NY Governor David Paterson signed into law a host of new regulations on employers that toughens penalties for wage violations and expands some existing laws dealing with retaliation against employees who file complaints. The new law, called The Wage Theft Prevention Act, also allows third parties to make complaints and adds officers of limited-liability companies and partnerships to the list of employers who can be punished. These changes mark a significant change in the business environment in New York and require employers to take particular caution that they are incompliance or they face significantly stiffer penalties and now personal liability as well. The changes will take effect in April 2011. It is likely to provide a flood of litigation from plaintiff’s lawyers who represent employees.
There are numerous new sections affecting employers directly and increasing the enforcement powers of the NY State Labor Department. Here is a general summary of the Act’s most noteworthy provisions:
Increased Penalties and Punishment; Criminal Liability
Employers would be subject to significantly increased penalties for noncompliance with the Act’s requirements and the improper payment of wages. Improper payment of wages includes minimum wage violations, overtime violations, off-the-clock work, management sharing in tips, and misclassifying workers as managers to avoid overtime requirements.
First, the Act increases the civil penalties imposed upon an employer for any violation, including paying less than the wage to which an employee is entitled. Under the former New York Labor Law, damages for nonpayment of wages are capped at 25% of the total amount of the wages found to be due. The new Act however, increases the amount of liquidated damages to 100% of that amount. An employer will also be assessed an additional 15% in liquidated damages if it defaults on paying a final judgment for more than 90 days. This brings NY State law in line with Federal Labor Law that already include 100% penalties. Federal Law, however, has 3 year statute of limitations period, half of NY’s 6 year limitations period.
Second, the Act provides for the recovery of prejudgment interest and attorneys’ fees in any civil action to recover unpaid wages brought by an employee or by the state’s labor commissioner. For violations that are determined to be “willful or egregious,” additional penalties may also be assessed against an employer, up to double the total amount found to be due. These are significant increases to an employer’s exposure on wage violation cases.
Third, the Act would add civil penalties for employers that fail to provide employees with the required pre-employment notice of wages required by Section 195(1) of the Labor Law. An employee who does not receive a notice of wages within 10 business days of his or her first day of employment may bring a civil action to recover damages of $50 for each work week that the violation occurred or continues to occur (not to exceed a total of $2,500) plus costs and reasonable attorneys’ fees. Alternatively, the Act permits the labor commissioner to bring a civil or administrative action on behalf of the employee to collect or assess such damages from the employer. This section seems like a likely target for plaintiff’s attorneys who work in this field. It would add $2,500 per employee for each claimant as well as increase their attorney’s fees award.
Finally, the Act expands the types of businesses subject to criminal penalties for nonpayment of wages to include partnerships and limited liability corporations. Previously, criminal penalties under the New York Labor Law applied only to corporations and their officers and agents. Officers and agents of LLCs and partnerships now also face individual criminal liability as well.
New Notices and Recordkeeping Requirements
Currently, New York Labor Law Section 195(1) requires employers to notify all newly hired employees at the time of hiring, in writing, of their regular rate of pay, regular pay day, and overtime rate of pay if they will be eligible for overtime. The Act now requires employers to include the following additional information on the notice:
- In addition to the rate of pay, the basis of the wage payment (e.g., whether paid by the hour, shift, day, week, salary, piece, or commission, or on another basis)
- The employer’s intent to claim allowances (e.g., tip or meal allowances) as part of the minimum wage
- Additional information about the employer, including any d/b/a names
The Act requires that the notice be updated and provided again to the employee at least seven calendar days prior to any changes to the employee’s pay or other terms contained in the notice (unless such changes are reflected in the employee’s wage statement).
The Act would also require that the notice be provided to the employee both in English and in the language identified by the employee as his or her primary language. The employer would be required to obtain from each employee a signed and dated written acknowledgment, in English and in the primary language of the employee, of receipt of the notice.
Employers must preserve and maintain the employee’s acknowledgment(s) of the notice for a period of six years. The Act also increases the length of time an employer must preserve and maintain payroll records from three to six years. This is to bring record-keeping in line with the six year statute of limitations. This is a tremendous additional paperwork burden on employers that also increases exposure as record-keeping violations also carry stiff penalties.
The Act enhances the anti-retaliation provisions of the New York Labor Law to further protect employees who complain of conduct that they reasonably and in good faith believe constitutes a violation of the New York Labor Law. Under the Act, the Labor Commissioner would be given authority to remedy retaliation with powers that parallel those of the courts, including the ability to take the following actions:
- Award compensatory damages
- Enjoin the offending conduct
- Order payment of liquidated damages (not to exceed $10,000)
- Order injunctive relief, including the rehiring or reinstatement of the employee or front pay in lieu of reinstatement
The Act also provides that the two-year statute of limitations for an employee to bring a retaliation action in court shall be tolled (frozen) if an employee files a complaint with the Labor Commission. The Act provides for tolling of the statute of limitations from the date an employee files a complaint with the Labor Commission or the date on which the Labor Commissioner commences an investigation, whichever is earlier, until the date an order to comply issued by the Commissioner becomes final or the date on which the Commissioner notifies the complainant that its investigation has concluded, whichever is later. It also makes individuals who are not in control of a company responsible for retaliatory actions by adding the words “or any person” to the list of individuals who are covered by this section of the Act.
The new Act also widens the conduct that can be claimed to be “retaliation” for filing a complaint. Previously, to be charged with retaliation the employer (or his agent) had to discharge or penalize the employee. Now, the law adds the word “threaten” to list of prohibited conduct. The most significant issue with this new language is that proving they were “threatened” is much easier than proving they were fired or penalized in some way.
Expanded Enforcement Powers of the New York State Department of Labor
The Act provides enhanced power to the Labor Commissioner, making it easier to collect damages from employers that are found to violate the law. The Act allows the Commissioner to bring administrative actions to recover penalties and collect claims. The Commissioner can now also require an employer that defaults on an administrative order to provide an accounting of all of its assets.
This is an expansive broadening of the power of the Labor Commissioner. Previously, employees or the Labor Department had to go to court to obtain the type of relief now in the hands of the Commissioner. Employers must now defend themselves against retaliation claims before the Labor Commissioner with limited discovery rights and less stringent evidentiary rules. Businesses are likely to see expanded investigations by the Labor Department as these actions will generate revenue for the State as well as for the employee.
The Wage Theft Prevention Act dramatically increases the burden and exposure of business owners in the management of their personnel. Increased penalties, new notice requirements, expanded record keeping and a Labor Commissioner with power to bring his/her own enforcement actions drastically alters the landscape for restaurants, car washes, delis, supermarkets and other business with high employee turnover rates.
Businesses large and small would be wise to review the new law with counsel and make sure that they are in compliance and that their management is fully aware of the new requirements, particularly the anti-retaliation provisions.
While preventing wage theft is certainly an admirable goal, we have to wait and see how the Labor Commissioner will execute this new-found power to determine if the new Act meets that goal and improves workers’ conditions or merely places additional hurdles in the already difficult NY business arena.