Under New York Labor Law §193, Employers are only allowed to make certain authorized deductions from an employee’s paycheck as authorized by the law such as FICA, Social Security, etc.  There are also specifically enumerated deductions that Employees are authorized to deduct if the deduction is for the employee’s benefit and authorized in writing as follows:  “insurance  premiums,  pension  or health and welfare benefits, contributions to  charitable  organizations,  payments  for  United  States  bonds,  payments for dues or assessments to a labor  organization, and similar payments for the benefit of the employee.”

Until recently, the New York State Department of Labor (NYSDOL) did not seem to object to Employers deducting advancements from an employee’s final paycheck because it was a “similar payment(s) [to those authorized by the law] for the employee’s benefit,” as long as the employee signed an agreement authorizing the deduction. Then if an employee was terminated from his employment, Employers would deduct these advances from the employee’s final paycheck.

The NYSDOL has now changed its position, and Employers can no longer deduct advanced salaries or loans from an employee’s paycheck under any circumstances.  In addition, if an Employer overpays an employee’s salary, he cannot deduct that overpayment from the employee’s next paycheck.  The NYSDOL has relied primarily on a Court of Appeals case and articulated its new view point in two opinion letters.  The New York State Court of Appeals in Angello v. Labor Ready (2006), discussed the issue of an employer deducting monies for a salary processing fee from an employee’s wages.  Specifically, the Court of Appeals in Labor Ready explained that payments that go “directly to the employer or its subsidiary violates both the letter of the statute and the protective policy underlying it,” and wages should not be deducted.

In two opinion letters from the NYSDOL in August 2009 and January 2010, the NYSDOL changed its interpretation of NYS Labor Law §193, and instead relies on the holding in Labor Ready.  In the August 3, 2009 Opinion Letter (RO-09-006), an employer requested an opinion whether it was permissible for an employer to make a deduction from an employee’s final paycheck to recover unearned salary and/or benefit which have been advanced to the employee.  Relying on Labor Ready¸ the NYSDOL determined that these types of deductions are no longer permissible since the over-payments are neither authorized by law nor are they “similar payments,” especially since the money is going back to the employer.

The January 10, 2010 letter reiterated its opinions from the August 2009 letter, but explained how an Employer can get repaid if they advance monies to employees.  The NYSDOL’s answer is that the Employer could always sue the employee, while that employee continues to work at the business, or the Employer could request the employee repay the monies in a separate check.  If the Employer desires to have the employee write a separate check to repay the monies,   the Employer must clearly communicate to the employee that they cannot be disciplined or retaliated against if they refuse to pay back the money.  The reasoning behind this is that under Labor Law §193(2) Employers are prohibited from requiring an employee to make any payment by separate transaction.  The purpose of this law is to assure that “unequal bargaining power between an employer and an employee does not result in coercive economic arrangements by which the Employer can divert a worker’s wages for the Employer’s benefit.” Labor Ready at 586.

With these recent opinion letters, Employers should no longer advance monies to employees or allow them to take unaccrued paid vacation time, unless the Employer is willing to take the risk of not being paid back for these advancements.

One matter which is surprising to most employers is that they cannot discriminate in hiring based on the applicant’s prior arrest record or even conviction (Human Rights Law §296 and New York Corrections Law Article 23-A).

However, if there is a careful analysis of the specific duties and responsibilities necessary to the employment sought and if it can be demonstrated that the criminal offense for which the person was arrested and convicted is directly related to such duties and responsibilities, then the employer may decline to hire the person. There are other factors to be weighed as well, including the age of the person at the time of the offense, subsequent history of good conduct and rehabilitation, etc.

More employers are now obtaining background checks on their employees or potential employees and that is often how criminal arrests or convictions come to an employer’s knowledge. If an employer orders an investigative consumer report as part of a background check, which can only be obtained with the consent of the applicant, then, as of February 1, 2009, the potential employer must provide a copy of Article 23-A of the Corrections Law to the proposed applicant so they will know their rights not to be discriminated against on the basis of prior arrests and convictions. That new law also requires the posting of a copy of Article 23-A of the Corrections Law in a conspicuous place at the worksite in the event investigative consumer reports are obtained in connection with either retaining or hiring employees.

The law, however, now recognizes that in this litigation prone society, employers must have some protection if they hire previously convicted persons and later such convicted persons engage in wrongful actions. When third parties are adversely affected by such wrongful actions and sue the employer claiming that there had been a negligent hiring or retention of that employee, previously there were no statutory protections for the employer even though it was merely trying to comply with the non-discrimination provisions of the law.

