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What Employers Need to Know About New York City’s “Salary Transparency Law”

Posted: November 8th, 2022

By: Vincent Costa, Esq. email, Zachary Mike, Esq. email

As of November 1, 2022, all employers advertising jobs in New York City are now required under the Salary Transparency Law (“Law”) to include a good faith salary range for every job, promotion, and transfer opportunity advertised. This new law, which amends the New York City Human Rights Law (NYCHRL) and is enforced by the New York City Commission on Human Rights (NYCCHR), subjects employers advertising jobs in New York City to a series of additional requirements when posting job advertisements.

What is the Salary Transparency Law?

It is now considered an unlawful discriminatory practice in New York City to advertise a job, promotion, or transfer opportunity without including in the advertisement the employer’s good faith minimum and maximum range of base salary or wage the employer believes at the time of the posting it would pay for the advertised position. Similar legislation is currently pending in the New York State legislature.

Who is covered by the Law?

(i) Employment agencies, regardless of their size, and (ii) all employers with four or more employees or one or more domestic workers are covered by the Law, as long as at least one of the employees works in New York City.
The four employees do not need to work in the same location, and they do not need to all work in New York City.
The Law also applies to postings for either fully remote or hybrid positions, if the position can or will be performed in New York City, in whole or in part, whether from an office, in the field, or remotely from the employee’s home.

What kind of job postings are covered?

An “advertisement” is broadly defined to capture any written description of an available job, promotion, or transfer opportunity that is publicized to potential applicants, regardless of the method of dissemination. For example, “covered listings” of advertisements include, but are not limited to, postings on internal bulletin boards, internet advertisements such as on LinkedIn and ZipRecruiter, printed flyers, and newspaper advertisements.
The Law not only covers advertisements that seek full- or part-time employees, but also interns, domestic workers, and independent contractors.
Excluded job postings include temporary employment or positions that cannot, and will not, be performed in New York City (even if the employee lives there) – for example, an in-person role on Long Island.
- Furthermore, the Law does allow employers to hire or continue hiring without using an advertisement. It does not compel employers to create an advertisement as a condition of hiring.
- For instance, if a covered employer who is not advertising any job postings decides to directly reach out to a prospective candidate, such as via referral or “word of mouth,” then such action is permissible under the Law.

How does the pay range posting work?

Employers must state the minimum and maximum salary range (the range cannot be open-ended) they in good faith believe at the time of the posting they are willing to pay for the advertised job, promotion, or transfer opportunity. “Good faith” is defined as the salary range the employer truly believes at the time they are listing the job advertisement that they are willing to pay prospective employees.
- For example, “$15 per hour and up” or “maximum $50,000 per year” would be too open-ended and not be consistent with the new requirements.
Advertisements that cover multiple jobs, promotions, or transfer opportunities can include salary ranges that are specific to each job opportunity.
Salary includes the base annual or hourly wage or rate of pay, regardless of the frequency of payment. For example, it would include an hourly wage of $15 per hour or an annual salary of $50,000 per year.
Nevertheless, employers are not required by the new Law to include information in the job advertisement regarding other forms of compensation or benefits offered in connection with the advertised job opportunity, such as health insurance, PTO, severance pay, overtime pay, commissions, or bonuses.

How is the Law enforced?

The NYCCHR enforces the law by accepting and investigating complaints from the public regarding alleged violations of the Law.
Covered employers who are found to have violated the NYCHRL may have to pay monetary damages to affected employees, amend advertisements and postings, create or update policies, conduct trainings, provide notices of rights to employees or applicants, and engage in other forms of affirmative relief.
Employers are given a first warning for failure to comply with the Law, provided that the employer shows they have cured the violation within 30 days of receiving the NYCCHR’s notice of the violation. Failure to cure a first violation may result in civil penalties of up to $250,000.00 as well as for any subsequent violations.

Please contact us for guidance or with any questions.

For additional information, please visit:

https://www1.nyc.gov/assets/cchr/downloads/pdf/publications/Salary-Transparency-Factsheet.pdf

EEOC Replaces Required Workplace Poster

Posted: November 1st, 2022

By: Christine Malafi, Esq. email, Zachary Mike, Esq. email

Tags: labor & employment

After over 10 years without an update (the last update being November 2009), the U.S. Equal Employment Opportunity Commission (EEOC) has replaced the familiar “Equal Employment Opportunity is the Law” poster hanging in the breakrooms of most covered employers[1] with the new “Know Your Rights: Workplace Discrimination is Illegal” poster. EEOC regulations require covered employers to post notices that summarize the rights of employees and union members under applicable federal anti-discrimination laws enforced by the EEOC. [2]

The new EEOC poster contains a QR code for applicants or employees that links directly to instructions on how to file a charge of workplace discrimination with the EEOC, a copy of which can be found at the EEOC’s webpage here, along with information on where to display the poster.

