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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.

****

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.

Client Alert: New York City Council Votes to Impose New Obligations Upon Employers

In the midst of reports of widespread discrimination faced by pregnant workers and those returning to work following giving birth, the New York City Council passed a legislative package imposing new burdens on employers with respect to nursing employees.  The newly passed legislation, which is awaiting Mayor DiBlasio’s signature, will require employers to provide lactation rooms and adopt lactation accommodation policies.

Currently, all employers in New York are required to provide employees with unpaid break time to express breast milk for up to three years after the birth of a child and a private location, other than a restroom, where they can express breast milk, unless it would be extremely difficult to do so.  The room must contain a chair and a small table, or other flat surface.  Under the new laws, employers in New York City will need to provide breastfeeding employees with an increased level of accommodation.

New York City Employers Face Increased Requirements for Lactation Rooms

Under the new legislation, companies in New York City with more than 15 employees will be required to provide breastfeeding employees with a lactation room in reasonable proximity to the employee’s work area that, at a minimum, includes an electrical outlet, a chair, a surface to place a breast pump and other personal items upon, and nearby access to running water.  The employer must also provide employees with a refrigerator in reasonable proximity to the employee’s work area for the purpose of storing breast milk.  Moreover, if the designated lactation room is also used for another purpose, the primary purpose of the room must be for lactation and the employer must provide notice to all its employees that use of the space for lactation purposes takes precedence over all other purposes.

If providing such a space to an employee would impose an undue hardship on the employer due to the significant expense or operational difficulty, after an analysis of the employer’s circumstances, an employer may be exempt from the requirements imposed by the City law.  However, the employer must engage in a cooperative dialogue with the employee to determine whether any other options are available to meet the employee’s needs.

New York City Employers Must Issue a Formal Policy on Lactation

In addition to providing an appropriate space for expressing breast milk, New York City employers must adopt and implement a policy regarding the lactation room.  The policy must be distributed to all employees and contain the following information:

  1. A statement that employees have the right to request a space to express breast milk;
  2. The process for an employee to request a space to express breast milk. The policy must state:

a. how an employee can submit such a request;

b. that the employer is required to respond to the request within five (5) days;

c. that if the employer does not provide a lactation room, the employer will provide a written response detailing why the request was denied; and

d. that the employer will provide reasonable unpaid break time to express breast milk in compliance with New York Labor Law 206-c.

The policy should also include a procedure to follow when two or more individuals need to use the lactation room at the same time.  The City will be issuing a model policy that employers can review and adapt to their needs.

Employers must retain copies of all written requests for a lactation space and records establishing how the employer resolved the request.  Such records must be maintained for three years.

Employers Should begin to Plan for Implementation of the Laws

Although the Mayor has not signed the lactation legislation into law yet, he is expected to do so shortly.  The laws will go into effect 120 days after the Mayor signs them into law.  In anticipation of these new laws going into effect, New York City employers should survey their premises and determine where they can establish a compliant lactation room and begin preparing a compliant lactation policy.

 

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

Lynn Brown Authors, “More Than a Year After the U.S. Supreme Court’s Decision in Endrew F., Little Has Changed for Parents of Children in Special Education in New York”

When the U.S. Supreme Court issued its 2017 decision in Endrew F. ex rel. Joseph F. v. Douglas County School Dist., __ U.S.__, 137 S. Ct. 988 (2017), it was hailed as an important step forward for students receiving special education.   In fact, however, at least in New York, Endrew F. appears to have had little effect on the courts’ analysis as to whether a school district has provided a special education student with a free, appropriate public education (known as “FAPE”), as required by the applicable federal statute, the Individuals with Disabilities Education Act (“IDEA”).

Before Endrew F., it was well established that a school district had to provide a special education student with an individualized educational program (“IEP”) that was “appropriate,” meaning that it was “reasonably calculated to enable the child to receive educational benefits.” Bd. of Educ. v. Rowley, 458 U.S. 176, 207, 102 S. Ct. 3034 (1982).    In Endrew F., the U.S. Supreme Court purported to give some guidance on what that meant, holding that “[t]he adequacy of a given IEP turns on the unique circumstances of the child for whom it was created.”  137 S. Ct. at 1001.   Rejecting the contention that an IEP was sufficient where the student had received an educational benefit that is “merely more than de minimis” (id. at 1001), the Court found that “it cannot be the case that the [IDEA] typically aims for grade-level advancement for children with disabilities who can be educated in the regular classroom, but is satisfied with barely more than de minimis progress for those who cannot.”  Id. at 1000-1001.  Rather, the Court held, “the IDEA demands more.  It requires an educational program reasonably calculated to enable a child to make progress appropriate in light of the child’s circumstances.”  Id. at  1001.  Still, however, the IEP must only be “reasonable,” not “ideal.”  Id. at 999.  Further, an educational program need not include “grade level advancement” if such progress is not “a reasonable prospect” for the particular child.  Id. at 1000. Moreover, in making the assessment as to whether an IEP passes muster, the U.S. Supreme Court reminded the lower courts that they are not permitted “to substitute their own notions of sound educational policy for those of the school authorities which they review.”   Id. at 1001(citation omitted).

