A few years ago, a client came to my office to notarize something. He thanked me and asked, “What can I do for you?” Since he was a business owner, I asked what he would like to learn about. He paused and said, “I need to know about the rules of labor law in New York City.”
Growing businesses and start-ups needing legal assistance help, but may be short on cash flow, are often vulnerable to boss/worker issues. The employer/employee relationship is one of the most heavily regulated relationships in the nation.
The business law attorneys at Chidatma Law Group understand how complicated these situations can be and are here to help.
What New York Business Owners Should Know About Employment Law
At-Will Employment Is Your Best Friend
Employment at will is a term used when an employee can be dismissed by an employer for any reason (that is, without having to establish “just cause” for termination) and without warning, as long as the reason is not illegal. In New York, assuming you are not in a union and have no written employment contract (for a period of time), you are employed “at will.” This means an employer can fire an employee for any reason – or no reason at all. For example, an employer may fire an employee because they are a fan of the Mets instead of the Yankees.
The Employer Must Act Rationally
An employer cannot fire someone because the employee is in a protected class like race, religion, sex, pregnancy status, national origin, age, disability, marital status, sexual orientation, or familial status. Be aware that there are other less common exceptions. If you violate these exclusions, you could be liable to the employee for back pay, reinstatement/front pay, compensatory damages, punitive damages, and attorney’s fees.
No One Works For Free
Hiring an unpaid intern to help your new business seems ideal if you are strapped for cash. Students are eager to gain experience in a new market, in a real office, and with a real business. The interns are happy just being around and learning by osmosis. The problem is using unpaid interns may lead to significant costs. Interns generally are not exempt from minimum wage and overtime obligations. Failure to pay the interns can subject the company to damages. A possible exception is if a student is earning school credit, but even that should be examined closely.
What About Overtime?
There are so many overtime exemptions they would be impossible to list here. A good rule of thumb is if the employee is neither an executive nor the head of a department, he or she is likely eligible for overtime. The employment law attorneys at Chidatma Law Group can help you determine who at your business is eligible.
Be Wary of Misclassifying Employees As Independent Contractors
Hiring an independent contractor as opposed to an employee can be a benefit to your business. No need to provide benefits, no need to pay a portion of social security or unemployment taxes, nor is there an obligation to provide benefits like health insurance.
However, just calling a worker an independent contractor (even if there is a written agreement to that effect) is not enough. If the Department of Labor shows up for an audit, they will look at a number of factors, including:
- Does the worker work only for the company, or do they have income from several similar sources?
- Who controls how, where, and when the work gets done?
Misclassifying employees as independent contractors, however, can have devastating financial consequences for the business owner, who may face substantial liability for income, social security and unemployment tax, and liability for interest and penalties.
Contact Chidatma Law Group Today
If you’re going to grow your business you will have to hire workers. Heed these warnings and you will avoid many of the employment problems that trip up start-ups and growing companies. Contact Chidatma Law Group today for a consultation to get more information about what’s right for your business.
Frequently Asked Questions About Employment Law for Start-Ups in New York
1. What employment laws apply to start-ups in New York City?
Start-ups in New York City must comply with federal, New York State and NYC-specific employment laws. These include minimum wage laws, overtime requirements, anti-discrimination protections, paid sick leave laws, wage notice and wage theft prevention statutes and worker classification rules.
2. What does “at-will employment” mean in New York?
New York is an at-will employment state, meaning employers can terminate employees at any time for any lawful reason, as long as the reason is not illegal. However, termination cannot be based on discrimination, retaliation or other protected grounds under state or federal law.
3. Can a start-up fire an employee for any reason in NYC?
Not exactly. While at-will employment provides flexibility, employers cannot terminate someone for discriminatory reasons, retaliation, or whistleblowing. New York City has particularly strong employee protections under the NYC Human Rights Law. Violations can result in back pay, front pay, compensatory damages, punitive damages and attorneys’ fees.
4. Do start-ups have to pay interns in New York?
In most cases, yes. Interns in New York are generally entitled to minimum wage and overtime unless they meet strict criteria for unpaid internship status. Simply labeling someone an “intern” does not eliminate wage obligations. The internship must primarily benefit the intern, not the employer. Misclassifying interns can result in wage claims, penalties and Department of Labor investigations.
5. Are salaried employees automatically exempt from overtime in New York?
No. Paying an employee a salary does not automatically make them exempt from overtime. To qualify for an overtime exemption, employees must meet both:
- A minimum salary threshold
- Specific job duty requirements
If a worker does not meet both criteria, they may still be entitled to overtime, even if paid a salary. Misunderstanding this rule is one of the most common and costly mistakes for growing businesses.
6. How do I know if a worker is an independent contractor or an employee?
New York agencies look at the level of control that the business exercises over the worker. Key factors include:
- Who controls how and when the work is performed
- Whether the worker provides services to multiple clients
- Who supplies tools and equipment
- Whether the work is integral to the business
Simply having an independent contractor agreement is not enough. Misclassification can trigger liability for unpaid taxes, unemployment insurance, workers’ compensation premiums, overtime and penalties.
7. What are the risks of misclassifying employees as independent contractors?
The consequences can be severe and businesses may owe back wages, unpaid overtime, payroll taxes, interest, civil penalties and fines. In some cases, business owners can be held personally liable. For a start-up operating on tight margins, these unexpected liabilities can threaten the company’s survival.
8. Do New York start-ups have to provide employee benefits?
Certain benefits are mandatory, while others are optional. Employers must comply with laws regarding unemployment insurance, workers’ compensation, disability benefits and paid sick leave. Health insurance requirements depend on company size under federal law. Start-ups should evaluate benefit obligations carefully to remain compliant while managing costs.
9. What employment documents should a start-up have in place?
To reduce legal risk, start-ups should consider:
- Offer letters outlining at-will status
- Employee handbooks
- Anti-harassment and anti-discrimination policies
- Independent contractor agreements
- Confidentiality and non-compete agreements where legally permissible
Clear documentation helps prevent disputes and demonstrates good-faith compliance if an issue arises.
