Does New York’s Wage Payment Law Have a Gaping Loophole?

Although Gottlieb was effectively superseded by 1997’s Unpaid Wages Prohibition Act, and criticized as “ambiguous” and as having “perhaps unintended” consequences,[25] the confusion it caused was not contained until the Court of Appeals held in Pachter v. Hodes[26] that employees are covered by Article 6’s provisions except where expressly excluded.[27]

Nonetheless, while some courts now acknowledge Labor Law § 198 as a source of substantive rights,[28] few seem to notice that it now has unequivocal rights-affirming language.  And one court that did notice § 198’s unequivocal rights-affirming language (Malinowski v. Wall Street Source, Inc.[29]) apparently did not realize it was added after Gottlieb was decided, and as a result, it cited Gottlieb for the proposition that this post-Gottlieb statutory language does not mean what it says.[30]

Since there is no telling how long it will take before most courts give effect to Labor Law § 198(3)’s rights-affirming language, one must still explore the purported distinction between deducting and failing to pay wages under § 193—it is the only other Article 6 provision through which employees not covered by § 191 can recover their unpaid wages and liquidated damages.

The Purported Distinction Between Deducting and Failing to Pay Wages Contravenes § 193’s Purpose

“[Labor Law § 193] was derived from former sections 10–13 of the Labor Law (L. 1909, ch. 36, §§ 10–13), which required employers to ‘full[y] and prompt[ly]’ pay earned wages.”[31]  “[T]he inequity that the Legislature sought to prevent” in enacting § 193 was employers benefitting from employees’ earned wages.[32]

This begs the question:  What could be more destructive of Labor Law § 193’s purpose than to exempt from liability employers who benefit the most from employees’ wages, i.e., those who keep all of an employee’s earned wages?  If one were to accept the purported distinction between deducting and failing to pay wages, the employer in Ryan that owed a $175,000 nondiscretionary bonus could be liable for withholding $10, $1,000 or even $174,999 from the bonus paycheck (at least if those sums were noted on a paystub), but not for withholding the entire $175,000.

Courts adopting this myopic view of Labor Law § 193 fail to ask the critical question­­—“Why?”  As in, “Why is it wrong for an employer to make an unauthorized deduction from an employee’s wages?”  Surely it is not because deducting part of the employee’s paycheck is worse than taking the entire paycheck.  Rather, it is because an employee’s wages represent the fruits of his labor and have been deemed worthy of special protection.  The idea that § 193 exempts total wage deprivations is irreconcilably inconsistent with the law’s goal of preventing employers from benefitting from employees’ wages.

Mistaking The “Shadow On the Wall of the Cave” for the Real Thing

The purported distinction between deducting and failing to pay wages misapprehends the concept of a “deduction” and the intangible nature of what is being deducted.  As a result, it wrongly assumes a deduction is something that can be seen—like a notation on a paystub.[33]  While the phrase “deduction from … wages” in Labor Law § 193 is suggestive of a notation on a paystub denoting a subtraction from wages, a paystub notation is not a “deduction” at all; it is only a manifestation of a deduction—a proverbial shadow on the wall of the cave.

Upon further analysis, one can see why deducting and failing to pay wages are really the same thing.  “A ‘deduction’ is literally an act of taking away or subtraction.”[34]  How are wages taken away or subtracted?  To answer that one must answer a more basic question:  What are wages?

Wages are “a specialized type of property”[35] that “belong to the wage earner until they are pledged or committed to another.”[36]  Labor Law § 190(1) defines “wages” as the “earnings” of an employee for labor or services rendered, and “earnings” means “any economic good to which a person becomes entitled for rendering economic service.”[37]

“As a right, claim or interest against the employer, wages yet to be received are intangible property.”[38]  The question then is:  How does one “take away” something with no physical existence?

The word “take” has several meanings, including “to deprive one of the use or possession of; to assume ownership.[39]  Since a “deduction” is “an act of taking away or subtraction,”[40] and a “taking” is a deprivation, an employee’s earned and due wages are “deducted” when the employee is “deprived” of them.[41]

