The Zucker Resignation and the Importance of Corporate Training

A Couple Real-Time Lessons for Employers

Two things happened last week that, though unrelated, are both worth talking about in terms of their impact on Employers.

First was a client issue that came up in more than one context, so I am guessing that it will confront many. The questions were about how to determine Unemployment Insurance (UI) contributions and calculate certain other benefits and obligations when you have remote workers who are telecommuting from outside New York State. 

Regarding UI and withholdings, let me remind you is that this is informational and not legal advice; but it’s also not professional payroll or accounting advice. Calculations, deductions, and tax charts are not my area of expertise, and Employers really should have professionals in each of those areas handling them. Accountants are particularly important in this context. They need to know the rules of the Employee’s resident state, because there are provisions in place to make sure certain workers don’t get double-taxed.

That said, the General Rule, stemming from the Personal Income Tax Regulations, is that any income “derived” from, or “connected with” work in New York is taxable in New York regardless of where it is performed. For workers who perform work both in and outside of New York; for example, an outside salesperson; or who come into New York State on occasion, an Employer need only tax and report what is “attributable” to New York State.  

So What is “Attributable” to New York State?

In New York, all non-resident Employees are governed by the same exemption rule: The bona fide work location.  That standard requires a look at the “convenience of Employer” test; which, in turn, requires a look at a series of factors (‘They’ do not make it easy). 

The question Regulators are looking to answer is this: Does the Employee work from home (outside New York State) to serve the needs of the Employer, or because it is merely convenient for the Employee? If the non-resident Employee works from home for their own convenience, the wages are attributable to New York and the Employee must pay New York taxes – even if they have never stepped foot in New York.

To answer the “Convenience of the Employer” question, New York has a 2-tiered, 2-step approach. 

First, the only reason that qualifies for the exemption on its own is that the Employee’s work requires the use of specialized facilities. If the Employee is working from home because they live closer to the specialized facilities than their established, assigned work location in New York, then that Employee does not have to pay taxes in New York.  If the Employee’s reason for their at-home work is not due to local, specialized facilities, Employers must go through another 2-step analysis. 

This analysis entails 2 categories of “Factors”: “Secondary” and “Others”. To be exempt from New York State taxation, the Employee’s time working at the home office must meet BOTH FOUR (4) “Secondary Factors” PLUS THREE (3) “Other Factors”.

The NYS Department of Taxation lays out these Rules and Factors in a May 15, 2006 Technical Services Memo.  The “Secondary Factors” include things that would seemingly apply to many positions, such as being able to perform the “core duties” of employment from the home office, and that the Employee does not have designated office space at the Employer’s regular place of business in New York State. Remember, however, that there need to be FOUR (4) qualifying factors from this category,  IN ADDITION to at least THREE (3) from another to qualify for the exemption from the General Rule.

That group of “Other Factors” are questions whose answers are a little more black-and-white than the “Secondary Factors”. They include things like the business advertising with the Employee’s address, a separate phone line in the Employee’s residence, and the business insurance policy listing the Employee’s address as a covered location. 

It is worth noting here another impact of out-of-state workers. How much time to which Employees are entitled under New York State Paid Family (“PFL”) and COVID Leave is calculated by looking at the number of Employees a business has on January 1st of that year.  The New York State Department of Labor (“NYS DOL”) released clarification to its Rules in December: That head count must include all Employees nationwide – not just those living and/or working in New York. The Leave, however, is only a benefit provided to those actually working in New York. 

The important thing to take away here is this: Even if you have Employees who perform work for your New York company entirely in another state, you probably need to report their income, make UI contributions, and take them into account in your headcount.  These Employees must pay their taxes here in New York, and their Employers must evaluate each of their remote, out-of-state workers individually. The inquiries are fact specific.

The Second thing that happened last week has nothing to do with me. It is stripped straight from the headlines, but it provides an important lesson that I have tried to get across to clients, in my training, and through my outreach: Ignorance of the meaning of the Harassment Laws can be very, very expensive.

