Senate Bill S7776A

                                 
BILL NUMBER: S7776

SPONSOR: RAMOS
 
TITLE OF BILL:

An act to amend the labor law and the executive law, in relation to
enacting the "faithless servant reform act"

 
PURPOSE:

To safeguard employees from retaliatory legal actions by employers in
the context of employment disputes and to ensure that all faithless
servant claims against employees are substantiated, narrowly limited,
and consistently and appropriately applied. The second purpose of this
Act is to ensure that even in the very limited class of cases where some
forfeiture of employee compensation may otherwise be permissible under
this Act, such forfeiture shall be limited to wages paid for the pay
periods during which the disloyal acts occurred and shall not include
any of an employee's minimum wage or overtime payments.

 
SUMMARY OF PROVISIONS:

              

Section 1 would provide the title of the act, the Faithless Servant
Reform Act"

Section 2 provides the legislative intent.

Section 3 amends the labor law by adding section 2 15-d.

Subsection 1 provides a rebuttable presumption of retaliation when an
employer files a claim, counterclaim, or affirmative defense seeking
forfeiture of employee compensation in response to an employee's
complaint or participation in a proceeding under the labor law.

Subsection 2 provides a burden of proof for employers. States that an
employer can not take away an employee's unpaid wages, benefits, or
other earnings as punishment unless the employer can clearly prove that:
employee's conduct was so pervasive and egregious that they destroyed
the core of the employment relationship, the forfeiture is based on
repeat acts, or what the employer did not know and tolerate employee's
conduct. The rules of this subsection are only applicable if the employ-
ee unfairly competes with the employer, diverts business opportunities
from the employer causing financial harm, or takes illegal kickbacks.

Subsection 3 provides limitation on the remedy of forfeiture. In the
limited scenario where an employer can take away part of an employee's
pay as a penalty, they can only withhold pay periods within the specific
time period when the misconduct happened. Minimum wage and overtime is
protected.

Subsection 4 reserves all rights to the employee provided by other laws,
regulations, or collective bargaining agreements.

Section 4 amends the executive law by adding section 296-e.

Subsection 1 provides a rebuttable presumption of retaliation when an
employer files a claim, counterclaim, or affirmative defense seeking
forfeiture of employee compensation in response to an employee's
complaint or participation in a proceeding under the labor law.
Subsection 2 provides a burden of proof for employers. States that an
employer can not take away an employee's unpaid wages, benefits, or
other earnings as punishment unless the employer can clearly prove that:
employee's conduct was so pervasive and egregious that they destroyed
the core of the employment relationship, the forfeiture is based on
repeat acts, or what the employer did not know and tolerate employee's
conduct. The rules of this subsection are only applicable if the employ-
ee unfairly competes with the employer, diverts business opportunities
from the employer causing financial harm, or takes illegal kickbacks.

Subsection 3 provides limitation on the remedy of forfeiture. In the
limited scenario where an employer can take away part of an employee's
pay as a penalty, they can only withhold pay periods within the specific
time period when the misconduct happened. Minimum wage and overtime is
protected.

Subsection 4 reserves all rights to the employee provided by other laws,
regulations, or collective bargaining agreements.

Section 5 provides that the act shall take effect immediately.

 
JUSTIFICATION:

This bill seeks to provide a consistent standard for employers' claims
against their employees under the faithless servant doctrine and to
prevent the abuse of the doctrine by employers seeking to exact revenge
on their workers who accuse them of failing to pay wages owed or unlaw-
fully discriminating against them. The bill will also ensure that any
forfeiture of wages is limited to the pay period when the disloyal acts
occurred and does not include any minimum wage, or overtime payments
paid or due to the employee during those pay periods.

The faithless servant doctrine has long provided the basis for a common
law claim in cases in which an agent or employee commits substantial
malfeasance against a principal or employer, such as embezzlement,
diversion of substantial business opportunities, or the acceptance of
kickbacks. See Turner v Kouwenhoven, 100 N.Y. 115, 120, 2 N.E. 637, 639
(1885). However, some courts have applied a different standard to deter-
mine whether an employee's misbehavior warrants forfeiture that would
allow even the slightest breach of a duty to result in the forfeiture of
all wages paid to even the lowest-paid workers. Phansalkar v. Andersen
Weinroth & Co., L.P., 344 F.3d 184, 201 (2d Cir. 2003).

The remedy for Faithless Servant claims has traditionally been the
recovery of wages paid to the agent or employee. Id. ("Flagrant acts of
dishonesty or crime which seriously affect the master's interest,
continued during the service, might well be regarded as a bar to the
recovery of wages."). These claims are often filed against workers who
assert claims against their employers for unpaid wages or discrimination
to intimidate those workers into dropping their legitimate claims, to
pressure those workers to settle for less than the value of their
claims, or to frighten their co-workers out of participating in the
lawsuit or bringing their own claims. See e.g., Torres v. Gristede's
Operating Corp., 628 F. Supp. 2d 447, 473-475 (S.D.N.Y. 2008) (granting
summary judgment to workers for retaliation based on the assertion of
baseless faithless servant claims and noting the adverse chilling effect
of baseless retaliatory claims "against employees who assert statutory
rights ... because of their in terrorem effect").
First, this bill provides a consistent standard for faithless servant
claims against employees, requiring that an employer show by clear and
convincing evidence that the employee's disloyal conduct was so perva-
sive and egregious as to negate the central purpose of the employment
relationship and provides other guardrails against abuse by employers as
set forth in cases following Turner, including excluding cases where the
claim is based on a single act of disloyalty or where the employer knew
and tolerated the disloyal conduct. That line of cases also limits the
doctrine to cases where the employee unfairly competes with his employ-
er, diverts business opportunities to himself to the financial detriment
of the employer, or accepts improper kickbacks" Lifesci Capital LLC v.
Revelation Biosciences, Inc., No. 22-CV-1411 (JGLC), 2024 U.S. Dist.
LEXIS 137635, at *5 (S.D.N.Y. Aug. 1, 2024) (noting that the alleged
misconduct at issue was not egregious and did not have the prospect of
causing significant harm to the employer). See also Miller v. Levi &
Korsinsky, LLP, 2021 U.S. Dist. LEXIS 27448, at * (S.D.N.Y. Feb.  12,
2021)(dismissing faithless servant counterclaim where allegations of
misconduct could be said to violate the "substantial misconduct" or
"adverse action" standards warranting forfeiture).

Second, when a faithless servant claim is filed in response to an unpaid
wage and/or discrimination claim, this bill will create a rebuttable
presumption that the filing or threat of filing the faithless servant
claim constitutes an unlawful act of retaliation.

Third, this bill requires that when a faithless servant claim results in
the forfeiture of compensation to an employee, the amount of the forfei-
ture shall be limited to the compensation paid during the pay periods in
which the disloyal acts occurred, and shall not include minimum wage or
overtime paid or due to the employee.

 
LEGISLATIVE HISTORY:

New bill

 
FISCAL IMPACT:

To be determined.

 
EFFECTIVE DATE:
This law will take effect immediately.