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Amendments to the New York State Adjustment and Retraining Notification Act (“WARN Act”) adopted in June 2023 are now in effect. The amendments expand the scope of the WARN Act. 

The WARN Act requires covered businesses to provide 90 days’ notice prior to mass layoffs or closures to all affected employees and employee representatives, as well as to the Commissioner of Labor and Local Workforce Development Boards. The WARN Act currently applies to private businesses with 50 or more full-time employees in New York. Currently, the Act covers:

• Closings affecting 25 or more employees,
• Mass layoffs involving 25 or more full-time employees, as long as the 25 or more employees make up at least one-third of all employees at the place of employment, and
• Mass layoffs involving 250 or more full-time employees.

The amendments expand the WARN Act in large part as follows:

• Employers covered include any business that employs 50 or more employees, whether or not they are full-time.
• The scope of employees that counts toward the 20-employee threshold for a “mass layoff” is expanded to include remote employees (in comparison to currently only including the employees “at” the site of employment), both part-time and full-time employees, employees who resign in anticipation of a facility closing, and employees placed on furloughs lasting more than three months (currently only applies to furlough that is for more than six months).
• New process by which employers seek an exception from the 90-day notice period requirement. The employer must submit certain required documentation demonstrating eligibility for the exception to the Commissioner of Labor, who will then decide whether an exception is warranted.
• The “unforeseeable business circumstances” exception to the notice requirement has been amended to include public health emergencies, such as a pandemic “that results in a sudden and unexpected closure” as an additional situation that may excuse full compliance with WARN.
• Notices can be provided electronically.

In addition to the governmental entities that already must receive notice, the employer must also notify (1) the chief elected official of the unit of local government, (2) the school district[s] where the site of employment is located, and (3) the locality that provides police, firefighters, and other emergency services where the employment site is located.

Moreover, employers are now required to give notice even when:

• The employer’s actions were due to a physical disaster or an act of terrorism,
• The employer was actively seeking capital or business at the time notice was required,
• The need for notice was not reasonably foreseeable, and
• The closure or mass layoff was due to a natural disaster.

In lieu of notice, severance may be paid to employees, subject to a number of conditions:

• There must be an employment agreement or a uniformly applied company policy that requires that the employer give the employee a definite period of notice before a layoff or separation.
• The employee must be laid off or separated without the required notice.
• The employer must pay the employee a sum equal to the employee’s regular wages and the value of the costs of any benefits, or an amount computed in accordance with a formula based on the employee’s past earnings and benefits costs, for the required period of the notice.

Please contact our office with any questions about labor and employment matters.

As CMM’s legal blog has previously explored, last fall the U.S. Department of Labor proposed an independent contractor rule under the Fair Labor Standards Act (“FLSA”), which would undo the current rule put in place by the Trump administration in 2021 (the “Proposed Rule”). After conducting a notice and comment period, the Department of Labor is currently finalizing the Proposed Rule. What does this mean for your business? Read on for what employers need to know about the new rule.

1. What is the current test to determine what constitutes an independent contractor under the FLSA?

The distinction between independent contractors and employees is important because under the FLSA, employees are entitled to minimum wage, overtime pay, and other benefits, while independent contractors are not.[1]

Under the current rule, there is a five-factor test for determining whether an individual is an independent contractor or employee. The test evaluates:

• the nature and degree of control over the work;
• the worker’s opportunity for profit or risk of loss;
• the amount of skill required for the work;
• the degree of permanence of the working relationship; and
• whether the work is an integral part of the purported employer’s business.

This test considers the first two factors to be the most important, while the remaining three factors are considered less important. In other words, if an individual exercises substantial control over the work, or has a substantial opportunity for profit, or risk of loss, the individual will likely be classified as an independent contractor, without considering the other factors. This is significant because the current test makes it easier for employers to classify workers as independent contractors.

2. What is the test to determine what constitutes an independent contractor under the Department of Labor’s Proposed Rule?