The new poster is touted as containing “plain language” that makes clear that harassment is a form of discrimination, and as making it “easier for employers to understand their legal responsibilities and for workers to understand their legal rights and how to contact EEOC for assistance.”

Further, the new poster makes it clear that sex discrimination includes discrimination based on pregnancy and related conditions, sexual orientation, or gender identity, and contains information about equal pay discrimination for federal contractors.

The poster is currently available in both English and Spanish and will soon be available in additional languages.

Employers should hang the posters in a conspicuous location in the workplace where notices to applicants and employees are customarily posted. The EEOC also “encourages” employers to post the notice digitally on their websites to supplement the physical posting requirement. The federal Americans with Disabilities Act also requires that the poster be placed in a location accessible to applicants and employees with disabilities that limit mobility.

There are fines for noncompliance, which are currently capped at $612 for each separate offense.[3] Accordingly, employers should print and post the posters to be in compliance with the law. Please contact us for guidance or with any questions.

[1] A “covered” employer is defined under federal law as an employer with fifteen or more employees. 42 U.S.C. 2000e(b).

[2] 29 CFR 1601.30(a).

[3] 29 CFR 1601.30(b).

What Is an “F” Reorganization?

Posted: October 25th, 2022

By: Zachary Mike, Esq. email

Tags: corporate, M&A

If you have considered purchasing or selling a business treated as an S corporation, you may have heard about structuring the deal as an “F” reorganization for tax purposes. But what exactly is an “F” reorganization and what are its tax consequences?

An “F” reorganization is a type of qualifying tax-free reorganization for corporations under Section 368(a)(1)(F) of the Internal Revenue Code (IRC) that changes the identity or form of a corporation. To satisfy the requirements of this nonrecognition event, a transaction must meet one of the statutory definitions of a “reorganization” while retaining the same essential ownership structure. Private equity firms often take advantage of the “F” reorganization as a means of acquiring an S corporation without engaging in a lengthy consents process while simultaneously gaining the tax benefits of a deemed asset sale.

Congress created the S corporation (small business corporation) in 1958, which provides one level of income tax, passed through to its owners at the individual level. However, S corporations are subject to several limitations, chief among them a limit on the number of shareholders (who must be natural, living persons), capped at 100. Thus, S corporations continue to be a popular tax election for closely held corporations due to their liability protection and tax benefits. Accordingly, many of the closely held businesses that private equity firms wish to acquire are S corporations.

To effectuate an “F” reorganization under the IRC, the IRS has identified the following steps and timing to comply with the proper use of the IRC’s provisions:

The owners of the original S corporation (OldCo) form another corporation (NewCo) that they will elect to be treated as an S corporation under Section 1362(a) of the IRC. While this election is not required for NewCo since OldCo’s s corporation election will remain in effect, NewCo will need to conduct such election to obtain a new employer identification number (EIN). (Diag. A)
The owners of OldCo then transfer 100% of the issued and outstanding shares in OldCo to NewCo in exchange for 100% of the issued and outstanding shares of NewCo. As a result of this contribution and exchange of shares, the owners will own 100% of the issued and outstanding shares of NewCo while NewCo itself owns 100% of the issued and outstanding shares of OldCo. (Diag. B)
Once the contribution and exchange are completed, the owners of NewCo will form a limited liability company (LLC).
NewCo will cause OldCo to make a “qualified subchapter S subsidiary” (QSub) election within the meaning of the IRC to treat OldCo as a disregarded entity for income tax purposes, without being subject to the typical constraints on an S corporation. This reorganization is then followed by the conversion of the OldCo to an LLC via state law merger or conversion, depending on the state’s applicable statutory provisions. (Diag. C)
After the companies merge or convert, the final structure prior to the sale will have the owners owning 100% of the issued and outstanding shares of NewCo, which in turn owns 100% of the equity interest in the LLC.

Due to this reorganization permitted by Section 368(a)(1)(F) of the IRC, the owners of NewCo can now sell the equity of their LLC instead of the equity of the S corporation, which would have been legally prohibited from selling its interest to another business entity. Since the LLC is treated as a division of its parent S corporation, the sale of an interest in a QSub is treated as a sale of an undivided interest in its assets for federal income tax purposes (corresponding to the amount of stock sold), which provides the buyer with a “step-up” in the basis of the acquired assets equal to the amount paid for the LLC’s equity interest, to be used for depreciation and amortization purposes. However, there are several strategies sellers can take to reduce the potential increased tax liability associated with a deemed asset sale including:

requesting a “gross-up” from the buyer in the purchase price to compensate the seller for any tax exposure they may incur as a result of not being able to instead sell the equity and be subject to capital gains tax.
offering the seller “rollover” equity in the selling company to soften the tax consequences to the seller.

