The Johnson Amendment Finds Refuge Under New York Law

On October 23, 2019, Governor Cuomo signed legislation that restricts the ability of certain nonprofit corporations to participate or intervene in any political campaign on behalf of or against a candidate for public office. The new legislation codifies the federal Johnson Amendment, which is a provision in the U.S. tax code that prohibits all 501(c)(3) nonprofit organizations from endorsing or opposing political candidates. This measure was taken amidst concerns that the Trump administration and certain members of Congress were seeking to repeal the Johnson Amendment. By codifying the Johnson Amendment into New York law, even if the Johnson Amendment is repealed at the federal level, New York nonprofits would still be prohibited from engaging in certain political activity.

Nonprofits are reminded that all 501(c)(3) organizations are absolutely prohibited from directly or indirectly participating or intervening in any political campaign for public office. This includes making any financial contributions to campaign funds or any public statements of position either for or against a candidate for public office. Engaging in such prohibited political activities places the nonprofit at risk of revocation of its tax-exempt status and imposition of certain excise taxes.

But not all political activity is prohibited.

Nonprofits may engage in a variety of nonpartisan political activities, such as sponsoring voter education and registration drives, publishing voter education guides, publishing broad “issue guides,” and other nonpartisan voter education activities. Ultimately, whether an organization is engaged in prohibited political activity, either directly or indirectly, depends on the facts and circumstances of each case.

Decision in Favor of Nike Highlights Factors that Defeat Retaliation Claims

Although the termination of an employee after he/she has complained to the employer about discrimination is often prohibitively risky, there are common factual scenarios that diminish that risk. Among these scenarios are a clear record of poor performance established prior to an employee’s discrimination complaint and a termination by a manager who is unaware of the employee’s complaint. The Third Circuit highlighted these scenarios in its October 11, 2019 decision in Jessica Harrison-Harper v. Nike Inc., d/b/a Converse, Inc., wherein the Court dismissed a retaliation claim against Converse, a Nike subsidiary.

The plaintiff employee was Jessica Harrison-Harper, a Converse store manager. In late September/early October 2015, Harrison-Harper’s supervisor, Josh Sanders, received several complaints about her. He investigated the complaints and identified four incidents that were of great concern to him:

  1. a customer complaint that Harrison-Harper refused to accept the return of sneakers in violation of company policy;
  2. complaints from store employees that Harrison-Harper had given purchase discounts to distant relatives in violation of company policy that only allowed such discounts to immediate family members;
  3. Harper-Harrison’s decision to rehire an employee who was previously fired for calling another employee a “bitch”; and
  4. Harrison-Harper’s failure to maintain time and attendance logs for store employees

On October 7, 2015, Harrison-Harper notified Sanders that a sales associate, Jessica Lepera, had been talking to other employees about Harrison-Harper in a sexually suggestive way. In other words, Harrison-Harper accused Lepera of sexual harassment. On October 28, 2015, Harrison-Harper was terminated. Sanders recommended the termination and three other Nike managers approved it.

Harrison-Harper commenced a lawsuit against Nike. She alleged a Title VII retaliation claim on the ground that Nike terminated her in response to, and as a punishment for, her allegation of sexual harassment by Lepera. Nike filed a motion for summary judgment seeking to dismiss the claim. Nike contended that Harrison-Harper had failed to establish a causal connection between her sexual harassment claim against Lapera and her termination.

The Third Circuit dismissed the claim for two reasons. First, Sanders received multiple complaints regarding Harrison-Harper’s work and leadership before she reported the alleged harassment. Second, four employees contributed to the decision-making process that resulted in Harrison-Harper’s termination. But only one of them – Sanders – had any knowledge of her harassment claim.

Employers should take note of this decision, and especially remember that a well-documented record of bad performance prior to the protected activity is the best defense to a retaliation claim.

Are Boards Always Protected by the “Business Judgment” Rule?

New board  members  in New York quickly learn that most of their decisions are protected under the “business judgment rule,” which states a court should defer to a co-op [or condo] board’s determination so long as the board is acting “for the purposes of the cooperative, within the scope of its authority, and in good faith.” [1]  Thus, the business judgment rule under Levandusky affords board decisions wide latitude.

However, the “business judgment rule” is not a “Get Out of Jail Free” card. In certain circumstances, proprietary leases impose a heightened “reasonableness” standard for Board action. The “reasonableness” standard requires that the Board’s decision be considered “reasonable” by a hypothetical third party (who could be a judge or a jury).  In other words, a court can look over the Board’s shoulder to evaluate the correctness of its decision. Typical lease provisions where the reasonableness standard may apply include approval of transfers of an apartment after a shareholder’s death, or certain types of apartment alterations.

