In December of 2013, New York enacted the Nonprofit Revitalization Act (the NPRA) which impacted all New York not-for-profit corporations as it sought to not only update New York’s Not-for-Profit Corporation Law (NPCL) but it also enacted several measures intended to strengthen the internal controls of nonprofits. The enactment of the NPRA impacted all New York nonprofits, with the majority of not-for-profit corporations taking action to update their by-laws and adopt new conflict of interest and whistleblower policies to comply with the changes to the NPCL.

While the NPRA was heralded as a much needed reform to the NPCL, there have been a number of issues created by the practical application of the NPRA’s measures. These issues have resulted in multiple clarifications to the NPRA, with the most recent being amendments adopted on December 11, 2015, when Governor Andrew Cuomo signed into law three changes to the NPRA (the December Amendments, found at: A. 7641, S. 5870, S. 5868 – A) which became effective immediately.

Among the changes made to the NPCL by the December Amendments, the revisions to several key definitions and provisions related to the conflict of interest and related party transaction rules are likely to have the greatest impact on the regular operations of nonprofits (the text of these revisions can be found in Senate Bill S. 5868-A).

First, the December Amendments broadened the scope of the conflict of interest and related party transaction rules by amending the definitions of "independent director", "relative" and "related party", and at the same time slightly narrowed the scope of these rules with revisions to the definitions of "affiliate" and "key employee". The changes to the definition of "independent director" further expand the classifications of individuals that do not qualify as independent directors to include certain individuals related to the corporation’s outside auditor. In short, any individual who serves as a director of a nonprofit and is, or has a relative who is, "a current owner, whether wholly or partially, director, officer or employee of the corporation’s outside auditor or who has worked on the corporation’s audit at any time during the past three years" is not an independent director.

The definition of "relative" was amended to clarify that domestic partners of a person’s children, grandchildren and great-grandchildren are relatives for purposes of the NPCL, where, prior to the December Amendments, only the domestic partners of the individual in question were included as relatives for purposes of the NPCL. Finally, the definition of "related party" was expanded to include "any other person who exercises the powers of directors, officers or key employees over the affairs of the corporation or any affiliate of the corporation" and such person’s relatives and controlled entities, in addition to the directors, officers and key employees, their relatives and controlled entities, of a corporation and its affiliates.

The scope of the conflict of interest and related party transaction rules were narrowed slightly with the revision to the definition of "affiliate" that eliminated entities under common control of a corporation from this definition. Following the December Amendments, affiliates are limited to "any entity controlled by or in control of" a corporation. Also, the definition of "key employee" was revised to provide that a key employee means any person in a position to exercise substantial influence over the affairs of a corporation as provided under the Internal Revenue Code (IRC) rules and regulations related to excess benefit transactions under IRC Section 4958 "to the extent such provisions are applicable." Many organizations will find this clarifying language helpful because the excess benefit transaction regulations include several classifications of individuals that could be considered as key employees that often have no application to an organization. For example, the IRC regulations include substantial contributors as potential "key employees" and this often has no application to organizations in the context of the NPCL’s conflict of interest and related party transaction rules.

Other changes enacted by the December Amendments that impact the application of the new conflict of interest and related party transaction rules relate to quorum requirements and the ability of an interested director to provide information related to a potential conflict of interest transaction. First, the December Amendments revise the quorum requirements found at NPCL §708(d) to clarify that if a quorum is present for a meeting the quorum will not be broken if a director is required to leave the meeting due to a conflict of interest or related party transaction. Second, the December Amendments revise provisions related to the operations of a corporation’s audit committee (NPCL §712-a(e)) and a corporation’s conflict of interest policy (NPCL §715-a(b)(3)) to provide that, although interested directors cannot participate in deliberations or voting on an interested matter, the Board or audit committee may request "that a person with an interest in the matter present information as background or answer questions at a committee or board meeting prior to the commencement of deliberations or voting related thereto." Finally, the December Amendments revised the annual conflict of interest disclosure statement requirements to provide that these disclosures may be submitted to a designated compliance officer, instead of the corporation’s Secretary.

Similar to the changes impacting the conflict of interest and related party transaction rules, the December Amendments made clarifications to NPCL provisions related to the compensation of directors. The NPRA amended NPCL §514(b) regarding compensation of members, directors or officers, to provide that reasonable compensation may be paid to these individuals but that no person who may benefit from such compensation may be present at or otherwise participate in any board or committee deliberation or vote concerning such person’s compensation. This provision created problems in its practical application with respect to the compensation of directors because if the board of a not-for-profit intended to set a uniform rate for director compensation, under the terms of NPCL §514(b) no director would be able to participate in the decision making process because each person would benefit from the compensation. The December Amendments, amend NPCL §514(b) to clarify that although an individual who may benefit from a compensation decision cannot be present or participate in a deliberation or vote on a compensation award, nothing in NPCL Sections 514(b) or 715(h) [related party transactions] shall be construed to prohibit "a director from deliberating or voting concerning compensation for service on the board that is to be made available or provided to all directors of the corporation on the same or substantially similar terms."

In addition to making numerous changes impacting the conflict of interest, related party transaction and director compensation rules, the December Amendments made several other important changes.

First, the NPRA had changed the traditional committee structure under the NPCL from "standing" and "special" committees, to new classifications of "committees of the board" and "committees of the corporation." The NPRA clearly provided that committees of the corporation did not have any authority to bind the corporation’s board but left ambiguity as to whether non-directors could be elected or appointed to such committees. The December Amendments clarify that non-directors may be elected to committees of the corporation in accordance with a corporation’s by-laws or, if the by-laws are silent, in the same manner as officers of a corporation are elected.

Second, the NPRA created a new requirement that certain corporations must adopt a whistleblower policy and that the whistleblower policy must be distributed to all of the corporation’s directors, officers, employees and volunteers who provide substantial services. Numerous clients have inquired as to whether posting the corporation’s whistleblower policy on their website or in their offices would satisfy this requirement. Fortunately the December Amendments included clarifying language directly addressing these concerns providing that, for purposes of satisfying the distribution requirement, a whistleblower policy may be posted on a corporation’s website or at the corporation’s offices in a conspicuous location that is accessible to employees and volunteers.