While the decision in Endrew F. was lauded as a watershed moment for special education students, in fact, that has not been the case in New York.  To the contrary,  the Second Circuit and the federal courts within this Circuit have repeatedly held, “[p]rior decisions of this Court are consistent with the Supreme Court’s decision in Endrew F.”  See, e.g., F.L., individually and on behalf of R.C.L., 735 Fed. Appx. 38, 41, n.3 (Mem) (2d Cir. Aug. 24, 2018); Mr. P. v. West Hartford Bd. of Educ., 885 F.3d 735, 757 (2d Cir. 2018);  E.E., individually and on behalf of G.E. v. New York City Dep’t of Educ., 2018 WL 4636984, at *7 (S.D.N.Y. Sept. 26, 2018).  Thus, the courts have determined that Endrew F. imposed no higher standard than the federal courts in New York were already imposing upon school districts when crafting an IEP, and, therefore, did nothing to change the rules applicable to school districts.

As a practical matter, this means that the courts remain deferential to school districts’ Committee on Special Education (“CSE”), independent hearing officers (“IHOs”) and the New York State Commissioner of Education (sometimes referred to as the “State Review Officer” or “SRO”) despite the U.S. Supreme Court’s decision in Endrew F.   Although parents have relied on Endrew F. to claim that IEPs designed for their special education children are not “appropriate” as their children have not made the necessary advancement, since Endrew F, the courts in the Second Circuit still remain reluctant to find IEPs deficient on that basis. See, e.g., J.R. v. New York City Dep’t of Educ., 2018 WL 4664086 (2d Cir. Sep’t 27, 2018) (summary order) (although parents claimed that IEP was not reasonably calculated to confer educational benefits, the Second Circuit rejected that contention, finding it owed the state deference in that regard and found student with speech and language impairments received FAPE); G.E., 2018 WL 4636983, at *4 (rejecting parent’s claims that school district denied student with autism FAPE by failing to conduct a functional behavioral analysis, implement a behavioral intervention plan, or identify temporary transitional support services to new classroom teacher, and allegedly predetermined what was in the IEP, developed an IEP that recommended an inappropriate program and goals, failed to provide a 1:1 aide, prescribe the appropriate teaching methodology, or adequately address the student’s sensory and management needs; impartial hearing officer and SRO applied the proper legal standard).

These and other cases decided after Endrew F. demonstrate that it remains an uphill battle for parents to demonstrate that a school district has denied a child FAPE.  An IEP is likely to be deemed to provide FAPE as long as the school district can show that it was created after due consideration of all relevant evidence concerning the student’s functioning and needs. Furthermore, because IEPs continue to be judged prospectively, i.e., on the basis of what is known about the student at the time it is crafted, a parent may not challenge an IEP based upon speculation that, once implemented, an IEP may not, in fact, meet a student’s needs.  Rather, it remains the case that an IEP may have to be implemented, and actually shown to be inappropriate (meaning that a child fails to progress, or even keep up with the curriculum), before a court is willing to find that an IEP deprived a student of FAPE.  See, e.g., M.E. and T.E., individually and on behalf of K.E. v. New York City Dep’t of Educ., 2018 WL 582601 (S.D.N.Y. Jan. 26, 2018) (parents failed to demonstrate that the IEP developed by the CSE was inadequate and the district’s proposed placement was insufficient to meet their child’s sensory needs; SRO’s decision was thorough and well-reasoned); J.P., on behalf of their Son, J.P. v. City of New York Dep’t of Educ., 717 Fed. Appx. 30, 32 (2d Cir. 2017) (parents did not establish that IEP was procedurally or substantively inadequate; as the “SRO  considered the record as a whole and explicitly referred to materials that J.P.’s parents now suggest were ignored,” and “the CSE heard [the parents’] objections, considered materials they submitted, and convened a second meeting to address their objections and explain its reasoning”).

Thus, while under Endrew F. more than de minimus progress must be the goal of an IEP, that case seems to have had no practical effect in New York.  Accordingly, a parent who has concerns that the IEP developed for his child at the CSE meeting will not provide FAPE should ensure that a record is made at the CSE meeting regarding (a) what evaluations were performed, (b) whether the CSE has considered a student’s current level of functioning and needs, and (c) what evidence the CSE considered (or failed to consider) when developing the IEP.   Only if the parent can demonstrate that the CSE, IHO and/or SRO was less than thorough in determining what is “appropriate” for the student is that parent likely to be successful in any court challenge to an IEP. See S.B. and S.B., Individually and on Behalf of C.B. v. New York City Dep’t of Educ., 2017 WL 4326502, at *15 (E.D.N.Y. Sept. 28, 2017) (parents demonstrated that school district failed to timely reevaluate student in her areas of need and failed to review her most recent evaluations during the IEP meeting; decisions of the CSE and SRO were belied by a preponderance of the objective evidence and neither reconciled inconsistencies nor acknowledged their existence, and, thus, “[t]he IEP was not designed to enable C.B. to make progress in light of her educational needs”).

