Employment Law

Failure to WARN Alleged in Complaint Against Yahoo

Why it matters

In a novel lawsuit, a former employee of Yahoo claims that the company manipulated its performance-review rating system in order to dodge both the federal Worker Adjustment and Retraining Notification (WARN) Act and its California analogue. According to Gregory Anderson, the quarterly performance reviews where each Yahoo worker is rated on a scale of 0 to 5 were used to help the company fire more than 1,000 employees over the last few years. As a matter of routine, he alleged in his California federal court complaint, senior managers would give workers lower than deserved ratings, justifying mass terminations so as not to trigger the requirements of the WARN laws, which mandate that an employer provide advance notice and benefits when mass layoffs occur. Although Yahoo never provided notice, it laid off 1,100 workers between late 2014 and early 2015 ostensibly for performance reasons. The lawsuit could prove costly to the company, as both federal and state WARN Acts include civil penalties of $500 per day for violations, as well as a requirement to provide back pay and benefits for each day of advance notice that were not provided. Yahoo defended its ratings system in a statement, stating that the process "allows for high performers to engage in increasingly larger opportunities at our company, as well as for low performers to be transitioned out."

Detailed discussion

When Marisa Meyer took the helm at Yahoo in July 2012, she instituted a new system of performance reviews at the company. Each quarter, direct supervisors assign each employee a number from 0.0 to 5.0 based on how that worker performed compared to his or her immediate peers. The Quarterly Performance Reviews (QPRs) result in employees being placed into one of five ranks, referred to as "buckets," as follows: Greatly Exceeds, Exceeds, Achieves, Occasionally Misses, and Misses.

In a new complaint filed in California federal court, former Yahoo Editorial Director Gregory Anderson challenged the system, alleging that the company manipulated QPRs to avoid meeting the requirements of both state and federal law.

Each quarter, according to Anderson, a specified percentage of each department's employee population would be assigned to each bucket, and managers were required to rank employees so that a sufficient percentage was assigned to each bucket—even if all the employees were performing well or at the same level. Senior management also had the power to change scores in the second step of the process, referred to as "calibration," even if they had no contact with the employee, he said.

The rules of the process changed frequently and were communicated on a "need-to-know" basis, the complaint added, with the percentage of employees to be assigned to each bucket changing each quarter, and different percentages for each bucket assigned to different departments within the company.

Employees were never told their actual numeric ranking or how it had been determined, Anderson said, but only notified of their bucket ranking or that they were being terminated because of that ranking. "The QPR process was opaque and the employees did not know who was making the final decisions, what numbers were being assigned by whom along the way, or why those numbers were being changed," Anderson claimed. "This manipulation of the QPR process permitted employment decisions, including terminations, to be made on the basis of personal biases and stereotyping."

In his own situation, Anderson alleged that he was targeted because he was male and that his QPR scores were lowered to effectuate his termination in November 2014.

Yahoo ran afoul of the federal Worker Adjustment and Retraining Notification (WARN) Act as well as the state analogue by relying on manipulations of the QPR system to terminate large numbers of workers, Anderson claimed. By lowering worker scores to state the reductions were based on poor performance, the company did not follow the requirements of either law.

Both the federal and state WARN Acts mandate that employees be given advance notice of a reduction in force of more than 50 employees within a 30-day period and provided with certain benefits. Yahoo has yet to comply with either statute despite reducing its workforce by 31 percent between January 2012 and July 2015, Anderson alleged, with more than 1,000 workers let go.

"Because of Yahoo management's manipulation of the QPR process without safeguards or accountability, employment terminations made pursuant to the QPR process are without legal or just cause, lack good faith, falsely rest on non-existent or pretextual causes, and are made in violation of the legal rights and contractual expectations of Yahoo's employees," according to Anderson's complaint. "Defendant Yahoo should have notified large numbers of its employees of their rights under the California and federal WARN Acts prior to their termination, and Yahoo should have compensated those employees for a period of up to sixty (60) days with wages and benefits."

In addition to claims for gender-based discrimination in violation of California's Fair Employment and Housing Act and Title VII, termination in violation of public policy, and violation of California's unfair competition law, Anderson seeks damages and penalties under both WARN Acts.

