It’s 5:00 on Friday and your boss calls you into her office.  You probably noticed that business has not been going well.  A long time customer has left and there is simply not enough work to go around.  Your boss, tearing a bit, breaks the news and offers you a severance package. Should you take it?

Believe it our not, you can negotiate a severance agreement.

  1. Understand that your emotions while be on high after you are initially handed the agreement.  The worst thing that you can do is let your boss “have it.” Be cordial and ask for time to review the agreement.  You have the legal right to do so.
  2. Don’t sign anything immediately. Your boss may ask you sign a waiver, which could release any future rights that you may have in the event of a potential lawsuit. So if you a fired while you are pregnant, waive your discrimination case goodbye.
  3. Be aware that your employer cannot withhold your wages if you fail to sign the agreement.
  4. Have you been paid all over your benefits? Review your employee handbook or employment contract to see if you are owed any vacation time.
  5. How is the severance payment being disbursed? In a lump sum or over a period of time.  There could be tax benefits for choosing one form of payment over another.
  6. What health insurance is being offered?  Look into possible of extension of your Cobra benefits.
  7. Your employer may want you to sign a non-compete agreement or non-disclosure agreement.  If you sign a non-compete agreement, you may have trouble seeking new employment if the terms are not analyzed.  A non-disclosure agreement may prohibit you from disclosing trade secrets to a potential new employer.
  8. Do you have any stock options?
  9. In some cases, your employee handbook or agreement may provide that your employer will pay your legal expenses for an attorney review your severance package.
  10. You can negotiate with your employer and agree to the language of your recommendation.

Don’t negotiate your severance agreement alone. The Law Office of Frederic R. Abramson reviews, drafts and negotiates severance agreements.  Call me at 212-233-0666 for a free consultation.

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Zoe Baird watch out.  If you employ a Nanny, even one who is here illegally, a new proposed New York Law is in the works that will place new burdens on their employers. The State Senate passed a bill last week that would protect Nannies. According the New York Times, this law is likely to be passed into law.

The new law will require the following:

  1. Paid holidays, sick days and vacation days for domestic workers, along with overtime wages.
  2. It would require 14 days’ notice, or termination pay, before firing a domestic worker.

The law would cover citizens, legal immigrants and those here illegally as well.  It seems highly unlikely that those who are here illegally would make complaints to the Department of Labor for workplace violations.

This bill is a bad idea.  The reality is that many working parents cannot afford a Nanny and pay her(always a women) taxes, workers compensation and overtime wages.  My estimate is that the cost of  Nanny would skyrocket to the $35,000.00 a  year. Many families may decide to lay off their Nannies and let the parent who makes less money stay at home.  Other families may decide to let their homes go into foreclosure.

There is a whole underground economy when it comes to domestic workers that benefits the workers as well. A brief sample of acquaintances who currently employee  Nannies in the New York metropolitan area revealed that the average wage for a Nanny who is in the United States illegally is about $500.00 a week. Since they don’t pay taxes their earning power is up to a third more.  Nannies are not regulated. There is no certification process and a criminal check is often impossible.

For this bill to work, the legislature should increase the child care tax credit to $10,000.00 a year per child.  In addition, Nannies who have been here for 2 years should be given a path to citizenship. What do you think?

FYI, my kids are in daycare.

If you have a question about labor and employment law, contact me at the Law Office of Frederic R. Abramson at 212-233-0666.

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Employer Misclassification May Become a Crime

by Fred Abramson on April 29, 2010 · 0 comments

I have written extensively about the potential problems employers can have by misclassifying their workers as employees.  The IRS has been cracking down on companies that try to pass off regular employees as independent contractors. It now may become a crime.

Congress is about to act on a bill entitled the Employee Misclassification Prevention Act that would impose criminal penalties on companies that misclassify workers. It appears that both the House and Senate is behind the bill, so it is likely to become law.

If this new law is passed, it would impose finds of $5,000.00 for each worker that is misclassified as an independent contractor. According to the American Bar Association Journal, the new law would also require employers to provide new hires with notice concerning their rights

There is an excellent and lengthy article on the subject by the large law firm Pepper Hamilton, LLP.

The new law is a natural progression of the Obama administration focus on cracking down on employers who improperly classify employees as independent contractors.

I would suggest that companies review all of their employment classifications to avoid potential criminal liability. You may be able to minimize the risk to your company by:

  • Wholesale review of all of your workers.
  • Restructuring the relationship that you have with your independent contractors that fall within a gray area of the law by re-classifying them as employees. I would suggest that you should err on the side of caution and classify your workers as employees if you are not sure.
  • Draft written agreements with all of your workers stating their employment status.
  • If you want to limit the workers that you classify as employees, you may have a third-party such as a staffing agency performing the hiring.

If you have any questions regarding independent contractor agreements or classification of employees, contact me at the Law Office of Frederic R. Abramson at 212-233-0666.

