New York Law

New York State DOL Issues Regulations on Payroll Debit Cards

September 19, 2016

On September 7, 2016, the New York State Department of Labor adopted regulations governing the payment of employee wages by any method other than cash or check, including direct deposit and payroll debit cards.  The purpose of the new rules, which will become effective on March 7, 2017, is to ensure that workers who are paid via payroll debit cards have access to their wages in full without being subjected to hidden fees. At least seven business days before taking action to pay employees via payroll debit cards, employers must satisfy certain notice requirements and obtain employees’ informed consent.  For example, employers must provide employees with:
  • a plain language description of all of the employee’s options for receiving wages;
  • a statement that the employer may not require the employee to accept wages by payroll debit card or direct deposit;
  • a statement that the employee may not be charged for any fees for services that are necessary for the employee to access his/her wages in full; and
  • if offering the option of payroll debit cards, a list of locations of fee-less ATMs within a reasonable travel distance from the employee’s workplace or residence (a link to a website containing such information is sufficient).
Additionally, if employees are covered by a collective bargaining agreement which provides the method(s) of payment by which employees must be compensated, the employer must obtain the union’s approval before paying employees by payroll debit card. Under the new rules, employers will not be able to pass the costs associated with payroll debit cards onto employees, nor will they be able to accept kickbacks from card issuers, card sponsors, or third parties for delivering wages via payroll debit cards.  Significantly, employees who choose to receive their wages via a payroll debit card will:
  • have access to at least one (1) fee-less ATM within a reasonable travel distance from where the employees work or live;
  • have access to unlimited withdrawals from a fee-less ATM; and
  • not incur fees for:  checking their balance; maintenance; account inactivity; overdraft; contacting customer service; receiving written statements or transaction histories; closing an account; card replacement (at reasonable intervals); taking action necessary to receive wages or hold the payroll debit card; or point of sale transactions.
Unsurprisingly, business spokespersons predict that New York employers will shy away from using payroll debit cards once these new requirements become effective.  One advocate described the new rules as “unworkable.” It is worth noting that the new rules will not apply to employees working in a bona fide executive, administrative, or professional capacity who earn in excess of $900 per week, nor will they apply to employees working on a farm not connected with a factory.