While navigating the complexities of an “F” reorganization may seem daunting, working with an experienced M&A attorney will demystify the process. Please contact us for guidance or with any questions.

This article is for informational purposes only. For tax advice or guidance, please consult your accountant directly.

The U.S. Treasury’s Call for Transparency: What Small Businesses Need to Know

Posted: October 13th, 2022

By: Christine Malafi, Esq. email

As of January 1, 2024, most U.S. businesses with fewer than 20 employees will have to register with the Financial Crimes Enforcement Network (FinCEN) of the U.S. Treasury Department.[1] Read on for what your business needs to know about this new obligation.

The Corporate Transparency Act

In 2021, the Corporate Transparency Act[2] was enacted as part of the National Defense Authorization Act in an effort to better enforce anti-money laundering laws. The law seeks to make it more difficult for business owners to hide unlawfully obtained assets, hide identities, and launder money through the financial system of the United States. The law is also intended to make corporate ownership more transparent. The law became fully effective on September 29, 2022, when the final regulations were issued.[3]

This federal law requires certain business owners to provide the federal government with specific details on the owners of the business, as well as on other persons who benefit from the business operations. A business that must report is called a “Reporting Company,” which the Act defines as a “corporation, limited liability company, or other similar entity that is created by the filing of a document with a Secretary of State or a similar office under the law of a State or Indian Tribe” (so sole proprietorships or partnerships that are not separate entities do not need to report). However, an entity formed outside the United States which registers to do business in a State is subject to the law.

Who Reports What?

Reporting (at approximately $85 per business) is required of those U.S. corporations, LLCs, or similar entities with 20 or fewer employees. Why is 20 employees the threshold? It is believed that most shell companies being used to hide unlawful assets have few, if any, employees.

The largest exemption from filing is believed to be “large operating companies,” those with more than 20 employees, operating in the U.S. (from a physical business address, not a home office) with over $5 million in sales or gross receipts. Additionally, banks, credit unions, insurance companies, accounting firms, public utilities, governmental authorities, security brokers, and others who report ownership to the government under other laws are exempt from registration under the Act.

Existing, active businesses covered by the Act will have one year to report:

the company name, trade name(s), business address, state of formation, Employer Identification Number (EIN), and
the name, date of birth, residential or business street address, and one unique identification number (i.e., driver’s license, passport, government issued identification) with a copy of the document from which it came, of all “Beneficial Owners,” people who own, substantially control, or create the company (the “company applicant”).

Businesses must make the initial filing, then again every time there is a change in Beneficial Owner status.

Beneficial Owners

A Beneficial Owner is any person who, directly or indirectly, owns or controls 25% or more of the entity, or who exercises substantial control over the entity. Substantial control is defined to include any person who serves as a senior officer, has authority to appoint or remove senior officers or members of the board of directors, or who provides direction or makes decisions about a company’s “important matters.” The ownership or control that triggers reporting obligations may exist in not only corporate or business governance documents, but also through separate contracts, arrangements, relationships, or understandings.

However, Beneficial Owners are not minor children (assuming the child’s parents/guardians are reported), an individual acting solely on behalf of another person (an agent, nominee, custodian, etc.), a non-owner employee of the entity, creditors, or individuals with inheritance interests only.

Penalties

Any changes in Beneficial Owner statuses must be reported within 30 days of the change.

Penalties for willful non-reporting are both civil ($500 per day) and criminal (up to two years in prison and/or a $10,000 fine). The Reporting Companies are required to comply with this reporting law, not the Beneficial Owners themselves. These are most definitely safe harbors, which permit the sidestepping of liability for failure to report.

Safeguarding of Information

The U.S. Treasury Department is tasked to create a database to house the personal information of what is believed to be over thirty million businesses throughout the country.

The database will be accessed only by law enforcement, banks, and the government. FinCEN is responsible for safeguarding the financial system of the United States from illegal activity, including not only money laundering, but also fraud, corruption, and financing of terrorist activities. Ironically, a law intended to combat fraud may lead to potential concerns about safeguarding the sensitive information collected.

For further guidance, compliance information, and updates, please contact us.

[1] According to the New York State Department of Labor figures, in 2021 90% of all businesses on Long Island had between one and 19 employees.

[2] For full text of Act, see https://www.congress.gov/116/bills/hr2513/BILLS-116hr2513rfs.pdf.

[3] See https://bostontaxinstitute.com/wp-content/uploads/2022/09/boston-tax-institute-public-inspector-regs.pdf and generally https://www.fincen.gov/beneficial-ownership-information-reporting-rule-fact-sheet.

Transferring a Liquor License in New York State May Give Your Business a Hangover. Let Us Help!

