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.
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.
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.
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
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LUKE SKYWALKER’S JEDI ACADEMY,
Plaintiff,
-against- Index No. 2016/R2D2
KYLO REN, THE FIRST ORDER AND SNOKE,
Defendants.
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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.
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.
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.
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.
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.
October saw a flurry of activity from workplace regulators in New York, and employers should take note of several recent legal developments.
First, Governor Andrew Cuomo recently signed legislation extending a so-called “sunset” provision in prior amendments to New York’s wage deduction statute – Section 193 of the New York Labor Law. Those amendments, enacted in 2012, broadened the scope of permissible wage deductions under state law, including deductions for certain overpayments and advances. Absent legislative action, the amendments were set to expire this month, which would have caused Section 193 to revert to its prior, more restrictive form. These amendments will now be extended for another 3-year period. Notably, this recent legislative action serves to concurrently extend existing deduction-related regulations promulgated by the New York State Department of Labor (“NYSDOL”). Among other things, the regulations set forth detailed requirements which employers must follow in order to lawfully deduct to recover overpayments and advances.
Second, the NYSDOL proposed revised regulations on October 28, 2015, governing the payment of employee wages via payroll debit cards, direct deposit, and other means. These revised regulations – which are not yet final or effective – would impose a number of new requirements regarding how employers pay their covered employees. As we reported on this blog, the NYSDOL initially proposed regulations on this same subject earlier this year, which were open for an extended public comment period. The recently-issued revised regulations contain several changes from what NYSDOL originally proposed, ostensibly in response to feedback it received during the prior public comment period. On balance, the newly-revised version provides better clarity on certain requirements and may also render implementation of payroll debit card programs more feasible for employers. As additional good news for employers, NYSDOL has indicated that there will be a six-month delay in the effective date once the revised regulations are adopted and published in final form. The specific requirements proposed in the revised regulations can be accessed here, and are open for another 30-day public comment period.
Third, the NYSDOL published proposed regulations on October 21, 2015, which would implement the recommendation of Governor Cuomo’s Fast Food Wage Board to raise the minimum wage for fast food workers to $15 per hour. NYSDOL’s Commissioner subsequently adopted this recommendation, which will now proceed through New York’s rulemaking process. The proposed regulations are presently open for a 45-day public comment period. Businesses and their advocates in New York have opposed this drastic change and have questioned the NYSDOL’s authority to enact such an industry-specific raise without legislative action. It is expected that there will continue to be considerable opposition to this proposal, that there will be significant public commentary provided through the rulemaking process, and that opponents will, if necessary, assert a legal challenge to the proposed change.
And fourth, the NYSDOL has proposed additional regulations which would – effective on and after December 31, 2015 – raise the minimum wage and reduce the maximum available “tip credit” for certain workers who fall under the existing Hospitality Industry Wage Order. Specifically, the proposed regulations would raise the applicable minimum wage for covered “service employees” and “food service workers” to $7.50 per hour (from $5.65 and $5.00, respectively). Concurrently, the maximum available “tip credit” for these workers would be reduced to $1.50 per hour (from $3.35 and $4.00, respectively). The proposed regulations also contain similar changes for covered “service employees” working in resort hotels, and would also include new language governing the calculation of hourly tip rates. These proposed regulations are currently open for a 45-day public comment period, which began on October 7, 2015.
As a reminder, the NYSDOL proposed regulations referenced above remain pending and are not yet effective. There is no specific timetable for further action on the part of NYSDOL. Even so, it is conceivable that the regulations will be issued in final form and adopted at or near the end of this year.
New York employers take notice: an amendment to New York’s equal pay law (S.1/A.6075) was signed by Governor Cuomo on October 21, 2015. The law amends Labor Law Section 194, which prohibits pay differentials based on gender in jobs requiring “equal skill, effort and responsibility” which are “performed under similar working conditions.” The bill was passed by the Assembly in April, and by the Senate in January, and the changes are significant.
The amendment to Labor Law Section 194 is one of eight laws aimed at gender equality issues that Cuomo signed last week. Of interest to employers, several of the other laws also touch on employment issues. Those other laws:
Extend the prohibition on sexual harassment to all employers, including those with less than four employees (S.2 / A.5360);
Allow employees to obtain attorneys’ fees when they prevail in sex discrimination lawsuits (S.3 / A.7189);
Add “familial status” to the list of protected traits under the New York State Human Rights Law (S.4 / A.7317); and
Add a requirement to the Human Rights Law that employers must provide reasonable accommodations to all pregnant employees, not just those with a pregnancy-related disability (S.8 / A.4272).
