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New York Wage Theft Act Increases Employer Obligations and Penalties for Labor Law Violations

  • December 21, 2010

New York Governor David Paterson has signed into law the Wage Theft Prevention Act.  The new law amends the New York Labor Law, creates new recordkeeping obligations for employers and allows employees to recover significantly greater damages for violations of the law.  The new law will become effective on or about April 9, 2011.

The Wage Theft Prevention Act previously was passed by the state Senate and, following a significant holdup in the state Assembly, was reconsidered and passed by the Assembly with little advance notice to the employer community.  

Senator Diane Savino (D-Brooklyn-Staten Island), who sponsored the bill, applauded its passage, stating, “Stealing from employees not only hurts families, it hurts communities.  It also makes honest employers less competitive.  Businesses that are good corporate citizens and promptly pay their employees what is owed them, as required by law, should not be at a disadvantage to companies that are illegally withholding wages from their workers. These rogue employers not only steal wages from hard-working families, they also steal much-needed funds from our taxpayers.…” 

The Business Council of New York opposed the law, stating, “This bill would compound the difficulty of doing business in New York State by creating an unnecessary and burdensome paperwork and penalty regime . . . . At a time when our state economy is struggling, the imposition, particularly on small- and medium-sized businesses, is vastly disproportioned to any genuine or valid concern for proper pay and compliance with the state labor law requirements.”

New York courts have the reputation among the plaintiffs’ bar of being hospitable to wage claims, and the enhanced penalties under the new law will likely mean even more wage and hour litigation against New York employers.  Moreover, the enhanced penalties and available damages for violations pursuant to the new law create even greater risk for New York employers who misclassify workers or fail to pay employees accurately.  Employers should review their employee classifications and pay practices to ensure compliance.  Jackson Lewis strongly recommends training in-house counsel and human resources personnel regarding classification issues and managers regarding their obligations under New York state and federal wage and hour laws and the importance of compliance and accurate recordkeeping.  

Expanded Notice Obligations for New Hires 

Currently, New York Labor Law Section 195(1) mandates that employers inform all new hires in writing of their regular rate of pay, pay day, and overtime rate, if applicable.  Existing law also requires that employers obtain a written acknowledgment that this information be provided in writing.  (The New York State Department of Labor has interpreted the law as requiring employers to provide exempt employees with the basis for their exemption.)  

Upon the Wage Theft Prevention Act’s April 9, 2011, effective date, the written notice must include additional information, such as the method of payment, i.e., whether employees will be paid by the hour, shift, day, week, salary, piece, or commission, as well as whether any allowances will be claimed as part of the minimum wage (for tips, meals, or lodging).  

Further, employers will be required to furnish this information in both English and the employee’s primary language.  How and when an employer can determine whether English is not the new hire’s primary language is left unanswered.  The New York State Department of Labor has been charged with developing template notices in English and other languages.  Whether these templates will be available prior to the new law’s effective date is not clear.

Annual Notice Obligations

The new law requires that employers provide employees with a notice reiterating their pay rate and other mandated information and obtain a written acknowledgment before February 1st of each year.  Even though the new law is not effective until April 2011, a suggested best practice for employers is to provide the notice before the law becomes effective.  

With that said, however, the state’s new Hospitality Industry Wage Order (see our article, New York Hospitality Industry Wage Order Effective January 1, 2011) requires notice of any rate changes in writing.  Since the tip credit rate will change effective January 1, 2011, for tipped employees in the hospitality industry, a new notice must be provided to covered employees by January 1 (or by February 28 if the employer utilizes the compliance period available for implementation of the new Wage Order’s requirements).

Further Notice Obligations

The new law also requires employers to provide a written notice at least seven days prior to the implementation of any changes to the information contained in the employee’s most recent notice, unless the modifications are reflected in the employee’s wage statement.  Therefore, the wage statement must include the following information: dates of work covered by the payment, employee name, employer name, address and telephone number, hours worked, rates paid and basis thereof (e.g., hour, day, or week), gross wages, credits/allowances claimed (e.g., tips, meals and lodging), deductions, and net wages.  Many of these requirements previously were contained solely in Wage Orders, some were not.  

Recordkeeping Requirements

Consistent with current requirements for payroll records, employers must maintain all required notices, statements, and acknowledgments for six years. 

Penalties

Under New York law, liquidated damages (penalties for failing to pay wages) are limited to 25 percent of wages due.  The new law increases the potential liquidated damages to 100 percent of wages due, unless the employer is able to show that it had a “good faith basis” that the method of payment was lawful.  Prejudgment interest and attorneys’ fees also remain available.

Further, any employee not provided with the new hire notice within 10 business days of his or her start date may bring a claim to recover $50 for each workweek that a violation occurs and may recover up to $2,500, plus attorneys’ fees. For statutory violations relating to a current employee, the employer may be liable for damages of up to $100 per week and may recover up to $2,500, plus attorneys’ fees. 

Additionally, although businesses are criminally punishable for violations of the New York Labor Law, only corporations and their officers and agents are subject to penalty. The new law extends coverage to both partnerships and limited liability corporations. 

Finally, the state Department of Labor has been given expanded powers to impose liquidated damages and toll statutes of limitations during investigations.  Under the new law, the Department also has authority to require an employer to post a remedial notice of violation in the workplace.

Impact 

The Wage Theft Prevention Act significantly increases the penalties for New York State Labor Law violations.  To avoid these penalties, employers should review all aspects of their compliance with the New York Labor Law.  This includes a review and modification of all form notices to comport with the new law, as well as a review of current classification and timekeeping practices.  New York employers should take this opportunity to perform a 360-degree review of all their wage and hour practices.

Jackson Lewis attorneys are experienced in guiding employers through internal compliance reviews and are available to discuss these and other related labor and employment law issues with businesses with New York employees.

 

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