Appellate Division Upholds Damages and Fine Imposed Upon Wedding Venue for Discrimination Based Upon Sexual Orientation

By Joseph Juidiciani

Cynthia and Robert Gifford own and operate a 100-acre farm (Liberty Ridge) in Rensselaer County, New York that is registered as a limited liability corporation. In addition to harvesting and selling crops, Liberty Ridge rents a portion of the farm to the public as a venue for wedding receptions and ceremonies. Liberty Ridge also provides several wedding-related event services.

In October 2011, Melisa McCarthy contacted Liberty Ridge concerning Liberty Ridge as a possible venue for her and her fiancée’s same-sex wedding ceremony and reception. During the conversation, Cynthia Gifford said that there was “a problem” and that the farm would not hold same-sex marriages.

The McCarthys filed complaints with the State Division of Human Rights (SDHR) alleging unlawful discriminatory practices based upon sexual orientation. After an investigation and a hearing, an Administrative Law Judge found that Liberty Ridge is a place of public accommodation within the meaning of the Human Rights Law and that Liberty Ridge unlawfully discriminated against the McCarthys on the basis of their sexual orientation. The agency awarded the McCarthys $1,500 in compensatory damages and imposed a civil fine of $10,000 on the Giffords. The Giffords then commended a proceeding pursuant to Executive Law §298 to annul the decision, and the matter was transferred to the Appellate Division, Third Department. See Gifford v. McCarthy, 137 A.D.3d 30 (3rd Dept. 2016)

On appeal, the Giffords argued that they did not violate the Human Rights Law, which declares it an “unlawful discriminatory practice” for any “owner, lessee, proprietor, manager, superintendent, agent or employee of any place of public accommodation, resort or amusement, because of the . . . sexual orientation . . . of any person, directly or indirectly, to refuse, withhold from or deny to such person any of the accommodations, advantages, facilities or privileges thereof.” The Appellate Division rejected the Giffords’ claim that they are not subject to the Human Rights Law because Liberty Ridge’s wedding facilities do not constitute a “place of public accommodation”, the critical factor being that the facilities are made available to the public at large. The Appellate Division also rejected the Giffords’ challenge to the SDHR’s determination that they engaged in unlawful discrimination on the basis of sexual orientation. The Appellate Division held that the Giffords discriminated on the basis of sexual orientation when they refused to host the wedding. The Court rejected the Giffords’ argument that they did not discriminate because they would “happily” host wedding receptions, parties or other events for couples in same-sex relationships, but would only not host same-sex wedding ceremonies. In its decision, the Appellate Division held that the statute “does not permit businesses to offer a ‘limited menu’ of goods or services to customers on the basis of a status that fits within one of the protected categories.”

Turning to the constitutional claims, the Appellate Division disagreed with the Giffords that their rights under the Free Exercise Clause of the Federal and State Constitutions had been violated. With regard to the Giffords’ claims under the Federal Free Exercise Clause, the Appellate Division found that the Human Rights Law does not target religious beliefs as the Human Rights Law forbids discrimination against a protected class in places of public accommodation regardless of motivation. The Court similarly rejected the Giffords’ claims that under New York’s Free Exercise Clause. The Court concluded that the Giffords failed to show that SDHR’s determination constituted an unreasonable interference with their religious freedom.

The Appellate Division also found that the Human Rights Law did not compel speech by the Giffords. The law does not require the Giffords to endorse or promote same-sex marriages and they were free to express their views on the issue. They were simply required to offer the same goods and services to same-sex couples as they would to other couples. Finally, the Appellate Division found that the law does not violate expressive association because there was no indication that Liberty Ridge was “organized for specific expressive purposes” rather than for the purpose of making a profit.

Business owners in New York who make their facilities available to the general public should be mindful of this decision, as it may face a discrimination claim if it does not offer identical goods or services to all customers, particularly those that fit within a protected category or class. If found to have discriminated against such a class, the business may face civil fines and be compelled to pay compensatory damages.

