Appeals Court: Business Owners Not Vicariously Liable For Discrimination Claims Under NYC Human Rights Law

Fox Rothschild LLP

Fox Rothschild LLP

On February 11, 2021, the New York Court of Appeals issued an opinion holding that employees, company agents, directors, officers and shareholders are not “employers” and, therefore, are not vicariously liable for discrimination claims under the New York City Human Rights Law (NYCHRL) based on their title or ownership interest in an entity. This decision is a welcome relief to businesses that over the past decade have been incentivized to resolve NYCHRL cases in order to avoid the chance, however unlikely, that individual owners, managers and executives could face serious and substantial personal liability resulting from hiring one rogue employee.

In Margaret Doe v. Bloomberg, L.P., et al., the plaintiff alleged that she was sexually harassed and raped by her supervisor while working at Bloomberg, L.P. She filed suit under the New York City Human Rights Law against Bloomberg, L.P., her supervisor and Michael Bloomberg. With respect to Mr. Bloomberg, plaintiff did not allege that he participated or aided and abetted the purported harassment and assault. Rather, she asserted that Mr. Bloomberg was the founder, owner and CEO of Bloomberg, L.P. and therefore liable for the harassment she suffered. She also claimed that Mr. Bloomberg accepted and encouraged sexist behavior at Bloomberg, L.P.

Mr. Bloomberg moved to dismiss the complaint in the Supreme Court asserting that because there were no allegations that he aided or abetted the alleged harassment, he could not be held personally liable. The Supreme Court disagreed, holding that because the complaint alleged that Mr. Bloomberg was the owner and CEO of Bloomberg, L.P., he was vicariously liable for the alleged harassment. The Supreme Court based its decision on a line of cases that implied that individuals could be held personally liable under the NYCHRL if they had an ownership interest in the business or the authority to make significant personnel decisions. Mr. Bloomberg appealed to the Appellate Division, First Department, which reversed the Supreme Court’s decision over the dissent of two justices. The plaintiff then appealed to the New York Court of Appeals.

The Court of Appeals determined Mr. Bloomberg was not an “employer” under the NYCHRL. The court’s decision hinged on its interpretation of the term “employer.” The Court of Appeals conceded that “employer” was poorly defined under the NYCHRL, but nonetheless refused to define employer broadly to include owners and agents of a business entity. It held that the law does not explicitly include owners or agents of an employer in the section related to vicarious liability, whereas such individuals are included in other provisions of the law.

Moreover, the court found that the NYCHRL differentiates between “employers” and their “employees or agents.” The court noted that given that the NYCHRL clearly contemplated a distinction between the business employer and its owners and agents; the former can be held vicariously liable, but not the latter. As further support for this interpretation, the court referenced general corporate and agency principles of law that state that where an employer is a business entity, the shareholders, agents, limited partners and employees of that business entity are not employers. In short, other than a sole proprietorship, a business owner or other individual cannot be vicariously liable under the NYCHRL based on their title alone. In order for an individual owner, officer, employee or agent of a business entity to be liable, the individual must either actively engage in the unlawful activity or aid or abet such activity. Because the plaintiff’s complaint did not allege that Mr. Bloomberg participated in the purported harassment and did not aid or abet such harassment, he could not be held individually liable under the NYCHRL. As such, New York’s highest court held that the complaint against Mr. Bloomberg should have been dismissed.

Prior to Doe, many New York courts had held that individual owners, managers and executives could be held liable under the NYCHRL as long as such individuals had an equity interest in the business or had the authority to make significant personnel decisions. These courts permitted such suits to go forward even if the individual had no role in the purported conduct that led to the lawsuit. These decisions followed the narrow and simplistic view of the dissent in Doe that “to avoid strict liability, [owners] simply need to bring their business into compliance with NYCHRL and purge discrimination from their workplace.” This way of thinking ignores the reality that a CEO, an owner or other executive, manager or employee cannot possibly prevent conduct about which they have no knowledge. Indeed, high-level employees cannot be expected to know what is happening between every employee and supervisor, especially in large organizations. As a result, these lawsuits were not a catalyst for organizational change, but the impetus for early resolution even where the employer had made significant efforts to ensure a safe, discrimination-free working environment. The decision in Doe will provide an avenue to allow business owners and executives to defend claims where it is appropriate without risking personal ruin.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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