10 Things To Know About Subleses

Subleasing is experiencing a boom across the country due to the economic impacts of the coronavirus pandemic. With many businesses shifting to remote work, and others rethinking how they use office space, the amount of commercial space available to sublease is at or near record highs. In Manhattan, for example, there is a record 18.6 million square feet of office space available, accounting for nearly 27% of all office space.

While many issues may arise, below are 10 things that every business should know about subleasing, whether they are a sub-landlord or a sub-tenant:

(1) Likely Requires Landlord Consent

Before subleasing, it is important to review whether it is permitted under the prime lease. In most instances, the landlord's consent is required for any sublease, and many landlords will ask to see the negotiated sublease before giving such consent.

(2) Recapture Provisions Can Risk Main Lease

Under some lease provisions, the landlord has a right to terminate a portion, or possibly the entire, primary lease in response to a tenant's request to sublease. Caution is strongly advised.

(3) Excess Profits May Flow To Landlord

In areas where rental prices are increasing, businesses may look at subleasing as an opportunity to take advantage of their low rent to make a profit. However, many leases contain lease provisions that entitle the landlord to any excess profits from a sublease.

(4) Subleasing Gives More Control Than Assignment

Unlike assignments, in which the tenant surrenders its rights, a sublease allows the original tenant to retain control over the premises. This can allow a tenant to perform under the prime lease if the subtenant does not, and to enforce its rights against the prime landlord when necessary.

(5) Sublease Is Subordinate To Prime Lease

A sublease is always subordinate to the prime lease, i.e. if the prime lease is terminated, the sublease will terminate as well. As such, a subtenant should seek the right to cure breaches by the prime tenant to avoid possible termination.

(6) Recognition Agreement Can Create Relationship Between Prime Landlord And Sub-Tenant

A recognition agreement is a direct agreement between the prime landlord and sub-tenant where the prime landlord agrees to recognize the sub-tenant's right to occupy the premises and agrees not to extinguish such right if the prime lease terminates so long as the sub-tenant agrees to be bound by the terms of the prime lease. This can provide a valuable level of comfort for a concerned sub-tenant.

(7) Modifications To Prime Lease Can Impact Sublease

If the prime lease is incorporated by reference into a sublease, any changes to the prime lease will also affect the sub-tenant. As such, a sub-tenant should ensure that its consent is needed for any changes that would have a material impact.

(8) Partial Subleases Will Be More Complex

When a sublease only covers part of a premises, the parties will need to negotiate additional provisions that clearly delineate the parties' obligations, such as whether the prime landlord or sub-landlord is responsible for maintenance in the area occupied by the sub-tenant.

(9) Account For Potential Holdover

It is possible that holdover by the subtenant on a partial sublease could result in a holdover by the sub-landlord under the prime lease. As such, the sublease should provide that the sub-tenant's holdover liability be equal to or greater than sub-landlord's potential holdover liability.

(10) Don't Forget About The Lender

If the property is subject to a mortgage, the loan documents may have provisions addressing subleases and/or requiring the lender's consent. While not applicable under all loan documents, it should be a part of the parties' due diligence.

While these are some major issues to keep in mind when negotiating a sublease, the fact remains that a sublease can be as complex as the initial lease due to the additional parties and documents involved.

State Legislature Passes Bills To Significantly Strengthen Anti-Discrimination Laws

Last month, the New York State Legislature passed a bill to significantly strengthen the laws against workplace harassment. The bill overrules decades of court precedent on such claims, and expands protections that were previously limited to sexual harassment victims to all forms of workplace harassment. The proposed changes would apply to all employers statewide, while the current law only applied to those with more than four employees.
The bill's biggest changes are to the legal standard for workplace harassment. The proposed bill would prohibit harassment based on a protected characteristic "regardless of whether such harassment would be considered severe or pervasive." It will be far easier for employees to succeed on workplace harassment claims, and the changes applies to all types of harassment (not just sexual harassment). The bill also allows employees to seek attorney’s fees and punitive damages from employers.
The law also weakens the affirmative defenses available to employers. While an employer can still assert that they took reasonable steps to prevent/correct the harassment and/or that the employee failed to take advantage of the employer's internal procedures, the bill expressly provides that this is not dispositive. Moreover, the affirmative defense on the severity of the harassment now requires that "the harassing conduct does not rise above the level of what a reasonable victim of discrimination with the same protected characteristic would consider petty slights or trivial inconveniences."
Finally, the law expands certain protections for sexual harassment victims passed as part of the 2018 budget agreement to all types of harassment. In particular, the bill expands the (1) limits on non-disclosure clauses in settlement agreements; (2) prohibition on mandatory arbitration clauses for harassment/discrimination claims; (3) prohibition on harassment to employer permitting harassment of non-employees in workplace.
The bill now goes to Governor Cuomo, who is expected to sign the bill into law. The full text of the bill can be found here.

