Wage and Hour Law Update : Wage & Hour Lawyer & Attorney : Jackson Lewis Law Firm : Minimum Wage, Overtime & Service Contracts

Like many states with state wage and hour laws, the New York Labor Law contains certain unique provisions. One such provision is Section 198-c, which addresses an employee’s right to recover “wage supplements” such as reimbursement for expenses, health, welfare and retirement benefits and vacation, separation or holiday pay.. Section 198-c expressly provides that its provisions shall not apply to any person in a bona fide executive, administrative, or professional capacity whose earnings are in excess of nine hundred dollars a week. The New York State Appellate Division, Second Department, reiterated this exclusion this week. Section 198-c’s limitations are a valuable defense for New York employers when defending claims brought by excluded employees for such wage supplements because if such claims are excluded from Labor Law protection, there is no ability for the plaintiff’s counsel to recover attorney’s fees or statutory liquidated damages. See Fraiberg v 4Kids Entertainment, Inc., 2010 NY Slip Op 6158 (N.Y. App. Div. 2d Dep't July 20, 2010). 

The relevant facts in Fraiberg are simple. Fraiberg, the controller of a business that ceased operations, asserted both a contract claim and a Labor Law Claim under Section 198-c for, inter alia, alleged unpaid severance. Affirming the trial court, the appellate court agreed that Fraiberg demonstrated a contractual entitlement to severance. However, reversing the trial court, the Second Department granted summary judgment to the employer on Fraiberg’s claims under Section 198-c for severance, attorneys’ fees and liquidated damages.   The court stated that since plaintiff acknowledged at her deposition that she worked in a bona fide executive, administrative, or professional capacity and earned in excess of $900 per week, the defendant “established that…she could not assert a claim [under 198-c] to compel the payment of the severance package.”

While not relevant to the court’s holding, in dicta, the court stated that the New York State Court of Appeals decision in Pachter v. Bernard Hodes Group, Inc., 10 N.Y.3d 609 (N.Y. 2008) stands for the proposition that executives may bring claims for unpaid wages under Article 6 of the New York Labor Law. Article 6, which includes Section 198-c, allows recovery for any unpaid wages not paid per the parties’ agreement as well an award of liquidated damages and attorneys’ fees.   Many read Pachter as merely stating that the deduction from wages provision of Article 6, specifically section 193, applies to executives but that executives generally cannot assert claims for unpaid wages under Article 6.

Like many other states, New York has detailed state wage and hour laws with many nuances. All employers with New York State operations must ensure they recognize obligations and defenses not only under the FLSA but also applicable state laws.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

As recently discussed here¸ a properly drafted commission agreement is essential in New York (and every state) to minimize exposure to a variety of claims, including claims for alleged unpaid commissions and improper wage deductions. In fact, in New York and other states, a written signed commission agreement is required pursuant to state law, absent which adverse inferences can be drawn.

A counter-example to the Swig Equities decision (see discussion linked above), which demonstrated the value of such an agreement, is the recent decision of the New York state trial court in Nichols v. SG Partners, Inc., 2010 NY Slip Op 30174U (N.Y. Sup. Ct. Jan. 25, 2010). Plaintiffs in Nichols were two former executive recruiters who received a base salary plus commissions. Upon termination they sued to collect alleged outstanding commissions for placements they had made. In their Complaint, they described the employer’s practice in calculating commissions to be to “more or less annually tally the placements made by plaintiffs and make additional payments based upon a percentage of the revenues from the placements.” The employer asserted that no such enforceable oral contract existed, or in the alternative was barred by various defenses to contract formation. 

Because no written contract governed the parties’ agreement regarding, inter alia, when a commission was earned, the Court refused to dismiss as a matter of law Plaintiffs’ claims that the employer breached the oral contract governing payment of commissions. Further, the Court did not dismiss the Plaintiffs’ assertion that the company’s commission payment/reconciliation process constituted an unlawful deduction from wages. Relying on precedent, the Court held that the claim under Section 193 was not duplicative of the claim for breach of contract, even though the claim sought recovery of the same commission compensation. This ruling also revived Plaintiffs’ claims under Labor Law § 198.1-a for a 25% penalty on the owed wages and attorneys’ fees.

Failure to enter into a written commission agreement creates enormous potential exposure for all businesses that employ commissioned staff.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

In a recent decision, the Honorable Eileen Bransten of the Supreme Court of the State of New York, New York County, reinforced to all employers the need to utilized well-drafted commission agreements.  The court considered a claim from a real estate broker alleging that she was not paid commissions and bonuses for sales that she arranged, in violation of her agreement with the employer.   Rejecting her claim, the court pointed to express language in the parties’ agreement stating that the alleged commissions would only have been earned upon a closing and transfer for title, and stated that “parties to a brokerage agreement are free to add whatever conditions they may wish to their agreement, including a condition that the contract of sale actually be consummated before the broker is deemed to have earned his commission.” Root v Swig Equities, LLC, 2010 NY Slip Op 50843U at * 5 (N.Y. Sup. Ct. Feb. 10, 2010).   

The court then went further and, while recognizing the general principle that a “seller cannot avoid liability for a broker’s commission based on the non-occurrence of a condition precedent if the seller is responsible for its non-performance”, cited to existing case law and ruled that “[a] broker may choose to agree that even ‘if the sale falls through because of the seller’s fault, he shall be entitled to nothing.” Id.  The court then turned to the plaintiff’s claim for unpaid commissions under the New York Labor Law.   After stating that any Labor Law claim must be premised on a contractual right to recover commissions, the court rejected plaintiff’s labor law claim stating that “without a contractual right to the commissions [plaintiff] seeks to recover, she fails to state a violation of [the Labor Law].” Id. at * 7. 

