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New York State Enacts Stricter Pay Equity Law and Bans Salary History Inquiries

On July 10, 2019, at the ticker tape parade celebrating the US Women’s National Team’s victory at the World Cup, Governor Cuomo signed two bills into law that require equal pay for equal work regardless of membership in any protected class and prohibit employers from asking prospective employees about their salary history.   Employers should be mindful of these changes and
re-evaluate their pay policies.

Expanded Pay Equity Law

Prior pay equity laws only prohibited differentials in pay due to an employee’s gender.  Under the expanded law, employers are prohibited from employee pay differentials based upon employee membership in any class protected under the New York State Human Rights Law (“NYSHRL”) including, but not limited to, age, religion, sexual orientation, disability, and marital status where employees perform equal or substantially similar work.  However, pay differentials will still be permitted where the differentials are based upon:

  • a seniority system;
  • a system that measures earnings based upon quantity or quality; or
  • a bona fide factor other than membership in a class protected by the NYSHRL such as education, training or experience that is job-related and consistent with business necessity.

While pay differentials are permitted under these circumstances, employees will be able to refute the
justification for the pay differential where they establish that the practice has a disparate impact upon a
protected class, that there is an alternative practice that would achieve the same purpose without the
disparate impact, and that the employer refused to adopt the alternate practice.

This law will go into effect on October 8, 2019.

Salary History Inquiry Ban

Following the enactment of similar laws on the local level in Albany, Suffolk and Westchester Counties and New York City, Governor Cuomo signed into law legislation barring employers from relying upon or inquiring about the salary history of a job applicant or current employee as a factor in deciding whether to hire the
applicant, promote the current employee or what salary to offer.  Moreover, employers are also prohibited from:

  • seeking, requesting, or requiring applicants or current employees to disclose their salary history as a condition of consideration for employment, an offer of employment or an offer of promotion;
  • seeking, requesting, or requiring applicants or current employees’ current or former employers or agents to disclose their salary history; and
  • refusing to interview, hire, promote, otherwise employ or retaliate against an applicant or current employee based upon salary history or their refusal to provide their salary history.

However, nothing in the law prohibits an applicant or employee from voluntarily, without prompting,
disclosing their salary history, including for the purposes of negotiation.  Moreover, an employer can confirm salary history after an offer of employment with compensation is made and the applicant or employee proffers their salary history for the purposes of negotiating a higher rate of compensation.

Violation of the ban on salary history inquiries may result in liability for damages, injunctive relive and
attorneys’ fees.

This law will go into effect on January 6, 2020.

What Employers Should Do

Employers should review their compensation practices to ensure that they do not disadvantage members of a protected class.  Moreover, they should review the salaries and wages paid to employees in substantially similar roles to ensure that their pay practices, though neutral, do not disparately impact members of a
protected class.  Where systems are required, such as a seniority system or one that measures earnings based upon quantity or quality, Employers must establish an actual system that is neutral towards protected classes, administered objectively and can be explained cogently in the event it is challenged.

Finally, Employers should review their hiring and promotional practices to ensure that their applications,
interview aids and documents used to aid in the internal promotions process are devoid of any sections where they seek information on applicants’ and employees’ salary history.

For more information on Meyer Suozzi’s Employment Law practice, click here.

New York State Passes Game Changing Legislation Expanding Workplace Harassment and Discrimination Laws

At the close of the legislative session, the New York State Legislature passed a series of bills having a broad impact upon the state’s anti-discrimination and anti-harassment laws.  The changes in law expand upon the sexual harassment reforms enacted last year and further amend the New York State Human Rights Law (“NYSHRL”).  When this legislation becomes effective, it  will impact every employer in New York State.

Expanding Coverage of the NYSHRL to All Employers

Currently, the NYSHRL applies only to employers with four (4) or more employees, except for claims of sex based discrimination, which applies to all employers regardless of size.  Under the new amendments, the entire NYSHRL will now apply to all employers, regardless of size.

Changes to the Burden of Proof and Viable Defenses in Harassment Claims

To establish a claim of harassment under current law, an employee must demonstrate that the alleged conduct was “severe and pervasive.”  The new NYSHRL amendments eliminate this standard.  An employee now needs only to establish that the alleged conduct subjected them to inferior terms, conditions or privileges of employment because they are a member of a protected class.  Moreover, the NYSHRL is now to be construed liberally to maximize deterrence of discriminatory conduct, even if such construction differs from federal law.

The NYSHRL amendments also diminish a long standing defense to harassment claims.  Previously, the Faragher-Ellerth defense allowed an employer to defeat a claim of harassment if it provided a procedure for reporting complaints of harassment, but the employee failed to follow the procedure, thus depriving the employer of the ability to address the alleged harassment.  Now, an employee’s failure to complain is not determinative of an employer’s liability.

Additionally, the NYSHRL amendments now expressly permit an employer to avoid liability for harassment when the employer can establish that the alleged conduct does not rise above the level of petty slights or trivial inconveniences, as viewed through the lens of a reasonable victim of discrimination who is a member of the same protected class.

Harassment Protections Expanded to Domestic Workers and Non-Employees

Last year, the state sexual harassment laws expanded the protections against sexual harassment to non-employees, such as contractors, vendors and consultants.  The new law further expands the state’s anti-harassment laws and now protect domestics workers and non-employees from harassment based upon any protected characteristic.  Thus, employers will now be liable for harassment of domestic workers, contractors, subcontractors, vendors, consultants and any others providing services in the workplace so long as the business knew or should have known that the individual was subjected to harassment in the workplace and took no corrective action.

Expanded Damages

While the NYSHRL currently does not allow successful claimants to recover punitive damages or attorneys’ fees, under the NYSHRL amendments successful claimants can recover punitive damages and “shall” be awarded attorneys’ fees.

Confidential Settlements and Mandatory Arbitration Agreements Prohibited

Last year’s changes to the NYSHRL prohibited non-disclosure clauses in settlement agreements for sexual harassment claims, unless the alleged victim expressly wanted such a clause.  The new NYSHRL amendments expand this provision to cover all discrimination claims.  As a result, confidentiality clauses may only be included in settlement agreements resolving discrimination claims where the alleged victim expressly desires such a clause.  Moreover, the individual must be given at least 21 days to review the agreement and 7 days to revoke the agreement after signing it.  Significantly, any confidentiality language must expressly permit the individual to participate in an investigation with law enforcement agencies, the Equal Employment Opportunity Commission (“EEOC”), the New York State Division of Human Rights (“NYSDHR”) and similar local agencies as well as to speak to an attorney retained by the employee.  Absent such a carve out, the confidentiality language is void.  The confidentiality language must also permit the individual to provide facts necessary to receive unemployment benefits, Medicaid or any other public benefit to which the employee may be entitled.  Further, the language must be both in English and the employee’s primary language.

The new law also expands last year’s prohibition of mandatory arbitration provisions in contracts to resolve complaints of sexual harassment.  More particularly, pursuant to the NYSHRL amendments, any agreement that requires mandatory arbitration of any discrimination claims will be prohibited.  Notably, however, just days after this legislation was passed, the United States District Court for the Southern District of New York ruled that the prohibition on mandatory agreements to arbitrate harassment claims is preempted by the Federal Arbitration Act and, therefore, invalid.  As a result, any such arbitration agreements may potentially be deemed enforceable should they be challenged in court (absent their unenforceability on other grounds).

Finally, the NYSHRL amendments expand confidentiality prohibitions beyond the settlement context.  Under the amendments, any  contractual provision between an employer and an employee or potential employee that precludes disclosing facts related to any future claim of discrimination is deemed void, unless the language advises the employee or potential employee that they are not prohibited from speaking with law enforcement, the EEOC, the NYSDHR, similar local agency, or an attorney retained by the individual.

Expanded Sexual Harassment Training and Policy Requirements

Employers must now provide their sexual harassment policy to employees in English and their native language at the time of hire and at their annual sexual harassment training seminar.  However, if the state does not publish a model sexual harassment policy in the language identified by an employee as their primary language, the employer need only provide the policy to that employee in English.  Employers must also provide employees with a copy of the training materials presented to employees at their sexual harassment training.

Expanded Statute of Limitations to File Claims with the New York State Division of Human Rights

The legislation extends the time period to file a claim of sexual harassment with the New York State Division of Human Rights from one (1) year to three (3) years.

Expanded Definition of Race Discrimination

The definition of “race” within the Education laws and NYSHRL has been amended to include “traits historically associated with race, including, but not limited to, hair texture and protected hairstyles.”  The phrase protected hairstyles refers to styles such as braids, locks, and twists.  This mirrors legislation passed earlier this year by the City of New York .

What Should Employers do Next?

While these revisions to the law will have a significant impact on all New York workplaces, employers can prepare to address the changes.  Employers should review their workplace harassment, discrimination, and dress code/appearance policies and ensure that their sexual harassment training programs are set up to comply with the new requirements.  Employers should also review their standard forms to ensure they do not run afoul of the new rules regarding confidentiality.  We recommend that employers take these steps as soon as possible because, once enacted, some of these changes go into effect immediately while others will go into effect over time.

 

For more information on Meyer Suozzi’s Employment Law practice, click here.

 

Wills, Trusts & Estates 2019 Client Alert – The 2020 Elections: A Stimulus to Use Your Transfer Tax Exemptions?

