Under a bill passed by the New York Legislature, employers in New York will not have to issue annual wage notices to employees in 2015 and beyond. On June 19, 2014, a bill was passed in both the New York Assembly and Senate that eliminates the requirement contained in the Wage Theft Prevention Act that employers provide a wage notice to all employees by February 1 of each year. This is certainly a welcome development for employers in New York who found the annual wage notice requirement to be extremely burdensome and costly. The bill also increases the penalties for an employer's failure to provide a wage notice upon hiring a new employee and for an employer's failure to provide appropriate wage statements to employees, and imposes significant consequences on employers who are found to be repeat offenders. If Governor Cuomo signs the bill, the legislation will take effect 60 days after it is signed.
The bill does not change the requirement that employers provide a wage notice upon hiring a new employee. The Department of Labor has issued templates for wage notices that can be used by employers for this purpose. The bill increases the damages that can be recovered for an employer's failure to provide the initial wage notice within ten business days of an employee's first day of employment to $50.00 per work day that the violation occurred up to a maximum of $5,000.00 (up from $50.00 per work week up a maximum of $2,500.00). The bill also increases the damages that can be recovered for an employer's failure to provide appropriate wage statements to employees to $250.00 per work day that the violation occurred up to a maximum of $5,000.00 (up from $100.00 per work week up to a maximum of $2,500.00). An employer who is faced with a claim that it failed to provide the required wage notice or wage statement can still avoid liability by establishing that it made complete and timely payment of all wages due to the employee who was not provided the wage notice or wage statement.
If an order to comply has been issued to an employer who has previously been found to have violated the wage payment laws or to an employer whose violation is found to be willful or egregious, the employer will be required to report certain data regarding the wages paid to employees and the hours worked by employees (without employee identifying information), which the Department of Labor will publish on its web site. Employers who are found to have committed a wage payment violation for the second time in a six-year period could be liable for a maximum civil penalty of $20,000, which is double the maximum civil penalty that can be imposed for a first violation in a six-year period.
The bill also provides that an employer similar in operation or ownership to a prior employer who has been found to have violated the wage payment laws will be liable for the prior employer's violations. This provision prevents an owner (or owners) of a business entity from avoiding liability by dissolving the business entity and creating a new one that has essentially the same business purpose.
The bill adds a provision to the Limited Liability Company Law providing that the ten members of a limited liability company ("LLC") with the largest percentage ownership will be personally liable for all wages and salaries due to employees of the LLC. This new provision of the Limited Liability Company Law is similar to Section 630 of the Business Corporation Law, which provides that the ten largest shareholders of a corporation are personally liable for all wages and salaries due to employees of the corporation.
The bill also adds a provision to the Construction Industry Fair Play Act, requiring construction contractors and subcontractors who have been found to be in violation of the wage payment laws to notify all of its employees regarding the nature of the violations. The notification must be made by an attachment to the pay checks of all employees at all work sites.
On the whole, this legislation (if it is signed by the Governor) will be a positive development for employers in New York, who will no longer have to engage in the costly and time-consuming process of issuing wage notices to all employees between January 1 and February 1 of each year.
New York has enacted new legislation, which will have a significant impact on the state’s commercial transportation industry. The legislation was initially made effective on March 11, 2014, but was subsequently amended to incorporate some “technical corrections” and to include a new, later effective date of April 10, 2014. Known as the “Commercial Goods Transportation Industry Fair Play Act” (the “Act”), this new law is intended to curtail what New York government officials view as the “misclassification” of workers – as independent contractors, rather than employees – in the transportation industry. As summarized below, the legislation will not only significantly restrict the use of such independent contractors, but will also impose other new requirements applicable to New York businesses in the commercial goods transportation industry.
Why is New York Taking This Action?
