Underberg & Kessler Managing Partner, Patrick L. Cusato, was recently featured in the Rochester Business Journal article "New leader takes helm at Underberg & Kessler, leads new strategic plan." The article (reprinted with permission, PDF file here.) highlights Pat's leadership role, his work as Chair of the Real Estate & Finance Practice Group, and his commitment to clients and organizations championing the real estate industry. New leader takes helm at Underberg & Kessler, leads new strategic plan Patrick L. Cusato is the new managing director at Underberg and Kessler LLP. “It’s been a busy three months. I’ve been in management here for a while, so a lot hasn’t changed. But there are other things that come with the position,” said Cusato, who moved into the leadership role Jan. 1. Cusato has been on the firm’s management committee for 15 years, but as managing partner he will chair the committee and run all the management meetings. About four years ago, Cusato became the financial partner on the management team. Cusato, who has been with the firm since 1987, took over from Thomas F. Knab, who was Managing Partner for two years. Before that, Anna E. Lynch was Managing Partner for 17 years. As Managing Partner at the 28-attorney firm, Cusato oversees everything from day-to-day operations to finance to technology, while simultaneously working with the practice group leaders. “The big thing we’re getting into is updating our strategic plan,” said Cusato, noting that the firm prepares long-term outlooks for one, three, five and even 10 years. Meanwhile, Cusato expects to carry the same caseload. “I do A-to-Z in real estate transactions and finance transactions — everything from basic house closings to very sophisticated low-income housing tax credit deals. I do a lot of affordable housing work,” he said. Paul F. Keneally, a Partner at Underberg & Kessler, said Cusato is “an incredibly intelligent real estate lawyer.” “He’s really passionate about getting the best service and results for the clients in all their different real estate matters,” Keneally said. “He’s super practical, very focused on the task at hand, with a very efficient manner, and not a lot of hyperbole or wasted effort or extra work that the client doesn’t need.” Katherine H. Karl, a Partner at Underberg & Kessler, described Cusato as “a very loyal, smart, hard-working, dedicated professional.” “I can’t think of anybody who knows the firm better or works harder than Pat does … If he’s involved with something, he’s very often in a leadership role,” she said. “He masters a subject and then shares the knowledge he has in the community and often speaks and puts together panels or shares his experience in any number of real estate topics. In particular, he’s very passionate about trying to assist with a real shortage of affordable housing. “Instead of wringing his hands about it he brings people together and spends a lot of time trying to collaborate with other people and agencies that have similar kinds of goals,” she said. Cusato is vice president of the Bishop Sheen Ecumenical Housing Foundation Board of Directors. He is a past president of the Foundation, past chair of the Project Development Committee and past chair of the Foundation’s annual fundraising gala. He is also an executive board member of the Mortgage Bankers Association of the Genesee Region, and he advises the board on legislative developments. Cusato is on a task force that includes representatives of the real estate industry, such as the Greater Rochester Association of Realtors, the Mortgage Bankers Association of Greater Rochester and the Rochester Home Builders Association. The group has produced a report outlining the issues involved in the housing shortage and is attempting to get the attention of politicians and local leaders to support the construction of more affordable housing. Last month, there were only 260 houses for sale in all of Monroe County, but 10 years ago the number was 2,600, Cusato pointed out. High interest rates are just one factor that impacts the housing market. Changing government regulations and building codes are becoming a more significant influence Cusato said. The initiative to find and implement solutions to the housing shortage has been branded as Re-imagine ROC Housing. Another part of this initiative is to encourage municipalities to embrace affordable housing. Cusato helped organize an effort with developers to counter the opposition to affordable housing and new senior citizen housing. “Do you not understand seniors are stuck in their homes? They want to go somewhere maintenance free,” he said. “They want to go somewhere it’s going to be cheaper for them to live. They can’t afford to take care of the house anymore and that house is no longer fully on the tax rolls because they’re getting all kinds of exemptions. “Let them move somewhere that’s affordable. The property goes on the market and an individual or a family buys it, and it goes fully back on the tax rolls,” he added. Part of Cusato’s duties include leading the firm’s strategic planning. The process starts with data showing which practices areas are the most profitable and developing methods for handling those matters more efficiently. “We’re going to match that with how we want to market and develop some of these items that are more