This decision reinforces to employers the importance of well-drafted commission agreements with specific condition precedents for the earning of commissions.   In fact, in New York, written commission agreements are mandated and the lack of such an agreement not only limits an employer’s ability to defend a claim for unpaid commissions but also creates a presumption that the terms of employment that the commissioned salesperson has presented are the agreed terms of employment. N.Y. Labor Law § 191(1)(c).

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Business owners, supervisors and managers performing services for corporate entities often believe that liability for wage and hour violations can be imposed solely on the incorporated entity.  To the contrary, as demonstrated by a recent New York Federal Court decision, various theories support individual liability under both federal and, in this case, New York State law.

In Flannigan v. Vulcan Power Group, L.L.C., 2010 U.S. Dist. LEXIS 41751 at * 10-13 (S.D.N.Y. Apr. 27, 2010), Judge Barbara Jones considered a motion to dismiss wage and hour claims brought against an officer/manager.In denying the motion, the court explained that corporate officers and principal shareholders, as well as supervisors and managers involved in wage and hour policymaking/decision-making, can be personally liable for unpaid wages under federal and state law.  Id. The Court cited Plaintiff’s allegations and documentary evidence to the effect that the individual defendant had met with her regarding the terms of her employment, and subsequently communicated with her about the status of her commission compensation, as sufficient to allege individual liability under the FLSA and New York law. Id. The court did however find that individual liability could not be imposed on the corporate shareholders under Section 630 of the New York Business Corporation Law because the defendant corporation was not incorporated in New York. Id.  Under BCL § 630, the ten largest shareholders of a closely held New York corporation are liable for unpaid wages and benefits.

Business owners (as well as supervisors and managers involved in wage and hour policymaking/decision-making) must recognize the various theories under which they can be subject to personal liability and of course take actions to minimize such potential liabilities. 

• Email This
• Print
• Comments
• Trackbacks
• Share Link

The Supreme Court dealt a blow to New York wage-and-hour defendants sued in federal court last week, overruling established precedent requiring plaintiffs bringing New York Labor Law (“Labor Law”) class actions in federal court to waive the 25% liquidated damages “penalty” in order to proceed on a class basis.  In Shady Grove Orthopedic Assocs., P.A. v. Allstate Ins. Co., 2010 U.S. LEXIS 2929 (U.S. Mar. 31, 2010), the Supreme Court applied the age-old test from Erie R. Co. v. Tompkins, 304 U.S. 64 (1938) and held that the state law rule requiring such a waiver is “procedural” as opposed to “substantive”, and has no application in federal court, where opt-out class actions are governed by Federal Rule of Civil Procedure 23. 

Class action Labor Law plaintiffs in federal court now may seek a 25% penalty in behalf of all class members, increasing the potential class-wide damages.  It remains a divided question, unanswered by the higher courts, as to whether any wage-and-hour plaintiff may recover the 25% penalty and the 100% liquidated damages under the FLSA for the same time period.  Compare Yu G. Ke v. Saigon Grill, Inc., 595 F. Supp. 2d 240, 261 (S.D.N.Y. 2008) with Jin v. Pac. Buffet House, Inc., 2009 U.S. Dist. LEXIS 74901 at * 24 (E.D.N.Y. Aug. 24, 2009).

Other states containing class action limitations in their state procedural codes, whose federal courts previously had deferred to the state rule, may now also be subject to class actions in federal court seeking relief under the state’s wage-and-hour laws.   However, the Court did not conclusively state that all such provisions were unenforceable but rather focused its analysis on the intent of the New York provision requiring waiver of penalties.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

While in New York all employees are at-will absent contractual language to the contrary, an employer may (intentionally or unintentionally) create a “contract” with an employee governing certain terms of employment (such as bonus compensation) without destroying the at-will nature of employment.  Properly drafted and agreed upon, such a contract can preclude employees from later claiming they were made oral promises regarding compensation and benefits at the time of hire (or later on) which are different than the terms reflected in the contract.  In Broyles v. J.P. Morgan Chase & Co., 2010 U.S. Dist. LEXIS 21861 (S.D.N.Y. Mar. 8, 2010), United States District Judge William Pauley rejected an employee’s attempt to do just that, finding that the letter of employment the Plaintiff had received and signed at the time of hiring: (1) was an enforceable contract, and (2) it contained “the entire understanding of the parties with respect to the terms and conditions of the offer of employment.”  Id. at * 7. 

When the Plaintiff was subsequently terminated, he brought suit claiming he had been orally promised a bonus for the year prior to the year in which he was terminated.  However, the letter of employment at issue provided that any bonuses were discretionary and would not be paid if the employee quit or was terminated.  The Court held that this clear language governing bonuses contained in the offer letter, coupled with an integration clause, precluded the employee’s claims that he was verbally promised a bonus.  The court found that the offer letter was an enforceable written agreement which precluded any oral agreements or quasi-contractual claims by the employee.  Finally, since the bonus was never “awarded” to the employee, he had no “vested” interest in it, and therefore could not pursue a claim for the unpaid bonus under the New York Labor Law.

It is difficult for employers to ensure that no statements regarding compensation are made by managers, co-workers or human resources during the hiring process.  Recruiters or other interviewers can unwittingly make oral promises or use poorly tailored language regarding the terms and conditions of employment.  To prevent such statements from causing issues down the road, employers should consider utilizing a well drafted employment letter, such as the one in Broyles, or a well drafted incentive compensation plan with an integration clause, in order to easily dispose of these claims if and when they do arise.

• Email This
• Print
• Comments
• Trackbacks
• Share Link