New York\'s Fantasy Sports Law at Work

August 19, 2016

On August 3, 2016, Governor Andrew Cuomo signed a law legalizing fantasy sports in New York.  The timing is critical to the industry, as it may enable major fantasy sports providers to reopen operations in New York by the beginning of the National Football League season in September.  Football is easily the most popular U.S. sport for fantasy sports. It’s hard to anticipate the full impact of the new law on New Yorkers’ level of participation in fantasy sports.  But it’s safe to predict that many thousands of them will be back in the game soon.  Most of these participants are employees somewhere, and many will be tempted to research or set their lineups during work time instead of performing their regular jobs.  With this in mind, here’s a fantasy sports primer for New York employers. Overview of Fantasy Sports Americans have participated in fantasy sports for more than 30 years.  Originally, the concept was for a group of friends, perhaps co-workers, to get together at the beginning of the season for a particular professional sports league and select a team of players from among those actually playing in the league.  Each fantasy team earns points based on the real-life performance of their “players.”  Then, in essence, whichever team has the most points over the course of the season wins the fantasy league. The internet facilitated the expansion of fantasy sports, making it much easier to administer leagues, including those with participants from various geographic locations. Over the past few years, a new breed of fantasy sports has rapidly emerged.  So-called “daily” fantasy sports (popularly abbreviated as “DFS”) contests have been developed to enable people to pick a new team or teams as often as each day, rather than be stuck with the same players over the course of a whole season.  Technically, the name of this sub-category of fantasy sports is something of a misnomer.  DFS has developed to have contests ranging from only a small subset of a particular league’s games in a single day to a number of games spread out over a whole week.  But the key distinction is that the winner is determined based on a much shorter period than an entire season. Because the results of DFS contests are based on so few games within a sport, they more closely resemble betting on particular games.  As a result, this type of fantasy sports has drawn legal attack in a number of states even though the traditional season-long fantasy games have been generally tolerated with little challenge.  In fact, since 2006, a federal law has seemingly carved out fantasy sports from prohibitions on internet gambling.  However, the Unlawful Internet Gambling Enforcement Act does not itself make fantasy sports of any variety legal under state laws. Scope of the New Fantasy Sports Law Fundamentally, the New York law specifically declares that “interactive fantasy sports are not games of chance.”  In other words, the Legislature has found that, based on the skill involved in these games, playing them is not gambling in New York. The law is not technically limited to DFS.  Rather, it encompasses more traditional fantasy sports games as well, even though the earlier-created season-long fantasy sports have not been subject to much scrutiny in the past. Now, any person or entity that wishes to operate any fantasy sports contests in New York where entry fees are paid must register with the New York State Gaming Commission.  The law provides for temporary permits to be issued to operators who had already been providing fantasy sports games prior to November 10, 2015 (when the New York State Attorney General had declared daily fantasy sports to be illegal). Significantly, this law specifically prohibits the following people from playing fantasy sports where an entry fee is paid:
  • Any member, officer, employee or agent of a fantasy sports operator or registrant;
  • Certain family members living in the same household as a member, officer, employee, or agent of a fantasy sports operator or registrant;
  • Anyone with non-public confidential information about fantasy sports contests;
  • Any athlete whose performance may be used to determine the outcome of a fantasy sports contest;
  • Any sports agent, team employee, referee, or league official associated with any sport or athletic event on which contests are based;
  • Anyone located in a state where fantasy sports contests are prohibited; and
  • Any minor under the age of 18.
The legislation also includes various safeguards intended as consumer protection measures and imposes a 15% state tax on gross revenues earned by fantasy sports operators.  The tax revenue will go into the State Lottery Fund. Notably, this new law may not finally resolve the legal status of fantasy sports in New York.  Despite the Legislative declaration that fantasy sports are not games of chance, the New York Constitution does still generally prohibit “gambling” other than state-operated lotteries, pari-mutuel betting on horse races, and casino gambling as specifically authorized by the Legislature.  In addition, it also remains debated whether federal law permits or prohibits particular forms of fantasy sports. Effect on Employee Productivity Various estimates suggest that more than 50 million people played fantasy sports in the U.S. and Canada in 2015.  Millions of those people play DFS, with exact numbers increasingly difficult to estimate due to ongoing restrictions to access from state to state.  It is likely that millions of New Yorkers had played DFS before the State Attorney General shut down the major contest providers late last year.  Indeed, the New York State Legislature declared in the new statute that “the internet has become an integral part of society, and interactive fantasy sports a major form of entertainment for many consumers.”  Undoubtedly, the number of people playing DFS in New York State will increase exponentially (from near zero under the recent moratorium) when the major contest providers reopen in the state. DFS is, by its nature, typically more time consuming than traditional season-long fantasy sports.  Even casual players can spend hours in a day researching the best matchups for that day’s/week’s games.  It is this research, and the reality that it affects DFS performance, that has enabled the New York Legislature to find that fantasy sports are games of skill.  DFS players who don’t conduct some meaningful level of research are essentially throwing their money away in the long run.  So the motivation to spend time selecting teams is clear. What does this mean?  DFS players have to make time to play.  Some, perhaps many, will do so at work, using their employer’s equipment, or when they should be sleeping to rest up for the next day.  This can lead to lost work time, lost productivity while working, and even risk to computer systems through viruses or other malware.  Thus, employers may soon come to prefer that their employees avoid DFS, even to a greater degree than traditional fantasy sports. What can employers do if DFS or other fantasy sports become a problem for their employees? Restrictions on Employers Section 201-d of the New York Labor Law generally prohibits employers from taking adverse employment action against applicants and employees based on their recreational activities.  The Labor Law specifically defines “recreational activities” as “lawful, leisure-time activity, for which the employee receives no compensation and which is generally engaged in for recreational purposes, including but not limited to sports, games, hobbies, exercise, reading and the viewing of television, movies and similar material.” Based on this definition, it’s not clear whether playing daily fantasy sports would qualify as a recreational activity.  DFS didn’t exist when the term was defined, and season-long fantasy sports were not nearly as prevalent as they are today.  Various aspects of the definition could be questioned regarding this form of entertainment. First, to be covered by Section 201-d, the activity has to be “lawful.”  As discussed above, there is still some question as to the legality of fantasy sports, especially DFS, notwithstanding the new state law purporting to legalize them. Second, is participation a “leisure-time activity, for which the employee receives no compensation”?  Many people participating in fantasy sports are compensated, some quite handsomely.  However, the compensation does not come from the employer.  So, does this mean that the law only applies to people who are unfortunate enough never to win? Third, are daily fantasy sports “generally engaged in for recreational purposes”?  Fantasy sports are just a hobby for many participants.  But, for many others, DFS is actually a business venture.  Does this mean the individual’s motivations for playing determine their protection under the law? Even assuming an employee would be considered to be engaging lawful recreational activities when playing fantasy sports, the Labor Law does allow employers to put some restrictions on their participation.  The law only protects employees for engaging in recreational activities outside work hours, off of the employer's premises, and without use of the employer's equipment or other property.  So, employers can prohibit employees from playing DFS or other fantasy sports while at work and while using company computers, for example. Finally, Section 201-d also has a general exception that eliminates employee protection for activity that “creates a material conflict of interest related to the employer's trade secrets, proprietary information or other proprietary or business interest.”  This exception might create an argument, for example, that employers in the sports industry or with clients or customers in that industry could prohibit certain employees (even if they are not specifically prohibited from playing under the fantasy sports law) from participating in DFS altogether based on the risk of jeopardizing business relationships or enabling “insider trading.” Conclusion Employers across New York should be prepared for the impact of fantasy sports in the workplace, particularly the re-introduction of daily fantasy sports.  Most employers will at least want to ensure that DFS players are still getting their work done and not compromising company electronic systems and equipment. At a minimum, computer usage policies should be reviewed and revised if necessary.  For example, generic prohibitions on using company internet access for “gambling” arguably may no longer encompass fantasy sports.  Accordingly, new provisions addressing fantasy sports, including DFS, may be warranted. Some employers in related industries should take special precautions to advise employees (and other related parties) that they are prohibited from playing fantasy sports based on their relationship to the sports or contests involved. Ultimately, if you experience a particular problem with employees based on their participation in fantasy sports, you will need to navigate not only New York Labor Law Section 201-d as addressed above, but other standard sources of employee protections, such as employment contracts, collective bargaining agreements, and anti-discrimination laws.  It is highly recommend that you consult with an experienced labor and employment attorney before taking any disciplinary action based on fantasy sports or other “off-duty” conduct.