New York State Revamps Landlord-Tenant Law

On June 14, 2019, Governor Cuomo signed the Housing Stability and Tenant Protection Act of 2019. While this law was primarily focused on rent stabilization and other affordable housing issues in New York City, it also made substantial changes to how landlords and tenants interact statewide, including major changes to the eviction process. The full text of the law can be found here, while a summary of the law's provisions applicable on Long Island are set forth below:

Summary of the Housing Stability and Tenant Protection Act of 2019

  • Unless otherwise noted, the effective date of the Housing Stability and Tenant Protection Act of 2019 (the “Law”) was June 14, 2019. The Law applies to all legal proceedings commenced on or after that date.

  • The summary is limited to Part M of the Law, which amends the provisions of the Real Property Law and Real Property Actions and Proceedings Law relating to landlord-tenant matters. In addition, it only covers provisions applicable outside of New York City.

Retaliation Against Tenant

  • The Law prohibits landlords from retaliating against tenants for making good-faith complaints to the landlord or landlord’s agent about violations of health and safety law. Previously applied only to tenant complaints to a government authority.

  • Retaliatory actions now include, upon expiration of tenant’s lease, offering new lease with an unreasonable rent increase.

  • In a civil action against the landlord for damages for unlawful retaliation, the tenant can now recover attorney’s fees and costs from landlord.

  • Where a landlord moves to recover possession, and tenant asserts retaliation as an affirmative defense, the Court must rule for defendant if it finds that the landlord’s action retaliatory, removing the requirement that the Court also find that “landlord would not otherwise have commenced such action or proceeding.”

  • The period during which the rebuttable presumption that an eviction is retaliatory exists, because landlord served notice to quit, moved to evict tenant, or substantially alter terms of tenancy, is increased from six months to one year.

  • The rebuttable presumption in favor of retaliation now applies even in actions based upon violation by tenant of terms and conditions of lease, including non-payment of rent.

Notice of Rent Increases / Non-Renewal *Effective October 12, 2019*

  • A landlord must provide written notice to tenants of its intention to increase rent by more than 5% or to not renew a tenant’s lease. If the landlord fails to do so, the tenancy continues until notice period expires, regardless of any other lease provision.

  • Notice period for above scales based on duration of tenancy: 30 days for tenants who have occupied for less than one year; 60 days for tenants of more than one year but less than two years; and 90 days for tenants that have occupied a unit for two years or more.

Landlord Duty To Mitigate Damages

  • If a tenant vacates in violation of lease agreement, the landlord has duty to take, within its means, “reasonable and customary actions to rent the premises at fair market value” or at the prior tenant’s rental rate, whichever is lower.

  • The new tenant’s lease will terminate the lease of prior tenant and mitigate any damages recoverable against that tenant. The burden of proof on this matter is on the landlord.

  • Lease provisions exempting a landlord from the duty to mitigate damages are now void.

Refusing To Rent Based On Prior Disputes *Effective July 14, 2019*

  • A landlord may not refuse to rent to a potential tenant based on that tenant’s involvement in past or pending landlord-tenant action.

  • Requesting information from a tenant screening bureau, or otherwise inspecting court records, will create rebuttable presumption of a landlord’s violation of this provision.

  • The New York State Attorney General may enforce this provision, with fines ranging from $500 to $1000 per violation.

Termination of Month-To-Month Tenancy Outside NYC *Effective October 12, 2019*

  • A tenant may terminate a month-to-month tenancy by providing the landlord with at least one month’s notice of the tenant’s election to terminate.