According to the Proposed Rule, the test for determining whether an individual is an independent contractor or employee would consist of six factors. Unlike the current rule, rather than any factor(s) weighing more than the others, the Proposed Rule looks at the totality of the circumstances. This test evaluates:

• the nature and degree of the potential employer’s control;
• the permanency of the worker’s relationship with the potential employer;
• the amount of the worker’s investment in facilities, equipment, or helpers;
• the amount of skill, initiative, judgment, or foresight required for the worker’s services;
• the worker’s opportunities for profit or loss; and
• the extent of integration of the worker’s services into the potential employer’s business.

Most notably, the Proposed Rule adds an additional factor which considers the amount of the worker’s investment in facilities, equipment, or helpers, the lack of which makes it is more likely to be considered an employee. As a result, this new test would make it more difficult for workers to be classified as independent contractors. For example, even if an individual exercises substantial control over the work, or has a substantial opportunity for profit, or risk of loss, the individual may still be considered an employee, depending on the other four factors.

3. The Takeaway

Although the Proposed Rule may be subject to change prior to a final decision, business owners should remain aware of the new distinctions to avoid investigations by the Department of Labor should their independent contractors be reclassified as employees. Business owners should conduct an annual internal audit to make sure that all workers are properly classified. Please note that New York State law may have more stringent tests than the test proposed by U.S. Department of Labor.

Please contact our office to discuss your specific business situation.

Thank you to Michael Nadeau for his research and writing assistance.

[1] Allen Smith, DOL Will Issue New Independent-Contractor Proposed Rule, SHRM, June 6, 2022, https://www.shrm.org/resourcesandtools/legal-and-compliance/employment-law/pages/dol-will-issue-new-independent-contractor-proposed-rule.aspx.

New York City has joined a growing number of cities to ban discrimination based on height and weight.[1] In early May, the NYC Council passed Intro 209-A[2] (the “Bill”) in an effort to ban discrimination based on height and weight in employment, housing, and public accommodations. On May 26, 2023, Mayor Eric Adams signed the Bill into law, which will amend Section 8-101 of NYC’s Human Rights Law, adding height and weight to the list of characteristics the city has already protected against discrimination. The law will go into effect on November 22, 2023.

In the employment realm, the law bars employers from discriminating based on height or weight by (i) misrepresenting the availability of an employment opportunity, (ii) refusing to hire or employ an applicant, (iii) discharging a person, or (iv) discriminating against a person in compensation or in terms, conditions, or privileges of employment. Additionally, an employer may not circulate any application for employment which expresses any limitation based on height or weight, among other things.[3]

The law does carve out exceptions. Employers may consider the height or weight of an applicant when:[4]

• required by federal, state, or local law or regulations, or
• permitted by regulation adopted by the NYC Commission on Human Rights identifying particular jobs or categories of jobs for which (a) a person’s height or weight could prevent them from performing the essential duties of the job, and (b) the Commission has not found alternative action that an employer could reasonably take to allow persons who do not meet the height or weight requirement to perform the essential duties of the job or category of jobs, or
• permitted by regulation adopted by the Commission identifying particular jobs or categories of jobs for which consideration of height or weight requirements is reasonably necessary for the execution of the normal operations of the employer.

Furthermore, even when no exception applies, an employer may still assert an affirmative defense that:[5]

• a person’s height or weight prevents the person from performing the essential duties of the job, and there is no alternative action available that the employer could reasonably take that would allow the person to perform the essential duties of the job, or
• the employer’s decision based on height or weight requirements is reasonably necessary for the execution of the normal operations of the employer.

With the law’s effective date rapidly approaching, NYC employers should revisit their anti-discrimination policies, as well as train their hiring teams on compliance with the new law. Please contact us with any questions you may have.

Thank you to Keith O’Brien for his writing and research assistance.

[1] Other cities include Binghamton, San Francisco and Washington D.C.  Legislation to ban weight and height discrimination have also been introduced in states including New Jersey and Massachusetts.