Judge Randall Eng Authors, “Appellate Division Adopts Statewide Practice Rules”

Judge Randall Eng, Presiding Justice, Appellate Division, Second Department, Brooklyn, NY
Photo by David Handschuh/NYLJ

The Appellate Division of the Supreme Court of the State of New York came into being in 1894 during the presidency of Grover Cleveland and preceded by four years, the consolidation of the City of New York into its present five borough/county configuration.

From that time to the present day, each of the four departments of the Appellate Division has maintained its own practice rules that govern the administration of those intermediate appellate courts which cover the 62 counties that comprise New York State.

All of that is soon to change, for effective Sept. 17, 2018, the Appellate Division will have Statewide Practice Rules that will have applicability throughout the four judicial Departments.

Those practitioners familiar with the current rules of the Second Department will find many similarities and will find as well, codification of certain practices in that court that were observed, but not formally enacted in its rules.

On Sept. 17, the Statewide Rules of Practice will be applicable to all matters commenced in the Appellate Division throughout the state, including those in which a notice of appeal has been filed. The rules will be applicable to all matters pending in the court unless a showing can be made to the court that a party would be substantially prejudiced or that it would be manifestly unjust or impracticable to apply the new rules.

The new Statewide Rules offer clarity in several practice areas and some of the highlights are as follows:

Rule 1250.1(e) Identifies materials which are deemed confidential by law and not available for viewing by the public and requires that applications for sealing and unsealing be made by motion upon good cause shown.
Rule 1250.4 Outlines in detail what is required to obtain (d) poor person relief, (e) pro hoc vice admission, and (f) leave to file an amicus brief.
Rule 1250.10(c) Addresses the process by which a matter is dismissed, and the procedure for vacating the dismissal of an appeal or proceeding on motion.
Rule 1250.15(b) and 1250.16 (a) Requires the publication of the court’s calendars and decisions on its website.
Rule 1250.1(c)(4) Permits service by electronic mail upon consent of the parties.
Rule 1250.7(e) Permits Minuscript in a record or appendix if it was submitted to the court from which the appeal is being taken in that manner.
Rule 1250.7(c) Allows greater flexibility to the parties regarding the reproduction of exhibits in the full reproduced record.
Rule 1250.8 Prescribes the form and content of briefs and contains specific requirements which have been commonly followed in practice but are now required. The email address of the attorney filing a brief must now be included and computer-generated briefs are subject to certain requirements.
Rule 1250.9(a) This rule has relaxed the filing requirement of records, briefs and appendices from an original plus eight to an original plus five. Only one copy of a brief need be served, rather than two. In addition, one digital must now be filed.
Rule 1250.9 Although some appeals may be actively managed through the issuance of a scheduling order pursuant to Rule 1250.3(b), extensions of time in which to perfect an appeal or to serve and file a brief may be accomplished by stipulation, application or motion depending upon the number of requests.

 

The new statewide rules provide definitions that have applicability throughout New York State that include “electronic,” “electronic mean,” and makes reference to “NYSCEF,” which is the New York State Courts Electronic Filing System. These terms are integrated into those parts of the rules that deal with filing and service, and are intended to expedite the flow of business through the court.

Practitioners are advised that searching for what has changed in the adoption of the statewide rules requires knowledge of the former written rules of the individual departments as well as possible unwritten rules that have been observed.

An illustration of the above may be found in the new Rule 1250.15(c)(5) which concerns requests for rebuttal in oral argument:

Prior to beginning argument, the appellant may orally request permission to reserve a specific number of minutes for rebuttal in the First and Third Judicial departments. The time reserved shall be subtracted from the total time assigned to the appellant . . . .

The current local rules of the four departments provide as follows:

First Department Rule 600.11(f)  Time Permitted for ArgumentSilent as to rebuttal but permitted in practice.
Second Department Rule 670.20  Oral ArgumentSilent as to rebuttal but NOT permitted in practice.
Third Department Rule 800.10  Oral ArgumentSilent as to rebuttal but permitted in practice.
Fourth Department Rule 1000.11(f)  Oral ArgumentNo rebuttal argument is permitted.

As can be seen, by the above, discovering what has changed as to the rules governing any area of appellate practice requires comparison of the old written rules, the old unwritten practices of the individual departments and the new statewide rules.