The upcoming 2020 federal elections have the potential to cause seismic changes to the estate planning landscape.  Should Democrats retake control of the White House and both chambers of Congress, drastic reductions to the estate, gift and generation-skipping transfer (GST) tax exemption amounts and tax rates may be implemented, accompanied by the possible rollback of several traditional estate planning vehicles.  A review of the current platforms of high profile Democratic candidates is a powerful inducement to take action now to use gift and GST tax exemptions and undertake planning opportunities while they are available.

Current Law  

The Federal estate, gift, and GST tax exemptions in 2019 are $11.4 million per individual.  These exemptions, which are indexed annually for inflation, were doubled in 2018 under the Tax Cuts and Jobs Act from $5 million per individual to $10 million per individual, and they are scheduled to revert back to $5 million per individual, as indexed for inflation (estimated at $6.7 million), at the end of 2025 unless new legislation is enacted.  The tax rate for transfers in excess of the estate, gift and GST exemptions is 40%.

Senator Bernie Sanders (D-VT)

Senator Bernie Sanders has advanced what may be the most sweeping and disruptive estate tax reform proposal.  His “For the 99.8 Percent Act,” introduced in January 2019, would significantly reduce current estate, gift, and GST tax exemption amounts and increase tax rates.  The Act would decrease the estate and GST tax exemptions to the 2009 level of $3.5 million, decrease the gift tax exemption to $1 million and increase the estate, gift, and GST tax rates from 40% to a maximum of 77%.

In addition, the Sanders proposal contains other provisions which would eliminate or restrict well-established estate planning techniques, including:

  • Elimination of valuation discounts for “nonbusiness assets” (assets which are not used in the active conduct of a
    business) held by an entity.
  • Elimination of minority discounts where a transferor, transferee, and members of the family of the transferor and transferee control a business or own the majority of the ownership interests (by value) in such business.
  • Limiting the total gift tax annual exclusion for transfers made in a calendar year to twice the annual exclusion amount.
  • Limiting the utilization of grantor retained annuity trusts (GRATs) by requiring a minimum term of 10 years for such trusts.
  • Requiring that the assets of a grantor trust less the amount of any taxable gifts made by the decedent to the trust be included in the grantor’s gross estate.
  • Limiting the utilization of dynasty trusts by eliminating the GST tax exemption for transfers to “non-qualifying trusts” with a duration of 50 years or more from creation.
  • Eliminating the use of Crummey Demand Powers in trusts, including irrevocable life insurance trusts.

Senator Elizabeth Warren (D-MA)

In January 2019, Senator Warren unveiled her “Ultra-Millionaire Tax,” a proposal for an annual tax of 2% on ultra-millionaires who own more than $50 million in assets and an annual tax of 3% on those who own more than $1 billion in assets.  There would also be a 40% tax penalty for those attempting to “evade” taxation by renouncing their U.S.
citizenship.

In March 2019, Senator Warren, along with Senator Kirsten Gillibrand (D-NY) and Senator Edward Markey (D-MA), introduced the “American Housing and Economic Mobility Act of 2019.”  The proposal would reduce the estate and gift tax exemption amount to $3.5 million.  It would also raise to 55% the estate, gift and GST tax rate on transfers of $3.5 million to $13 million, 60% on estates, gifts and transfers over $13 million and not over $93 million, 65% on estates, gifts and transfers of over $93 million and not over $1 billion, and 75% on estates, gifts and transfers of more than $1 billion.

Like the Sanders proposal, this proposal would require a 10 year minimum term for GRATs, require that assets of a grantor trust be deemed included in an owner’s gross estate for estate tax purposes, eliminate the GST exemption for transfers to trusts with a termination date of 50 years or more from creation, and limit the total gift tax annual exclusion for all transfers made in a calendar year to twice the annual exclusion amount.

Senator Joseph Biden (D-DE)

Senator Biden has not yet offered or introduced a specific estate tax reform proposal.  However,  in the past he has voted against raising the estate tax exemption from $1 million to $5 million, voted against making estate tax cuts permanent and voted against repealing the estate tax.

Senator Kamala Harris (D-CA)

Like Senator Biden, Senator Harris has not introduced a specific estate tax reform proposal, but has offered that she would use the estate tax to fund her proposal to give teachers a pay raise.  She has gone on record in the Washington Post that she would increase the estate tax on “the top 1 percent of taxpayers” and crack down “on loopholes that let the very wealthiest, with estates worth multiple millions or billions of dollars, avoid paying their fair share.”

The Time to Act is Now

This Alert is not intended to offer a prediction on the outcome of the 2020 elections or to opine on the merits of any particular proposal, but clearly there is a common theme in the Democratic candidates’ rhetoric and platforms.

Current law provides a tremendous opportunity for families to engage in estate planning right now, while estate, gift and GST tax exemptions remain at historic highs.  This is particularly true with the issuance of proposed regulations by the IRS in November 2018 providing that the use of any gift tax exemption under the Tax Cuts and Jobs Act will be grandfathered and not subject to “clawback” by the IRS.  Since the current law is scheduled to sunset on December 31, 2025 (to an estimated exemption of $6.7 million), the popular belief is that there is plenty of time to take advantage of the temporary exemption amounts.

If, however, the Republicans are swept out of office in the 2020 elections, the current exemptions could be materially curtailed to $3.5 million, and longstanding estate planning strategies may be swept away well before December 31, 2025.  While there is no guarantee that any technique undertaken now will not be adversely impacted under a new law, failure to act now could result in vanished planning opportunities.

Please contact us so that we can discuss the current estate planning strategies available for your particular circumstances before they potentially disappear.

 

For more information on Meyer Suozzi’s Wills, Trusts & Estates Law practice, click here.

 

Our Wills, Trusts & Estates Law practice group includes the following attorneys:

 

Patricia Galteri

pgalteri@msek.com

(516) 592-5790

Nathaniel L. Corwin

ncorwin@msek.com

(516) 592-5740

 

Jayson J.R. Choi

jchoi@msek.com

(516) 592-5799

Elisa Santoro

esantoro@msek.com

(516) 592-5724

 

Paul Millus Authors, “The Ins and Outs of a BCL § 1118 Hearing”

Counsel is presented with an opportunity to represent a petitioner (or a respondent) in a corporate dissolution proceeding. As petitioner’s counsel, a petition under N.Y. Business Corporation Law (“BCL”) § 1104 cannot be filed as the client does not own at least one-half of the votes of all outstanding shares of the corporation. However, as the client owns an excess of 20% of such shares, she is permitted to file under BCL § 1104-a. Respondent’s counsel receives the petition and has two choices: (1) defend on the grounds that a dissolution is not legally viable under § 1104-a or under “common law”; or (2) within 90 days after the filing of the petition, the respondent can elect to purchase the shares owned by the petitioner at their fair value “upon such terms and conditions as may be approved by the court” under BCL § 1118.

Why even consider opting to purchase the minority’s shares if respondent believes that dissolution should not be granted? There are a number of factors that can play into this decision. First, considering the fact that under BCL § 1118 the valuation will be as of the date of the filing of the petition, this may inure to the respondent’s benefit. Respondent may expect a marked change in the success of the company subsequent to the date of the filing of the petition now that the dissatisfied shareholder may no longer be involved in day-to-day operations. Respondent may also believe that, notwithstanding her fervent belief that dissolution is unwarranted, by electing to purchase the shares she removes the uncertainties that any litigation engenders and avoids the costs associated with fighting the aggrieved shareholder who has requested to exit the corporate entity. One of those risks is that if the dissolution is granted, there will be even more costs and court intervention as the company winds down its operations for the purpose of liquidating its assets to effect a distribution to petitioner and any other shareholders. This is a costly and risky proposition for any ongoing concern and may result in a diminution of the value of those assets throughout the dissolution process. Finally, respondent may have no interest in having to deal with the almost constant haranguing that an aggrieved shareholder may engage in – even if his initial attempt at dissolution was unsuccessful.

A decision is made to go the BCL § 1118 route, so what is next?

For either petitioner or respondent’s counsel what comes next is fairly formulaic. The matter is a special proceeding whose procedural aspects are governed by the provisions of Article 4 of the CPLR.[i] There will be an exchange of relevant financial documents which will eventually lead to a hearing where the court will determiner “fair value.” Where the BCL does not define “fair value,” courts are in agreement that “fair value” is the price which a hypothetical “willing purchaser, in an arm’s length transaction, would offer the corporation as an operating business.”[ii] Fair value is not ascertaining the value of an interest in the “throes of liquidation.”[iii] In such a proceeding, neither side has a burden of proof. Rather, it is the court that determines fair value based upon the evidence presented at the hearing, usually through the testimony of experts.[iv] Both sides also know that the date of valuation, as stated above, is the date prior to the date on which the petition was filed.[v] So how do the respective sides begin to determine “fair value,” and what other considerations are there for each side as they try to convince the court that their valuation is more accurate?

Pre-Hearing Prep

There should be no doubt that expert assistance in this matter is essential. Professional appraisers understand the valuation techniques regularly accepted in the industry and by the courts. While a lawyer involved in this line of work should have some working knowledge as to how a business is appraised, no lawyer can be expected to have the level of knowledge that a professionally-certified business appraiser has acquired over years of study. In addition, no matter what skills an attorney may have at cross examination of a business valuation expert, the court is going to want to have a competing valuation to compare and contrast against the valuation of the other side.

With that said, it is time to engage the services of an expert. What should counsel look for when hiring a business valuation expert? Certainly the expert should be “certified.” There are a number of organizations which require appraisers to go through a certification process. Some of the accrediting organizations are USPAP, NACVA, IBA and ASA.[vi] One should also look to an expert who has specific knowledge of the industry which she will be evaluating. The more the expert knows about the particular industry the better.