Third, the December Amendments extend the effective date of the provision added to the NPCL by the NPRA prohibiting the chair of a not-for-profit from also being an employee of the not-for-profit from January 1, 2016 to January 1, 2017, giving all not-for-profits an additional year to make any necessary changes related to this new prohibition.

In sum, the December Amendments provide a number of helpful clarifications to the changes to the NPCL enacted by the NPRA in addition to several substantive amendments impacting the conflict of interest and related party transaction rules affecting all New York not-for-profit corporations. While most corporations that updated their governing documents to comply with the changes enacted by the NPRA will not require significant, if any, further revisions to these documents; these documents should be reviewed to understand the impact of the December Amendments and whether any updates are required. The December Amendments also serve as a reminder for corporations that have not taken steps to comply with the NPRA that action should be taken as soon as possible to comply with the NPRA’s requirements as more provisions will continue to become effective in the near future.

The situation has become all too familiar: an incident of prurient interest -- whether actual or falsely alleged -- goes viral on social media before university officials can even ascertain the names of the parties involved.  Before anyone can take a breath, news vans have encircled the campus, hauling reporters who possess a keen eye for rash judgments and scapegoating, irrespective of that increasingly elusive concept known as truth. One of the most well-known of such incidents was, of course, “Duke lacrosse.”  What may be less known is the eloquence with which Duke’s President, Richard H. Brodhead, gave a most instructive post-mortem about the lessons learned:

I’ll end with the deepest lesson this case taught me.  When I think back through the whole complex history of this episode, the scariest thing to me, is that actual human lives were at the mercy of so much instant moral certainty, before the facts had been established.  If there’s one lesson the world should take from the Duke lacrosse case, it’s the danger of prejudgment and our need to defend against it at every turn.  Given the power of this impulse and the forces that play to it in our culture, achieving this goal will not be easy.  But it’s a fight where we all need do our part.[1]

The siege on Duke could have easily happened to any higher education institution and has, in fact, happened many times since.  Universities earnest in their desire to avoid “instant moral certainty” when faced with the hot lights of the media whirlwind have developed processes and procedures -- “media kits” if you will -- to proactively prepare for such incidents.  This preparedness often, and quite wisely, includes a public relations firm that can be on-call when needed. For those institutions with public relations firms on retainer, unintended privilege issues may arise in subsequent litigation.  These situations typically play out as follows.  The story hits the media.  Institutional officials, legal counsel and the public relations firm enter a virtual bunker to plan a cogent strategy.  The institution wants the outside world to know of its diligence, legal counsel wants to ensure compliance with investigative legal requirements, and the public relations firm wants to quell the storm while portraying the institution in its best possible light. Intertwined in the bunker discussions are both legal considerations and the compelling public relations considerations.  We are, after all, part of the same team, and strict legal compliance makes for good public relations.  The problem though is that once legal brings public relations into the fray, communications between the two may lose the cloak of attorney-client privilege. This recently played out in the case of Waters v. Drake, 2015 U.S. Dist. LEXIS 164179 (S.D.N.Y. 2015).  In Waters, Ohio State University terminated the Director of its marching band after it had conducted an investigation resulting in a report outlining a “sexualized” culture with the marching band.  Litigation ensued, and the plaintiff sought discovery of communications between university counsel and the public relations firm hired by the university to advise it.   The university argued that such documents fell within the attorney-client privilege and were therefore immune from discovery.  The court flatly rejected this argument, holding:

If … legal counsel[] involved the public relations firms not as part of his effort to provide legal advice to the University, but as part of an effort to craft announcements which would be more palatable to the media or the public, he was not using the consultants in order to help him as a lawyer, but to help the University as a public institution anticipating a public relations campaign. Under that scenario, sharing otherwise privileged documents with the consultant is a waiver of the attorney-client privilege, and communications directly with the consultant are not privileged at all.

Waters, 2015 U.S. Dist. LEXIS 164179 at **6-7. Although the court eventually denied discovery based on relevance, it reiterated a quote from other cases: “case law makes clear that a media campaign is not a litigation strategy.” Waters, 2015 U.S. Dist. LEXIS 164179 at *6 (internal citations and quotations omitted).           Waters is not binding on other jurisdictions, and may be distinguishable on its facts such that the privilege may still apply.  What constitutes a “media campaign” may not fit easily into a one size fits all definition.  Nonetheless, the holding in Waters is of sufficient concern that it ought to be considered on the front end of a crisis. Moreover, Waters and the cases it cites do not eviscerate the value and importance of public relations firms.  Indeed, such firms have a critical role to play in making sure an institution exercises due caution in undertaking a thoughtful investigation in the face of the media and the public at large demanding instantaneous conclusions and punishment.   Legal counsel, however, ought to be careful not to discuss legal strategies with their outside public relations advisors that may be relevant to a subsequent lawsuit.  Such discussions may well lose the cloak of privilege and thereby find themselves in front of the eager eyes of a plaintiff’s attorney envisioning a hefty payday. [1] See Duke President Shares Lessons Learned, Regrets About Lacrosse Case, Duke Today, September 29, 2007, available at hhtps://today.duke.edu/2007/09/rhb_lawconf.html  

As reported in our November 2, 2015 blog post, the present STEM OPT rule which allows F-1 students with U.S. degrees in science, technology, engineering or mathematics (STEM) to extend their optional practical training (OPT) by 17 months was to expire on February 12, 2016 unless the U.S. Department of Homeland Security (DHS) could publish and promulgate a new rule.  The present STEM OPT extension rule had been vacated by the U.S. District Court for the District of Columbia in August 2015 for procedural deficiencies in its promulgation, but the court’s ruling was stayed until February 12, 2016 so DHS could publish a new rule for public comment and prevent hardship to the thousands of F-1 students employed in the U.S. on STEM OPT and the companies that employ those individuals. Our November 2, 2015 blog post detailed some of the highlights of DHS’ proposed STEM OPT extension rule which was published for comment in the Federal Register on October 19, 2015. The DHS received an overwhelming 50,000 plus comments to the proposed rule and, a few days before the Christmas holiday, asked the court for a 90-day extension of the existing STEM OPT rule so it could address the comments and begin to train DHS officers on the intended changes to the STEM OPT program.  Following additional pleadings by DHS and Washington Alliance of Technology Workers (WashTech) -- the plaintiff in the case that was before the U.S. District Court for the District of Columbia -- the court, last Saturday, delayed its order terminating the STEM OPT rule as of February 12, 2016 and granted the DHS an additional 90 days to revise its proposed STEM OPT rule.  The court extended the sunset date of the STEM OPT extension rule to May 10, 2016 and warned DHS that no further extensions would be granted. As a result of this determination, those F-1 student employees with STEM OPT remain authorized to work in the U.S., at least through May 10, 2016. However, WashTech’s counsel has indicated that an appeal of the decision to extend the sunset date by 90 days would be filed with the D.C. Circuit immediately. We will continue to keep you informed of further developments in this matter so you and your employees can plan accordingly.

