Separated executives often assert wage claims following cessation of employment and big dollars are usually at issue. Important questions then arise, including principally: 1) whether the executive can assert a claim under the New York Labor Law; and, 2) just as importantly, who is responsible for any monies owed. A new decision issued by recently-appointed Judge Paul Engelmayer of the United States District Court for the Southern District of New York limits both an executive’s right to seek unpaid wages under the New York Labor Law, and the extent of liability of corporate officers for any amounts owed under a contract theory. Malinowski v. Wall St. Source, Inc., 2012 U.S. Dist. LEXIS 11575 (S.D.N.Y. Jan. 31, 2012).
In Malinowski, the court addressed Plaintiff Malinowski’s claims arising out of his employment as the corporate defendant’s Chief Information Officer pursuant to a written employment agreement. Malinowski alleged that “he was not paid his guaranteed bonuses for the years 2007 and 2008 [and] . . . that he was not paid his salary for his final three weeks of work prior to his termination from WSS in April 2009.” Following a bench trial, the parties reached a settlement regarding amounts owed under the contract, with a single remaining dispute: “whether WSS’s CEO . . . was personally liable to Malinowski for the salary and bonuses that WSS owed him.”
Judge Engelmayer’s analysis of this question required the Court to address both Malinowski’s rights under the contract itself, as well as his rights under Article 6 of the New York Labor Law, which governs payment of wages. Essential to the court’s ruling that Plaintiff Malinowski could not recover under the Labor Law was the undisputed fact that he worked as a “bona fide executive . . . whose earnings [were] in excess of nine hundred dollars a week.” Thus, the court ruled that, based on prior precedent, he was not covered by Sections 191 (addressing payment of wages) or Section 198-c (addressing so-called “wage supplements”, such as the bonus at issue). The Court also ruled that while executives can assert Labor Law claims for unlawful wage deductions under the New York Court of Appeals’ decision in Pachter v. Bernard Hodes Grp., Inc., 10 N.Y.3d 609 (2008), a claim for unpaid wages such as Malinowski’s was distinguishable from a claim based on an unlawful “deduction” from wages within the meaning of New York Labor Law 193.
Having resolved the question of statutory liability in Defendants’ favor (meaning that Plaintiff could not recover from WSS (or its owners or managers) under the New York Labor Law), the court turned to the issue of whether the CEO could be “individually liable to Malinowski based on the [not contested] breach of his employment agreement.” Citing basic contracts and commercial law principles, the Court ruled that the agreement clearly demonstrated that the CEO had signed the agreement only in his capacity as a corporate executive, and not in his personal capacity. Thus, no liability under the contract attached to him.
Malinowski provides strong precedent for employers defending wage claims brought by executives under the New York Labor Law. Avoidance of a viable wage claim includes avoiding liability for a plaintiff’s attorneys’ fees. However, while the decision provides support for a finding that there is no individual liability for unpaid wages asserted via a contract claim, it does not foreclose contract claims for such unpaid wages and bonuses, and employers must continue to ensure employment contracts and bonus agreements are well drafted and consistent with New York state law.