suspected child abuse, [and] place on administrative leave any person under investigation for child abuse,” among other things. Two childcare workers “hit the children in the face, made them fight other children, shook them, kicked them, pushed them, [and] stepped on them,” among other abusive acts, while the center’s director “never reported the ongoing abuse to an appropriate authority.” The children’s parents filed a negligence action alleging the government breached its affirmative duty to care for and protect children in its custody. The government moved to dismiss for lack of subject matter jurisdiction and failure to state a claim under the Federal Tort Claims Act’s intentional tort exception. The district court granted dismissal and denied leave to amend. The Eleventh Circuit held that the parents’ claims arose from the government’s independent duty—grounded in Georgia law and the voluntarily adopted childcare criteria—to supervise and protect the children, and that the employment status of the abusers was independent of the parents’ negligence claims. The court held that the parents’ claims “f[e]ll outside the intentional tort exception to the FTCA’s sovereign immunity waiver,” and that the district court erred in failing to allow leave to amend. The court vacated the dismissal and request to amend, and remanded. Judge Newsom concurred, stating that he saw two paths to recovery for the parents, a negligence claim “if it involves the breach of a duty unconnected to the intentional tort-feasor’s employment status,” and a claim “if the intentional tortfeasor was either not a government employee or a government employee acting outside the scope of his employment” (Doe v. United States of America, No. 23-- (11th Cir. Feb. 3, 2026)).

5th Cir.: Constitutional claims failed because deceased cadet had voluntarily participated. A police-academy cadet collapsed and later died after participating in a mandatory self-defense course. During a self-defense simulation, he “complained repeatedly of lightheadedness, thirst, and fatigue,” but was allegedly “‘denied water’ and was not ‘permitted any breaks.’” He ultimately required assistance from instructors who stopped the exercise only after he could no longer continue. He was helped to a break room and was given water. He lost consciousness, and EMS personnel took him to the hospital, but he never regained consciousness, and died two days later. The cadet’s wife sued the city and officers present at the simulation under Section 1983, alleging the instructors violated the trainee’s Fourth Amendment and Fourteenth Amendment rights, and asserted bystander claims against the other officers present. The city and officers moved to dismiss under Rule 12(b)(6), alleging that the trainee’s spouse failed to plausibly allege Fourth and Fourteenth Amendment violations, and “establish any constitutional duty to provide medical care in an employment setting.” A magistrate recommended the claims be dismissed, and the district court adopted the magistrate’s findings. The spouse appealed. The Fifth Circuit concurred with the district court’s findings, finding that the claims under the Fourth and Fourteenth Amendments were properly dismissed, noting that the trainee “voluntarily submitted to the training simulation.” The derivative claims against the other officers for bystander liability, and against the city for training failures, were also properly dismissed (Kennedy v. City of Arlington, Texas, No. 25-10259 (5th Cir. Feb. 4, 2026)).

1st Cir.: Employee bartered child custody for ex-wife’s silence in suit against postal service. In an employment action brought by a postal employee against the Postal Service, alleging civil rights violations and related torts, the employee and his former spouse were engaged in an acrimonious custody dispute when, shortly before trial, counsel for the Postal Service announced that the former spouse would testify for the defense. The employee contacted her and, according to testimony, sought to dissuade her from testifying by linking custody concessions to her refusal to appear. The Postal Service moved for an evidentiary hearing based on a recorded portion of their call, and the court convened a three-day hearing and found clear and convincing evidence of witness tampering, thereby engaging in conduct constituting fraud on the court. The court held that dismissal was the appropriate sanction. The employee appealed. The First Circuit affirmed, finding that the district court reasonably found that “there was clear and convincing evidence showing that [the employee] improperly attempted to dissuade [his ex-wife] from testifying in the Postal Service case,” that the employee “engaged in a fraud on the court,” and that the court “acted within its discretion” in dismissing the case (Tomasini v. DeJoy, No. 23-1914 (1st Cir. Feb. 2, 2026)).

7th Cir.: Fax request fell short of ERISA ‘substantial compliance.’ A retirement-plan participant divorced his former spouse in 2022, then instructed his secretary to fax a request to the plan’s benefits center asking that the former spouse be removed “from his ‘health, vision[,] and dental insurance and as a beneficiary from [his] 401k, pension[,] and life insurance accounts.’” The plan removed the ex-spouse from the participant’s health, vision, and dental insurance. However, as to the retirement account, the plan updated her status to “ex-spouse,” but did not remove her as the primary beneficiary before the participant died in January 2023, prompting competing claims by the participant’s estate and by the former spouse. The plan filed an interpleader action, and the district court later joined the contingent beneficiary’s estate as a necessary party and granted summary judgment sua sponte to the estate, holding that the faxing of the request “constituted substantial compliance with the terms of the [p]lan and, thus, were sufficient to remove [the ex-spouse] as the primary beneficiary.” On appeal, the Seventh Circuit considered whether the informal fax constituted “substantial compliance” and held that it did not, because the participant “did not even attempt to utilize the proper procedures,” noting that “[n]owhere in the plan documents is the participant allowed to request a beneficiary change via fax.” The court reversed and remanded with instructions to enter judgment for the former spouse (Packaging Corporation of America Thrift Plan for Hourly Employees v. Langdon, No. 25-1859 (7th Cir. Feb. 2, 2026)).

Cases: PensionBenefitPlans EmployeeStatus EvidenceDiscovery IndividualRights TortClaims StateLawClaims