The Fable Children’s fables are often an overlooked source of wisdom.   Take for example Aesop’s 17^th century fable “The Monkey and the Cat.”  As the story goes, a cat and monkey lived in the same house as pets.  The monkey, desiring to eat the chestnuts roasting on the family hearth, dupes the cat into retrieving them by flattering the cat’s greater skill in such matters. The problem for the cat, however, was that as soon as she retrieved the nuts, the monkey would gobble them up, leaving an unfortunate ending:

Now the master came in, and away scampered the rascals, Mistress Cat with a burnt paw and no chestnuts.

Centuries later this fable has morphed into a theory of liability being deployed with increasing fervor by faculty members challenging disciplinary and tenure decisions in the context of employment discrimination cases.  The theory is known as “cat’s paw.”  What it means in essence is that the faculty member asserts that the discriminatory animus of one colleague (the monkey) should impute liability to an otherwise innocent decision-maker or the university itself (the cat).   So, how does a university protect its “paw”? The Fire The cat’s paw theory in discrimination cases slinked its way through the courts for several years with mixed results as to its applicability and scope.  In 2011, however, in Staub v. Proctor Hosp., 562 U.S. 411 (2011), the United States Supreme Court, upheld cat’s paw liability in the context of a USSERA claim. As with most things plaintiff, once that mine was opened a crack, legions of gold prospectors (plaintiff-side attorneys) jumped down the shaft digging for otherwise elusive gold.  And, some have found it. Relying on Staub, federal courts around the County have applied cat’s paw liability in discrimination cases.  The underlying rationale for such liability is that an employer should not be able to “shield itself from liability … by using a purportedly independent person or committee as the decision-maker where th[at] decision-maker merely serves as a conduit, vehicle, or rubber stamp by which another achieves his or her unlawful design.” Siani v. State University of N.Y. at Farmingdale, 7 Supp. 3d 304, 327 (E.D.N.Y. 2014) (internal quotation omitted). Although the law in this area continues to evolve, it has become clear that cat’s paw liability is a theory to be reckoned with in the world of higher education.   By way of a basic example, take a garden variety situation where a stipend for additional duties is at stake for a faculty member.   The ultimate decision whether or not to grant the stipend is made by a Dean.   The Dean bases her decision solely on the recommendation of the Department Chair.  However, unbeknownst to the Dean and the University at-large, the Department Chair’s negative recommendation arises out of her unstated belief that the faculty member is simply “too old” for any additional responsibility.  Under this scenario, the Department Chair has devolved into the fabled monkey while the Dean and University would be suffering not only from a burnt paw but also the indignity of having to part with its chestnuts in favor of the faculty member. Cat’s paw liability can also be found in disciplinary matters and tenure decision-making.  While tenure cases are complex and fact driven, often the key to avoiding liability is whether the University can break a causal connection between the recommendation made by the tainted evaluator and the ultimate decision.  For example, in Taleyarkhan v. Trs. of Purdue University, 607 Fed. Appx. 548 (7^th Cir. 2015), the federal Seventh Circuit Court of Appeals rejected a faculty member’s attempt at stating a discrimination claim using the cat’s paw theory as a way to challenge research misconduct sanctions imposed by the institution, where an independent committee confirmed the suspicions of misconduct that were raised by the alleged tainted supervisor.  Similarly, in Veeramathu v. Bd. of Trustees for Conn. State Univ. Sys., 862 F. Supp. 2d 127, 161 (D. Conn 2012), a federal district court in Connecticut held that the cat’s paw theory was not available in a tenue denial case where the university president engaged in an independent review of the tenure candidate’s portfolio and considered multiple unbiased sources of information in making his determination.  In other words, the court held that there was no evidence that the colleague who gave negative evaluations of the plaintiff was the “proverbial monkey” successful in inducing a denial of tenure.  Rather, the denial was based on an untainted independent  evaluation by the President. Protecting the Paw and Keeping the Chestnuts At the risk of being a connoisseur of the obvious, the best way to defeat cat’s paw liability, particularly in a pre-trial motion, is to be able to prove that our evaluator (e.g., Department Chair, Dean) did not harbor discriminatory animus.  In Deger v. University of Cincinnati, 2015 U.S. Dist. Lexis 132756 (S.D. Ohio 2015), for example, an applicant for an assistant professor position could not win on the cat’s paw theory where the record showed that the alleged biased evaluator’s comments were nothing more than an honest evaluation and were not discriminatory at all. But let’s say we can’t prove that our would-be monkey is innocent, how do we win any way?   The case law gives us some guidance. As noted by the Fifth Circuit, “collective decision-making” is less susceptible to influence by an individual with a retaliatory motive.” Wu v. Miss. State Univ, 2015 U.S. LEXIS 17354 (5^th Cir. 2015) (internal citation and quotation omitted).   In Wu, the plaintiff was an assistant professor who alleged, inter alia, that her denial to full professor was the result of race, national origin and age discrimination, as well as retaliation.  The primary argument advanced by the plaintiff was that her department chair had retaliatory motives sufficient to establish cat’s paw liability against the university.  In rejecting the plaintiff’s argument, the Fifth Circuit noted that the promotion decision involved many levels of review by multiple individuals.  At each level, multiple decision-makers for reasons independent of the department chairs’ view recommended against the promotion. Standing in contrast to Wu is Goswami v. Depaul University, 2015 U.S. Dist. LEXIS 5937 (N.D. Ill. 2015), where a faculty member was able to defeat summary judgment in a tenure denial case using the cat’s paw theory.   In Goswami, the court was presented with a “leviathan” of a record reflecting a sharply disputed recommendation to deny tenure based on an 11-7 departmental vote.  On the facts presented, the professor was able to present just enough evidence that multiple proverbial monkeys in the department influenced the non-biased ultimate decision-maker.   In reaching its conclusion, the court noted:

The record in this case proves that academics do not exist in splendid isolation, immune to the provocations and slights to which less Olympian men and women fall prey. But the record is such – perhaps just barely – that a jury must determine what truly underlay the actions and motivations of the parties.  As the discussion above and below show, some of the evidence on both sides is problematic.

