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New York Employment Law 2003 Key Cases and Developments

District Court Clarifies Employer’s Duty to Preserve Electronic Documents

In an employment discrimination case, Zubulake v. UBS Warburg LLC, et al., No. 02 Civ. 1243 (SAS), 2003 U.S. Dist. LEXIS 18771 (S.D.N.Y. Oct. 22, 2003), Judge Scheindlin of the United States District Court for the Southern District of New York addressed the scope of a litigant’s duty to preserve electronic documents and the consequences of a failure to preserve documents that fall within the scope of that duty. The plaintiff moved for an adverse inference instruction alleging that her former employer failed to preserve missing backup tapes and deleted e-mails, which purportedly contained evidence needed to prove her gender discrimination, failure to promote, and retaliation claims.

The court found that the duty to preserve the missing tapes arose even before the plaintiff first filed a complaint with the EEOC when, four months beforehand, most if not all of the relevant people at the employer anticipated that the plaintiff would sue. Upon the triggering of this duty to preserve evidence, according to the court, the employer was obligated to preserve documents and data that it "knows, or reasonably should know, is relevant in the action, is reasonably calculated to lead to the discovery of admissible evidence, is reasonably likely to be requested during discovery and/or is the subject of a pending discovery request."

Regarding documents scheduled to be destroyed under a document retention policy and/or computer back-up tapes, the court elaborated as follows : "Once a party reasonably anticipates litigation, it must suspend its routine document retention/destruction policy and put in place a ‘litigation hold’ to ensure the preservation of relevant documents. As a general rule, that litigation hold does not apply to inaccessible backup tapes (e.g., those typically maintained solely for the purpose of disaster recover), which may continue to be recycled on the schedule set forth in the company’s policy. On the other hand, if backup tapes are accessible (i.e., actively used for information retrieval), then such tapes would likely be subject to the litigation hold." Notably, one exception to this general rule is that tapes storing the documents of "key players" to the existing or threatened litigation should be preserved if the information contained on those tapes is not otherwise available.

Based on the foregoing, the Court denied plaintiff’s motion for an adverse inference instruction because, although she demonstrated that the employer had a duty to preserve all of the backup tapes at issue, and destroyed them with the requisite culpability, she failed to show that the lost tapes contained relevant information.

Hostile Work Environment Constitutes Adverse Employment Action in Retaliation Claim

In Salerno v. City University of New York, No. 99 Civ. 11151 (NRB), 2003 U.S. Dist. LEXIS 16474 (S.D.N.Y. Sept. 18, 2003), Judge Buchwald of the United States District Court for the Southern District of New York held that in an action for retaliation under Title VII and analogous state and local laws, an adverse employment action can take the form of a hostile work environment. On this basis, the court denied defendants’ motion to dismiss the plaintiffs’ claim that their employer retaliated against them for filing complaints of gender discrimination by creating a hostile work environment.

No Individual Liability under the ADA

In Lyman v. City of New York, No. 01 Civ. 3789 (RWS), 2003 U.S. Dist. LEXIS 16471 (S.D.N.Y. Sept. 23, 2003), Judge Sweet of the United States District Court for the Southern District of New York concluded that there is no individual liability under the Americans with Disabilities Act. While the Court noted that the Second Circuit has yet to address the issue of individual liability under the ADA, it relied on persuasive precedent rejecting individual liability because the ADA "provides disabled individuals redress for discrimination by a ‘public entity’" which, as defined by the statute, "does not include individuals."

Broadening the Scope of Off-the-Job Harassment

In Parrish v. Sollecito, 249 F.Supp.2d 342 (S.D.N.Y. 2003), Judge Marrero broadened the traditional scope of the workplace for purposes of imputing liability on an employer in the context of a hostile environment claim for off work time behavior. Although the traditional approach does not hold employers responsible under Title VII for hostile sexual acts resulting from non-work-related, off-duty interactions between co-employees, the Court held that the "reach of the employment ‘environment’ should be viewed holistically." In stating such, the Court rejected the notion that the workplace can be "mechanically confined within the precise clockwork four walls of the office" and instead focused on the "manifest conduct" relating to the employment relationship wherever it may occur. This approach requires that offensive behavior which occurs outside the workplace, but which reflects similar behavior at the workplace, should "amount to a virtual extension of the working environment to encompass the later act no less so than if the offense had been committed within the walls of the enterprise."

In Parrish, the court held that plaintiff’s attendance at a funeral reception for a manager’s father could not be deemed an entirely non-work related event. The court reasoned that the event rose out of the employment relationship and plaintiff’s attendance was an "aspect of the ordinary and the necessary social obligation and unstated expectations that are common adjuncts of various events and interaction associated with the normal place of business." The court further noted that the complained of incident occurring at the funeral was not an isolated one, but was one of a number of similar incidents involving the same harasser which plaintiff had previously complained about to management.

