New York Law Review

Tag: employee benefits

  • Godfrey v. Spano, 13 N.Y.3d 358 (2009): Recognition of Out-of-State Same-Sex Marriages

    13 N.Y.3d 358 (2009)

    New York’s recognition of out-of-state same-sex marriages for purposes of public employee benefits is permissible under existing law, specifically the broad discretion granted to the Civil Service Commission president in defining “spouse” for benefits eligibility.

    Summary

    This case addresses whether New York State and Westchester County can recognize same-sex marriages performed legally out-of-state for the purpose of extending employee benefits. Taxpayers challenged directives by the County Executive of Westchester and the NYS Department of Civil Service to recognize these marriages. The Court of Appeals held that the directives were permissible. The court found that the plaintiffs failed to demonstrate any specific illegal expenditure of funds resulting from the recognition of same-sex marriages. Furthermore, the Court emphasized the broad discretion granted to the President of the Civil Service Commission to define “spouse” for the purpose of employee benefits.

    Facts

    Several states and Canada legalized same-sex marriage. The Westchester County Executive issued an executive order directing all county departments to recognize same-sex marriages lawfully entered into outside of New York for the purpose of extending rights and benefits. The NYS Department of Civil Service issued a policy memorandum that it would recognize as spouses partners in same-sex marriages legally performed in other jurisdictions for purposes of benefits eligibility under NYSHIP and other benefit plans it administered. Taxpayers brought suit challenging the legality of these directives.

    Procedural History

    In Godfrey, Supreme Court granted motions to dismiss the taxpayers’ complaint, declaring the Executive Order valid. The Appellate Division affirmed. In Lewis, Supreme Court denied the taxpayers’ cross-motion for summary judgment and granted summary judgment to defendants, declaring the policy memorandum lawful. The Appellate Division affirmed. The Court of Appeals consolidated and granted leave to appeal both cases.

    Issue(s)

    1. Whether the Westchester County Executive’s order illegally legislated in the areas of marriage and domestic relations in violation of General Municipal Law § 51.

    2. Whether the NYS Department of Civil Service’s policy memorandum violated State Finance Law § 123-b or the separation of powers doctrine.

    Holding

    1. No, because the taxpayers failed to allege an unlawful expenditure of taxpayer funds as a result of the Executive Order.

    2. No, because the taxpayers failed to show specific expenditures, and because Civil Service Law grants the Civil Service Commission president broad authority to define “spouse” for benefits purposes.

    Court’s Reasoning

    Regarding the General Municipal Law § 51 claim, the Court stated that such a claim “lies only when the acts complained of are fraudulent, or a waste of public property in the sense that they represent a use of public property or funds for entirely illegal purposes”. The Court found the plaintiffs’ allegations too conclusory. They failed to identify any specific impact the Executive Order had on any public employee or private individual. The Court emphasized that Westchester County already provided benefits to same-sex domestic partners before the Executive Order was issued.

    Regarding the State Finance Law § 123-b claim, the Court stated that “there must be some specific threat of an imminent expenditure.” The Court reiterated that the Department of Civil Service had offered benefits to domestic partners since the mid-1990s, thus the claim failed. Regarding the separation of powers claim, the Court cited Civil Service Law § 164 (1), which provides that every state employee “shall be entitled to have his spouse and dependent children, as defined by the regulations of the president, included in the coverage.” The Court found that the statute expressly gives the President of the Civil Service Commission the authority to define “spouse”. The Court further referenced legislative history that supported the intent to give the Department of Civil Service “complete discretion to determine the limits of dependent coverage, provided that, at a minimum, spouses and dependent children were covered.”

  • Salzman v. B. Kreischer & Sons, Inc., 66 N.Y.2d 902 (1985): Interpreting Ambiguous Contractual Language Regarding Employee Coverage

    Salzman v. B. Kreischer & Sons, Inc., 66 N.Y.2d 902 (1985)

    When interpreting contract language, especially regarding employee benefits, courts must consider the entire agreement to determine the intent of the parties and resolve any ambiguities.

