Airbnb Reaches Settlement With New York City Over Challenge To Rental Law

On December 2, 2016, Airbnb entered into a tentative settlement agreement with New York City in its legal challenge to the City’s short-term rental law.  The law at issue, signed into law by Governor Cuomo in October 2016, imposes fines as high as $7,500 for illegally listing a short-term (less than 30 day) home rental in a multi-family building unless the host is present.  The law’s intended targets were individuals who rent multiple apartments in the City, only to turn around and repeatedly rent them out through Airbnb.  Critics allege that this practice, which is technically operation of an illegal hotel, has reduced the availability of affordable housing in the City.  Airbnb brought an action challenging the law shortly after passage, arguing it was vague with respect to whether the host or Airbnb would be subject to the fine.

Under the terms of the agreement, which became official on December 5, 2016, Airbnb agreed to drop its lawsuit in exchange for an agreement that the City would limit the imposition of fines to hosts, and not Airbnb itself.  In addition, the New York State Attorney General agreed that enforcement of the law would be left to New York City.  For its part, Airbnb further vowed stricter enforcement of its newly announced “One Host, One Home” policy, which prohibits users from listing more than one property on the site.  

Though some have framed this agreement as a capitulation by Airbnb, the agreement is in many ways a win-win scenario for both parties.  Airbnb users in New York City generated nearly $1 billion worth of bookings last year, of which Airbnb takes between 6% and 12% in fees (depending on the price of the booking). By making this agreement, Airbnb protects that important revenue stream, while ensuring it will not be subject to heavy fines under the new law for illegal conduct by its users.  At the same time, the government gets to notch a victory and end a practice that has caused outrage among tenants rights groups.

New Overtime Rule's Future In Doubt Following Texas Court Ruling

On November 22, 2016, Judge Amos Mazzant of the Eastern District of Texas issued a nationwide preliminary injunction blocking the U.S. Department of Labor's new overtime rule from taking effect on December 1, 2016.  The new rule would have raised the minimum salary threshold for the white-collar exemption to $47,475, expanding overtime eligibility to roughly 4.2 million additional workers nationwide.  Judge Mazzant's ruling and the attitude of the incoming Republican Congress leave the future of this rule in doubt.

Judge Mazzant's preliminary injunction arose from a lawsuit filed by 21 state attorneys general and a coalition of business groups who sued to block the new overtime rule as exceeding the Department of Labor's authority.  In his decision, Judge Mazzant found that minimum salary test, which has been in effect since the 1940s, supplants the duties test for the executive, administrative and professional (i.e. "white-collar") exemption. Thus, based upon the plain text of the statute, the Court concluded that "[i]f Congress intended the salary requirement to supplant the duties test, then Congress, and not the Department, should make that change."

Though the preliminary injunction is temporary, it signals trouble for the future of the new overtime rule.  If the rule is struck down, as the initial ruling suggests it might, the appeal would be heard by the conservative 5th Circuit Court of Appeals.  In addition, Republican Congressional leadership has suggested that Congress will use the Congressional Review Act to permanently block the rule come mid-January.  Either way, employers who have given raises or made changes in advance of the new rule now find themselves the difficult position of deciding how to move forward.

New York employers should be aware that the New York Department of Labor has proposed state-level increases to the minimum salary level for executive and administrative exempt employees.  These regulations are expected to be finalized next month and take effect December 31, 2016.

Second Circuit Holds HR Managers Can Be Personally Liable In FMLA Retaliation Claims, Part II

This is a continuation of our previous post, discussing a FMLA retaliation claim brought by an employee who was allegedly terminated for failing to meet the documentary requirements of the FMLA, and her subsequent claim against her former employer, supervisor, and the company’s HR director.  Please refer to our last post for the background of this case, as this post will focus on the Second Circuit’s subsequent reversal of the District Court’s grant of summary judgment for the Defendants.

