The turn of the new year brings two significant changes for employers in New York State.

First, the Wage Theft Prevention Act has been modified to reduce a key requirement under New York’s Wage Theft Prevention Act.  Second, New York’s minimum wage has increased to $8.75 per hour.  We address each of these changes below.

New York’s Wage Theft Prevention Act (“WTPA”) is intended to keep employees informed of their rate of pay, overtime rate, allowances, payday, etc.  The most notable requirement was to provide each employee with a notice identifying pay-related items specific to each employee.  Previously, the WTPA required that each employee receive the notice at time of hire and every year before February 1.  After succumbing to pressure from employers and legislators, Governor Cuomo signed into law an amendment to the WTPA abolishing the annual requirement to issue WTPA wage notices.  This change is effective immediately for 2015 and beyond.  As a result of this change, employers are no longer required to provide the WTPA notice every year to every employee.  The WTPA still requires, however, that employers provide WTPA notices to each employee at the time of hire. For additional references and information about the WTPA, please see our previous client advisories, NY Wage Theft Prevention Act, NY Wage Theft Prevention Templates, and NY Wage Theft Prevention Act Notice.

Employers should also be aware that, effective December 31, 2014, the minimum wage for employees in New York increased to $8.75 per hour.  As a result, each employee receiving wages at the prior 2014 rate ($8.00 per hour) is entitled to a wage increase for 2015.  As a result of this change, employers should update their New York Minimum Wage posters that are required to be kept at a conspicuous location to reflect the new higher rate.  The updated New York Department of Labor minimum wage poster can be found here: 2015 New York Minimum Wage Poster. Employers should be aware that another increase is schedule to take effect on December 31, 2015, increasing the minimum wage to $9.00 per hour.

For questions related to the above topics or any other labor and employment concerns, please do not hesitate to contact us.

Determining which individuals or entities are the proper parties to name in a lawsuit can sometimes be a technical matter—for example, determining the legal name of a corporation—but it can also be a strategic consideration.

However, many times parties are considered “necessary” to a lawsuit, such as a party to a contract who is alleged to have breached the contract.  Whenever a party is considered “necessary” or “indispensable,” that party must be included in the lawsuit.  A plaintiff in a recent case in the Suffolk County Commercial Division, Intelligent Product Solutions, Inc. v. Morstan Gen. Agency, Inc. (J. Whelan), attempted to circumvent the requirement of naming a necessary party by commencing a lawsuit against an entity believed to be a dominant alter ego of the party with whom plaintiff actually contracted. The Court, however, did not let the plaintiff get away with it.

Plaintiff, Intelligent Product Solutions, Inc. (“IPS”), entered into a contract with an entity known as Single Entry Systems, Inc. (“SES”) in which IPS agreed to work with SES in the development, testing, and upgrading of certain computer software applications and to provide program management services to SES.  After IPS provided services to SES for a year, SES notified IPS that it could not pay for services rendered, leaving a balance owed to IPS in the sum of $465,450.00.

Rather than naming SES as a defendant in the breach of contract lawsuit, IPS elected to name only Morstan Gen. Agency, Inc. (“Morstan”) as a defendant under non-contractual theories of account stated and unjust enrichment. IPS alleged that Morstan was the “alter ego” of SES, was a controlling 80% shareholder of SES, and had overlapping directors, employees, assets, etc.  As such, IPS sought damages from Morstan essentially claiming that SES was a “dummy” corporation set up and controlled by Morstan.

Morstan filed a motion to dismiss the complaint on the grounds that IPS failed to name a necessary party (SES) and that the parties were required to go to arbitration to resolve any disputes pursuant to the contract between IPS and SES. Morstan’s motion alleged that IPS named only Morstan as a defendant in an effort to avoid the arbitration clause in the contract.

In its decision, the Court ruled that SES was, in fact, a necessary party to the lawsuit, because claims that rest upon allegations that a party is liable because it is the alter ego of another entity require that the other entity also be named as a party. Mannucci v. Missionary Sisters of Sacred Heart of Jesus, 94 A.D.3d 471 (1st Dep’t 2012).  However, rather than dismiss the Complaint, the Court ordered that SES must be joined because SES was within the jurisdiction of the Court and no reason was given as to why SES could not be joined.  Further, although the Court denied as premature Morstan’s request for an order staying the case and compelling the parties to go to arbitration, it noted that the arbitration claim could be renewed upon SES joining the lawsuit.