In a perfect world, tenure recommendations would all be unanimous and the committees that make them would have the diversity of the United Nations.  Of course, we do not live in such a world, but that does not mean that we are doomed to try to convince juries that our university presidents were not mere instruments of discriminators in the trenches.  Cat’s paw liability can be avoided when the ultimate decision-maker either engages in his/her own independent review or when the committee process is structured in such a way that a biased individual(s) cannot be deemed to have unduly influenced the ultimate decision.  The full parameters of cat’s paw liability will be fleshed out as the law further evolves.  In the meantime, plainly, no university wants to be the named defendant in the case that stakes out the theory’s outer boundaries.  For this reason, counsel should be consulted as early as possible if there is any hint of a flaw in the faculty decision-making process.

On November 27, 2015, the United States Department of Education announced a reversal of its previously existing prohibition against the payment of incentive compensation based on students’ program completion or graduation rates.  The announcement follows two successive federal appeals court decisions, in 2012 and 2014, that the Department had not articulated a sufficient rationale for the prohibition. Although the announcement may impact retention and graduation based incentives on any number of fronts, it is of particular interest in the context of coaching and other athletics personnel employment contracts, where the prohibition had created significant uncertainty as to the permissibility of bonuses based on these metrics. As many will recall, on October 29, 2010, the Department adopted so-called Title IV “Program Integrity Rules.” Among other things, these new regulations eliminated previously existing regulatory safe harbors under the statutory prohibition against payment of incentive compensation for securing enrollment, and reversed a prior Department position that payments based on retention, degree completion or graduation were not considered impermissible enrollment-based compensation.   In response to a comment questioning the applicability of the prohibition to the recruitment of student-athletes, the Department explained that:

[r]ecruitment of student-athletes is not different from recruitment of other students.  Incentive compensation payments to athletic department staff are governed by the restrictions included in [the regulations].  If the payments are made based on success in securing enrollments or the award of financial aid, the payments are prohibited; however, the Department does not consider “bonus” payments made to coaching staff or other athletic department personnel to be prohibited if they are rewarding performance other than securing enrollment or awarding financial aid, such as a successful athletic season, team academic performance, or other measures of a successful team.

Based upon the Department’s statements that (a) incentivizing retention, degree completion or graduation is equivalent to prohibited incentivization of success in securing enrollments, and (b) athletic recruitment is no different than recruitment of other students, it appeared as though athletic department bonuses tied to student-athlete retention or program completion (e.g., graduation rate bonuses and/or Academic Progress Rate (APR)-based bonuses) would violate the new regulations. On March 17, 2011, however, the Department issued a “Dear Colleague” letter for the stated purpose of clarifying a number of new Title IV regulatory requirements, including the revised incentive compensation restrictions.  Among other things, the “Dear Colleague” letter noted that:

 [t]he preamble [to the new regulations] noted that bonuses for athletic personnel to reward performance other than securing enrollment or awarding financial aid, such as a successful athletic season, team academic performance, or other measures of a successful team, are permitted. . . .  This statement merely reflects the fact that the payment of bonuses to athletic personnel is a common practice and is not typically viewed as incentive compensation based on recruitment of individuals as students, but at most may indirectly reward success in recruiting that small subset of individuals whose enrollment would benefit the institution’s athletic program.

 Unfortunately, this “clarification” created more ambiguity than it resolved.  For example, one could adopt a narrow reading of this explanation as standing for the proposition that payments based on successful on-field/on-court performance reward only indirectly success in recruiting, and that such bonuses (but not bonuses based on retention or academic progress) are therefore permissible.  Alternatively, one could read the explanation more broadly as stating that athletic personnel may be paid bonuses based on retention or academic progress because they are not recruiting individuals for the purpose of increasing general student enrollment, but are instead recruiting individuals for the limited benefit of the institution’s athletics program.   Under this broader reading, the incentive compensation prohibitions would not apply to athletic department staff insofar as they related solely to the recruitment of student-athletes. In the wake of the Dear Colleague letter, institutions adopted varying practices with respect to retention- or graduation-based incentive compensation in coaching and other athletics employment agreements.  Some institutions proceeded cautiously, and restructured academic performance bonuses to be based on GPA or other clearly permissible metrics.  Others, believing strongly in the merit of compensating personnel for keeping student-athletes in school and questioning whether the Department truly intended to prohibit this practice, retained graduation rate and APR-based bonus structures.  Thankfully, the Department’s November 27 announcement removes any remaining uncertainty in this regard, and clearly supports the use of such bonus structures, as well as retention- or graduation-based compensation in other contexts. The Department’s announcement does not change other aspects of the continuing prohibition on paying commissions, bonuses or other forms of incentive compensation based directly or indirectly on securing enrollments or financial aid.  Among other things, the Department expressly refused to alter its prohibition on compensation tied to minority enrollments, which had also been questioned in the court decisions referenced above, stating that the Program Integrity Rules bar compensation based on the number of students enrolled, “irrespective of the student’s minority or other status and irrespective of whether the goal of the recruiters is to increase diversity.”