New York General Business Law Section 518 Deemed Constitutional by Second Circuit

“Every time a consumer pays for goods or services with a credit card, the credit-card issuer charges the merchant a percentage of the purchase price. [Commonly referred to as ‘swipe fees’ or ‘merchant-discount fees.’] The typical fee is two to three percent of the transaction amount . . . [B]usinesses that chafe at these fees would like to pass them along to consumers while also making consumers aware of the charge in an effort to convince them to pay cash. Accordingly, they would like to charge more than their regular price to customers who use credit cards; that is, they would like to impose a ‘surcharge’ on credit-card users. Another way of passing the cost of credit along to customers is to offer a discount from the regular price to customers who use cash.” Expressions Hair Design v. Schneiderman, No. 13-4533 (2d Cir. 2015).

Section 518 of New York’s General Business Law provides that “[n]o seller in any sales transaction may impose a surcharge on a holder who elects to use a credit card in lieu of payment by cash, check, or similar means.” In Expressions Hair Design v. Schneiderman, the U.S. Court of Appeals, Second Circuit recently determined the constitutionality of this statute.

The Plaintiffs-Appellees were five businesses (a hair salon, an outdoor furniture company, a billiards company, an ice cream seller, and a liquor store) which collectively sued the State of New York. They claimed that Section 518 (1) violates the First Amendment’s Free Speech Clause and (2) is void for vagueness under the Fourteenth Amendment’s Due Process Clause. In 2013, the district court held for the Plaintiffs on both claims, enjoining the State from enforcing the law. On appeal, the Second Circuit reversed the district court’s decision, finding the law does not violate the Due Process Clause or First Amendment and vacating the injunction.

The Plaintiffs-Appellees utilized two different pricing schemes which the State alleges violate Section 518. In the first, the business wanted to post a set price for their product (the “regular price”), and then charge a higher price for credit-card users. In the second, the business posted two prices, referring to the higher price as a “surcharge” and indicating to customers that using credit costs more.

“Section 518’s use of the word ‘surcharge’ assumes that a seller to which the statute applies will have a ‘usual or normal’ price that serves as a baseline for determining whether credit-card customers are charged an ‘additional’ amount that cash customers are not.” Expressions Hair Design v. Schneiderman, No. 13-4533 (2d Cir. 2015).

The statute forbids charging credit-card customers an additional amount above the regular price that is not also charged to cash customers, but permits offering cash customers a discount below the regular price that is not also offered to credit-card customers (commonly referred to as a “cash discount”). For example, if a gas station charges $3.00 per gallon (the “regular price”), it may not charge credit card customers $3.10 per gallon. However, if the gas station’s regular price for a gallon of gasoline is $3.10, it may charge credit card customers $3.10 and cash customers $3.00.

While this distinction may seem somewhat arbitrary to the ordinary consumer, the difference is one which every business owner must be aware of in order to remain compliant with Section 518 of the General Business Law (a violation of which calls for up to a $500.00 fine and up to a year in jail). Prosecutions under this statute are rare, however the New York Attorney General’s Office has reached settlements with numerous businesses following reported violations by customers and competitors.

Court of Appeals Deems Employment Contract’s Choice of Law Provision as to Non-Solicitation against Public Policy

By James Brodie, Esq.

Labor law is a constantly evolving field of law presenting new challenges and questions for both employees and employers alike.  Recently, the Court of Appeals determined that the application of Florida law on restrictive covenants related to the non-solicitation of customers by a former employee would violate the public policy of New York State.

 In Brown & Brown, Inc. v. Johnson, plaintiff Brown & Brown, Inc. (hereinafter “BBI”) was a Florida corporation and parent company to Brown & Brown of New York, Inc., (hereinafter “BBNY”) an insurance intermediary licensed in New York.  25 N.Y.3d 364 (2015).  BBNY recruited the defendant Theresa A. Johnson to leave her former job at Blue Cross/Blue Shield where she had worked as an underwriter and actuary for over 20 years.  On Johnson’s first day, she was given an employment agreement containing a non-solicitation agreement and a Florida choice-of-law provision.