For example, in Perrault v. Village Dunes Apt. Corp., the proprietary lease required that consent to alterations not be unreasonably withheld. [2]  The appellate court found that the actions of a co-op board were reasonable when they were “legitimately related to the welfare of the cooperative” and upheld the Board’s refusal to consent to a shareholder’s alteration application seeking to raise an apartment ceiling. In contrast, New York’s highest court held that another board unreasonably withheld consent when it refused to allow the transfer of an apartment of a deceased shareholder to a “financially responsible member” of the decedent’s family, as required under the lease.  [3]

Nor are Boards protected when they violate civil rights laws or act in bad faith. For example, the Appellate Court allowed an African-American shareholder to make a discrimination claim when the Board denied his application to purchase another apartment at The Dakota (where he already resided), even though approvals of purchases are typically deemed matters for the Board’s business judgment.  [4] Another court invalidated the termination of a shareholder’s lease for “objectionable conduct” (which also usually falls within the business judgment of the Board) because the Board refused to allow the shareholder to “plead his cause to the Board after expressly inviting him to a meeting.” [5]

In short, understanding the correct legal standard for issuance of your Board’s consent may help avoid an unwanted trip to the courthouse.

[1] Levandusky v. One Fifth Avenue Apartment Corp., 75 N.Y.2d 530 (1990)
[2] Perrault v. Village Dunes Apt. Corp., 164 A.D.3d 847 (2d Dep’t 2018)
[3] Estate of Del Terzo v. 33 Fifth Ave Owners Corp., 28 N.Y.3d 1114 (2016)
[4] Fletcher v. Dakota,  99 A.D.3d 43 (1st Dep’t 2012)
[5] 13315 Owners Corp. v. Kennedy, 4 Misc.2d 931 (Civ Ct , NY County 2004)

 

Contractors may have at least one way to sue members of limited liability companies personally for renovation work provided to the LLC

Members of New York State limited liability companies often form their entities with two thoughts in mind: an LLC provides favorable tax structuring and protection from personal liability. To the joy of contractors and chagrin of LLC members, that protection may not shield LLC members from claims of unjust enrichment, as a recent case in Long Island showed.

The facts in Georgica Builders, Ltd. v. 136 Bishops Lane, LLC.[1], as stated in the Appellate Division’s August 21, 2019 decision, are relatively simple, but with a twist. An LLC which owned certain real estate in Suffolk County retained a contractor to construct a single-family residence. When the LLC allegedly failed to make payment when due, the contractor filed a mechanic’s lien. It then commenced the action to foreclose the lien, recover for breach of contract and for an account stated. The contractor also sued the LLC member personally for unjust enrichment.

At first glance, one may think that if the real property is in the name of the LLC, and the LLC made the agreement with the contractor, then only the LLC should be potentially liable for monies owed to the contractor. Not necessarily, said the Suffolk County Supreme Court in denying a motion to dismiss the unjust enrichment claim, and that denial was affirmed by the Appellate Division.

While the Appellate Division does not expressly detail, it would appear that the underlying allegation that the member used the single-family home as his residence, and therefore benefited by the construction to the contractor’s detriment, weighted in favor of at least permitting the unjust enrichment claim to survive dismissal. The contractor’s claim against the member still had to be proven, but for now, the contractor stated a viable claim, subjecting the member to a lawsuit and potential damages.

[1] 175 A.D.3d 610 (2d Dep’t 2019)

Are the commercial properties in your municipality keeping PACE with energy efficiency?

New York State General Municipal Law Article 5-L granted authority to municipalities to offer Property Assessed Clean Energy (PACE) financing for property owners to fund energy efficiency and renewable energy projects on existing residential and commercial structures through a property owner’s voluntary agreement to have a special assessment or special tax charge placed on their annual property tax bill.  PACE financing on these types of clean energy improvements are repaid over time without requiring the property owner to make a large, upfront investment.

Energize NY Open C-PACE is operated by the Energy Improvement Corporation (EIC) and provides a low cost, long-term alternative to traditional loans to fund clean energy projects in commercially owned buildings.  Open C-PACE is not a bank loan and differs from traditional financing; in some instances, financing is available for up to 100% of the project cost and unlike a traditional mortgage, automatically transfers to a new owner once the property is sold.

Okay, so how does it work?

Any New York State municipality with tax lien authority may join with the EIC and enable Energize NY Open C-PACE through two steps:

  1. A municipality passes legislation enabling it to make funds available to finance clean energy projects and obtain repayment through a Benefit Assessment Lien. The Benefit Assessment Lien is the special assessment or special tax charge placed on the property owner’s annual property tax bill.
  2. After the Open C-PACE legislation has been passed, the municipality enters into an EIC Municipal Agreement granting EIC, through Energize NY, the power to act on the municipality’s behalf to implement, administer and monitor the Open C-PACE program.

