According to the Society for Human Resources Management, U.S. employers added 209,000 new jobs in June, below economists’ expectations for the month, and unemployment rate fell to 3.6 percent.

In New York, New York employers have been receiving letters from the Unemployment Insurance Board which demand additional payments for the “IAS Surcharge.” As a reminder, the surcharge is intended to replenish the State’s UI fund, and make up for the fact that the New York State Department of Labor entirely depleted the UI fund by paying out so many benefits during the pandemic. (As we had written on other occasions, the State’s Comptroller found that the Department of Labor errors caused the State to pay out “an estimated billions of dollars” in UI benefits.) The State’s website explains the reasons for the IAS Surcharge that employers will have to pay this year, and potentially for many years to come:

“In March 2020, the federal government passed the CARES Act, creating several pandemic unemployment programs to support out-of-work Americans impacted by the COVID-19 pandemic. As New York State hit unemployment levels not seen since the Great Depression, the Department of Labor would go on to pay more than $105 billion dollars in unemployment and pandemic unemployment benefits between March 2020 and September 2021. As a result of this unexpected emergency, the Unemployment Insurance (UI) Trust Fund was depleted. Like dozens of states around the country, New York State borrowed funds from the federal government to maintain UI and pandemic benefits while the pandemic programs were in effect.

During periods in which there is an outstanding federal loan, New York State law requires contributing employers to pay an annual Interest Assessment Surcharge, or IAS. Beginning in June 2023, employers who make unemployment insurance contributions will be notified of the 2023 IAS amount due. Payment of the IAS is due within 30 days of the date of this notice. Unless the Federal government chooses to abate all or part of the interest incurred or the principal balance amount is repaid with no more interest accrued, businesses will be required to make annual IAS payments until all interest has been fully paid off.”

The U.S. Department of Labor’s rule limiting subminimum-wage payments to tip-earning workers is permissible under federal labor law, a Texas federal judge ruled on Thursday, declining restaurant industry groups’ competing bid for a win and renewed request to block the law. The rule, which took effect in December 2021, allows employers to pay tipped wages for no more than 30 consecutive minutes when a tipped worker is engaged in a nontip-producing task and also disallows tipped wages if a worker spends more than 20% of their workweek on tip-supporting work.  The law also requires employers to pay full minimum wage, not a tipped wage, for nontipped duties like maintenance work, and put time limits on when employers can pay workers subminimum wages when they are engaged in side work that does not produce tips, such as a bartender preparing garnishes or a server cleaning the dining room. 

Restaurant and other industry groups sued to block this rule, arguing that the Department misconstrued the FLSA in promulgating the rule.  However, the judge agreed with the U.S. Department of Labor, finding that the Department’s rule was a “permissible construction” of the tip credit statute, which allows employers to pay workers subminimum wage based on the expectation they will make up the earnings in tips.  The restaurant association is likely to appeal the court’s decision.  In the meantime, employers are expected to adhere to the Department’s rule. 

Food delivery giants DoorDash and Grubhub asked a New York state court to block implementation of a New York City rule that would raise wages for delivery workers, arguing that the regulatory process was flawed.  The rule at issue would compel delivery companies to either pay workers $20 per hour they spend logged into food-delivery apps or $33 per hour spent making deliveries. The rule, which is set to take effect July 12, is the result of the New York City Council’s 2021 passage of Local Law 115, which authorized the City’s Department of Consumer and Worker Protection (“DCWP”) Bureau to study the pay and working conditions of food delivery workers and issue new minimum pay rules for the industry.

Grubhub and DoorDash accused the DCWP of neither studying the issue accurately nor applying its learnings fairly. The companies said that the rule was largely built on survey data of delivery workers that was subjective and biased.  “DCWP merely swept aside all criticism of the surveys claiming without citation to any authority … that it had ‘reviewed the methodological critiques provided in comments but was not persuaded that the survey is inappropriate,” the companies said. “These conclusory statements do nothing to remedy any … systemic methodological failures.”

The companies also criticized the City’s decision to exempt companies like Instacart that primarily service grocery and convenience stores, rather than restaurants, from the new wage rule. Local Law 115 directed the DCWP to study the working conditions of all food delivery workers, the companies said, not to target specific firms or subindustries for reform.

The companies also said that the rule’s goal of compensating workers for all time spent on call, not just time spent delivering food, was irrational. In contrast to employees, who, under the Fair Labor Standards Act, are entitled to pay while waiting for work assignments, the companies said app-based delivery workers are free to work for competitors, complete personal chores or just hang out between deliveries.

“App-based workers choose to log in to petitioners’ systems entirely on their own; they are not under the platform’s control; and they have independent authority to accept, deny, or ignore offers … as they please,” the companies said. “DCWP’s attempt to analogize its rule to FLSA requirements is irrational.” The companies asked the court to immediately block the city from enforcing its wage rule, as well as completely vacate and annul it.