The expert should be engaged by counsel for their respective parties rather than the parties themselves.[vii] Unlike the attorney-client privilege, the client-accountant communication privilege is limited. However, when an attorney retains an accountant for his expertise to assist in client representation, the privilege will apply to attorney-accountant communications. In this “Kovel Letter,” the attorneys engage the accountant, specifying that the expert is assisting in representation of his specific client under the attorney’s direction, the expert is reporting directly to the attorney, all communications between the expert and the client and between the attorney and the client are privileged for the purpose of assisting the attorney, and that the attorney has ultimate control of the expert’s work and without written permission by the attorney the expert cannot disclose that to anyone.[viii]

There are essentially three predominant methodologies to determine fair value, to wit, (1) net asset value; (2) investment value; and (3) market value.[ix] Net asset value is an asset-based approach focusing on the balance sheet of the company and more appropriate for holding companies with significant tangible assets, i.e., family limited partnerships. Investment value is also known as the “income approach” which is to determine a value that is equal to the present value of future benefits such as revenues, operating profits and cash flow. This involves a capitalization of a single benefit stream or discounting multiple benefit streams. Finally, there is the generally-recognized market approach or market value. Market approach is determining value by observing transactions in the market place that are similar in nature thus ascribing value to the transaction at issue. For most closely-held corporations, it will be difficult to establish a market value approach because of the uniqueness of the company’s operations irrespective of the industry in which the company is involved. Moreover, there may not simply be enough comparables that are similar enough to warrant reliance on such an approach.

Concepts Counsel Should Be Aware Of

Although unquestionably the attorneys in a fair-value proceeding will be relying significantly on their experts, an understanding of several concepts that impact an expert’s valuation will be of great assistance to counsel. For example, but for petitioner forcing this issue through the initial filing for dissolution, it is highly unlikely that petitioner’s shares were readily marketable, and, more likely than not, there are significant restrictions in place preventing transfer of those shares. Nevertheless, under New York law there is no “minority discount” that may be applied in a BCL § 1118 valuation hearing to compensate the other shareholders for the minority shareholders’ lack of control. The rationale is a minority discount would deprive minority shareholders of their proportionate interest in a going concern which would result in minority shares being valued below that of majority shares, thus violating the courts mandate of equal treatment of all shares of the same class in minority stockholder buyouts.[x] However, a “marketing discount” or, as it is commonly known, a “discount for lack of marketability” (DLOM) may be applied to compensate for the lack of a ready market for the shares. However, note that no New York court has ever held that DLOM must be applied in a § 1118 proceeding, although courts have indeed recognized a DLOM.[xi] Also, DLOM is not designed to discount the value of the corporation or any particular asset, i.e., goodwill, but rather is to reflect the lack of marketability of the shares of the corporation.[xii]

Next, counsel should be aware of the possibility that the existence of an embedded capital gains tax or “B.I.G.” may be used to reduce the value of the corporation. The theory is that corporate holdings appreciate in value. As such, an event such as a dissolution could result in the liquidation of a particular asset or assets owned by the corporation, and, thus, a large capital gains tax will result upon the sale of such assets. In New York, it is recognized that embedded capital gains tax assets held by a C corporation will affect what a hypothetical willing purchaser with reasonable knowledge of the underlying facts will pay for the corporate stock. Universally, New York courts have consistently held that a hypothetical willing buyer will insist on a B.I.G. deduction.[xiii]

It has also been held that interest is payable to the petitioner from the date of the filing of the petition. As for the rate of interest, courts generally award an “equitable” rate of interest. In most cases, courts have determined that the “equitable” rate of interest should be the statutory rate of nine percent.[xiv] This is an easy default, but it can be challenged. The court may fix interest at a rate other than the statutory rate if the court finds “such deviance is warranted by the equities” and the court is provided with specifics as to why this should be done.[xv] In today’s low-interest environment, one may argue that nine percent interest is unwarranted coupled with other facts to support that position. There is also the question of whether the petitioner’s cost expenses in attorney’s fees can be awarded by the court. BCL § 1118 makes no provision for the imposition of court costs and disbursements. However, in Blake, it was determined that such awards are discretionary with the court.[xvi]

One factor that the lawyer can add to the expert-driven proceeding, and which may prove detrimental to either parties’ claim in terms of how much interest is awarded (or at all) or whether costs are assessed, is potential “bad faith” by either one of the litigants. Bad faith may be found in connection with one of the shareholders’ actions before the petition was filed or during the fair value proceeding.[xvii] If the court makes a determination that petitioner has acted in bad faith, it could affect the petitioner’s ability to receive prejudgment interest.[xviii]

In sum, notwithstanding the seemingly mechanical process by which value may be determined, the lawyer still has the ability to use his or her talents to affect the outcome.


[i]     See In Re WTB Prop., Inc., 291 A.D.2d 566 (2d Dept. 2002); see also In Re Quail Aero Serv., Inc., 300 A.D. 2d 800 (2d Dept. 2002).

[ii]    Matter of Pace Photographers (Rosen), 71 N.Y.2d 737, 748 (1988); Matter of Penepent Corp., 96 N.Y.2d 186, 193 (2001); and Matter of Seagroatt Floral Co., Inc. (Riccardi), 78 N.Y.2d 439, 445 (1991).

[iii]   Matter of Seagroatt Floral Co., Inc., 78 N.Y.2d at 445.

[iv]    Matter of Cohen, 636 N.Y.S.2d 994 (Sup. Ct., N.Y. Co. 1993), aff’d 240 A.D.2d 225 (1997).

[v]     See BCL § 1118.

[vi]    Uniform Standards of Professional Appraisal Practice (USPAP), National Association of Certified Valuation Analysts (NACVA), Institute of Business Appraisers (IBA), American Institute of Certified Public Accountants (AICPA), American Society of Appraisers (ASA):  CFA Institute (CFAI): Chartered Financial Analyst (CFA).

[vii]   The engagement letter should specify that the expert will solely look to the client for payment of all invoices.

[viii] U.S. v. Kovel, 296 F.2d 918 (2d Cir. 1961).

[ix]    Matter of Friedman v. Beway Realty, 87 N.Y.2d 161, 167 (1995).

[x]     Matter of Friedman, 87 N.Y.2d at 170.

[xi]    Seagroatt, 78 N.Y.2d at 442.

[xii]   Ferolito v. Arizona Beverages USA, 2014 WL 5834862, *18-19 (Sup. Ct., Nassau Co. 2014).

[xiii] Giaimo v. Vitale, 101 A.D. 3d 523 (1st Dept. 2012).

[xiv] See Giaimo, 101 A.D.3d at 526 (the court awarded prejudgment interest at the “equitable rate” of four percent).

[xv]   Rodriguez v. Estevez, 19 Misc.3d 1116(A) (Sup. Ct., N.Y. Co. 2008).

[xvi] Blake v. Blake Agency, Inc. 107 A.D.2d 139, 151 (2d Dept. 1985).

[xvii] McDaniel v. 162 Columbia Heights Housing Corp., 25 Misc.3d 1024 (Sup. Ct., Kings Co. 2009); Hall v. King, 177 Misc.2d 126 (Sup. Ct., N.Y. Co. 1998); Ferolito, 2014 WL 5834862 at *22.

[xviii] Id.

 

Reprinted with permission by the Nassau County Bar Association.

Client Alert: United States Department of Labor Proposes Increasing the Salary Threshold for Exempt Employees to $35,308

On March 7, 2019, the United States Department of Labor released its long-gestating plan to increase the number of individuals eligible to earn overtime under the Fair Labor Standards Act (“FLSA”).  Under the proposed rule, individuals earning less than $35,308 per year ($679 per week) would be eligible to earn overtime.

Overtime and its Exceptions

The FLSA requires that employers compensate its employees at time and a half for all hours worked over forty (40) in a workweek unless that individual is exempt from earning overtime.  Generally, in order to be exempt from overtime, individuals must pass both a duties test and a salary basis test.  The duties test requires an employer to establish that the employee is either an executive employee (primarily responsible for managing the company, directs the work of 2 or more employees and has the ability to affect individuals’ job status) or an administrative employee (performs office or non-manual work related to the management or operation of the company and exercises discretion and independent judgment).  The salary basis test requires that an individual earn above a certain salary on a weekly basis.

The Proposed Changes to the Salary Basis Test

Under current law, an individual must earn $23,660 (or $455 per week) in order to pass the salary basis test.  The propose rule would require an individual to earn $35,308 per year (or $679 per week) in order to pass the salary basis test.

The Impact of the Proposed Rule

The proposed rule would result in more than one million workers becoming eligible to earn overtime under the FLSA.  Employers should review the salaries of their exempt employees in order to determine whether their exempt employees would pass the salary basis test under the proposed rule.  If there are any exempt employees who would no longer be exempt, employers should determine whether to increase that employee’s salary or reclassify them as a non-exempt employee.  However, employers should also examine applicable state law as many states, such as New York where exempt employees must earn between $832.50 and $1,125.00 per week depending upon location, have a higher minimum salary threshold in order for individuals to pass the salary basis test.

What’s Next

The proposed rule will be published shortly in the Federal Register.  Once the proposed rule is published, it will be subject to a 60-day public comment period.

Client Alert: NYS Legislature Brings New Hope to Child Sexual Abuse Victims

Victims of child sexual abuse have a powerful new weapon to achieve justice against their abusers.