productive for us and whether we have the right technology to do that, and do we have the right employees,” he said. In the coming years, the firm will have to deal with a changing labor market, he said. He said law firms are facing the retirement of a lot of seasoned attorneys while it’s not clear if there will be enough young talent coming out of law schools to replace them. “It seems like eventually there will be a shortage. While there are still tons of people going to law school, not as many are choosing the day-to-day practice of law. They are finding in-house positions or using that law degree to do other things,” Cusato said. As a result of the financial crisis of 2008, there was a big migration of lawyers out of the big cities, but that has trailed off, he said. The trend picked up again during the COVID pandemic. “We picked up a very talented attorney who was originally from Webster who was working in Manhattan and had enough about nine months into COVID and started looking for jobs up here,” he said. Another new attorney at the firm, originally from Rochester, is moving back after working downstate, Cusato said. He believes many young lawyers will spend a few years in a big city at a large law firm and eventually work their way back to a smaller market, such as Rochester, often because barely 10% of the associates at those large firms become partners. He also sees technology as continuing to play an important role in the legal profession, within limits. “Technology is a fantastic tool, and you can do things faster and easier. Clients don’t always want to interface with you over technology, whether it’s email or other things. The personal touch is still very, very important to clients,” he said.

We are pleased to announce that Kimberly W. Sayoc has joined the Firm as Senior Counsel in the Corporate & Business and Commercial Lending Practice Groups. Leveraging her years of experience as a corporate attorney in private practice and as in-house counsel at global corporations, Kim provides real-world, client-focused guidance to corporations, LLCs, partnerships, and individuals. She focuses her practice on general corporate and secured transactional matters and has significant experience representing clients in a range of industries, including hospitality, manufacturing, real estate development, and financial services. Prior to joining Underberg & Kessler, Kim served as Counsel at Delaware North Companies, Inc. and at PCB Piezotronics, Inc. handling transactional work, contract review and negotiation, mergers and acquisitions, guidance on compliance with contractual requirements, reporting requirements, licenses and regulations of the Federal Aviation Administration and other government agencies. During her accomplished career at prior law firms, Kim excelled at negotiating and finalizing contracts and agreements, developing formation documents, and assisting public and private companies with complex transactions. Kim earned her B.A., cum laude, from the State University of New York at Buffalo and her J.D., cum laude, from the University at Buffalo School of Law.

As a commercial litigator for over 35 years, I have seen countless scenarios in which people who were once intimate business associates end up suing each other over real or perceived breaches, thefts, or betrayals. Accusations and recriminations get hurled back and forth, and personal relationships are often ruined even as the business disputes are ultimately resolved. This is one of the reasons why this type of litigation is known as “business divorce.” Most painful for all involved is the subset of lawsuits between family members involving the “family business” or transfers of real property.  It is often the case in such family disputes that agreements were made, and understandings reached, but never memorialized in signed documents. Many such transactions go forward based on express or implied promises to do something in the future in consideration for the transfer of the business interests or real property, and when those promises are broken, the person who agreed to the transfer in reliance on those promises is left looking for a way to recover what they lost. In addition to suffering financial harm, the injured party is often rendered brokenhearted by the promissor’s greed, abandonment, or duplicity. Generally speaking, without a written agreement, the injured party cannot sue the promissor for breach of contract. However, that person may be able to recover ownership of the transferred business interest or real property through the equitable remedy of a constructive trust. As the courts have explained, a constructive trust is not a trust at all in the substantive sense of the word. It is a remedial device created by the courts to compel a person who holds legal title to property subject to an equitable duty to convey to another, to do so because he would be unjustly enriched if he were permitted to retain the property. As the Fourth Department has succinctly explained, “The defendant is not compelled to convey the property because he is a trustee; he is a trustee because the court determines that he has an equitable duty to convey it.” In other words, an individual cannot go to an estates lawyer and have a constructive trust prepared to document the transaction after the fact. Rather, that