Category Archives: new york

How Does a Nonprofit Corporation Commence Its Legal Existence in New York?

New York has a statute that anyone starting a nonprofit should read.  It is located at NY. NPC. Law Section 405.

The statute states, among other things, that a certificate of incorporation must be filed with the New York Department of State.  Thereafter, the non-profit corporation must hold an organizational meeting to elect directors, adopt by-laws and transact other business, such as authorizing a bank account to be opened; the execution of agreements; and appointing officers.  Under certain circumstances, there may also be a requirement to register with the office of the Attorney General, Charities Bureau.

It is important to note that in addition to all this, the corporation must also apply to the federal (as opposed to state) government for 501(c)(3) status.  This is done through a 1023 form supplied by the Internal Revenue Service (IRS).  See http://www.irs.gov/charities/article/0,,id=96109,00.html.  This is important to allow donors to deduct their donations.

Comments/Questions: gdn@gdnlaw.com

© 2012 Nissenbaum Law Group, LLC

How Far Does the Jurisdiction of the New York Franchise Act Reach?

Courts have traditionally interpreted a wide-ranging jurisdiction for the New York Franchise Sales Act (“NYSFA”). New York-based franchisors that offer and sell franchises anywhere in the world from their New York offices are required to comply with the statute’s provisions. N.Y. Gen. Bus. Law § 683. However, that scope could be getting smaller.

A recent case held that the NYFSA did not apply to an out of state franchisee. JM Vidal, Inc. v. Texdis USA Inc., 746 F.Supp.2d. 599 (S.D.N.Y. 2011).  In that case, the plaintiff, franchisee JM Vidal (“JMV”), purchased and operated an MNG by Mango (“Mango”) franchise store in Bellevue, Washington. After the retail store failed, JMV sued the defendant, franchisor Texdis USA (“Texdis”), under the NYFSA as well as the relevant Washington state statute, claiming they had violated the pertinent Franchise Agreement. JMV asserted six claims under each state’s statute, including claims that Texdis offered to sell a franchise without having registered the offer with the state; fraudulently misrepresented the likely sales of JMV’s prospective franchise; and breached its duty of dealing with JMV in good faith.

Among other defenses, Texdis argued that JMV’s claims under the NYSFA should fail because the New York statute did not apply to the sale of the franchise. The United States District Court for the Southern District of New York considered the language of the statute and determined that it only applied when a person offered to sell or sells a franchise in the state of New York. N.Y. Gen. Bus. Law § 683(1). An offer or sale is made in New York when:

1) an offer to sell is made in this state, or an offer to buy is accepted in this state, or, if the franchisee is domiciled in this state, the franchised business is or will be operated in this state; or

 2) the offer either originated from this state or is directed by the offeror to this state and received at the place to which it is directed. An offer to sell is accepted in this state when acceptance is communicated to the offeror from this state.

Id. at § 681(12).

The Court determined that there was no evidence suggesting that the offer or sale of the Mango franchise occurred anywhere other than Washington. More importantly, the Court found that no part of the transaction between JMV and the Mango franchise occurred in New York. Thus, the Court held that NYSFA was not applicable since a New York statute “cannot have any effect whatsoever on the nationwide marketing of franchises if the franchisor elects to conduct his activities outside of this State and with non-residents.” Id. at 617 (citing Mon-Shore Mgmt., Inc. v. Family Media, Inc., 584 F.Supp. 186, 191 (S.D.N.Y. 1984).

JMV’s lone argument for the application of the NYSFA was that the Franchise Agreement contained a choice-of-law provision that stated it would be “interpreted and construed under the laws of the State of New York.” Id. JMV argued that because the Agreement stated that it would take effect upon “execution by [Texdis],” which has its principal place of business in New York, the Agreement must have been signed in New York and thus should have been “deemed” to have been made in New York. Id. The Court rejected this argument, holding that to accept such an argument would allow the NYSFA to apply to every instance when the franchisor is a New York corporation. “But the NYSFA could easily have said as much, and it conspicuously does not,” the Court stated. Id.  “Instead, only the franchisee’s domicile matters for purposes of determining whether the statute applies.” Id. The Court granted Texdis summary judgment on all of the NYSFA claims.