Section 296 of the Human Rights Law has just been amended (and is presently effective), to provide that if an employer hires a person who has been convicted and there has been an evaluation of different factors discussed above under Corrections Law Article 23-A and the employer makes a reasonable good faith determination that such factors militate in favor of hiring or retention of the employee, they are protected from such suits based on negligent hiring or retention. This protection is in the form of a rebutable presumption against permitting the introduction of the criminal conviction of a hired employee into evidence at such a trial. While such newly enacted protection is not an immunity,it will make bringing such a lawsuit against an employer much more difficult and therefore affords some breathing room for an employer who wishes to hire someone previously convicted of a crime. Being cautious may help in avoiding unnecessary litigation. business litigation.

The other part of the new law which may make it more challenging to either be a health provider or do business with such a provider is that HITECH also made some substantial changes to HIPAA (Health Insurance Portability and Accountability Act of 1996). Some highlights of these changes include: (1) a requirement that covered entities notify individuals of breaches involving their PHI (protected Health Information); (2) that new Business associate agreements are required that provide that Business associates will be directly responsible to HHS for the use and disclosure of PHI and that they will be directly subject to civil and criminal penalties; (3) that Covered entities must account to HHS for disclosures of PHI; (4) that Covered entities are prohibited from selling PHI without an authorization from the patient; (5) a limitation on the potential for using PHI for marketing purposes; (6) a major increase in the civil penalties for HIPAA violations and (7) a provision that permits the enforcement of HIPAA by State Attorney Generals.

Before ARRA, HIPAA required that covered entities such as hospitals, physicians and health plans had to enter into contracts (known as “business associate agreements”) with entities performing functions or providing services on their behalf if those functions or services involved the exchange of health information. The contracts had to require that business associates use appropriate security safeguards to protect the health information they received from the covered entity. These agreements also set forth the permitted uses and disclosures of such health information. However, prior to ARRA, business associates themselves were not directly subject to governmental enforcement action: the only remedy available against a business associate was for a covered entity to sue for breach of contract. Under the new law, business associates are now required to directly comply with most provisions of the HIPAA Security Rule. They also must comply with any changes to the Privacy Rule that were part of ARRA regardless of whether or not their contracts with covered entities contain those provisions Business associates can now be held directly accountable by federal or state authorities for any failure to comply with HIPAA as amended by ARRA or applicable regulations.

Additionally the new law requires that covered entities which become aware of breaches of “unsecured” health information comply with certain notification provisions. ARRA includes specific provisions regarding the content, methods and timing of notification. Notice must be afforded no later than 60 days after the discovery of the breach. A breach is considered to be “discovered” when at least one employee of the entity (other than the person responsible for the breach) knows (or reasonably should know) of the breach. Notice is required to be provided to media outlets if the information of more than 500 individuals is involved. Notice of all breaches also must be provided to the Secretary (immediately if the breach involves the information of more than 500 individuals and in an annual log for breaches that do not trigger this threshold.) The Secretary is required to include a list on the HHS website of covered entities involved in breaches of more than 500 individuals’ information, and must annually report to Congress on the number and nature of any breaches that occurred during that year.

If you have any questions about how this new law may affect you or your business, be sure to visit our Business Litigation page, or contact us directly to deal with an experienced business attorney.

When the Federal Estate Tax law was in effect, the assets of an estate would receive a step-up in the tax basis on property owned by a decedent based upon the date of death value, whether or not any estate taxes were owed. Under the current law, this step-up is limited to the first $1.3 million of assets for bequests made to people other than a spouse and the first $3 million for assets passing to a surviving spouse. This creates a greater burden for the executor unless a Will is clear as to how assets are to be distributed, as the executor now needs to not only determine the allocation of assets but also which of those assets will be allocated the step-up in tax basis. Additionally, the executor must determine the tax basis of all the assets of the estate. This may prove to be very difficult, especially for those estates in which a decedent held stock or other assets for many years. The IRS has clarified that an heir’s basis will be zero unless the heir can provide proof as to how the tax basis was determined.

Unless Congress acts prior to the end of the year, on January 1, 2011 the estate tax law will revert back to the way it existed in 2001 and a Federal Estate Tax will return into being with a higher 55% tax rate and an effect on Estates as small as $1 million. Many Estate planners continue to believe that Congress will enact changes to avoid the Estate Tax being revived in 2011 with higher rates and lower limits. We will of course keep you advised as events develop.

