Wage theft occurs when an employer fails to pay wages or benefits owed. It harms low-income employees the most. But depriving almost anyone of earned paychecks, commissions, bonuses, or severance pay causes harm.
For some, the harm is life-altering, but few can afford the cost of a lawsuit for breach of contract. And those who can will never be made whole because the plaintiff must pay his own attorney’s fees.
However, an adequate means of legal redress does exist. New York Labor Law Article 6 (Labor Law sections 190–199-a) embodies “the state’s longstanding policy against the forfeiture of earned but undistributed wages.” Some key provisions of Article 6 are Labor Law sections 190, 191, 193 and 198.
LABOR LAW ARTICLE 6
Section 190(1) defines “wages” as “the earnings of an employee for labor or services rendered, regardless of whether the amount of earnings is determined on a time, piece, commission, or other basis.” With limited exceptions, “wages” also includes “benefits or wage supplements.”
Section 191 regulates the frequency of wage payments to different classes of employees, except executives, administrators, and professionals earning over nine hundred dollars per week. Section 193 bars “any deduction” from wages unless it is both authorized and for the employee’s benefit.
Section 198 provides that an employee who wins a wage claim will recover the full amount of the underpayment, along with prejudgment interest, attorney’s fees, “and, unless the employer proves a good faith basis to believe that its underpayment of wages was in compliance with the law, an additional amount as liquidated damages equal to one hundred percent of the total amount of the wages found to be due.” It further provides that “[a]ll employees shall have the right to recover full wages, benefits and wage supplements and liquidated damages accrued during the six years previous to the commencing of such action.”
Despite this rights-affirming or rights-creating language, some courts believe that Article 6 does not give all employees the right to recover unpaid wages. How can that be? To quote Oscar Wilde: “The truth is rarely pure and never simple.” Here, the truth is obscured by a series of obstacles.
The first is Article 6’s confusing text and structure. Article 6 is deficiently drafted and needlessly complex—a proverbial “horse designed by a committee,” that is to say, a camel. Section 198(3)’s explicit command—“[a]ll employees shall have the right to recover full wages, benefits and wage supplements”—is buried near the end of a statutory maze. It is thus overlooked by many.
The second obstacle is a mistaken belief that Section 198(3) does not in fact mean what it says. That mistaken belief exists because the leading case interpreting section 198 was decided before section 198(3)’s rights-affirming or rights-creating language was added to the statute. As a result, some courts mistakenly apply that holding to the current version of section 198, which, unlike the earlier version, has rights-affirming or rights-creating language.
The third obstacle concerns some courts’ mistaken belief that employers can keep employees’ wages without violating Labor Law section 193’s bar against unauthorized deductions from wages. Those courts incorrectly believe that a failure to pay earned wages is not a deduction from wages.
The fourth obstacle concerns the mistaken belief that Article 6 does not give all employees the right to recover earned severance pay and benefits. That mistaken belief exists because some courts fail to take section 198(3)’s command at face value, and compound that error by misconstruing a separate statutory exemption from criminal liability as an exemption from civil liability.
As detailed below, the idea that Article 6 does not give all employees the right to recover unpaid wages is irreconcilably inconsistent with Article 6’s text and purpose. This article has three parts. Part I explores the significance of the Unpaid Wages Prohibition Act amendment to Labor Law section 198. Part II explores the purported distinction between deducting and failing to pay wages under Labor Law section 193. Part III explores how Article 6 protects an employee’s right to earned severance pay.
I. HIDING IN PLAIN SIGHT: THE AMENDED VERSION OF LABOR LAW SECTION 198
The issue of whether employers can keep employees’ wages without violating section 193’s bar against unauthorized “deductions” from wages should be academic. That’s because a different section of Article 6, section 198, was amended to include the following rights-affirming or rights-creating language: “All employees shall have the right to recover full wages, benefits and wage supplements accrued during the six years previous to the commencing of such action . . . .” This rights-affirming or rights-creating language superseded the earlier judicial decision.
A. The Confusion Caused by the Leading Interpretation of Section 198
Before it was amended, Labor Law section 198 lacked any rights-affirming or rights-creating language. It simply prescribed the remedies for violating Article 6’s other provisions. The leading case interpreting section 198 held that an employee who asserted a common-law contract claim, but did not allege a violation of any substantive provision of Article 6, could not collect attorney’s fees under Labor Law section 198.