The Court’s decision is slightly surprising. An article by David Kaufmann, former New York special deputy attorney general, in the October 25, 2011 edition of the “New York Law Journal” said the Court’s decision “appears to conflict with both the express language of the New York Franchise Act itself and with the constitutional precedent…advanced in the Mon-Shore decision.” Kaufmann, who wrote the NYSFA while serving as special deputy attorney general, said “the state of incorporation of a franchisor is entirely irrelevant to New York Franchise Act coverage.” It will be interesting to see if the other courts interpret the statute in a manner similar to the JM Vidal Court.

Comments/Questions: gdn@gdnlaw.com

© 2012 Nissenbaum Law Group, LLC

When Are Non-Solicitation Covenants in an Employment Agreement Enforceable?

A recent case offers guidance to New York employers concerning their ability to restrict former employees from attempting to take away the employer’s customers.

In that case, a former employee of USI Insurance Services, LLC (“USI”) signed an employment agreement that included a provision restricting the employee’s ability to solicit the business of former clients for 24 months following the termination of the agreement.  USI Insurance Services LLC v. Miner, No. 10 Civ. 8162, 2011 WL 2848139 (S.D.N.Y. July 7, 2011). Yet just days after the the employee, Jeffrey Miner, left the company and triggered the termination of the employment agreement, he mass e-mailed USI’s current customers in an attempt to solicit business.  In this case, the U.S. Federal District Court for the Southern District of New York Court concluded that Miner’s actions constituted solicitation as a matter of law and granted partial summary judgment to USI on this issue. Id. at 13. Miner’s mass e-mail to USI’s current customers was a clear attempt to solicit business in violation of the employer’s contractual rights. Therefore, it was prohibited conduct.

In New York, non-solicitation covenants – also known as restrictive covenants – are provisions in an agreement that restrict others from actively engaging in certain business development activities (i.e. soliciting an employer’s customers). A non-solicitation covenant may restrict a former employee from contacting his employer’s customers by way of mailings, e-mails, personal calls or through other means that would constitute solicitation.  Id. at 11. According to the Court, non-solicitation covenants are enforceable if they are:

a) necessary to prevent disclosure of trade secrets or confidential information, or
b) where an employee’s services are unique or extraordinary.

Id.

Additionally, the covenants cannot impose undue hardship on the employee or be injurious to the public. Id. at 14 [quoting IBM Corp. v. Visentin, No. 11 Civ. 399, 2011 WL 672025, 8 (S.D.N.Y. Feb. 16, 2011)].

However, a non-solicitation covenant alone may not be enough to restrict a former employee from taking customers. In an unrelated case, the New York Court of Appeals noted that “‘absent an express or restrictive covenant not to compete,’ advertising to the general public . . . [would] not be considered solicitation, so long as such advertisements are not specifically aimed at the seller’s former clients.” Id. at 12 [quoting Bessemer Trust Co. v. Branin, 2011 WL 1583932, 5 (N.Y. Ct. of Appeals Apr. 28, 2011]. Accordingly, a former employee can continue to compete in the same industry.  Id.  Also, a customer can contact his former employee for the purposes of obtaining factual information and such interaction would also be permissible “so long as the response .  .  . [does] not go beyond the specific information sought.”  Id.

This is a significant decision for companies that are including non-solicitation covenants in their employment agreements. The Court’s decision gives an indication of what type of covenant would be reasonable to be enforced.

Comments/Questions: gdn@gdnlaw.com

© 2011 Nissenbaum Law Group, LLC

Does the anti-retaliation provision of New York City’s Human Rights Law protect employees who suffer retaliation for opposing discrimination against other employees?

