Can a New York village agree to defend and pay any judgment against outside lawyers it hired, even for punitive damages in a civil rights lawsuit?

Plain-English summary

A former Westhampton Beach Village Police Department officer sued the village in federal court under 42 USC § 1983, alleging civil rights violations. The defendants included several police officers, two Village Trustees, and two outside labor lawyers hired by the village. The complaint asked for both compensatory and punitive damages. The labor lawyers asked the village to defend and indemnify them. The Village Attorney asked the AG three questions: (1) can the village indemnify the labor lawyers; (2) can it do so by local law; (3) when can a new punitive-damages indemnification local law take effect.

Indemnification of independent contractors under § 18. Public Officers Law § 18 lets a local government opt in to a defense-and-indemnification scheme for its employees. The statutory definition of "employee" (§ 18(1)(b)) is broad (commissioners, board members, trustees, directors, officers, employees, volunteers in publicly sponsored programs) but expressly excludes independent contractors. The AG laid out the four-factor test the courts use to distinguish employees from independent contractors: (1) selection and engagement, (2) compensation method, (3) dismissal procedure, (4) right to control. Control is the heaviest factor. The labor lawyers' status (engaged by Board resolution, paid hourly with no benefits, no withholding) pointed to independent contractor, but the AG said the determination is a question of fact for the village to make.

Local law route. The Village asked whether it could pass a local law providing defense and indemnification to the lawyers even if they were independent contractors. The AG quoted a 1990 opinion (90-78): generally a municipality cannot indemnify an independent contractor by local law, because the municipality has no respondeat-superior liability for the contractor's actions (citing Johnson v Daily News, 34 NY2d 33 (1974)) and because the home-rule grant in Municipal Home Rule Law § 10(1)(ii)(a)(1) is for terms and conditions of employment, not for outside relationships.

Supplementing § 18 for punitive damages. Public Officers Law § 18(4)(c) expressly excludes punitive or exemplary damages from indemnification coverage. But a local government may supplement § 18 by local law (1988 Op Atty Gen (Inf) 44), and the AG has previously concluded (Op Atty Gen (Inf) No. 93-21) that this includes providing indemnification for punitive damages on negligent acts or torts within scope. A separate statute, General Municipal Law § 50-j, separately authorizes municipalities to provide punitive-damages indemnification specifically for police officers.

Prospective only. Under Corning v Laurel Hollow, 48 NY2d 348 (1979), defense and indemnification arrangements must be prospective. The AG's 1991 opinion (Op Atty Gen (Inf) No. 91-4) interpreted "prospective" to mean a local law can cover only employees who have not yet incurred defense costs, even on causes of action that have already accrued. The benefit is part of the employment package; the inducement principle works only going forward.

Currency note

This opinion was issued in 1999. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Common questions

Why can't a village indemnify the outside lawyers it hired and assigned to a sensitive matter?

Two reasons. First, the statutory definition of "employee" in Public Officers Law § 18 excludes independent contractors. Second, the home-rule grant to enact employment-related local laws (Municipal Home Rule Law § 10(1)(ii)(a)(1)) covers terms and conditions of employment, not the village's relationships with outside vendors. Indemnification is treated as compensation for employees' service; for an outside vendor, that rationale does not apply.

How does the four-factor employee-vs-contractor test work?

A court looks at (1) how the person was selected and hired, (2) how compensation is paid (salary and withholding versus hourly invoice), (3) how dismissal works, and (4) most importantly, who controls how the work is done. Right of control is the deciding factor. A lawyer engaged on hourly invoices with no benefits and no withholding is generally an independent contractor unless the village shows real day-to-day control of how the legal work is done.

Can a village ever indemnify an independent contractor?

The AG opinion uses the word "generally" when saying no, leaving some room. A contract that the village negotiated could include a defense-and-indemnification clause as part of the consideration paid to the contractor, with the village's exposure capped by the contract terms. That is a different mechanism from § 18 or from a local law providing categorical indemnification.