On January 28th, 2019,  the New York State Legislature approved a bill greatly increasing the time within which a person who was sexually abused as a child
(under age 18) may bring a civil suit against the person or institution causing or allowing the abuse.

The period of time (statute of limitations) allowed for criminal prosecutions of such crimes was also increased.   The Bill applies the Criminal Law statute of limitations for the specific crime and begins to run from the person’s twenty-third birthday or from the time the offense is reported to a law enforcement agency or statewide central register, whichever occurs first.

Notice of claim provisions (which generally require written notice to a municipality within 90 days of an event) are eliminated in cases of child sexual abuse.

This Bill was passed in response to recent widespread findings of sexual abuse of children in religious institutions and other settings.

Child sexual abuse victims may now bring suit for sexual abuse until they reach age fifty-five.  There is a one-year extension to commence suit for those over the age of fifty-five. This extension begins six months from the time the bill is signed into law.  It is expected that the governor will sign this bill immediately.

If you or someone you know is a victim of child sexual abuse, you should consult an attorney, even if you have been told previously that no legal action could be taken.

 

For more information on Meyer Suozzi’s Personal Injury Law Practice, click here.

Client Alert: 2019 Wills, Trusts & Estates Winter Alert

A year has elapsed since the Federal Tax Cuts and Jobs Act (the “TCJA”) became effective1 and it has been nearly five years since New York’s estate tax law was last overhauled.  Since New York’s estate tax law changes were scheduled to become fully phased-in as of January 1 of this year, now is an excellent time to review the key principles under the Federal and New York State transfer tax laws, along with planning opportunities to which taxpayers may avail themselves in the current favorable wealth transfer environment.

Federal

  • The Federal estate and gift tax exemption for 2019 has increased to $11.4 million per person, from $11.18 million in 2018. The exemption, which is indexed annually for inflation, was temporarily doubled in 2018 from $5 million (indexed for inflation) under the TCJA and is set to return to $5 million (indexed for inflation) at the end of 2025.
  • Federal estate and gift taxes are “unified” under a single transfer tax system, with a unified rate schedule, and a unified credit. Taxable gifts made during lifetime reduce the amount of the exemption available for estate tax purposes at death.
    • Because of the structure of the unified gift and estate tax system, the TCJA recognized the possibility that taxpayers may prior to 2025 make sizeable gifts that are within the TCJA’s increased exemption amount, but die after 2025 when the exemption has reverted to $5 million, resulting in the deceased taxpayer
      having used more than the available exemption.  This circumstance is commonly referred to as a “clawback” scenario, and the TCJA includes language authorizing the Treasury to prescribe IRS regulations to address the issue.  The IRS issued proposed regulations in November of 2018 that provide that taxpayers who take advantage of the increased exemption will not be adversely affected by the post-2025 decrease in the exemption.  The regulations have not yet been adopted as final.
    • Present interest gifts that do not exceed the statutory gift tax exclusion amount will not reduce the amount of exemption available for estate tax purposes at death.  The gift tax exclusion amount is $10,000, indexed for inflation occurring after 1997.  The exclusion amount for 2019 is $15,000, unchanged from 2018.  The exclusion covers gifts a donor makes to each donee, each year.  If the donor of the gift is married, gifts to donees made during a year can be treated as split between the spouses, even if the gift is actually given to a donee by only one of them, by the filing of a gift tax return signed by both spouses.
  • Federal Provisions For Married Taxpayers.
    • Married taxpayers may leave an unlimited amount of assets to a spouse and qualify for the marital deduction, if such assets are given outright, or in a qualifying trust, typically a “qualified terminable interest property trust” (“QTIP Trust”).  At the surviving spouse’s death, such assets may be subject to estate tax depending upon the surviving spouse’s available exemption.
    • Under the portability provisions initially implemented in 2010, any Federal gift and estate tax exemption that remains unused at the death of a spouse is generally available for use by a surviving spouse, as an addition to the surviving spouse’s exemption, through the timely filing of a Federal estate tax return.  A surviving spouse may use the predeceased spousal carryover amount in addition to his or her own Federal exemption for taxable transfers made during life or at death.  The amount received by the surviving spouse is called the deceased spousal unused exclusion, or DSUE amount.
    • The Generation-Skipping Transfer Tax (GST) is the Federal transfer tax which may be imposed on transfers that “skip” a generation (generally transfers by gift or at death to grandchildren and more remote descendants). The GST tax is in addition to gift and estate taxes.  Currently, the GST exemption amount runs in tandem with the gift and estate tax exemption and is $11.4 million as of January 1, 2019, scheduled to revert to $5 million at the end of 2025, as indexed for inflation. The portability rules do not apply to the GST Exemption.
    • The Federal estate, gift and GST tax rate remains at 40%.

New York State

  • The NYS estate tax exemption (the “NYS Basic Exclusion Amount”) for 2019 has increased to $5.74 million from its previous level of $5.25 million. In future years, the exemption will be adjusted annually for inflation, to equal the amount of the Federal exemption prior to and as if the TCJA had not been enacted.2
    • New York’s estate tax law includes a quirky feature commonly known as the “cliff.”  If the New York taxable estate exceeds the Basic Exclusion Amount by more than 5%, the credit is phased out completely and the entire taxable estate will be subject to NYS estate tax.  This tax structure has been referred to as “confiscatory,” in that it can lead to the absurd result of causing the beneficiaries of estates between $5,740,000 and approximately $6,286,700 to receive, after estate taxes, less than the beneficiaries of an estate valued at $5,740,000.  Taxpayers whose estates are valued near the “cliff” may wish to include a formula provision, sometimes referred to as a “Santa Clause,” pursuant to which a portion of the estate will pass to charity if the formula results in the imposition of less NYS estate tax.
  • New York does not impose a gift tax. A temporary provision requiring inclusion of gifts made within 3 years of death in the gross estate of a New York resident decedent sunsetted on January 1, 2019, but the recently released Fiscal Year 2020 NYS Executive Budget includes proposed legislation that would extend the sunset to January 1, 2026, to coincide with the expiration of the increased exemptions under the TCJA. The proposed law must now make its way through the NYS Legislature, but passage seems likely in light of the current political configuration in Albany.
  • NYS Provisions For Married Taxpayers.
    • An unlimited marital deduction is available under New York’s estate tax law.
    • New York law does not provide for spousal “portability” to allow a surviving spouse to use his or her deceased spouse’s unused gift and estate tax exemption.
  • New York does not impose a GST tax for transfers made on or after April 1, 2014.
  • The top New York estate tax rate is 16%.

Planning Considerations

  • Credit Shelter Planning. While the federal exemption amount, coupled with federal spousal portability, currently renders it possible for married couples to shelter from federal estate tax up to $22.8 million without the need to rely on complex testamentary documents, credit shelter trust planning for married couples nevertheless continues to occupy a vital estate planning role for several reasons.
    • State Estate Taxation.  New York is one of a handful of states that continues to impose a separate estate tax, and does not recognize spousal portability.  Accordingly, credit shelter planning is necessary so as not to lose the benefit of the NYS exemption of the first spouse to die.
    • Trust Protection.  Establishment of any trust can provide protections not present with an outright distribution.  These include protecting assets from both the beneficiary, a divorcing spouse, and third-party creditors, and providing greater assurance that children and grandchildren will receive an inheritance.
    • Asset Appreciation. The potential for asset appreciation is a consideration which runs across a range of planning concerns.  Establishment of a credit shelter trust may prevent the post-transfer appreciation in the value of the assets from being subject to estate tax on the death of the survivor.  However, no income tax basis step-up will be available for the assets held in a credit shelter trust upon the death of the surviving spouse.
    • Formula Planning Caution.  Testamentary formulas based on the federal exemption amounts, including credit shelter planning (as well as GST formula planning), must be reviewed periodically, particularly in times such as the last several years when exemption amounts have changed dramatically.  The new exemptions may result in overfunding or underfunding amount passing to or for the benefit of a surviving spouse, and may result in an unnecessary state estate tax.
  • Sunsetting and Potential Earlier Repeal. The increased estate, gift and GST exemptions, currently at $11.4 million per person, are temporary and set to expire automatically on December 31, 2025.  Currently, available planning options may be lost if action is deferred until the eleventh hour.  Moreover, in the present unsettled political climate, it is conceivable that the increased exemption amount could be lowered prior to 2025. A Presidential election will be held in 2020, and several potential Presidential candidates have voiced proposals to ratchet the exemptions back to $5 million and lower.  For instance, Senators Cory Booker, Bernie Sanders and Elizabeth Warren have each floated separate proposals that would lower the exemption to the pre-2010 threshold of $3.5 million, coupled with higher maximum rates.
    • Gifting.  Lifetime gifting, outright or in trust, can result in substantial transfer tax savings.  Gifting provides the benefit of removing the post-transfer appreciation in the value of the assets from the donor’s estate.  For New York domiciliaries, since a State estate tax is imposed but not a gift tax, gifts can result in a substantial reduction in State estate tax liability.  Many gifting vehicles, moreover, offer discounting advantages that may be absent from or less effective than those associated with transfers at death.  However, since the recipient of a gift receives the donor’s income tax basis in the gifted assets — as opposed to the recipient of a testamentary transfer receiving an income tax basis as of the date of death — any proposed gift must measure the potential capital gain consequences as against potential gift and estate tax savings.
      • Dynasty Trusts. For taxpayers who wish to establish a Dynasty Trust, substantial gifts of $10 million (indexed for inflation), after factoring in any prior taxable gifts, may be made to a Dynasty Trust to which GST exemption may be allocated, exempting the trust assets from further estate, gift and GST taxation.  Creation of the trust in a jurisdiction that has repealed or liberalized its Rule Against Perpetuities can allow the trust assets to provide for future generations without being burdened by further estate, gift or GST taxes.  For those who have previously established a Dynasty Trust, consideration should be given to making additional gifts to the Dynasty Trust to take advantage of the increased federal exemption and the inflation adjustment.
      • Spousal Lifetime Access Trusts.  The Spousal Lifetime Access Trust (SLAT) can enable married couples who wish to make large lifetime gifts to descendants without a dramatic impact on their current lifestyle.  With a SLAT, one spouse makes a gift to an irrevocable trust using the donor-spouse’s gift tax exemption.  The non-donor spouse is named as a current beneficiary, which allows the trustee to make distributions of trust funds to the beneficiary-spouse during his or her life.
      • Qualified Personal Residence Trusts (QPRTs).  QPRTs are a popular vehicle for making a gift transfer, in trust, at a reduced gift tax cost of a personal residence in exchange for its continued use rent-free for a term of years.  At the expiration of the term, the residence passes to family members at no additional gift or estate tax cost.  The effectiveness of a QPRT generally increases with higher interest rates.
      • Grantor Retained Annuity Trusts (GRATs). A GRAT is a trust to which a donor irrevocably gifts assets, and in return receives an annuity for a fixed term of years. The value of the gift is equal to the fair market value of the property transferred to the GRAT minus the value of the retained annuity, calculated using the monthly interest rate under Internal Revenue Code §7520 in effect at the GRAT’s inception. Where the present value of the annuity equals the original contribution (a “near zeroed-out GRAT”), the value of the taxable gift will be nominal. Upon expiration of the fixed term, provided the donor is living, any remaining assets in the GRAT pass to the beneficiaries free of gift tax. GRATs are interest rate sensitive (the January 2019 rate is 3.4%) and as rates rise, the ability to outperform the §7520 rate becomes increasingly difficult. Thus, a GRAT may be suitable only for gifts of high income and/or appreciating assets.
      • Intentionally Defective Grantor Trusts (IDGTs).  Assets gifted to an IDGT are removed from the donor’s estate for gift and estate tax purposes, but the donor remains responsible for payment of income taxes, which payments are, in effect, additional non-gift taxable transfers to the IDGT.  In addition, an IDGT provides a vehicle for selling assets of the donor to the IDGT, without incurring a capital gain, in exchange for a promissory note.