Specifically, he requested a judicial declaration that Yahoo's use of the QPR process constitutes a violation of the statutes and asked the court for back pay for each day of the violations, benefits under Yahoo's employee benefit plan, a civil penalty of $1,000 per day for each day the plaintiff was entitled to have received notice under the WARN Acts ($500 for each statute) and did not, as well as attorneys' fees.

In response to the lawsuit, Yahoo issued a statement defending its practices, stating that the performance review process "allows for high performers to engage in increasingly larger opportunities at our company, as well as for low performers to be transitioned out."

To read the complaint in Anderson v. Yahoo, click here.

back to top

Equal Pay Act in Action: Court Approves $8.2M Settlement

Why it matters

As both states and the federal government amp up their efforts to enforce the Equal Pay Act (EPA)—with the Equal Employment Opportunity Commission (EEOC) set to collect pay data from employers and states passing their own versions of the statute—a federal court judge in California granted final approval to an $8.2 million deal for a class of about 1,500 female pharmaceutical reps in an EPA lawsuit. The case involved allegations that although half of the company's sales representatives were female, just one-third of the district managers were female and the upper-level management positions were almost entirely filled by men. The complaint referenced a "high number" of harassment and discrimination complaints against the employer, adding that the mostly male management made final pay decisions that favored men and disfavored women in violation of the EPA. After the court conditionally certified a collective action for the female reps, the employer agreed to pay $4.6 million to the women and retain a consultant to review its employment policies and practices, including criteria in promotions and career development. The settlement fund will be paid proportionately between the class members as back pay, based upon the number of workweeks during the damages period. The employer also agreed to cover the costs of settlement administration, incentive awards for class representatives (ranging from $1,000 to $25,000), and about $3 million in attorneys' fees and costs.

Detailed discussion

The Equal Pay Act (EPA) has been making headlines across the country in recent months, with states passing their own versions of the legislation from California to New York. In addition, the Equal Employment Opportunity Commission (EEOC) announced in January that in an effort to ensure fair pay, employers will be required to provide information about pay data beginning in September 2017.

The statute is also appearing in the courtroom. A federal court judge in California recently granted final approval to a deal between a class of female pharmaceutical sale representatives and Daiichi Sankyo.

Sara Wellens and her fellow female sales reps filed suit alleging violation of the EPA as well as Title VII and California's Fair Employment and Housing Act (FEHA). The plaintiffs alleged that upper-level management at Sankyo consisted of almost entirely male workers, even though half of the sales reps were female. An intermediary level of management only had one-third representation by women and a "high number" of harassment and discrimination complaints were made against the employer, demonstrating a hostile working environment for women, the plaintiffs contended.

In May 2014, the court granted conditional certification in the case and the parties began to negotiate. Preliminary approval of the settlement agreement was granted last October, and U.S. District Court Judge William H. Orrick signed off on the deal in February.

Sankyo agreed to pay a total of $8.2 million, of which $4.6 million will be divided among approximately 1,500 plaintiffs, broken down into two classes: a California settlement class employed as female sales representatives between April 16, 2011, and October 16, 2015, and a similar group of those outside the state. The bulk of the settlement fund – $3.7 million – will be paid on a proportionate basis to the class members as back pay based on the number of weeks worked during the relevant time period.

The remaining $926,200 will be paid to those plaintiffs with related claims for gender, pregnancy, and caregiver discrimination. To determine the appropriate payment, an independent claims expert will review claim submissions from the class members, allocate points, and then assign a share of the money. Cy pres recipients include the Legal Aid Society Employment Law Center and the Justice and Diversity Center of the Bar Association of San Francisco.

Sankyo also agreed to make changes to its practices and hire an independent human resources consultant to review its employment policies, reserving $200,000 for its costs. The HR consultant will consider issues such as the criteria used in promotions, career development, breastfeeding accommodations, and flexible work arrangements. The company promised that going forward, all district manager positions would be posted and the processes related to maternity leave and mothers returning to work would be tweaked. Additional training on Equal Employment Opportunity policies will be provided.

The remaining money paid by the company will cover attorneys' fees and costs (about $3 million), settlement administration, and service payments to class representatives ranging from $25,000 (for six plaintiffs) to $6,000 for five class members, $5,000 awards for three plaintiffs and $1,000 payments to 20 representatives.

With no objections filed by any class members (and just three electing to opt out), "[t]he Court finds that the terms of the Agreement are fair, reasonable, and adequate in all respects," Judge Orrick concluded.