    Summary

    Salzman v. B. Kreischer & Sons, Inc. involved a dispute over pension and health and welfare payments for employees. The plaintiffs, trustees of union benefit funds, sought summary judgment, arguing that the defendant employer was obligated to make contributions for all employees working within the union’s territorial jurisdiction. The Court of Appeals affirmed the denial of summary judgment, finding that the contract language regarding which employees were covered was ambiguous and required further factual determination. The court clarified that the contract’s arbitration clause did not apply to disputes over benefit payments.

    Facts

    The plaintiffs, as trustees, sought to enforce an agreement requiring B. Kreischer & Sons to make pension, health, and welfare payments. The dispute centered on the interpretation of the phrase “all of the employees covered by this Agreement.” The trustees argued it encompassed all employees performing work within the territorial jurisdiction of the signatory local unions. The employer contended it only applied to employees who were union members. The lower courts were divided on whether the contract language was sufficiently clear to grant summary judgment.

    Procedural History

    The Supreme Court initially ruled on the plaintiffs’ motion for summary judgment. The Appellate Division reviewed that decision. The Court of Appeals then reviewed the Appellate Division’s order and the original Supreme Court judgment.

    Issue(s)

    1. Whether the phrase “all of the employees covered by this Agreement” in the collective bargaining agreement is ambiguous regarding which employees are entitled to pension, health, and welfare benefits.
    2. Whether the agreement specifically provided that questions or disputes arising thereunder should be negotiated with the union representatives, particularly concerning pension and health and welfare payments.

    Holding

    1. Yes, because the phrase could reasonably be interpreted as referring either to only union members or to all employees performing work within the union’s jurisdiction.
    2. No, because the agreement’s arbitration and grievance procedure specifically excluded violations concerning pension, health, and welfare payments, and the jurisdictional dispute clause only pertained to who could perform work, not benefit payments.

    Court’s Reasoning

    The Court of Appeals agreed with the Appellate Division majority that the contract language was ambiguous, precluding summary judgment. The phrase “all of the employees covered by this Agreement” could reasonably refer to either union members only or all employees working within the union’s geographic jurisdiction, regardless of membership. The court emphasized the importance of considering the “context of the entire agreement” to ascertain the parties’ intent.

    Regarding the role of union representatives in resolving disputes, the court disagreed with the Appellate Division’s conclusion that the agreement mandated negotiation with the union. It found that the contract’s arbitration clause was inapplicable because Section 12.5 specifically excluded disputes over pension, health, and welfare payments from the grievance procedure. Furthermore, Article 8, concerning jurisdictional disputes, addressed “who can perform work within the Teamsters’ jurisdiction, not with payments to pension or health and welfare funds.” The court highlighted the limitation in Section 12.5 regarding payments to reinforce its conclusion. Because of the factual dispute over employee coverage, summary judgment was inappropriate. The court essentially required further factual findings to ascertain the intent of the contracting parties when using the ambiguous phrase in the agreement.

  • Sasso v. Vachris, 66 N.Y.2d 26 (1985): State Law Imposing Shareholder Liability is Not Preempted by ERISA

    66 N.Y.2d 26 (1985)

    A state law that imposes personal liability on shareholders for a corporation’s failure to make required contributions to employee benefit plans is not preempted by the Employee Retirement Income Security Act (ERISA) because it provides a remedial enforcement mechanism rather than regulating the terms and conditions of the benefit plan itself.

    Summary

    The trustees of a union welfare and pension fund sued the shareholders of a construction company to recover unpaid contributions to the fund, pursuant to New York Business Corporation Law § 630, which allows employees to recover unpaid wages and benefits from the ten largest shareholders of a closely held corporation. The New York Court of Appeals held that ERISA did not preempt this state law. The court reasoned that § 630 provides a mechanism to enforce existing obligations, not to dictate the terms of the employee benefit plan, and therefore only has a “tenuous, remote, or peripheral” effect on the plan, which is insufficient for preemption.

    Facts

    Local Union 282 established a welfare and pension trust fund. Vacar Construction Company was obligated under collective bargaining and trust agreements to contribute to this fund for its Local 282 employees. Vacar failed to make the required contributions between May 1978 and February 1979. Vacar then filed for bankruptcy, thwarting the fund’s initial attempts to recover the unpaid amounts.