In addition to the Act, New York previously enacted similar legislation in the construction industry, and, more generally, has established a multi-agency “task force” designed to curb the purported misclassification of workers in New York. Through these efforts, New York government officials are seeking to recoup “lost” revenue, e.g., employment-based tax withholdings not captured where there is a non-employment relationship between the business and individual service provider. In contrast, where there is an employer-employee relationship – now presumed to be the case for commercial drivers and businesses covered by the Act – there is an affirmative obligation to withhold and pay these taxes to the state.
The Act is therefore another step in the state’s effort to “crack down” on the use of independent contractors by New York businesses. It should also be noted by management that organized labor, particularly the Teamsters union, has been strongly supportive of this legislation. It can therefore be reasonably expected that the Teamsters and other unions will utilize this legislation as an aid to organizing workers in the transportation industry.
Presumption of Employment Status for Covered Commercial Drivers
The centerpiece of the new legislation is the establishment of a presumed employment relationship for certain drivers who provide “commercial goods transportation services for a commercial goods transportation contractor.” (These underlined terms are explained below.)
In other words, covered commercial drivers who provide these services are presumed to be employees under the law. It is then left to the respective business receiving such services to “rebut” this presumption by proving the driver in question is a bona-fide “independent contractor” or constitutes a “separate business entity.” As explained below, businesses seeking to disclaim an employment relationship with covered drivers must satisfy specific, multi-factor tests under either prong.
Businesses failing to rebut the presumption of employment status through these tests will face significant penalties. Additionally, the misclassification of workers can raise other significant legal issues, such as workers’ compensation insurance coverage failures, unemployment insurance contribution shortfalls, and improper income tax withholding and reporting.
The Act applies to all “commercial goods transportation contractors.” This term is broadly defined to include:
[A]ny sole proprietor, partnership, firm, corporation, limited liability company, association or other legal entity that compensates a driver who possesses a state-issued driver’s license, transports goods in the state of New York, and operates a commercial motor vehicle as defined in subdivision four-a section two of the transportation law.
The term “commercial goods transportation services” is defined as “the transportation of goods for compensation by a driver who possesses a state-issued driver’s license, transports goods in the state of New York, and operates a commercial motor vehicle as defined in subdivision four-a section two of the transportation law.” In turn, the referenced section of New York’s transportation law defines a “commercial motor vehicle” as including a “motor vehicle used on a highway in intrastate, interstate or international commerce [that] has a gross vehicle weight rating or gross combination weight of ten thousand one pounds or more, whichever is greater.”
Rebutting the Presumption of Employment Status
A covered business can rebut the presumption of employment status in one of two ways.
First, the business can show the driver is a bona-fide “independent contractor.” To do so, all of the following criteria must be met under the Act’s so-called “A-B-C” test:
A. the individual is free from control and direction in performing the job, both under his or her contract and in fact;
B. the service must be performed outside the usual course of business for which the service is performed; and
C. the individual is customarily engaged in an independently established trade, occupation, profession, or business that is similar to the service at issue.
Second, the business can show the driver is a “separate business entity.” To establish this alternative defense, the business must specifically show that each and every part of a detailed, eleven-factor test is met.
Significantly, one of the “technical corrections” to the Act made explicit that even if one of the above tests is otherwise met, a person performing transportation services will be presumed to be an employee if his/her services are not reported on an IRS Form 1099.
What are the Penalties for Non-Compliance?
The Act imposes new, significant penalties for businesses failing to properly treat covered drivers as employees.
Violations deemed to be “willful” are punishable by substantial civil and criminal penalties. Willful violations are defined as violations where a party “knew or should have known that his or her conduct was prohibited.” Civil remedies include a penalty of $2,500 per misclassified worker for a first violation, and a penalty of $5,000 per misclassified worker for subsequent violations. Criminal penalties include up to 30 days imprisonment or a fine not to exceed $25,000 for the first violation, and up to 60 days imprisonment or a fine not to exceed $50,000 for subsequent violations.
These civil and criminal penalties may also be imposed under certain circumstances against corporate officers and against shareholders who own or control at least ten percent of the corporation’s outstanding stock. Further, non-compliant businesses, as well as certain corporate officers and shareholders, may be “debarred” from public works contracts in New York for a period of up to one year for a first violation and up to five years in the event of subsequent violations.