That holding was understandable because section 198’s rights-affirming or rights-creating language did not yet exist, and the plaintiff did not invoke Labor Law section 193. But the decision caused much confusion by suggesting that Article 6 does not protect the fruits of an employee’s labor—the wages promised in exchange for work—unless the plaintiff is covered by Labor Law section 191, which regulates the frequency of wage payments to certain classes of employees.
That suggestion is incorrect. Unlike other wage statutes that govern minimum wages, overtime, or prevailing wage obligations, Article 6 does not dictate how much an employee is paid or whether earnings are computed on a time, piece, commission, or other basis. Instead, with few exceptions, the parties’ verbal or written employment agreement determines the earnings (wages) that Article 6 protects. Thus, a contractual right to the wages at issue is not a bar to a Labor Law section 193 claim, but a prerequisite.
B. The Unpaid Wages Prohibition Act Amendment to Labor Law Section 198
In its first post-decision amendment to Article 6, the legislature enacted the Unpaid Wages Prohibition Act. Among other things, it amended Labor Law section 198 to make clear that “[a]ll employees shall have the right to recover full wages, benefits and wage supplements accrued during the six years previous to the commencing of such action.” The legislature later enacted additional amendments that added “liquidated damages” to the list of things that “[a]ll employees shall have the right to recover.”
The Court of Appeals also took corrective action. Having veered off course, it held that Article 6’s provisions cover employees unless “expressly excluded.” Despite that holding and the amendments to Labor Law section 198, the earlier decision’s unwarranted influence persists because few courts have noticed that Labor Law section 198 now has rights-affirming or rights-creating language. One court even mistook the current version of section 198 for the earlier version, suggesting that the earlier holding somehow negated the later legislative command that “[a]ll employees shall have the right to recover full wages.”
C. Is the Current Version of Labor Law Section 198 Non-Substantive? Does it Even Matter?
The earlier decision held that the version of Labor Law section 198 then in effect was non-substantive. But what about the current version? Does it provide a freestanding right to recover unpaid wages? In other words, is it “substantive”?
The Court of Appeals has made clear that labels such as “remedial” and “substantive” are not very important in construing statutory amendments. Thus, even so-called remedial statutes may impose a liability where none existed before. Labor Law section 198(3) either affirms or imposes a liability because it commands that “[a]ll employees shall have the right to recover full wages, benefits and wage supplements and liquidated damages.”
When the legislature amends a statute, it is deemed to have intended a material change in the law. Therefore, the clear and unequivocal command of Labor Law section 198(3) is not purely remedial, but substantive as well. However, the debate about whether section 198(3) is purely remedial or also substantive is academic for three reasons.
First, courts must give effect to a statute’s plain meaning, and section 198(3)’s meaning could hardly be plainer. Second, different parts of the same act are to be construed together. Therefore, the bar against unauthorized wage deductions in section 193 must be construed together with section 198’s command that “[a]ll employees shall have the right to recover full wages.” Third, statutes are not to be interpreted in a way that would leave one section without meaning or force. All employees must have the right to recover full wages because if they did not, then section 198’s command would have no meaning or force.
If the source of all employees’ right to recover wages is not section 198, then it must be section 193’s bar against unauthorized deductions from wages (because section 193 is the only other Article 6 provision through which all employees can recover unpaid wages).
In short, the Article 6 right of all employees to recover unpaid wages arises under either section 198(3), or section 193, or most likely both. But many courts have not noticed or given effect to section 198(3)’s amended rights-creating or rights-affirming language. Until that oversight is corrected, employees not covered by Labor Law section 191 must look to Labor Law section 193 to recover earned but unpaid wages and liquidated damages. However, an increasing number of courts have closed off that avenue of relief as well.
In addition to overlooking section 198(3)’s rights-affirming or rights-creating language, those courts have also drawn a distinction between “failing to pay” wages and “deducting” wages, thereby allowing employers who fail to pay earned wages to escape Article 6 liability. However, as detailed below, there is no difference between “deducting” and “failing to pay” wages.