Cases such as this one provide an example of the types of strategic considerations that could go into which parties are named in a lawsuit. Evidently, according to the allegations in Morstan’s motion, IPS sought to avoid the arbitration clause in its contract with SES and attempted to go after Morstan instead under alternative theories of liability.  While this decision did not pay off for the plaintiff in this case, it is always important to give careful consideration to the various factors that could impact the potential outcome of a case when deciding whom to name in a lawsuit.

By Patrick McCormick

Commercial landlord/tenant matters do not often reach the Court of Appeals.

However, in December 2014, the Court of Appeals issued a decision addressing the enforceability of a rent acceleration clause in a commercial lease where the landlord obtained possession of the demised premises after tenant defaulted in paying rent and abandoned the premises.  Landlord/tenant practitioners should be aware of this significant decision.[i]

Landord, 172 Duzer Realty Corp., entered into a one year commercial lease with tenant Globe Alumni Student Assistance Association, Inc. under which the premises was used as a dormitory by Globe Institute of Technology.  Before the end of the initial term, landlord and tenant extended the term for a nine-year period and Globe Institute of Technology signed a guarantee.  Shortly after executing the extension, tenant defaulted under the lease and landlord served a notice to cure.  Tenant failed to cure, vacated the premises, and stopped paying rent as of February 2008.  Landlord terminated the lease as of March 28, 2008, on notice to tenant, and commenced an action to recover possession and past due rent.  In August 2008, the Civil Court awarded landlord possession of the premises but did not award a money judgment.

In September 2009, landlord commenced a Supreme Court action to recover rent arrears and the future remaining rent under the lease.  As explained by the Court of Appeals, landlord “thereafter moved for summary judgment based on an acceleration clause in the leasehold agreement which provides that upon the tenant’s default the landowner may terminate the lease, repossess the premises, and ‘shall be entitled to recover, as liquidated damages a sum of money equal to the total of . . .the balance of the rent for the remainder of the term. . . .’  The provision also states that ‘[i]n the event of Lease termination Tenant shall continue to be obligated to pay rent and additional rent for the entire Term as though th[e] Lease had not been terminated.’”  Defendants opposed summary judgment, alleging that under Fifty States Management Corp. v. Pioneer Auto Parks, Inc.,[ii]  landlord could not collect under the acceleration clause once it terminated the lease and took possession of the premises.  The Supreme Court granted summary judgment and referred the matter to a referee to calculate damages.  Judgment was entered in favor of landlord for $1,488,604.66, comprised of rent remaining due under the lease reduced by an amount landlord collected during a two and one-half year period it was able to re-let the premises.  The Appellate Division affirmed.

In affirming, the Court of Appeals rejected tenant’s reliance on Fifty States Management Corp., holding that, despite retaking possession of the premises, landlord was permitted to seek “damages in accordance with the acceleration clause after terminating the lease, once defendants defaulted and breached their leasehold obligations to maintain the property and pay rent.”  The Court of Appeals also rejected tenant’s claim that the acceleration clause amounted to an unenforceable penalty.  The Court held that the acceleration clause was enforceable and not a penalty because defendants “committed material breaches of the lease by ceasing all rental payments as of February 2008 and simultaneously abandoning the premises.” CitingHoly Properties Ltd., L.P. v. Kenneth Cole Productions, Inc.,[iii]  the Court also briefly addressed and rejected defendants’ claim that landlord had an obligation to mitigate its damages.

The Court of Appeals did, however, remit the matter to Supreme Court for further proceedings to determine whether the undiscounted accelerated rent was disproportionate to landlord’s actual loses, “notwithstanding that the landowner had possession, and no obligation to mitigate.”  The Court was persuaded by defendants’ argument that the damages measured by the accelerated rent were disproportionate to landlord’s actual damages because landlord had possession and immediately collected all rent due for the balance of the lease in one lump sum.  The Court seemed to credit the argument that because landlord obtained possession of the premises, the accelerated rent should have been discounted to present-day value.  The Court held that “Defendants should have had the opportunity to present evidence that the undiscounted accelerated rent amount is disproportionate to [landlord’s] actual damages . . .”

While acceleration clauses are not common and are often heavily negotiated, this decision serves to caution to both tenants and guarantors that upon a material default under a commercial lease, they may be liable for significant damages in the amount of accelerated rent due for the balance of the term of the lease.

[i] 172 Van Duzer Realty Corp. v. Globe Alumni Student Assistance Association, Inc., et al., 2014 WL 7177502 (2014)
[ii]  46 N.Y.2d 573 (1979)
[iii] 87 N.Y.2d 130 (1995)