Agency Information Sharing
In the event of a violation, the Act additionally mandates prompt information sharing among the New York State Department of Labor (“NYSDOL”), Workers’ Compensation Board, and Department of Taxation and Finance. Thus, a misclassification finding by one state agency will in all likelihood raise other significant legal issues before other state agencies.
Other Requirements
The Act imposes other additional requirements for New York businesses in the transportation industry, some of which appear to apply regardless of whether the respective business actually uses independent contractors.
For example, the Act expressly prohibits employers and their agents from retaliating “through discharge or in any other manner against any person in the terms of conditions of his or her employment” for:
making, or threatening to make, a complaint to an employer, co-worker or to a public body that rights guaranteed under [the Act] have been violated;
causing to be instituted any proceeding under or related to [the Act]; or
providing information to, or testifying before, any public body conducting an investigation, hearing or inquiry into any such violation of a law, rule or regulation by such employer.
Violations of this anti-retaliation provision are subject to the Act’s civil penalty scheme discussed above and to a private cause of action.
Additionally, the Act requires all commercial goods transportation contractors to post a notice describing:
the responsibility of independent contractors to pay taxes;
the rights of employees to workers’ compensation, unemployment benefits, minimum wage, overtime and other protections; and
the protections against retaliation.
According to the Act, this notice must also contain contact information for individuals to file complaints or inquire with the Commissioner of the NYSDOL about employment classification status, and must be provided in English, Spanish or other languages required by the Commissioner. It is expected that the NYSDOL will soon publish a model notice on its website. Businesses failing to comply with this posting requirement will face monetary penalties of up to $1,500 for a first violation and up to $5,000 for subsequent violations.
Conclusion
New York has significantly raised the stakes for covered businesses in the transportation industry and their use of independent contractors. These businesses should carefully consider the potential implications of such use, as well as the other requirements imposed by the Act.
Although the Act permits covered businesses to rebut the new presumption of employment status under certain, limited circumstances, management should carefully consider whether the necessary factors can indeed be met in the event of a legal challenge. Given that this legislation is brand new, it remains to be seen how the NYSDOL and other state regulators will interpret and apply these new tests.
That said, one point is clear: New York state regulators will have their “sights set” on the classification of workers as independent contractors within the commercial transportation industry. Be prepared!
On February 7, 2014, the Appellate Division, Fourth Department, issued a significant decision regarding restrictive covenants. In Brown & Brown, Inc. v. Johnson, the plaintiffs terminated the defendant-employee and then sued her for violating non-competition and non-solicitation provisions in her employment agreement, which contained a provision stating that Florida law would govern. The Fourth Department considered several issues, including: (1) whether to enforce the Florida choice-of-law provision for the restrictive covenants; (2) whether employers can enforce restrictive covenants against employees who were involuntary terminated; and (3) whether the court must partially enforce an overbroad restrictive covenant where the agreement expressly provides for such partial enforcement.
First, the Fourth Department considered the issue of whether the Florida choice-of-law provision in the agreement was enforceable. The court noted that choice-of-law provisions are generally enforceable in New York as long as the chosen law: (1) bears a reasonable relationship to the parties or the transaction; and (2) is not “obnoxious” to New York public policy. The Fourth Department concluded that while Florida law met the first prong of this test, it failed the second prong. The court explained that under New York law, restrictive covenants are enforceable if they are no greater than necessary to protect a legitimate interest of the employer, are not unduly harsh or burdensome to the employee, and do not injure or harm the public. In contrast, Florida law does not permit courts to consider the hardship to the employee in determining whether to enforce a restrictive covenant. Based on this difference, the Fourth Department ruled that the choice-of-law provision in the employment agreement was unenforceable, and proceeded to apply New York law to the dispute. Significantly, the Fourth Department’s ruling did not depend on the specific facts of this case, so it is unlikely that the Fourth Department would enforce a Florida choice-of-law provision in any employer-employee restrictive covenants.