II. THE FALSE DISTINCTION BETWEEN “DEDUCTING” AND “FAILING TO PAY” WAGES UNDER LABOR LAW SECTION 193
The idea of a distinction between “deducting” and “failing to pay” wages under section 193 appeared decades after Labor Law section 193 was enacted. It asserted that section 193 has nothing to do with failure to pay wages or severance benefits, governing instead the specific subject of making deductions from wages. But that approach was not grounded in precedent.
Why should section 193’s sweeping bar against “any deduction[s]” be construed to bar only “specific deduction[s]”? Those decisions gave no reason, nor did they define what a “specific” deduction means. If a specific sum is owed and not paid, is that not a specific deduction? Must there be a written deduction notation? If so, why? Those decisions did not raise, much less answer, these basic questions.
After that, a split of authority emerged on whether employers can keep employees’ earned wages without violating section 193’s bar against unauthorized “deductions” from wages. The distinction between “deducting” and “failing to pay” wages does have a certain intuitive appeal. When we think of a “deduction,” we think of a smaller sum taken from a larger sum. So, the phrase “deduction from wages” calls to mind a paystub notation denoting a subtraction from wages. Further, an employer’s total withholding of wages is not among the examples of unauthorized deductions mentioned in section 193’s legislative history.
Nonetheless, higher-court precedent implicitly rejected the idea that a deduction from wages must involve a smaller sum taken from a larger sum. A failure to pay wages due can violate section 193.
Despite that, some courts still believe that employers can keep employees’ earned wages without “deducting” them. As explored below, this narrow view of section 193 is incorrect for eight reasons:
- It contravenes section 193’s purpose;
- It wrongly assumes that a deduction from wages can be seen (like a paystub notation);
- The term “any deduction” is sweeping in scope;
- A total failure to pay wages is a deduction “from” wages;
- A specific mental state need not be proved to establish a section 193 violation;
- Allowing all employees to recover unpaid wages under section 193 does not conflict with section 191’s limitation on who can sue for untimely payment of wages;
- Higher-court precedent refutes the notion that section 193 only bars much smaller, or “targeted,” forms of wage theft; and
- The deduction/failure to pay dichotomy is irrational.
A. The Deduction/Failure to Pay Dichotomy Contravenes the Purpose of Section 193
Section 193 was derived from earlier provisions that required employers to fully and promptly pay earned wages. The inequity that the legislature sought to prevent was employers benefitting from employees’ earned wages.
This begs the question: what could be more destructive of section 193’s purpose than to exempt from liability employers who benefit the most from employees’ wages—those who keep all of an employee’s earned wages? If a deduction from wages is something other than a deprivation of the wages due and owing, then what is it? If an employer chooses to keep all or part of a wage payment that it owes, can it escape section 193 liability simply by not making a deduction notation? If so, why?
Courts adopting this view fail to ask the critical question: why is it wrong for an employer to make an unauthorized deduction from an employee’s wages? Surely it is not because taking part of an employee’s paycheck is worse than taking all of it. Rather, it is because an employee’s wages represent the fruits of labor, and therefore deserve special protection. The idea that section 193 exempts total wage thefts cannot be reconciled with the law’s goal of preventing employers from benefitting from employees’ wages.
What if the employer cannot afford to pay? Article 6 has no financial hardship defense. One who induces another to perform work by promising payment has a duty to avoid making a promise he cannot keep. Also, grafting a financial hardship exception to Article 6 liability might force non-bankruptcy courts to pick and choose between creditors and decide which expenditures should and should not have been made. That approach would be untenable and inconsistent with Article 6’s text and purpose.
B. The Deduction/Failure to Pay Dichotomy Wrongly Assumes that a Deduction from Wages Can be Seen
Contrary to the view of some courts, a paystub notation is not a “deduction.” It is only a manifestation of a deduction. Deducting and failing to pay wages are the same thing. A “deduction” literally is an act of taking away or subtraction.
To understand how wages are “taken away,” one must first answer a more fundamental question: what are wages? Wages are a specialized type of property that belong to the wage earner until pledged or committed to another. As a right, claim, or interest against the employer, wages yet to be received are intangible property.