[25]  Hart v. Dresdner Kleinwort Wasserstein Securities, LLC, 2006 WL 2356157, at *4 (S.D.N.Y. 2006), quoting Miteva v. Third Point Management Co., L.L.C., 323 F.Supp.2d 573, 581 (S.D.N.Y. 2004); See also Monagle v. Scholastic, Inc., 2007 WL 766282, at *1 (S.D.N.Y. 2007) (observing that “Judge Marrero’s scholarly analysis in [Miteva], has persuaded most courts that th[e] position [set forth in Gottlieb] is incorrect[.]”).
[26]  10 N.Y.3d 609, 861 N.Y.S.2d 246 (2008).
[27]  Id., 10 N.Y.3d at 616, 861 N.Y.S.2d at 250.
[28]  See, e.g., Tini v. AllianceBernstein, L.P., 108 A.D.3d 409, 410, 968 N.Y.S.2d 488, 489 (1st Dep’t 2013) (“as unpaid salary and commission constitute [w]age’ under Labor Law § 190(1), plaintiff has stated a claim under Labor Law § 198.”) (citation omitted).
[29]   2012 WL 279450, at *2 (S.D.N.Y. 2012).
[30]  Id.
[31] Marsh v. Prudential Securities Inc., 770 N.Y.S.2d 271, 274, 1 N.Y.3d 146, 153 (2003) (Emphasis added), citing Matter of Hudacs v. Frito-Lay, Inc., 90 N.Y.2d 342, 347, 660 N.Y.S.2d 700 (1997).
[32] Angello v. Labor Ready, Inc., 825 N.Y.S.2d 674, 678, 7 N.Y.3d 579, 586 (2006).
[33] See, e.g., Strohl v. Brite Adventure Center, Inc., No. 08–CV–259, 2009 WL 2824585, at *9 (E.D.N.Y. Aug. 28, 2009) (dismissing claim where the plaintiff alleged the defendant violated § 193 by adjusting her total hours downward as a penalty for punching in before or after her 8:00 a.m. start time because the “defendants did not ‘deduct’ any amount from [the plaintiff’s] wages, but simply failed to pay her all the wages she had earned.”).
[34]   Angello v. Labor Ready, Inc., 7 N.Y.3d 579, 584 (2006).
[35] Sniadach v. Family Finance Corp., 395 U.S. 337, 340 (1969).
[36] Epps v. Cortese, 326 F.Supp. 127, 133 (E.D. Pa. 1971), vacated on different grounds, Fuentes v. Shevin, 407 U.S. 67 (1972); see also U.S. v. Larson, 2013 WL 6196292, at *2 (W.D.N.Y. 2013) (“‘wages and benefits pursuant to a labor contract’ constitute extortable property” because, inter alia, “a contract and contractual rights can be assigned, and therefore constitute something of value that can be exercised, transferred or sold.”)
[37] Strand v. Hansen Seaway Service, Ltd., 614 F.2d 572, 576 (7th Cir. 1980), citing Webster’s New International Dictionary, 2d Ed., unabridged 1937.
[38] American Standard Life & Accident Co. v. Speros, 494 N.W.2d 599, 605, n. 9 (N.D. 1993).
[39] Black’s Law Dictionary (6th ed. 1990) p. 1453; see also Black’s Law Dictionary (6th ed. 1990) p. 1453 (defining “take” to mean, inter alia, “to deprive one of the use or possession of; to assume ownership.”); State v. G.C., 572 So. 2d 1380, 1382 (Fla. 1991) (“Deprive is defined as ‘to take away;’ ‘to take something away;’  ‘to keep from the possession, enjoyment, or use of something.’”), citing Webster’s Third New Int’l Dictionary 606-607 (1986); People v. Banks, 75 Ill. 2d 383, 389, 388 N.E.2d 1244, 1247 (1979) (“Webster’s Third New International Dictionary 606 (1971) defines ‘deprive’ as ‘to take away: remove, destroy; to take something away from: divest, * * * to keep from the possession, enjoyment, or use of something.’”); State v. Smith, 2001 WL 283388, at *5 (Conn. Super. Ct. Mar. 7, 2001) (“Webster’s Third New International Dictionary defines ‘take away’ as meaning *** ‘to cause deprivation of,’ ***.’”) (emphasis added).
[40] Angello, supra, 7 N.Y.3d at 584.
[41] See, e.g., Ryan, supra, 945 N.Y.S.2d at 602, 19 N.Y.3d at 16 (employer’s neglect to pay nondiscretionary bonus violated § Labor Law 193); Tuttle v. Go. McQuesten Co., Inc., 227 A.D.2d 754, 642 N.Y.S.2d 356, 357-58 (3d Dep’t 1996) (“…withheld moneys constituted ‘wages’ pursuant to Labor Law § 190 and, thus, under Labor Law article 6, defendant was not entitled to withhold these payments as a matter of law.”) (citing § 193).