The laws are slated to take effect on Tuesday, January 19, 2016.
The premise of the pay equity amendment is simple and appealing: the same day’s pay for the same day’s work. At first glance, this is not big news. The state labor law and federal law already require equal pay without regard to gender. However, this law tightens and strengthens Section 194 in ways that will undoubtedly impact many New York workplaces.
First, under existing law, an employer can defend a pay discrimination claim by showing that the difference in pay is justified by a seniority system, a merit system, a system measuring earnings based on quantity or quality of work, or “any other factor other than sex.” This catch-all was viewed by many as a loophole and hindered the success of many pay discrimination claims. The new law replaces the “any other” defense with the following: "a bona fide factor other than sex, such as education, training, or experience." This bona fide factor must be job-related and consistent with business necessity. Notably, the burden is on the employer to prove the existence of this bona fide factor; it is not on the complaining employee to prove discriminatory motive (as in other types of employment discrimination litigation).
As any employer can attest, many factors other than sex go into compensation decisions. Under the old law (and still under federal law), these other factors typically held up to the test of “any other factor other than sex.” It is not clear which factors will hold up under the new law. For example, are market forces still a defense? In a competitive market for talent, an employer might pay a new hire more than employees currently performing the same job simply because the market demands it. Perhaps the candidate has an offer from a competitor that the employer must match to attract the candidate. Often, internal compensation lags behind external market. Whether market forces will be considered “a bona fide factor other than sex, such as education, training, or experience” remains to be seen.
Moreover, even if an employer establishes a “bona fide factor” to justify a gender pay difference, an employee can still prevail under the new law by showing that: (a) the bona fide factor has a disparate impact on one sex; (b) alternative employment practices exist that would serve the same business purpose and not produce the pay differential; and (c) the employer refused to adopt the alternative practice. The lack of clarity over what will be considered a “bona fide factor” will undoubtedly result in a wave of litigation.
Second, the Pay Equity Act gives employees the right to openly inquire about, disclose and discuss their wages. Employers cannot prohibit these conversations. Rather, the employer may only establish and distribute a written policy containing “reasonable workplace and workday limitations on the time, place and manner” for pay discussions. The law states that an example of a reasonable limitation would be a rule that an employee may not disclose a co-worker’s pay without the co-worker’s permission. The law contains some recognition that certain employees must still maintain confidentiality of pay information: an employer may prohibit an employee with access to other employees’ pay information as part of their job from disseminating that information to others who do not have the same access.
This right to openly discuss pay is new to New York law, but it is consistent with the National Labor Relations Board’s position that an employee’s right to openly discuss wages is protected by the National Labor Relations Act.
Third, the law contains dramatically higher penalties than other state employment discrimination and wage/hour laws. Employers who are found to have willfully violated the Equal Pay Act are subject to liquidated damages in the amount of 300% of the wages owed. In other words, in addition to making the employee whole for any unlawful difference in pay, there is an additional potential penalty of three times those wages. Other provisions of the New York Labor Law provide for liquidated damages of “only” 100%.
As stated above, the law takes effect on January 19, 2016. Therefore, employers should act quickly to evaluate any potential exposure. Now is the time to review pay rates to ensure any gender differences can be justified based on the factors in the statute. Consider whether these factors are job-related and consistent with business necessity. Additionally, employers should review their written policies, particularly confidentiality policies, to ensure they do not contain restrictions on the right to share or discuss compensation information, and revise as necessary. Similarly, supervisors should be made aware that they may not prohibit conversations about pay. Finally, consider the pros and cons of adopting a new policy setting reasonable limits on the time, place and manner of pay discussions.