When Reclassifying Employees from Exempt to Non-Exempt, Don't Forget the Wage Theft Prevention Act Notices

July 21, 2016

Employers in New York are familiar with the requirement, imposed by the Wage Theft Prevention Act, that every new hire must be provided with notice of their rate of pay (including overtime rate of pay if applicable), how the employee will be paid (i.e., by the hour, shift, day, etc.), the regular payday, and information regarding the employer.  Employers are obligated to provide an additional written notice anytime that information changes, unless the employee's wage rate is increased and the next pay stub reflects the increase.  Each time notice is given, the employer is required to obtain a signed acknowledgment from the employee, and must keep that signed acknowledgement on record for six years.  Upcoming changes to the white collar exemptions under the Fair Labor Standards Act may implicate a need to issue new notices if employees are reclassified from exempt to non-exempt. As the law currently stands, employees must earn a minimum salary of $455.00 per week ($23,660 per year) to qualify for one of the white collar exemptions (administrative, executive, or professional) under the FLSA.  New York currently has a higher salary threshold of $675.00 per week ($35,100 per year) for an employee to qualify for the administrative or executive exemptions.  The current threshold for employees to meet the "highly compensated employee" exemption under the FLSA is $100,000 per year. Starting on December 1, 2016, however, these thresholds will rise substantially.  The increased salary threshold for the administrative, professional, and executive exemptions will be $913.00 per week ($47,476 per year).  The new threshold for the highly compensated employee exception will be $134,004 per year.  These thresholds are set to increase every three years after that, with the first increase taking effect on January 1, 2020. This change will force many employers to reclassify employees who are currently exempt, but do not meet the new salary threshold, as non-exempt.  Any such reclassification will affect the rates those employees are paid, how they are paid, and their eligibility for overtime pay.  Given this impact, what legal obligation will the reclassification trigger?  You guessed it -- the WTPA’s notice requirement. Accordingly, employers should be mindful of this notice requirement when reclassifying employees in order to comply with the updated regulations, or when making any other changes to employee’s rates or method of payment.  Although the "pay stub exemption" may apply in some limited instances, the best practice is to provide employees with formal written notice that complies with the WTPA when making any such changes.

New York State DOL (Yet Again) Issues Draft Regulations on Payroll Debit Cards and Other Wage Payment Issues

July 12, 2016

By Andrew D. Bobrek
After a nearly eight-month delay, the New York State Department of Labor once again published draft Regulations governing the payment of employee wages via payroll debit cards, direct deposit, and other means.  As we previously reported, these proposed Regulations would impose several new requirements for New York employers, even for those who merely pay employees by direct deposit.  These proposed Regulations – now NYSDOL’s third version – are currently open for public comment. The most recent version is almost identical to the version last proposed in October 2015, with NYSDOL making only two substantive changes:  (1) the newly-proposed Regulations make clear that the requirement to provide employees with a “list of locations” -- where they can access and withdraw their wages -- only applies to the use of payroll debit cards; and (2) the newly-proposed Regulations remove language included in the October 2015 version, which provided that, when paid by check, employees must have at least one means of no-cost local access to the full amount of wages through check cashing or deposit of a check at a financial institution (but NYSDOL nevertheless stated that employers must still “ensure that employees are able to access their wages in order for payment to be effective in accordance with the requirements of Section 191 of the Labor Law”).  Notably, NYSDOL reiterated that the proposed Regulations will not be effective until six months after they are published and adopted in final form. The reason for the eight-month delay on the part of the NYSDOL in issuing these revised draft Regulations is unclear, but it is expected that final rule-making will now proceed in a timely manner.

Employment Law's "Hulk"-Like Superhero -- The Faithless Servant Doctrine -- Just Got Stronger