To read the order granting final approval of the settlement in Wellens v. Daiichi Sankyo, click here.

back to top

Court Allows Suit Challenging Changes Due to ACA to Move Forward

Why it matters

Reducing an employee's hours simply to avoid the requirements set by the Affordable Care Act (ACA) may constitute a violation of the Employee Retirement Income Security Act (ERISA), a New York federal court judge has ruled, refusing to dismiss a class action suit against Dave & Buster's. Maria De Lourdes Parra Marin sued the national chain alleging that store managers informed workers that due to the $2 million the ACA would cost the company, the New York location she worked at was cutting its full-time employees from over 100 to about 40 before the new law took effect last January. Marin told the court her previously full-time position was cut to about 17 hours per week, resulting in a loss of hundreds of dollars of income each week as well as health benefits. The employer countered that employees are not entitled to benefits or hours that had yet to be accrued and that Marin had only demonstrated a lost opportunity insufficient to bring suit. But the judge disagreed, writing that the plaintiff alleged the loss of both current and future rights, as "the complaint states a plausible and legally sufficient claim for relief, including, at this stage, plaintiff's claim for lost wages and salary incidental to the restatement of benefits."

Detailed discussion

Maria De Lourdes Parra Marin was a full-time employee at a Dave & Buster's location in New York's Times Square, working between 40 to 45 hours each week beginning in 2006. As a full-time employee, she received health insurance under the D&B health insurance plan, which was an "employee welfare benefit plan" under the Employee Retirement Income Security Act (ERISA).

According to Marin, the D&B store managers held a meeting in June 2013 to inform employees that things would be changing due to the requirements of the Affordable Care Act (ACA). The managers told workers that compliance with the ACA would cost the company as much as $2 million, and to avoid this expense, D&B intended to reduce the number of full-time employees at the Times Square location from more than 100 to about 40.

After the meeting, Marin's hours were reduced to an average of 17.43 hours per week, ranging between 10 and 20 hours. She also received a letter from D&B informing her that because she now had part-time status, her full-time health insurance coverage would be terminated. All told, she claimed, she suffered a loss of full-time status, a reduction of hundreds of dollars in pay each week (from $450-$600 to $150-$375), and the termination of her medical and vision benefits.

She sued. D&B violated Section 510 of ERISA, Marin alleged, which provides that it is "unlawful for any person to discharge, fine, suspend, expel, discipline, or discriminate against a participant or beneficiary for exercising any right to which he is entitled under the provisions of an employee benefit plan … or for the purpose of interfering with the attainment of any right to which such participant may become entitled under the plan."

Filed as a putative class action, Marin's complaint estimated the class consists of roughly 10,000 current and former D&B employees, requesting reinstatement to full-time status and restoration of benefit entitlements along with payment of lost wages and benefits, including reimbursement for insurance or out-of-pocket healthcare costs.

Dave & Buster's moved to dismiss the suit, telling the court that the plaintiff failed to state a legally sufficient claim for relief because Marin had no entitlement in benefits that had yet to accrue.

U.S. District Court Judge Alvin K. Hellerstein disagreed.

Read fairly, the complaint alleged that the employer intentionally interfered with Marin's current healthcare coverage, the court said, motivated by a concern about future costs. The plaintiff also put forward factual support for her claims, referencing multiple meetings held by the store managers and the $2 million figure cited.

"The complaint describes a nation-wide effort to lower the number of full-time and part-time employees, and that similar meetings were held at other locations," the judge wrote, including an employee from another location posting on Facebook about a similar June 2013 meeting where "[t]hey called store meetings and told everyone they were losing hours (pay) and health insurance due to Obamacare."

In addition, Marin noted that a senior human resources official with the company was quoted in a newspaper article about reduced workforce saying, "D&B is in the process of adapting to upcoming changes associated with health care reform." A September 2014 Securities and Exchange Commission filing further stated: "Providing health insurance benefits to employees that are more extensive than the health insurance benefits we currently provide and to a potentially larger proportion of our employees, or the payment of penalties if the specified level of coverage is not provided at an affordable cost to employees, will increase our expenses."

The reduction in Marin's hours affected her employment status, her pay, and the benefits she had and to which she would be entitled, the court said. Her claims were more than just a lost opportunity, as argued by the defendant, as she alleged D&B's discrimination affected her current benefits in addition to interfering with her ability to attain future benefit rights.

