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COURT CASE CONFIRMS RIGHTS OF NONPROFIT WHISTLEBLOWERS

A recent New York Appellate Court decision confirmed the rights of nonprofit whistleblowers.

Ferris v. Lustgarten Foundation has two features of interest to nonprofits and their employees.

For nearly 10 years, Ferris was employed by the Lustgarten Foundation, a charitable organization closely affiliated with the cable television company Cablevision. Cablevision provided all of the Foundation’s funding as well as human resources, legal, finance, and administrative services. Ferris alleged that the Foundation retaliated against her because she reported two instances of improper fundraising using Cablevision’s anonymous employee hotline. The retaliation included giving her a negative evaluation without adequate grounds, disciplining her twice for minor timecard mistakes, changing her work schedule in a way they knew would be especially disruptive, and ultimately terminating her.

New York Not-for-Profit Corporation Law (“NPCL”) § 715-b requires whistleblower policies for nonprofits that have 20 or more employees and more than $ 1 million in gross revenue in the prior fiscal year.

The law requires four specific elements in the whistleblower policy:

  • specific procedures for reporting violations or suspected violations;
  • appointment of a specific employee, director, or officer to administer the whistleblower policy;
  • prohibiting the person complained of from attending or participating in deliberations or votes on the matter; and,
  • distributing the policy to all persons providing substantial services to the nonprofit.

The posture of the case was that the Foundation filed a motion for summary judgment. This means the Foundation asserted there were no questions of fact and the judge could decide the case simply on the papers submitted. If the judge agreed, the Foundation would win and the case would be over. If the judge found there were questions of fact, the case would have to go to trial.

An important question of fact in this case was whether the Foundation had 20 or more employees and therefore was subject to § 715-b. The court held that the Foundation had not offered conclusive evidence that it had fewer than 20 employees, or that it and Cablevision should not be considered together under the “single employer doctrine” or “joint employer doctrine.” Because of these questions of fact, Ferris defeated the Foundation’s motion for summary judgment. This should serve as a warning to nonprofits that have a close affiliation with large organizations. It is possible that a court may apply the single employer doctrine or joint employer doctrine and impute to the nonprofit the employees of the larger affiliate.

Another interesting feature is that the Court, for the first time, held that 715-b could be enforced by a nonprofit employee. This is referred to as “a private right of action.” The Foundation argued that there is no explicit or implied private right of action for employees for violations of § 715-b. The Court disagreed. The NPCL allows nonprofit members, officers, and directors to bring legal action for various violations of the NPCL. In addition, NPCL § 112(a)(7) gives the Attorney General the right to bring legal action to protect the rights of members, directors, or officers. However, employees are omitted from this list. The Court held that because of this omission, employees must have the right to initiate legal action on their own or they would have no other means of remedy. The Court wrote: “Accordingly, we hold that the Not-for-Profit Corporation Law § 715-b creates an implied private right of action for employees who are retaliated against or subject to adverse employment consequences as a result of whistleblowing activities.”

If you have an questions about this case or any other aspects of nonprofit management, please contact us.

This is not intended to be legal advice.  You should contact an attorney for advice regarding your specific situation.

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Gary M. Schuster is Partner at the firm and practices business, non-profit, and arts and entertainment law.
He can be reached at  866-303-9595 toll free or 845-764-9656 and by email.

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