  • The Law seemingly does not permit landlord to terminate a month-to-month tenancy by explicitly removing that language, though this may be a drafting error in the Law.

Attorney’s Fees in Eviction Proceedings

  • A landlord may not recover attorney’s fees on a default judgment.

Receipt for Rent Payments

  • A landlord or its agent must provide tenants with receipts for rent payments made in cash or by any instrument other than personal check. A tenant may also request a receipt for payments made by personal check, which the landlord or its agent must provide.

  • If a tenant fails to pay rent within five days of the date specified in a lease, the landlord or its agent is required to send the tenant, by certified mail, a written notice indicating the failure to receive such rent. Failure to send such written notice is an affirmative defense to an eviction proceeding for nonpayment of rent.

Limitations on Fees

  • A landlord may not demand any fee or charge for processing, review or acceptance of an application, or demand any other fee before or at the beginning of a tenancy, except for performing a background checks and credit checks.

  • Fees for background checks or credit checks must be assessed at cost, may not exceed $20, and must be waived if applicant presents such check results from past 30 days.

  • This provision does not apply to certain categories of retirement communities, adult care facilities, and facilities run by not-for-profit organizations.

Limitations on Late Fees

  • A landlord may not demand any fee for late payment of rent unless payment has not been made within five days of the date it was due.

  • Late fees for the non-payment of rent may not exceed fifty dollars ($50) or five percent (5%) of the monthly rent, whichever is less.

Recovery of Fees or Penalties

  • “Rent” is defined as the monthly or weekly amount charged for use and occupancy under a written or oral agreement (meaning late fees cannot be deemed “additional rent”).

  • No fees, charges, or penalties other than rent can be sought in a summary proceeding, notwithstanding any language to the contrary in any lease or rental agreement.

Proceedings To Recover Possession - Landlord-Tenant Relationship

  • No tenant or lawful occupant may be removed from possession of a dwelling except in a special proceeding on certain specified grounds (grounds in Law limited to nonpayment)

  • A tenant who has defaulted on rent must have been given a written demand on fourteen days notice (increased from three days notice) requiring the payment of rent or surrender of possession of the premises. This requirement can no longer be waived in writing.

  • If a tenant dies and the apartment is occupied by a person with a claim to possession, an action may only be commenced as against the estate. Entry of a judgment and any warrant issued shall not be effective as against the occupants.

Rent Payment Prior To Hearing Date

  • In a non-payment proceeding, payment to the landlord of the full amount of rent due must be accepted by the landlord at any time prior to the hearing date. Once accepted, the grounds for the proceeding to recover possession are rendered moot.

Notice of Petition – Return Date

  • The notice of petition for a proceeding to recover possession for real property in a non-payment proceeding shall now be made returnable after 10 days (increased from 5 days).

  • In all other proceedings, the notice of petition shall be served between ten and seventeen days before the date the petition is noticed (increased from five to twelve days).

Adjournment Requests

  • After issue is joined, the request of either party for an adjournment must be granted by the Court, and such adjournment must be no less than two weeks.

  • Subsequent requests for an adjournment are granted in the discretion of the Court.

Warrant of Eviction

  • A warrant of eviction must now state the earliest date upon which execution may occur, in addition to describing the property and naming the persons to be removed.

  • Upon a showing of good cause, a court may issue a stay of a re-letting or renovation of the premises for a reasonable amount of time.

  • The requirement of 72-hour notice from the officer executing a warrant of eviction is increased to 14 days., and a warrant of eviction can only be executed on a business day.

  • In a judgment for non-payment of rent, the court must now vacate a warrant of eviction upon the tender or deposit with the court of the full amount of rent due at any time prior to the warrant’s execution, unless it is shown that the tenant withheld the rent in bad faith.

Stay of Eviction Due To Hardship

  • Court may stay execution of warrant and collection of costs of proceeding for up to one year upon a good faith showing that the applicant could not secure similar premises within the neighborhood despite making reasonable efforts to do so, or if the tenant would otherwise suffer extreme hardship.

  • Grounds for extreme hardship include serious ill health, a child’s enrollment in a local school, or other extenuating life circumstances. The Court shall also consider any substantial hardship the stay may impose on the landlord.

