Prior Convictions; New Fire House; Lease Subrogation

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Job Applicant’s Lie About Convictions

Appeals Court orders Nassau County to pay school tax refundsIn Godbolt v. Verizon New York (Sup. Ct. N.Y. Cnty. January 22, 2013) the New York Supreme Court addressed a former employee’s suit against Verizon, claiming his termination was based on his prior conviction record.

Employers and employees should be aware that the New York State Human Rights Law states that a job applicant may not be denied employment or licensure because of his or her conviction record, unless there is a direct relationship between the offense and the job or license sought, or unless hiring or licensure would create an unreasonable risk to property or to public or individual safety. This law applies to employers with ten or more employees. Factors to consider in analyzing whether employment may be denied are found in N.Y. Corrections Law, Article 23-A. In addition, an employer may not inquire about nor act upon an arrest (as opposed to a conviction) that was terminated or determined in favor of the individual. Upon request and within thirty days, the applicant must be given a written statement of the reasons why employment was denied. The provisions of this law do not apply to the licensing activities of governing bodies in relation to the regulation of firearms, or an application for employment as a police officer or peace officer.

In the Verizon case, an anonymous caller reported that the employee, Godbolt, was intoxicated while on duty. Verizon hired someone to investigate the allegation and the investigator found that there was no evidence of alcohol use while on duty, but also performed a Google search on Godbolt, discovering various convictions. Although the investigator’s report found the intoxication accusation unsubstantiated, he nevertheless informed Verizon that Godbolt failed to disclose several felony convictions on his job applications.

In a 1996 job application, Godbolt left blank the section on convictions, which inquired as to whether the applicant had ever been convicted of a felony or a misdemeanor. Godbolt was offered a job in connection with his application but he never accepted it. He then applied for a job in 1998. He also left blank the section on whether the applicant had ever been convicted of a misdemeanor. The answer “No” was circled next to the question as to whether the applicant had ever been convicted of the felony, although he claims to never have circled that. The application also contained the statement: “I have reviewed my original application which is attached.” After the words: “The information it contains is,” plaintiff checked off the box: “Complete and accurate and no changes or supplements are required.”

After learning of the convictions, Verizon terminated Godbolt for falsification of his employment application. The Court found Verizon met its burden of showing a non-discriminatory reason for terminating the employee’s employment, ruling the Godbolt failed to raise a tribal issue of fact as to whether the falsification of the applications was pretextual or false, and rejected the employee’s claim that the investigator exceeded his authority. Verizon also produced evidence showing that it terminated similarly situated employees who falsified information on their applications regarding criminal convictions. Verizon was granted summary judgment.

This case demonstrates for employers the need to have an effective written job application and to be consistent with how employees are treated with respect to false or misleading information. For employees, it shows that one should never lie on a job application – even to the extent of material omissions. Had Godbolt answered the questions in the application truthfully and accurately, Verizon may not have been able to deny employment, despite these prior convictions.

Volunteer Fire Department’s New Fire House

Volunteer Fire Department’s New Fire HouseRecently, the New York State Court of Appeals in M.G.M. Insulation Inc. v. Gardner, 2013 WL 598048 (Feb. 19, 2013) held that the prevailing wage requirement of Labor Law § 220 does not apply to a construction contract entered into by a volunteer fire department near the Finger Lakes, in Bath, New York.

Each year, the New York State Department of Labor determines the “prevailing wage” rate, which reflects the actual rates being paid to workers by virtue of collective bargaining agreements between bona fide labor organizations and employers in the private sector. Our highest Court had previously created a two-prong test to determine whether the prevailing wage requirement applies.

First, the “public agency” prong, states that the prevailing wage law applies only to four specific public entities: (1) the State, (2) a public benefit corporation, (3) a municipal corporation, or (4) a commission appointed pursuant to law. In M.G.M., the Court determined that because the Bath Volunteer Fire Department (“BVFD”) is a “fire corporation,” an entity not mentioned in the statute, the prevailing wage requirement did not apply. The Court reasoned that, as a matter of statutory construction, this omission must have been purposeful, and “had the Legislature intended to include volunteer fire corporations under the statute, it could easily have done so.” Notably, this statute was recently amended in 2007 “to include contracts involving other types ofentities, but only when it can be shown they were acting on behalf of the public entity.” Not only was this contract entered into prior to the amendment, but since the BVFD only contracts with the Village for “emergency services,” and not the construction of new firehouses, it could not have been acting on behalf of the Village.