On October 19, 2015, the U.S. Department of Homeland Security (DHS) published a notice of proposed rulemaking in the Federal Register regarding optional practical training (OPT) extensions for F-1 students with U.S. degrees in science, technology, engineering or mathematics (STEM). The proposed rule is essentially a response to an August 2015 decision of the U.S. District Court for the District of Columbia to vacate the present STEM OPT extension regulation for procedural deficiencies in its promulgation, effective February 12, 2016.  Under the proposed rule, the length of STEM OPT extension would be increased from 17 months to 24 months.  In addition, the rule requires employers to develop and implement mentoring and training programs to bolster students’ learning through practical experience and provides safeguards for U.S. workers seeking employment in related fields.  DHS is accepting comments on the proposed rule through November 18, 2015 and is making every effort to have the final rule take effective prior to the February 12, 2016 sunset of the present STEM OPT extension regulation. STEM OPT Extensions.  Under the proposed rule, the length of STEM OPT extensions would increase from 17 months to 24 months and F-1 students would be limited to two 24-month STEM OPT extensions (for example, one after earning U.S. master’s STEM degree and another after earning U.S. doctoral STEM degree).  The proposed rule extends the maximum period of unemployment for F-1 students to 150 days – 90 days during the initial 12-month period of post-completion OPT and 60 days during the 24-month STEM OPT extension.  If the DHS rule is implemented as proposed, the STEM OPT extension will be a benefit to F-1 students and U.S. employers alike, as students will be able to work in the U.S. for three full years before additional work authorization (e.g., H-1B, O-1, etc.) would be necessary, and employers will have a generous amount of time in which to assess F-1 employees’ performance before undertaking sponsorship for additional work authorization.  As with the present STEM OPT extension regulation, under the proposed rule, STEM OPT extensions are only available if the employer participates in the U.S. Citizenship and Immigration Services’ E-Verify employment eligibility verification program. New Employer Responsibilities.  The proposed rule establishes a couple of new responsibilities for employers seeking to employ F-1 nonimmigrants on the STEM OPT extension.  First, employers would be required to implement formal mentoring and training programs for STEM OPT students to enhance their practical skills.  The student would be required to prepare a Mentoring and Training Plan – including the training goals and a description of how those goals will be met -- with the employer and to submit the plan to the student’s designated school official (DSO) at his/her institution before the DSO could recommend and authorize a STEM OPT extension for the student.  Second, employers would be required to attest and provide assurances on a number of items including that they will not terminate, layoff or furlough a U.S. worker as a result of hiring an F-1 student on STEM OPT and that the duties, hours and compensation for the F-1 student employee are commensurate with similarly situated U.S. workers.  If an employer fails to comply with the new requirements, DSOs will be prohibited from recommending students for a STEM OPT extension. We will continue to monitor this proposed rule as the February 12, 2016 deadline approaches and provide updates so F-1 student employees and their employers can plan accordingly

On July 2, 2015, in Glatt v. Fox Searchlight Pictures and Wang v. The Hearst Corporation, the Second Circuit Court of Appeals addressed when unpaid interns are “employees” entitled to compensation under the Fair Labor Standards Act (FLSA) and New York Labor Law (NYLL). This was a question of first impression for the Second Circuit. The plaintiff interns in Glatt argued that whenever an employer receives an immediate benefit from an intern’s efforts the intern is functioning as an employee. The U.S. Department of Labor, as amicus curiae in support of the plaintiffs, asserted that its exhaustive six factor test derived from Walling v. Portland Terminal, a nearly seventy year old Supreme Court case about prospective railroad brakemen, was the appropriate standard to use to assess whether an intern is an employee. The defendant employers urged the Second Circuit to consider an approach in which an intern is only an employee when the “primary beneficiary” of the internship is the employer rather than the intern. In an amicus brief in support of neither party, but submitted on behalf of the American Council on Education and five other organizations representing the collective interests of higher education institutions, Bond attorneys argued that the Department of Labor’s rigid six factor test is inappropriate in the intern context. The amici asked the Court to recognize the role that institutions of higher education play in assessing the value of an internship experience and adopt an analysis that focused on the “primary beneficiary” of the internship. A nuanced approach would, according to the amici, both preserve essential experiential learning opportunities and identify those internships that are exploitative. Institutions of higher education have long understood that real-world experiences offered by internships, combined with classroom instruction, best prepare students to become productive members of the workforce. Many colleges and universities integrate internships into their curriculum, also recognizing that competitive job applicants are those who have not just spent four years in the bubble of academia, but can also cite real-world experience. The amici, concerned with preserving as many legitimate internship experiences as possible, further pointed out that student-interns, upon their return to campus, often share their varied experiences in the classroom to the benefit of their peers as well as the institution, which becomes a more vibrant center for learning because of the experiences of its students. In Glatt and Wang the higher education community cautioned against an outcome that would unduly pressure employers to end unpaid internship programs because of concerns about FLSA and NYLL liability. The Second Circuit ultimately rejected the Department of Labor’s rigid six factor test and instead created a multi-factored, non-exhaustive set of considerations that while consistent with the spirit of Portland Terminal focuses on the “primary beneficiary” of the intern-employer relationship. The Second Circuit’s non-exhaustive set of considerations as articulated in Glatt are:

1. The extent to which the intern and the employer clearly understand that there is no expectation of compensation. Any promise of compensation, express or implied, suggests that the intern is an employee—and vice versa;
2. The extent to which the internship provides training that would be similar to that which would be given in an educational environment, including the clinical and other hands?on training provided by educational institution;
3. The extent to which the internship is tied to the intern’s formal education program by integrated coursework or the receipt of academic credit;
4. The extent to which the internship accommodates the intern’s academic commitments by corresponding to the academic calendar;
5. The extent to which the internship’s duration is limited to the period in which the internship provides the intern with beneficial learning;
6. The extent to which the intern’s work complements, rather than displaces, the work of paid employees while providing significant educational benefits to the intern;
7. The extent to which the intern and the employer understand that the internship is conducted without entitlement to a paid job at the conclusion of the internship.

The Second Circuit, in these cases, recognized the importance of preserving experiential learning opportunities. Its non-exhaustive set of factors outlined in Glatt is a compromise that will help achieve two important goals of the higher education community: protecting interns from exploitative practices and preserving essential hands-on learning opportunities. For more on Wang and Glatt see Bond’s July 7, 2015 post here.

Governor Andrew Cuomo announced that he and State Legislative Leaders have reached an agreement regarding new sexual misconduct legislation. It may be recalled that several months ago, the Governor’s office proposed and publicly promoted a sexual misconduct bill, many provisions of which we analyzed here. The new bill addresses several questions and concerns raised by the previous bill’s text and makes improvements in certain areas. However, the latest bill contains several major mandates that were not in the previous version. The full text of the new bill is available here. Over the coming weeks, Bond will be discussing the bill’s provisions in detail on our Higher Education Law Report blog. This Client Alert is intended to notify you of the likely adoption of this legislation, and to highlight certain of the bill’s provisions that will require the most significant changes in institutions’ policies and practices if the bill passes in its current form (as is expected).