  • This provision previously only applied in New York City, and the maximum duration of such a stay was six months. It now applies statewide and the stay can last up to one year.

  • This provision does not apply to holdovers that the landlord can show “by competent evidence” are objectionable.

  • If a proceeding based upon a tenant’s breach of a provision of the lease, the Court will stay execution by 30 days (up from 10 days) to allow the tenant to correct such breach.

Unlawful Eviction

  • It is unlawful to evict or attempt to evict a tenant who has occupied a dwelling for a least thirty consecutive days or entered into a lease agreement except through a warrant of eviction or other court/governmental order.

  • Unlawful eviction includes (1) the threat or use of force; (2) interfering with the use and occupancy of the property to induce the tenant to vacate, including cutting essential services (i.e. turning off utilities); or (3) engaging in or threatening other conduct to prevent lawful occupancy (removing possessions, changing locks, removing doors, etc.).

  • Intentionally violating this provision or assisting someone in dong so is a Class A misdemeanor, punishable by fines of between $1,000 and $10,000, plus a daily fine a $100 for each day the tenant is not restored to possession.

Security Deposits / Inspections *Effective July 14, 2019 (applies to any lease or renewal entered into or after such date)*

  • In non-rent stabilized housing, deposits or advances cannot exceed one month’s rent.

  • The full amount of the deposit or advance must be returned upon the tenant vacating the premises, less any amount lawfully retained for non-payment of rent, damage caused by the tenant beyond normal wear and tear, and/or moving/storing tenant belongings.

  • Prior to occupancy, the landlord must offer the tenant the opportunity to inspect the premises to determine the condition of the property. If the tenant request such an inspection, the parties shall enter into a written agreement attesting to the condition of the property and noting any deficiency or damage before occupancy begins.

  • Within a reasonable time of notice of the intent to terminate the tenancy, the landlord must inform the tenant of the tenant’s right to request an inspection and be present for it.

  • The inspection must occur 7 to 14 days before tenant vacates, and the landlord must give at least 48 hours notice of the date and time of the inspection.

  • After the inspection, the landlord must provide the tenant with an itemized statement specifying the repairs or cleaning that are the basis for any deduction from the deposit, and the tenant shall have the opportunity to cure any conditions before vacating.

  • Within 14 days of the tenant vacating, the landlord must provide an itemized statement (or second statement, if earlier inspection was done) specifying basis for any deductions from tenant’s deposit and return the remainder of the deposit.

  • Failure to comply with the above forfeits any right to retain any portion of the deposit, and makes the landlord liable for damages, including punitive damages up to twice the value of the deposit. The landlord bears the burden of proving deductions are reasonable.

Everything You Need To Know About New York’s New Sexual Harassment Legislation

On April 13, 2018, Governor Cuomo signed legislation with new provisions to address sexual harassment in the workplace, educational institutions, and public accommodations, among other places, by changing the State’s Human Rights Law.  These new provisions apply to all New York employers regardless of size or the number of employees.  In addition, each provision has its own effective date, with several provisions heaving already taken effect. As such, employers must work to ensure their timely compliance

As set forth below, the new legislation requires employers to adopt a sexual harassment policy that meets certain minimum standards, to regularly provide sexual harassment training to employees, and generally prohibits mandatory arbitration clauses and non-disclosure agreements relating to sexual harassment except in specific and limited circumstances.  To aid employers with meeting the new regulations, the State has created an employer toolkit with links to a model policy, model training documents, and other related forms.

If your organization is concerned about complying with these requirements, the Law Offices of Mark A. Cuthbertson are well-equipped to assist you, whether by providing employee training or drafting/revising your organization’s sexual harassment policy.  For more information, contact Mark Cuthbertson at [email protected].

I. Sexual Harassment Prevention Policy

As of October 9, 2018, all New York employers are required to have a written sexual harassment prevention policy and provide it to all employees in writing or electronically.  If provided electronically, the employees must be able to access the policy on a computer provided by the employer during work hours and print a copy for their records.  While the State does not require that employers obtain a signed acknowledgment from their employees, the practice is encouraged as providing evidence of compliance.

