NY Court Rules Business Owners Not Vicariously Liable Under NYCHRL

NY Court Rules Business Owners Not Vicariously Liable Under NYCHRL

Unanticipated liability can lead to costly legal liability for New York businesses...

Unanticipated liability can lead to costly legal liability for New York businesses. Recently, the New York Court of Appeals ruled that the individual owners of a company can’t be held vicariously liable as “employers” under the New York City Human Rights Law (NYCHRL).

Allegations under the New York City Human Rights Law

In Margaret Doe v. Bloomberg, L.P., Plaintiff, an employee of Bloomberg L.P. using the pseudonym “Margaret Doe,” brought suit against defendants Bloomberg L.P., her supervisor Nicholas Ferris, and Michael Bloomberg, asserting several causes of action arising from alleged discrimination, sexual harassment, and sexual abuse.

Plaintiff alleged that Bloomberg, in addition to Bloomberg L.P., was her “employer” and as a result was subject to vicarious liability under the NYCHRL. Plaintiff asserted that “[a]t all relevant times” Bloomberg was the “Co-Founder, Chief Executive Officer, and President of Bloomberg[ L.P.],” and that he had fostered an environment that accepted and encouraged “sexist and sexually-charged behavior.” She did not claim that Bloomberg had any “personal participation” in the specific offending conduct.

The NYCHRL, which makes it unlawful for “an employer or an employee or agent thereof” to discriminate on the basis of gender, imposes vicarious liability on employers in the following circumstances: 

An employer shall be liable for an unlawful discriminatory practice based upon the conduct of an employee or agent which is in violation of subdivision one or two of this section only where: 

(1) the employee or agent exercised managerial or supervisory responsibility; or 

(2) the employer knew of the employee’s or agent’s discriminatory conduct, and acquiesced in such conduct or failed to take immediate and appropriate corrective action; an employer shall be deemed to have knowledge of an employee’s or agent’s discriminatory conduct where that conduct was known by another employee or agent who exercised managerial or supervisory responsibility; or 

(3) the employer should have known of the employee’s or agent’s discriminatory conduct and failed to exercise reasonable diligence to prevent such discriminatory conduct.

Bloomberg moved to dismiss the claims against him. The New York Supreme Court denied the motion, holding that because the complaint alleged that Bloomberg was the owner and CEO of Bloomberg, L.P., he was vicariously liable for the alleged harassment. In support, the court cited 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. The Appellate Division, with two Justices dissenting, reversed and dismissed the causes of action against Bloomberg.

NY Court of Appeals Declines to Expand Vicarious Liability

The New York Court of Appeals affirmed the dismissal of complaints against Bloomberg. “We hold that Bloomberg is not an ‘employer’ within the meaning of the City HRL and accordingly, we affirm the dismissal of plaintiff’s claims that seek to hold Bloomberg vicariously liable for Ferris’s offending conduct,” Judge Michael Garcia wrote on behalf of the court.

In concluding that Bloomberg was not an “employer” under the NYCHRL, the court acknowledged that the term is not well defined under the statute, and that lower courts have struggled to fill the void. It went on to reject the test applied by the Appellate Division, under which “some participation in the specific conduct committed against the plaintiff is required to hold an individual owner or officer of a corporate employer personally liable in his or her capacity as an employer.”

According to the New York Court of Appeals, [w]here a plaintiff’s employer is a business entity, the shareholders, agents, limited partners, and employees of that entity are not employers within the meaning of the City HRL.” Rather, those individuals may be held liable only for their own violations of the NYCHRL, such as “their own discriminatory conduct, for aiding and abetting such conduct by others, or for retaliation against protected conduct.” 

After establishing the new test, the New York Court of Appeals concluded that the allegations that Bloomberg “fostered a culture of discrimination and sexual harassment at Bloomberg L.P., based primarily on news articles and reports of a deposition in an unrelated case,” were insufficient to support a claim against him under the NYCHRL.

Key Takeaway

While the court limited potential liability, the court’s decision in Doe v. Bloomberg L.P. does not absolve all possible liability. Owners, shareholders, partners, and agents may still be held liable if they actively engage in violations of the NYCHRL or aid or abet such unlawful activity. 

If you have questions, please contact us

If you have any questions or if you would like to discuss the matter further, please contact me, Michael Sheppeard, or the Scarinci Hollenbeck attorney with whom you work, at 201-896-4100.