 

Current law provides tremendous opportunities to transfer wealth and should be taken as a call to action to review your existing estate plan and, where appropriate, to implement planning opportunities provided by the temporary increased Federal exemptions.


1The Tax Cuts and Jobs Act, which became effective on January 1, 2018, implemented sweeping changes to the Internal Revenue Code, including the doubling of the estate, gift and generation-skipping tax exemptions from $5 million to $10 million per person, indexed for inflation occurring after 2011.  The inflation adjustment index was also changed.  Prior law based the computation on the Consumer Price Index for all Urban Consumers (“CPI-U”).  Under the Tax Cuts and Jobs Act, the inflation adjustment is based on Chained CPI-U (“C-CPI-U”), which generally produces a slower growing CPI calculation than the CPI-U calculation.
2Unlike Federal law under the TCJA, the State of New York continues to base its inflation adjustment computation on the Consumer Price Index for all Urban Consumers
(“CPI-U”).

For more information on Meyer Suozzi’s Wills, Trusts & Estates Law practice, click here.

 

Our Wills, Trusts & Estates Law practice group includes the following attorneys:

Patricia Galteri pgalteri@msek.com (516) 592-5790 Nathaniel L. Corwin ncorwin@msek.com (516) 592-5740
Jayson J.R. Choi jchoi@msek.com (516) 592-5799 Elisa Santoro esantoro@msek.com (516) 592-5724

 

Paul Millus Authors, “The Future of the NLRB Under Trump”

Each time there is a change of administration from one political party to another, you can rest assured that, there will be significant policy shifts. We know the biggest changes focus on the economy, foreign policy, health care, and immigration. But the National Labor Relations Board (NLRB) is a place where changes may initially go unnoticed but can have a profound effect.  You may ask, “why should that concern me? I don’t represent unions or employers that have a unionized workforce.” This article addresses why attorneys should have some working knowledge of the NLRB and the changes that are probably in store.

The Constitution of The Board and Its Jurisdiction

The NLRB has five members and primarily acts as a quasi-judicial body in deciding cases on the basis of formal records from underlying administrative proceedings. They are appointed by the President for a five-year term, with Senate consent, with the term of one member expiring each year. The NLRB enforces the rights of employees to act together to try to improve their pay and working conditions and monitors union elections to ensure that they are fair to both sides. At present, four out of the five members were nominated by Trump and one member is an Obama holdover.

The NLRB has two primary functions.  First, it addresses unfair labor practices (ULP’s) identified in Section 8 of the National Labor Relations Act (the Act).[i] Also, and more recognizable, is the NLRB’s jurisdiction over union elections.[ii]

Where a ULP is in the process of litigation before an administrative law judge (ALJ), the NLRB is authorized to seek temporary injunctions against employers and unions in federal district courts.  There are a number of additional areas that fall under the NLRB’s jurisdiction, such as interference with organization campaigns, threats, coercion or interrogations, surveillance of protected activities, the improper granting of benefits, and unlawful employee discipline including disciplinary charges in connection with the employees engaging in “concerted action.”[iii] This is where the jurisdiction of the NLRB can extend to a non-union shop.

“Concerted action” occurs when two or more employees take action for their mutual aid or protection regarding terms and conditions of employment. In fact, a single employee may also engage in protected activity if he or she is acting on the authority of other employees, bringing group complaints to the employer’s attention, trying to induce group action, or seeking to prepare for group action. In 2014 the NLRB held that where, in a discussion about his wages, an employee cursed his manager repeatedly and shoved his chair at his manager, such activity was “concerted activity” and the conduct was not so “menacing, physically aggressive or belligerent” as to warrant the loss of protection under the Act.[iv] However, the current trend appears to be narrowing what constitutes concerted activity.[v]

Stare Decisis and the Board

Why are there such wide swings from one side of the spectrum to another in connection with NLRB decisions? Congress delegated to the NLRB Board the authority to make rules to fill in gaps within the Act. The U.S. Supreme Court has held that this authority can be exercised either through formal rulemaking procedures or, if the NLRB prefers, by the common law method of rulemaking through adjudication.[vi] Generally, the NLRB engages in rulemaking through adjudication. Under this scheme, the common law doctrine of stare decisis does not strictly apply. Some say that this promotes flexibility and change. Others point out that stability is always in doubt when one administration changes to another and clearly has different views on the management-labor relationship.

In 1975, the Supreme Court affirmed the ability of the NLRB to abruptly change precedent stating that the Board can reconsider past decisions “in light of significant developments in industrial life believed by the NLRB to have warranted a reappraisal of the question” and that a court should defer to the Board’s “special competence” in the area of labor relations.[vii] The NLRB’s freedom to decide cases within the Act’s parameters has meant that the NLRB has reversed precedent, sometimes in very rapid succession.  The primary question is: does the NLRB stray from its fundamental principles or not?

Ch-Ch-Changes . . .

Out of the gate, several important rulings by the Obama era NLRB are on the chopping block. One of those is the 2015 NLRB final rule that shortened the time frame between the filing of an election petition and the date on which an election is conducted, reducing it to as little as 14 days.[viii] The rule also compelled employers to provide employees’ contact information to union organizers, including personal cell phone numbers, e-mail addresses, and work schedules, without any opportunity for workers who do not want their personal data released to opt out. The NLRB has decided to review what employers have derogatively called the “ambush” election rule. On December 12, 2017, the NLRB issued a Request for Information on whether the rule should be rescinded or what specific provisions should be repealed. The comment period ended on April 18, 2018. Now, the lengthy rulemaking process begins.

Next, a trend developed under the Obama Administration whereby the NLRB fervently opposed employers’ efforts to restrict employees from using class actions to vindicate their rights.  Toward that end, in 2014 the NLRB held that the employer had violated § 8(A)(1) of the Act requiring its employees to agree to resolve all employment-related disputes through individual arbitration.  In the Epic Systems case, three actions were consolidated to address whether employer-employee agreements that contain class action and collective action waivers and stipulate that the employment disputes be resolved by individual arbitration violate the Act.[ix] The Supreme Court held that such agreements do not violate the Act and the agreements must be enforced as written pursuant to the Federal Arbitration Act, overruling the NLRB. While the Supreme Court resolved this issue, there is little question that had the NLRB addressed this during the present Administration, there most assuredly would have been a different outcome well before the courts became involved.