Why does § 18 exclude punitive damages?

Public policy. Punitive damages exist to punish individual wrongdoing. If the public pays them, the deterrent effect is lost. The Legislature drew the line and excluded punitive damages from the State-authorized indemnification scheme. A local government can choose to supplement, but it is making an active local-policy decision to absorb that cost.

Why does a defense-and-indemnification local law have to be prospective?

Because the constitutional theory behind it treats the benefit as part of compensation for ongoing service. Compensation arrangements are prospective in nature (you induce continued service by promising future benefits). Retroactive indemnification would be a gift to people who already have completed the service for which they are now being rewarded.

Common questions

Does this rule apply to police officers specifically?

There is an additional statute for police: General Municipal Law § 50-j makes each city, county, town, and village liable for the negligent acts of police officers in the performance of public duties, and § 50-j(6)(a) gives the municipality discretion to indemnify police officers for punitive damages. So police get a separate, specific authorization that does not depend on supplementing § 18.

Background and statutory framework

Public Officers Law § 18. The State-authorized municipal defense-and-indemnification scheme. § 18(2) lets a governing body opt in. § 18(3)(a) provides defense for civil actions arising out of scope-of-employment acts. § 18(4)(a) provides indemnification for judgments or settlements. § 18(4)(c) excludes punitive or exemplary damages from § 18's scope.

Municipal Home Rule Law § 10. Home rule grant. § 10(1)(ii)(a)(1) covers terms and conditions of employment of municipal officers and employees. The defense-and-indemnification supplement rests on this provision.

General Municipal Law § 50-j. Separate authority for police officer defense and indemnification, including discretionary punitive-damages indemnification (§ 50-j(6)(a)).

Case law and prior AG opinions. Corning v Laurel Hollow, 48 NY2d 348 (1979), establishes the prospective-only constraint. Johnson v Daily News, 34 NY2d 33 (1974), supports the independent-contractor exclusion via respondeat superior. Hardy v Murphy, 29 AD2d 1038 (3d Dept 1968), and Peer v Babcock, 230 NY 106 (1920), provide the four-factor employee test. AG opinions 88-44 (supplementing § 18 by local law), 90-F11 and 97-F1 (independent contractor factors), 90-78 (cannot indemnify independent contractors by local law), 93-21 (supplement § 18 with punitive-damages indemnification for employees), and 91-4 (prospective scope of indemnification local laws) build the framework.

Citations

• Public Officers Law § 18(1)(b) (excludes independent contractors); § 18(2) (opt-in); § 18(3)(a) (defense scope); § 18(4)(a) (indemnification scope); § 18(4)(c) (excludes punitive damages).
• Municipal Home Rule Law § 10(1)(ii)(a)(1) (home rule on terms and conditions of employment).
• General Municipal Law § 50-j (police officer liability and indemnification); § 50-j(6)(a) (discretionary punitive damages indemnification for police).
• 42 USC § 1983 (federal civil rights cause of action).
• Corning v Laurel Hollow, 48 NY2d 348 (1979) (prospective-only constraint on indemnification).
• Johnson v Daily News, 34 NY2d 33 (1974) (no respondeat superior for independent contractors).
• Hardy v Murphy, 29 AD2d 1038 (3d Dept 1968); Peer v Babcock, 230 NY 106 (1920) (four-factor employee test).
• Op Atty Gen (Inf) No. 88-44, 90-78, 91-4, 93-21; Op Atty Gen No. 90-F11, 97-F1 (prior AG opinions on the framework).