Second, the Fourth Department considered defendants’ argument that plaintiffs could not enforce the restrictive covenants because they terminated the defendant-employee. Defendants relied on a Court of Appeals decision which involved an agreement that employees would forfeit their benefits under pension and profit-sharing plans if they competed with their employer after the end of their employment. The Court of Appeals held that the employer could not enforce the forfeiture-for-competition clause because the employees were involuntarily terminated without cause. In Brown & Brown, the Fourth Department refused to apply the Court of Appeals decision to create a per se rule that an involuntary termination without cause always renders a restrictive covenant unenforceable.
Third, the Fourth Department ruled that the non-solicitation covenant was overbroad and unenforceable because it prohibited solicitation of any clients of plaintiffs’ New York offices, regardless of whether the employee developed a relationship with those clients during her employment. Plaintiffs argued that the court should partially enforce the covenant because plaintiffs only sought to prevent the defendant-employee from soliciting clients with whom she developed a relationship during her employment. The Fourth Department disagreed and explained that partial enforcement is not justified where the covenant is imposed in connection with hiring or continued enforcement or where the employer knew the covenant was overbroad. The court ruled that several factors weighed against partial enforcement in this case. Specifically, the employee received the covenant upon hire and did not receive any benefit for signing the agreement other than continued employment. In addition, the Fourth Department held that the employer was on notice that the covenant was overbroad based on existing case law. Plaintiffs argued that partial enforcement was required because the employment agreement expressly provided for partial enforcement in the event that a court found the restrictive covenant unenforceable. The Fourth Department disagreed and found that plaintiffs’ position would permit employers to use their superior bargaining position to impose unreasonable restrictive covenants without any real risk that courts would deem them unenforceable in their entirety.
In light of this decision, New York employers should review any choice-of-law provisions governing their restrictive covenants. If these provisions select Florida law or any other state laws that vary substantially from New York law, they may not be enforceable in the Fourth Department or other New York courts. Employers should also review the scope of their restrictive covenants to determine whether they are overbroad under New York law. Based on the reasoning set forth in the Brown & Brown decision, New York courts may sever any overbroad restrictive covenants in their entirety from agreements, even if there is a provision for partial enforcement.
The following article was published in Employment Law 360 on February 14, 2014.
The Alex Rodriguez (“A-Rod”) saga is playing out like a classic Greek tragedy. With hubris-laced legal soliloquies and a sports media dutifully taking on its role as the Chorus, all that appears to be missing is the blind soothsayer. But if justice is truly blind, then perhaps seeing the legal future for A-Rod merely requires referencing some ancient legal doctrines that are right before our eyes.
With a mix of metaphor, the world watched as A-Rod took his swings at Major League Baseball, the Players Union, the Yankees, and just about anyone else he could blame other than himself. As A-Rod now contemplates his next proverbial at-bat, the Yankees, in particular, possess a little-known legal weapon that we have not heard anyone talking about. It is a legal doctrine that could dramatically shift the playing field and require A-Rod to not only forfeit all future contractual monies, but also provide restitution to the Yankees for all compensation and benefits earned during the years of his disloyal acts. Enter Faithless Servant Doctrine.
The mighty A-Rod, in a pure legal sense, is a New York employee like any other. Every employee in New York owes a duty of loyalty to his/her employer. The breach of that duty carries with it harsh, even Draconian consequences, including the forfeiture of all compensation, even deferred compensation that was paid to the employee during the period of disloyalty. Consequently, A-Rod beware: The Faithless Servant Doctrine, with its massive equitable forfeitures, may be centuries old, but it has recently seen a marked resurgence in New York with stunning results.
In William Floyd Union Free School District v. Wright, a Long Island school district (which was represented by Bond, Schoeneck & King) used the Faithless Servant Doctrine to sue a former assistant superintendent and a former treasurer. Both defendants pleaded guilty to grand larceny, admitting that they used their positions as school district officials to embezzle. The school district sought to recover the compensation paid to the two employees during the period of their theft, plus any deferred compensation that would have been owed to the defendants in retirement.