On March 31, 2011, the New York Court of Appeals upheld a jury’s verdict in favor of two New York City police officers that claimed they were subject to retaliation for opposing discrimination against a third officer on the basis of that third officer’s perceived sexual orientation.  Albunio v. City of New York, 2011 WL 1157706 (2011).

In 2002, Captain Lori Albunio was the commanding officer of the Youth Services section of the New York City Police Department.  Lieutenant Thomas Connors was operations coordinator of the section and reported to Albunio.  Sergeant Robert Sorrenti applied for a transfer into the Youth Services section, was interviewed by Albunio and seemed poised to become the Youth Services section DARE officer, responsible for educating New York City school children about the dangers of drugs.  Albunio recommended Sorrenti for the DARE position to her supervisor, Inspector James Hall.  Hall decided to interview Sorrenti himself and did so with Albunio present.

According to Albunio, during that interview Hall aggressively questioned Sorrenti about his marital status; whether he had children; and about his relationship with another male officer to whom he had allegedly loaned money, suggesting that the relationship was more than a friendship.  After the interview, Hall told Albunio that Sorrenti didn’t seem quite right.  Hall later chose another officer for the DARE position and told Albunio that he would not trust Sorrenti working around children.

Several months later, Hall told Lieutenant Connors that there had to be something more to Sorrenti’s relationship with the officer to whom he loaned money and that Hall would not have been able to sleep at night if he knew Sorrenti was working with children.  Connors responded that he believed Sorrenti was more than qualified to work with children and showed Hall a favorable performance evaluation that Sorrenti recently received.  Following that conversation, Connors formed the opinion that Hall “believed that Sergeant Sorrenti was a child molester and homosexual.”  Id. at *2.

Later in 2002, Albunio learned that she was to be removed as the commanding officer of the Youth Services section for utilizing poor judgment when requesting personnel.  Hall cited her recommendation of Sorrenti as the prime example.  Albunio told Hall that Sorrenti was the better candidate for the DARE position and that she would recommend Sorrenti again if she had the chance to do it over.  Albunio was told it would be in her best interest to find another assignment.  She did, but it was a much less desirable assignment.

After Albunio told Connors that she was directed to find another assignment, Connors filed a complaint with the police department’s Office of Equal Employment Opportunity alleging that Hall discriminated against Sorrenti based upon Sorrenti’s sexual orientation.  After Hall learned of the complaint, Connors decided it was time to leave the Youth Services section.  However, while Connors remained with that section he was subject to several adverse employment actions.  For example, his geographical assignments and working hours were changed in unfavorable ways; and he was shunned and excluded from meetings with Hall and Hall’s subordinates.  When he was finally transferred, he received a less desirable assignment than he expected.

Albunio and Connors filed a lawsuit against the City of New York claiming they were victims of retaliation in violation of the New York City Human Rights Law, Administrative Code §8-107(7).  That section states,

“Retaliation. It shall be an unlawful discriminatory practice for any person engaged in any activity to which this chapter applies to retaliate or discriminate in any manner against any person because such person has (i) opposed any practice forbidden under this chapter, (ii) filed a complaint, testified or assisted in any proceeding under this chapter, (iii) commenced a civil action alleging the commission of an act which would be an unlawful discriminatory practice under this chapter, (iv) assisted the commission or the corporation counsel in an investigation commenced pursuant to this title, or (v) provided any information to the commission pursuant to the terms of a conciliation agreement made pursuant to section 8-115 of this chapter. The retaliation or discrimination complained of under this subdivision need not result in an ultimate action with respect to employment, housing or a public accommodation or in a materially adverse change in the terms and conditions of employment, housing, or a public accommodation, provided, however, that the retaliatory or discriminatory act or acts complained of must be reasonably likely to deter a person from engaging in protected activity.”

New York City Administrative Code §8-107(7).

A trial was held and the jury found that the City retaliated against both Albunio and Connors and awarded each monetary damages.  The City appealed the jury’s verdict to the Appellate Division, which upheld the verdict in favor of Albunio and Connors.  The City appealed that decision to the New York Court of Appeals, the state’s highest appellate court.