As to the substance of the policy, a company’s sexual harassment prevention policy must:

  • Prohibit sexual harassment, provide a definition for same, and give examples of prohibited conduct that would constitute unlawful sexual harassment;
  • Clearly state that non-employees (contactors, interns, vendors, consultants, etc.), are also covered by the policy and are protected from sexual harassment;
  • Provide information about state and federal sexual harassment laws and the remedies available, and a statement that there may be applicable local laws;
  • Describe a procedure for the timely (“as soon as possible”) investigation of complaints and keep investigation-related documents in a “confidential location”;
  • Require that written investigation documents include “the basis for the decision” regarding the resolution of the complaint;
  • Inform employees of their rights of redress and all available forums for adjudicating sexual harassment complaints, either administratively or judicially;
  • Clearly state that sexual harassment is a form of employee misconduct and that sanctions will be enforced against individuals engaging in sexual harassment and supervisory and managerial personnel who knowingly allow such behavior; and
  • Clearly state that retaliation against individuals who complain of sexual harassment or who testify or assist in any proceeding under the law is unlawful.

While including some formulation of these provisions is mandatory in every sexual harassment policy, the law does not prohibit employers from including additional provisions that go beyond the baseline established by the State’s model policy.  Common examples of additional provisions include a warning that false and malicious accusations may result in disciplinary action, a statement that investigations will be handled as confidentially as possible, and policies about fraternization and employee dating.  It is also common for sexual harassment policies to include broader anti-discrimination provisions addressing race, gender, age, and/or disability.

Finally, employers are required to have a complaint form for employees to use when reporting incidents of sexual harassment (a model form prepared by the State is included in the employer toolkit linked above).  While this was originally required to be a part of the sexual harassment policy itself, a revision after the public comment period now permits employers to simply inform employees of where the form maybe found (ex: company website).

II. Sexual Harassment Training

Under the new legislation, employers are required to ensure that all employees, including full-time, part-time, seasonal, and temporary employees, receive sexual harassment training by October 9, 2019, and at least once per year thereafter.  This includes employees who work a portion of their time in new York State, even if based in another state.  Employees who start their employment after October 9, 2019 must complete their sexual harassment training as soon as possible after their start date.  If an employee fails or refuses to take the training, employers are empowered to use administrative remedies to ensure compliance.

The training program itself can consist of a model program developed by the State or comparable training that meets the same minimum standards.  While live training is not required, the training must be “interactive,” i.e. require some form of employee participation.  This can be satisfied in several ways, such as (1) online programs that ask employees questions (which the employer answers correctly), (2) programs that allow employees to submit questions and get a timely response, (3) having a live trainer (either in-person, by phone or video conference, etc.) answer questions, and/or (4) requiring feedback from employees about the training and materials provided.  Training for supervisors or managers should also address the added responsibility for individuals in those roles.  Notably, there is no minimum number of training hours per year or per training session.

Finally, training must be specific to the standards and company practices of each employer.  As such, an employee’s training from a prior employer in the same calendar year will only suffice where both employers used the same unmodified state training model, or provide training from another shared source (e.g., a training program provided by a shared union).

III. Mandatory Arbitration

As of July 11, 2018, New York prohibits all new contracts from including mandatory arbitration clauses, i.e. clauses that require the parties to submit any dispute relating to binding arbitration prior to the commencement of any legal action, for sexual harassment claims.  One exception is collective bargaining agreements, which the law provides will be controlling in the event of a conflict with the new law.  This provision, codified in CPLR § 7515, does not prohibit the use of mandatory arbitration for other types of claims as part of a contractual agreement.

IV. Non-Disclosure Agreements

As of July 11, 2018, employers are prohibited from including or agreeing to terms in any resolution of a claim involving sexual harassment that would prevent the complainant from disclosing the underlying facts and circumstances of the harassment, unless the complainant indicates a preference for such a non-disclosure provision.

To establish that the complainant’s preference, the complainant must be given twenty-one days to consider the terms of any settlement agreement.  After twenty-one days, if the claimant wishes to include a non-disclosure provision, it must be memorialized in an agreement signed by all parties.  The claimant then has seven days to revoke the agreement, with the agreement only becoming effective after the revocation period expires.  Notably, the employer may still propose the inclusion of a non-disclosure provision, provided that the above process is followed.  