Posted: August 8th, 2022

By: Christine Malafi, Esq. email

When buying or selling a business with a liquor license, many owners assume that they can simply transfer the license from one owner to another. In New York, the transfer of liquor licenses is not so simple. The New York State Liquor Authority (NYSLA) does not allow the direct transfer of a liquor license from one business to another. With the backlog of state and federal agencies, it is important to get started on this process as soon as possible.

To transfer the liquor license, the new owner of the business must go through the same process of applying for a license as the previous liquor license owner did. There are four main groups of liquors licenses, and each license type has its own set of application requirements. Generally, an application for a liquor license includes the application form, proof of citizenship and photo identification for each principal, the lease or deed and photos of the premises, and financial documents. When the application is necessitated by a transfer of the business assets related to the use of the liquor license, the contract of sale of the business must be included as well.

The transfer laws are different for New York City businesses than the rest of the state. Any establishment located in one of the five boroughs must send the prior notice of their application to their corresponding NYC Community Boards. Each borough has its own respective Community Board. Outside of New York City, local municipalities must be notified 30 days prior to the submission of a liquor license application that a person or entity intends to operate a business that needs a liquor license.

The NYSLA must approve the changes in advance if your business corporation or limited liability corporation is changing its corporate structure (i.e., adding or removing an officer or director, adding or removing a managing member, a change in the stockholders or the members, or any change in the stock or membership units held by an existing stockholder or member). However, no approval is needed if there are ten or more stockholders or members, the change involves less than 10% of the stock or ownership interest, and none of the existing stockholders or members with less than a 10% interest have their interest increased to 10% or more.

Be aware that the process for the transfer of license approval may take a long time to process. To help speed along the application process, the NYSLA has an attorney Self-Certification Program, where attorneys filing retail applications for a client can certify that statements and documents provided in the application are true and accurate and that the application meets all the statutory requirements.

The NYSLA’s Community Board FAQ provides detailed information on most requirements for applying for and transferring a liquor license. The experienced attorneys here at CMM are ready to help you through this process as your business evolves, along with any other business transaction needs.

Contact us today for more information.

Thank you to Ashley Cohen, Esq. for her contributions to this article.

Effects of Inflation on M&A Deals

Posted: July 19th, 2022

By: Marc Saracino, Esq. email

Tags: M&A

Long-lasting inflation is always a top concern because it decreases the value of currency and weakens the purchasing power of the American dollar. Since 2021, inflationary rates in the United States have increased at a much faster rate than predicted and central banks across the globe are reacting by raising interest rates.[1] Simultaneously, supply chain risks and production prices are increasing.[2] It may be obvious, but these consequences of influence M&A deals and the valuations of target companies. If you are debating on whether to initiate a sale, merger, acquisition, or other similar transaction, or if you have already decided to move forward and are currently in the midst of negotiating a deal, it’s important to understand the various effects that inflation has on M&A deals.

Common Effects on M&A Deals

As inflation continues to rise, buyers and sellers should expect to see more heavily negotiated purchase prices, alternative payment methods, and longer exclusivity periods.[3]

Lower Purchase Prices: The cost of operating a business will increase with inflation and, if buyers cannot mitigate the impact of these costs, then they may begin to offer lower purchase prices.[4] This was evident in February 2022, when the M&A deal value declined by 74.4%.[5] Buyers may be aware of this trend and use it as a negotiation tactic. Sellers should work closely with their attorneys to discuss these tactics and factor in a purchase price buffer to account for such negotiations.
Alternative Payment Methods: Inflation also increases the costs of interest rates, causing buyers to propose alternative payment structures. In times of inflation, a buyer is less willing to pay cash at the time of closing. In these situations, sellers should work closely with their attorneys to negotiate alternative payment methods such as installment payments, promissory notes, earnout/revenue milestone payouts, rollover equity and/or payment via other equitable assets.[6] In many cases, sellers’ attorneys will condition the deal on buyer’s ability to obtain satisfactory financing.[7]
Exclusivity Periods: Buyers always want to understand the company’s pricing arrangements with its suppliers and the contracting parties’ ability to amend the terms of the agreement; however, this becomes even more critical during times of inflation. Therefore, sellers may start to notice buyers requesting longer exclusivity periods to give the buyers time to perform a more detailed due diligence review.[8]

How to Avoid the Negative Side Effects of Inflation

Inflation may deter buyers from offering higher purchase prices because they may worry that the ultimate payout won’t be as good as it would be in a non-inflationary scenario. However, in many cases, sellers can work with their accounting and legal advisors to demonstrate that their rate of profit growth will outpace the rate of inflation.[9] Sellers may choose to provide that data in terms of units sold and/or the dollar value. [10]

Ultimately, inflation matters in deals, especially when inflation rates are high and the duration of the inflationary period is long term. Inflation may be a concern when it comes to deal discussions; however, it should not derail the sale process. Buyers and sellers should work closely with attorneys to understand the potential implications of inflation on their M&A deals and to make sure they are negotiating the proper purchase price.