June 6, 2016

By Howard M. Miller

One of the many joys of parenthood is the opportunity to relive one’s childhood.  To a parent who grew up on the old-school comic books, the steady roll-out by Marvel Studios of big budget super-hero movies offers a unique bonding opportunity with one’s children, which can take place over a uniquely unhealthy massive bowl of movie theater popcorn (with the glee from the experience outweighing the fear of the hyper-caloric intake). My kids frequently ask me about my favorite superhero.  To me it is undoubtedly Hulk, a character who metes out just-desserts -- an admirable goal for a management-side employment lawyer (the side of angelic innocence).  Hulk is not Hulk unless provoked.  As Bruce Banner he is a quintessential good guy, just like all of us in the world of Human Resources. That brings us to Hulk’s relationship with employment law.  We need a Hulk when our employees steal from us, harass other employees, take our trade secrets, and secretly compete against us.  But in the real world where does one find a muscle-bound green skinned superhero that is pretty much indestructible?  Enter the faithless servant doctrine. In New York, the faithless servant doctrine is more than one hundred years old.  This doctrine, a subspecies of the duty of loyalty and fiduciary duty, requires an employee to forfeit all of the compensation he/she was paid from his/her first disloyal act going forward.  The doctrine applies to a wide-array of employee misconduct, including unfair competition (Maritime Fish Products, Inc. v. World-Wide Fish Products, Inc., 100 A.D.2d 81, 474 N.Y.S.2d 281 (1st Dep't 1984)), sexual harassment (Astra USA Inc. v. Bildman, 455 Mass. 116, 914 N.E.2d 36 (2009)), insider-trading (Morgan Stanley v. Skowron, 2013 WL 6704884 (S.D.N.Y. 2013)), theft (William Floyd Union Free School District v. Wright, 61 A.D.3d 856, 877 N.Y.S.2d 395 (2d Dep’t 2009)), and off-duty sexual misconduct (Colliton v. Cravath, Swaine & Moore, LLC., 2008 WL 4386764 (S.D.N.Y. 2008)). As the faithless servant doctrine becomes more well-known, the full breadth of its power continues to be litigated.  Specifically, just how much damage can this doctrine inflict?  Disloyal employees have argued that forfeiture under the doctrine should be limited to a so-called “task-by-task” apportionment.  Under this argument, if an employee earns for example $200,000 a year and steals $20,000 over five months in four separate transactions, the remedy is a return of the stolen funds and a salary forfeiture of a day’s pay on each of the four days of misconduct.  But, whatever superficial appeal this argument may have, once the employee steals we enter Hulk’s world, and Hulk does not deliver justice with surgical precision.  Rather, in the immortal words of Captain America, Hulk “smashes.” In William Floyd Union Free School District v. Wright, 61 A.D.3d 856, 877 N.Y.S.2d 395 (2d Dep’t 2009) (argued by the author of this article), the Second Department rejected the task-by-task apportionment argument, holding:  “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.”  The forfeiture in that case included all salary and deferred compensation, including paid health and life insurance in retirement.  Turning back to our hypothetical, the faithless servant doctrine requires not only the return of the $20,000 stolen, but also forfeiture of all of the salary paid to the employee after the first theft and any related deferred compensation, such as contractual payments owed upon retirement. Despite the William Floyd decision, disloyal employees have tried in earnest to limit the scope of the forfeiture.  On June 2, 2016, the Third Department added strength and vigor to the faithless servant doctrine in a case where an employee committed repeated acts of theft.  In City of Binghamton v. Whalen (also argued by the author of this article), the Court reaffirmed the strict application of the faithless servant doctrine:  “We decline to relax the faithless servant doctrine so as to limit plaintiff’s forfeiture of all compensation earned by the defendant during the period of time in which he was disloyal.”  The Court specifically noted that the faithless servant doctrine is designed not merely to compensate the employer, but also to create a harsh deterrent against disloyalty by employees.  The Court ordered the disloyal employee to pay back $316,535.54 (which was all of the compensation earned by the employee during the nearly six-year period of disloyalty), and held that the employer was relieved of the obligation to provide the disloyal employee with health insurance benefits earned through his employment. The City of Binghamton decision solidifies the Hulk-like power of the faithless servant doctrine -- a remedy that serves up justice with “smashing” deterrent impact.

Division of Human Rights Adopts Regulation Prohibiting Discrimination Based on Relationship or Association

June 3, 2016

By Alyssa N. Campbell
On May 18, the New York State Division of Human Rights adopted a new regulation prohibiting employment discrimination based on an individual’s relationship or association with a member of a protected category covered by the New York Human Rights Law.  The proposed rule was published in the State Register on March 9.  The agency did not receive any public comments regarding the proposed rule, and adopted the rule without making any changes. According to the Division, the purpose of the new regulation is to confirm long-standing precedent supporting anti-discrimination protection for individuals based on their relationship or association with members of a protected class.  The new regulation applies to employment discrimination and all other types of discrimination protected under the New York Human Rights Law, including housing, public accommodations, access to educational institutions, and credit.  In order to prove a claim of employment discrimination in this context, an individual must prove that he or she was subjected to an adverse employment action based on the individual's known relationship or association with a member of a protected class. This latest expansion of the protections afforded by the New York Human Rights Law underscores the importance of basing all employment decisions on legitimate reasons that can be supported by objective facts, and documenting the legitimate reasons for those decisions.  Supervisors should also be trained to apply workplace policies and standards fairly and uniformly among all employees, to further reduce the risk of discrimination claims.