"The critical element is intent of the employer—proving that the employer specifically intended to interfere with benefits," Judge Hellerstein wrote, and the plaintiff satisfied that requirement. "Plaintiff's claim arises from the employer's unlawful motivation, acting to interfere with either the exercise or the accrual of benefits to which Plaintiff 'may become entitled,' " the court said. "Plaintiff has sufficiently and plausibly alleged this element of intent."

Accepting Marin's factual allegations as true, "the complaint states a plausible and legally sufficient claim for relief, including, at this stage, Plaintiff's claim for lost wages and salary incidental to the reinstatement of benefits," the court wrote, denying the employer's motion to dismiss.

To read the order in Marin v. Dave & Buster's, Inc., click here.

back to top

Technical Violation of FCRA Enough to Continue Suit Against Employer

Why it matters

Reiterating the need for employers to ensure compliance with every word of the Fair Credit Reporting Act (FCRA), an Illinois judge let a suit proceed against Sprint over background checks, holding that the alleged technical violation of the statute can move forward despite the fact that the plaintiff suffered no actual harm. An applicant for a position at a Sprint store in Chicago signed a form titled, "Authorization for Background Investigation." He then sued the company asserting a violation of Section 1681 of the FCRA, arguing that Sprint willfully ran afoul of the statute because the authorization form did not consist solely of the required disclosure. The employer responded with a motion to dismiss because the applicant suffered no actual harm. Whether or not the applicant suffered any harm was irrelevant, the court said, as the "FCRA exists to protect the privacy and economic interests of consumers." Congress established enforceable statutory rights in the FCRA, the judge wrote, and created a remedy within the Act that was not dependent upon evidence of harm.

Detailed discussion

In June 2015, Roberto Rodriguez applied for a job at a Sprint retail store in Chicago. As part of the application process, Sprint provided Rodriguez with a form seeking his authorization to perform a background check.

Titled "Authorization for Background Investigation," the form contained "third party authorizations, a blanket release of multiple types of information from multiple types of entities, state specific information, and various statements above and beyond a disclosure that a consumer report would be procured." Rodriguez signed the form and Sprint obtained a consumer report on him from a consumer reporting agency.

Rodriguez then filed suit against Sprint in November 2015, alleging a violation of Section 1681b(b)(2)(A) of the Fair Credit Reporting Act (FCRA). That provision provides that a "person may not procure a consumer report" unless: "(i) a clear and conspicuous disclosure has been made in writing to the consumer at any time before the report is procured or caused to be procured, in a document that consists solely of that disclosure, that a consumer report may be obtained for employment purposes; and (ii) the consumer has authorized in writing (which authorization may be made on the document referred to in clause (i)) the procurement of the report by that person."

Because Sprint's authorization form did not "consist[] solely of the disclosure," Rodriguez claimed the company committed a willful violation of the statute. The complaint requested statutory damages and punitive damages as well as costs and attorneys' fees.

Sprint offered the plaintiff $1,000 to settle his claim. When Rodriguez let the offer lapse, the defendant moved to dismiss the suit for lack of subject matter jurisdiction based on the purported absence of a case or controversy.

Relying in part upon the U.S. Supreme Court's recent decision in Campbell-Ewald Co. v. Gomez, an Illinois federal court judge denied the motion. In that case, the Justices determined that a lapsed offer of judgment has no effect on the justiciability of a case and does not nullify a live controversy between the litigating parties.

As an alternative, Sprint contended that Rodriguez lacked standing because he failed to allege any actual harm and did not seek any actual damages, leaving him without a concrete injury capable of judicial redress. While that argument would generally prevail, Congress has the power to confer standing with the creation of statutory rights, U.S. District Court Judge Matthew F. Kennelly wrote, as the Legislature did with the FCRA.

"[I]t is readily apparent that Rodriguez has alleged an injury in fact sufficient to confer standing to sue under Article III," the court said. "The FCRA exists to protect the privacy and economic interests of consumers. The purpose of the law is to protect consumers by requiring consumer reporting agencies to meet the needs of commerce 'in a manner which is fair and equitable to the consumer, with regard to the confidentiality, accuracy, relevancy, and proper utilization of such information.' "

One way that Congress attempted to achieve this purpose was through Section 1681b(b)(2)(A)'s disclosure provision, providing that a consumer's private information may be disclosed only after he or she has signed a clear and decipherable authorization, the court explained. A separate provision, Section 1681n(a), established an enforcement mechanism where "[a]ny person who willfully fails to comply with any requirement imposed under this subchapter with respect to any consumer is liable to that consumer in an amount equal to … damages of not less than $100 and not more than $1,000."

