Enacts the "faithless servant reform act"

• Democratic2

◆ The sponsor's argument

Why Jessica Ramos says this is needed

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-14I 1 (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- t

This is the sponsor's own case for the bill, quoted from their memorandum. It is not Agora's description of what the bill does.