“No Wage Theft Loophole Act” Amends New York Labor Law

A recent New York law, titled the No Wage Theft Loophole Act (A1893/S858), recently passed the Senate and Assembly (and, as of this writing, June 2, 2021, is awaiting signature by the Governor). Its stated purpose is “[t]o clarify that Article 6 of New York’s Labor Law completely and without exception prohibits lack of distribution of earned wages.” The law amends sections 193 and 198 of the Labor Law.

For example, Labor Law 193 currently provides that “[n]o employer shall make any deduction from the wages of an employee” with certain exceptions, including deductions which are expressly authorized in writing by the employee and for the employee’s benefit.

The law, in part, closes a “loophole” occasioned by uncertainty surrounding the word “deduction”. From the Senate Sponsor Memo:

While [Section 193’s] language seems clear enough on its face to ward against any wage theft, much confusion has arisen over the term “deduction” and what this could possibly represent. For many of us, “deduction” calls to mind a literal notation on a paystub of wages subtracted, which leads to the question: what if the wage theft is not denoted by a line on a paystub? One can imagine a whole host of scenarios ,,, [sic] for example, which clearly violate the intent of Section 193 without conforming to thisliarrow [sic] definition of a “deduction.” … [A]n employer could withhold wages but simply fail to note the deduction on a paystub. Alternatively, an employer could deny the existence of the full amount of wages owed and claim that the employee’s paycheck that month was a discretionary amount that the employer decided based on the quality of the employee’s work. Or, an employer could choose to withhold the pay entirely, as the statute simply prohibits “ANY” deduction. But does “any” mean “all”? What if the statute does not prohibit the withholding of an entire paycheck?

While it may seem obvious that a “deduction” in the context of wage theft is meant to imply the taking of wages, case law on the provisions of Article 6 has painted a much more nuanced and confusing picture. In Gottlieb v. Kenneth D. Laub & Co, for example, the Court of Appeals concluded that an employee asserting a common-law contract claim but not alleging a violation of any substantive provision of Article 6 was not eligible to collect attorney’s fees under Section 198, the part of the Labor Law dealing with penalties and recovery actions. The court held in Gottlieb that Section 198 was not “substantive.” Because of this court ruling, the legislature then amended Section 198 as part of the Unpaid Wages Prohibition Act in 1997 to declare that “all employees shall have the right to recover full wages, benefits and wage supplements accrued during the six years previous to the commencing of such action.”

While it seems the meaning of this provision could hardly be plainer, there was then a later court decision (Malinowski v. Wall Street Source, Inc.) which completely misinterpreted this part of Section 198. The court in Malinowski cited Gottlieb in its ruling, believing that the current language of Section 198 was in place at the time of the Gottlieb ruling and thus did not really mean anything. The court failed to realize that the rights-affirming language of Section 198 was added post-Gottlieb precisely BECAUSE of Gottlieb. Subsequent courts have ruled in similar ways to reinforce the misled notion that Section 198 does not uphold the right of recovery for full wages. New York’s Labor Law, then, which should be a model for the rest of the nation in its defense of employee rights, finds itself watered down by a judicially created loophole.

This loophole is not merely a topic for law journal articles. Attorneys representing laborer plaintiffs speak of real-life cases where plaintiffs are deprived of their earned wages, and then deprived of a remedy under the Labor Law by courts that misread the law.

It is thus necessary for the legislature to close this judicially-created loophole once and for all to clarify that employees must be paid what they are owed, no matter what. Doing so will help defend the rights of all employees, including low-income employees who are more likely to be subject to wage theft. New York cannot in good faith claim to be one of the most progressive states in the nation when it comes to labor rights if we fail to clarify that wage theft is, and has always been, completely prohibited within our boundaries.

Accordingly, the “No Wage Theft Loophole Act”, inter alia, adds a new subdivision, numbered “5” to section 193, which provides that “there is no exception to liability under this section for the unauthorized failure to pay wages, benefits or wage supplements.”

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