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More Reasons For Business To Avoid New York

I can think of two powerful reasons to do business in New York, especially in the metropolitan downstate region: a large and affluent local market, and a talent pool that is world-class in many disciplines and world-beating in a few.

Unfortunately, I can also think of too many reasons not to do business in New York to even offer a comprehensive list.

The executive summary consists of burdensome and convoluted taxes, high costs, generally crummy public services, unreliable utilities and intrusive regulation. Let’s just say that while some enterprises must locate somewhere in the Empire State – you cannot yet stage a Broadway production anywhere other than midtown Manhattan – many companies are better off someplace else. I came to that conclusion for my own company some years ago.

New York continues to march in the wrong direction, for what its lawmakers seem to be convinced are all the right reasons. Consider a pair of bills that recently landed on Gov. Andrew Cuomo’s desk. He has not signed these bills as of this writing but is expected to approve them.

Most attention has focused on the expansion of the state’s principal law against workplace discrimination, the New York State Human Rights Law. The statute quite reasonably prohibits discrimination in hiring, employment and labor union membership for a wide range of factors including race, creed, color, national origin, gender, sexual orientation, marital status, military status, domestic violence victimhood and (more on the cutting edge) “predisposing genetic characteristics.” There is no “ban the box” law at the state level – yet. But employers cannot discriminate based on past criminal convictions unless the conviction is directly related to a job duty or poses an unreasonable danger to persons or property. The law also bans inquiries about arrests that do not result in convictions.

No 21st-century enterprise ought to have trouble complying with any of this, if the rules were designed for fair and predictable enforcement. That was the case until the New York Legislature, now fully controlled by Democrats, stepped in with an overhaul in the session that ended in June. They have now stacked the deck against employers – all employers, since one of the changes the bill introduced was eliminating a former four-worker minimum.

Under the new rules, employees need not raise an issue with an employer before filing either an administrative complaint or a lawsuit. Employers are also subject to punitive as well as actual damages. The net effect is to punish employers for conduct they neither knew about nor had any chance to correct. The bill bans mandatory arbitration provisions too, so any controversy will go to court – except that, in most cases, the goal of a complaining party will not be a trial. It will be to extract a settlement from an employer or, more likely, an employer’s insurer. The new statute has trial lawyer fingerprints all over it.

There is a nod to fairness in that the law mandates that a losing party “shall” bear the prevailing party’s legal costs. But this is really a head fake, not a nod, because employers only get legal costs reimbursed if the claim is deemed frivolous. So an employee who is fired after a few months for poor performance, but who claims age discrimination because capable younger employees were not fired, should stand a good chance of winning a settlement. Employers and their insurers know that even if they are likely to prevail, they will have to spend considerable sums on legal fees that are unlikely to be reimbursed because the employee is not being “frivolous” in comparing his fate to that of younger employees. Employers also know that the law is explicitly intended to be construed liberally in the employee’s favor.

It gets worse. The law no longer limits employment discrimination cases to actual employees. It applies to contractors, too. So a female freelancer who does not get hired can potentially bring a claim when the company hires a man instead. Get double indemnity if the woman happens to be a racial minority and the man is white. Triple your chances if the pair in question are a nonwhite lesbian and a straight white man. If your enterprise’s owner is gay, you could also reverse the sexual orientations in this example. Regardless, you can see the problem.

No business should object to treating people equally in the workplace, but every business needs a fair and predictable environment in which to operate. New York is doing its best to squeeze fairness out of its business climate in the name of providing workplace equity. In my company’s case, it has accomplished the goal – except the workplaces are now in six states that are not New York.

Then there is the second bill. It concerns the state’s 98-year-old Martin Act, an anti-fraud statute in securities law that is unique because it does not actually require a fraud before the state’s attorney general can invoke it in draconian fashion. Elliot Spitzer used it to attack real and imagined fraud in the run-up to and aftermath of the dot-com bubble. Eric Schneiderman used it to attack public companies over what he claimed was fraud on environmental issues. Perhaps not coincidentally, both of these men left public office under their own clouds of dubious ethics, although not before Spitzer parlayed his Martin Act publicity into a governorship.

The Martin Act turns traditional common-law principles upside down, because it does not require any intent to defraud in order for an attorney general to bring a fraud case. Nor does it require any victims of a fraud to actually rely on a fraudulent misrepresentation or to incur any demonstrable losses. It can be used in public proceedings, the better to demand publicity-generating settlements. On the other hand, it can also be applied in a sort of star-chamber civil proceeding before the attorney general and his or her staff, in which case the targets and witnesses in an investigation may be prohibited from even saying publicly that it is underway.

Used sparingly in the hands of attorneys general who are discreet and judicious in its exercise, the Martin Act would not be a burden on most reputable businesses. But in its modern application, pioneered by Spitzer, the statute is a bludgeon for gigantic and unfair settlements extracted from large enterprises that are already subject to securities regulation at the federal level. It ought to be repealed, restricted or preempted by federal law. Unfortunately, this is a prospect that has no chance of occurring while the state Legislature and federal House of Representatives are under Democratic control.

Instead, New York lawmakers have acted to weaken the only real defense a company has, which is the statute of limitations. In 2018, New York’s courts ruled that there is a three-year window for the attorney general to act under the Martin Act. This year the Legislature doubled it to the six years that the current attorney general has claimed. Every publicly traded company and many nonpublic ones are now operating on double-secret probation in the state of New York. The film “Animal House” is not exactly the ideal model either for business conduct or business regulation.

So, here we are. New York ought to be an attractive commercial home for business. It’s how it got to be New York in the first place. But as we move toward this century’s third decade, there are more reasons than ever for that to change.

Larry M. Elkin is the founder and president of Palisades Hudson, and is based out of Palisades Hudson’s Fort Lauderdale, Florida headquarters. He wrote several of the chapters in the firm’s book, Looking Ahead: Life, Family, Wealth and Business After 55. His contributions include Chapter 1, “Looking Ahead When Youth Is Behind Us” and Chapter 4, “The Family Business."

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