The Internal Revenue Service has also announced that the Annual Gift Tax exclusion will be maintained at its current $13,000.00 per year per person level for the year 2010. This means that in 2010, each person can continue to give the sum of $13,000.00 to as many people as they want without incurring any gift tax. A married couple can give up to $26,000.00 per recipient. The current rules regarding tuition and medical expenses continue. This means that in addition to the $13,000.00, payments of tuition paid directly to an educational institution and payments of medical expenses paid directly to the provider of services are not considered taxable gifts.

Questions? Visit our Probate, Estate Planning or  Estate Administration Pages, or email us at gwmain@gwlaw.com.

The Homeownership Law of 2009 gives an $8,000.00 tax credit to “first time homebuyers” who buy or enter into a binding contract to buy a house to be used as their principal residence. The contract must be signed on or before April 30,2010 and the sale must close by June 30, 2010. Certain income limitations which are outlined below will apply. A first time homebuyer is defined as a person who has not owned a primary residence during the three years up to the date of purchase. Therefore, this purchase does not necessarily need to be your first home in order to qualify for the credit.

The new law also expands the credit to certain persons who are considered “long time residents”. They will receive a credit of up to $6,500 if they buy a new home. The buyer must have owned and used the same home as their primary residence for at least five consecutive years of the eight-year period ending on the date of purchase of a new home as a primary residence. The new law also raises the income limits for people that purchase a new home after November 6, 2009. The full credit of $8,000.00 will be available to taxpayers with modified adjusted gross incomes (MAGI) up to $125,000, or $225,000 for joint filers. Those with MAGI between $125,000 and $145,000, or $225,000 and $245,000 for joint filers, are eligible for a reduced credit. Anyone with income higher than that amount does not qualify for the credit. If you purchase your home in 2009 or 2010, the credit does not need to be paid back unless you do not keep the home as your principal residence for a 3 year period following the purchase.

For qualifying purchases in 2010, taxpayers have the option of claiming the credit on either their 2009 or 2010 return. A first time homebuyer will need to submit Form 5405 to the IRS along with a copy of the HUD-1 settlement statement. This statement is a federal government form that you should receive at the closing which reflects the purchase price and all the closing costs. With tax season upon us and the end of the first time homebuyer tax credit in sight, homebuyers should be aware of the relevant tax credits.

The American Recovery and Reinvestment Act of 2009 has it’s own website at www.recovery.gov.

Federal Title VII of the Civil Rights Act only applies to employers with 15 or more employees, and the New York State Human Rights Law discrimination section applies to employers with four or more employees.

Sexual Harassment is defined as the unwelcome overtures of a sexual nature which alter the terms and conditions of employment offered to women (or in some cases to men) in a way in which the terms and conditions of other employees are not effected. There are two types of sexual harassment: Quid Pro Quo sexual harassment and hostile work environment.

Quid Pro Quo sexual harassment involves the actual demand for sexual favors as a term or condition of employment, and is only applicable in the supervisor/ employee scenario. A hostile work environment claim arises when sexually charged unwanted conduct and verbalizations occur in the workplace. The type of conduct must be severe or pervasive. Employees who are successful in bringing a claim for sexual harassment can receive a wide range of remedies including reinstatement, back pay, front pay, compensatory damages, and punitive damages.

Claims of sexual harassment can be very costly to an employer. So what can employers do to protect themselves from these sorts of claims? The Supreme Court has handed down two decisions which give some directions to employers: Burlington Industries v. Ellerth, 524 U.S. 742 (1988) and Faragher v. Boca Raton, 524 U.S. 775 (1998). In those cases, the Court found that if the employer has a handbook which has an anti-harassment policy and has a reasonable and effective method for the employee to complain and seek redress for inappropriate conduct then if the employee fails to utilize such a known and effective policy and procedure, the employer will prevail because it never got a chance to solve the problem before the situation got so bad as to be declared a matter worthy of federal litigation.

The question remains what is an effective sexual harassment policy. All employers should have the following:

1. Employee handbooks stating that the Company will not tolerate sexual harassment;
2. Complaint procedures setting forth how to report harassment;
3. Investigative procedures in place for supervisors to follow upon receiving a complaint;
4. Training.

A recent New Jersey Appellate Division case, Cerdiera v. Martindale-Hubbell, 402 N.J. Super. 486 (App. Div. Sept. 2008) held that an employer could be liable where the employer has failed to have in place effective and wellpublicized sexual harassment policies that provide employees with reasonable avenues for voicing sexual harassment complaints. Although there is not yet a case in New York, New Jersey has been a bellwether state in indicating how other states’ case law will change in the employment realm.