 Specifically, the agreement precluded Johnson from directly or indirectly soliciting, accepting, or servicing any person or entity “that is a customer or account of the New York offices of [BBI and BBNY] during the term of [the] Agreement” for a period of two years following her termination of employment.  It also stated that any disputes would be governed by Florida law.  The agreement was never mentioned to the defendant prior to her first day and the parties disputed the circumstances surrounding its execution.

 After working several years in New York exclusively, the defendant was terminated.  Within a month, she was hired by one of the plaintiffs’ competitors to provide services to some of BBNY’s former customers.  The plaintiffs filed suit shortly thereafter to stop alleged violations of the non-solicitation provision and for damages.

 At trial, the defendant’s motion for summary judgment was partially granted.  However, the court refused to dismiss the portion of the breach of contract cause of action against the defendant alleging that she violated the non-solicitation agreement by using client relationships that she had initially developed while working for the plaintiffs.  On appeal, the Fourth Department dismissed the breach of contract cause of action, holding that the Florida choice-of-law provision was against public policy and that the non-solicitation provision was overbroad and unenforceable.

 Within New York, the party seeking a declaration that an exception based upon the alleged violation of public policy bears the heavy burden of proving that the chosen law of another state would be offensive to the fundamental public policy of the state.  In determining whether Florida’s law regarding non-solicitation agreements violated New York law, the Court of Appeals compared the relevant statutes of both states (New York and Florida).

 “The law of the two states is similar to the extent that they both require restrictive covenants to be reasonably limited in time, scope and geographical area, and to be grounded in a legitimate business purpose.”  Brown & Brown, Inc. v Johnson, 25 N.Y.3d 364, 369 [2015].  However, “Florida law requires a party seeking to enforce a restrictive covenant only to make a prima facie showing that the restraint is necessary to protect a legitimate business interest, at which point the burden shifts to the other party to show that the restraint is overbroad or unnecessary.”  Id.  Where the plaintiff is able to make such showing, the court is required to “modify the restraint and grant only the relief reasonably necessary to protect” the employer’s legitimate business interests.”  Id.  In New York, “[a] restraint is reasonable only if it: (1) is no greater than is required for the protection of the legitimate interest of the employer, (2) does not impose undue hardship on the employee, and (3) is not injurious to the public.”  Id.  Upon such a finding, the covenant is deemed invalid.  Id.

 Analyzing the two standards, the Court noted that, “whereas Florida shifts the burden of proof after the employer demonstrates its business interests (see Fla Stat § 542.335 [1] [c]), New York requires the employer to prove all three prongs of its test before the burden shifts.”  Florida also law explicitly prohibits courts from considering the harm or hardship to the former employee and conflicts with New York law which requires that courts “consider, as one of three mandatory factors, whether the restraint impose[s] undue hardship on the employee.”  Id. at 370.

 In deciding that the employment agreement’s choice-of-law provision was unenforceable in relation to the non-solicitation provision and that New York law governed the plaintiffs’ claim for breach of the non-solicitation provision, the Court noted Florida’s “nearly-exclusive focus on the employer’s interests, prohibition against narrowly construing restrictive covenants, and refusal to consider the harm to the employee.”  Id.

 The lesson from this case is valuable for both employees and employers alike looking to protect their interests.  Given what is potentially at stake for individuals (a person’s ability or inability to make a living in their chosen field) or businesses dealing with non-solicitation agreements (an employer’s ability to protect its client base and avoid litigation expenses), it is essential to understand what language is reasonable to include and will actually be enforced in a court of law.  For those with businesses operating in multiple states hoping to include a choice-of-law provision into an employment agreement, the lesson is two-fold in making sure that the law of the chosen state will not be deemed unenforceable as against New York public policy.  For assistance in matters involving non-solicitation agreements or general employment contracts, please contact one of the attorneys at Flink Smith Law LLC at (518) 786-1800.