    Procedural History

    The trustees sued Vacar’s shareholders under Business Corporation Law § 630 and Vacar’s officers under Labor Law § 198-c. Special Term granted summary judgment for the plaintiffs on the Labor Law claim but dismissed the claim against Helen Vachris (not an officer) and dismissed the Business Corporation Law claim as preempted by ERISA. The Appellate Division modified, dismissing the Labor Law claim entirely, finding no private right of action under that statute. The plaintiffs appealed the dismissal of the Business Corporation Law claim.

    Issue(s)

    Whether Business Corporation Law § 630, which imposes personal liability on the ten largest shareholders of a closely held corporation for wages and salaries (including benefit contributions) owed to the corporation’s employees, is preempted by ERISA.

    Holding

    No, because Business Corporation Law § 630 is a remedial statute that provides an additional enforcement mechanism for collecting delinquent contributions and does not regulate the terms and conditions of employee benefit plans.

    Court’s Reasoning

    The court began by noting the broad preemption clause in ERISA, which supersedes state laws that “relate to” any employee benefit plan. However, the court also acknowledged that this clause is not unlimited, and only state laws that “regulate, directly or indirectly, the terms and conditions of employee benefit plans” are preempted. State laws with only a “tenuous, remote, or peripheral” effect are not preempted.

    The court found that Business Corporation Law § 630 is remedial, providing an additional enforcement mechanism for collecting delinquent contributions that are already owed under existing collective bargaining and trust agreements. It does not dictate what benefits must be provided or how they are calculated. The court distinguished § 630 from state laws that the Supreme Court had previously found to be preempted, such as those requiring specific benefits or practices in employee benefit plans.

    The court likened § 630 to a garnishment statute or a law imposing liability on corporate officers, which have been found not to be preempted because their effect on employee benefit plans is only indirect. The court also noted that the 1980 amendments to ERISA, which added specific provisions dealing with delinquent contributions, were intended to supplement, rather than supersede, existing state remedies like § 630.

    “Under ERISA [as originally enacted] delinquent contributions were enforced by an action founded either on state law, the collective bargaining agreement between the parties or the trust agreement.”

    Ultimately, the court concluded that Congress intended ERISA’s civil remedies to merely supplement, rather than supersede, existing state remedies for collecting delinquent employer contributions to employee benefit plans.

  • Civil Service Bar Ass’n v. City of New York, 64 N.Y.2d 188 (1984): Union’s Duty of Fair Representation in Settlement Agreements

    Civil Service Bar Ass’n v. City of New York, 64 N.Y.2d 188 (1984)

    A union does not violate its duty of fair representation when it settles an appeal from an arbitration award by agreeing to modify benefits for some employees in exchange for benefits to others, absent arbitrary, discriminatory, or bad-faith conduct.

    Summary

    This case addresses whether a union breached its duty of fair representation by settling an appeal of an arbitration award. The union negotiated a settlement with the City of New York that altered the benefits awarded to some employees in exchange for broader benefits for the entire union membership. A group of employees who would have received greater benefits under the original arbitration award challenged the settlement. The New York Court of Appeals held that the union did not violate its duty of fair representation because the settlement was not arbitrary, discriminatory, or made in bad faith, acknowledging the union’s need to balance competing interests within its membership and the public policy favoring settlement of litigation.

    Facts

    In March 1975, the City of New York appointed an attorney at a salary exceeding the stated minimum for the position. The Civil Service Bar Association (Union) filed a grievance, claiming this triggered a requirement to raise minimum salaries for all grades. The grievance was denied and went to arbitration. The arbitrator ruled for the Union, ordering the City to increase all minimum salaries and award back pay. The City appealed the confirmation of the arbitration award (the “Helman judgment”). During the appeal, the City and Union negotiated a settlement resulting in a lump-sum payment of $2,000 to employees, an increase in minimum and maximum salaries by $2,500, and these increased salaries would form the basis for upcoming collective bargaining.