With respect to individual liability for the HR director (Plaintiff did not challenge dismissal of the claims against her supervisor), the Second Circuit noted that the FMLA defines an “employer” as “any person who acts, directly or indirectly, in the interest of an employer to any of the employees of such employer.”  While the Second Circuit has not examined this clause directly, its sister courts have found that the FMLA definition tracks with the Fair Labor Standards Act definition.  The Second Circuit concurred, and applied the “economic-reality test.”   Under this test, courts ask “whether the alleged employer possessed the power to control the worker [ ] in question, with an eye to the ‘economic reality’ presented by the facts of each case,” based upon factors including “whether the alleged employer (1) had the power to hire and fire the employees, (2) supervised and controlled employee work schedules or conditions of employment, (3) determined the rate and method of payment, and (4) maintained employment records.”  Applying these factors, the Second Circuit held there was substantial evidence from which a rational trier of fact could find that the HR director was an “employer,” vacating the District Court’s dismissal of the individual liability claims.  Specifically, the Court noted the substantial delegation of power from the company president regarding the decision to fire Plaintiff to the HR director, the HR director’s control over Plaintiff’s schedule to the extent she determined the conditions for Plaintiff’s return from FMLA leave, and the HR director’s extensive and exclusive communication with Plaintiff regarding the dispute with the company.

This decision was also notable as the Court formally adopted the prima facie standard for FMLA interference used by the District Courts.  Under this standard, to prevail on a claim of interference with FMLA rights, “a plaintiff must establish: 1) that she is an eligible employee under the FMLA; 2) that the defendant is an employer as defined by the FMLA; 3) that she was entitled to take leave under the FMLA; 4) that she gave notice to the defendant of her intention to take leave; and 5) that she was denied benefits to which she was entitled under the FMLA.”  Applied to the facts of the instant case, the Second Circuit found that there were material questions of fact with respect to factors three and four.  Accordingly, it held that dismissal was inappropriate and vacated the decision.

The case is Graziadio v. Culinary Institute of America, 817 F.3d 415 (2d Cir. 2016).

Second Circuit Holds HR Managers Can Be Personally Liable In FMLA Retaliation Claims

Generally speaking, the Family Medical Leave Act (“FMLA”) (29 U.S.C. §§ 2601 et seq.) allows employees to take leave from their employment to care for family members under a variety of circumstances.  This case addresses an employee who was allegedly terminated for failing to meet the documentary requirements of the FMLA, and her subsequent claim against her former employer, supervisor, and the company's HR director.

On June 6, 2012, Plaintiff informed her supervisor she would be taking leave to care for her hospitalized son, and requested that the employee who processed FMLA documentation to send her the necessary paperwork.  Plaintiff returned to work on June 18, 2012, and submitted medical certification for her need to leave on or about June 27, 2012.  That same day, Plaintiff’s other son broke his leg and underwent surgery. Plaintiff again informed her manager she would be taking leave and expected to return on July 9, “at least part time.” On July 9, Plaintiff’s supervisor asked for an update, and Plaintiff responded that she would need to work a reduced, three-day week schedule until mid-to-late August, and could start on July 12. Plaintiff also asked if she needed to provide “any further documentation.” At this point, the supervisor contacted the HR director for advice.  On July 17, the HR director informed Plaintiff her current documentation was insufficient, giving her one week to update it, but did not answer Plaintiff’s emails seeking clarification on what “paperwork” was needed.  Finally, the HR director said that an in-person needing was necessary, yet despite claiming to be “available whenever,” refused to agree to any specific dates Plaintiff proposed.  In August, Plaintiff hired an attorney, who was told the company’s position was “it was not the employer's obligation to explain what was missing from the paperwork,” but the employee’s responsibility to comply with the statute.  On September 11, 2012, Plaintiff was informed that her employment had been terminated for abandoning her position, claiming that she had been told “to contact your supervisor to arrange a return to work date․ Based on the fact that you have not contacted your supervisor to arrange to return to work as of the date of this letter, it is obvious to us that you do not want to return to work.” 

Plaintiff filed suit in federal court against the company, her supervisor, and the HR director for interference with FMLA leave, and FMLA retaliation.  The District Court granted summary judgment to the Defendants on all claims, holding (1) the supervisor and HR director were not an “employer” subject to individual liability under the FMLA, (2) Plaintiff could not sustain FMLA interference because she had not been denied leave to care for her older son, and, having failed to submit a medical certification form, had no entitlement to care for the younger son, and (3) Defendants offered legitimate reasons to terminate Plaintiff and Plaintiff had not demonstrated these reasons were pre-textual.  Plaintiff appealed, and the Second Circuit vacated the grant of summary judgment on the FMLA claims.