New York law regarding disloyal or faithless performance of employment duties allows the principal to recover “from its unfaithful agent any commission paid,” and “an employer is entitled to the return of any compensation that was paid to the employee during the period of his disloyalty.” On the appeal of the William Floyd case, the Appellate Division affirmed the ordering of the full forfeiture of compensation paid to the employees during the time they were stealing from the school district. The Appellate Division also ordered that the school district was permanently relieved of its obligation to pay contractual retirement benefits. In language now cited in other cases, the Court held: “Where, as here, defendants engaged in repeated acts of disloyalty, complete and permanent forfeiture of compensation, deferred or otherwise, is warranted under the Faithless Servant Doctrine.” In addition to the benefits forfeiture and recovery of the stolen funds, the school district recovered more than $800,000 in previously paid compensation to one of the defendants.
The William Floyd decision has appeared to breathe a new vitality into the Faithless Servant Doctrine. Two such cases are of particular note. In Astra USA Inc. v. Bildman, the Massachusetts Supreme Court interpreted and applied New York law, holding that New York’s Faithless Servant Doctrine permitted an employer to recover compensation it had paid to a high level executive who had been the subject of numerous sexual harassment complaints by other employees. Under Astra, the doctrine can reach misconduct that does not involve theft or financial damages to the employer. In upholding a multi-million dollar complete forfeiture the court aptly stated: “For New York … the harshness of the remedy is precisely the point.”
Just a few weeks ago, in Morgan Stanley v. Skowron, a New York federal court ordered the defendant, a former portfolio manager, to forfeit $31,067,356.76. In Morgan Stanley, the defendant engaged in insider trading, which violated the plaintiff corporation’s Code of Conduct as well as federal securities laws. In applying the forfeiture, the Court noted that the Faithless Servant Doctrine applies when an employee has either “breached his/her duty of loyalty or has engaged in misconduct and unfaithfulness that substantially violates the contract of service such that it permeates the employee’s service in its most material and substantial part.”
Like the defendant in Morgan Stanley, A-Rod’s use of performance enhancing drugs – as found by an arbitrator with possible preclusive effect – substantially violated his contract of services in the “most material and substantial part.” Put another way, insider trading – the ultimate unfair advantage in the securities industry – is no different in a legal sense than the use of performance enhancing drugs – the ultimate unfair advantage in professional baseball. And the use of such drugs may not even be the sole extent of the disloyal conduct.
If and when A-Rod chooses to step up to the plate again, it will be interesting to see if the Yankees and/or Major League Baseball bring out their new “closer.”
On December 30, 2013, the New York State Department of Taxation and Finance issued a Technical Memorandum providing guidance on a new tax incentive for employers who employ students in New York and pay them the state minimum wage rate. This tax incentive coincides with the three-stage state minimum wage increase. The New York minimum wage rate increased to $8.00 per hour on December 31, 2013, and is scheduled to increase to $8.75 per hour on December 31, 2014, and $9.00 per hour on December 31, 2015.
The minimum wage reimbursement credit took effect on January 1, 2014, and will end on December 31, 2018. It allows eligible employers, or owners of eligible employers, to obtain a refundable tax credit equal to the total number of hours worked by certain students during the taxable year for which they are paid minimum wage, multiplied by the applicable tax credit rate for that year. The tax credit rate is $.75 for 2014, $1.31 for 2015, and $1.35 for 2016 through 2018. If during this time, the federal minimum wage is increased to more than 85% of New York’s minimum wage, the tax credit rates will be reduced to an amount equal to the difference between New York’s minimum wage and the federal minimum wage.