Beginning in 2009, our firm will offer Harassment Training for Managers/Supervisors in order to assist our business clients to create and maintain an effective anti-harassment policy. Contact us to set up such training for your employees.

            CHIPRA requires most Employers in New York to provide notice to their employees of potential opportunities currently available in New York for group health plan premium assistance under Medicaid and the Children’s Health Insurance Program (CHIP).

            Any New York Employer who provides benefits (directly or through insurance, reimbursement, or otherwise) for medical care for its employees, and contributes at least 40% towards their health insurance premiums, must provide the CHIPRA Notice.

            The notices must inform each employee of the possible state premium subsidy assistance program regardless of the employee’s current enrollment status.  Employers are required to provide notice of this opportunity by the first day of the plan year after Feb. 4, 2010 or May 1, 2010 (whichever is later).  For example, if an Employer’s plan year begins on January 1^st of each year, the notice would need to be provided by January 1, 2011.  Each year, another copy of the notice must be provided to the employee.  The model notices can be accessed at http://www.dol.gov/ebsa/.

            There are civil penalties up to $100 a day for failure to comply with the new notice and disclosure requirements.

            Such was the case in Snyder v. Bronfman (2009 NY Slip Op 8667 [2009]), a recent Court of Appeals case.  In this case, the Plaintiff, Robert Snyder, was at first a casual business acquaintance of Defendant Edgar Bronfman, a wealthy New York City investor.  The parties then orally agreed that plaintiff would function as defendant’s “experienced right hand’, ‘sounding board’, ‘loyal ally’, ‘principal advisor’, and most importantly, his ‘consigliore”, in connection with a joint venture to acquire and operate companies in the media business. 

            Thereafter, Plaintiff worked on trying to put together acquisitions for the joint venture. He developed for the parties’ joint venture, a series of business relationships with key figures in the corporate and investment banking communities.  He apparently spent countless hours working on aborted deals, before finally bringing to fruition a deal to acquire Warner Music from Time Warner.  Although there was no debate in the record that Plaintiff was a major contributor to the success of the deal, after the deal had closed, Defendant refused to compensate Plaintiff for his efforts in bringing about the deal. 

            Plaintiff then sued, and the Defendant moved to dismiss the complaint.  The Court, in affirming the lower court’s decision granting Defendant’s motion, held that (1) the parties did not have an enforceable contract because the terms of the parties’ agreement were too indefinite, and (2) that Plaintiff’s quasi-contract claim to recover the reasonable value of the years of work he performed finding Defendant a business to acquire and causing an acquisition to take place, was barred by the Statute of Frauds provision relating to negotiating the purchase of a business opportunity.  As a result, despite the clear understanding of the parties that Plaintiff would be compensated in some capacity for his efforts, the Court held that Plaintiff had, in essence, worked for free in bringing about a $2 billion transaction.    

            While this case does not seem to have changed the law, it does bring forth a stark reminder that potential business partners need to firm up their understandings of a deal and put it in writing, before they begin expending resources to bring it about.  Otherwise, the law may not provide a remedy to the aggrieved party, no matter how unfair the circumstances seem. If you require legal advice about your business, contact us and deal with an experienced business attorney.

But then you learn that the individual who owes you money has filed for bankruptcy.  What does that mean? What do you do? What are your rights?

As a creditor in Bankruptcy, you do have some rights.  However, the filing of bankruptcy places an Automatic Stay on all actions against a debtor, which protects the debtor and his assets from any collection efforts – including phone calls, bills and lawsuits. Therefore, the very first thing you, as a creditor, have to do is stop all your collection efforts while you evaluate your options.

While the Automatic Stay is in place, you can file a proof of claim with the Bankruptcy Court.  If the debtor has listed you as a creditor in the bankruptcy, as the debtor should, you will receive notice informing you of where to file a proof of claim and the deadline for filing one.  This is a form document that allows you to assert, in the bankruptcy, the amount you claim is owed from the debtor. Once you have filed a proof of claim, you, with the help of an attorney, can evaluate your next steps.  There are many issues a bankruptcy raises for the creditors and a discussion of all of such issues is beyond the scope of this article. Key questions to be addressed include:

1. What type of bankruptcy has the debtor filed? There are three main types of bankruptcies filed by debtors, and your options (and recovery) as a creditor may be dictated by the type of bankruptcy chosen by the debtor. (i) A Chapter 7 Bankruptcy is a liquidation of the Debtor’s assets.  Certain assets will be exempt from the bankruptcy estate and will not be sold, but a trustee will sell the non-exempt assets and distribute any proceeds to the creditors according to the priority of their rights.  After a debtor files for Chapter 7, any wages earned by the debtor belong to it, and are not subject to the claims of the creditors in the bankruptcy.  (ii) Chapter 11 is generally used by corporations or partnerships, but individuals also may file under Chapter 11.  In Chapter 11, the debtor and not a trustee remains in possession of its assets.  The debtor creates a plan of reorganization that may involve repayment of creditors out of future profits, sale of some assets or other corporate transactions to allow the debtor to reposition itself to survive once it emerges from bankruptcy.  This plan of reorganization, once confirmed by the court, provides the terms for repayment of the debtor’s outstanding debts. Creditors may object to the plan for any number of reasons, and often do so, if the plan does not meet certain technical criteria or if it appears to be unfeasible. (iii) A Chapter 13 bankruptcy is available only for individuals with less than $336,900.00 in unsecured debt (and provides a cap on secured debt as well).  In Chapter 13, there is a trustee as in Chapter 7, but the debtor remains in control of the property as in Chapter 11 case.  A Chapter 13 debtor proposes a plan wherein s/he makes payments to the trustee over a period of several years and the trustee distributes such payments among the creditors.

2. Is your debt secured? Determine if you have a lien or a security agreement on real or personal property. If so, you may be able to get relief from the automatic stay in order to protect your security interest by selling the asset on which you have a lien.

3. Is your debt non-dischargeable?  Usually, in bankruptcy, the debtor’s debts are ultimately discharged such that when the debtor emerges from bankruptcy, he gets a fresh start and his old debts are basically forgiven, with the creditors having been paid pennies on the dollars owed.  However, certain categories of debts, including those arising out of fraud or malicious acts, are non-dischargeable, and a creditor of such debts can bring an adversary proceeding in the bankruptcy to assert its rights.  A victory in such a proceeding declaring the debt non-dischargeable preserves the creditor’s right to collect on the entire debt after the bankruptcy, whereas for a debt discharged in bankruptcy a creditor only may end up collecting a small percentage of the amount owed.

Even if your claim is non-dischargeable, you and/or your attorney should monitor the bankruptcy  – you are in the best position to know if you have specific rights to assert and you may know if a debtor is hiding assets or if he is using the legal process simply to thwart your efforts at collection.   This knowledge ultimately may allow you to use various legal devices to attempt to collect more than you otherwise would.

A case filed under the Bankruptcy Code may be dismissed or converted to another chapter, if it does not meet the requisite criteria, or if circumstances call for such a conversion.  As such, it is important to continuously monitor the bankruptcy, as your rights and recoveries, as a creditor, may be impacted by the dismissal of a bankruptcy or by the conversion from one chapter to another.  For example, payments to a creditor may differ drastically from a bankruptcy plan calling for payments over five years to a liquidation where the debtor’s assets are sold at auction and the creditors receive one lump-sum payment.  As a creditor, with knowledge of the debtor and its business, you may be able to assist the trustee in martialling and maximizing the debtor’s assets, thereby maximizing your recovery.

In this economy, with the increasing number of all types of bankruptcies being filed, it is important to know your rights, assert them where necessary and seek attorney advice to protect yourself and your interests. If you are in need of advice, feel free to contact our commercial collection office for help.

      David graduated from the State University of New York at Albany with an Honors Degree in Economics, and from Union University’s Albany Law School. He then worked three years as an Assistant Attorney General for the State of New York and focused on Trusts and Estates and the regulation of charities and not-for-profit organizations.

      When he joined Ganz Wolkenbreit & Friedman in 1999, his practice centered on estate planning and administration as well as business law and, in more recent years, on consulting businesses and real estate transactions. He has attracted numerous clients in the manufacturing, distribution and transportation industries, is frequently appointed by local Surrogates to assist in complicated estates, and works on many commercial real estate and commercial financing projects for small, medium and large businesses.

             In the community, his expertise is sought by various not-for-profits and he presently serves on the Board of Governors of the Endowment Fund of the Jewish Federation for Northeastern New York as Treasurer. David and his wife, Shara, have four young children whose art work is often displayed in David’s office. We are sure that all of you who work with David agree that his recognition as a named partner in the Firm is well deserved.