New York Increases the Minimum Wage and Enacts Paid Family Leave

April 12, 2016

By Kerry W. Langan
On April 4, 2016, Governor Cuomo signed legislation, as part of the 2016-2017 state budget, enacting a $15.00 minimum wage plan and a 12-week paid family leave benefit. Minimum Wage Increase The legislation includes a historic increase in the minimum wage (currently $9.00 per hour) that will ultimately reach $15.00 per hour for all workers in New York State.  The increases vary based on employer size and geographic location as follows:
  • For large employers (11 or more employees) whose employees work in New York City, the state minimum wage will increase to $11.00 per hour on December 31, 2016, $13.00 per hour on December 31, 2017, and $15.00 per hour on December 31, 2018.
  • For small employers (10 or fewer employees) whose employees work in New York City, the state minimum wage will increase to $10.50 per hour on December 31, 2016, $12.00 per hour on December 31, 2017, $13.50 per hour on December 31, 2018, and $15.00 per hour on December 31, 2019.
  • For employers with employees working in Nassau, Suffolk, and Westchester Counties, the state minimum wage will increase to $10.00 per hour on December 31, 2016, $11.00 per hour on December 31, 2017, $12.00 per hour on December 31, 2018, $13.00 per hour on December 31, 2019, $14.00 per hour on December 31, 2020, and $15.00 per hour on December 31, 2021.
  • For all employers with employees working outside of New York City and Nassau, Suffolk, and Westchester counties, the state minimum wage will increase to $9.70 per hour on December 31, 2016, $10.40 per hour on December 31, 2017, $11.10 per hour on December 31, 2018, $11.80 per hour on December 31, 2019, and $12.50 per hour on December 31, 2020.  The minimum wage will continue to increase to $15.00 thereafter on an indexed schedule to be set by the Director of the Budget in consultation with the Commissioner of the Department of Labor.  These increases will be published on or before October 1st of each year.
The legislation also includes a safety measure allowing the Division of Budget, beginning in 2019, to conduct an annual analysis to determine whether there should be a temporary suspension or delay in any scheduled increases.  These minimum wage increases do not affect the timing and amounts of the minimum wage increases for fast food workers that were incorporated into the Hospitality Industry Wage Order effective December 31, 2015. Paid Family Leave In addition to a gradual increase in the minimum wage, a paid family leave program was enacted that will eventually result in eligible employees being entitled to up to 12 weeks of paid family leave when they are out of work for the following qualifying reasons:  (1) to care for a family member with a serious health condition; (2) to bond with a child during the first 12 months following birth or placement for adoption or foster care; or (3) because of a qualifying exigency arising out of the fact that the employee’s spouse, domestic partner, child, or parent is on active duty (or has been notified of an impending call or order to active duty) in the armed forces. In order to be eligible for paid family leave, employees must work for a covered employer – as defined under the New York Disability Law – for 26 or more consecutive weeks.  Family leave benefits will be phased in as follows:
  • Beginning on January 1, 2018, eligible employees will receive up to 8 weeks of paid family leave in a 52-week calendar period at 50% of the employee’s average weekly wage, capped at 50% of the state average weekly wage;
  • Beginning on January 1, 2019, eligible employees will receive up to 10 weeks of paid family leave in a 52-week calendar period at 50% of the employee’s average weekly wage, capped at 50% of the state average weekly wage;
  • Beginning on January 1, 2020, eligible employees will receive up to 10 weeks of paid family leave in a 52-week calendar period at 60% of the employee’s average weekly wage, capped at 60% of the state average weekly wage; and
  • Beginning on January 1, 2021 and each year thereafter, eligible employees will receive up to 12 weeks of paid family leave in a 52-week calendar period at 67% of the employee’s average weekly wage, capped at 67% of the state average weekly wage.
Like with the minimum wage increase, the legislation includes a safety measure whereby the Superintendent of Financial Services has the discretion to delay the scheduled increases listed above. Family leave benefits may be payable to employees for family leave taken intermittently or for less than a full workweek in increments of one full day or one-fifth of the weekly benefit.  Significantly, employers are not required to fund any portion of this benefit.  Rather, the program is funded entirely through a nominal employee payroll deduction.  The maximum employee contribution will be set by the Superintendent of Financial Services on June 1, 2017 and annually thereafter. Entitlement to paid family leave is also subject to certain medical certification and notification requirements.  Paid family leave benefits must be used concurrently with leave under the Family and Medical Leave Act.  In addition, employees are prohibited from collecting disability and paid family leave benefits concurrently. In addition to paid leave, this legislation contains a provision for the continuation of health benefits which provides as follows:  “In accordance with the Family and Medical Leave Act (29 U.S.C. §§ 2601-2654), during any period of family leave the employer shall maintain any existing health benefits of the employee in force for the duration of such leave as if the employee had continued to work from the date he or she commenced family leave until the date he or she returns to employment.” Lastly, employees who take paid family leave must be restored to their current position or to a comparable position with equivalent pay, benefits, and other terms and conditions of employment. Clearly, there are a lot of questions that remain unanswered regarding the paid family leave program.  However, covered employers should begin to prepare for the implementation of this legislation.

How Would a Noncompete Hold in the Star Wars Universe?