"Section 1681b(b)(2)(A) exists to ensure that consumers who authorize disclosure do so freely and knowingly, and together with the private enforcement provision in Section 1681n(a), it imposes a binding, mandatory obligation on a party in Sprint's position," Judge Kennelly wrote, with harm not a necessary component of the equation. "Congress enacted the FCRA to protect consumer control over personal information the exposure of which, though often necessary in the modern economy, can result in a significant invasion of privacy and can jeopardize a consumer's personal, reputational, and financial well-being. The statute provides that when a person or entity willfully violates a mandate of the FCRA that is designed to protect these interests, the aggrieved consumer may recover statutory damages."

The court cited similar conclusions from the Sixth, Eighth, and Ninth Circuit Courts of Appeals. Sprint's argument that those decisions were balanced by opposite authority from the Second, Third, and Fourth Circuits—as well as the fact that the Ninth Circuit case, Robins v. Spokeo, is currently pending before the U.S. Supreme Court—did nothing to change the court's mind.

"[T]he fact that at least four Justices of the Supreme Court voted to grant certiorari in Robins says nothing about whether at least five Justices will be convinced to reverse the court below," the court wrote. He also distinguished the contrary authority based on the underlying statutes in those cases, the Employee Retirement Income Security Act and the Americans with Disabilities Act.

To read the opinion in Rodriguez v. Sprint, click here.

back to top

Is "Hispanic" a Race? Second Circuit Answers Yes

Why it matters

Is "Hispanic" a race under Title VII? The Second Circuit Court of Appeals answered "yes" in a recent case involving a white, Italian-American employee who sued after being denied a promotion that went to a white, Hispanic candidate. Christopher Barrella claimed that although he achieved the highest score on the required exam and had stronger qualifications for the town's police chief position, the mayor selected the other candidate, later touted as the "first Hispanic" and "first Latino" police chief. A jury agreed, awarding Barrella $1.35 million despite the town's defense that "Hispanic" was not a distinct race as a matter of law and that the plaintiff and selected candidate were both white. The Second Circuit sided with the jury, finding that while the use of "Hispanic" has been "less-than-straightforward," the term does refer to a race under the statute.

Detailed discussion

Andrew Hardwick was elected as mayor of the Village of Freeport, New York, in 2009. Once in office, Hardwick sought to replace the all-white police department command staff with officers who would help him "achieve his vision of community unity."

Hardwick identified Miguel Bermudez as his preferred candidate for chief of police. A resident of Freeport, Bermudez was born in Cuba and self-identified as a member of the white race. He had known Hardwick for more than 25 years, and the outgoing police chief recommended him for the position.

The police chief job is a civil service position for which candidates must sit for a promotional examination, and six lieutenants sat for the exam. Christopher Barrella, a white Italian-American, scored the highest. Bermudez came in third.

When Hardwick selected Bermudez, Barrella filed suit against Hardwick and the Village of Freeport, alleging discrimination based on race and national origin in violation of Title VII, Sections 1981 and 1983, and New York state law.

During the three-week trial, Barrella argued he was more qualified than Bermudez because in addition to receiving the highest score on the exam, he had earned a master's degree in criminal justice and a law degree while Bermudez had not completed college. After five days of deliberation, a federal court jury found Hardwick had intentionally discriminated against Barrella and awarded the plaintiff $1.3 million.

The defendants appealed. They told the court that as a matter of law, "Hispanic" does not constitute a distinct race, meaning both Barrella and Bermudez are white and Hardwick's decision to promote one white candidate rather than another could not have been racial discrimination.

Characterizing the issue as "a vexed and recurring question," the Second Circuit Court of Appeals held that Hispanic does constitute a race.

The federal government's "less-than-straightforward" use of the terms "race" and "Hispanic" has resulted in confusion about their legal definitions, with the terminology changing over time (in 1930, the Census Bureau counted the "Mexican" race while current usage recognizes "Hispanic or Latino" as an ethnicity where members can belong to any race). Societal use has also varied, with the federal appellate panel noting that Hispanics themselves often identify differently than the suggested bureaucratic categories.

