The Context
Over 20 Democrat-led states have filed a lawsuit in Massachusetts challenging a Trump administration policy that blocks nonprofit and government workers from the Public Service Loan Forgiveness (PSLF) program. The rule, targeting organisations working with immigrants and transgender youth, grants the education secretary unilateral authority to deem an employer as having a ‘substantial illegal purpose’ based on a ‘preponderance of the evidence’ standard. Over 1 million Americans—teachers, firefighters, nurses, public defenders—have had loans cancelled under PSLF since 2007. The July 1, 2026 implementation of broader repayment changes remains scheduled, leaving millions of borrowers in legal limbo.
The Risk
This is executive overreach dressed as regulation. For directors in New Zealand, the parallel is stark: the Companies Act 1993 imposes a duty of care on directors to ensure the company does not act in a manner that is oppressive, unfairly discriminatory, or in breach of statutory obligations. If a New Zealand entity were to adopt a policy that unilaterally excludes employees from a statutory benefit scheme—such as KiwiSaver or ACC—based on a vague ‘preponderance of evidence’ standard, directors could face personal liability for breach of duty under section 135 (reckless trading) or section 137 (duty of care). The US lawsuit alleges the policy is ‘a political loyalty test disguised as a regulation’, chilling protected activities. Directors must ask: could your organisation’s policies be similarly weaponised by executive discretion, exposing you to claims of bad faith or ultra vires action?
The Control
The strategic solution is to demand legal scrutiny of any policy that grants a single executive officer unilateral discretion over statutory entitlements. Directors should require a formal legal opinion on whether such delegation is ultra vires the empowering legislation, and ensure board-approved policies include objective, verifiable criteria—not vague standards like ‘preponderance of the evidence’. Implement a governance protocol that flags any policy change affecting employee benefits for mandatory independent review before adoption.
The Challenge
These are the critical questions you should be raising at the board table:
| Does our organisation have any policy that grants a single executive officer unilateral discretion over statutory employee benefits, and if so, what objective criteria govern that discretion? | |
| What legal opinion have we obtained on whether our current policies could be challenged as ultra vires or as a breach of directors’ duties under the Companies Act 1993? | |
| If a court found our policy constituted a ‘political loyalty test’, what personal liability would directors face for fiduciary breach or oppression of employee rights? |