Another area where change is coming involves employees’ use of e-mail and corporate communications. In 2014, the Board decided that the use of company e-mail for organizing purposes by employees constituted concerted activity.[x] The employers argued that such a policy would lower workplace productivity, compromise digital security and ignore all other ways workers can communicate. At present, the NLRB is considering revising its e-mail rule in a separate case which involves workplace rules at the Caesar’s Resorts casino in Las Vegas. All briefing and public comments have been filed and a decision will be forthcoming.[xi] However, in its brief to the General Counsel’s office, the NLRB argued for the return to its pre-2014 rule that workers have no statutory right to use company e-mail for unionization purposes provided the e-mail restrictions on e-mail use are non-discriminatory.[xii]

An even bigger change may be coming regarding the joint employer concept which has been subject to significant evolution. In the Browning Ferris case, the NLRB considered whether it should adopt a different standard for what constitutes a joint employer in the context of a subcontracting case other than situations where the employer meaningfully affects matters related to employment relationships such as hiring, firing, discipline, supervision and direction.[xiii] As of 1984, the NLRB required “direct and immediate” control of a putative employer over employment matters.[xiv] On August 27, 2015, by a three to two margin (not unusual for the Board), the NLRB issued a decision citing “the diversity of the workplace arrangement in today’s economy has significantly expanded.”

The NLRB stated it would file the common law agency test whereby the Board may find that two or more entities are joint employers of a single workforce if they are employers within the meaning of the common law, and if they share or co-determine those matters governing the essential terms and conditions of employment. The NLRB noted that it would no longer require a joint employer to not only to possess the authority to control employees’ terms and conditions of employment but also must exercise that authority and do so immediately and not in a “limited and routine manner,” thus overturning two prior Board decisions in two earlier cases.[xv]

This brings us to September 2018, when the NLRB proposed to change the joint employer test, yet again. Under a proposed rule, an employer may be found to be a joint employer of another employer’s employees only if it possesses and exercises substantial, direct and immediate control over the essential terms and conditions of employment and has done so in a manner that is not limited and routine.[xvi] Indirect influence and contractual reservations of authority would no longer suffice to establish a joint employer relationship.

Then there is the McDonald’s case. On December 19, 2015 the NLRB’s General Counsel commenced litigation against McDonalds USA and its franchises claiming that it violated the rights of employees who work in McDonald’s restaurants around the country by, among other things, “making statements and taking actions against them for engaging in activities aimed at improving their wages and working conditions including participating in nationwide fast food and worker protests about the terms and conditions of their employment,” also known as the fight for $15 per hour. Thereafter, this was the subject of litigation that was ongoing until very recently when the parties seemed to have settled their dispute.  Settlement agreements were entered into subject to a review by the NLRB, which resulted in the ALJ’s rejection of the settlement agreements.

While the proceeding’s primary focus was to accuse McDonald’s USA of ULP’s, the end result could have been that McDonald’s USA was found to be a joint employer with its franchisees, which could have led to allowing a certification election by the individual employees of franchisees against McDonald’s USA. Indeed, in his opening statement of the hearing in March of 2016, the NLRB’s General Counsel argued that McDonald’s use of business consultants who monitor staffing and business practices and conduct periodic reviews of the implementation of those practices to exert control over its franchises indicated, essentially, a joint employer status.  It pointed to McDonald’s operating manual and pointed to sale and scheduling systems concluding that the franchisees’ control over the terms and conditions of their workers’ employment was limited.

In opposition, McDonald’s argued that it was essentially doing its due diligence as a franchisor.  It further stated that it did not tell the company business owners whom to hire or when to schedule its employees. Rather, McDonald’s USA counsel maintained that McDonald’s USA exerts a level of control that any franchisor would expect to maintain a uniform customer experience across the franchisees adding that “all franchisors if they are successful, do precisely the same thing.” The parties proposed settlement was rebuffed by an ALJ and the McDonald’s respondents are now seeking to enforce the agreements stating that the ALJ engaged in an abuse of discretion. Whether the settlement comes to fruition or not, it is unlikely that the continued push to demonstrate franchisees and franchisors are joint employers will continue.

In sum, significant changes at the NLRB, in terms of its decisions and rulemaking, have been standard fare over the last twenty years. The pendulum has a tendency to swing wildly, which should not be surprising, considering the polarized positions of one Administration or the next.  However, this situation is not optimal for workers or employers as uncertainty abounds and planning each one’s next steps for the future becomes ever more unpredictable. Only time will tell if balance will be restored.

[i] 29 U.S.C. § 158.

[ii] 29 U.S.C. § 159.

[iii] Dish Network, LLC v. National Labor Relations Board, 725 Fed.Appx. 682 (10th Cir. 2018).

[iv] Plaza Auto Center, Inc., 360 NLRB 972 (2014).

[v] Preferred Building Services, Inc. and Rafael Ortiz d/b/a Ortiz Janitorial Services, Joint Employers, 20-CA-149353        (2018), 2018 WL 5734450.

[vi]  Auciello Ironworks Inc. v. NLRB, 517 U.S.781 (1996).

[vii] NLRB v. Weingarten, 420 U.S. 251 (1975).

[viii] See Representation — Case Procedures, 79 Fed. Reg. 74308-10 (Dec. 15, 2014).

[ix] Epic Systems Corp. v. Lewis, 138 S.Ct. 1612 (2018) was a consolidated proceeding including review of the Court’s decision in Lewis v. Epic Systems, 823 F.3d 1147 (7th Cir. 2016), Morris v. Ernst & Young, LLP, 834 F.3d 975 (9th Cir. 2016), and the Murphy Oil U.S.A., Inc. v. NLRB, 808 F.3d 1013 (5th Cir. 2015).

[x] Purple Communications, Inc. 361 NLRB 1050 (2014).

[xi] Caesars Entertainment Corp. d/b/a Rio All-Suites Hotel & Casino, Board Case No. 28-CA-060841.

[xii] Amicus Brief, Counsel for General Counsel/Region (9/06/18) (Here the NLRB reversed course and now opposes the position it had taken in support of Purple Communications).

[xiii] Browning-Ferris Industries of California, Inc. and FRRII, LLC d/b/a Leadpoint Business Services and Local 350, International Brotherhood of Teamsters, Case 32-RC-109684 overruled by Seven Seas Union Square LLC and Key Foods Cooperative, 2018 WL 818125 (2018).

[xiv] Laerco Transportation, 269 NLRB 324 (1984); TLI, Inc. 271 NLRB 798 (1984).

[xv] Browning Ferris, 2018 WL 818125.

[xvi] https://www.nlrb.gov/news-outreach/news-story/board-proposes-rule-change-its-joint-employer-standard.

 

Reprinted with permission by the Nassau County Bar Association

Client Alert: New York Minimum Wage Increases and Additional Reminders for Employers

As the end of the year approaches, it is important to remember that New York employers are subject to changes in wage and hour regulations that go into effect on  December 31, 2018. Failure to comply with the new requirements could subject a non-compliant employer to significant financial liability.

Minimum Wage Increases

The minimum wage and minimum salary levels in New York increase on December 31, 2018. These increases vary depending upon an employer’s size and location. On December 31, 2018, the regular minimum wage and fast food minimum wage in New York
increase as follows:

Location Regular Minimum Wage Fast Food Minimum Wage
NYC – Large Employer** $15.00 $15.00
NYC – Small Employer $13.50 $15.00
Long Island & Westchester $12.00 $12.75
Remainder of NY State $11.10 $12.75


** 
A New York City – Large Employer is one with 11 or more employees. A New York City – Small Employer is one with 10 employees or less.

A “fast food employee” is any individual working in a fast food establishment whose job duties include at least one of the following: customer service, cooking, food or drink preparation, delivery, security, stocking supplies or equipment, cleaning, or routine maintenance.

A “fast food establishment” is any establishment in New York serving food or drink items:

  1. where patrons order or select items and pay before eating and such items may be consumed on the premises, taken out
    or delivered to the customer’s location;
  2. which offers limited service;
  3. which is part of a chain; and
  4. which is one of 30 or more establishments nationally, including:
    1. an integrated enterprise which owns or operates 30 or more such establishments in the aggregate nationally; or
    2. an establishment operated pursuant to a franchise where the franchisor and the franchisee(s) of such franchisor own or operate 30 or more such establishments in the aggregate nationally.

The rate for spread of hours pay, call-in pay, and similar non-working time payments that are based on the minimum wage will increase to match the minimum wages outlined above.

New York Minimum Salary Levels

On December 31, 2018, the minimum salary levels to qualify for overtime exemptions in New York also increase.  In addition  to meeting the duties requirements for the exemptions, an executive/managerial or administrative employee must be paid a minimum salary as follows:

Location Weekly Minimum Salary Level
NYC – Large Employer $1,125.00 ($58,500.00 annually)
NYC – Small Employer $1,012.50 ($52,650.00 annually)
Long Island & Westchester $900.00 ($46,800.00 annually)
Remainder of NY State $832.00 ($43,264.00 annually)

 

Tip Credits And Other Allowances

The tip credit, meal credit, and uniform maintenance allowances permitted by the Hospitality Industry and Miscellaneous Industries and Occupations Wage Orders will also change on December 31, 2018, with the amount varying depending upon the employer’s location, size, and, for the hospitality industry, the designation of whether the employee is a food service worker, service employee, or non-service employee.

Before a New York employer can take a tip credit, they must inform the employee in writing, in English and in the employee’s native language if not English, that the employer is taking a tip credit and the amount of the tip credit. The employer must also provide the employee with notice of their regular rate of pay, overtime rate of pay and their regular payday. In addition, the employer must advise the employee that if the cash wages they receive, plus the employee’s tips, do not equal the regular minimum wage for all hours worked, the employer will pay the employee the difference. Finally, in order to take the tip credit, the employer must notify the employee that the employer will not take any tips received by the employee except those that are contributed to a valid tip pooling or tip sharing arrangement. If an employer fails to provide this information, it cannot take the tip credit.