Thank you to Kimberly Lee for her research and writing assistance on this article.

[1] Tom Manion, Principal, Valuation & Capital Market Analysis, BDO (May 2022), https://www.bdo.com/insights/industries/technology/how-interest-rates,-inflation,-and-geopolitical-un

[2] Id.

[3] Ana Calves, The Potential Impact of Inflation on M&A, Mergers & Acquisitions (June 7, 2022), https://www.themiddlemarket.com/opinion/the-potential-impact-of-inflation-on-ma

[4] Calves, supra note 3.

[5] Brian Scheid, Peter Brennan, & Annie Sabater, Inflation Puts Dent in M&A After White-Hot 2021, SPA Global (Apr. 4, 2022) https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/inflation-puts-dent-in-m-a-after-white-hot-2021-69551549.

[6] Calves, supra note 3.

[7] Id.

[8] Id.

[9] Michael Collins, How Does Inflation Affect an M&A Deal, ProSales (Apr. 5, 2021) https://www.prosalesmagazine.com/business/how-does-inflation-affect-an-m-a-deal_o

[10] Id.

Navigating Your Commercial Lease Agreement During Inflation

Posted: June 22nd, 2022

By: Arthur Yermash, Esq. email

Tags: commercial litigation, landlord-tenant

Updated July 21, 2022, as published in Law360
https://www.law360.com/real-estate-authority/articles/1512083/negotiating-a-commercial-lease-agreement-during-inflation

Rising inflation is influencing virtually every aspect of life. For commercial landlords and tenants alike, it is more important than ever to focus on rent escalation provisions in your commercial lease agreement.

Instead of fixed and consistent increases in rent, some commercial leases provide for rent to increase in line with certain economic metrics: for example, the consumer price index. This is especially relevant as it relates to tenant renewal options. Where inflation is especially notable, as has been the case this year, rent increase formulas that rely on economic metrics to calculate an increase in rent may yield unexpectedly high rent for a commercial tenant, and may result in an unexpected windfall for a commercial landlord. Since the commercial real estate market relies on certain market equilibrium, unexpected or unanticipated increases in formulaic rent may have unintended disruptive market consequences. Focusing on these issues now will help minimize disputes and non-payment for commercial landlords and business risk for commercial tenants.

Negotiating Your Commercial Lease Agreement

For commercial landlords, protecting property interests and maintaining consistent profitability are two focal points when drafting and negotiating a commercial lease agreement. For commercial tenants, managing risk and expense (as well as minimizing future rent increases) is a vital part of negotiating a commercial lease agreement. Inflation and rent escalation clauses that are tied to economic metrics go hand in hand – when inflation rises, rents rise along with it. While inflation is not a new economic concept, rising inflation at exceedingly high percentages creates unanticipated results for all involved.

Clarity on rent and rent increase is an integral part of any lease. Most commonly, commercial leases provide for annual rent increases at a fixed rate. Sometimes, these increases are not annual, but every few years. Where things become more complex is when increases are tied to economic metrics. As we address the four common commercial lease rent structures, it is important to think about these in the context of periods of high inflation.

Most commercial leases use a combination of methods to provide for escalation various rental components.

Common Forms of Rent Escalation

Fixed Increases (also known as Stepped or Percentage Increases) allow landlords to increase rent by a set amount at specific points in the duration of the lease agreement. This is one of the most commonly implemented for base rent and is a popular option because it is a relatively straightforward method. However, a landlord may feel cheated out of profits if costs have gone up and a tenant may feel like they lost out on potential savings if costs have gone down. This also does not account for the market environment that may be shifting throughout the lease term.
Pass Through Escalation is a form of rent escalation that is initiated only when the landlord experiences an increase in costs that have been specified in the commercial lease agreement. This is most commonly implemented in scenarios where a commercial tenant is responsible for compensating landlord for building operating expenses.
Direct Operating Cost Escalation is similar to the Pass-Through option, except here the escalation is based on the increases of all the operating costs such as utilities, security, and maintenance.
Indexed/Variable Escalation (Consumer Price Index or another inflation index) – This option allows landlords to increase rent in proportion to increases in established economic indexes. This method is commonly used when to establish rent after an initial term to adjust and align rent with the economic environment, for example, when tenant exercises a right to renew. This option may not be favorable to tenants because index increases can be very unpredictable and dramatic. In addition, while it may align with national economic trends, it may not represent local real estate economic trends.

Understanding the various rent escalation options is critical for commercial landlords and tenants negotiating new leases.