Our next post will look at the Second Circuit’s reasoning.  The case is Graziadio v. Culinary Institute of America, 817 F.3d 415 (2d Cir. 2016).

Appellate Division Reaffirms The Strict Application of Faithless Servant Doctrine

The faithless servant doctrine has been a fixture of New York jurisprudence for over a century. This doctrine requires that an employee be loyal to his or her employer, and prohibits the employee from acting in a manner that violates the employer’s trust or in bad faith.  Should an employee breach this common law duty of loyalty and repeatedly commit disloyal acts (ex: theft, falsifying time records, etc.), he or she may be subject to “complete and permanent forfeiture of compensation, deferred or otherwise.”

Here, Defendant employed by Plaintiff as the Director of Parks and Recreation, and was responsible for the collection of various fees on Plaintiff’s behalf.  In April 2014, Defendant pleaded guilty to grand larceny in the third degree, having stolen more than $50,000 over the course of nearly six years. Thereafter, Plaintiff commenced the instant action to recover all compensation paid to the Defendant during that period and a declaration that Plaintiff had no obligation to continue providing health insurance. The Supreme Court granted summary judgment on the issue of liability, but concluded triable issues of fact remained as to Plaintiff's entitlement to damages under the faithless servant doctrine, noting Defendant’s “otherwise ‘unblemished’ 35 years of service.  Plaintiff appealed.  

On appeal, the Appellate Division, Third Department reversed, holding that “forfeiture of compensation is required even when some or all of the services were beneficial to the principal or the principal suffered no provable damage as a result of the breach of fidelity by the agent.” As there as conclusive proof that Defendant had stolen over $50,000 during the six-year span, Plaintiff was entitled to recover damages.  In addition, there is no basis for apportioning the forfeiture to the specific tasks about which Defendant was disloyal where payment was not made on a task-by-task basis pursuant to a contractual agreement. Thus, for a salaried employer such as the Defendant, forfeiture encompasses all compensation earned by the Defendant during the period in which he was disloyal (here, $316,535.54).

Should you find yourself in a situation where an employee has consistently acted in bad faith towards you and your business, whether through theft, embezzlement, falsifying records, or other misdeeds, the faithless servant doctrine may be a way to recoup the losses you’ve suffered.

The case was City of Binghamton v. Whalen, 32 N.Y.S.3d 727 (3d Dep’t 2016).

Complying With New EEOC Regulations Governing Employer Wellness Programs, Part 2

This is a continuation of our post from two weeks ago, which looked at the new regulations issued by EEOC (“Final Rule”) on wellness programs.  Whereas the previous post looked at the Americans with Disabilities Act (“ADA”), this post will focus on changes related to the Genetic Information Nondiscrimination Act (“GINA).  Finally, as noted in our prior post, the Final Rule is effective immediately, but employers have until the first day of an employer’s plan year beginning on or after January 1, 2017 to comply with the amended notice and incentive provisions.

Generally speaking, GINA prohibits employers from requesting, requiring or purchasing genetic information from their employees, except in the context of a voluntary wellness program that does not condition employee inducements on the provision of genetic information.  However, there was some ambiguity as to how the law treated inquiries regarding employee’s family members in the context of an employer-sponsored wellness plan.

Under the Final Rule, employers may offer a limited inducement to an employee whose spouse provides information regarding the spouse’s manifestation of any diseases or disorders as part of a health risk assessment (subject to the same limitations discussed in the previous post regarding the ADA).  The maximum value of an inducement for a spouse’s participation is 30% of the total cost of self-only coverage (the same incentive that may be given to the employee).  However, employers still may not offer an inducement for the employee’s spouse or children to provide genetic information, nor for information about the manifestation of disease or disorder by an employee’s children.

EEOC Raises Penalties For Failing To Post Anti-Discrimination Notices

Title VII of the Civil Rights Act of 1964 requires that every employer, employment organization, and labor organization to post notices describing the right to be free of workplace discrimination and harassment.  These notices must be prominently placed in accessible areas where other notices to employees, applications, and union members are typically maintained.  On June 1, 2016, EEOC raised the penalty for violating the notice provision from $210 to $525 per violation.

