FREELANCERS BACK IN THE SPOTLIGHT IN NEW YORK CITY
PROTECTIONS FROM DISCRIMINATION UNDER NYCHRL
As of January 11, 2020 in New York City, independent contractors and/or freelancers are protected from employment discrimination to the same extent as employees. Before this amendment to the New York City Human Rights Law that extends such coverage to freelancers, New York City employers could use (and sometimes abuse) non-employee workers with near impunity. Not the case anymore. Any employer who makes use of 4 or more freelancers who reside in the New York City area now must think of such as employees. If you are an employer who makes use of 4 or more New York City freelancers (a “covered employer”), you will want to implement an “on boarding” process for them similar to that used for employees to ensure that the freelance workers have proper training with respect to sexual harassment (such training of freelancers is, in fact, mandated by current law in most instances) and are apprised of any available complaint mechanism regarding discrimination should they experience it. If an employer does not apprise freelancers of a complaint mechanism and they are harassed by employees in a manner that is discriminatory, then the employer may not have a defense in those instances where the freelancer fails to invoke the complaint system (which would otherwise be an affirmative defense).
In addition to having to ensure a “workplace” free of discrimination for freelancers, the NYCHRL now also makes clear that a “covered employer” will be responsible for the actions of freelancers, if they commit acts of discrimination against other workers and the employer does nothing to remediate the situation.
Bottom line: employers beware of the new quasi-employee status of New York City freelancers.
COMPENSATION PROTECTIONS FOR FREELANCERS
As of May 15, 2017, employers who engage freelancers are subject to certain legal obligations with respect to contracts with and payments to freelancers and certain prohibitions in their conduct towards them.
First, any contract involving a freelancer that adds up to $800 or more must be in writing.
Second, any written contract (i.e., involving $800 or more) must have the names and mailing addresses of the freelancer and hiring party; itemization of the services that the freelancer will provide; value of the services provided; rate of compensation; method of compensation; and the date by which the hiring party must pay the freelancer or a mechanism by which that date will be determined.
Third, the hiring party cannot require the freelancer to accept less than the agreed-upon compensation in exchange for timely payment.
Fourth, the hiring party cannot retaliation against the freelancer for asserting his or her rights under the prevailing law (Freelance Isn’t Free Act).
Should the hiring party violate any of the foregoing legal obligations, then the freelancer can bring a complaint to the appropriate local agency (Office of Labor Policy and Standards) or to court. If the freelancer prevails in a lawsuit where the hiring party fails to pay compensation, then the freelancer will be awarded damages equivalent to twice the money owed and the court may award attorney’s fees and costs associated with bringing the case.
In short, employers who engage NYC freelancers must understand that their obligations to this class of workers have become more extensive and best practices dictate that they be treated exactly like employees. NYC freelancers should understand that they now have a robust set of protections upon which they can rely when dealing with clients and customers.
For further details about the recent changes in the legal landscape surrounding the use of freelancers please see the NYC Commission on Human Rights advisory, “Protections for Independent Contractors & Freelancers From Discrimination and Harassment,”[1] and the NYC Consumer Affairs advisory, “Freelance Isn’t Free Act: Frequently Asked Questions.”[2]
Disclaimer: Cardi & Edgar LLP provides this
information as a service to clients and other friends for educational purposes
only. It should not be construed or
relied on as legal advice or to create a lawyer-client relationship. Attorney Advertising.
[1] https://www1.nyc.gov/assets/cchr/downloads/pdf/materials/Independent_Contractor_One_Pager.pdf
[2] https://www1.nyc.gov/assets/dca/downloads/pdf/workers/FAQs-Freelance.pdf
The Department of Labor Once Again Changes the Rules for Eligibility for Overtime Compensation
Here we go again. As of January 1, 2020, there will be a revised eligibility requirement for the exemption for executive, administrative, professional, computer and outside sales employees under the Fair Labor Standards Act. See U.S. Department of Labor: Wage and Hour Division Fact Sheet #17A: Exemption for Executive, Administrative, Professional, Computer & Outside Sales Employees Under the Fair Labor Standards Act. Specifically, employers must pay employees at least $684 per week in order to satisfy the threshold requirement for not having to pay certain executives, administrators, professionals, computer personnel and outside salespersons overtime compensation should they work more than 40 hours per week. To be clear, paying $684 per week is merely a threshold requirement for these exemptions; there are additional factors that must be met in order for an employer not to have to pay certain employees overtime (i.e., compensation at a premium rate). The soon-to-be superseded salary requirement was $455 per week.