The statewide rules will also be supplemented by local rules of practice that will be implemented by each of the judicial departments. Practitioners should become familiar with the local rules, and may be alerted to their applicability in a matter by language in the statewide rules such as “…unless the court shall direct otherwise…” or “…the court may require …”

Illustrations of the application of local rules may be seen in Part 670 of the rules of the courts, which pertain to the Second Department. The latest version of those rules are now organized in the same manner as the statewide rules for ease in cross-referencing. The intake form (formerly the Request for Appellate Division Intervention or “RADI”) form has been replaced by initial information statements under local rule 670.3(a).  Some further notable changes to the local rules are as follows:

Rule 670.2(a) Describes the procedure by which an appeal that is pending on the court’s calendar may be withdrawn.
Rule 670.4 Covers motion practice including orders to show cause, leave to file an amicus brief, and leave to appeal to the Appellate Division.
Rule 670.11 Refers to criminal appeals and, among other things, provides that in an appeal in which only the legality, excessiveness or propriety of a sentence is raised, may be brought on by motion, denominated as an excessive sentence motion.
Rule 670.15 Pertains to the conduct of oral argument in the Second Department and provides for, among other things, a maximum of 15 minutes for each side, the procedure for requesting an adjournment of oral argument, and the matters in which oral argument is not permitted.

Randall Eng is of counsel to Meyer, Suozzi, English & Klein. He is the former presiding justice of the Second Department.

Click here to read the article in the New York Law Journal

Client Alert: 2018 State and City Legislation Imposes New Obligations On All New York Employers

In the midst of widespread allegations of sexual harassment and growing impetus from the #MeToo movement, New York State and New York City legislators have passed new anti-sexual harassment laws — including a requirement that all New York employers provide annual anti-sexual harassment training to their employees.

NEW YORK STATE LEGISLATION

Effective October 9, 2018: Mandatory Employee Training

Characterizing its action as “necessary to combat sexual harassment in the workplace”, the New York State Legislature passed sweeping new sexual harassment laws on April 12, 2018.  Effective October 9, 2018, all employers in New York State, private and public, must provide annual anti-harassment training to all employees.  The training must be interactive and include specific topics identified in the new legislation, including an explanation of sexual harassment and information concerning federal, state and local statutory provisions.  Further guidance from the New York State Department of Labor and the New York State Division of Human Rights with regard to these and other training requirements will be published in the coming weeks.

Effective October 9, 2018: Mandatory Sexual Harassment Policy

Effective October 9, 2018, all employers in New York State must adopt a written sexual harassment prevention policy which, among other minimum requirements, includes a complaint form, informs employees of their rights of redress and states that retaliation is unlawful.  A minimum-standards policy is to be published by state agencies for the guidance of employers.

Effective Immediately: Non-Employees Protected

The legal protections from sexual harassment previously accorded to employees (and the related responsibilities and liabilities of employers) are extended so as to protect non-employees, including contractors, vendors, consultants and others providing services in New York workplaces.

Effective July 11, 2018: Prohibition of Confidential Settlements

Settlement agreements involving sexual harassment claims may not include non-disclosure provisions unless it is the complainant’s preference to include such a provision.

Effective July 11, 2018: Prohibition of Mandatory Arbitration Agreements

Employers are prohibited from requiring employees to sign agreements requiring mandatory binding arbitration of sexual harassment claims.

NEW YORK CITY LEGISLATION

Also in April of 2018, the New York City Council passed the “Stop Sexual Harassment in New York City Act”.  The Act imposes new obligations on New York City employers and amends the New York City Human Rights Law so as to permit claims of sexual harassment by all employees, regardless of the size of their employer.

Effective September 6, 2018: Mandatory Dissemination of Information

All employers in NYC must display an anti-sexual harassment poster to be published by the New York City Commission on Human Rights (NYCCHR) and must provide an information sheet on sexual harassment to all new employees, which information sheet also will be published by the NYCCHR.

Effective April 1, 2019: Mandatory Employee Training

Employers with 15 or more employees are required to conduct annual anti-sexual harassment training for all employees, including supervisors and managerial employees.  Covered employees are those who work more than 80 hours in a calendar year and work on either a full time or part time basis within NYC.  The NYCCHR will create a model training program.  Employers must maintain records of all trainings including signed employee acknowledgements.

Effective Immediately: Expanded Coverage of Several Harassment Claims

The New York City Human Right Law will apply to all employers (previously it applied only to employers with four or more employees), and the statute of limitations for asserting a sexual harassment claim is extended from one year to three years.

ENSURING COMPLIANCE WITH THE NEW ANTI-SEXUAL HARASSMENT LAWS

In anticipation of the implementation of these new laws, employers should review the newly-imposed requirements with employment counsel and amend their policies and training programs as necessary to ensure compliance.  Employers who do not currently have policies and training procedures in place will need to develop and implement them in short order.  While the model policy and training programs to be issued by City and State agencies will provide guidance as to minimum standards, anti-harassment measures should be tailored to meet specific workplace needs and environments.