With these parameters in mind, effective December 31, 2018, the tip credit taken by the employer plus the cash wage that must be paid to such employees is as follows:

Miscellaneous Industries and Occupations

Location Reg. Min. Wage Low Tip Credit Low Tip Credit Cash Wage Low Tip Credit Cash OT Wage High Tip Credit High Tip Credit Cash Wage High Tip Credit Cash OT Wage

NYC –

Large Employer

$15.00 $2.25 $12.75 $20.25 $3.65 $11.35 $17.03

NYC –

Small Employer

$13.50 $2.05 $10.95 $18.20 $3.30 $10.20 $15.30
Long Island & Westchester $12.00 $1.80 $10.20 $16.20 $2.95 $9.05 $13.58
Remainder of NY State $11.10 $1.65 $9.45 $15.00 $2.70 $8.40 $12.60

 

Employers covered by the Miscellaneous Industries and Occupations Wage Order may take the Low Tip Credit for employees whose average weekly tips are between the low tip credit and the high tip credit.  Employers may take the High Tip Credit for those employees whose average weekly tips equal or exceed the high tip credit.

Hospitality Industry – Food Service Workers

Pursuant to the Hospitality Industry Wage Order, a “food service worker” is one who:

  • is primarily engaged in serving food and beverages to guests, patrons, and customers, other than delivery employee;
  • customarily and regularly receives tips from such guests, patrons, and customers; and
  • does not spend more than two (2) hours in any day or more than 20% of their time performing work where tips are not
    customarily received.
Location Cash Wage Tip Credit Reg. Min. Wage

Cash Tipped

OT Wage

NYC – Large Employer $10.00 $5.00 $15.00 $17.50
NYC – Small Employer $9.00 $4.50 $13.50 $15.75
Long Island & Westchester $8.00 $4.00 $12.00 $14.00
Remainder of NY State $7.50 $3.60 $11.10 $13.05

 

Hospitality Industry – Service Employees

A “service employee” in the hospitality industry is one who regularly and customarily receives tips for the work they perform and who is not a food service worker or a fast food employee.

Location Cash Wage Tip Credit Tip Threshold Tip Threshold for Resort Hotels Reg. Min. Wage

Cash Tipped

OT Wage

NYC –

Large Employer

$12.50 $2.50 $3.25 $8.40 $15.00 $20.00

NYC –

Small Employer

$11.25 $2.25 $2.95 $7.60 $13.50 $18.00
Long Island & Westchester $10.00 $2.00 $2.60 $6.75 $12.00 $16.00
Remainder of NY State $9.25 $1.85 $2.40 $6.25 $11.10 $14.80

 

In order to take the tip credit for service employees, the employee must meet the tip threshold.  This means that the employee’s average weekly tips must meet the minimum amount listed in the chart above per hour worked.

Uniforms

Where employers require employees to maintain their uniforms, unless they are “wash and wear” clothing that do not require any special treatment (i.e. dry cleaning, pressing, repairs), they must provide such employees with weekly uniform maintenance pay. The uniform maintenance pay will increase on December 31, 2018 to:

Location

Work Week

Over 30 Hours

Work Week More than 20 Hours but Less Than 30 Hours Work Week of 20 Hours or Less
NYC – Large Employer $18.65 $14.75 $8.90
NYC – Small Employer $16.80 $13.30 $8.05
Long Island & Westchester $14.95 $11.80 $7.15
Remainder of NY State $13.80 $10.90 $6.60

 

Meal Credit

Pursuant to New York’s Miscellaneous Industries and Occupations and Hospitality Industry Wage Orders, an employer who provides a qualifying meal to an employee may consider that meal to be part of the employee’s wages and take a credit against the employee’s wages for providing that meal.  In order to qualify as a “meal,” it must include each of the following: (1) fruits or vegetables; (2) grains or potatoes; (3) eggs, meat, fish, poultry, dairy or legumes; and (4) tea, coffee, milk or juice. The meal credits per meal provided shall change on December 31, 2018 to:

 

Miscellaneous Industries and Occupations

Location All Employees
NYC – Large Employer $5.15
NYC – Small Employer $4.65
Long Island & Westchester $4.15
Remainder of NY State $3.80

 

Hospitality Industry – Restaurants and All Year Hotels

 

Location Food Service Workers Service Employees All Other Employees
NYC – Large Employer $3.60 $4.15 $5.15
NYC – Small Employer $3.35 $3.75 $4.65
Long Island & Westchester $3.05 $3.35 $4.15
Remainder of NY State $2.90 $3.10 $3.80

 

Hospitality Industry – Resort Hotels 

 

Location Food Service Workers Service Employees All Other Employees
NYC – Large Employer $3.95 $5.40 $6.75
NYC – Small Employer $3.65 $4.90 $6.10
Long Island & Westchester $3.35 $4.35 $5.40
Remainder of NY State $3.20 $4.00 $5.00

 

Notice of Rate of Pay

New York’s Wage Theft Prevention Act (“WTPA”) requires that all New York employers provide a “Notice of Pay” form to all employees at the time of hire and upon a change in their rate of pay.  For employers outside of the hospitality industry, the New York State Department of Labor (“NYSDOL”) has stated that, as long as the new rate of pay is referenced in the employee’s next pay stub, employers do not need to provide a new Notice of Pay as a result of an increase in pay.  Hospitality employers must provide a new Notice of Pay upon an increase in pay because the Hospitality Industry Wage Order specifically requires that employers must provide a new Notice of Pay form to those employees who are affected by the increase to the minimum wage.

The required notices must contain the following information:

  • The employee’s normal rate(s) of pay and the basis thereof (e.g., hourly, shift, weekly, salary);
    • If an employer is taking a tip credit for an employee, the employer should note the full minimum wage as the employee’s hourly rate of pay, rather than the cash wage.
  • If applicable, the employee’s overtime rate of pay;
    • If an employer is taking a tip credit for an employee, the employer should note the full overtime wage, rather than the cash overtime wage.
  • The employee’s regular pay day;
  • Any allowances claimed against the minimum wage (e.g., tip credit, meal credit, lodging allowance, etc.);
  • The name of the employer (including any “doing business as” name);
  • The address of the employer’s main office and a mailing address (if different); and
  • The employer’s telephone number.

The written notice must be signed by both the employer and the employee and must be retained by the employer for at least six years.

The NYDOL has issued sample Notice of Pay forms that employers may use. Although employers are not required to use the NYDOL forms, it is recommended that they do so in order to ensure full compliance with New York law.   The Notice of Pay must be provided in both English and the employee’s native language (if not English), provided the NYDOL has created a Notice of Pay form in the employee’s native language.

Paystubs

In addition to providing employees with the Notice of Pay, New York employers must continue to provide their employees with detailed paystubs that contain the following information:

  • The dates of work covered by the paycheck;
  • The name of the employee;
  • The name, address and phone number of the employer;
  • The rates of pay (regular and overtime) and basis of pay i.e. whether the employee is paid by the hour, shift, day, week, salary, piece, commission, or other method;
  • Gross wages;
  • A detailed listing of deductions;
  • A listing of any allowances claims as part of the minimum wage; and
  • Net wages.

Employers in New York City who are subject to the New York City Earned Safe and Sick Time Act as well as any employer providing employees with vacation, paid time off, sick time or a similar benefit should also provide detailed information regarding these
benefits on employee paystubs.  This will avoid any potential discrepancies and confusion as employees will see on each paycheck the amount of time accrued during that pay period, the total amount of time accrued that year, the amount of time used during that pay period, the amount of time used during that year to date and the amount of time available to the employee.

As a reminder, it is the employer’s responsibility to ensure that paystubs are accurate.  Employers cannot trust their payroll

services to ensure that paystubs are compliant.  We recommend consulting with counsel to review their paystubs to ensure that they meet the legal requirements.

New York Paid Family Leave

In addition to the previously discussed wage and hour obligations, there are significant changes to New York Paid Family Leave that employers must be aware of.  The amount of paid leave that an employee can take increases from 8 weeks to 10 weeks in 2019.  Moreover, the payout increases from 50% of an employee’s average weekly pay to 55% of an employee’s average weekly pay,

subject to a cap of $746.41.  Further, the maximum annual employee contribution increases to $107.64.

Sexual Harassment Statute Compliance

Finally, all employers must ensure that they are in compliance with the sexual harassment laws enacted by New York State and New York City.  All employers should have a compliant sexual harassment policy in place and New York City employers must have posted the required workplace poster and distributed the required factsheet to all newly hired employees.  Employers must also begin planning sexual harassment training for all employees in order to meet the applicable deadlines.

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In anticipation of these changes, New York employers should review their current payroll practices to ensure that they are prepared to meet the increased minimum wages and salary levels on December 31, 2018.  Employers should also ensure that they are prepared to enact the increased maximum deduction permitted by the New York Paid Family Leave law and update their policies to reflect the increased amount of paid leave an eligible employee is permitted.

 

For more information on Meyer Suozzi’s Employment Law practice, click here.

Paul Millus Authors, “The Dissatisfied Minority Shareholder or LLC Member: What Can She Do After the Bloom Is Off the Rose”

Maybe you have had the same experience. A new client comes to you with a story. She had significant disposable funds, so she did what everyone does—she invested in the “next big thing.” She was so excited that she did not even consult with a lawyer because she was afraid to lose this “once in a lifetime opportunity.” The client invested $500,000 for what she was told was initially a 20 percent interest in the venture, which would increase to 50 percent after two years pursuant to an oral agreement. She was also told she would begin making money immediately. Not surprisingly, two years come and go and she has not received a single distribution, and all of her requests for relevant information regarding the company’s finances have been ignored. When the venture began, optimism was through the roof and dreams of a pain-free retirement danced in her head. But, alas, things did not turn out to be what the client had hoped. So, you first determine what form the business was in, i.e., whether she invested in a business corporation or a Limited Liability Company. Then you look for the underlying agreements and you are told “I don’t have any” and off you go.