What happens next?  The onus is on the property owners within the municipality to reach out to capital providers participating in the Open C-PACE program to determine what financing programs are available to them.

Upon consent from the property owner’s existing mortgage holder, if any, Energize NY will qualify the project in accordance with the PACE Legislation and the New York State Energy Research and Development Authority (NYSERDA) C-Pace Guidelines.[1]  If the project qualifies, Energize NY enters into a finance agreement with the property owner and the capital provider.

Energize NY verifies the installation and performance of the project and records the Benefit Assessment Lien against the project property.  The Benefit Assessment Lien is subordinate to municipal taxes and senior to any other lien on the property.  All billing and collecting of the finance payments are handled by Energize NY directly with the owner of the benefited property. In the case of default, the municipality may foreclose on the property or the capital provider will have the right to foreclose.

With an eye toward vibrant “greener” communities, local municipalities, property owners and developers should consider low-cost tools under the Open C-PACE program to bolster their renewable energy projects.

[1] Municipal Sustainable Energy Loan Program – Commercial Property Assessed Clean Energy (PACE) Guidance Document Prepared by: New York State Energy Research and Development Authority (NYSERDA) Albany, NY, June 1, 2018

Co-op and Condo Boards Must Pay Overtime to Live-In Supers

In our practice, we have seen an uptick in lawsuits by live-in superintendents and other full-time employees against cooperatives, condominiums, homeowners associations (HOAs), and even managing agents (who are defined as employees under federal regulations). These lawsuits are frequently commenced after the employee has been terminated, and they typically allege that the employer failed to pay overtime wages

Read Habitat’s Magazine Article Here

Department of State Issues Guidance Exempting Co-ops from Limits on “Application Fees”

The NYS Department of State has just issued “Guidance for Real Estate Professionals” regarding the Housing Stability Act. One of the Q&A’s reads as follows:

“DOES THE ACT RESTRICT APPLICATION FEES FOR RENTALS?

“Yes…. Under the Act a ‘landlord, lessor, sub-lessor or grantor’ is now prohibited from collecting an application fee greater than $20.00…[However,] the $20.00 limit does not apply under the following circumstances:

  • When the property being sold including within a COOP
    or Condo;
  • Application fees imposed by a COOP/Condo Board (i.e., fees
    charged by persons other than the unit owner);”

Co-ops and managing agents can breathe again. The DOS guidance allows Boards and agents to charge purchase application and processing fees without fear of violating the Act. The mass rewriting of Purchase and Lease applications by Co-ops, and mass fee-shifting from applicants to sellers can cease.

DOS adds that “Licensed brokers and agents with questions about the Act may contact the Department at: licensing@dos.ny.gov or contact 518-474-4429.”

Note that this Guidance does not affect the limitations on late charges, the prohibitions on refusing to lease to someone based on “prior disputes” with the landlord, the cost of credit checks, and security deposits.

The Guidance can be accessed using the link below:

Guidance for Real Estate Professionals Concerning the Statewide Housing Security & Tenant Protection Act of 2019

Why have a well-drafted handbook? Let a federal court answer that question . . .

A Third Circuit decision on August 22, 2019, which upheld FedEx’s termination of two employees, demonstrates the value of well-drafted employee handbook policies.[1] FedEx’s employee handbook included a code of conduct that prohibited workplace violence. Among other things, the code barred “gestures and expressions” and “oral and written statements” that communicate a direct or indirect threat of harm. In a workplace violence prevention meeting, FedEx specifically warned employees that any team member found to have engaged in serious prohibited behavior would be subject to termination of employment.

Two former FedEx drivers, Stanley Shinn and Paul Ellis, were terminated in April and June 2015. Shinn had told a third employee to “go outside away from everyone and talk about this”, and later, to go off-site to talk about the altercation, in response to threats against Shinn made earlier in the company breakroom. A FedEx internal investigation found that Shinn’s statements were a threat of violence and terminated him. Ellis was terminated two months later after he and Shinn posted on Facebook: “that [expletive] just waltz’s down the dock every morning happy as can be … like nothing happened … given the chance … he’s gonna have an accident on the dock.”

Shinn and Ellis sued FedEx alleging that their termination was in retaliation for their participation in the investigation of the breakroom incident and Ellis’s repeated exercise of his FMLA leave rights. The Court rejected the claim. The former employees failed to offer any evidence to credibly counter FedEx’s argument that termination was based upon FedEx’s workplace violence policy, i.e., the employee handbook policy prohibiting direct or indirect threats of workplace violence.

The Federal Court answers our question. Having a well-crafted and clear employee handbook was critical to FedEx avoiding liability and potential damages for wrongful termination, and FedEx’s workplace violence prevention meeting wisely emphasized, to employees, both the importance of that handbook and that future violations of the policy could have serious consequences.