Source

• Landing page: https://ag.ny.gov/libraries-documents/opinions/opinions-year
• Original PDF: https://ag.ny.gov/sites/default/files/opinions/I_99-33_pw.pdf

Original opinion text

GENERAL MUNICIPAL LAW § 50-j; MUNICIPAL HOME RULE LAW
§ 10(1)(ii)(a)(1); PUBLIC OFFICERS LAW § 18; 42 USC § 1983.
A local government may enact a local law supplementing
section 18 of the Public Officers Law in relation to defense and
indemnification of officers and employees. Generally, a local
government may not include in the local law defense and
indemnification of independent contractors. Any local law
providing for defense and indemnification must be prospective in
operation.
October 14, 1999
Richard T. Haefeli, Esq.
Village Attorney
Village of Westhampton Beach
P. O. Box 1112
Westhampton Beach, NY 11978

Informal Opinion
No. 99-33

Dear Mr. Haefeli:
You informed us that a former member of the Village Police
Department has commenced an action in federal court alleging
violations of his constitutional rights under 42 USC § 1983.
Named defendants in the action include several police officers,
two members of the Village Board of Trustees and two attorneys
hired by the Village to provide services in labor law matters.
The complaint alleges that the defendants acted in their
individual capacities and requests compensatory and punitive
damages.

1. Defense and Indemnification of Independent
   Contractors Under State Law

The two labor law attorneys have requested that the Village
defend and indemnify them in this action. The Village has
provided for defense and indemnification of employees using
section 18 of the Public Officers Law as its authorization. You
informed us that the labor law attorneys were appointed by
resolution of the Board of Trustees, were compensated at an
hourly rate, received no benefits from the Village and are not
considered employees of the Village. The first question is
whether the Village is authorized to provide defense and
indemnification to the labor law attorneys.
Section 18 of the Public Officers Law authorizes and
establishes a procedure for defense and indemnification of local
government employees. The governing body of a local government
may enact legislation to adopt the provisions of section 18.
Public Officers Law § 18(2). Under section 18, defense may be
provided to an employee in any civil action or proceeding, State
or federal, arising out of any act or omission which occurred or
allegedly occurred while the employee was acting within the scope
of his public employment or duties. Id., § 18(3)(a).
Indemnification is conditioned upon a finding that the act or
omission resulting in a judgment or settlement of a claim
occurred while the employee was acting within the scope of his
public employment or duties. Id., § 18(4)(a).
As you have noted, defense and indemnification under section
18 excludes independent contractors. The benefits of section 18
apply to an "employee," defined as follows:
The term "employee" shall mean any
commissioner, member of a public board or
commission, trustee, director, officer,
employee, volunteer expressly authorized to
participate in a publicly sponsored volunteer
program, or any other person holding a
position by election, appointment or
employment in the service of a public entity,
whether or not compensated, but shall not
include . . . an independent contractor.
Id., § 18(1)(b).
Your question is whether the labor law attorneys are
independent contractors and, therefore, are ineligible for
defense and indemnification under the terms of section 18 of the
Public Officers Law. You have asked the same question regarding
the Village Attorney.
There are four elements which generally are considered in
determining whether the relationship of employer and employee
exists: (1) the method of selection and engagement; (2) the
method of payment of compensation; (3) the procedure for
dismissal; and (4) the power of control of the employee's
conduct. Hardy v Murphy, 29 AD2d 1038 (3d Dept 1968); Peer v
Babcock, 230 NY 106 (1920). The courts frequently and
consistently have held, however, that control is the determining
factor and that, in any given situation, the employer is the one
who holds the right to order and direct the employee in the
manner in which the work shall be done. Id. Factors which are
indicia of independent contractor status are payment on an hourly
basis by voucher and no deductions from compensation for items
such as withholding taxes, fringe benefits and retirement
contributions. Op Atty Gen No. 97-F1. See also, Op Atty Gen No.
90-F11. This determination is a question of fact, which must be
made locally, under standards that have been developed by the
courts.