Employers Given Six Months To Comply With Expanded Overtime Rule: Determining the Best Approach For You and Your Business

On May 18, 2016, the U.S. Department of Labor published the Final Rule on Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales and Computer Employees under the Fair Labor Standards Act (“FLSA”) (“Final Rule”).  This amends what is more commonly known as the “white-collar” overtime exemption, and will expand overtime eligibility to an estimated 4.2 million additional workers.  The Final Rule takes effect December 1, 2016, giving employers roughly six months to determine the best approach for complying with the new standards.

The FLSA requires that employees who work more than 40 hours per week be paid at 1.5 times the normal hourly rate for each additional hour worked.  However, the white-collar exemption excludes employees who qualify under three tests: (1) Salary Basis, (2) Minimum Salary Level, and (3) Standard Duties.  An employee must qualify under all three tests for the exemption to apply.

The biggest changes are to the minimum salary level test.  Previously, the threshold for the exemption was $455 per week.  Under the Final Rule, this is more than doubled to $913 per week (or $47,476 per year).  In addition, the threshold for the “Highly Compensated Employee” exemption, which allows a simplified duties test for high-salary workers, will be raised from $100,000 to $134,004.  The Final Rule also includes an automatic update mechanism that adjusts the minimum salary level every three years.  The first adjustment is scheduled for January 1, 2020, and initial estimates suggest it will raise the minimum salary level to $984 per week (or $51,168 per year).  One good piece of news for employers is that this new threshold is partly offset by a change in the Salary Basis test that allows employers to treat non-discretionary bonuses or commissions as up to 10% of the employee’s salary for minimum salary level purposes.

Another notable aspect of the Final rule is that it omits the proposed changes to the FLSA’s duties test.  As a result, an employee’s “primary duty” will continue to be the “main, principal or most important duty,” as determined on a qualitative, rather than quantitative, basis. In addition, the specific duties for executive, administrative, and professional employees remain largely unchanged.  Even so, this may be an opportune time for employers to evaluate employee responsibilities, as the duties test is often the most litigated issue in a challenge to an employee’s classification.  Ultimately, however, a person earning less than $47,476 after December 1, 2016 will not be exempt from being paid overtime irrespective of their duties.

Businesses with currently-exempt employees that qualify for overtime pay under the Final Rule face a difficult dilemma: act to keep those employees exempt, or convert them to non-exempt status.  Some options available to employers are:

(1) Doing Nothing: If your business does not have any employees working more than 40 hours per week, or who do not fall below the new minimum salary level, a change may be unnecessary.  While this would be the ideal situation, it may not be an option for many employers.

(2) Raising Salaries: If your business has employees paid just below the new threshold, or who regularly work overtime, the most cost-effective step may be to raise their salary above the Final Rule’s new threshold.  Alternatively, employers with non-unionized employees may attempt to rework employment contracts to mitigate the impact of the Final Rule, such as by drafting provisions whereby employees receive a weekly salary that includes a certain amount overtime.  

(3) Reorganizing Worker Schedules And/Or Worker Responsibilities: For some employers, it may be possible to modify employee work schedules or move responsibilities between employees to avoid overtime situations.  This could be as simple as staggering employee hours or shifting certain employees to a 10am to 6pm schedule instead of the more standard 9am to 5pm.

(4) Paying Overtime: Finally, employers may opt to simply pay overtime to their newly qualified employees.

These are only some of the options available to employers looking to adapt to the new regulations. However, before deciding on a course of action it is also important to consider the impact the choice may have on employee productivity and morale.  For example, raising wages above the new threshold for less experienced workers may cause resentment among more senior employees absent comparable raises.  Similarly, reassigning work responsibilities may be viewed as a demotion if not explained in the proper context.  In short, while employers have a wide variety of options for complying with the new FLSA overtime regulations, they should consult with their accountants and/or attorneys to ensure that they make the most effective choice for the employer, the employees, and the business at large.

Complying With New EEOC Regulations Governing Employer Wellness Programs

Under the Affordable Care Act, employers received new incentives to offer wellness programs to their employees. Wellness programs, such as reimbursing gym memberships or incentivizing smoking cessation programs, keep employees healthy, reducing medical costs, absenteeism, and health-related productivity losses to the benefit of both employer and employee.  On May 17, 2016, EEOC issued new regulations (“Final Rule”) on how wellness programs must comply with the Americans with Disabilities Act (“ADA”) and Genetic Information Nondiscrimination Act (“GINA).  The Final Rule is effective immediately, but employers have until the first day of an employer’s plan year beginning on or after January 1, 2017 to comply with the amended notice and incentive provisions.