[2] https://legistar.council.nyc.gov/LegislationDetail.aspx?ID=5570369&GUID=DF289A07-73A5-4AFE-8932-7EA5D1FA6577&Options=&Search=

[3] Other things include age, race, national origin status, marital status, gender, etc.  See note 2.

[4] See note 2.

[5] See note 2.

Non-compete agreements could soon be a thing of the past in New York. This month, the New York State Senate and then Assembly passed legislation banning provisions in employment contracts that restrict where the employee may work after their employment ends. The bill, A1278B/S3100A,[1] is now heading to Governor Hochul’s desk for signature. If signed into law, it would go into effect on the 30^th day after it becomes law and would prospectively apply to contracts entered into or modified on or after that date. However, if Governor Hochul does not sign the bill or proposes any amendments to it, it may not become law until next year when the New York Legislature reconvenes. 

What the Proposed Law Bans

Under the proposed law, a non-compete agreement is defined as “any agreement, or clause contained in any agreement, between an employer and a covered individual that prohibits or restricts such covered individual from obtaining employment, after the conclusion of employment with the employer included as a party to the agreement.”[2] The proposed legislation would prohibit employers from seeking, requiring, demanding, or accepting non-compete agreements with any “covered individual” regardless of their position and/or salary. The bill would not prohibit employment contracts that restrict “covered individuals” from disclosing trade secrets or confidential information, or from soliciting the employer’s clients, so long as the agreement “does not otherwise restrict competition in violation of this section.”[3] 

Moreover, a covered individual is defined as “any other person who, whether or not employed under a contract of employment, performs services for another person on such terms and conditions that they are, in relation to that other person, in a position of economic dependence on, and under an obligation to perform duties for, that other person.”[4] The language suggests that the restrictions could apply to both employees and independent contractors. 

The proposed law does raise some questions for business owners. While it does allow prohibitions on the non-solicitation of an employer’s clients that the covered individual learned about during employment, it is silent on whether agreements may contain prohibitions on the non-solicitation of employees. Additionally, there is no evidence that the bill is intended to restrict the use of non-compete provisions in a sale-of-business transaction.

Private Enforcement of Non-Competes

In addition to the ban on non-compete agreements with covered individuals, the bill also would provide a covered individual with a private cause of action[5] with a two-year statute of limitations that runs from the later of  “(i) when  the  prohibited  non-compete  agreement  was  signed; (ii) when the covered individual learns of the prohibited non-compete agreement; (iii) when the employment or  contractual  relationship  is  terminated;  or (iv) when the employer takes any step to enforce the non-compete agreement.”[6] 

Additionally, courts would be granted the jurisdiction to void any unlawful non-compete agreement, enjoin the conduct of any person/employer, award lost compensation damages and reasonable attorneys’ fees, and order the payment of liquidated damages (which would be required under the current language of the proposed law). However, such award of liquidated damages would be capped at $10,000.

Distinctions from the Proposed Ban on Non-Competes Published by the Federal Trade Commission

New York is following the trend of other states, as well as the Federal Trade Commission (the “FTC”), in adopting restrictions on non-compete agreements. However, there are a few noteworthy distinctions between this bill and the proposed ban on non-competes published by the FTC earlier this year. Unlike the FTC’s proposed rule, the potential New York law:

• has no sale-of-business exception, which generally applies to mergers and acquisitions,
• would not require rescission of existing non-competes, and
• would not require employers to provide covered individuals with notice that their non-compete agreements have been voided.

Please contact us with any questions.

Thank you to Keith O’Brien for his research and writing assistance.

[1] https://www.nysenate.gov/legislation/bills/2023/A1278/amendment/B

[2] New York Senate Bill S3100A § 191-d(1)(a).

[3] New York Senate Bill S3100A § 191-d(5).

[4] New York Senate Bill S3100A § 191-d(1)(b).

[5] In this case, a private cause of action allows a private plaintiff to bring a legal action based directly on a statute in order to recover damages.

[6] New York Senate Bill S3100A § 191-d(4).

