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April 15, 2014

Court Enjoins Implementation of Executive Compensation Limits Under Executive Order 38

A New York court has struck down Governor Cuomo's executive order and implementing regulations capping executive pay and administrative expenses of agencies that receive at least 30% of their overall funding from the state.

Executive Order 38 and regulations promulgated by the Department of Health ("DOH") limited executive compensation for covered providers, including subcontractors and agents, at $199,000 per year, subject to certain waivers and exceptions. See; 10 NYCRR 1002. The subject regulations also would have required that a minimum of 75% of a provider's state funding go toward program services rather than administrative costs, with that figure rising to 85% by 2015. Penalties for noncompliance included redirection of state funds, limitation or revocation of the provider's license, and suspension, modification or termination of the provider's contracts with the state. The regulations applied to providers who receive at least 30% of their overall funding from the state, if that amount averaged at least $500,000 annually.

In Agencies for Children's Therapy Services, Inc. v. N.Y. Department of Health ("ACTS"), Judge Thomas Feinman of the New York Supreme Court, Nassau County on April 9, 2014 held that the Executive Order and DOH regulations were issued in excess of proper authority because the state Legislature had previously and repeatedly considered and rejected such measures.i The court reasoned that DOH had impermissibly "strayed from the administrative field into the legislative field by crossing the line from administrative rule making into legislative policy-making."

The immediate result of the ACTS case is that Executive Order 38 and its DOH implementing regulations are null and void across the board, regardless of the profit-earning status of the provider receiving state funds. It is also likely that this decision will be generally deemed to have invalidated implementing regulations of the eight other state agencies subject to Executive Order 38.

A spokesperson for New York Attorney General Eric Schneiderman said the state plans to appeal the decision.

Should you need further information about the content in this legal alert, please contact Linda J. Clark at (518) 429-4241 or, David P. Glasel at (518) 429-4250 or, or Joseph A. Murphy at (518) 429-4248 or

i The ACTS decision also invalidated DOH regulations governing conflicts of interest in New York's Early Intervention Program, which provides services to developmentally disabled children. 10 NYCRR 69-4.5(a)(6).

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