individual must commence an action seeking the imposition of a constructive trust upon the business interest or real property in the hands of the person to whom that business interest or property was transferred. A constructive trust may be imposed by the court where the plaintiff proves a confidential or fiduciary relationship, a promise (express or implied), a transfer made in reliance on that promise, and unjust enrichment. However, because a constructive trust is an equitable remedy, the courts do not rigidly apply those elements, but instead use them as flexible guidelines. The scope of the constructive trust doctrine is broad, and as the Court of Appeals has held, “the Court does not restrict itself by describing all the specific forms of inequitable holding which will move it to grant relief, but rather reserves freedom to apply this remedy to whatever knavery human ingenuity can invent.” The key to proving the right to a constructive trust is evidence establishing the confidential relationship, “which triggers the equitable considerations leading to the imposition of a constructive trust.” Where the record evidence indicates that a relationship of trust and confidence existed between the parties, “the defendant must be charged with an obligation not to abuse” that trust and confidence. The New York courts have regularly found that a trusting relationship such as that between a father and daughter qualifies as a confidential relationship under New York law. Of course, there would be no need for a constructive trust in the absence of a transfer of property, and thus the next question is whether the transfer was made in reliance on an express or implied promise. The case law reveals numerous circumstances in which a parent transferred property to a child, or a spouse transferred property to his spouse, and subsequently sought to recover that property through the imposition of a constructive trust.  In such circumstances, the plaintiff often alleges that they made the transfer in reliance on an understanding, or an express or implied promise, that the defendant would, in exchange for the transfer, provide financial assistance to, or care for, the plaintiff, or reconvey the property to the plaintiff upon his request. In most such cases, the defendant is compelled to deny any such understanding or promise, and there is no writing memorializing that understanding or promise. Nevertheless, the courts consistently hold that in such family settings, a promise may be implied or inferred from the transaction itself. In fact, the courts have held that when a transfer of real property is made in the context, and in furtherance of a parent’s confidential and trusting relationship with their child, it is not unnatural that the understanding was not reduced to a writing, and, indeed, that the absence of a formal writing “grew out of that very confidence and trust, and was occasioned by it.” Lastly, because the purpose of the constructive trust remedy is to prevent unjust enrichment, the plaintiff must prove that the defendant was enriched at the plaintiff’s expense, and that it is against equity and good conscience to permit him to retain that benefit. However, the plaintiff need not prove that they suffered a loss corresponding to the gain received by the defendant. Moreover, a finding of unjust enrichment does not require proof of a wrongful act by the one enriched, and “innocent” parties may frequently be unjustly enriched. A constructive trust will be imposed even if the transferee fully intended to perform his promise at the time of the transfer, because the subsequent abuse of a confidential relationship “constitutes a sufficient fraud to call upon the remedial powers of a court of equity.” The courts will find unjust enrichment through a realistic determination “based on a broad view of the human setting involved,” and, most importantly, the courts hold that the conveyance or transaction giving rise to the unjust enrichment “should be interpreted ‘not literally or irrespective of its setting, but sensibly and broadly with all its human implications’.” Given these broad maxims, a constructive trust case is often fact-intensive and requires significant pretrial discovery, and, in particular, thorough depositions of the parties. The imposition of a constructive trust may not fully mend the plaintiff’s broken heart, but it should result in the reversal of the property transfer that led to the defendant’s unjust enrichment and the restoration of that property to the plaintiff. Thomas F. Knab is a Partner in Underberg & Kessler’s Litigation Practice Group. He focuses his practice on commercial litigation, business and corporate disputes, and construction and real estate litigation. Tom can be reached at tknab@underbergkessler.com. Reprinted with permission from The Daily Record and available as a PDF file here.

We are excited to announce that our Canandaigua office is now located at 11 North Street, Suite 300, Canandaigua, NY 14424. We are located minutes from historic downtown Canandaigua and the picturesque resort area in an attractive campus-style office setting, just off the corner of NYS Rt. 332 and North Street. When visiting our new location, you will find ample parking directly in front of the entrance. Our phone number remains the same at 585.258.2800.