So, how does one “take away” something with no physical form? Since unpaid wages are intangible and cannot be physically seized, the logical definition of “take” in the unpaid wage context is to deprive one of the use or possession of, or to assume ownership. Thus, since a deduction is a taking, and a taking is a deprivation, a deduction occurs when an employee is deprived of earned wages.
Not surprisingly, courts interpreting other payment laws generally refuse to distinguish between a deduction and a failure to pay.
C. The Term “Any Deduction” is Sweeping in Scope
Even if a failure to pay earned wages were an indirect rather than direct deduction, section 193 bars not only direct or payroll deductions; instead, it bars any unauthorized deductions from wages. The word “any” imports no limitation and is as inclusive as any other word in the English language.
Giving “any deduction” its plain (sweeping) meaning maintains consistency of purpose within section 193. It also reflects the intent to prohibit wage deductions by indirect means where direct deduction would violate the statute. An employer that would violate section 193 by paying full wages and then seeking repayment cannot escape liability by refusing to ever pay those wages. Finally, because courts must liberally construe Article 6’s substantive provisions, any uncertainty about section 193’s scope should be resolved in favor of protecting earned wages.
D. A Failure to Pay Wages is a Deduction “From” Wages
It has been suggested that a failure to pay wages is not a “deduction from wages” because a number cannot be deducted from itself. That view is incorrect for three reasons.
First, a number can be deducted from itself. Second, in a statute, the word “from” must have a reasonable construction in reference to the subject matter because it may have different meanings under different circumstances. Construing the bar against “any deduction from the wages of an employee” to allow an employer to keep all of an employee’s wages is unreasonable because it conflicts with section 193’s goal of preventing employers from benefitting from employees’ earned wages. Third, the statute does not limit “wages” to wages earned in a single pay cycle, making that objection largely irrelevant.
E. A Specific Mental State Need Not Be Proved to Establish a Section 193 Violation
One could argue that a deduction from wages only occurs when the employer acts with a culpable mental state, as shown by a paystub notation. But a culpable mental state need not be shown. Even employers who prove good faith are subject to Article 6 liability for unpaid wages and attorney’s fees (though liquidated damages may depend on good faith).
A wage is either owed or it is not. Employers make choices about the obligations they incur and have a statutory duty to give employees enough information to know what they will be paid. An employer will be actually or constructively aware of when wages are due and when they are unpaid. Grafting an intent requirement onto section 193 would also make it incongruous with Article 6’s other provisions, which have no intent requirement.
F. Allowing All Employees to Recover Unpaid Wages Under Section 193 Does Not Conflict with Section 191
Some courts have suggested that executive, administrative, and professional employees should not be able to recover unpaid wages under section 193 because they are not allowed to do so under section 191. That argument is misplaced.
First, sections 193 and 191 serve different purposes. Section 193 protects all employees against wage theft. Section 191 provides extra protection to certain classes of employees by requiring payment at specified intervals. Second, there is no basis for the assumption that Article 6 cannot simultaneously protect some classes of employees under both sections. Article 6 expressly provides that its remedies may be enforced simultaneously or consecutively so far as not inconsistent with each other.
Third, while the protections of sections 191 and 193 overlap, they are not identical. Fourth, a section 193 claim may involve circumstances different from a section 191 claim. Fifth, unlike section 193, section 191 does not protect benefits and wage supplements.
G. Higher-Court Precedent Refutes the Notion that Section 193 Only Bars Smaller “Targeted” Deductions
Some courts believe that section 193 does not protect full payment of wages, but only bars smaller forms of wage theft such as charging employees for damaged goods or spoiled merchandise. But such a limitation is found nowhere in the statute. Section 193 bars any unauthorized deductions, not merely certain examples.
Legislative history’s attention to smaller wage deprivations reflects an interest in protecting earned wages from any infringement, even small or indirect ones. It does not imply that section 193 allows total wage thefts. Calling total withholding of wages “mere” is a profound distortion: total withholding is the most extreme example of the inequity the legislature sought to prevent.
H. The Deduction/Failure to Pay Dichotomy is Irrational
If section 193 only protected against “fines” or “pay docking,” then an offending employer could easily avoid liability by keeping an employee’s entire paycheck, or tendering a smaller paycheck without labeling it. Such an approach is irrational because it elevates form over substance, ignores the law’s text, and undermines its purpose.