 

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

There’s A New Rule In Town – What Will You Do About It?

“Come gather ‘round people
Wherever you roam
And admit that the waters
Around you have grown
And accept it that soon
You’ll be drenched to the bone
If your time to you is worth savin’
Then you better start swimmin’ or you’ll sink like a stone
For the times they are a-changin’”

“The Times They Are a-Changin’,” Bob Dylan ©1963, 1964

As of January 1, 2018, Commercial Division Rule 10 was amended. The rule, innocuous on its face, specifies what information an attorney must supply at a preliminary conference. The amendment is entitled “Certification Relating to Alternative Dispute Resolution.” It states:

“Counsel for each party shall also submit to the court at the preliminary conference and each subsequent compliance or status conference, and separately serve and file, a statement, in a form prescribed by the Office of Court Administration, certifying that counsel has discussed with the party the availability of alternative dispute resolution mechanisms provided by the Commercial Division and/or private ADR providers, and stating whether the party is presently willing to pursue mediation at some point during the litigation.”

Thus, from the first time your case enters the judicial system, you will be required to make the above disclosure. In addition, based upon the above language, you are “certifying” that you have done as requested by the Commercial Division Rules.

This does become a bit more complex because Rule 11 was also modified. Rule 11 Discovery, is a multipart rule to begin with, and now will contain new areas that will interact with the Commercial Division’s Advisory Council’s desire to motivate parties toward Alternative Dispute Resolution, and most specifically to mediation. Rule 11 (a), set forth below, contains what might be called the enforcement elements of Rule 10.

Rule 11. Discovery

(a) The preliminary conference will result in the issuance by the court of a preliminary conference order. Where appropriate, the order will contain specific provisions for means of early disposition of the case, such as (i) directions for submission to the alternative dispute resolution program, including, in all cases in which the parties certify their willingness to pursue mediation pursuant to Rule 10, provision of a specific date by which a mediator shall be identified by the parties for assistance with resolution of the action; (ii) a schedule of limited-issue discovery in aid of early dispositive motions or settlement; and/or (iii) a schedule for dispositive motions before disclosure or after limited-issue disclosure. [Underlined portion is new]
While serving on the bench, I recognized the difficulty that some lawyers might have suggesting mediation to their clients or to their adversary (a sign of weakness?). Thus, I always informed them that they could tell their clients the judge recommended mediation. If necessary, I would meet with the parties and their lawyers at the same time and explain that it was the Judge’s decision to move forward with mediation to save them time and money. My philosophy was echoed by comments from Marc Zauderer, a member of the Advisory Council, in an article published in the New York Law Journal (New Commercial Division Rule Amendments Emphasize Use of ADR, October 17, 2017). The rule takes the onus of suggesting mediation off the backs of the attorneys and places it squarely on the rules.

It is clear that the goal of the Advisory Council is to make the Commercial Division of New York State the location for domestic and international corporations to resolve disputes. Changes such as the ones we’ve seen in the area of ADR within the Commercial Division, if followed affirmatively and with transparency, will tend to speed the disposition of cases.

If you’ve read this article and don’t usually have cases in the Commercial Division, you may find Rule 10 meaningless to your practice, but be aware that rules that start in such divisions of the Supreme Court as the matrimonial area or in this case the Commercial Division, frequently have a habit of working their way into general Supreme Court practice via the Rules of the Chief Judge.

I would urge commercial litigators to give heed to this new rule and make ADR a part of your attorney-client discussion on a regular basis.

Over a dozen years ago, I attended a meeting at a local Bar Association for its commercial litigation committee. The room was packed with perhaps 80 people in attendance representing small, as well as medium and large law firms. The topic was the future of ADR in commercial litigation. The Administrative Judge inquired of the attendees how many of them would consider reaching out to a mediator to assist in one of their matters, and only one person raised their hand. An active discussion ensued, covering reasons that militate against mediation such as, showing weakness to your adversary, showing weakness to your client, and indicating to the judge before whom the case was pending that you had no confidence in your own case.

Today I know (or hope) the vote would be dramatically different.

“For the times they are a-changin’”

Hon. Randall Eng Authors, “Reflections in Serving on the Second Department Bench” for the New York Law Journal

Transitioning from Presiding Justice of the Appellate Division, Second Department to the private practice of law has given me the opportunity to reflect upon my service in the New York state courts for over three decades. It was a long journey which ranged from assignment to the Summons Part of Manhattan Criminal Court to designation as an Associate Judge of the Court of Appeals for one matter. I think fondly of the many dedicated jurists that I was privileged to work with along the way, and the deep appreciation that I will always have for their respect for the rule of law.