For existing leases that have rent escalations tied to inflation risk, it is critical to understand how the current economic environment will impact future rent. A common issue is whether a commercial tenant should exercise a right it may have in the lease to renew. Often, tenant renewal options provide for rent to be calculated using market metrics. Conceptually, this generally works well where the economic environment is stable, and inflation is low. In such cases, the formulaic rent escalations adjust the rent to where the market suggests it should be and mostly everyone is satisfied. However, in situations where the economic market is unstable and inflation is especially high, the formulaic rent escalations could adjust the rent to extreme amounts not expected by landlords or tenants. For tenants, this could create an increase in rental expenses beyond what may been budgeted or sustainable by the business. For landlords, this could create scenarios where multiple tenants are unable to afford the drastically increased rent, leading to higher rate of default.

Since the goal for most commercial tenants is to pay a fair market rent, while the goal for most commercial landlords is to ensure steady rent payments, the parties may be aligned in the interest of fairness. To that end, before a commercial tenant exercises any option where its rent would be significantly above market considering current market indicators, the first step would be to communicate concerns to the landlord. A reasonable commercial landlord would often welcome reasonable dialogue to find common ground to address the unintended and unexpected impact of present economic conditions. Often, a negotiated extension, while delaying exercising a right to automatically renew may be an appropriate alternative to economic index impact. Since a commercial lease has many components there are many intangibles that can be negotiated to equalize what each party may be giving up. These could include improvements to the space, longer term, and other aspects of the lease agreement. A commercial tenant may also, or as an alternative, explore other market opportunities to identify similar properties at more reasonable rent, considering buildout and moving costs.

For commercial leases being negotiated, instead of agreeing to standard provisions that directly use economic metrics to determine future rent, landlords and tenants may explore other options to mitigate against unintended results. One option is to provide for limits, or caps, on increases affected by unstable indices. Another option is to identify and use localized real estate market metrics as the basis for increasing future rent instead of using national economic metrics. By focusing more on the regional real estate market trends, the resulting rent is more likely to be better aligned with the real estate market instead of national economic trends. For multi-tenant commercial buildings, a close look at existing rents and escalations can also be a determinative metric for determining what a fair rent escalation could be. Occasionally, real estate professionals with knowledge of the local real estate environment may be used to help the parties determine the best approach. Ultimately, evaluating all aspects of lease terms to find reasonable alternative methods for determining future rent increases.

Please contact us to discuss options.

Thank you to Ashley Cohen, Esq. for her contributions to this article.

Sexual Harassment Prevention: What Municipalities Need to Know

Posted: May 19th, 2022

By: Christine Malafi, Esq. email

Tags: labor & employment, municipal

Several laws were recently enacted in New York to expand protections for victims of sexual harassment in the workplace. Here, we (1) summarize these new laws, (2) discuss specific considerations for municipalities, (3) highlight new obligations imposed on municipal contractors, and (4) outline several key requirements that all employers must utilize in the workplace.

Expansion of Sexual Harassment Prevention Laws

Definition Expansion

One recent law expanded the scope of anti-discrimination protection under New York’s Human Rights Law by amending the definition of “covered employer,” which, in turn, created a new class of protected employees. Specifically, New York State and its cities, counties, towns, villages, and other political subdivisions, are now considered employers of any employee or official, including elected officials at both the state and local level, persons serving in any judicial capacity, and persons serving on the staff of any elected official.[1]

The new law also prohibits any activity that subjects employees to inferior terms, conditions, or privileges of employment, regardless of whether the activity is severe or pervasive. Though there may be a defense if the alleged act was a “petty slight or trivial inconvenience,” neither a formal complaint nor a showing that a similarly situated employee was treated more favorably is required to sustain a harassment claim. Moreover, attorney’s fees may be awarded in all such cases.

In addition to employees, these protections also cover contractors, subcontractors, vendors, consultants, and other non-employees working or providing services in the workplace.

Confidential Hotline

Another new law,[2] effective as of July 14, 2022, launches a statewide, confidential hotline to report sexual harassment in both the public and private sectors. The hotline will be operated by the New York State Division of Human Rights, which will work with attorney organizations to recruit experienced attorneys to provide pro bono assistance to those utilizing the hotline.

