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

Examples Showing Why the Distinction Between Deducting and Failing to Pay Wages Is Illusory

To illustrate why the distinction between deducting and failing to pay wages is illusory and leads to uncertain and indefensible results, consider the variations on the following fact pattern:

Joy is hired as a warehouse manager for her employer, Acme Corp., a glassware manufacturer.  Acme agrees to pay Joy an annual salary, plus an end-of-year performance-based commission of $1 for each and every crate of glassware she ships from the warehouse.  Throughout the year she ships 11,000 crates of glassware.  1,000 of these are later found to have contained broken glassware when they left the warehouse.

Wage Deprivation 1

Joy’s paystub notes the following:

Commission:                                           $11,000

Damaged merchandise deduction:       -$1,000

Wages included in this check:              $10,000

Wage Deprivation 2

Joy’s paystub simply notes “Commission:  $10,000.”  In other words, the $1,000 Acme deducted is not noted on Joy’s paystub.  When Joy asks about the $1,000 shortfall, Acme’s owner tells her he “decided to subtract” $1 for each crate that contained broken glassware.

While there is no difference to either Joy or Acme in these two examples, the mere absence of a deduction notation on Joy’s paystub in Deprivation 2 could lead at least some judges to deny Joy’s § 193 claim on the ground that it involves “merely a failure to pay wages.”[63]

However, if confronted with Deprivations 1 and 2 side by side, most jurists who believe a failure to pay is not a deduction would presumably retreat to a more “defensible” position, perhaps arguing that Acme’s verbal reference to a “subtraction” is the equivalent of a paystub notation.

OK then, let us slightly alter the facts of Wage Deprivation 2.  Let us now suppose the following:

Wage Deprivation 3

Upon being sued for violating § 193, Acme denies the conversation about a “subtraction” ever happened (as it likely would), and falsely claims that Joy’s commission was purely discretionary.  What then?  The jurists who had taken a step away from the wall of the cave and towards the outside world might then retreat back to the safety of the wall of the cave, asserting that “[t]his dispute as to the calculation of the net amount does not reflect a deduction from wages within the meaning of section 193[.]”[64]

But let us suppose some of these jurists would be willing to take another step away from the wall of the cave and towards the outside world, and allow a jury to decide whether Acme’s owner mentioned the word “subtract.”  And let us suppose that at trial it was proved that Acme’s owner didn’t use the word “deduct” or “subtract,” but simply told Joy she “didn’t deserve” $1 for each crate with broken glassware.  Or something vaguer still, like he “expects more from her.”  Where does one draw the line?

Next consider this example:

Wage Deprivation 4

Acme’s owner tells Joy her work is outstanding and that he has chosen to exercise his (alleged) discretion to pay her a $10,000 commission.  When Joy points out that she is owed $11,000, Acme’s owner says he disagrees.  Since Joy’s wages (i.e., her right to be paid her earnings) are $11,000, when Joy receives a check for gross wages of only $10,000 can it be said that $1,000 has not been deducted from her wages?

If a deduction from wages is something other than a deprivation of the wages due and owing, then what is it?  Must there be a deduction notation on a paystub before the employer can be liable for violating Labor Law § 193?  If so, why?  Must there be some trace of employer rumination about damaged goods?  If so, why?  What quantum of cognition would be needed?  How would that quantum of cognition be verified?  What if the employer’s disappointment about damaged goods was one of two reasons motivating the employer (or one of three, four, or five reasons)?

What if the employer is not thinking about damaged goods, but simply prefers to keep Joy’s earned wages because it can?  Even if intent were an issue, isn’t the employer’s intent to keep Joy’s property readily inferable by the employer enriching itself with the fruits of Joy’s labor?

Or what if Acme is cash-strapped and promises Joy a $30,000 bonus if she meets certain performance targets.  When Acme makes that promise to induce added labor on Joy’s part, doesn’t it have a duty to ensure it is not making a promise it cannot keep?[65]  Next consider this example:

Wage Deprivation 5

Acme’s owner never pays Joy any commission, but issues her a check for $0 and a paystub with the following notations:

$11,000

-$11,000

A deduction, right?  So what’s the difference if Joy receives the same amount ($0) without receiving the piece of paper?  One could argue that pairing the written manifestation of a deduction with a written admission of the wages otherwise due and owing (i.e., a paystub listing both gross pay and the sum deducted) proves the employer’s awareness that $11,000 was owed.  But even if that were true, it wouldn’t make the reverse true, i.e., the absence of an “$11,000” notation wouldn’t prove the employer was not aware it owed $11,000.

Conversely, the written deduction notation by itself does not prove the deduction was from “wages.”[66]  A deduction notation on a paystub may be helpful, but is by no means necessary, to prove a deduction from wages.

Now let us suppose Acme is determined to withhold 50% of Joy’s wages from the next two paychecks.  Knowing this, Acme’s counsel advises Acme to try to avoid Labor Law § 193 liability by withholding one of the two paychecks altogether.  Is that a defensible outcome?

Limiting principles are nowhere to be found in the ill-fated quest to distinguish a deduction from a failure to pay wages.  That is because oft-cited examples of unauthorized deductions are only particularized manifestations of the inequity sought to be remedied, namely, employers benefitting from employees’ earned wages.

Conclusion

All courts construing Article 6 should respect the Legislature’s command that “[a]ll employees shall have the right to recover full wages, benefits and wage supplements and liquidated damages[,]”[67]  and bid farewell to the false dichotomy between deducting and failing to pay wages.  Only then will Article 6’s goal of protecting earned wages be fully realized.

[63] See Kane v. Waterfront Media, Inc., 2008 WL 3996234 (Sup. Ct., N.Y. Co. 2008) (“The court rejects plaintiff’s contention that defendants’ reduction of the commission percentages to which she was entitled under the contract supports a claim under Labor Law § 193. At most, plaintiff only alleges a failure to pay wages. To state a claim for violation of Labor Law § 193, a plaintiff must allege a specific deduction from wages and not merely a failure to pay wages.”) (citation omitted).
[64]  See Kletter v. Fleming, 32 A.D.3d 566, 567, 820 N.Y.S.2d 348, 349-50 (3d Dep’t 2006).
[65]  See, e.g., Polyfusion Electronics, Inc. v. Promark Electronics, Inc., 108 A.D.3d 1186, 1187-88, 970 N.Y.S.2d 651, 652-53 (4th Dep’t 2013) (imposing double damages against manufacturer under § 191-c where, due to financial difficulties, it failed to pay earned commissions within five days of the date the parties’ contract was terminated).
[66]  See, e.g., Pachter v. Bernard Hodes Group, Inc., 861 N.Y.S.2d 246, 252, 10 N.Y.3d 609, 618 (2008).
[67]  N.Y. Lab. L. § 198(3).
Reprinted with permission from: Labor and Employment Law Journal,
Fall 2016, Vol. 41, No. 1,published by the New York State Bar Association,
One Elk Street, Albany, New York 12207.