Whether section 1127 of the Charter of the City of New York, which requires non-resident employees to make payments to the City in lieu of city taxes, applies to non-residents who, as a result of a merger, were transferred from a public benefit corporation or authority to City agencies.

No. Non-resident employees who did not enter into pre-employment contracts with the City of New York for section 1127 deductions are not subject to those deductions.

In two separate cases, joined for purposes of appeal, Plaintiffs were members of public benefit corporations or authorities, and were involuntarily transferred to city agencies as a result of mergers. As a result of these transfers, the City contended that Plaintiffs were subject to deductions under section 1127 of the New York City Charter, which requires non-resident City employees to pay to the City the equivalent of the personal income tax that they would owe if they were City residents. Plaintiffs objected to these deductions, but were nevertheless subjected to them.

In the first case, Ganley, Plaintiffs were former members of the New York City Transit Authority and Housing Authority Police Departments. They sought declaratory relief that section 1127 was unconstitutional as applied to them, and related injunctive, and monetary relief, including a refund of all amounts that the City had withheld from their paychecks together with interest, costs, disbursements and attorneys' fees. The Supreme Court dismissed their complaint because it determined that because Plaintiffs were notified of the deductions and yet still accepted employment with the City, that Plaintiffs had confirmed an agreement to abide by the provisions of that section. The Appellate Division modified that holding by issuing a declaration against Plaintiffs, thus affirming on the grounds that since Plaintiffs voluntarily entered into City employment after receiving notice of the transfer and the deductions, they implicitly accepted all the terms of the transfer.

In the second case, Hill, Plaintiffs sought similar relief, including declaratory and injunctive relief together with reimbursement of all moneys deducted under section 1127. The Supreme Court enjoined enforcement of section 1127 and ordered the city to reimburse Plaintiffs for the deductions, carving out an exemption for this particular case and this particular class of non-resident City employees on the grounds that they had been previously accorded exempt status by the New York City Health and Hospitals Corporation. Relying on its decision in Ganley, the Appellate Division reversed.

The Court of Appeals reversed both orders and held that Plaintiffs are exempt from section 1127. The Court stated that the statute envisioned a voluntary, pre-employment contract between a new employee and the City. In other words, the agreement to pay an amount to the City of New York equal to a City resident's income tax, as a condition precedent, applies to every person seeking employment with the City. Since none of the Plaintiffs entered into pre-employment contracts for section 1127 deductions, and indeed, did not even seek employment with the City, but were instead involuntarily transferred, they should be exempted. The Court also noted that the long-serving civil employees had few options available to them once they were informed of their transfers and to suggest that they were required to quit their employment in order to protect their rights ignores the obvious. The Court, in rejecting the City's argument that Plaintiffs had waived any right to challenge the imposition of the section since they had cashed their paychecks and continued to work, further stated that Plaintiffs' various protests against the deductions illustrated that they did not acquiesce in the transfers.