Expanding Definition of ‘Supervisor’ in Hostile Work Environment Action

For purposes of analyzing an employer’s vicarious liability in a Title VII hostile work environment action, the Second Circuit in Mack v. Otis Elevator Co., 326 F. 3d 116 (2d Cir. 2003), rejected the "Parkins" test, which defines "supervisor" by focusing on an employee’s authority to take tangible employment actions with respect to subordinates, i.e., "the power to hire, fire, demote, promote, transfer or discipline an employee." Instead, the Second Circuit stated that the Supreme Court’s holdings in Faragher and Ellerth require a broader definition of supervisor, which instead focuses on "whether the authority given by the employer to the employee enabled or materially augmented the ability of the latter to create a hostile work environment for his or her subordinates." After applying its new test, the Court held that the alleged harasser was a supervisor in that "[n]ot only did he direct the particulars of each of [the employee’s] work days, including her work assignments, [but] he was [also] the senior employee on the work site. He therefore possessed a special dominance over other on-site employees . . . arising out of their remoteness from others with authority to exercise power on behalf of [the employer]."

Faithless Servant Required to Forfeit All Compensation to Employer after First Disloyal Act

In Phansalkar v. Weinroth & Co., 344 F.3d 184 (2d Cir. 2003), the Second Circuit reversed the district court’s decision to limit a faithless servant’s forfeiture of compensation and held that New York’s faithless servant doctrine requires the employee to forfeit all compensation awarded to him/her after the first disloyal act. In Phansalkar, the Court found that a former employee who engaged in a number of disloyal acts was required to forfeit all compensation received after his first act of disloyalty, including salary, stock options and other investment opportunities.

The Second Circuit ruled that the district court misinterpreted New York’s faithless servant law by requiring the faithless servant to forfeit only the compensation derived from transactions with respect to which he had been disloyal. Instead, the Court held, after surveying state court decisions dealing with the issue, that New York law only permits a "relaxation" of the law on forfeiture where: "‘(1) the parties had agreed that the agent will be paid on a task-by-task basis (e.g., a commission on each sale arranged by the agent), (2) the agent engaged in no misconduct at all with respect to certain tasks, and (3) the agent’s disloyalty with respect to other tasks "‘neither tainted nor interfered with the completion of’ the tasks as to which the agent was loyal.’" Where this criteria is met, a "disloyal employee forfeits only compensation earned in connection with the specific tasks as to which he was disloyal; he retains compensation earned in connection with the specific tasks as to which he was loyal."

The Court distinguished other cases wherein the servant was awarded limited forfeiture from the current case, because they involved agreements in which the agent’s compensation was determined on a per-transaction basis and the fact that, in one case, "the agent’s misdeeds occurred in only one of over forty transactions." The Court distinguished Phansalkar’s situation noting that none of the agent’s compensation agreements specified that he would be paid a particular fee or receive a particular benefit for each transaction completed. The Court further found Phansalkar’s disloyalty "permeated [his] service in its most material and substantial part" and was far from a "single, isolated incident." Finally, the Second Circuit agreed with the district court in that benefits received from investment opportunities are a form of compensation that should be included in the forfeiture.

Out-of-State Telecommuter is Ineligible for New York Unemployment Benefits

In In re Allen v. Commissioner of Labor, 100 N.Y.2d 282 (2003), the Court of Appeals decided that, under the New York Unemployment Insurance Law, an employee who regularly works from his or her out-of-state residence by electronic linkup to the employer’s workplace in New York is ineligible to receive unemployment insurance benefits from New York. In rejecting an employee’s claim for benefits, the Court held that the definition of employment under the state unemployment insurance law was intended to "promote efficiency and to insure that unemployment benefits are paid by the state where the unemployed individual is physically present to seek new work." In interpreting Section 511 of the state’s Labor Law, the court held that "physical presence is the most practicable indicium of localization for the interstate telecommuter who inhabits today’s ‘virtual’ workplace linked by Internet connections and data exchanges."

New York Extends Civil Rights Protections to Gays and Lesbians

The Sexual Orientation Non-Discrimination Act, effective on January 16, 2003, amended the New York State Human Rights Law to also prohibit sexual orientation discrimination in employment. "Sexual orientation" under the Act is defined to include heterosexuality, homosexuality and bisexuality or asexuality. Such a claim may be based on an individual’s actual or perceived sexuality.

Court Clarifies When Restrictive Covenants Are Enforceable

In Willis v. DeFelice, 750 N.Y.S.2d 39 (1st Dep’t 2002), the First Department clarified and applied the aspect of the Court of Appeals’ decision in BDO Seidman regarding the enforceability of a restrictive covenant as to clients that a former employee had brought with him to his former employer.  The lower court had granted a preliminary injunction, in part, enforcing restrictive covenants prohibiting certain of the former employee-defendants from soliciting their former employer’s clients for two years following their employment.  The First Department upheld the enforceability of this aspect of the restrictive covenants, but ruled that it should not extend to any clients that the former employees had originally brought with them when they joined their former employer on the ground that such clients were loyal to the former employees personally, not to the former employer.  Notably, the First Department made this ruling notwithstanding that the former employer had invested substantial monetary and other resources in the development of the business of such clients and that such business grew dramatically during the period such clients were serviced by the former employer.

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