New York Small Business Law

Hiring Employees in New York - Surviving the Paperwork

There is a reason many startups and small businesses try getting away with using independent contractors as long as they can.  Hiring employees means a lot of paperwork and added responsibilities, potential liabilities, extra financial burdens and on and on...

When you  hire a new employee in New York, this is some of the paperwork that awaits you:

1. New Hire Reporting

In order to get hold of child support debtors, every new employee needs to be reported as a "new hire."  This so called new hire reporting can be done online.

2. Unemployment, Wage Reporting, Tax Withholding Registration

You need to fill out NYS-100 and file it with New York State's Department of Labor in order to register as an employer and for purposes of wage reporting and tax withholding. Unemployment Insurance gets paid together with your quarterly tax payments to New York State, i.e. the state and city taxes you withhold from your employee's paycheck.

3. Workers Compensation and Disability Insurance

You must arrange (and pay) for workers compensation and disability insurance for your employees.  You can do so through a private insurance carrier, or choose to go with New York's semi-governmental Insurance Fund.

4. Knowing your obligations as an Employer

For more of your obligations as a New York employer, read this helpful guide by New York's Attorney General.  As you will see in the guide, some of the obligations are no laughing matter, since there may be criminal penalties for non compliance.

For more federal reporting obligations, check out this IRS' guide.

5. Decking the Halls with Posters

Finally, be prepared to decorate your business with all kinds of posters required by federal and state law.  To find the required federal posters, consult this E-laws -Poster Advisor.  For New York posters, see here.

**This post is for informational purposes only and does not constitute legal advice**

Why Independent Contractors are Gold for Small Business

1.  Tax and Payroll Savings

Compared to employees, independent contractors save small businesses a lot of hassle, taxes, and paperwork.  A small business does not have to do payroll for independent contractors; it does not have to pay social security and Medicare taxes, unemployment taxes or provide workers compensation and disability insurance.  These taxes and insurances really add up, as well as the cost for preparing all necessary paperwork and complying with the tax and reporting requirements.

2.  Limited Liability Exposure

A small business may not automatically be responsible for damage caused by an independent contractor, whereas wrongdoing of an employee is often directly imputed to the small business employer, even if the employer had no fault in the wrongdoing of the employee.

In addition, many anti-discrimination and similar laws do not apply to independent contractors, only to employees.

So why would any small business ever hire an employee?  Very simple, the decision whether their "hired help" is an independent contractor or employee is not up to them.  There are numerous legal tests and court cases available to determine whether a worker is an independent contractor or employee.  Very, very generally speaking, the more control the small business has over the worker in terms of hours worked, equipment used, power to terminate, and other aspects of the working relationship, the more likely it is that a worker would be classified as an employee.

To make matters even more complicated, the various state and federal agencies and courts have different tests that may result in different classifications.  In other words, while the IRS may be o.k. with your worker's status as an independent contractor, New York courts may have a different opinion when having to decide whether a tort was committed by an independent contractor or an employee, i.e. whether the small business should be made liable for the tort without any wrongdoing of its own.

To learn more about the IRS' ideas about independent contractors/employees, look here.

Independent Contractors explained by the New York State Department of Labor.

**This post is for informational purposes only and does not constitute legal advice**

Seal of Approval for Forfeiture for Competition Agreements

You may know that non-compete agreements between an employer and an employee are problematic since there is always the real possibility that a court may find that the restrictions put on the employee in the agreement are unreasonable.  There are even websites trying to help employees break their non-competes.  Nonetheless, businesses would like to be protected from an employee leaving the job and competing with them or joining a competitor.  Thanks to a recent case* decided by the New York Court of Appeals, employers can be even more confident than before that a certain type of non-compete agreement will hold up in New York courts.  (For the scholarly article on this see Friday's New York Law Journal, "Noncompetes With No Reasonableness Hurdles" by Fagie Hartman, subscription required).

The type of non-compete agreement is a so called "Forfeiture for Competition Agreement."  The gist of these agreements is "we'll pay you a chunk of money and benefits to be vested at a later time, but if you leave your job with us and go to the competition, we'll pay you nothing."  New York courts have found these agreements to be valid without going into the tedious question whether they are reasonable or not in each individual case, because they figured it was the employee's choice whether to compete and forfeit the benefits, or take the benefits and refrain from competing.  However, this was only legitimate, if the employee left on his own devices and was not fired.

The  New York Court of Appeals cemented this favorable legal rule for employers by holding that post-employment forfeiture for competition agreements will be enforced without regard to reasonableness.  But the employee in question claimed he was as good as fired, because he was demoted and thus the employer "fired" him from the job that he was doing before and wanted to keep.  He had no choice other than to leave and that is why the non-compete agreement should be invalid.  The court disagreed.  With respect to what constitutes leaving a job voluntarily versus leaving a job involuntarily (i.e. being fired), the court said that an employee only leaves a job involuntarily if the working conditions at the time of his resignation were so intolerable that a reasonable person would have been forced to leave the job.  Whether the employee was asked to do a job that was not comparable to his earlier job responsibilities was irrelevant. 

*Morris v. Schroder Capital Management, 2006 N.Y. Slip. Op. 08638 (N.Y.Nov 21, 2006)

Confidentiality Agreements between a Business and an Employee

A confidentiality agreement (also known as a Non-Disclosure Agreement) is meant to protect a business from misappropriation of valuable proprietary information by employees.  Often it is a good idea to have one in place with your employees.

