New York Judge Rejects Salary Caps for Non-Profit Executives

The New York Department of Heath passed regulations capping executive pay at $199,000 in non-profits that receive state funding. While many supporters argue that this cap helps prevent overspending and misspending of tax dollars, others see it as unfairly interfering with non-profits’ operation and strategic decision-making, specifically where an organization seeks exceptionally qualified executives to lead.

The Department’s regulations, which allowed charities to apply for a waiver, had gone into effect in May 2012. Subsequently, a lawsuit was brought by the Agencies for Children’s Therapy, a non-profit that represents over 30 agencies that provide services to more than 25,000 children in New York. The key aspects of this litigation are as follows:

• In a setback for New York Governor Andrew Cuomo’s efforts to cap salaries of executives working for state-funded non-profits, Nassau County Supreme Court Judge Thomas Feinman tossed out the Department of Health’s regulations.
• Judge Feinman ruled against the Department, concluding that the administrative agency had overstepped its boundaries. Administrative agencies do not have the ability to legislate law. That is the proper role of the state legislature. Rather, agencies enforce laws and promulgate regulations in accordance with legislation.
• Judge Feinman noted that the legislature had indeed considered proposals capping executive pay within non-profits and it had rejected them. Administrative agencies cannot use regulations as a backdoor method of passing legislation that was unsuccessful in the legislature.

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