In a recent article published in the Rochester Business Journal, Underberg & Kessler real estate and commercial lending attorney, Andrew M. Washburn, provided insight on New York State’s impending ban on gas appliances.  In “New York’s All-Electric Buildings Act takes effect in 2026: Are we ready for the switch?”  Andrew described the goals of the All-Electric Buildings Act (AEBA), the legal challenges to the Act, and the impact on the local real estate and construction industry. The AEBA prohibits the installation of fossil fuel equipment/hookups in new buildings, starting in 2026 for buildings of up to seven stories and 2029 for larger buildings. Andrew has been tracking the state’s gas appliance ban for several years and frequently speaks to trade associations and community organizations on the topic. He stated that it stems from legislation in 2019 called the New York State Climate Leadership and Community Protection Act, whose main goal is reducing New York’s greenhouse gas emissions and shifting the state’s energy to renewable sources. However, the AEBA is facing legal challenges, including a Federal lawsuit in the Northern District of NY (Mulhern Gas Co. v. Rodriguez, 1:23-cv-01267), where the Plaintiffs assert that a federal statute, the Energy Policy and Conservation Act, preempts any state or local regulations on energy consumption by appliances, and thus negates the All-Electric Building Act. The result of the lawsuit could have a big impact on the real estate and construction industry. Andrew explained, “Some of the developers are concerned about construction delays based off of the availability of the new equipment they’ll need, rising costs and ultimately increased utility expenses,” He noted that increased construction costs and delays may further exacerbate the region’s current housing inventory shortage. “I think a lot of people generally think that the goals of the All-Electric Buildings Act are noble, however, the time frame and implementation are the main concerns.” Andrew M. Washburn is an attorney in UK's Real Estate & Finance and Commercial Lending Practice Groups. He can be reached at awashburn@underbergkessler.com or 585.258.2885. Reprinted with permission from Rochester Business Journal. To view the full article, click here.

Congratulations to Patrick L. Cusato for being selected to The Daily Record's 2024 Power 20 Real Estate Law list for the third year in a row. The Power 20 list showcases power players in the Western New York legal community who are recognized as leaders in their area of practice. “The people on this list help clients navigate complex transaction processes to help fulfill their personal dreams or organizational goals. Their job has been made even more difficult over the past two years. At the same time as the COVID-19 pandemic was changing the way the entire real estate transaction process worked, the real estate market was getting turned on its head. These attorneys continued to serve their clients admirably while navigating new ways of doing business thanks to restrictions that limited or halted face-to-face meetings," stated Ben Jacobs, Associate Publisher and Editor of The Daily Record. Pat focuses his practice on commercial and residential real estate, mortgage banking, and tax credit development and finance projects, and affordable housing transactions. In addition to serving as Underberg & Kessler’s Managing Partner, he serves as the Real Estate & Finance Practice Group Chair, a member of the Executive and 401K Committees, and is the Financial Management Partner for the Firm. A strong proponent of being active in community and industry groups, Pat is an Executive Board member of the Mortgage Bankers Association, Executive Board member of the Bishop Sheen Ecumenical Housing Foundation, past President and past Chair of the Foundation's annual fundraising gala, and past Chair and current member of the Monroe County Bar Association Real Estate Section. He also serves as the Vice President of the Board of Directors of the Lakefront Soccer Club and President of the Board of Directors of the Sports Association of Webster, Inc. Pat has been recognized in the 2013-2024 editions of The Best Lawyers in America® for his work in Real Estate Law and he has also been selected as an Upstate New York Super Lawyers honoree from 2007-2010 and 2021-2023. He has been recognized by The Daily Record in the Power 20 in Real Estate Law list in 2022 and 2023, and he was the recipient of The Daily Record's Leaders in Law Award in 2018, honoring attorneys who have shown dedication to the legal profession and tireless commitment to the community. Pat is also a recipient of the 2009 Rochester Business Journal's "Forty Under 40" award.