An eligible employer is a corporation, sole proprietorship, limited liability company, or a partnership that is subject to certain New York taxes (i.e., personal income tax, franchise tax, etc.). A student qualifies for the tax credit if the student is:
16-19 years old;
employed in New York State;
paid at the New York minimum wage rate during some part of the tax year; and
enrolled full-time or part-time in an eligible educational institution during the period he or she is paid the New York minimum wage rate.
The educational institution does not have to be located in New York State, but it must maintain a regular faculty and curriculum, and must have a regularly enrolled student body in attendance where its educational activities are regularly carried on. Examples of educational institutions include secondary schools, colleges, universities, and trade, technical, and vocational schools. Correspondence schools, on-the-job training courses, and schools only offering courses through the Internet do not qualify as educational institutions.
Employers must obtain documentation to verify that the individual is enrolled as a student at an eligible educational institution, and must make such documentation available to the Tax Department upon request. Examples of acceptable documentation include:
a student identification card;
a current or future course schedule issued by the school;
a letter from the school verifying the student’s current or future enrollment; or
working papers (a Student General Employment Certificate – AT-19).
Employers should familiarize themselves with this new tax incentive, as many may employ students who qualify for the credit. To the extent employers do employ such students, they should immediately verify the student’s status and obtain the appropriate documentation. It is important to note that employers are prohibited from discharging an employee and replacing that employee with an eligible student in order to qualify for the tax credit. Additionally, a student who is used as the basis for this tax credit may not be used by an employer as the basis for any other tax credit.
Employers who have employees in New York are required to issue annual notices under the Wage Theft Prevention Act ("WTPA") to all New York employees between January 1 and February 1, 2014. This is the third year that the WTPA annual notice requirement has been in effect.
As we have summarized in previous blog posts, the annual notice must contain the following information:
the employee's rate or rates of pay (for non-exempt employees, this must include both the regular and overtime rate)
the employee's basis of pay (e.g., hourly, shift, day, week, salary, piece, commission, or other)
allowances, if any, claimed as part of the minimum wage (e.g., tips, meals, lodging)
the regular pay day; and
the name (including any "doing business as" name), address, and telephone number of the employer.
The annual notice must be provided to each employee in English and in the primary language identified by each employee, if the New York State Department of Labor ("NYSDOL") has prepared a dual-language form for the language identified by the employee. At this point, the NYSDOL has prepared dual-language forms in Chinese, Haitian Creole, Korean, Polish, Russian, and Spanish. The English-only and dual language forms created by the NYSDOL are available on the NYSDOL's web site. If an employee identifies a primary language other than one of the six languages for which a dual-language form is available, the employer may provide the annual notice in English only. Employers are not required to use the NYSDOL's forms, but employers who create their own forms must be sure that all of the information required by the WTPA is included.
Employers are required to obtain a signed acknowledgment of receipt of the annual notice from each employee. The acknowledgment must include an affirmation by the employee that the employee accurately identified to the employer his/her primary language, and that the notice was in the language so identified. Signed acknowledgments must be maintained for at least six years.
Employers should be advised that the New York State Department of Labor ("NYSDOL") adopted new Regulations last week, amending the state’s Minimum Wage Orders. A Notice of Adoption of these changes was published in the State Register on December 11, 2013, and the corresponding amendments will take effect on December 31, 2013.
These amendments follow enactment of recent state legislation to raise the minimum wage in New York to $8.00 per hour, also effective December 31, 2013. Accordingly, the new Minimum Wage Orders reflect this change, as well as future scheduled raises in the state minimum wage to $8.75 per hour as of December 31, 2014, and to $9.00 per hour as of December 31, 2015.
Notably, the new Minimum Wage Orders also increase the minimum salary basis amounts for employees to qualify for the executive and administrative exemptions to $600.00 per week (up from $543.75 per week), inclusive of board, lodging, and other allowances and facilities. This amount is also slated to increase to $656.25 as of December 31, 2014, and to $675.00 as of December 31, 2015.
Finally, employers should take note that the amended Minimum Wage Orders impose other pay-related changes for employees in certain industries, including changes to the amount of allowances that may be taken for the provision of meals, lodging, and (where applicable) tips.