Release of Personnel Records Constitutes Retaliation

An additional new law prohibits employers from releasing or “leaking” personnel records as retaliation against employees who file claims of harassment. The law also allows the attorney general, upon information and belief, to commence a proceeding in state court against employers who have violated or may violate the prohibition against retaliation.[3]

Confidentiality and Arbitration Prohibited in Some Cases

Recent legislation also establishes prohibitions against confidentiality and arbitration in certain cases. As to confidentiality, all employers are prohibited from utilizing confidentiality agreements in the settlement or resolution of any claim involving sexual harassment, unless confidentiality is the complainant’s preference. Further, the confidentiality provision must be provided to all parties, and the complainant will have 21 days to consider the provision. If the complainant agrees to the confidentiality provision, it must be stated in a separately executed written agreement, which agreement is subject to revocation by the complainant within seven days after signing.[4]

Mandatory arbitration provisions are likewise barred in contracts relating to claims of sexual harassment, except where permitted by federal law.[5] In fact, employers are only permitted to incorporate a non-prohibited clause or other mandatory arbitration provision within a contract if the parties all agree.[6]

Likewise, at the federal level, “Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021,”[7] signed by President Biden on March 3, 2022, prohibits employers from forcing workplace sexual harassment or assault claims to be resolved by arbitration, even if such an agreement was already signed. Disputes as to whether the Act applies in any given situation are to be decided by a court, not an arbitrator. Further, the Act applies to any dispute or claim that arises or accrues on or after the signing date.

Additionally, in the event of any conflict between a collective bargaining agreement and the new law, the law specifies that the collective bargaining agreement shall control.[8]

Some Municipality-Only Considerations

The expansion of sexual harassment prevention laws also imposes several municipality-specific obligations.

Municipalities, for example, are barred from defending and indemnifying employees for (1) acts committed outside of the scope of their employment; (2) intentional wrongdoing and recklessness on the part of the employee; and (3) punitive damages.

Further, pursuant to a new section of the New York Public Officers Law, both paid and unpaid employees who are adjudicated to have committed harassment must reimburse the public entity responsible for paying out the harassment claim. If the employee fails to reimburse the public entity within 90 days of the public entity’s payment of the award, the public entity can garnish the employee’s wages.[9]

Similarly, an additional amendment to New York Public Officers Law adds analogous legislation applicable to employees of New York State and its agencies.[10] Even if a municipality’s investigation reveals that the employee acted appropriately, there is always a chance that a final judgment could find that the employee was individually liable if the litigation proceeds to a hearing before an administrative agency or trial.

The question may be whether the fact that the employee may ultimately have to pay a judgment personally creates a conflict of interest in both the strategy of proceeding to trial on a case or deciding to settle, as well as in the defense of a claim.

Municipal Contractors

New legislation also imposes requirements on contractors that contract with the state, or any state department or agency, where competitive bidding is required. As of January 1, 2019, all such contractors are required to submit a certification with all bids, under penalty of perjury, that the bidder (1) has implemented a written policy addressing sexual harassment prevention in the workplace and (2) provides annual sexual harassment training to all its employees. Further, the written policy and annual training must meet the newly imposed requirements under section 201-g of the New York State Labor Law.[11] It is in the discretion of the state department or agency to require the certification of contracts for services that are not subject to competitive bidding.[12]

If the contractor fails to meet the certification requirements, it must provide a signed statement detailing the reason for its failure to do so.[13] Otherwise, the contractor’s bid will not be considered.

Takeaways

Considering the recent expansion of legislation addressing sexual harassment in the workplace, all employers, including public entities, must expend resources and educate employees on preventing sexual harassment in the workplace to avoid liability. To that end, below is a list of several key requirements that all employers should adopt in the workplace:

Adopt a model sexual harassment policy
Include a standard complaint form
Have a written procedure for the timely and confidential investigation of complaints and ensure due process for all parties
Post required notices in the workplace
Give the annual interactive training on sexual harassment to all employees (and possibly independent contractors)
Make sure supervisory employees know their responsibilities for the prevention of sexual harassment

[1] N.Y. Exec. Law § 292.

[2] N.Y. Exec. Law § 295(18).

[3] N.Y. Exec. Law § 296.

[4] N.Y. Gen. Obligations Law § 5-336.

[5] N.Y. Civ. Prac. L&R § 5003-b.

[6] N.Y. Civ. Prac. L&R § 7515(4)(b)(ii).

[7] 9 U.S.C. Chap. 4 §§ 401-402.

[8] N.Y. Civ. Prac. L&R § 7515(4)(c).

[9] N.Y. Public Officers Law § 18-a.

[10] N.Y. Public Officers Law § 17-a.

[11] N.Y. Finance Law § 139-1(1)(a).

[12] N.Y. Finance Law § 139-1(1)(b).

[13] N.Y. Finance Law § 139-1(3).

Maintaining Client Confidences: Ethical Considerations for Attorneys When Posting on Social Media

Posted: May 5th, 2022

By: Patrick McCormick, Esq. email

Published In: The Suffolk Lawyer

Tags: litigation

So, you want to brag about your latest courtroom victory or closed deal on social media.

Congrats on your win! But be mindful: unless you have informed consent from your client, any social media bragging could reveal confidential client information and result in a violation of the Rules of Professional Conduct. (Yes, even if you share information or facts in the public record such as a trial verdict.)