Underberg & Kessler labor & employment attorneys, Paul F. Keneally and Ryan T. Biesenbach, were featured in a recent article published in the Rochester Business Journal. The article, “How companies can mitigate litigation risk, from tech and otherwise,” discusses what kinds of litigation risks are most prevalent currently and what steps companies can take to guard against them. “The non-compete is a particularly interesting category right now because the federal government, through primarily the Federal Trade Commission, has indicated that they’re very much interested in greatly restricting or if not banning non-competes and cutting back even non-solicitation agreements that are maybe included or an alternative to the non competes,” Paul stated. Another area the firm is watching is related to the recent amendment to the New York State Human Rights Law that became effective February 15 and increased the statute of limitations for all forms of discrimination from one to three years. “I think it’s going to create a pretty big uptick in Division of Human Rights cases going forward,” added Ryan. Paul provided tips for businesses to avoid employment-related litigation, including reading publications and blogs (written by employment attorneys) to stay on top of ever-changing laws and having a dedicated human resources person and counsel. “The area of employment law has just reached a point where I think it’s overly difficult for most employers – meaning like the owner of the company – to do it on their own,” said Paul, about staying abreast of litigation risks. “They have to find someone who specializes in it.” Reprinted with permission from Rochester Business Journal. To view the full article, click here.

With the proliferation of electronic health records, medical providers are facing new challenges in the form of phishing and ransomware attacks and other cyber threats. Indeed, the U.S. Department of Health and Human Services (HHS), Office for Civil Rights (OCR) has been active recently in settling multiple matters involving cybersecurity breaches and attacks. Q: What Is Phishing and Are Medical Providers at Risk? A: Phishing occur when a third-party impersonates a legitimate organization via email or other electronic means, which entices the person to whom the communication is directed to click a link within the email or otherwise allow the third-party to gain access to or steal sensitive information. Phishing is the most common type of cyberattack likely to result in a data breach and cause major financial implications for health care organizations. For example, on December 7, 2023, OCR announced a settlement related to a cybersecurity breach that affected almost 35,000 patients in Louisiana. The subject of the investigation was the Lafourche Medical Group (Lafourche), which provides emergency and occupational services, and laboratory testing. Lafourche was the victim of a phishing attack involving electronic protected health information (PHI). Lafourche reported the breach to HHS on May 28, 2021, advising that a third-party had gained access to an email account which contained PHI. OCR investigated and found that Lafourche failed to conduct a risk analysis to identify potential threats or vulnerabilities in its system that could allow for access to PHI. Risk analysis is required under the Health Insurance Portability and Accountability Act (HIPAA). The government also determined that Lafourche failed to implement any policies or procedures to review its electronic system activity to safeguard against cyberattacks. As part of the settlement, Lafourche agreed to pay $480,000 and implement a corrective action plan to establish security measures, develop written policies and procedures to comply with HIPAA, and provide training to staff on HIPAA requirements. Q: What Is Ransomware and Are There Any Recent HIPAA/OCR Settlements? A: HHS defines ransomware as “type of malware (malicious software) distinct from other malware,” which “attempts to deny access to a user’s data, usually by encrypting the data with a key known only to the hacker who deployed the malware, until a ransom is paid.” Ransomware attacks can be costly for medical providers, as well as result in a breach of HIPAA when disclosure of PHI is implicated. In October, OCR settled a matter with Doctors’ Management Services (DMS), a Massachusetts-based medical management company. On December 24, 2018, DMS identified unauthorized access to its network that occurred over one year prior, on April 1, 2017. DMS waited nearly four months after discovery to report the breach to HHS, in April 2019. In its investigation, the government found that DMS failed to analyze and ascertain the potential risks and vulnerabilities to PHI maintained within the organization. OCR also found that DMS failed to monitor its activity to guard against a cyberattack, and that the provider neglected to implement policies and procedures to ensure compliance with the HIPAA Security Rule. Pursuant to its settlement with OCR, DMS agreed to pay $100,000 to implement a corrective action plan, implement a risk management plan, develop policies and procedures to comply with the Privacy and Security Rules, and provide training to