My judicial career began in the Criminal Court of the City of New York in 1983. At that time, the transit fare was $.75, and the national average price of a gallon of gas was $1.24. I was 35 years old when appointed to the Court by Mayor Edward I. Koch, who had a decided preference for younger candidates in his judicial appointments. Indeed, in the year that I was chosen, more than half of his appointees were under the age of 40. From that beginning, I was able to enjoy a judicial tenure that exceeded 34 years, most of which was spent on the criminal side during the raging crack epidemic and the accompanying steep homicide rates.

The highlight, of course, of my time on the bench was my service on the Appellate Division, Second Department. It is difficult to appreciate the enormity of the workload of the Court without having been a part of it. This, I believe, is an appropriate opportunity to share some of my thoughts on the subject.

When I arrived at the Appellate Division, Second Department in January 2008 after more than 20 years of service on the trial bench, I stepped into the rarefied atmosphere of an extraordinary court populated by judicial and non-judicial personnel of the highest caliber, many of whom had lengthy years of experience. The court was then comprised of 18 men and four women, including Presiding Justice A. Gail Prudenti, who had the reputation of being an exceptional administrator. At that time there were two justices of Latino heritage, one African-American, and one Asian-American, myself. By the time I retired as presiding justice in December 2017, the composition of the court had undergone a remarkable transformation as witnessed by the fact that there were now 12 women jurists on the court and ten men. Among these judges were three Latinos, four African-Americans, and one Asian-American, again, myself.

Much had changed over 10 ten years at the Court, five as an associate and five as presiding justice, while much had remained the same. We continued to be the busiest appellate court in the country, faced with enormous caseloads coupled with budget reductions and hiring freezes brought on by the Great Recession which began in earnest in 2009.

The average number of cases decided by the Court were 4,000 per year, the number of new attorneys admitted by the Court was 2,619 per year, and the average number of attorneys who were disciplined per year was 231. Added to those figures were a varying number of suspended and disbarred attorneys who were seeking reinstatement to the Bar.

Criminal appeals had long accounted for a significant percentage of the Court’s docket and it was common to have five or more criminal cases appearing on every Day Calendar. As crime statistics began to decline over the past 10 years, the number of criminal cases in the inventory were reduced accordingly. However, there appeared to be a concomitant increase in the number of Family Court cases, driven in all likelihood by rising populations in many of the counties comprising the Second Department as well as by stress brought on by a declining economy.

Criminal and Family Court appeals were given priority in the processing of cases because of the liberty interests involved and by the need to deal with issues of custody, visitation, and support which have a heavy impact upon vulnerable populations.

We have all come to know the Appellate Division, Second Department for its prodigious output of decisions reflecting 80 cases per week on its Day Calendars, supplemented by submission calendars which decide cases in which oral argument is not permitted under the rules of the Court.

Added to the workload of the Second Department are decisions flowing from motions made to the Court seeking various forms of relief including requests for extension of time to perfect an appeal and extensions of time to answer or reply. Motions seeking re-argument, stays of trial pending appeals, leave to appeal to the Court of Appeals, and orders to show cause come before the Court on an ongoing basis. The total number of motions heard and decided annually by either a single judge or a four judge bench came to approximately 11,000 during my time in the Court.

Functioning outside of the historic and beautiful courthouse of the Second Department at 45 Monroe Place in Brooklyn Heights are the ancillary agencies of the Court that have a myriad of responsibilities under the supervision of the Appellate Division.

Among the larger agencies is the Mental Hygiene Legal Service (MHLS) which is a dedicated legal advocacy program providing a broad range of protective legal services and assistance to mentally-disabled persons under the care or jurisdiction of State-operated or licensed facilities. In 2007, just before my designation to the Court, MHLS was tasked with the responsibility of providing representation to sex offenders alleged to have mental abnormalities making them likely to re-offend and, therefore, in need of confinement or intensive supervision. There are now approximately 85 attorneys providing these services in both institutional and community settings throughout the five judicial districts which comprise the Second Department.

If one adds to the list of agencies the Appellate Term, two Committees on Character and Fitness, three Grievance Committees and the Attorneys for the Children Program, it becomes abundantly clear that the responsibilities of the Second Department are substantial and far-reaching.

I look forward to the new challenges of private practice and am very grateful for having had the good fortune of serving with the extraordinary judges of the Appellate Division, Second Department.

Hon. Randall T. Eng served as a New York Supreme Court Justice for over 30 years, most recently as Presiding Justice of the Appellate Division, Second Department, before joining Meyer, Suozzi, English & Klein, P.C. as a member of the firm’s litigation and dispute resolution department, including the appellate and criminal defense practices. He can be reached at reng@msek.com.

Paul Millus Authors, “Uber Drivers- Employees or Independent Contractors?” for Nassau Lawyer

There was a time when everyone knew the difference between an employee and an independent contractor.  An employee went to the office or factory, worked his eight hours for an employer (and only one employer), had his taxes deducted from his paycheck, and was paid two weeks’ vacation.  The classic independent contractor was the plumber who came to the customer’s home (or business) in his own truck.  The plumber told you when he chose to come, arrived when it was convenient for him, wholly dictated the price, used his own tools and waited to be paid on the spot.  He then left, never to be seen again until the next leaky pipe.