The Court of Appeals noted that the issue was whether the record supported the jury’s finding that Albunio and Connors “opposed” the discrimination against Sorrenti based upon his sexual orientation.  The court was guided by New York’s Local Civil Rights Restoration Act of 2005 (“LCRRA”), which requires that “the provisions of this title [i.e., the New York City Human Rights Law] shall be construed liberally for the accomplishment of the uniquely broad and remedial purposes thereof, regardless of whether federal or New York State civil and human rights laws, including those laws with provisions comparably-worded to provisions of this title, have been so construed.”  Id. at *4.  In other words, the court was required to construe Administrative Code §8-107(7) “broadly in favor of discrimination plaintiffs, to the extent that such a construction is reasonably possible.  We interpret the word ‘opposed’ according to this principle, and conclude that the evidence supports a finding that both Albunio and Connors opposed discrimination against Sorrenti.”  Id. at *4.

According to the court, Connors clearly opposed the discrimination since he filed a discrimination complaint on Sorrenti’s behalf; there was evidence Hall knew of the complaint; and after filing the complaint Connors was subjected to a series of adverse employment actions.  The court similarly found that Albunio “opposed” the discrimination although she did not file a formal complaint.  Albunio “opposed” the discrimination against Sorrenti when she stated that Sorrenti was the better candidate and that she would choose him again if given another chance.  In essence, the court held that the jury could have found that Albunio made her disapproval of Hall’s action clear and voiced her opinion that it was wrong when she made those statements to Hall.

The Court of Appeals affirmed the decision of the Appellate Division and reinstated the jury’s verdict in favor of Albunio and Connors.

Download Albunio v. City of New York, 2011 WL 1157706 (2011)

Comments/Questions: gdn@gdnlaw.com

© 2011 Nissenbaum Law Group, LLC

What are the new protections for hourly employees in the hospitality industry under New York law?

Effective January 1, 2011, New York State enacted the Hospitality Wage Order (“Order”) which applies to New York’s hospitality industry and makes several important changes to the existing law. 12 N.Y.C.R.R. §146-1.1 et seq.

First, the Order increases the minimum hourly wage for tipped employees such as food service workers, service employees in all establishments, service employees in resort hotels and chambermaids in resort hotels.  That hourly wage is now $5.00 for food service workers and $5.65 for all other service employees.

Second, hourly rates are now required for all non-exempt employees (employees that are paid by the hour under the Fair Labor Standards Act), except commissioned salespersons.  Employers may no longer pay such employees salaries, weekly rates or daily rates.  This is intended to deter excessively long hours and ensure compliance with the rules regarding overtime pay.

Third, overtime pay for all non-exempt employees is now due after 40 hours worked in a week, rather than after 44 hours.

Fourth, for the first time, gratuities are now subject to regulation in New York State.  Employers must give employees written notice of the employer’s tip policies.  Employers must also remit to their service employees all house-imposed guest charges that are said to be gratuities.  If any charges for banquet or special function services are not intended to be gratuities, that information must be clearly communicated to patrons so they are aware that gratuities will not be paid out of those charges.  In a dispute, the employer has the burden of proving by clear and convincing evidence that patrons were notified that the charges were not gratuities.  Adequate notification includes a statement in the contract with the patron that clarifies that the charges are not gratuities.

Fifth, employers must permit employees to bring their own meals or give them a meal at no more than the current meal credit amount, which is $2.50.

Finally, uniform maintenance pay is due all non-exempt employees unless the uniforms are of the “wash and wear” variety.  The employer may establish that the uniforms are “wash and wear” by demonstrating that the number of uniforms provided is the same as the number of days worked per week by the employee and that the uniform is suitable for laundering with personal clothing.

Comments/Questions: gdn@gdnlaw.com

© 2011 Nissenbaum Law Group, LLC