If YU wishes its “frum” schools (YU College and Stern, as opposed to ones open to goyim and frei “Jews” such as Cardozo) to be limited to Shomeri Mitsvos, they have to say so clearly, and understand that the government is likely to be reluctant to give them money (including tax exemptions), and employers, and graduate schools, will be biased against the alumni. If YU has successfully limited to school to Shomrei Mitsvos, they should win the current case (when it finally is fully litigated), but the state could revoke accreditation as well as tax exemption.
And if the government can tell Yeshiva, or any yeshiva, that observance of law takes precedence over religious teachings, you have effectively repealed the 1st amendment. Could a synagogue or mosque be punished for using a language other than English, or refusing to serve American cuisine such as port? Could politically incorrect religious institutions lose tax exemption status? If schools fail to meat a “woke” test, can they lose accreditation. This is a test case, with very high stakes as to whether America will continue its tradition of “Freedom of religion” which goes back to the 18th century and has become the best example of American “exceptionalism”, or whether the US will shift its approach to religion to the minimialist toleration of “freedom from religion”.