The Rise of the Alternative Worker

The determination as to who is an employee and who is an independent contractor has become less clear over the years, mainly due to the expansion of the “alternative workforce” versus the employee workforce. This expansion was partly caused by the way businesses ran their operations to stay competitive in the global marketplace.  In the 1970’s and 1980’s, recessions led to the downsizing of employee-rich bureaucracies leading companies to rethink their business models to include temporary workers, who may have been employed by someone, but were not employees in the place where they worked – they were part of an independent contractor force.

The next shoe to drop was globalization.  The rise of technology and less costly transportation methods led to offshore production.  Businesses simply could not afford a large employee workforce, and hiring workers on an ad hoc basis lowered their bottom lines and increased their profitability.[i]  As of 2010, more than 10,000,000 workers, comprising 7.4 percent of the U.S. workforce, were classified by the Bureau of Labor Statistics as independent contractors, and another 4,000,000 worked in alternative work arrangements in which they were legally classified as independent contractors for one or more purposes.  In that year, “alternative” workers, as they were called, accounted for approximately $626 billion in personal income, or about one in every eight dollars earned in the U.S.[ii]

The Common Law Tests

So, what is the law as it pertains to the employee versus the independent contractor conundrum?  In 1926, the U.S. Supreme Court opined regarding who could be identified as an independent contractor in Metcalf & Eddie vs. Mitchell.  In that case, the Court used well-established common law as its guide.  In examining the performance of the contract at issue, the Court looked to whether (i) the performance of the contract involved the use of judgment and discretion on the part of the worker; and (ii) the worker was required to use his best professional skill to bring about the desired result.  Thus, the Court concluded, if the worker enjoyed “liberty of action,” it “excludes the idea that control or right of control by the employer which characterizes the relation of employer and employee and differentiates the employee or servant from the independent contractor.” [iii]  The key factor in these cases was level of control exerted by the putative employer.

New York courts apply the same common-law right-to-control test to determine whether a worker is an employee in several contexts.[iv]  In Bynog v. Cipriani Group, Inc., the New York Court of Appeals identified five factors “relevant to assessing control, includ[ing] whether the worker (1) worked at his own convenience; (2) was free to engage in other employment; (3) received fringe benefits; (4) was on the employer’s payroll; and (5) was on a fixed schedule.”[v]

Then, there is the “economic reality test,” which is applied in connection with Fair Labor Standard Act (“FLSA”) cases, which focuses on “the totality of the circumstances.”  In those cases, the “ultimate concern …[is] whether, as a matter of economic reality, the workers depend upon someone else’s business for the opportunity to render service or are in business for themselves.”[vi]  The courts rely on several factors that are relevant in determining whether individuals are employees or independent contractors.  These factors are derived from the Supreme Court’s decision in United States v. Silk and include (1) the degree of control exercised by the employer over the workers; (2) the workers’ opportunity for profit or loss and their investment in the business; (3) the degree of skill and independent initiative required to perform the work; (4) the permanence or duration of the working relationship; and (5) the extent to which the work is an integral part of the employer’s business.[vii]

Uber Drivers: Misclassified Employees?

In this complex world, it is impossible to make a snap determination as to who is an independent contractor and who is an employee.  Thus, misclassification lawsuits have grown at a record pace.  As of 2015, the number of wage and hour cases filed in federal court rose to 8,871, up from 1,935 in 2000, most pertaining to misclassification, including misclassifying workers as independent contractors when they are later found to be employees.[viii]  That correlates to an increase of 358 percent, compared to the federal judiciary’s overall intake volume, which rose only a total of about seven percent over the same period.

Nowhere is the trend toward expanding misclassification litigation more apparent than when it comes to a company such as Uber.  At first blush, Uber would seem to have a classic independent contractor relationship with its drivers.  Let’s look at the basic facts:  An Uber driver drives his/her own vehicle, obtains his/her own insurance, maintains that vehicle, drives when and where and for how long he/she desires.  The driver is not issued any equipment by Uber and uses his/her own cell phone to access customers.  Moreover, an Uber driver can drive for its competitor, Lyft, at any moment the driver wishes.  It would seem the Uber driver has “liberty of action,” noted by the Court in Metcalf, and, thus, would not be considered an employee.

However, some courts and administrative agencies have ruled otherwise.  In Berwick v. Uber Technologies, Inc., the first California decision to hold that Uber misclassified drivers as independent contractors, the California Labor Commissioner ruled that the Uber drivers bringing a class action were employees and not independent contractors.[ix]  The Commissioner’s focus was on control.