Another development of note with respect to exempt employees under the Fair Labor Standards Act is the Supreme Court case in 2018, Encino Motorcars, LLC v. Navarro, that held that the standard for finding certain employees exempt should not be the uphill climb that the Department of Labor recommended and that was the usual counsel to employers when they sought advice about making use of the exemption. Before Encino Motorcars, LLC v. Navarro, lawyers frequently advised clients to proceed with extreme caution when characterizing employees as exempt, especially in light of the fact that the multi-factor tests that informed the analysis as to appropriate qualification for the exemption translated into serious challenges in getting such cases thrown out before trial. With Encino Motorcars, LLC v. Navarro, the Supreme Court has endorsed the view that the exemptions for executive, administrative, professional, computer and outside sales employees are a core element of the Fair Labor Standards Act and should not be viewed with any heightened suspicion. The bottom line for employers is that the characterization of employees as exempt is not the risky proposition that it was once considered to be.[1]
Nonetheless, employers who are inclined to characterize some of their employees as exempt pursuant to one of the exemptions listed above should seek legal advice before implementation. The fact remains that the misclassification of an employee can bring an abundance of pain (i.e., liability). Frequently, once employers classify an employee as exempt, they cease tracking the number of hours that the employee works. The lack of records as to the number of hours worked by a misclassified employee becomes an opportunity for the plaintiff-employee to embellish the number of hours actually worked above 40. As a punishment for not having such time records, the court will be forced to accept those embellished hours at face value. Further, under the Fair Labor Standards Act, it is routine for courts to hold employers liable for double damages as a punishment for violating the Act (what is called liquidated damages), not to mention having to pay the fee owed to the plaintiff’s attorney (and, of course, the employer’s own attorney). Lastly, as if the foregoing was not bad enough, under the Fair Labor Standards Act, individual managers, supervisors and principals of a business can be found individually liable for overtime compensation owed to a misclassified employee under certain circumstances, which means that the corporate form through which the business is run will not save individuals within the management realm from having their homes, cars, summer homes, etc. etc. on the proverbial chopping block. Employers can minimize damages owed to misclassified employees if they obtain a legal opinion from an attorney that states in sum and substance that the exemption is applicable and they, in turn, applied it in good faith (otherwise known as the “good faith defense”). Thus, hiring a lawyer to get an opinion regarding compliance with the Fair Labor Standards Act makes good sense.
If you have any questions about the new Department of Labor rules regarding overtime compensation or more general questions about compensating employees, feel free to contact one of the lawyers at Cardi & Edgar LLP.
Disclaimer: Cardi & Edgar LLP provides this
information as a service to clients and other friends for educational purposes
only. It should not be construed or
relied on as legal advice or to create a lawyer-client relationship. Attorney Advertising.
[1]How significant Encino Motorcars, LLC v. Navarro will prove to be for federal courts in the Second Circuit asked to decide whether an employee is truly exempt from overtime compensation is difficult to discern at this point since the cases are few. An interesting example of the effect of Encino Motorcars, LLC v. Navarro is Vasto v. Credico where the plaintiffs argued that they should not be subject to the overtime exemption for outdoors salespeople because the Fair Standards Labor Act intended the exemption for those circumstances where the employees were generously compensated. In Vasto, it was undisputed that the plaintiffs were poorly compensated. The Court observed:
Although [Plaintiffs] invoke[] the purported “spirit and purpose” of the FLSA to suggest that [poor compensation] negates the reason for an outside salesman exemption, “[i]t is quite mistaken to assume … that whatever might appear to further the statute’s primary objective must be the law” … “In the absence of words in the statute or regulation that require consideration of [the plaintiff’s level of compensation] when deciding if an employee is “making sales,” we decline to add a [“subject to compensation”] exception to the “making sales” requirement of the outside salesmen exemption under the FLSA.
767 Fed.Appx. 54, 57 (2d Cir. April 12, 2019) (quoting Encino Motorcars, LLC)
Breaking Up With Your Employer?
Breaking Up With Your Employer?
So you are thinking of leaving your employer and you are an employee who works either in New York or Connecticut. What follows is a roadmap to follow to leave your employer in a manner that will minimize your exposure to being sued by — wait for it, your ex-employer. Yes, workers are finding themselves increasingly in the sights of ex-employers who for a host of reasons want to create obstacles to their talent going to work for a competitor.