[1] Shinn, et al v. FedEx Freight, Inc., No. 18-3173, 2019 WL 39-6511 (3rd Cir. Aug. 22, 2019)

 

Judge’s Decision Shows Why HR Professionals Must Train Supervisors On FMLA Procedures

Last month, in Moore v. GPS Hospitality Partners [i] , an Alabama judge granted a Burger King restaurant shift supervisor partial summary judgment on her FMLA interference claim. Lashondra Moore prevailed because her supervisors did not recognize that her initial requests for leave triggered her FMLA rights and did not understand how FMLA claims should be processed per the employer’s policy. The supervisors had many chances to recognize the rights that Moore tried to exercise, but ultimately terminated her without understanding the consequences.

The employer’s handbook provided that “[e]mployees should notify their supervisor and Human Resources for approval for a leave” and that “[a]ll employees requesting FMLA leave must provide Human Resources with verbal or written notice of the need for the leave.” The employer also had a policy that required its managers to (a) inform employees of their entitlement to FMLA leave, and (b) tell employees to contact Human Resources if they needed that leave.

Moore’s claim evolved over a 10-day period in February 2017. On Friday, February 3, Moore learned that her mother needed surgery to resolve an infection. While at work that day Moore told the restaurant manager, Chanavia Owes, that she needed a week off to care for her mother. Owes told Moore to “take all the time you need.” But, as explained below, Owes did not stick to that promise.

On February 5, at approximately 7 p.m., Owes notified Moore that she had to work the 11 a.m. to 8 p.m. shift on Monday, February 6 in place of Owes, who was sick. Moore advised Owes that she could not take the shift and sent a text to the district manager, Sheila Morrissette, asking her to find someone to cover Moore’s shift “for a few days please I have to be with my momma right now.”

Moore was scheduled to work from 4:30 a.m. to 2 p.m. on Tuesday, February 7. On Monday night February 6, Owes texted Moore asking “are you going to be able to open in the morning?” Moore responded “no I … can’t come back for a few days.” Although Owes knew that Moore needed time off to care for her mother, she still instructed Moore to open the restaurant the next day.

On February 7, Moore arrived late to work after staying up late the night before to care for her mother and Owes gave Moore a disciplinary warning for tardiness. Moore was scheduled to work the early shift on Wednesday, February 8. However, given her previous requests for time off and the fact that Owes did not demand that Moore work Wednesday as she had on Tuesday, Moore concluded that she was not required to work on Wednesday and did not appear for work that morning. At approximately 7 a.m. on Wednesday, Owes notified Moore by text that her absence was taken as a “no call no show” and wrote a “final written warning” to Moore. At approximately 8 a.m. the same day, Morrissette texted Moore with another warning: “No call no show this morning? No phone call. One more will lead to termination.”

Later that day, Moore learned about her FMLA right to leave from her aunt. Moore went to the restaurant office and told both Owes and Morrissette that she needed to file for FMLA leave, which they said was fine. Moore handed Morrissette a note from her mother’s doctor and told Morrissette that her mother was in a very bad state and that she needed time off to tend to her. Moore asked Morrissette how to go about obtaining FMLA leave. Morrissette did not tell Moore that day or any day thereafter to contact Human Resources to apply for the leave. During Thursday and Friday, February 8 and February 9, Moore asked Morrissette several more times for the forms needed to file for FMLA leave. Morrissette’s response was always that she was working on it. Moore also asked Owes to help her obtain FMLA leave. But Owes admitted she knew nothing about the FMLA. At one point on February 9, Morrisette texted Moore the email address of the employer’s FMLA administrator without explanation. Moore did not understand the cryptic text and called Morrissette asking for guidance. Morrissette responded “I sent you what you needed, figure it out on your own.”

Moore arrived late to work on Sunday February 12 and Moore and Owes got into an argument over Moore’s schedule. Moore was terminated the next day, February 13.

The Court found that Owes’ failure to either notify Human Resources of Moore’s request for leave or tell Moore to do so, while requiring Moore to work several days afterwards, constituted an effective denial of Moore’s request for FMLA leave. In addition, the Court found that Moore’s situation constituted “unusual circumstances” under pertinent federal regulations, which justified her failure to comply with the employer’s rule requiring employees to notify Human Resources of requests for FMLA leave. Based on these findings, the Court held that the employer interfered with Moore’s FMLA rights.

The very clear takeaway for employers and HR professionals is that employers can end up in court, in a very bad spot, if supervisors are not sufficiently trained to recognize an employee’s request for FMLA leave and understand the procedures to process it.
__________________________
[i] U.S. District Court, Southern District of Alabama, Southern Division, Case No. 17-0500-WS-N (June 3, 2019)