    Procedural History

    The initial arbitration award was confirmed in the Helman judgment. The City appealed. While the appeal was pending, a settlement was reached and embodied in a “Final Supplemental Award,” which the Supreme Court confirmed in the Korn judgment, vacating the Helman judgment. A group of employees sought to intervene and set aside the Korn judgment, arguing the settlement breached the Union’s duty of fair representation. The Supreme Court initially denied intervention, but the Appellate Division reversed, remanding for a hearing. On remand, the Supreme Court vacated the Supplemental Award and reinstated the Helman judgment. The Appellate Division reversed again, denying the motion to vacate the Korn judgment, finding no breach of the duty of fair representation. The New York Court of Appeals affirmed the Appellate Division’s decision.

    Issue(s)

    Whether the Union violated its duty of fair representation by settling the appeal of the arbitration award in a manner that diminished benefits for some employees in exchange for benefits to other employees not affected by the original award.

    Holding

    No, because the Union’s conduct in settling the appeal was not arbitrary, discriminatory, or in bad faith; thus it did not violate its duty of fair representation.

    Court’s Reasoning

    The Court of Appeals relied on federal precedent, particularly Vaca v. Sipes, to define the duty of fair representation as requiring unions to act fairly towards all employees they represent. A breach of this duty occurs only when a union’s conduct is arbitrary, discriminatory, or in bad faith. The court emphasized that ascertaining whether the duty was violated is a factual determination. Here, the Appellate Division found no reason to believe the Union acted dishonestly or in bad faith. The court noted that both the City and the Union were unsure of their chances on appeal, and both sides were dissatisfied with aspects of the original award. The court reasoned that “It was not unfair to use the original award as a lever, or a club, to obtain for all the members of the Union a more equal benefit.” The court acknowledged the conflicting interests within the union membership and stated that unions must have leeway to resolve these conflicts. Quoting Humphrey v. Moore, the court emphasized that “Conflict between employees represented by the same union is a recurring fact. To remove or gag the union in these cases would surely weaken the collective bargaining and grievance processes.” The court also highlighted the strong policy favoring the settlement of litigation. The settlement avoided salary schedule compression that would diminish increases based on seniority. The court concluded that the Union engaged in a good-faith balancing of divergent interests and that the settlement was not arbitrary, discriminatory, or in bad faith.

  • Post v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 48 N.Y.2d 84 (1979): Enforceability of Forfeiture-for-Competition Clauses After Involuntary Termination

    Post v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 48 N.Y.2d 84 (1979)

    A forfeiture-for-competition clause in an employee pension plan is unenforceable as a matter of law where the employee’s termination was involuntary and without cause.

    Summary

    Post and Maney, former account executives at Merrill Lynch, were terminated and subsequently began working for a competitor, Bache & Company. Merrill Lynch then sought to forfeit their pension benefits based on a clause in the pension plan that allowed forfeiture if an employee competed with the firm. The New York Court of Appeals held that such a forfeiture is unreasonable and unenforceable when the termination is involuntary and without cause. The court emphasized the public policy against forfeiture of employee benefits and the importance of mutuality of obligation in employment contracts, especially in light of the growing importance of ERISA.

    Facts

    Post and Maney were employed as account executives by Merrill Lynch, choosing a salary and participation in pension/profit-sharing plans over a straight commission. Both were terminated on August 30, 1974, and began working for Bache & Company, a competitor, on September 4, 1974. Fifteen months after their termination, Merrill Lynch informed them that their pension benefits were forfeited due to the plan’s provision against competition. The plaintiffs claimed they were discharged without cause, a claim Merrill Lynch did not dispute for the purposes of the summary judgment motion.

    Procedural History

    Post and Maney sued Merrill Lynch for conversion and breach of contract, seeking recovery of pension amounts and punitive damages. The lower court granted Merrill Lynch’s motion for summary judgment, dismissing the complaint based on the precedent set in Kristt v. Whelan. The New York Court of Appeals reversed the lower court’s decision, denying the motion for summary judgment and reinstating the complaint.

    Issue(s)

    Whether a forfeiture-for-competition clause in an employee pension plan is enforceable when the employee’s termination was involuntary and without cause.

    Holding

    No, because where an employee is involuntarily discharged without cause and subsequently competes with their former employer, a forfeiture of earned pension benefits based on that competition is unreasonable as a matter of law and cannot be upheld.