It is not uncommon for employers to present restrictive covenants, such as non-competition, non-solicitation, or confidentiality agreements, to new employees in a stack of orientation paperwork. A recent case from New York’s highest court reminds employers not only that it is important to narrowly tailor restrictive covenants, but also that it is worthwhile to take the time to explain the meaning of those agreements to new employees, and even provide new employees with some time to review them. In 2014, we posted a blog article on a New York Appellate Division (Fourth Department) case regarding the partial enforcement of an overbroad non-solicitation provision in an employment agreement. In Brown & Brown, Inc. v. Johnson, the appellate court deemed the non-solicitation provision overbroad and unenforceable because it prohibited the former employee from soliciting any client of the firm, not just those with whom she developed a relationship while employed by the firm. The firm sought to have the non-solicitation agreement partially enforced. In other words, the firm asked the court to modify or “blue pencil” the covenant to make it enforceable. Significantly, the appellate court refused to blue pencil the overbroad agreement, citing the unequal balance of power between the employee and employer at the time the agreement was signed. Thus, the entire non-solicitation provision was deemed unenforceable, allowing the former employee to solicit any former clients. Given this decision, we cautioned employers to be wary of overreaching in a restrictive covenant, as it could result in a court refusing to enforce even a pared down version of the agreement. In June 2015, the Court of Appeals reversed the Appellate Division on the partial enforcement issue and sent the case back to the trial court to review the circumstances of the case. According to the Court, the lower court should have taken a closer look at the facts and circumstances surrounding the signing of the non-solicitation agreement before deciding whether to simply strike the overbroad agreement. The Court noted that the fact that the agreement was not presented to the employee, Johnson, until after she left her prior employment “could have caused her to feel pressure to sign the agreement, rather than risk being unemployed.” Nevertheless, the mere fact that the agreement was a requirement of the job, and that the employee was not presented with the agreement until the first day of work was not enough alone to deny partial enforcement. The Court cited other factors that would be considered to determine the partial enforcement issue: whether the employee understood the agreement, whether it was discussed or explained to her, and whether she was coerced into signing it on the first day or could have sought advice from counsel or negotiated the terms. The latest lesson on restrictive covenants from New York’s highest court is clear: they must be presented to employees in a non-coercive fashion. If your restriction on an employee could be construed as overbroad, courts will consider the circumstances under which the agreement was provided to the employee when determining whether to modify or “blue pencil” it to make it enforceable. To convince a court to do so, there must be facts showing that the employer took steps to minimize the inherent inequality in bargaining power between the employer and the employee. While employers may be reluctant to negotiate the terms of these agreements, employers should consider sitting down to explain the meaning of a non-compete or non-solicitation agreement, leaving some time for the new employee to think over and review the agreement, and allowing the employee to seek counsel before signing it.
On July 22, 2015, the Fast Food Wage Board (which was empaneled at the direction of Governor Cuomo to investigate and make recommendations regarding an increase in the minimum wage for employees in the fast food industry) passed a resolution recommending that the minimum wage for employees in the fast food industry be raised to $15.00 per hour. The recommended increase will be phased in to take effect by December 31, 2018, in New York City, and by July 1, 2021, for the rest of the state. Governor Cuomo has publicly applauded the Wage Board's recommendation, which will almost certainly be accepted and adopted by the Commissioner of Labor.
Assuming the Commissioner of Labor issues an order accepting the Wage Board's recommendation, the fast food hourly minimum wage in New York City will increase to $10.50 on December 31, 2015, $12.00 on December 31, 2016, $13.50 on December 31, 2017, and $15.00 on December 31, 2018. The fast food hourly minimum wage in the rest of the state will increase to $9.75 on December 31, 2015, $10.75 on December 31, 2016, $11.75 on December 31, 2017, $12.75 on December 31, 2018, $13.75 on December 31, 2019, $14.50 on December 31, 2020, and $15.00 on July 1, 2021. At this point, the minimum wage for all employees is $8.75 per hour. On December 31, 2015, the minimum wage will go up to $9.00 per hour for all employees except fast food employees, who will be entitled to the higher minimum wage recommended by the Wage Board.
In the Wage Board's resolution, "fast food employee" is defined as any person employed or permitted to work at or for a fast food establishment where the person's job duties include at least one the following: customer service, cooking, food or drink preparation, delivery, security, stocking supplies or equipment, cleaning, or routine maintenance. The Wage Board's resolution does not contain any exemption for high school or college students, who often seek part-time jobs in the fast food industry and who generally are not trying to support themselves or their families on their income.
The term "fast food establishment" is defined as any establishment in New York serving food or drinks: (1) where customers order and pay for their items before eating, and the items may be consumed on the premises, taken out, or delivered; (2) which offers limited service; (3) which is part of a chain; and (4) which is one of 30 or more establishments nationally. The definition includes a franchisee who owns and operates only one fast food restaurant in New York State, if the franchisor and all other franchisees of the franchisor own and operate at least 30 such restaurants nationwide.
If the Commissioner of Labor adopts the Wage Board's recommendation as expected, the Commissioner's order could be subject to legal challenges based on its selective targeting of the fast food industry and potentially other grounds. It remains to be seen whether this minimum wage increase for employees in the fast food industry will withstand judicial scrutiny.