• Every institution in New York State must use a single verbatim definition of consent, adopt a prescribed Bill of Rights, and adopt specific language providing amnesty for alcohol and drug use violations committed by Reporting Parties or Bystanders. The bill contains many other provisions concerning the information that must be shared with the community, including information that must be provided to a Reporting Party at the first instance of his/her disclosure about an incident of sexual assault, domestic violence, dating violence or stalking.
• If the Respondent is a student, the bill would require that the institution issue a No Contact Order requiring the Respondent to leave any public place upon observing the Reporting Party. Presumably, the Reporting Party’s wishes could trump this requirement, but this is not entirely clear. The bill goes on to require that every institution must have a procedure to allow either party to review the need for and terms of a No Contact Order. For many institutions, this will be an entirely new process that must be created.
• In circumstances where an institution provides interim measures or accommodations to a student in connection with a report of sexual assault, domestic violence, dating violence or stalking, the bill would require the institution to have a procedure to allow both the recipient of the interim measures or accommodations, as well as the other party (if directly affected by them), to review the need for and terms of the interim measures or accommodations. For many institutions, this will be an entirely new process that must be created.
• Institutions would be required to provide written notice to students, in advance of "any meeting" they are required or eligible to attend in connection with the disciplinary process, describing the rule(s) and/or law(s) they are accused of violating and in what manner, as well as potential sanctions that may be applied. The bill appears to require this notice not only in advance of adjudicatory hearings, but also prior to investigative interviews.
• In a judicial proceeding, the bill provides that the parties have the right to exclude their prior sexual history other than with other party. A common provision in policies is the exclusion of prior sexual history, but usually with the caveat that a party could make a showing that prior sexual history has some unique, strong relevance. The bill apparently would not allow any discretion based on the facts and issues of a particular case, and, therefore, policies allowing for the introduction of this evidence upon a special showing of relevance would be non-compliant.
• The written determination following a disciplinary hearing must include not only the rationale for the decision regarding responsibility and the sanction, if any, but also "findings of fact". The requirement that "findings of fact" (and presumably all findings of fact) be reduced to writing will make the drafting of decisions onerous and potentially fraught, as any failure to include a finding may make a decision vulnerable on internal appeal or in external litigation.
• The decision of an officer or panel concerning responsibility for a violation of sexual assault, domestic violence, dating violence or stalking must be subject to at least one level of appeal, and the appeal must be decided by a "panel". The bill does not state how many individuals must comprise the panel or specify its composition. For institutions with a single appeal officer, this will require a major policy restructure that may be difficult to staff, particularly at smaller institutions.
• The bill mandates that institutions mark the transcripts of students who are found responsible for a "crime of violence" (including but not limited to sexual violence) within the definition of the Clery Act and either suspended or expelled. The bill specifies the precise words that must be used: "suspended after a finding of responsibility for a code of conduct violation" or "expelled after a finding of responsibility for a code of conduct violation". If a student withdraws during the pendency of allegations, this also must be noted on the transcript with the words: "withdrew with conduct charges pending".
• An institution must train all new incoming first year students and all transfer students. The training must cover sexual assault, domestic violence, dating violence and stalking, as well as the institution’s policies, bystander intervention, and risk assessment, among other subjects. The bill requires that each student complete the training during the "onboarding" process. The bill goes on to state that an institution is required to ensure that every student organization leader and officer must complete the training as a condition to recognition of the organization, and that every student athlete must complete the training as a condition to participation in intercollegiate athletic competition.
• Institutions will be required to report annually to the New York State Department of Education information about how complaints were handled. The information to be disclosed includes, among other items of information, the number of reports of sexual assault, domestic violence, dating violence and stalking; the number of cases processed through to a finding; the number of cases in which respondents were found responsible or not responsible; and the sanctions imposed on the respondent in each case where responsibility was found.
• Institutions will be required to conduct a climate assessment no less frequently than every other year. The survey is to probe campus awareness concerning nine topics, including campus policies; how and where to make a report; the prevalence of incidents of sexual assault, domestic violence, dating violence and stalking; bystander attitudes; and experiences with reporting and institutional processes.

To be clear, the above are only some of the pending bill’s requirements, but they are the provisions most likely to require substantial change to policy and procedure, and, therefore that administrators will want to be thinking about immediately. Institutions will be required to be in compliance with virtually all of the bill’s provisions within 90 days of passage. The bill provides that compliance will be enforced through random audits conducted by the Department beginning in September 2016. If you would like to discuss the bill and its anticipated impact on your institution, please contact a member of our Title IX Practice Team.

The Higher Education Practice Group of Bond, Schoeneck & King, a member of the Employment Law Alliance, is pleased to invite you to attend a free 60-minute webinar, “’Privatized’ Student Housing on Campus”, on Wednesday, June 10. It has become increasingly common for colleges and universities to partner with private parties and other entities to develop, construct, and operate student housing. Such privatization can provide significant financial and other advantages, but it also can present unique legal and business considerations.  In this webinar, Paul W. Reichel, a member of Bond's Higher Education Practice group, along with other guest speakers, will provide insight and guidance on topics including: • Alternative structures • Protecting the school’s interests • Foundation-owned projects • Credit impacts Click here to register, and then click the "register" link to the right of the title. Please be sure to confirm the corresponding start time in your local time zone.    