Despite this confusion, "the existence of a Hispanic 'race' has long been settled with respect to Section 1981," the court said. "Although that statute never uses the word 'race,' the Supreme Court has construed it as forbidding 'racial' discrimination in public or private employment," in a 1987 decision, Saint Francis College v. Al-Khazraji.

"As a result, two people who both appear to be 'white' in the vernacular sense of the term, and who would both identify as 'white' on Census forms and the like, may nonetheless belong to different 'races' for purposes of Section 1981," the panel wrote. "Similarly, someone may belong to more than one 'race' for purposes of that statute."

Hispanics clearly constitute an ethnic group, the court said, and after the Saint Francis College decision, the Second Circuit recognized that discrimination against Hispanics constituted racial discrimination under Section 1981.

With that settled, the panel turned to Title VII, where it noted that the protected classes – including race and national origin – may substantially overlap in a specific case. The distinction is important, the court explained, because Section 1981 does not prohibit discrimination on the basis of national origin. Therefore, if Hispanic was treated as a national origin and not a race, a potential plaintiff would be required to present two different factual arguments in a case alleging violations of both Section 1981 and Title VII.

The panel rejected the district court's holding that the question of whether Hispanic constituted a race was one of fact for the jury. The error was harmless, however, "because the jury reached the same conclusion as we do today: that discrimination based on ethnicity, including Hispanicity or lack thereof, constitutes racial discrimination under Title VII."

"We reach this conclusion for two reasons: First, we analyze claims of racial discrimination identically under Title VII and Section 1981 in other respects, and we see no reason why we should not do the same with respect to how we define race for purposes of those statutes," the Second Circuit wrote. "Second, we have repeatedly assumed that claims of ethnicity-based discrimination, including discrimination based on Hispanicity, are cognizable as claims of racial discrimination under Title VII, albeit without holding so explicitly."

The court added that a claim of discrimination based on Hispanic ethnicity or lack thereof may also be cognizable under the rubric of national-origin discrimination, depending on the particular facts of the case. "We hold only that for purposes of Title VII, 'race' encompasses ethnicity, just as it does under Section 1981," the panel concluded.

However, the court reversed the jury verdict in favor of Barrella, ruling that the trial court allowed multiple witnesses to impermissibly speculate about Hardwick's motives for various personnel decisions. For example, one witness testified that the new head of Human Resources "couldn't possibly be qualified to do what she was doing" and the only reason he could imagine for her being hired was "that she was a female Hispanic." The panel remanded the case for a new trial.

To read the decision in Village of Freeport v. Barrella, click here.

back to top

New Sick Leave Rules for New York City Employers Effective March 4, 2016

Author: Jessica Shpall Rosen

Why it matters

Many employers in New York City have been grappling with implementing compliant paid sick leave programs for almost two years. In a set of amended rules, the New York City Department of Consumer Affairs clarifies ambiguities and imposes new obligations on employers. While some of the new rules seem intuitive, others may surprise employers who have been carefully tracking developments in the law and administrative guidance.

Detailed discussion

The New York City Department of Consumer Affairs has issued amended New York City sick leave rules that are scheduled to take effect March 4, 2016. While some of the changes appear to clarify existing law, others impose new obligations on employers. Of particular interest to most employers are the changes to the rules regarding sick leave policies, employee records, and penalties. While many New York City employers have sick leave policies that appear on their face more generous than the rights provided under the sick leave law (formally entitled the "Earned Sick Time Act"), the law and the rules issued by the Department impose highly technical requirements that may trap the unwary.

New Content Requirements for Policies

The prior version of the rules required employers to distribute written policies on sick time and provide employees with the mandatory Notice of Rights form published by the Department of Consumer Affairs. The new rule goes a step further by expressly stating that employers must draft and distribute sick leave policies with specific terms and must follow such written policies. At a minimum, employer sick leave policies must: (1) state the employer's method for calculating accrual or frontloading of sick time; (2) describe the employer's policies regarding the use of sick time; and (3) discuss the employer's policy regarding carry-over of unused sick leave time, as required by the law. Employer policies must also describe any requirement that employees provide notice of the need to use sick time, any requirement for written medical documentation or verification by the employee that sick leave was used for an authorized purpose (and any consequences of failing to timely do so), any reasonable minimum increments or fixed periods for the use of sick time, and any policy for disciplining employees who misuse sick time. Significantly, the rules clarify that an employer has an "additional and separate" obligation to provide the Notice of Rights form and that an employer may not distribute the Notice of Rights form in lieu of preparing its own written sick time policies.

