A client was in my office. I was notarizing something for him. He thanked me and asked, “what can I do for you.” I said that since he was a businessman, I would like to know 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 business and Start-ups needing legal assistance help, but short on cash flow, are vulnerable to boss/worker issues. The employer/employee relationship is one of the most heavily-regulated relationships in the nation And there is a crazy patchwork of overlying Federal, State, and City laws. I will focus on the laws in New York City.
- Employment “at will” 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 – at all. For example, an employer may fire an employee because they are Mets – as opposed to the Yankees – fan. There is NO wrongful termination in NY.
- The employer must act rationally. I know, I just said you can fire an employee. But with every rule there comes exceptions. An employer cannot fire someone because the employee is in a “protected class” like race, religion, sex (pregnancy), national origin, age, disability, marital status, sexual orientation, or familial status. Beware: 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 you new business seems ideal for the cash-strapped business. Students are eager to gain experience in a new market, in a real office, in a real business. The interns are happy just being around and learning by osmosis. The problem is using unpaid interns may cause significant cost. Interns generally are not exempt from minimum wage and overtime obligations. Failure to pay the interns can subject the company to real damages. A possible exception is if a student is earning school credit. But even that should be examined closely.
- What is all this nonsense about overtime? All my employees are paid a salary, they are not entitled to overtime. Paying a salary, as opposed to paying a worker by the hour is one piece of the equation. The other more important piece is what the employee does. Only employees who get paid a certain minimum salary (right now $40,560 and rising on January 1, 2019) and perform specific, legally-recognized, duties are exempt from 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. Get a professional opinion before you decide differently.
- I know, we will just 1099 the worker. Hiring an independent contractor as opposed to an employee can be a real benefit to the Company. 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, such as health insurance. But 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 multiplicity of factors: does the worker work only for the company, or does he or she have income from several similar sources, and 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.
If you’re going to grow your business you will have to hire workers. Heed these warning and you will avoid many of the employment problems that trip up start-ups and growing companies. If you have other questions please call me at 212-903-4546 or schedule an appointment on my website www.dwightyellen.com