When drafting or reviewing such a confidentiality agreement, check the following points (and consult with your attorney):

1.    Use the proper form of Confidentiality Agreement

Make sure that the form of the confidentiality agreement that was used to draft your agreement is appropriate for the business-employee situation.  Confidentiality Agreements designed for a business to business transaction where both parties disclose confidential information won’t do.

2.    Define Confidential Information

There must be a definition of what constitutes confidential information.  Be specific, but also include a more general “catch-all” provision.  Do not make confidential information depended on whether it was expressly marked as such.  Exclude information that is public or already in the lawful possession of the employee.

3.    State the Confidentiality Obligations

No disclosure of confidential information, unless to authorized other employees or compelled by court order (but we will have right to defend against court order before disclosure);

No removing of confidential information from business’ premises;

No poking around in confidential information to learn more than we disclosed (i.e. reverse engineer any data, software and so forth);

No reproduction of confidential information from memory;

Use of confidential information only for job purposes;

Obligation to notify business immediately upon learning that confidential information was disclosed or used inappropriately;

Upon notice by business, return of any confidential information in employee's possession.

4.    State your Remedies

Money damages are often not sufficient to make whole for a business’ loss caused by disclosure of its confidential information.  A business must also be able to stop an employee in his or her tracks when disclosure is imminent.  To make courts give those remedies, it is advisable to state that in the agreement. In legalese, these provisions might be called  “Equitable Relief” or “Injunctive Relief.”

5.    Make the employee pay for the consequences of his or her breaches of confidentiality

In legalese, these provisions might be called “Indemnity.”  Make sure the indemnification clause includes “including reasonable legal fees incurred by the businesss.”

6.    State the Term of the Agreement

Usually as long as the confidential information remains confidential.

7.    Remember the limits of a Confidentiality Agreement

Confidentiality Agreements only offer so much protection.  Don’t neglect very practical protective measures:

Limit access to “as needed”;

Clearly identify confidential information (if verbal, say so), but don’t make that a prerequisite for your definition of confidential information (see above);

Monitor dissemination of confidential information by any appropriate means;

Continuously remind employees of confidential nature, i.e. verbally, in work manuals and so forth);

Implement security measures.

Have I forgotten any important point?  Feel free to comment.

Why using a Non Compete Agreement found on the Internet is a Bad Idea

A former employee taking customers from a business after having left the company's employ is many business owner's nightmare.  Thus, many businesses try to prevent their employees from competing with them during and even after the employment relationship has ended.   The solution seems simple: make  the employee sign a non compete agreement that prevents him or her from ever competing with the business.  Well, it ain't so easy.

Keeping your Employees' Personal Information Safe- the Security Breach and Notification Act

Picture this:  Your accountant has access to all of your employees' records which she keeps on her computer system.  One day, against better judgment, she leaves the laptop in her car.  The laptop gets stolen.  Next thing you know, your employees are victims of identity theft. (Accountants loosing laptops seems to be a common occurrence.  See here, here and here).  What to do?

Don't try to sweep these kinds of accidents under the rug.   New York has a new law that tells you exactly what businesses must do under these circumstances.  The new law requires employers to notify employees of a misappropriation of employees' personal information immediately.

The law is called Security Breach and Notification Act and the part applicable to businesses can be found in  Section 899-aa of New York's General Business Law (sorry, can't link to it directly, go here  ▶  "Laws of New York" ▶ GBS  General Business  ▶ Article 39-F ▶ 899 AA)

If you do business in New York, you must disclose to a New York resident when their private   information was, or is reasonably believed to have been, acquired by a person without valid authorization.

An employee's social security number, driver's license number, account number, credit card number and similar information are all considered personal information.

If any of this information is stolen or anything else happens that makes it likely that unauthorized persons have access to it, you must - in the most expedient time possible without unreasonable delay - inform the affected employees in the manner provided by the law.

It seems to be a no-brainer to keep that sort of information safe in the first place in order to avoid security breaches and prevent employee law suits based on negligent handling of their information.  In any event,  good advice would be to:

• keep employee information secure by putting in place appropriate security measures for inhouse recording and archiving and requiring similar standards from outside consultants who have access to the information (leaving a laptop in the car should definitely not be allowed!);

• limit the number of employees and outside consultants who have access to the information;

• educate employees about consequences of unauthorized access and disclosure of personal information.

For more information see New York's Office of Cyber Security & Critical Infrastructure Coordination.

****Legal Information is not Legal Advice****

Your Employee's Right to Party!

Did you know that your employees have a right to pretty much do whatever pleases them outside of work?   New York law (New York labor law Section 201-d 1.b.) prohibits employers from firing employees for "engaging in legal recreational activities outside work hours."  "Recreational activities" are "...any lawful, leisure-time activity, for which the employee receives no compensation and which is generally engaged in for recreational purposes including but not limited to sports games, hobbies, exercise, reading and the viewing of television, movies and similar material."

In an interesting article in the New York Law Journal ("An Employer's Latest Internet Quandary: The Blog" subscription required), the authors (Wanda L. Ellert and Judson L. Hand) discuss the statute's applicability to a blogging employee.  They conclude that the statute may indeed protect a blogging employee to some extent.  However, an employee who discloses company secrets is not protected.