February 25, 2016

By Howard M. Miller
The following article was first published in Employment Law 360 on February 24, 2016. Being both an employment law geek and a "Star Wars" geek, I can’t help but watch the "Star Wars" movies through the troublesome lenses of my employment lawyer glasses, nor can I practice employment law without various “Yodaisms” running through my mind (e.g., “Do or do not. There is no try.”).  Having watched all of the "Star Wars" movies, it occurred to me while watching "Star Wars:  The Force Awakens," that the most fundamental source of disturbances in the Force are key characters — employees, if you will, for the purposes of this article — joining competitor masters (employers) with catastrophic results.  Darth Vader, Count Dooku and Kylo Ren all started their careers with the Jedi before leaving to a competitor. But what if they couldn’t?  How would a New York court view a noncompete agreement in the context of the Jedi Order?  Below is my best estimate as to how it would play out, at least in the lower court. SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK -----------------------------------------------------------------------X LUKE SKYWALKER’S JEDI ACADEMY, Plaintiff, -against-                                                                                                     Index No. 2016/R2D2 KYLO REN, THE FIRST ORDER AND SNOKE, Defendants. -----------------------------------------------------------------------X Miller, J. This case comes before the Court on Plaintiff’s motion for a preliminary injunction:  (1) enjoining defendant Kylo Ren from working for Defendants Snoke and the First Order; and (2) enjoining the Defendants from using Plaintiff’s trade secrets and usurping its customer relationships.  For the reasons stated below, subject to Plaintiff’s posting of a sufficient undertaking, the Court grants the motion for a preliminary injunction. Facts The Court assumes the parties’ familiarity with the facts and will state them only briefly here.  Plaintiff at all times relevant to this proceeding operates a Jedi Training Academy for the purpose of teaching its pupils (Padawans) how to use the “light-side” of the Force.  Defendant Kylo Ren is a former employee of the academy who was terminated for various alleged acts of misconduct (discussed, infra).  During the course of his employment, Ren signed a noncompete agreement in which he agreed not to compete against the academy for a period of one year following his separation. Notwithstanding the noncompete agreement, immediately upon his termination, Ren commenced employment with Snoke and the First Order.  The parties stipulate that Snoke and the First Order are direct competitors of the academy and the constituency it serves.  The present litigation ensued.  The parties agreed to venue this matter in New York County, as it is apparently the only venue in which individuals from the “bar scenes” from "Star Wars IV" and "Star Wars VII" can blend in without feeling self-conscious.  New York law controls this matter despite the choice of law provision regarding “Intergalactic Law” because that law is too employer-friendly.  See Brown & Brown Inc. v. Johnson, 25 N.Y.3d 364 (2015). Standard for Issuing an Injunction The standard for obtaining a preliminary injunction is well-known.  The moving party must show the following:  (1) the likelihood of ultimate success on the merits; (2) threat of irreparable injury absent the granting of the preliminary injunction; and (3) that the equities are balanced in its favor.  See McLaughlin, Pivin, Vogel Inc. v. W.J. Nolan & Company Inc., 114 A.D.2d 165, 172 (2d Dep’t 1986). Enforceability of the Noncompete The Court of Appeals has espoused a three-pronged test for determining whether a restrictive employment covenant will be enforced.  An agreement will be enforced if it:  (1) is no greater than is required for the protection of the legitimate interest of the employer, (2) does not impose undue hardship on the employee, and (3) is not injurious to the public.  BDO Seidman v. Hirshberg, 92 N.Y.2d 382, 388-89 (1999).  Legitimate employer interests include protection of trade secrets and customer relationships. Ren argues that, as a threshold matter, because he was terminated without cause, the noncompete cannot be enforced against him.  Post v. Merrill Lynch, Pierce, Fenner & Smith Inc., 48 N.Y.2d 84, 88 (1979).  There is currently a split in the appellate divisions on this issue.  The Second Department follows the rule against enforcement where an employee was terminated without cause.  Grassi & Co., CPAs PC v. Janover Rubinroit LLC, 82 A.D.3d 700, 702 (2d Dep’t 2011); Borne Chemical Co. Inc. v. Dictrow, 85 A.D.2d 646 (2d Dep’t 1981).  Conversely, the First Department is more wary in its application of the rule.  Bell & Co. PC v. Rosen, 2012 N.Y. Misc. LEXIS 6230 (N.Y. Cnty. Sup. Ct. Nov. 8, 2012), aff’d, 979 N.Y.S.2d 564 (1st Dep’t 2014). The Fourth Department has also held on numerous occasions that involuntary termination without cause will not necessarily preclude enforcement of a noncompete.  Eastman Kodak Co. v. Carmosino, 77 A.D.3d 1434, 1436 (4th Dep’t 2010); Wise v. Transco Inc., 425 N.Y.S.2d 434 (4th Dep’t 1980). This Court need not resolve this conflict because the Court finds that Ren has stolen trade secrets.  Consequently, the Court can and will issue a preliminary injunction on this issue irrespective of the existence of a valid noncompete.  See, e.g., Churchill Communications Corp. v. Demyanovich, 668 F. Supp. 207, 211 (S.D.N.Y. 1987) ("Of course, an employee’s use of an employer’s trade secrets or confidential customer information can be enjoined even in the absence of a restrictive covenant when such conduct violates a fiduciary duty owed by the former employee to his former employer."). Trade Secrets A trade secret is defined as "any formula, pattern, device or compilation of information which is used in one's business, and which gives [the owner] an opportunity to obtain an advantage over competitors who do not know or use it."  North Atlantic Instruments Inc. v. Haber, 188 F.3d 38, 49 (2d Cir. 1999); see also Ashland Management Inc. v. Janien, 82 N.Y.2d 395, 407 (1993) (discussing six-factor test).  Plaintiff argues that as an employee of the academy, Ren was entrusted with access to all manner of trade secrets, including how to use various mind tricks, construct a lightsaber and turn into a “force ghost.”  Further, Ren was provided with lists of individuals sympathetic to the cause of the rebellion (customer lists). Ren argues that despite the mystique of the Jedi, nothing they do rises to the level of a trade secret.  According to Ren, a cursory Google search will reveal how to do mind tricks and any elementary school student with a computer and a basement can construct their own lightsaber (albeit poorly shaped).  We disagree with this analysis. While Ren is correct that an employer has the burden of demonstrating that "it took substantial measures to protect the secret nature of its information," (see Geritrex Corp. v. Dermarite Industries LLC, 910 F. Supp. 955, 961 (S.D.N.Y. 1996)), Plaintiff has met its burden.  Only a select few are provided with its secrets, its secrets are only revealed in secure locations, and any computerized lists are password-protected, encrypted and stored in the vaults of droids.  Further, the trade secrets cannot, as Ren contends, be so easily learned or reverse engineered.  Ren’s own incomplete lightsaber reveals that guarded secrets are still needed to complete it. In any event, the record is clear that Ren took physical copies of the academy’s confidential information, namely sympathizer lists, a partially working lightsaber, and force ghost manuals. It is well-settled that "an employee’s illegal physical taking or copying of an employer’s files or confidential information constitutes actionable unfair competition."  Advance Magnification Instruments Ltd. v. Minuteman Optical Corp., 135 A.D.2d 889 (3d Dep’t 1987). Further, "if there has been a physical taking or studied copying of confidential information, the court may in the proper case grant injunctive relief, not necessarily as a violation of a trade secret, but as an egregious breach of trust and confidence while in plaintiff’s service."  Garbor GuyButler Corporation v. Cowen & Co., 155 Misc.2d 39 (N.Y. Cnty. Sup. Ct. 1992); see also Ecolab Inc. v. Paolo, 753 F. Supp. 1100, 1112 (E.D.N.Y. 1991) ("Moreover, even if this information did not independently rise to the level of a trade secret, [the former employees’] wrongful retention of the customer information would justify treating it as a trade secret."); Marcone APW LLC v. Servall Co., 85 A.D.3d 1693, 1696 (4th Dep’t 2011) (“In any event, even assuming, arguendo, that the misappropriated information is not entitled to trade secret protection, we conclude that the court properly determined that injunctive relief is warranted on the alternative ground of breach of trust by the individual defendants in misappropriating plaintiff’s proprietary information.”) Irreparable Harm "It is clear that irreparable harm is presumed where a trade secret has been misappropriated."  Lumex v. Highsmith, 919 F. Supp. 624, 628 (E.D.N.Y. 1996).  This is because a trade secret, once lost, is lost forever; its loss cannot be measured in money damages.  North Atlantic Instruments Inc. v. Haber, 188 F.3d 38, 49 (2d Cir. 1999) (quoting FMC Corp. v. Taiwan Tainan Giant Industrial Co., 730 F.2d 61, 63 (2d Cir. 1984). Scope of the Injunction Ren is directed to return all hard copies of any trade secrets he has taken from the academy and destroy any electronic version of any trade secret in his possession.  For a period of one year, Ren may work for Snoke and the First Order, but not in any capacity that requires the use of the Force.  Plaintiff argues that under the Inevitable Disclosure Doctrine, Ren should be barred from working for the First Order in any capacity.  The Court will address this argument after further briefing in the context of summary judgment on Plaintiff’s request for a permanent injunction.  Ren may discuss joining the First Order with individuals and entities who are his own relatives, personal friends and/or “who, without solicitation, approach [him],” (Eastern Business Systems Inc. v. Specialty Business Solutions LLC, 292 A.D.2d 336, 338 (2d Dep’t 2002); see also Frank Crystal & Co. v. Dillmann, 84 A.D.3d 704 (1st Dep’t 2011); Weiser LLP v. Coopersmith, 74 A.D.3d 465 (1st Dep’t 2010)), or who wanted to leave the academy on their own accord.  Data Systems Computer Centre Inc. v. Tempesta, 171 A.D.2d 724 (2d Dep't 1991). The foregoing shall constitute the Order of this Court.