its employees on HIPAA rules and compliance. Q: Has HHS Developed Any Steps to Assist Providers with Compliance? A: Yes, on December 6, 2023, HHS released a concept paper, which outlines its cybersecurity strategy for the health care industry. The paper amplifies the National Cybersecurity Strategy outlined by President Biden and focuses on strengthening resilience for medical providers and patients threatened by cyberattacks. The December 2023 concept paper outlines four primary actions, including: (1) publishing health care and public health sector cybersecurity performance goals to help institutions implement high-impact cybersecurity practices; (2) providing resources to financially incentivize and implement cybersecurity practices; (3) implementing an agency-wide strategy to support greater enforcement of cybersecurity standards and accountability; and (4) expanding the “one-stop shop” within HHS for health care sector cybersecurity and developing the Administration for Strategic Preparedness and Response’s coordination role as a “one-stop shop” for health care cybersecurity. Q: How Can I Work Toward Compliance With HIPAA Rules While Ensuring My Networks Are Secure? A: Start by reviewing current policies and consulting with your IT security provider and attorney to ensure ongoing compliance with HIPAA Privacy and Security Rules. Protect your organization by assessing which assets are vulnerable, implementing appropriate security measures, establishing a regular review process, developing written policies for preventing a breach of PHI, and designing and implementing appropriate training for all staff. Q: What Should I Do if I Discover a Cybersecurity Attack or Breach? A: If a breach is discovered, you should consult with your IT services and security provider to secure the network and identify and address any vulnerabilities. You should consult with your attorney as soon as possible to discuss whether unsecured PHI was compromised and, if so, whether a breach report requirement is triggered under HIPAA. Reprinted with permission from the February/March 2024 issue of The Bulletin from the Monroe County Medical Society and available as a PDF file here. Ericka B. Elliott is an attorney in Underberg & Kessler LLP’s Health Care and Litigation Practice Groups. She can be reached at eelliott@underbergkessler.com or 585.258.2830.

The new consumer protection law that amends and clarifies New York’s existing credit card surcharge law (NYS GBS § 518) went into effect on February 11, 2024.  The NYS Division of Consumer Protection (“DCP”) assists aggrieved consumers in the marketplace and the New York State Attorney General and local governments will have the authority to enforce the credit card surcharge law. The law, signed by Governor Hochul on December 13, 2023, provides greater transparency and protections for consumers by: Limiting credit card surcharges to the amount charged to the business by the credit card company; and Requiring businesses to post before checkout: the total price of an item or service inclusive of the credit card surcharge; or a two-tiered pricing option, which requires the credit card price to be posted alongside the cash price. The following practices and examples comply with the law’s credit card surcharge notice requirements: DO: The business lists the higher credit card price next to a lower cash price. The business lists the credit card price for items and services, then lets customers know they will receive a discount for using cash. The business changes all prices to the credit card price. DON’T: The business posts a sign on the door and at the register stating an additional 3.9% surcharge will apply for credit card purchases. “This business has a 4% cash discount incentive built into all pricing. Any purchases made with a credit or debit card will not receive the cash discount and an adjustment in cost will be displayed on your receipt.” A convenience fee, service fee, administration fee, non-cash adjustment, technology fee, processing fee, etc., is charged to credit card users and added as a separate line item on a customer receipt. The price tag of an item shows “$10.00, + 4% if paying with a credit card.” NOTE: This law does not apply to debit cards. The law will permit local governments to join in the enforcement of this law, providing consumers with additional resources for compliance and providing local governments with broader opportunities to promote consumer protections for their citizens. If there are any issues related to credit card pricing at the register, DCP encourages consumers to: File a complaint with DCP to receive a refund of any excess fees paid to a merchant in New York State, or File a complaint with the Attorney General or participating local governments for enforcement of a merchant you believe violated the law. If you have any questions regarding the law, please contact our Corporate & Business team at 585-258-2800 or email info@underbergkessler.com