The ADA’s prohibits employers from making disability-related inquiries or requiring medical examinations, exception for employee health programs. The Final Rule clarifies this exception in three ways:

(1) Wellness programs must be “reasonably designed to promote health or prevent disease.” For example, health screenings must provide results, follow-up information or health advice. Participants may not be penalized solely for failing to meet a particular health outcome.

(2) The program must be voluntary. Employers may not mandate participation, deny coverage or access to any health benefits or take an adverse employment action against non-participants; and

(3) Incentives (rewards or penalties) cannot exceed 30% of the total cost of self-only coverage (including both employer and employee contributions). The Final Rule explains how this 30% calculation is to be made.

Furthermore, prior to requiring an employee undergo a medical examination or fill out a medical form, the employer must give notice as to the type of medical information to be obtained, the purpose for such information, restrictions on its disclosure, and methods being used to prevent improper disclosure.

Finally, the Final Rule reiterates existing confidentiality protections, including that except when necessary for program administration, employee medical information or history may be provided to an employer in aggregate form only in a manner that does not disclose, or is not reasonably likely to disclose, the identity of any employee, and that an employer may not compel employees to waive ADA confidentiality protections.

Our next post on this matter will look at the regulations governing wellness programs as they relate to the Genetic Information Nondiscrimination Act (“GINA”).

NY Court of Appeals Holds School Districts Must Receive Timely Notice In Tax Certiorari Proceedings

On June 9, 2016, the New York Court of Appeals unanimously ruled that noncompliance with the RPTL § 708(3), which requires a taxpayer filing a tax certiorari petition serve notice to any affected school district within 10 days of serving the municipal assessment authority, cannot be corrected through the extension of time to recommence provided by CPLR § 205(a) absent good cause for the failure to serve.

The case arose when Westchester Joint Water Works (“Taxpayer”), owner of a water supply and pipe system in the City of Rye (“City”), challenged its tax assessments for 2002 through 2010 by commencing nine tax certiorari proceedings against the City Assessor (“Assessor”). Pursuant to Real Property Tax Law (RPTL) § 708(3), the Taxpayer is required to serve the municipality and the superintendent of any school district where a portion of the real property whose assessment is at issue is.  Here, the Taxpayer served the municipality, but mistakenly served only one of the two school districts. 

After serving late notice to the second school district (“School”), the School intervened and moved to dismiss the proceeding. The City also moved to dismiss. The Taxpayer requested leave to recommence the proceeding under CPLR § 205, which provides a six-month grace period to recommence an action despite the statute of limitations for actions dismissed on grounds other than the merits. The trial court dismissed the petition as to that parcel for the School, but held the City lacked standing to move for dismissal City as it was properly served.  On appeal, the Appellate Division, Second Department upheld the School’s dismissal, while reversing with respect to the City, against whom the proceeding was almost dismissed. This was affirmed on intermediate appeal.

When the issue reached the Court of Appeals, the Court unanimously held that noncompliance with the RPTL § 708(3) cannot be corrected through the extension of time to recommence provided by CPLR § 205(a).  In so holding, the Court noted the legislative history of concern that school districts receiving notice, as well as the amendments creating the 10-day service window and requirement that failure to serve notice “shall result in the dismissal of the petition, unless excused for good cause shown.”  Reading this provision together with CPLR § 205(a), the Court found RPTL § 708(3)’s express language addressing dismissal precluded using the more general CPLR provision. The Court also noted that the lower court’s did not find good cause for Taxpayer’s failure to serve the School notice.

Finally, the Court discussed the policy underlying the provision, emphasizing the importance of allowing school districts the opportunity to intervene in tax certiorari cases.  Specifically, the Court noted that in the event that the school has to satisfy a judgment awarded to a taxpayer, which can be quite substantial, the outcome of the proceeding could create a budget deficit or other fiscal problems for the school.

In conclusion, school districts involved in tax certiorari proceedings should be acutely aware of whether timely notice has been received.  If not, the courts will now be required to dismiss the proceeding if there was no good cause for the failure to serve notice.

The case was Westchester Joint Water Works v. Assessor of City of Rye, No. 77, 2016 WL 3189055 (N.Y. June 9, 2016).

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