Maintaining Client Confidences

The New York Rules of Professional Conduct 1.6 defines confidential information as “information gained during or relating to the representation of a client, whatever its source, that is (a) protected by the attorney-client privilege, (b) likely to be embarrassing or detrimental to the client if disclosed, or (c) information that the client has requested be kept confidential.”[i] (The ethical obligations concerning client confidentiality and confidential information are distinct from the rules of the evidentiary attorney-client privilege. The intersection of attorney-client privilege and social media is not addressed in this article.)[ii]

Maintaining client confidences and confidential information applies to any and all attorney social media activity. While each situation is fact-specific, attorneys should keep a few things in mind when deciding whether and what to post on social media (and beyond).

New York Rules of Professional Conduct

Rule 1.6(a)

The rules protecting client confidential information are outlined in the New York Rules of Professional Conduct (effective April 1, 2009, and amended through June 24, 2020). According to Rule 1.6(a), a lawyer shall not knowingly reveal confidential information or use such information to the disadvantage of the client or for the advantage of the lawyer or a third person.

Rule 1.6 confirms that confidential information (as defined above) does not include a lawyer’s legal knowledge and/or research. Confidential information does not include information that is generally known in the local community or in the trade, field, or profession to which the information relates. However, as noted in the commentary to Rule 1.6, the fact that information may be part of a publicly available file or a result is in the “public domain” does not make the information “generally known.”

Under Rule 1.6(a), client confidentiality must be maintained unless:

The client gives informed consent
The disclosure is impliedly authorized to advance the best interests of the client

So if you close a deal for a high-profile client and that client gives you permission to post about it, then you can go ahead with your brag post.

However, if an attorney does not receive informed consent from their client, Rule 1.6(a) cannot be skirted by using an anonymous post that’s anything but anonymous. For example, a Twitter rant talking about client xx, her new SNL boyfriend, and her divorce from a famous rapper who sent her threats online would raise some eyebrows. That’s because while the client technically remains anonymous, there are glaring identifiable descriptors of the client. Anonymous posts must truly be anonymous. Your legal blog can’t say your client is Jim Jardashian under the guise of anonymity. A lawyer’s ethical obligations do not just disappear because an interaction occurs online.

These principles apply to all social media activity including posting on platforms such as Instagram, LinkedIn, Facebook, Twitter, Snapchat, and TikTok. But the required analysis is not limited to posting on social media; the same analysis also applies when lawyers respond to online reviews or reply to online comments, or when posting blogs or on websites. Client confidences must be maintained throughout all these different interactions, and lawyers should understand how the platforms they are using work before using them and consider if any of their online activity places client information and confidences at risk.[iii]

Rule 1.6(b)

Sometimes, a lawyer might need to reveal or use confidential information. Such disclosure is allowed only in circumstances that a lawyer believes necessary under Rule 1.6(b), which says confidential information can be revealed:

To prevent reasonably certain death or substantial bodily harm
To prevent the client from committing a crime
To withdraw a written or oral opinion or representation previously given by the lawyer and reasonably believed by the lawyer still to be relied upon by a third person, where the lawyer has discovered that the opinion or representation was based on materially inaccurate information or is being used to further a crime or fraud
To secure legal advice about compliance with these Rules or other law by the lawyer, another lawyer associated with the lawyer’s firm or the law firm
To defend the lawyer or the lawyer’s employees and associates against an accusation of wrongful conduct or to establish or collect a fee
When permitted or required under these Rules or to comply with other law or court order

But while Rule 1.6(b) sets out certain situations in which a lawyer can disclose confidential information, attorneys must consider that Rule 1.6(c) requires the lawyer to make reasonable efforts to prevent the inadvertent or unauthorized disclosure or use of, or unauthorized access to, information protected by Rules 1.6, 1.9(c), or 1.18(b). (Rule 1.6 refers to confidentiality of information as referenced above in parts a, b, and c. Rule 1.9(c) refers to confidentiality rules and protections for former clients, and Rule 1.18(b) refers to confidentiality rules and protection for prospective clients.) Given the public nature of online communications, social media and other postings are almost certainly not the appropriate forum for disclosures that might otherwise be permissible.

Conclusion

Essentially, lawyers have the ethical responsibility to former, current, and prospective clients to keep information learned during or relating to the representation of a client confidential. Unless your client has given you permission to disclose the information you’re posting, or disclosure is otherwise authorized under Rule 1.6(b), you’re bound by the ethical rules of client confidentiality. Each scenario is fact-specific, so here’s your friendly reminder to be careful with what you post on social media. And congrats on landing Jim Jardashian as a client!

VIEW THE LEGAL BRIEF

[i] NYRPC §1200 (Rule of Professional Conduct 1.6)

[ii] N.Y.C.P.L.R. §4503

[iii] NYSBA, of the Social Media Ethics Guidelines, June 20, 2019, at No. 5.E