On April 24, the Department of Education’s Office for Civil Rights (“OCR”) issued new materials on Title IX. The materials include a Dear Colleague Letter to educational institutions, a letter to Title IX Coordinators and a Title IX resource guide. While the new documents are almost entirely a restatement of OCR’s previous pronouncements, there are a few noteworthy points. In the new materials, OCR focuses on the role of the Title IX Coordinator within an institution. Given the extent to which the materials reiterate OCR’s previous guidance and Q&A, it is unclear why OCR felt it necessary to create and release these new documents. One suspects that the attention is designed to increase the cultural authority of the Title IX Coordinator by stressing to the highest levels of institutional leadership the essential role that Coordinators play in Title IX compliance. OCR warns that many of the most egregious and harmful Title IX violations it has identified occurred when an institution failed to designate a Title IX Coordinator or failed to properly train and give an appropriate level of authority to its Coordinator. The new materials stress the following:  Designation of a Title IX Coordinator Pursuant to the Title IX regulations, institutions must at all times have one or more employee(s) designated to coordinate their efforts to comply with and carry out its responsibilities under Title IX. When selecting a coordinator, OCR instructs institutions to consider the following: Independence – OCR reiterates its position that the Coordinator’s role should be independent of any other duties to avoid any potential conflicts of interest. However, in the new materials, OCR goes one step farther and recommends that the Coordinator should report directly to the president.  OCR bases this recommendation on its concern that the Coordinator have both the independence and institutional authority to carry out Title IX compliance functions. Full-Time Coordinator- OCR stresses its previously stated position that employing a full time Title IX Coordinator, while not required, minimizes the risk of conflicts and provides more time to allow the Coordinator to perform all of the role’s responsibilities. OCR’s push toward a single, solely focused Title IX Coordinator evidences not only OCR’s continued laser focus on Title IX but also its lack of appreciation that Title IX is merely one of a thousand concerns for institutions and that not every institution, particularly the smaller or less well funded ones, can afford this luxury. Multiple Coordinators- OCR suggests that larger institutions may find it best practice to designate multiple Title IX Coordinators who work throughout different areas of the institution. According to OCR, institutions already implementing this practice have reported more effective training of the school community due to greater opportunities for students and staff to become familiar with the Title IX Coordinators. If an institution opts for multiple Coordinators, OCR requires that one be designated Lead Coordinator and that the areas of responsibility of each be clear to the community.  Responsibilities & Authority of a Title IX Coordinator  As the Title IX Coordinator’s primary responsibility is to coordinate the institution’s compliance, OCR reminds institutions that the Coordinator must receive notice of all reports and complaints raising Title IX issues. In these documents, OCR stresses that Coordinators’ responsibilities also include monitoring outcomes, identifying and addressing patterns, and assessing effects on the campus climate, and OCR mentions the campus climate survey that it recommends, but not does require, institutions to undertake. OCR also expressly states that institutions are prohibited from retaliating against Coordinators for carrying out their duties even when they point out areas of Title IX noncompliance. Interestingly, OCR states in the new Dear Colleague Letter that Title IX does not prohibit Title IX Coordinators from determining “the outcome of Title IX complaints” or “the actions the school will take in response to such complaints”.  Indeed, OCR expressly states in these new materials that the Coordinator may play that role, provided that there are no conflicts of interest.  It is not entirely clear what to make of these statements.  OCR does not define what it means by the "outcome of Title IX complaints" or the "actions" in response to a complaint, but these terms seem to include institutional disciplinary responses.  It is reassuring to know that OCR appears to endorse Coordinators taking a greater determining role in the outcome of individual complaints, but this sentiment is confusing because contradicts other of OCR’s statements. It will be recalled that OCR’s view is that a Dean of Students and a member of a disciplinary board may have a conflict of interest in serving as Title IX Coordinator. OCR has not explained why those positions may create a conflict of interest, but the source of the conflict has been assumed to be the involvement in the disciplinary decision making process. It would seem odd if OCR views as a conflict a Title IX Coordinator being part of a disciplinary board but would have no problem with the Title IX Coordinator making the disciplinary decision himself or herself. Further clarification on this point will be needed. Support for Title IX Coordinators  The materials advise that institutions should make Coordinators visible to the campus community. OCR states that it views broad visibility of the Coordinator as evidence of the institution’s commitment to Title IX compliance. OCR’s regulations require that the institution must include its Title IX nondiscrimination notice in bulletins, announcements, applications, applications, catalogs and other publications, as well as ensuring that the Coordinator’s contact information is widely disseminated. In the new materials, OCR also endorses creating a general email address (such as TitleIXCoordinator@school.edu) and including only that general email address and position title in published materials. This is to address the problem created when published materials include an individual’s name, email and other contact information and the person leaves the position or the institution altogether. However, OCR is clear that, while the hardcopy publications may use only this general information, the institution’s website must be kept current to identify the Title IX Coordinator by name and with personalized contact information. OCR also suggests that institutions create a Title IX webpage linked to their main website to provide additional information on policies and procedures for filing Title IX complaints and any resources available to students or employees. In these new materials, OCR mentions social media, saying that, if an institution uses social media to communicate with the community, it should include the Title IX Coordinator’s contact information on social media as well. It is not clear how an institution would do this on many social media platforms, and the fact that OCR would suggest this is yet another indication of the time and attention OCR expects -- reasonably or unreasonably -- that institutions will pay to this one issue: Title IX.