I have a technology company as a client who recently retained my office to advise them on a relatively common employment law. The company signed a contract with financial institution to perform help desk related work.  They hired ten people to perform the work and had each of them sign an independent contractor agreement.  All of the workers performed the work on the job site only. The all worked solely for the technology company for 40 hours a week. The company just received an evil notice from the IRS. The IRS believes that the workers are misclassified as independent contractors and should be employees.

The technology company now wonders if there are penalties for misclassifying the workers as an independent contractor.  The IRS looks in part at the intent of the employer.  If the IRS reclassifies a worker from independent contractor to employee, the employer may be liable for a penalty based on the amount of the tax that was not withheld because of the original misclassification. If the IRS finds that the misclassification was an honest mistake on the part of the employer, and the employer filed proper returns, the penalty against the employer is:

• 1.5% of the wages paid to the employee; and

• 20% of the amount that should have been withheld from the employee’s wages for FICA, but was not due to the misclassification.

If the IRS finds that the employer failed to file the proper returns, then, except where the failure is due to reasonable cause and not willful neglect, the penalties double. Then, the penalties are:

• 3% of the wages paid to the employees; and

• 40% of the amount that should have been withheld from the employee’s wages for FICA, but was not.

If the misclassification on the part of the employer is intentional and therefore the employer intentionally neglected to withhold the necessary employment taxes, the limits discussed above do not apply in assessing the employer’s liability. The penalties for intentional misclassification are more severe. Moreover, the limits are not applicable to the employee’s share of the FICA taxes if the worker is a “statutory employee,” nor where the employer withholds federal income tax from the worker’s wages, but does not withhold FICA.

Lastly, if the required to pay an “employee reclassification” tax liability, the employer may not recover the tax assessed from the employee. In addtion, the employer may not deduct the amount of tax assessed from the employee’s wages. The Internal Revenue Code provides further that the employee’s liability for his or her share of the tax is not affected by the assessment or payment of the penalty tax by the employer.

If you have a legal question regarding independent contractors in New York, contact the Law Office of Frederic R. Abramson at 212-233-0666

Wage and Hour Lawsuits are Rising

by Fred Abramson on March 17, 2010 · 0 comments

Wage and Hour lawsuits are rising according to Kiplinger.com. Due to the faltering economy, workers who have been let go are looking to the courts to seek monetary damages.  Usually the lawsuits are based upon allegations that hourly workers are not paid overtime. This is a violation of the Federal Labor Standards Act.

According to the article, New York was one of the states that has seen the most significant growth in Wage and Hour lawsuits.   Among the reasons why there have been an increase in litigation is because these cases are relatively easy to win.  The proof is in the numbers.  If you are a worker, you simply have to prove that you worked overtime.  This is usually evidenced by a time sheet.  Large employers also keep records of employees hours.  If the workers paycheck doesn’t match the hours worked, the worker wins.  Awards can include two to three years of back pay plus benefits.

The Obama administration is also placing a greater emphasis on regulation and enforcement.  As a result, more workers are being notified of Wage and Hour violations.

Here are a few ways that a business can protect itself from Wage and Hour lawsuits:

  • All worker classifications should be reviewed. Make sure that you are properly classifying any independent contractors.
  • Review all worker wages.  Sit down with an attorney to see if you workers are being properly paid. This could save your company millions of dollars.  Wal-Mart settled a $65 million dollar claim last year.
  • Speak to and train all of your supervisors.  Managers often demand workera to work overtime without knowing its implications.
  • If there is a problem don’t ignore it.  If an employee complains that she has not been paid overtime, take it seriously. Wage lawsuits can be just as costly as sexual harassment litigation.
  • Make sure your employee handbook is up to date and addressses wage and hour issues.
  • Be aware of the difference between employees who are paid salaries and hourly workers.

Another tip, as Rush Nugut points out is that a business should consider hiring a lawyer during the auditing process as to keep the attorney-client privledge.

I would also like to thank Craig Roberts for his insights regarding this issue while watching our children slide on giant inflatables at a Pump it Up party in Plaiview, Long Island.

If you have any question regarding Wage and Hour Lawsuits, whether you are an employer or employee, contact the Law Office of Frederic R. Abramson at 212-233-0666.

Misclassification of Independent Contractors Crackdown

March 2, 2010

Misclassifying an an employee as an independent contractor is one of the most expensive mistakes that a business owner can make. It does not matter whether you intentionally made the mistake. You can be subject to large penalties, fines and even subject the criminal liability.  I have recently reported that the IRS has been targeting […]

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Employers with Independent Contract Workers are Targeted by the Government

February 19, 2010

According to the New York Times, the IRS is cracking down on companies that try to pass off regular employees as independent contractors. More than two dozen states are cracking down on employers that improperly claim regular employees as independent contract workers. The federal government believes that enforcement could yield $7 billion during the next […]

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