    Court’s Reasoning

    The court distinguished this case from prior cases like Kristt v. Whelan, where the employee voluntarily left and competed with the former employer. The court emphasized the strong public policy against forfeiture of an employee’s livelihood, stating, “powerful considerations of public policy * * * militate against sanctioning the loss of a man’s livelihood.” The court also considered the policy implications of the Employee Retirement Income Security Act of 1974 (ERISA), highlighting the growing importance of safeguarding employee benefits. The court reasoned that the mutuality of obligation is destroyed when an employer terminates the employment relationship without cause. Allowing forfeiture in such cases would be unconscionable, permitting the employer to “economically cripple a former employee and simultaneously deny other potential employers his services.” The court noted that the specific pension plan provision was not explicitly drawn to address involuntary terminations. The court stated, “An employer should not be permitted to use offensively an anticompetition clause coupled with a forfeiture provision”. The court concluded that the question of whether the plaintiffs’ termination was voluntary could not be resolved on a motion for summary judgment, necessitating a trial on that issue.

  • Mutual Life Ins. Co. of New York v. State Tax Comm., 32 N.Y.2d 348 (1973): Taxability of Employee Insurance Benefits

    Mutual Life Ins. Co. of New York v. State Tax Comm., 32 N.Y.2d 348 (1973)

    A life insurance company’s provision of life and health insurance benefits to its employees on a nonprofit basis, as an incident of the employer-employee relationship, does not constitute the transaction of insurance business subject to a state premium tax.

    Summary

    Mutual Life Insurance Company of New York challenged a determination by the State Tax Commission that the cost of providing life and health insurance benefits to its employees was subject to a state premium tax. The company argued that these benefits, provided on a nonprofit basis, were not “premiums received” within the meaning of the state’s tax law. The New York Court of Appeals reversed the Appellate Division’s decision, holding that providing such benefits as an employer is distinct from transacting insurance business, and thus not subject to the premium tax. The court emphasized that the program was an incident of the employer-employee relationship, not a commercial insurance activity.

    Facts

    Mutual Life Insurance Company of New York provided death, illness, and disability benefits to its employees and field agents. The company allocated the cost of these benefits on a nonprofit basis, without any provision for general surplus. The majority of the expense was borne by the company as an employer, with the remainder contributed by employees through deductions from wages and commissions, also calculated on a nonprofit basis. Prior to 1963, the State Tax Commission did not consider these costs to be taxable premiums.

    Procedural History

    The State Tax Commission determined that the cost of employee insurance coverage constituted taxable premiums and levied additional assessments on Mutual Life in 1963. The Appellate Division confirmed the Tax Commission’s determination, reasoning that because the company stipulated that its plans constituted “insurance contracts,” the costs should be deemed “premiums.” Mutual Life appealed to the New York Court of Appeals.

    Issue(s)

    Whether the costs incurred by a life insurance company in providing life and health insurance benefits to its employees, on a nonprofit basis, as an incident of the employer-employee relationship, constitute “premiums received” for the privilege of exercising corporate franchises or carrying on business within the state, and thus are subject to state premium tax under Section 187 of the Tax Law.

    Holding

    No, because the provision of insurance benefits to employees on a nonprofit basis is an incident of the employer-employee relationship and not the transaction of insurance business for the purpose of exercising its corporate franchise, and therefore is not subject to the premium tax under Section 187 of the Tax Law.

    Court’s Reasoning

    The court reasoned that the state tax law imposes a corporate franchise fee upon insurance companies for the privilege of doing business within the state, measured by premiums “reasonably attributable to business of this State.” The court emphasized that the employee-benefit program was not the result of solicitation of business or of the petitioner’s holding itself out or doing business as a commercial insurer. The expense of the program is calculated without provision for profit, confirming that it is not part of its ordinary course of business as a franchise insurer.

    The court distinguished this arrangement from a commercial transaction, likening it to any other employer-employee relationship where insurance benefits are provided. The court stated that what constitutes a nontaxable employer-employee relationship for noninsurers is not transformed into a taxable insurance business simply because the employer happens to be licensed to conduct such a business.