Significant Recordkeeping Requirements for Employers

Previously, employers were merely required to track individual employees' sick leave accrual and use. Now the Department requires employers to keep very detailed time records and make them available upon request. Specifically, employers must maintain in "an accessible format, contemporaneous, true, and accurate" records that show: (1) the employee's name, address, phone number, start and end dates of employment, rate of pay, and whether the employee is exempt from the New York state overtime requirements; (2) the hours worked each week by the employee (unless the employee is exempt and has a regular work week of 40 or more hours); (3) the date and time of each instance of sick leave and the amount paid for that time; (4) "any change in the material terms of employment specific to the employee"; and (5) the date that the Notice of Rights was provided to the employee and "proof" that the Notice was "received by the employee."

Employers are likely not accustomed to keeping such detailed time records for employees exempt from the overtime requirements of state and federal law. However, under these new rules, it appears that the Department expects all employers to record the precise start and end time of sick leave for all employees, regardless of exempt status, creating new administrative obligations for employers. Regarding records of a "change in the material terms of employment," it appears that the Department seeks to use this information to determine whether alleged retaliation has occurred. Indeed, a new "Retaliation" rule provides that the Department may indirectly establish a causal connection between an employee's exercise of rights and an adverse action, such as through evidence that taking sick leave (or making a complaint about sick leave) was "followed closely" by an adverse employment action. In addition, an employer need not merely provide the Notice of Rights; rather, it must keep a dated proof of receipt by an employee. This was previously recommended as a best practice and is now required.


The rules offer some new detail about penalties. Among other new penalties, if the Department finds that an employer has a policy or practice of prohibiting the use of paid sick leave, it may incur a penalty of up to $500 for each employee affected by the policy for the first violation (up to $1,000 per employee for subsequent violations). In addition, if an employer does not allow accrual of sick time as required by the law, every affected employee must be provided with 40 hours of sick time (or, if known, the amount of sick time that the employee should have accrued, up to 80 hours).

Other Developments

The new rules address other miscellaneous issues, such as the size of covered employers, interplay between temporary help firms and employers, incremental use of sick time, rate of pay and measurement of accrual of sick time for employees who are not compensated on an hourly basis (such as piecework and commission basis), and rehire situations, among others.

Compliance Tips

  • Review sick leave and paid time off policies to ensure compliance with the technical requirements of the NYC sick leave law; it is conceivable that a technical flaw (such as not allowing sick time to carry-over) could lead to significant penalties.
  • Require all employees to record sick leave start and stop times, not just non-exempt employees who are accustomed to clocking in and out.
  • Require employees to sign an acknowledgment of receipt of the employer's own sick leave policy and the Notice of Rights form or send the documents by email and require and keep return receipts for all employees.
  • Monitor developments in this area, as the enforcement guidance about best practices is still evolving.

back to top

In Case You Missed It: Managing International Data Transfer Risks in Employment Screening

Up until October 2015, Safe Harbor rules had governed EU data flow for about 15 years. After the EU's decision to strike the agreement, U.S. companies involved in international data transfer may face liability or enforcement action if the necessary precautions are not taken. Indeed, Germany has recently indicated that it will investigate global companies that are relying on the defunct Safe Harbor. Meanwhile, the U.S. and European Commission have reached a tentative agreement on a "Privacy Shield" framework to replace the Safe Harbor, but uncertainty remains until this deal is finalized. Click here to read Manatt's summary of the Privacy Shield and its implications for global companies in our Advertising Law Newsletter.

If you missed our recent webinar, "Managing International Data Transfer Risks in Employment Screening: Best Practices and Compliance Strategies," now you have a second chance to benefit from this program. Manatt partner Rebecca Torrey and Joann Gold of Scherzer International led this session to help employers understand and navigate the multiple layers of complexity involving international data transfers and employee background screens. If you would like to listen to this webinar on demand, click here to access the audio recording. To download a hard copy of the presentation, click here.

back to top



pursuant to New York DR 2-101(f)

© 2024 Manatt, Phelps & Phillips, LLP.

All rights reserved