III. ARTICLE 6 PROTECTS EARNED SEVERANCE PAY
Article 6’s confusing text and structure has generated a split of authority on whether earned severance pay is recoverable under Article 6. But the question is not really a close one. Article 6 clearly protects all employees’ right to recover earned severance pay.
Severance payments are made in consideration for employment. Severance pay is earned at the time an employee is dismissed. Section 198(3) commands that “[a]ll employees shall have the right to recover full wages, benefits and wage supplements and liquidated damages.” That should settle the question, since severance pay is a wage, benefit, and/or wage supplement.
Nonetheless, there is a deep split between courts that recognize Article 6 civil claims for unpaid benefits and wage supplements for executive, administrative, and professional employees and those that do not. The main problem is that many courts overlook or fail to apply section 198(3)’s rights-affirming or rights-creating language. Thus, it is useful to understand how Article 6’s other provisions protect earned severance pay.
Surprisingly, the main obstacle is a criminalizing statute that authorizes criminal penalties for employers who fail to pay benefits or wage supplements, defines “benefits and wage supplements,” and provides that it shall not apply to certain employees in bona fide executive, administrative, or professional capacities earning over a specified threshold. Since employers who fail to pay benefits or wage supplements owed to such employees are exempt from criminal liability under that provision, some courts have treated that as an exemption from civil liability as well.
That view is incorrect, because a claim for unpaid severance arises under sections 193 and 198, not the criminal statute. However, some courts have erroneously relied on the criminal liability exception to deny recovery under sections 193 and 198 as well.
The belief that a criminal statute’s exception bars civil claims under separate Article 6 provisions is incorrect for four reasons:
- A statute that incorporates another statute’s definition only incorporates the definition, not the entire statute;
- Using the criminal liability exception to bar civil claims under separate provisions creates an irreconcilable conflict and defeats a main goal of Article 6;
- Using the criminal liability exception to bar civil claims creates absurd results; and
- Using the criminal liability exception to bar civil claims ignores controlling guidance that executives are employees under Article 6 except where expressly excluded.
A. Incorporating a Definition Does Not Incorporate the Entire Statute
Article 6’s definition of “wages” incorporates the definition of “benefits or wage supplements.” A statute that incorporates another statute’s definition only incorporates the definition, not the entire statute. Thus, Article 6 incorporates the definition of “benefits or wage supplements,” but not the criminal liability exception.
B. Extending the Criminal Exception to Civil Claims Conflicts with Section 198(3)
A statutory exception must be strictly construed so that the major policy underlying the legislation is not defeated. Extending the criminal liability exception to shelter employers from civil liability irreconcilably conflicts with section 198(3)’s command that “[a]ll employees shall have the right to recover full . . . benefits and wage supplements and liquidated damages.”
C. Extending the Criminal Exception to Civil Claims Creates Absurd Results
If the criminal exception barred civil claims for unpaid benefits and wage supplements by certain employees, then other Article 6 protections would also fail to apply to them in ways that are plainly absurd—results the legislature could not have intended.
D. Extending the Criminal Exception to Civil Claims Ignores the Rule “Expressly Excluded”
Under controlling guidance, executives are employees under Article 6 except where expressly excluded. The criminal statute contains the subject exclusion and the limitation appears to apply only to that section. Courts should confine the exception to that section, not disregard section 198(3)’s command that “[a]ll employees shall have the right to recover full wages, benefits and wage supplements and liquidated damages.”
Even if there were room for doubt about the scope of the criminal exception, doubts about statutory exceptions should be resolved in favor of the general provision rather than the exception. Thus, courts should confine the criminal exception to that section and not disregard the command that all employees have the right to recover full wages, benefits, wage supplements, and liquidated damages.
CONCLUSION
Though poorly drafted and unnecessarily complex, Article 6 fully protects all employees’ wages, benefits, and wage supplements. Courts should reject the false dichotomy between “deducting” and “failing to pay” wages, and respect the legislature’s command that “[a]ll employees shall have the right to recover full wages, benefits and wage supplements and liquidated damages.” Only then will Article 6’s promise be fulfilled.