V. State Employees

Any individual elected, appointed, or employed by the State who has been subject to a final judgment of personal liability for intentional wrongdoing in a sexual harassment claim that resulted in an adjudicated award shall reimburse any state agency or entity that made a payment to a plaintiff on the individual’s behalf for his/her share of the judgment within 90 days of such payment.  The law also has similar provisions for commissioners, members of public boards or commissions, trustees, directors, officers, employees, or any other person holding a position by election, appointment, or employment in a public entity.  This took effect when the law was signed by Governor Cuomo on April 13, 2018.

VI. State Contractors

Bids for state contracts, including public departments or agencies thereof, where competitive bidding is required by law, will require the bidder and each signatory to certify under penalty of perjury that they have a written policy (compliant with the new law) addressing sexual harassment and that they provide annual sexual harassment prevention training.  This takes effect January 1, 2019.

Second Department Affirms Denial of Takings Claims Against Town

Plaintiff owned vacant property in the Town of Wappinger (“Town”), sitting at the end of a private road traversing a bridge.  Plaintiff applied for a building permit to construct a new house on the property, but the Town denied the application as there was no legal access to the property as required by Town Law § 280–a and the analogous § 240–20 of the Code of the Town of Wappinger, since the road and the bridge were in such disrepair as to be virtually impassable. Plaintiff then brought an action against the Town, the Town’s code enforcement officer (“CEO”), and the Town’s zoning board of appeals (“ZBA”) for a declaratory judgment that state and local provisions requiring legal access to the property did not apply. The lower court denied Plaintiff’s motion for summary judgment and granted defendants’ cross motion, holding that the proposed construction was governed by Town Law § 280–a(1), and  Plaintiff appealed.

On appeal, the Appellate Division, Second Department held that despite Plaintiff’s claims, application of the statute did not produce a result that was absurd, unjust, or at odds with its facially evident purpose. In fact, it found that the plain language of § 280–a was unambiguous and, therefore, there was no basis to consider extrinsic materials to determine the legislature’s intent in enacting the statute. Moreover, even if extrinsic evidence were considered, the legislative history did not support Plaintiff’s claim that his proposed construction was outside the intended scope of the statute. Finally, the Court held Plaintiff failed to make a prima facie showing that application of § 280–a deprived him of a vested right to construct the new house.  As such, Plaintiff could not show damages for a categorical regulatory taking based on the denial of all economically beneficial use of the property without just compensation.

Thus, the Court remitted the matter to the Supreme Court, Dutchess County, for a declaration that the provisions of Town Law § 280–a and Code of the Town of Wappinger § 240–20 applied to the proposed construction of a dwelling on the subject property.

The case was Kellner v. Town of Wappinger, 145 A.D.3d 676 (2d Dep’t 2016).

NYC Scores Big Wins In Crackdown On Illegal Hotels After AirBnB Settlement

New York City recently scored two big wins in its long and high-profile battle against illegal hotels operating in the City, securing a $1.2 million settlement from real estate owner Salim “Solly” Assa, and a separate $1 million settlement with landlords Majid and Hamid Kermanshah.  All three had been accused of listing apartments in the buildings they owned as short-term rentals, operating de facto commercial hotels out of the buildings.  

The case of Assa, who owns four buildings in midtown Manhattan, is also significant for the terms other than the monetary settlement.  NYC had taken legal action against Assa following his failure to answer roughly 100 notices of violation, and alleged that he had entered into business partnership with two brothers who would rent out the apartments at his properties.  Though Assa denied any knowledge of wrongdoing, he agreed as part of the setttlement that his four buildings would be overseen by the City and an independent property manager for the next three years.

These two settlements are emblematic of NYC’s approach to regulating short-term rentals following its December 2016 settlement of AirBnb lawsuit over NYC’s new short-term rental advertising law.  AirBnb had sued to block the law, which imposed fines of up to $7,500 on hosts who advertised illegal short-term rentals on platforms such as AirBnB, out of concerns it would impose criminal liability on third-party platforms like AirBnB.  AirBnB agreed to drop the lawsuit after NYC agreed that the law would not be enforced against the company, but only against individual violators.  Since then, the mayor’s Office of Special Enforcement has emphasized large-scale commercial enterprises, with these two settlements representing the largest penalties.  