In this, our last, post on New York’s proposed sexual violence legislation, we focus briefly on three remaining aspects of the bill: climate surveys, training and implementation. Campus Surveys The legislation requires institutions to conduct a campus climate survey and to conduct such a survey “no less than every other year.” This particular section would go into effect on the 180^th day following enactment of the legislation. It would appear that this would require an institution to be ready to go with its first survey at that 180 day mark, or sooner, issuing new surveys not less than every other year thereafter. The legislation provides a list of topics that, at a minimum, must be covered in the survey, including questions aimed at assessing student and employee knowledge about: (1) the role of the Title IX Coordinator; (2) campus policies and procedures addressing sexual assault; (3) how and where to report sexual assault; (4) the availability of resources on and off campus; (5) the prevalence of victimization and perpetration of sexual assault, domestic/dating violence and stalking during a set time period; (6) bystander attitudes and behavior and (7) whether victims/survivors report and the reasons they do/do not report. Needless to say, efforts are to be undertaken to ensure that answers remain anonymous. The survey results are to be published on the institution’s website. The legislation even provides that the survey is not “subject to discovery or [to being] admitted into evidence in a federal or state court proceeding or considered for other purposes in any action for damages brought by a private party” against an institution. It is not entirely clear, however, whether this state legislation would prevent the discovery or other use of this information in a federal proceeding brought under federal law. Training Section 6446 is entitled “Student Onboarding and Ongoing Training.” It provides that an institution must “adopt a comprehensive student onboarding and ongoing education campaign to educate members of the college or university community about sexual assault, domestic violence, dating violence and stalking, in compliance with applicable federal laws ….” This provision suggests that it is not the intent of the state law to require any training not already required by federal law, although the legislation does require training on the specific policies and procedures required by this particular state legislation and as a result may in fact necessitate some training content beyond what is actually required by federal law. In addition, the legislation expressly requires that training occur as part of “onboarding.” It is not yet clear whether that literally means that for new students this training must occur as part of the actual orientation process, or if it can be provided post-orientation. However, from the summary accompanying the legislation, it certainly appears that even if some form of training is literally required during orientation itself, it need not all be provided in that period, and there is recognition that the most effective training happens over a more extended period of time. The legislation also provides that institutions “shall use” multiple methods to educate students. It provides that those methods can include a President’s Welcome messaging, peer theater and peer education programs, online training, social media outreach, first year seminars, course syllabi, faculty teach-ins, and many other options. It appears entirely up to each institution to select what will work best for its community. The legislation requires that institutions provide or expand “specific training to include groups such as international students, students that are also employees, leaders and officers of registered or recognized student organizations, and online and distance education students.” It also calls for “specific training to members of groups identified as likely to engage in high-risk behavior.” Periodic assessment of the institution’s training efforts is also required. Implementation The legislation provides that “the trustees or other governing board of each [institution] shall adopt written rules for implementing all policies required pursuant to this [legislation].” In other words, it is not enough that an institution’s administration responds to the requirements of the legislation, the Board of Trustees itself must “adopt written rules for implementing” the required policies.

Inside Higher Ed has issued its 2015 Survey  of institutional presidents and, as in years past, it makes for very interesting reading. The Survey is based on responses from 647 institutions, including 338 public institutions, 262 private institutions, 26 college and university systems, and 21 for profit institutions. A number of topics were surveyed, including government oversight, financial sustainability, sexual assault, race relations and faculty hiring. Here are a few of the highlights:

• With respect to the Obama Administration’s rating program for colleges and universities, 56% of respondents gave the program a grade of “D” or “F.”
  • There were also varying degrees of support (or lack of support) for the various criteria featured in the program for rating institutions. Using a 1 to 5 scale (with 1 being “not at all supportive” and 5 being “extremely supportive”) the noted percentages of institutions gave the listed features a 4 or 5 level of support:
    • percentage of first generation students enrolled (49%)
    • percentage of Pell Grant-eligible students (48%)
    • degree completion rate (47%)
    • net price (46%)
    • graduate employment rate (42%)
    • loan default rates (38%)
    • federal graduation rates (29%)
    • graduate income level (18% -- 36% actually indicated that they were not “at all supportive” of the use of this factor).
• With respect to budget and finances, worries persist. On the same 1 to 5 scale:
  • 80% rated their confidence in the sustainability of their own financial model over the next five years at 3 or above.   Private nonprofit institutions came in at 84%, while public institutions were notably lower at 75%.  More notably, in the 2014 Survey, confidence was actually higher, with 84% overall providing a score of 3 or above when looking at the sustainability of their own financial model over the (then) next 5 year period.  Private nonprofit institutions came in at 87% and public institutions at 84%. Thus, across all institutions generally, presidents are less optimistic and, clearly, public institutions are feeling the pinch even more than private nonprofit colleges and universities.
  • In the 2015 Survey, looking out over a 10 year horizon, only 70% of institutions overall have confidence in the sustainability of their financial model at a level of 3 or above. For private nonprofit institutions the number is 78%, while for public institutions it is 65%. In the 2014 survey, 79% of institutions overall rated their confidence level over the next 10 years at 3 or above, with 81% of private nonprofit institutions providing that rating, and 75% of public institutions.  Again, we see outlooks trending downward.
  • Only 28% of presidents responded to the statement “The economic downturn that started in 2008 is effectively over at my institution” with a 5 (“strongly agree) or 4 rating. On the other hand, 48% of respondents replied with a 1 (“strongly disagree”) or 2 rating, with 52% of public institutions providing that 1 or 2, and 43 of private nonprofit institutions providing a 1 or 2.
• With respect to the issue of sexual assaults:
  • 63% responded that female students are a lot safer (2%) or somewhat safer (61%) as a result of the federal government’s efforts in this area
  • 57% of presidents (64% in the public sector but, somewhat surprising, a much lower 49% in the private nonprofit sector) agree with the use of a preponderance of the evidence standard (as opposed to a beyond a reasonable doubt standard) in adjudicating such cases in on-campus disciplinary proceedings
  • Most institutions, 71%, believe that laws like California’s “affirmative consent” law are likely to be “not too effective” (44%) or “not at all effective” (27%) in preventing sexual assaults on campus
  • 32% of institutions responded with a rating of 5 (“strongly agree”) or 4 that sexual assault is prevalent at U.S. colleges and universities (another 42% gave a 3 rating), but only 6% provided a 5 or 4 rating that it is prevalent on their campus (17% provided a rating of 3)
  • 52% answered with a 4 or 5 that fraternities play a disproportionate role in assaults
  • 77% answered with a 4 or 5 that their campus is doing a good job protecting women from sexual assault
  • 90% answered with a 4 or 5 that their institutions provide appropriate due process for those accused of sexual assault
  • Somewhat surprisingly, only 46% responded with a 4 or 5 that local law enforcement should be responsible for handling all sexual assaults on campus
• With respect to race relations, 81% rated the state of race relations on their campus as excellent or good, but only 43% felt that race relations on college campuses generally were excellent or good.
• With respect to faculty issues
  • 55% responded with a 5 (strongly agree) or 4 that they should take a more active role in decisions about which faculty to hire, with 66% responding with a 5 or 4 that they should take a more active role in tenure decisions
  • 62% responded that they do not conduct their own reviews or largely defer to department decisions in the faculty hiring process, while 52% (55% in the public sector and 46% in the private nonprofit sector) do not conduct their own reviews or largely defer to departmental reviews in tenure cases.

The full Survey provides much more information, broken down by type of institution, and, as in years past, is “must” reading to ascertain what’s on the mind of college and university presidents.