We are pleased to announce that Leah Tarantino Cintineo has been appointed as chair of the Litigation department. Cintineo, who is the Family Law Practice Group leader, represents clients in divorce and post-divorce matters, pre-nuptial agreements, high conflict child custody litigation, and child support litigation. She also has years of experience handling divorce matters involving businesses, complex financial issues, and extensive marital estates, as well as preparing QDROs for the division of retirement assets at the completion of a divorce. Cintineo is active in community and industry groups as a member of the New York State Bar Association and its Matrimonial and Family Law Section, the Monroe County Bar Association and its Family Law Section and is a member of the 7th Judicial District Attorney Grievance Committee. She is also a member of the Greater Rochester Association of Women Attorneys (GRAWA), a member of the Collaborative Law Association of the Rochester Area (CLARA), and a member of the Ontario County Bar Association, where she recently was President of the Association. In addition, Cintineo served for eight years on the Society for the Protection and Care of Children Board of Directors, including two years as Board Chair. A graduate of Albany Law School, Cintineo has been selected as an Upstate New York Super Lawyers Rising Stars honoree from 2016-2023, she was the 2022 recipient of The Daily Record and Rochester Business Journal's Legal Excellence Award for Pro Bono Excellence and is a past recipient of the Rochester Business Journal’s "Forty Under 40" Award. Cintineo was named to both the 2022 and 2023 Daily Record's Power 20 in Family Law lists, and she was the 2017 recipient of the Honorable Michael F. Dillon Attorneys for Children Award for her work advocating for children in court proceedings. In 2016, Cintineo was named a finalist for the Rochester Business Alliance ATHENA Young Professional Award.

Since the onset of the COVID-19 pandemic in 2020, the number of workers performing services as independent contractors in the United States has risen.  In response, some states have stepped up efforts to reign in potential abuses of these arrangements by employers.  New York is no exception.  In November 2023, Governor Kathy Hochul signed new legislation S.5026/A.6040, known as the “Freelance Isn’t Free Act” (“the Act”), which establishes new protections for independent contractors, as well as means for the Attorney General, the Department of Labor, and individual independent contractors to enforce its provisions. The Act, which will take effect on May 20, 2024, amends the New York Labor Law by adding Section 191-d, which governs the relationship between a “hiring party” and “freelance worker.”  A hiring party is any person, other than a governmental entity, who retains the services of a freelance worker.  A freelance worker is “any natural person or organization composed of no more than one person . . . that is hired or retained as an independent contractor to provide services in exchange for an amount equal to or greater than $800, either by itself or when aggregated with all contracts between the hiring party and [independent contractor] during the immediately preceding one hundred twenty days.” The Act exempts four categories of workers: (1) sales representatives, (2) lawyers in good standing engaged in the practice of law, (3) licensed medical professionals, and (4) “construction contractors” as defined in § 191-d (a). Importantly for employers, Section 191-d contains three new mandates that an employer must heed.  When hiring a freelance worker, New York employers must now: (1) enter a written contract containing certain provisions, (2) timely pay the agreed-upon wages, and (3) abstain from retaliating against an independent contractor who exercises his or her rights.  A failure to follow any of these mandates could be an expensive mistake. The Act provides that an independent contractor may bring a cause of action in any New York Court based upon a violation of Section 191-d’s provisions.  Thus, the new law increases the potential that an employer who retains an independent contractor will be subject to litigation and its attendant expenses.  Further, in the event the independent contractor prevails in that litigation, the employer may be liable to pay statutory damages and attorneys’ fees.  To avoid costly litigation and an expensive damages award, employers must take note of the Act’s new requirements. Necessity of a Written Contract New Labor Law Section 191-d (3)(a) provides that a hiring party must enter into a written contract with the independent contractor.  The Act further mandates that those contracts contain four provisions: (1) the names and addresses of the hiring party and independent contractor, (2) an itemization of all services to be provided, the value of those services, and the method for calculating the independent contractor’s compensation, (3) the date on which the independent contractor will be paid, or the mechanism for determining that date, and (4) the date by which the independent contractor must provide a list of services rendered to the hiring party.  There may be more required contractual clauses coming soon, as the Act authorizes the Department of Labor to adopt rules requiring additional mandatory terms.  Thankfully for employers, the new law requires the Department of Labor to provide model contracts for use by the public at no cost.  