Paid Family Leave Begins In New York; Employers Must Begin Payroll Deductions

In 2016, New York State enacted a law providing for Paid Family Leave for eligible employees under qualifying circumstances. The program, which begins January 1, 2018 provides eligible employees with wage replacement to help them bond with a child, care for a close relative with a serious health condition, or help relieve family pressures when someone is called to active military service.  In addition, employees who take leave are also guaranteed to be able to return to their job and continue their health insurance, though he/she must continue to pay his/her portion of the premium cost while on leave.  Collection of the payroll deductions by which the program is funded began on July 1, 2017.

How Paid Family Leave Funded?

Paid Family Leave coverage will be included under the disability policy all employers are required to carry, however the premium will be fully funded by employees through payroll deductions.  These deductions, which began on July 1, 2017 are equal to .126% of the gross weekly wage, capped at the statewide wage of $1,305.92.  A new maximum rate of employees’ contribution will be set by New York State each year.

Notably, the deduction is mandatory for Full-Time and Part-Time Employees.  Seasonal and Temporary employees are not eligible and can opt out if they will not meet the eligibility requirements (discussed below) in a year.

Who Is Eligible For Paid Family Leave?

Nearly every full-time or part-time private employee in New York State is eligible for Paid Family Leave, and participation in the program is not optional such employees.  Full-time employees are eligible for the program after 26 weeks of being hired, while part-time employees are eligible for the program after 175 days of being hired.  Seasonal or temporary workers may opt out of the program unless their assignment will be for at least 26 continuous weeks or 175 days.

Furthermore, unlike the federal Family Medical Leave Act, employers are prohibited from requiring that employees take all of their sick leave and/or vacation before using Paid Family Leave.  Employees who wish to receive full pay while on Paid Family Leave may be still utilize their available sick or vacation leave, but this is not required to take leave.

Under What Circumstances May Leave Be Taken?

As described more fully below, leave may be taken to help a parent bond with a child, to care for a close relative with a serious health condition, or help relieve family pressures when someone is called to active military service.  However, Paid Family Leave may not be used for an employee’s own disability or qualifying military event.

Maternity and Paternity Leave

Employees who are expecting, fostering or adopting a child, may be entitled to take time to care for and bond with their child. With proper documentation, eligible employees may be eligible for up to eight (8) weeks of Paid Family Leave (rising to  12 weeks by 2021). Paid Family Leave only begins after birth and is not available for prenatal conditions. An eligible employee may take Paid Family Leave during the first 12 months following the birth, adoption, or fostering of a child.

Caring for a Close Relative with a Serious Health Condition

Employees who need to care for a close relative suffering from a serious health condition may be eligible for Paid Family Leave commencing in 2018.  A close relative includes one’s spouse, domestic partner, child, parent, parent in-law, grandparent, or grandchild.

With respect to qualifying medical conditions, a serious health condition is any illness, injury, impairment, or physical or mental condition that involves either in-patient care in a hospital, hospice, or residential health care facility; or continuing treatment or continuing supervision by a health care provider.

Active Duty Deployment

Paid Family Leave is available for employees eligible for time off under the military provisions in the federal Family Medical Leave Act when a spouse, child, domestic partner or parent of the employee is on active duty or has been notified of an impending call or order of active duty.

How Much Leave Is Available And At What Rate?

The Paid Family Leave will phase in over a four-year period commencing on January 1, 2018, as shown below:


Weeks Available

Max % of Employee Average Weekly Wage

Cap % of State Average Weekly Wage

















For example, in 2018, an employee making $1000 a week would receive a benefit of $500 a week (50% of $1000), while an employee making $2,000 a week would receive $648 a week, or half of New York State's Average Weekly Wage (NYSAWW).  The NYSAWW, currently $1,296, will be set every year after a comprehensive analysis by the New York State Department of Labor.  Employees may take the maximum benefit length, as shown above, in any given 52-week period. The 52-week clock starts on the first day the employee takes Paid Family Leave.

What Should Employers Do Now?

After familiarizing themselves with the new law, employers should also take steps to notify employees of the law and its benefits, as well as the new payroll deduction.  Employers should also update their employee handbooks to ensure they conform with the new law, and coordinate with the payroll department so that the required deductions are being withheld.

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).

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