New York State has enacted several changes to the laws regarding unemployment insurance. The changes are the result of the insolvency of the State’s Unemployment Insurance Trust Fund and the State’s need to repay the federal government $3.5 billion borrowed to cover increased costs incurred during the recession. The New York State Department of Labor ("NYSDOL") has issued two fact sheets -- one directed toward employers and one directed toward claimants -- concerning these changes in the law. Certain of the important revisions affecting employers are identified below.
Under the new law, the payment of severance to an employee, in an amount exceeding the maximum weekly benefit (which is currently $405 per week), will preclude an employee from receiving unemployment insurance benefits. However, unemployment insurance benefits will be available if the severance is not paid out until thirty days after the employee’s last day of employment.
The law has been amended to provide that employers who submit incomplete or late submissions to NYSDOL regarding the agency’s request for information concerning a claim for benefits will not be relieved of any charge to its account, even where the agency later determines that the employee was ineligible for benefits or received an overpayment. Employers must complete fully and return the agency’s request for information by the date specified by NYSDOL.
The new law increases an employer’s contributions based on the Federal Unemployment Tax Act. Specifically, under current law, this employer tax is based upon the number of employees and the employer’s experience rating. However, the tax is assessed only on the first $8,500 of each employee’s earnings. Beginning January 1, 2014, the tax will be assessed on the first $10,300 of each employee’s earnings and this amount will rise gradually each year moving forward.
Finally, the law requires employees to be “actively seeking work” in order to be eligible for benefits. Currently, the law eliminates benefits only for those who are not capable of work, or are not “ready, willing and able to work.” The revised law defines “actively seeking work” as being “engaged in systematic and sustained efforts to find work." The revised law also requires the agency to promulgate regulations on the issue and to set standards of proof necessary to establish these work efforts.
On October 16, our firm conducted a webinar, which provided a detailed explanation of the wage deduction regulations promulgated by the New York State Department of Labor ("NYSDOL") on October 9. If you wish to view a recording of the webinar in its entirety and print out a copy of the PowerPoint slides from the webinar, you can click here.
The New York State Department of Labor (“NYSDOL”) just published final regulations on its website, governing employee wage deductions under Section 193 of the Labor Law. According to NYSDOL, the final Section 193 regulations are effective today – October 9, 2013 – and will be codified at and replace the existing 12 N.Y.C.R.R. Part 195. As we previously reported, these regulations were published in draft form earlier this year and made available for public comment. The final regulations contain only minimal changes from this earlier draft version.
Most notably, the final Section 193 regulations retain and set forth detailed procedures which employers must follow when seeking to recover wage overpayments and advances by payroll deduction. As the Section 193 regulations are now in force and effective, it is imperative that employers establish and implement the correct procedures before attempting to recover overpayments and advances by payroll deduction. An employer’s failure to follow these mandatory procedures will create a presumption that the deductions were illegal.
Among other things, the final regulations also list specific prohibited deductions, impose precise requirements for obtaining proper “authorization” from employees, and provide guidance on what types of deductions may be deemed permissible “similar payments for the benefit of the employee.”
We will be following up soon with more detailed guidance on these and other issues under the final Section 193 regulations, and encourage you to check back for an updated post.
Beginning on October 29, 2013, an amendment to New York State’s smoking law prohibits smoking anywhere on the grounds of a general hospital or residential health care facility. The amendment also prohibits smoking in areas within 15 feet of any building entrance or exit, and within 15 feet of any entrance to or exit from the grounds of a general hospital or residential health care facility. Although there is a narrow exception for patients of residential health care facilities and their visitors or guests, there is no exception for employees of general hospitals or residential health care facilities. Therefore, general hospitals and residential health care facilities should take immediate steps to notify their employees of the new smoking restrictions and ensure that their employees comply with those restrictions effective October 29, 2013.