The model contracts will be published on the Department of Labor’s website when available. If the employer fails to offer a written contract or include the necessary terms, it will be liable to pay a $250 statutory penalty.  If a violation of subsection three is the only violation alleged by an independent contractor, such worker must prove that he or she requested a written contract.  However, any violation of subsection three and any other provision of Article 6 of the Labor Law may subject the employer to damages equal to the amount of the underlying contract. Wages Must Be Paid on Time Perhaps the most important new requirement of the Act for employers is the mandate that hiring parties pay independent contractors in a timely manner.  “Timely” means that an employer pays the wages due on the date specified in the written contract or, if the contract does not specify such a date, “no later than thirty days after the completion of the freelancer’s services under the contract.” It is critical that employers pay independent contractors pursuant to the contract’s terms because the penalties for failing to do so may be severe.  A hiring party who fails to pay an independent contractor in a timely manner is subject to a statutory damage award of double damages, i.e., double the amount owed to the worker, plus the attorneys’ fees incurred by the independent contractor.  Given the expense of litigation, the employer could be liable for tens of thousands of dollars in damages if it does not pay an independent contractor’s wages when due. Discrimination and Retaliation Prohibited The Act also extends protections to independent contractors who exercise, or attempt to exercise, any of their rights under its provisions.  Specifically, the Act forbids a hiring party from taking any action that penalizes an independent contractor for, or is reasonably likely to deter an independent contractor from, taking advantage of his or her rights under the Act.  A violation of that section will expose the hiring party to a statutory damages award “equal to the value of the underlying contract for each violation.” Repeat Violations Finally, the new Act establishes penalties for hiring parties who repeatedly flaunt its provisions.  The law empowers the New York Attorney General to commence a civil action against a hiring party where there is reasonable cause to believe that the hiring party has engaged in a “pattern or practice of violations” of Section 191-d.  If the trier of fact in such proceeding determines that a pattern and practice of violations has been proved, it may fine the offending hiring party up to $25,000.  Such a fine may be imposed in addition to any damages that may be awarded to the independent contractor in a civil action based on the same facts. Accordingly, New York State employers who hire independent contractors should familiarize themselves with the provisions of the new “Freelance Isn’t Free Act” before they take effect in May 2024.  The failure to do could be a costly mistake. Matthew M. Simmonds is Senior Counsel in Underberg & Kessler LLP’s Litigation Practice Group.  A former Appellate Court attorney in the New York State Supreme Court, Fourth Judicial Department, and the Florida First District Court of Appeal, Matt has handled thousands of cases in nearly every area of civil and criminal law.  He can be reached at msimmonds@underbergkessler.com. Reprinted with permission from The Daily Record and available as a PDF file here.

The United States Department of Labor has issued a final rule, effective March 11, 2024, governing the analysis of whether a worker is an independent contractor or an employee. The rule adopts a six-factor, “totality-of-the-circumstances” analysis of the potential employer/worker relationship and is similar to the test already used by the New York State Department of Labor. All of the circumstances are analyzed as a matter of whether as an “economic reality,” the worker is economically dependent on the potential employer for work or is independently running his or her own business. Crucially, it must be understood that each Department of Labor will most likely use an employee friendly approach in applying all of the factors, which are equal in weight as to the ultimate decision. The six factors are: Opportunity for profit or loss depending on managerial skill; Investments by the worker and the potential employer; Degree of permanence of the work relationship; Nature and degree of control; Extent to which the work performed is an integral part of the potential employer’s business; and Skill and initiative. Given the factors and mindset, there are many workers wrongfully classified as independent contractors, and therefore tax withholding has not occurred, workers’ compensation and disability insurance premiums are unpaid, and New York State paid sick leave has not been provided, among other issues. Employers should therefore immediately audit their independent contractor relationships with Paul F. Keneally or another member of the Underberg & Kessler Labor & Employment Law Practice Group. If you have any questions regarding the final rule, please call Paul at (585) 258-2882 or email pkeneally@underbergkessler.com.