Since the 1996 decision In re Caremark International, the duty of oversight has been applied only to the directors of a corporation. The duty of oversight requires directors to make a good faith effort to ensure that an adequate internal corporate information and reporting system exists. This system is required so directors can “reach informed judgments concerning both the corporation’s compliance with law and its business performance.”[1]

Recently, the Delaware Court of Chancery (the “Court”) held for the first time that the concept of the “duty of oversight” applies not only to corporate directors, but to corporate officers as well. Additionally, the Court broadened a corporate officer’s “duty of loyalty” when it ruled that a corporate officer’s engagement in sexual harassment of employees itself violates the duty of loyalty. The holding raises issues that should prompt Delaware corporations to reconsider their reporting systems in place and protections available to their corporate officers.

In the case of In re McDonald’s Corp., the Court denied the motion of David Fairhurst, former McDonald’s executive vice president and global chief people officer, to dismiss a derivative[2] lawsuit against him brought by McDonald’s shareholders. The shareholders alleged that the former vice president violated his fiduciary duties by allowing a corporate culture to develop that condoned sexual harassment and misconduct. In his executive role, Fairhurst was accused of failing to put a stop to workplace harassment. The plaintiffs filed a long list of “red flags” that Fairhurst allegedly ignored or was responsible for, including an atmosphere that condoned male employees engaging in inappropriate behavior toward their female co-workers.  He was also directly accused of sexually harassing female employees.

When analyzing a corporate officer’s duties to the corporation in this context, the Court held that the duty of oversight owed by officers is scrutinized under the same two-prong test used in Caremark that applies to directors. Specifically, officers “must make a good faith effort to ensure that information systems are in place so that officers receive relevant and timely information that they can provide to the directors.”[3] Further, officers “have a duty to address [red flags they identify] or report upward.”[4]

Applying the Caremark test, the Court held that the plaintiffs had a valid claim against Fairhurst because he breached his duty of oversight “by consciously ignoring red flags” of a culture congested with sexual harassment and misconduct.[5] The Court reasoned that officers are best situated to identify and address red flags or report them to the board of directors since their role as officers requires them to be involved with the day-to-day operations of the corporation. For “red flags” claims to be successfully pleaded against officers, the Court noted that a plaintiff must plead sufficient facts to support an inference that the officer not only knew of evidence of corporate misconduct, but also that the officer consciously failed to take action in response to such misconduct.[6]

Moreover, the Court held that an officer also violates the separate duty of loyalty when they engage in sexual harassment of employees. The Court explained that sexual harassment by a corporate officer is in furtherance of a private interest rather than “advancing the best interests of the company.[7] Sexual harassment is bad faith conduct, and thus disloyal conduct, with respect to their responsibilities as an officer of the corporation.Because harassment is per se not in the corporation’s best interests and disloyal conduct subjects the corporation to liability, it is a violation of the duty of loyalty and is actionable under the law.[8]

This decision demonstrates that Delaware courts continue to align the duties that are owed by corporate officers with those of directors. However, it also raises some questions about the scope of the additional duties imposed on officers of Delaware corporations. For instance, what if the corporation has a sufficient reporting and information system in place, but it failed to detect an officer embezzling money. Would the other officers be found to have violated their duty of oversight? 

Although the trajectory of the case’s impact is unclear, Delaware corporations should consider how they assess risk monitoring, reporting, and compliance systems currently in place, as well as protections available to corporate officers, such as directors’ and officers’ liability insurance.

Please contact us with any questions.

Thank you to Keith O’Brien for his research and writing assistance.

[1] In re Caremark International Inc., 698 A.2d 959, 970 (Del. Ch. 1996).

[2] A derivative lawsuit refers to one or more shareholders bringing an action on behalf of the corporation against a third party, generally the officers or directors of the corporation, to remedy harm done to the corporation.

[3] In re McDonald’s Corp., No. 2021-0324 at 11* (Del. Ch. Jan. 26, 2023).

[4] Id. at *12.

[5] Id. at *27.

[6] Id. at *32.

[7] Id. at *28.

[8] Id. at *30.