New York Appeals Court Rules on Applicability of New York Labor Law to Hedge Fund Incentive Compensation

A recent decision by New York’s Appellate Division, First Department (Manhattan) is of great significance to hedge fund managers doing business in the state.  The ruling is important to hedge fund managers because it applies to the type of incentive-based compensation that is often made available to many financial industry employees – which typically depends on the overall success of the business or a team of employees – and determines whether such compensation merits the special protections provided by the Labor Law.  In a guest article, Sean R. O’Brien and Sara A. Welch, managing partner and counsel, respectively, at O’Brien LLP, discuss the Court’s decision in light of the Labor Law, as well as the ramifications of the ruling on the hedge fund industry.  For more from O’Brien and Welch, see also “Hedge Fund Incentive Compensation Not Subject to Wage Claim under New York Labor Law,” Hedge Fund Law Report, Vol. 7, No. 14 (Apr. 11, 2014); and “How Can Hedge Fund Managers Protect Themselves Against Trade Secrets Claims?,” Hedge Fund Law Report, Vol. 7, No. 19 (May 16, 2014).  For commentary on other rulings relating to hedge fund employee compensation, see “New York Court Assesses the Validity of a Former Portfolio Manager’s Claim against a Fund Management Company for Unvested Performance Compensation,” Hedge Fund Law Report, Vol. 8, No. 18 (May 7, 2015); “New York Federal District Court, Applying ‘Faithless Servant’ Doctrine, Allows Morgan Stanley to Recoup Entire Compensation Paid to a Former Hedge Fund Portfolio Manager Who Admitted to Insider Trading,” Hedge Fund Law Report, Vol. 7, No. 5 (Feb. 6, 2014); and “How Can Hedge Fund Managers Use Profits Interests, Capital Interests, Options and Phantom Income to Incentivize Top Portfolio Management and Other Talent?,” Hedge Fund Law Report, Vol. 6, No. 33 (Aug. 22, 2013).

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