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BLOG / 02.08.21 /Nancy Durand

New York Appellate Court Recognizes Private Right of Action for Nonprofit Employees Against Employers who Violate Whistleblower Protections Under Section 715-b of the Not-for-Profit Corporation Law

Section 715-b of the Not-for-Profit Corporation Law (the “NPCL”) requires nonprofits with 20 or more employees and annual revenues in excess of one million dollars to adopt an explicit whistleblower policy to protect from retaliation persons who report suspected improper conduct. Nonprofits with fewer than 20 employees or with annual revenues lower than $1,000,000 do not need to adopt a formal policy.

Section 715-b does not expressly authorize private whistleblower lawsuits. Where a statute does not explicitly provide for a private right of action, an individual can only sue to enforce the statute if a court determines that there was a legislative intent to create an implied private right of action.

New York courts have been divided on whether whistleblowers are barred from starting private lawsuits under Section 715-b. Recently, however, in Ferris v. Lustgarten Foundation, the Appellate Division, Second Department held that Section 715-b does imply a private right of action for nonprofit employees. In Ferris, the plaintiff was an employee of the nonprofit organization for 10 years before she was fired after reporting improper fundraising conduct. The plaintiff sued the nonprofit organization to recover damages for violation of Section 715-b. The nonprofit organization had moved to dismiss the lawsuit on the grounds that Section 715-b does not imply a private right of action and that even if it does, it doesn’t apply because the nonprofit has less than 20 employees. The Court rejected both of those arguments for different reasons.

The NPCL grants explicit enforcement authority to the Attorney General to enforce whistleblower laws. Typically, where a statute includes an enforcement mechanism, courts have concluded that to recognize an implied private right of action would conflict with that statutory scheme.

However, the Court in Ferris found no conflict between the existing enforcement mechanism and a private right of action for employees. According to the Court, the Attorney General has been given specific enforcement authority to protect the rights of “members, directors, or officers” of a nonprofit corporation, but not employees. As there is no regulatory agency specifically charged with enforcing compliance with Section 715-b on behalf of nonprofit employees, the Court concluded that Section 715-b does create an implied private right of action for employees.

The Ferris court also determined that even nonprofits with fewer than 20 employees might be subject to liability under Section 715-b if it can be established under a “single employer” or “joint employer” theory that the nonprofit, together with an entity that either provides material support to or is actually affiliated with the nonprofit, has more than 20 employees. Under the single/joint employer doctrines, when two or more companies are sufficiently integrated, they may be treated as a single entity for certain employment law purposes.

In Ferris, the nonprofit entity received significant administrative support from a large for-profit entity and the Court thought it at least possible that the nonprofit was subject to Section 715-b under a single/joint employer theory. (That might concern national organizations with local affiliates, like the YMCA. Section 715-b also applies to homeowners associations and other housing entities that are formed under or subject to the NPCL.)

Ferris is a reminder to nonprofits with employees to have a current whistleblower protection policy in place that complies with Section 715-b of the NPCL (as well as federal whistleblower laws). Both larger and smaller nonprofits who have express or implied affiliations should consider the need for a whistleblower policy in light of that affiliation, and should obtain advice to ensure that the affiliated relationship is properly structured to mitigate the risk of joint employer liability.