Covenants Not To Compete And/Or Not Solicit
1. If you signed an agreement with your soon-to-be ex-employer that prohibits working for a competitor and/or soliciting certain customers and/or soliciting for employment your ex-coworkers for a period of time after separation, then dust off that document and ideally review it with an attorney. Do not assume that your soon-to-be ex-employer won’t sue you. The current environment is such that many companies want to send a message that they will put up hurdles and road blocks to the flow of talent out of their company. One of the core tools for doing so is enforcing against ex-employees covenants not to compete and/or not to solicit customers and/or its current employees. In both Connecticut and New York, there are bases that courts can invoke not to enforce these agreements but that outcome is always after litigation has occurred – usually, in the form of expedited and expensive motion practice (i.e., preliminary injunction). For example, in New York, it may be that an agreement that prohibits post-employment activity of an ex-employee is not enforceable where the employer fires the employee. The highest court in New York has yet to rule whether, under such circumstances, post-employment restraints are enforceable. Until the Court of Appeals rules on the issue, neither an employee nor an employer can be certain whether a post-employment restraint after being fired will be enforced. In Connecticut, it may be that a court will not enforce a covenant that your employer forced you to sign after you began employment. It appears to be a minority opinion among trial courts but the “defense” is still out there and thriving. In spite of these potential “defenses” to covenants not to compete and/or solicit, employees and employers confront unappealing uncertainties in this area. Uncertainty in such circumstances usually favors employers who have the deeper pocket, usually, to fund litigation. Even though a soon-to-be ex-employee thinks that the covenant he or she signed will not be enforced, he or she should always disclose to a potential new employer the existence of the covenant. In most instances, a new employer will request that you disclose the existence of a covenant in its application in any event. Be truthful. By disclosing the existence of the potential restraint, you will not only remove a potential ground for termination should it come to light later on, it will initiate discussions with your new employer about indemnification of your attorney’s fees should your ex-employer sue you. You will need the help to defend yourself. You will also want to negotiate, if possible, a salary with your new employer, even if you are required to “sit out” pending the outcome of preliminary injunction practice focused on the enforceability of the covenant. It is great to get a free attorney representing you while you are sued; even better if your new employer pays you even when you are forced to stay at home for a period of time.
Duty Of Loyalty Owed To Ex-Employers
2. If you did not sign a covenant with your soon-to-be ex-employer, then know that in both New York and Connecticut you still owe a duty of loyalty to your ex-employer when you move on to your new employer to the extent of not making use of its trade secrets and/or confidential information. What constitutes a trade secret and/or confidential information in New York and Connecticut is a murky issue. Basically, it has to be information that is not publicly available, that your ex-employer took some pains to prevent the wide disclosure of and that took time to create and/or develop. By way of example, a customer list that can be created from scratch in a few hours by doing internet searches is neither a trade secret nor confidential information. On the other hand, a customer list that is comprised of each customer’s purchase history and preferences is probably a trade secret and/or confidential information. You will need to confer with an attorney if you want to use information you are carrying over from work at your prior employer and it is something more than a mere customer list that you can build back up from scratch in less than a day. Of course, if you archived information that you brought with you to your soon-to-be ex-employer and kept it under lock and key, then you have every right in the world to dust off that information and commence using it at your next workplace. Unfortunately, few employees do this and are thus placed in the position of having or needing to use information that is a hybrid of information they brought to their soon-to-be ex-employer and information they obtained or created while at that employer. Don’t make the mistake of automatically believing that you own the hybrid. You may not: from which fact much pain may result.
Short List Of Don’ts For Soon-To-Be Ex-Employees
3. Do not use your current employer’s time and resources to develop a competitive business. Do not start marketing a competitive business that you intend to start after leaving your current employer with the clients of your current employer. While obvious I will say it anyway: do not steal an opportunity from your current employer for a competing business that you run, own or for which you will be compensated. In both New York and Connecticut, you owe your employer your full loyalty, which means you do your employer’s business and only its business during company time, until the day you quit. If you breach your duty of loyalty in this regard in New York you can be liable in the amount of any profits that should have gone to your ex-employer and/or the amount of compensation that you received while being disloyal. In Connecticut, your liability will more likely limited to the former (lost profits).
Remember that companies these days are ready to sue. Consult with an attorney when you are moving to a new employer, especially if you signed a covenant not to compete and/or solicit.
Disclaimer: Cardi & Edgar LLP provides this information as a service to clients and other friends for educational purposes only. It should not be construed or relied on as legal advice or to create a lawyer-client relationship. Attorney Advertising.