Contrasting the factors listed above that would seem to contradict such control, the Commissioner found that Uber was involved in virtually every aspect of the operation.  First, drivers can only avail themselves of Uber’s customers by utilizing Uber’s app.  Next, Uber conducts driver background checks, sets the drivers’ compensation, and monitors drivers’ performance through customer reviews.  Finally, Berwick held the work performed by the drivers was “integral” to the regular business of Uber – which is axiomatic.

Likewise, in June 2017, the New York State Unemployment Insurance Appeal Board held that three complainants were employees, stating, “Uber exercised sufficient supervision and control over substantial aspects of their work as Drivers,” similar to the analysis and holding in Berwick.[x]  One of the factors considered by the Commissioner was that “Uber did not employ an arms’ length approach to the claimants” that the Commissioner believed would be present in a typical independent contractor relationship.

This raises interesting questions.  Yes, Uber set the rates that could be charged and set certain conditions for drivers to follow, but one must assume some rules are necessary to establish consistency of the business model to attract and maintain customers for Uber and the drivers.  Uber could not exist if it simply provided a means for drivers to pick up a passengers and left it to them to figure out the price of the service. However, what is an element of control, and sometimes what constitutes “control,” can be in the eye of the beholder.

Other Courts: Drivers Are Not Employees

There have been decisions to the contrary.  In McGillis v. Department of Economic Opportunity, the Third District Court of Appeal of Florida upheld an administrative decision finding drivers were not employees.[xi]  On the issue of “control” the court acknowledged that “both employees and independent contractors ‘are subject to some control by the person or entity hiring them.  The extent of control exercised over the details of the work turns on whether the control is focused on simply the result to be obtained or extends to the means to be employed.’” Citing authorities, the court reasoned that if control is confined to results only, there is generally an independent contractor relationship, and if control is extended to the means used to achieve the results, there is generally an employer-employee relationship.

In Saleem v. Corporate Transportation Group, the Second Circuit addressed black car drivers in New York who were asserting claims against owners of black car “base licenses” and affiliated entities, pursuant to the FLSA.  Like Uber, the black car drivers “possessed considerable autonomy in their day-to-day affairs.”[xii]  They could determine when and how often to drive, without providing any notice to the Defendants, and they were at liberty to—and did—accept or decline jobs that were offered.  In the end, the court found that the drivers were independent contractors, noting “[w]hile Defendants did exercise direct control over certain aspects of the CTG enterprise, they wielded virtually no influence over other essential components of the business, including when, where, in what capacity, and with what frequency Plaintiffs would drive.”[xiii]

What is the difference between the black car drivers in Saleem and the cases where Uber has been found to be an employer?  The answer is very little.  However, the law, like life, is nuanced.  If the question is what constitutes control for purposes of making such a determination, one small factor could turn the tide either way.  The real question is: has the economy and technology so changed that the normal paradigms we all think we understood regarding the nature of work and what it means to be “employed” mandate that a new way of looking at such concepts is in order-one way or the other?

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[i] The Rise of the Supertemp, Jody Greenstone Miller and Matt Miller Harvard Business Review, May 2012.

[ii] The Role of Independent Contractors in the U.S. Economy, Jeffrey A. Eisenach, American Enterprise Institute;  NERA Economic Consulting:  December 1, 2010.

[iii] Metcalf & Eddie vs. Mitchell, 269 U.S. 514, 522 (1926).

[iv] Smith v. CPC  Int’l, Inc., 104 F.Supp.2d 272, 275 (S.D.N.Y.2000) (“[T]he common law test of agency discussed in Darden is the same test applied by New York courts in addressing a variety of employer-employee relationships.”).

[v] Bynog v. Cipriani Group, Inc., 1 N.Y.3d 193, 198 (2003).

[vi] Brock v. Superior Care, 840 F.2d 1054, 1059 (2d Cir. 1988); see also Goldberg v. Whitaker House Coop., Inc., 366 U.S. 28, 33 (1961) (“‘[E]conomic reality’ rather than ‘technical concepts’ is to be the test of employment.” (quoting United States v. Silk, 331 U.S. 704, 713 (1947)).

[vii] United States v. Silk, 331 U.S. 704 (1947).

[viii] Why Wage and Hour Litigation is Skyrocketing, Washington Post, November 25, 2015.

[ix] Berwick v. Uber Technologies, no. 11-46739 EK, 2015 WL 4153765 (Cal. Dept. Lab. June 3, 2015).

[x] In the Matter of AK, JH and JS  v. Uber, ALJ case No. 016-23858, New York State Unemployment Insurance Appeal Board (June 9, 2017).

[xi] McGillis v. Department of Economic Opportunity, 210 So.3d 220 (FDCA 3d Dist. 2017).

[xii] Saleem v. Corporate Transportation Group, Ltd., 854 F.3d 131 (2d Cir. 2017).

[xiii] Id.