New York Labor and Employment Law Report

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

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.

The New York State Department of Labor (“NYSDOL”) recently proposed new regulations governing the payment of employee wages via payroll debit cards – a growing practice among employers.  These draft regulations, which are not yet final or effective, also set forth new requirements governing the payment of wages by direct deposit. Regarding an employer’s use of these so-called “payroll cards,” NYSDOL has previously cautioned that paying employees in this manner raises a number of potential legal issues under the New York Labor Law.  Even so, NYSDOL concurrently opined that employees may be paid lawfully through such payroll cards, so long as certain requirements are met.  For example, according to NYSDOL, employers are required to first obtain written authorization from employees, and employees cannot be subjected to undue fees or encumbrances when accessing their wages through the payroll cards. The proposed regulations track this prior guidance and, if enacted, will codify the specific requirements that must be met in order for employers to lawfully use such payroll cards.  Among other things, employers will be required:  (1) to provide specific, advanced disclosures to employees about the payroll card program in question; (2) to obtain the prior “informed consent” of employees; and (3) to ensure the payroll card program includes a long list of other mandatory terms and conditions (e.g., employees must be provided with access to at least one ATM network offering withdrawals at no cost). With respect to direct deposit, the proposed regulations would require employers to maintain an employee's written consent to be paid through direct deposit during the entire duration of the employee's employment and for six years after the last deposit is made.  In addition, employers would be required to provide a copy of the written consent to the employee and to make the direct deposits at a financial institution selected by the employee. Notably, the proposed regulations would not apply to individuals working in executive, professional, or administrative positions who earn in excess of $900.00 per week. The proposed regulations are currently open for public comment.  We will continue to monitor this issue and report on any further developments. Editor's Note:  Our thanks to Stephanie Hoppe, one of Bond’s Summer Law Clerks, who helped prepare this article.

New York State's Acting Commissioner of Labor, Mario Musolino, issued an Order today, accepting most of the recommendations made by the Hospitality Industry Wage Board, including the recommendation to increase the minimum wage for all tipped employees in the Hospitality Industry to $7.50 per hour effective December 31, 2015.  The one recommendation that the Acting Commissioner rejected was the one that would have provided certain employers with some relief from this significant increase in labor costs -- namely, the recommendation to allow employers to take $1.00 off the hourly minimum wage for tipped employees if the weekly average earnings of their employees (wages paid plus tips received) equals or exceeds 150% of the regular minimum wage in New York City or 120% of the regular minimum wage in the rest of the state. So, to summarize, the Acting Commissioner's Order will:  (1) increase the minimum wage for all tipped employees in the Hospitality Industry (regardless of whether they are classified as food service workers, service employees, or resort hotel service employees) to $7.50 per hour effective December 31, 2015; and (2) implement a $1.00 increase in the minimum wage for tipped employees in the Hospitality Industry who work in New York City, which would take effect if and when the legislature enacts a higher minimum wage rate for New York City.  The Acting Commissioner also accepted the Wage Board's recommendation to review whether the current system of cash wages and tip credits should be eliminated. The Acting Commissioner's Order will be effective 30 days after notice of its filing is published in at least 10 newspapers of general circulation in the state.  Employers in the hospitality industry should begin to consider how this significant increase in labor costs attributable to the employment of food service workers and service employees will impact their businesses in 2016 and beyond.

On September 15, 2014, the New York State Commissioner of Labor assigned the three-member Hospitality Industry Wage Board ("Wage Board") with the task of reviewing and making recommendations regarding what changes, if any, should be made to the minimum wage rates and tip credits for food service workers and service employees in the hospitality industry.  After conducting several meetings, the Wage Board voted on January 30, 2015, to recommend that the minimum wage rate for all tipped employees in the hospitality industry (regardless of whether they are classified as food service workers or service employees) be increased to $7.50 per hour effective December 31, 2015.  The webcast of the Wage Board's January 30 meeting can be found here. Governor Cuomo has expressed his support for the Wage Board's recommendation, which will now be reviewed by the Commissioner of Labor.  If the Commissioner of Labor accepts the Wage Board's recommendation, the Hospitality Industry Wage Order will be revised to reflect the increase. Under the current Hospitality Industry Wage Order, employers are required to pay food service workers a minimum wage of at least $5.00 per hour, and may take a tip credit of no more than $3.75 per hour, provided that the total amount of tips received plus the wages paid equals or exceeds the current regular minimum wage of $8.75 per hour.  The term "food service worker" is defined as any employee who is primarily engaged in serving food or beverages and who regularly receives tips.  This includes "front of the house" employees such as wait staff, bartenders, captains, and bussing personnel, but excludes delivery workers.  Employers are currently required to pay service employees (other employees in the hospitality industry who customarily receive tips but are not involved in serving food or beverages) a minimum wage of at least $5.65 per hour, and may take a tip credit of no more than $3.10 per hour, provided that the total amount of tips received plus the wages paid equals or exceeds $8.75 per hour.  Service employees at resort hotels are subject to a special rule that allows them to be paid a minimum wage of at least $4.90 per hour.  Non-service employees ("back of the house" employees such as cooks and dishwashers) must be paid the regular minimum wage of $8.75 per hour, and no tip credit may be taken for those employees. So, the Wage Board's recommendation (if it is accepted by the Commissioner of Labor) would drastically increase the tipped employee minimum wage as of December 31, 2015, by $2.50 for food service workers, by $1.85 for most service employees, and by $2.60 for service employees at resort hotels.  The Wage Board also voted to make two other recommendations to the Commissioner of Labor:  (1) if the legislature enacts a higher regular minimum wage for New York City, then the minimum wage for tipped employees in the hospitality industry who work in New York City would increase by $1.00 effective on the date that the higher regular minimum wage goes into effect; and (2) if a hospitality industry employer can demonstrate that the weekly average earnings of an employee (wages paid plus tips received) equals or exceeds 120% of the regular minimum wage (or 150% of the regular minimum wage if the employee works in New York City), then the employer would be eligible to pay $1.00 less than the applicable tipped employee minimum wage. Employers in the hospitality industry should begin to consider how this potentially significant increase in labor costs attributable to the employment of food service workers and service employees will impact their businesses, and should evaluate what adjustments may need to be made in the event that the Commissioner of Labor accepts and implements the Wage Board's recommendation.  We will report on any further developments as they occur.