New York State Division of Human Rights Adopts Regulations Prohibiting Discrimination Against Transgender Individuals

January 22, 2016

By Christa Richer Cook
As we reported in a blog post last month, although neither the federal nor state law expressly prohibits discrimination on the basis of gender identity or expression, Governor Cuomo bypassed the legislative process and urged the New York State Division of Human Rights to issue regulations that will interpret the state’s anti-discrimination prohibitions to cover transgender individuals.  Just this week, the New York State Division of Human Rights adopted those regulations.  The regulations, which became effective on Wednesday, make discrimination or harassment against transgender applicants and employees unlawful, and require employers to accommodate transgender individuals who have been diagnosed with a medical condition referred to as “gender dysphoria” – a medical condition related to an individual having a gender identity different from the sex assigned to him or her at birth. In addition, the New York City Commission on Human Rights recently issued a guidance document on what constitutes discrimination against transgender people under the New York City Human Rights Law.  The Commission’s guidance provides numerous examples of employer actions that violate the NYCHRL, including failure to use an individual’s preferred name, pronoun or title, denying transgender employees the use of restrooms consistent with their gender identity, and even enforcing dress codes that make differentiations based on sex or gender.  The Commission’s recent guidance also announces much more strict penalties for transgender discrimination.  Under the NYCHRL, civil penalties can range from $125,000 to $250,000 for violations that are deemed to be “willful, wanton or malicious.”  The Commission announced that, among other factors, it will consider the lack of an adequate discrimination policy as a factor in assessing penalties. Employers should review and revise their EEO and anti-harassment policies in light of these recent changes.  Employers should also consider taking steps to educate and train their employees regarding these new requirements.