    The court also noted that other jurisdictions have similarly held that an insurer’s maintenance of a benefit program for its employees, on a nonprofit basis and solely as an incident of its role as employer, does not constitute the doing of an insurance business so as to subject it to a tax. The court rejected the argument that the cost of the program is equivalent to a premium, stating: “The premium on any commercially sold insurance would necessarily include an amount attributable to profit or to a contribution to surplus, the element lacking in the petitioner’s employee benefit program.”

    Finally, the court gave significant weight to the long-standing interpretation by the Insurance Department and the Department of Taxation and Finance that the cost of insurers’ employee benefit programs was not a taxable premium. Citing Matter of Inter-County Tit. Guar. & Mtge. Co. v. State Tax Comm., 28 Y 2d 179, 182, the court noted that such a long-standing interpretation by the agencies charged with regulation of insurance companies is entitled to great weight.

  • Matter of County of Erie v. Hoch, 21 N.Y.2d 854 (1968): Scope of State Reimbursement for Mental Health Programs

    Matter of County of Erie v. Hoch, 21 N.Y.2d 854 (1968)

    Under amendments to the Mental Hygiene Law, municipalities are entitled to 50% reimbursement from the state for expenditures related to employee benefits like hospitalization insurance, retirement, and social security, for personnel in approved community mental health programs.

    Summary

    This case concerns the extent to which New York State must reimburse Erie County for expenses related to its community mental health program. Prior to 1965 amendments to the Mental Hygiene Law, the county sought reimbursement for employer contributions to employee benefits (hospitalization insurance, retirement, and social security). The Commissioner of Mental Hygiene denied reimbursement. The court considered whether the 1965 amendments, which broadened the scope of reimbursable expenditures, entitled the county to reimbursement for these employee benefit contributions. The Court of Appeals held that the amended law did entitle the county to such reimbursement.

    Facts

    Erie County operated an approved community mental health program.

    Prior to June 28, 1965, the County sought reimbursement from the State for its employer contributions toward hospitalization insurance, state retirement, and social security for employees in the mental health program.

    The Commissioner of Mental Hygiene denied the reimbursement under the pre-1965 version of the Mental Hygiene Law.

    The 1965 amendments to the Mental Hygiene Law broadened the scope of reimbursable expenditures.

    Erie County then sought a declaration that it was entitled to 50% reimbursement from the State for the aforementioned employee benefit payments, dating back to June 28, 1965.

    Procedural History

    The case originated in Special Term, which presumably ruled against the County.

    The case was appealed to an intermediate appellate court, which was then appealed to the New York Court of Appeals.

    The Court of Appeals modified the order and remitted the matter to Special Term for entry of a declaratory judgment in favor of Erie County.

    Issue(s)

    Whether the 1965 amendments to the Mental Hygiene Law required the State to reimburse Erie County for 50% of its expenditures for hospitalization insurance, State retirement system contributions, and social security payments made for employees engaged in an approved community mental health program since June 28, 1965?

    Holding

    Yes, because the 1965 amendments broadened the scope of reimbursable expenses to include “all expenditures…incurred by a…county for qualified and necessary personnel,” which encompasses employer contributions to employee benefits like hospitalization insurance, retirement, and social security.

    Court’s Reasoning

    The Court focused on interpreting the language of the 1965 amendments to the Mental Hygiene Law. The prior law allowed reimbursement for “salaries of qualified and necessary personnel” and “operation, maintenance and service costs”. The Court found that the Commissioner’s decision to deny reimbursement for employee benefit contributions under the older statute was not an abuse of discretion.

    However, the amended law stated that participating municipalities are entitled to 50% reimbursement for “all expenditures…incurred by a…county for qualified and necessary personnel”. The Court emphasized the broad and unambiguous nature of the phrase “all expenditures.” This phrase, according to the Court, necessarily included the employer contributions for hospitalization insurance, retirement under the State Employees’ Retirement System, and social security coverage.

    The Court did not elaborate on policy considerations but clearly prioritized a plain reading of the amended statute’s language. The court found that this language unambiguously mandated reimbursement for all expenditures for qualified personnel, including the disputed employee benefit contributions. There were no dissenting or concurring opinions noted.

    The practical implication of this decision is that municipalities in New York are entitled to state reimbursement for a broader range of expenses related to their community mental health programs than they were before the 1965 amendments. This encourages and supports the funding of employee benefits as part of those programs.