The story I am referring to is the resignation of Jeff Zucker, the CNN President who was forced to give up his position for failing to disclose to corporate management that he was involved in a romantic relationship with a colleague. Newspaper articles, friends, and social media contacts seemed surprised that two consenting executives could not just enjoy a relationship that had apparently been going on for many years. This perspective is worth a little discussion in the context of navigating the Harassment Laws.

The stated problem was that Zucker violated company policy. To many it seemed illogical to have a company policy that required the termination of, by most accounts, a successful, well-liked, and well-respected corporate executive for something that was allegedly an open secret for over a decade and no one complained about. There are reasons such policies exist, however, are sound, and need to be enforced.

For one thing, executive or not, this relationship was with someone who was a subordinate and a direct report.  That is the very power dynamic and potential for abuse that goes with it, that these laws are designed to protect workers against. However, while I do not personally know the two people involved in this story and have only read public accounts, it does not sound as though either of them needed protecting from anything, and that this is truly a mutually desired, romantic relationship between consenting adults. So why have a policy that would allow things to play out like this? 

These Relationships Impact the Entire Workforce

Harassment Laws are not just about protecting the people involved in the relationship. It’s about that relationship’s impact on the rest of the workplace and the obligations the Employer has under federal, state, and city laws to everywhere there. The disparate impact or hostile environment suffered by someone at work can be the result of some else’s relationship or behavior. 

On the most obvious level, two people getting cozy at work – especially when they are both bosses and one of them is the Chief – can make people uncomfortable.  It is considered an exposure to inappropriate “sexual” behavior. Legally, it may be found hostile and harassing.

On a less patent level, there is the problem of favoritism – or even the perception of it. If the Boss’s girlfriend is suddenly getting considerations or incentives that others are not, an Employer is open up to charges of disparate impact and discrimination.  At least one article I read specifically cited sources saying that the subordinate in question in the Zucker matter rose from a trainee (where she met the then-Executive Producer of NBC’s Today) to a Senior Publicist reporting to Zucker within a year of the relationship beginning. That perception – that someone is getting preference because they are involved in a romantic relationship with the Boss – exposes the Employer to liability.  

Where Does the Workplace End and Their Personal Life Begin?

The problem is, it really doesn’t.  This leaves the potential for an Employer to be held accountable for how their people act almost anytime, anywhere, if they are in the company of people from work. This is particularly dangerous when one of the Employees outranks the other. If a Boss is harassing after the Christmas party – late at night – at another location on the other side of town – the Employer is still exposed to liability for that person’s behavior. 

What Happens When the Relationship Ends?

It is worth noting that the policy in the case of Zucker and CNN seems to have said that they were required to disclose the relationship – not that it was forbidden altogether. In other words, Zucker was fired for failure to abide by the policy requiring the disclosure – not the relationship itself – which implies that the policy contemplates a circumstance where such a relationship would be approved. I have not seen the policy and do not know what is says, but this is unusual. Many companies have no tolerance, non-fraternization clauses, and have fired prominent and powerful CEOs for dating people within the company. 

This is because, even if a couple who works together overcomes the impact on their colleagues, and their off-site behavior doesn’t bleed into the office, and the Employees date happily for many years, as soon as it is over, the Employer is left with a toxic combination.  A break-up is bound to make the former couple’s working together more difficult. A break-up is bound to be felt by everyone around the former couple.  And a break-up means that at least one of the people in that relationship will always have the fact that they broke up with the other as a reason to blame if they feel treated differently or retaliated against.  Allowing intra-office relationships is a lose-lose-lose for the Employer. 

Whatever its approach to workplace romance, however, every Employer’s team must understand what constitutes Harassment under the law – and that an Employee’s title and status and power imposes obligations on them that both they and their Employer must understand. Taking the time to engage in some training and to make every Employee aware of what constitutes legal “Harassment” – earns its return in the millions…and has the potential to save careers.