2. Defense and Indemnification of
   Independent Contractors by Local Law

If these attorneys are determined to be independent
contractors, you have asked whether the Village may enact a local
law to provide for their defense and indemnification. A
municipality may enact a local law which supplements the
provisions of section 18 of the Public Officers Law. 1988 Op
Atty Gen (Inf) 44. We have considered this question in a prior
opinion of this office:
Further, in that a municipality would not
control the actions of an independent
contractor and would not be liable for his
actions on the basis of respondeat superior
(see, Johnson v Daily News, 34 NY2d 33
[1974]), generally, it would be inappropriate
to provide defense and indemnification to an
independent contractor by local law utilizing
the authority provided by section 10 of the
Municipal Home Rule Law. Op Atty Gen (Inf)
90-78.
Generally, defense and indemnification are authorized as terms
and conditions of employment of employees of the municipality.
Municipal Home Rule Law § 10(1)(ii)(a)(1); Corning v Laurel
Hollow, 48 NY2d 348, 354 (1979). They are part of the package of
benefits provided to employees in return for their service to the
municipality. Provision of defense and indemnification to an
independent contractor would not fall within this statutory
authorization.

3. Operative Date of Local Law
   Indemnifying Punitive Damages

You also have inquired when a new local law providing
indemnification for punitive damages to police officers, members
of the Board of Trustees and employees of the Village would
become operative. Section 18 of the Public Officers Law excludes
from its coverage indemnification for punitive or exemplary
damages. Public Officers Law § 18(4)(c).
As you have noted, in a prior opinion we concluded that a
local government by local law may supplement the provisions of
section 18 of the Public Officers Law and provide employees of
the municipality with indemnification for punitive damages.
Op Atty Gen (Inf) No. 93-21. This benefit may be provided only
with respect to negligent acts or torts committed by the employee
while acting within the scope of his or her employment. Id.
You are aware that a local law providing for defense and
indemnification must be prospective in operation (Corning v
Laurel Hollow, 48 NY2d 348 [1979]), and have requested that we
specifically define a "prospective" law. We considered this
question at length in Op Atty Gen (Inf) No. 91-4; copy enclosed.
We note that the holdings in the abovecited cases do not deal with the precise
definition of a "prospective" law. The
quoted language from the opinions refers
alternatively to future charges or claims and
to expenses incurred in the future.
We concluded that a local law providing for defense and
indemnification may cover only those employees who have not yet
incurred defense costs even for causes of action that have
already occurred. We reasoned that such a local law would meet
constitutional requirements as part of an official's terms and
conditions of employment, stating:
We believe defense costs [and
indemnification] may be provided to public
officials as part of the package of benefits
constituting the employment arrangement.
Thus, in the normal course, this benefit
would be provided by a municipality to all of
its employees or to an identifiable class of
employees. In providing this benefit to its
employees prospectively, the municipality
receives something in return--the inducement
for a person to enter or remain in public
service, thereby providing the municipality
with its work force. This benefit thereby
serves a public purpose. Id.
Local defense and indemnification, however, is not required.
Therefore, a local law providing this benefit by its terms may
apply only to causes of action accruing subsequent to the
effective date of the local law.

Other statutory authority covers police officers. Under
section 50-j of the General Municipal Law, each city, county,
town and village is liable for any negligent act or tort of a
police officer committed in the performance of his or her public
duties. General Municipal Law § 50-j(1). Additionally, a local
government, in its discretion, may provide indemnification to a
police officer in any civil action or proceeding for punitive or
exemplary damages arising out of a negligent act or tort
committed while the officer was acting within the scope of his or
her employment. Id., § 50-j(6)(a).

We conclude that a local government may enact a local law
supplementing section 18 of the Public Officers Law in relation
to defense and indemnification of officers and employees.
Generally, a local government may not include in the local law
defense and indemnification of independent contractors. Any
local law providing for defense and indemnification must be
prospective in operation.
The Attorney General renders formal opinions only to
officers and departments of State government. This perforce is
an informal and unofficial expression of the views of this
office.
Very truly yours,

JAMES D. COLE
Assistant Solicitor General
In Charge of Opinions