The fact is, minority shareholders/owners have very little (or potentially no) control over when and how much money they will receive in distributions based on their investment (if any). So, after gently admonishing your client that she should have come to you or your corporate group before she made such an investment, you ascertain what legally supportable angle may be available to get your client out.

Rights Under the BCL

You learn your client invested in a business corporation. Under the BCL, a minority shareholder’s rights are limited. You may start by demanding to inspect the books and records under BCL §624(a). Under that section, any person who is a shareholder of record of a corporation is entitled to examine the minutes of the proceedings. There probably are no minutes. Under BCL §624(e), you can request an annual balance sheet and profit and loss statement for the preceding fiscal year. You may also request an interim balance sheet or profit and loss statement that has been distributed to its shareholders or otherwise made available to the public. If any of this is available and, indeed, is given to you, it will not tell you much.

Dissolution is then discussed; however, initially, your client states she does not want to see the business liquidated as she still has great hopes for its future. As such, you inquire as to what she knows about how the business is being managed. Maybe she has information pertaining to her fellow shareholder’s misuse of corporate funds, potentially supporting a suit based on breach of fiduciary duty. But first, under BCL §626(c), your client must explain what efforts she made to inform the company’s board of what she knew and that she sought board action, which must be pled in the complaint “with particularity.” Her failure to do so is not per se fatal, as she can commence a suit and plead the reasons why such a request would be futile. Cement Masons Local 780 Pension Fund v. Schleifer, 56 Misc.3d 1204(A) (Sup. Ct., N.Y. Cty., 2017). To withstand a motion to dismiss based on failure to adequately plead futility, a complaint needs to allege “with particularity that (1) a majority of directors are interested in the transaction; or (2) the directors failed to inform themselves to a degree reasonably necessary about the transaction; or (3) the directors failed to exercise their business judgment in approving the transaction.” Id. at 4 quoting Marx v. Akers, 88 N.Y.2d 189, 198 (1996).

This will not be an easy road. First, your client must understand this will be a derivative suit, not on her own behalf but on behalf of the corporation. It is unlikely money will come to her directly. However, your client’s attorney fees may be recoverable. See McKinney’s BCL §626(e). Also, keep in mind that the allegations of breach of fiduciary duty must be pled with particularity as required by CPLR 3016(b). Next, there are numerous defenses to certain corporate actions. If she is claiming that her fellow shareholder took excessive compensation, there is a potential defense under BCL §713(e), which states that “[u]nless otherwise provided in the certificate of incorporation or the by-laws, the board shall have authority to fix the compensation of directors for services in any capacity.” Then you must contend with the business judgment rule which “bars judicial inquiry into actions of corporate directors taken in good faith and in the exercise of honest judgment in the lawful and legitimate furtherance of corporate purposes.” Auerbach v. Bennett, 47 N.Y.2d 619, 629, 631 (1979) (“[B]y definition the responsibility for business judgments must rest with the corporate directors … [and] absent evidence of bad faith or fraud … the courts must and properly should respect their determinations.”) It may be that you simply do not have the facts to pursue this relief. So what’s next?

Dissolution may be the only option. It should be noted that together with a dissolution action, you may commence a hybrid action seeking dissolution as well as damages due to the failure of the other shareholder to distribute funds in the event you have evidence other distributions were made to that shareholder and not to your client. Under BCL §1104, a 50 percent shareholder may present a petition for dissolution on one or more of the following grounds: (1) that the directors are so divided respecting the management of the corporation’s affairs that the votes required for action by the board cannot be obtained; (2) that the shareholders are so divided that the votes required for the election of directors cannot be obtained; (3) that there is internal dissension and two or more factions of shareholders are so divided that dissolution would be beneficial to the shareholders. Your first hurdle would be to establish that the oral agreement your client mentioned, which would make her a 50 percent shareholder, is valid. UCC §8-113 replaced UCC §8-319 (repealed eff. 1997), providing that the “Statute of Frauds [is Generally] Inapplicable” to securities. The new statute provides that “[a] contract or modification of a contract for the sale or purchase of a security is enforceable whether or not there is a writing signed or record authenticated by a party against whom enforcement is sought, even if the contract or modification is not capable of performance within one year of its making.”

You may simultaneously seek relief under BCL §1104-a, which provides that a shareholder, like your client, who owns at least 20 percent of the outstanding shares, may seek dissolution if: (1) The directors or those in control of the corporation have been guilty of illegal, fraudulent or oppressive actions toward the complaining shareholders; (2) The property or assets of the corporation are being looted, wasted, or diverted for non-corporate purposes by its directors, officers or those in control of the corporation. You probably will start with asserting that your client has been subjected to oppressive actions and hopefully have some evidence that assets are being wasted. Oppression occurs “when the majority conduct substantially defeats expectations that, objectively viewed, were both reasonable under the circumstances and were central to the [minority shareholder’s] decision to join the venture.” Matter of Kemp & Beatley (Gadstein), 64 N.Y.2d 63, 73 (1984); see also Matter of Charleston Square, 295 A.D.2d 425, 426 (2d Dep’t 2002). A bonus under this section is that, in addition to all other disclosure requirements set by the court, the company must make available for inspection and copying the corporate financial books and records for the three preceding years no later than 30 days after the filing of a petition. McKinney’s BCL §1104-a(c).

However, if you bring a BCL §1104-a proceeding, the other shareholder may elect to buy out your client under BCL §1118 and the valuation date, in that event, will be one day before the petition was filed. Any increase in value after that date will be simply out of reach for your client. A §1118 election is not available in a §1104 dissolution. Finally, you have additional arrows in your quiver if you seek dissolution under either §§1104 or 1104-a, such as seeking the appointment of a receiver, McKinney’s BCL §1113, the potential imposition of a constructive trust, see Cortes v. 3A North Park Ave Rest, 46 Misc.3d 670, 703-04 (Sup. Ct., Kings Cty., 2014), an injunction limiting the actions of the present board and officers of the company (McKinney’s BCL §1115) and requesting that the opposing party post a bond in the amount of the value of your client’s shareholder’s interest in a §1118 election (McKinney’s BCL §1118(c)(2)). However, the process will be long, no matter how you slice it.

Your Client and Her LLC Interest

Let’s say your client told you instead that she is a member of an LLC. What are her rights then? Without an operating agreement, your client’s claim will be governed by New York’s Limited Liability Company Law. Interestingly, the Court of Appeals held in 2008 that LLC members may bring derivative suits on the LLC’s behalf even though the State Legislature considered and rejected including such a right in the law. Tzolis v. Wolf, 10 N.Y.3d 100 (2008). However, the same rules apply to such an action here, to wit, that the allegations must be specific and the business judgment rule is always in play.

Next, can your client seek dissolution? A court may order the dissolution of a limited liability company “whenever it is not reasonably practicable to carry on the business in conformity with the articles of organization or operating agreement.” N.Y. Limit. Liab. Co. Law §702. The statute does not define the term “reasonably practicable.” In determining whether a limited liability company should be dissolved, the court is determining whether it is or is not “reasonably practicable for the company to continue to carry on its business” and not whether it is impossible. Matter of 1545 Ocean Ave., LLC, 72 A.D.3d 121 (2d Dep’t 2010); see also Matter of Kassab v. Kasab, 137 A.D.3d 1135 (2d Dep’t 2016). While the court will look to the operating agreement initially to determine what the purpose of the LLC is, here, the court will have to examine extrinsic evidence to determine that purpose. “[T]he dissolution of a limited liability company under [LLC] §702 is initially a contract-based analysis.” 1545 Ocean, 72 A.D.3d at 128; Matter of Eight of Swords, LLC, 96 A.D.3d 839 (2d Dep’t 2012) (the court used extrinsic evidence to determine the LLC’s primary purpose).

The petitioner in an LLC dissolution proceeding must either show that “the management of the entity is unable or unwilling to reasonably permit or promote the stated purpose of the entity to be realized or achieved or [that] continuing the entity is financially unfeasible” 1545 Ocean, 72 A.D.3d at 131. This is a very high burden. If the company is performing fine financially and doing what it set out to do, the fact your client has not received a distribution probably will not be enough to carry the day in a dissolution proceeding. Your client’s allegations of oppressive conduct or that she is being frozen out by her other member will not state cognizable grounds for dissolution. Belardi-Ostroy, Ltd. v. American List Counsel, Inc., 2016 WL 1558850 (Sup. Ct., N.Y. Cty, 2016).

Conclusion

Based on the law, your client is in for a fight if the other side has no interest in relenting. She also has one hand tied behind her back as a result of failing to insist on written agreements that clearly set forth her rights and her fellow shareholder’s obligations. You would be surprised how many people think, including those who you would consider to be “sophisticated,” that buying into a closely-held corporation is like buying shares in IBM. Therein lies the lesson—if your client thought she was saving money upfront by going ahead without legal advice, she will pay far more on the back end trying to salvage the investment of her hard-earned money.

Paul F. Millus is a shareholder of Meyer, Suozzi, English & Klein, P.C., and practices in the firm’s litigation and employment law departments.