The second prong to the test is determining whether the contract is for a “public work.” The Court did not make a determination on this issue because its holding as to the first prong rendered it moot.

Chief Judge Lippman submitted a lengthy dissent in this case, arguing in favor of applying the prevailing wage requirement. The dissent cited Article 1, section 17 of the New York State Constitution, which makes no mention of the “public agency” prong, and instead simply states that a “prevailing wage” shall be paid to anyone “in the employ of a contractor or subcontractor engaged in the performance of any public work.” Judge Lippman argued that because the construction of a new firehouse for the BVFD is a “public work,” the prevailing wage requirement should have applied.

Subrogation Waiver In A Lease

Subrogation Waiver In A LeaseIn Encompass Ins. Co. of Am. v. English, __ F.Supp.2d__ (March 5, 2013), a landlord’s insurance company sued a tenant in federal court. It was a subrogation claim for loss the insurance company paid out to the landlord in the amount of $400,000 as a result of a fire in the tenant’s premises. The tenant claimed that the subrogation action was barred by the lease’s waiver of subrogation clause. The insurance company argued, among other things, that the waiver of subrogation was unenforceable because the tenant had been in breach of the lease in failing to pay rent.

Subrogation is an equitable doctrine that allows an insurance company to stand in the shoes of the insured and seek indemnification from third parties whose wrongdoing caused a loss for which the insurer is bound to reimburse the insured. Contracting parties are free to waive their insurer’s rights of subrogation. Parties often include such waivers in leases because they prefer to deal directly with their respective insurer to obtain recovery and would rather release any right of recovery against the other party.

In this case, the lease required both the landlord and tenant to obtain insurance and also contained a provision whereby both the landlord and the tenant agreed to waive their respective insurer’s rights of subrogation. The waiver of subrogation provided: “Unless prohibited by the applicable policies, to the extent such insurance is collected, [landlord] and [tenant] release and waive all rights of recovery against the other or anyone claiming through or under each by way of subrogation.”

The fire occurred in the premises causing substantial damage, and landlord’s insurance policy covered landlord’s loss. The landlord’s insurance company determined that the fire was caused by the direct negligence of the tenant and brought the subrogation action against the tenant. On a motion for summary judgment, the court concluded that the waiver of subrogation in the lease is independent of the tenant’s breach in failing to pay rent. The court reached this conclusion for two reasons. First, the lease did not expressly condition the enforcement of waiver on the performance of the payment of rent. In fact, the lease conditioned the enforcement of the waiver only on the proviso that both landlord’s and tenant’s respective insurers permit such a waiver. Second, the court concluded that the waiver is independent of the breach because the failure to pay rent does not affect the allocation of risk between the contracting parties (i.e. the landlord and tenant) and their insurers. The court held that a waiver of subrogation is a way for the parties to “allocate the risk of liability between themselves to third parties through insurance. Accordingly, waivers of subrogation are generally held to be dependent on lease provisions that directly affect the allocation of risk between contracting parties and their insurers. Lease provisions that do not directly implicate this allocation of risk, however, are considered independent of waivers of subrogation.” The court concluded that the breach in failing to pay rent did not affect the allocation of risk between the landlord, the tenant and their insurers. The waiver remained enforceable and the insurance company’s action for subrogation was dismissed.

This case demonstrates why the waiver of subrogation is very important to tenants, as they are in possession of the property and are more likely to cause damage to the landlord’s property than the landlord is to the tenant’s. However, waivers should nevertheless be mutual. The landlord benefits from its insurer’s waiver of its subrogated rights against the tenant because the tenant is not subject to an uninsured risk and the possibility that it will not be able to pay its rent. As for the non-payment of rent, a landlord has available to it a quick resolution by way of a summary proceeding, independent of the subrogation issues.

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