New York Adopts Tipped Worker and Fast Food Worker Minimum Wage Regulations

December 23, 2015

By Andrew D. Bobrek
As we reported previously, the New York State Department of Labor (“NYSDOL”) proposed a series of new regulations earlier this year.  These proposals included new regulations raising the minimum wage and reducing the maximum available “tip credit” for certain workers in the hospitality industry, and new regulations implementing the recommendation of Governor Cuomo’s Fast Food Wage Board to raise the minimum wage for fast food workers to $15.00 per hour.  Today, both sets of regulations were formally adopted and published in the New York State Register. These new regulations are effective on December 31, 2015, and contain no changes from what NYSDOL originally proposed earlier this year. For more information about these regulations, readers can access our prior blog article.  Among other things, as of December 31, 2015, certain tipped workers who fall under New York’s Hospitality Industry Wage Order must be paid at least $7.50 per hour and may only receive a maximum “tip credit” of $1.50 per hour.  Also, as of this same date, covered fast food workers must be paid at least $9.75 per hour if they are employed outside of New York City or at least $10.50 per hour if they are employed inside of New York City.  These minimum wages for covered fast food workers are set to automatically increase annually, eventually reaching $15.00 per hour on December 31, 2018 in New York City and on July 1, 2021 in all other areas of New York. There may be legal challenges to these recently-adopted regulations, in particular the regulations impacting employers in the fast food industry.  We will continue to report any noteworthy developments here.

The Division of Human Rights Proposes Regulations to Expand Anti-Discrimination Protections to Transgender Individuals

December 23, 2015

By Christa Richer Cook
After several unsuccessful attempts to pass the Gender Expression Nondiscrimination Act, which would have extended the nondiscrimination protections in the New York Human Rights Law to transgender individuals, Governor Cuomo took the unprecedented step of directing the New York State Division of Human Rights to issue regulations that would protect transgender applicants and employees in New York. The proposed regulations, which were published in the New York State Register on November 4, 2015, make discrimination and harassment on the basis of gender identity or the status of being transgender a form of sex discrimination prohibited under state law.  The proposed regulations would also make “gender dysphoria” a protected disability under state law, prohibit harassment on the basis of one’s gender dysphoria, and obligate employers to provide accommodations to employees diagnosed with gender dysphoria.  The regulations define “gender dysphoria” as a “recognized medical condition related to an individual having a gender identity different from the sex assigned to him or her at birth.” The 45-day comment period recently ended, which clears the way for the Division of Human Rights to adopt the regulations.  However, it is anticipated that the Division will wait until early 2016 to begin enforcing the Human Rights Law with respect to transgender applicants and employees.  The anti-discrimination statute in New York City and several other city ordinances already extend protection to transgender individuals.  In addition, earlier this year, the Department of Justice and the EEOC began interpreting the sex discrimination prohibition in Title VII of the Civil Rights Act to cover discrimination against transgender individuals.  The Office of Federal Contract Compliance Programs also issued a final rule prohibiting federal contractors from discriminating against employees or applicants based on their sexual orientation or gender identity. A great deal of litigation is likely to occur in this area in the upcoming year, not only to challenge the application of the various federal and state laws to transgender individuals, but also to address complex and sensitive issues including how employers will need to handle issues of confidentiality, employee benefits, accommodations for restroom access, and other issues that might arise for employees transitioning from one gender to another.  Employers would be well-advised to begin to review their employee handbooks and other employment policies and practices to prepare for these expanded protections for transgender employees and applicants.

Start Preparing Now for Wage and Hour Changes on the Horizon

November 17, 2015

By Katherine R. Schafer
As we have previously reported on this blog, and as most of you are well aware, the U.S. Department of Labor has published its highly-anticipated proposed revisions to the “white collar” exemptions under the Fair Labor Standards Act (“FLSA”).  The proposed rule would increase the required salary level for exempt employees to a projected $50,440 per year in 2016 and establish a procedure for automatically updating the minimum salary levels on an annual basis going forward without further rulemaking.  The proposed rule also significantly increases the salary threshold to qualify for the “highly compensated employee” exemption to the annualized value of the 90th percentile of weekly earnings of full-time salaried workers ($122,148 annually).  According to the USDOL, nearly 5 million employees currently classified as exempt will immediately become eligible for overtime pay should the proposed rule be adopted as the final rule. Current best estimates are that we could see the final rule published next year.  In the meantime, there are steps employers can take now to start preparing for compliance, beginning with identifying those current exempt positions with salaries that would fall below the Department’s proposed $50,440 per year (or $970 per week) threshold or the increased salary threshold for highly compensated employees.  These employees will either need to receive a bump in salary to put them over the minimum threshold or be reclassified as non-exempt.  For those likely to be reclassified, employers should start trying to estimate future compensation costs by looking at how many hours per week these employees are currently working. Employers should also start thinking about whether they will need to hire additional full-time, part-time or seasonal employees or whether they will need to compensate newly reclassified employees at a lower hourly rate (as compared to their current weekly salary divided by 40) to offset the potential increase in overtime costs.  In determining hourly rates for newly reclassified employees, keep in mind that the minimum wage in New York increases to $9.00 on December 31, 2015.  In the Hospitality Industry, tipped workers and fast food workers in New York may also be in line for wage rate increases on December 31, 2015, pursuant to proposed regulations issued by the New York State Department of Labor. Finally, employers should start thinking about how these changes will be communicated to their employees.  An effective communications strategy will be an important part of managing the uncertainty and anxiety surrounding the potential reclassification of an unprecedented number of positions in the workplace.