The Internal Revenue Service (IRS) is continuing to caution employers about claiming the Employee Retention Tax Credit (ERTC), noting that there have been aggressive and unlawful tactics by various ERC filing services.  The IRS is aware that a number of these providers are persuading ineligible businesses to seek and obtain the ERC credit.  As a result of these unscrupulous business practices, the IRS has committed to “step up” enforcement action regarding ERTC claims.  The IRS is expected to focus on employer eligibility, substantiation of financials underlying the eligibility determination and claim, and a review of any amended returns by the employer. Penalties range from 20% for errors in accuracy to 75% if the IRS detects fraud.

The statute for the ERTC permits civil action by the IRS for two years after the refund is issued. The statute of limitations for fraud or misrepresentation, however, extends to five years.

A number of employers have inquired whether the New York State paid sick leave legislation is still in effect, in view of the lifting of the federal Public Health emergency.  Unfortunately, the New York Paid COVID Sick Leave, which is codified in the Supplemental Paid Leave and COVID-19 Paid Family Leave Law, does not have an expiration date.  Thus, unless the Legislature amends the law, employers will be obligated to continue providing and paying for COVID sick leave.  However, while the statute requires employers to provide “up to 14 days” (for “large” employers), note that the amount of leave granted to an employee is based on Centers for Disease Control and Prevention (CDC) isolation and quarantine guidelines, which are regularly changing (and the recommended amount of sick leave for infected employees is decreasing).

In the final days of the 2023 legislative session, the New York Legislature passed the “Clean Slate Act.” If signed by Governor Hochul, it will provide for the automatic sealing of the records of certain convictions after specified periods of time.  The measure would not take effect, however, until one year after signing. It is intended to increase employment opportunities for those with past criminal histories who have had no recent convictions. 

After taking effect this bill would immediately seal the records of criminal convictions under state law as follows: (a) Misdemeanors would be sealed three years from the individual’s release, or the imposition of sentence if there was no sentence of incarceration and (b) Felonies would be sealed after 8 years from release. Not eligible for sealing would be Class A-I felonies, for which a maximum sentence of life imprisonment may be imposed (e.g., murder, first-degree kidnapping, first-degree arson, and first-degree illegal narcotics possession) and convictions requiring registration as a sex offender.

Sealing would be automatic except where the convicted individual has a criminal charge pending or is on probation or under parole supervision when the statutory time period for automatic sealing elapses.

The bill would amend the New York State Human Rights law¹ to prohibit employers from making any inquiry regarding or discriminating against individuals based upon automatically sealed conviction records.  Records automatically sealed under this bill could still be accessed and used under these circumstances, such as when the record is necessary to any entity authorized to conduct a fingerprint-based background check on job applicants who would be working with children, the elderly or vulnerable adults.

Notably, the Clean Slate Act would only seal convictions under New York’s penal law.  The Act would not seal criminal convictions under federal law or the criminal law of any state other than New York. Again, this Act is not final and there has been a lot of back-and-forth with the Governor’s office about this bill.  We will continue to monitor the status of this law and advise employers if compliance is necessary.

On June 20, 2023, the New York State legislature passed Bill No. S3100A (the “Bill”), which would prohibit the use of non-compete agreements for all workers, irrespective of their wage bracket or job title. The Bill, which has now been sent to Governor Kathy Hochul, is expected to take effect 30 days after it is signed into law. However, it is not yet clear whether the Governor will sign off on this legislation.

If signed into law, the Bill would ban the use of a “non-compete agreements” between an employer and “any covered individual.”  The Bill defines “non-compete agreement” as any arrangement, or clause within an agreement, between an employer and an employee that limits or prevents the employee from seeking employment after their current employment has ended.  A “covered individual,” refers to anyone who performs work or services for another person in such a way that they are economically dependent on, and obligated to perform duties for, that person. This definition applies regardless of whether the individual is in a traditional employment or independent contractor relationship.

Importantly, the Bill states that the law shall be “applicable to contracts entered into or modified after” the effective date of the law.  Therefore, it seems that the law will not apply retroactively or invalidate existing non-compete agreements. 

The Bill explicitly states “Every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.”  Furthermore, it allows any “covered individual” to bring a civil action in a court of competent jurisdiction against any employer or persons alleged to have violated this section. 

The Bill creates a two-year statute of limitations to bring an action and, if successful, an employee could recover a injunction against the enforcement of the noncompete agreement, their attorneys’ fees, lost wages, and liquidated damages (which will be capped at $10,000). 

Importantly, the Bill would not apply to agreements prohibiting the disclosure of trade secrets or confidential information, or agreements that prohibit solicitation of vendors or clients of the employer.

Business should oppose this bill by writing to the Governor.  Should the Bill pass, however, we will update our readers.