The amendment, signed into law by Governor Cuomo on July 31, 2013, modifies New York Public Health Law Section 1399-o, Subdivision 2, which governs smoking in outdoor areas. As a result of the amendment, general hospitals and residential health care facilities must prohibit their employees from smoking on their grounds and within 15 feet of all entrances to or exits from their grounds. However, depending on how the law is eventually interpreted, smoking might be permitted in employees' private vehicles parked on the grounds of general hospitals and residential health care facilities due to a “private automobile” exception in a pre-existing, unmodified provision of the smoking law. The Department of Health has not yet issued guidance on this issue, or on the new law generally.
Prior to the amendment, the only outdoor areas subject to the law were certain outdoor areas of schools and railroad stations. The smoking law’s restrictions on smoking in indoor areas (including indoor areas of general hospitals and residential health care facilities) are contained in a separate section and are not modified by the amendment.
As noted above, the law contains an exception for patients of residential health care facilities and their visitors or guests. This narrow exception permits these individuals to smoke in a designated smoking area that is at least 30 feet away from any building structure (other than a non-residential structure wholly contained in the designated smoking area). This exception does not apply to patients of general hospitals and their visitors or guests.
The New York Court of Appeals, in Barenboim v. Starbucks Corp., recently clarified the types of employees who may participate in tip-pooling arrangements and the extent to which employers may exclude otherwise tip-eligible employees from participating in a tip pool under the New York Labor Law.
Background
Under Starbucks’ tip policy, baristas and shift supervisors share tips collected each week. Two separate lawsuits were filed in federal court against Starbucks, challenging the policy as it applied to certain categories of employees. In one case, baristas, who take and deliver orders, stock product, and clean tables, alleged that shift managers could not lawfully participate in the tip pool because their supervisory duties rendered them ineligible for tips. In the other case, a group of assistant managers argued that because they perform some customer service-related duties and lack “full” managerial authority, Starbucks improperly excluded them from the tip pool. The U.S. District Court for the Southern District of New York ruled in favor of Starbucks in both cases, and the plaintiffs in both cases appealed.
Noting that the cases raised novel questions of state law, the U.S. Court of Appeals for the Second Circuit certified two questions to the New York Court of Appeals, the state’s highest court:
What factors determine whether an employee is an “agent” of his employer for purposes of N.Y. Labor Law Section 196-d and, thus, ineligible to receive distributions from an employer-mandated tip pool?
Does New York Labor Law permit an employer to exclude an otherwise eligible tip-earning employee under Section 196-d from receiving distributions from an employer-mandated tip pool?
The Court's Analysis of the Issues
Citing the New York State Department of Labor’s January 2011 Hospitality Industry Wage Order, the Court held that employees are tip-eligible even if they have managerial responsibility as long as they provide personal service to customers as a principal part of their jobs, rather than just on an occasional or incidental basis. However, an employee who has “meaningful authority” or control over subordinates is ineligible to participate in a tip pool.
The Court explained that “meaningful authority might include the ability to discipline subordinates, assist in performance evaluations or participate in the process of hiring or terminating employees, as well as having input in the creation of employee work schedules, thereby directly influencing the number and timing of hours worked by staff as well as their compensation.” The Court left it to the Second Circuit Court of Appeals to apply those principles to the specific facts of the baristas’ case.
With respect to the second issue, the Court concluded that Section 196-d of the New York Labor Law does not create an affirmative right for all tip-eligible employees to participate in tip-sharing arrangements. Although the Court stated that “there may be an outer limit to an employer’s ability to excise certain classifications of employees from a tip pool,” the Court found no evidence to suggest that Starbucks’ policy, as applied to assistant managers, reached that limit.
Impact on Employers
The Court’s decision provides some clarity regarding employees’ eligibility to participate in tip pools. However, because the Court did not apply the “meaningful authority” standard to the facts of the baristas’ case, the analysis remains somewhat unclear. Additionally, the Court did not identify which exclusions of tip-eligible employees might be considered unlawful. Accordingly, employers should consult with counsel before implementing tip-sharing arrangements.
