Additional Burdens For New York State Employers: The New York State Wage Theft Prevention Act

Monday, May 2, 2011 - 01:00

In 2009, Section 195 of the New York Labor Law (the "Labor Law") was amended to require employers to provide certain written information to newly hired employees, including their rates of pay, their regular payday and, if non-exempt, their regular hourly and overtime rates of pay. At the end of 2010, legislation entitled the New York State Wage Theft Prevention Act (the "Wage Act") was signed by then-Governor Paterson, which adds additional obligations for employers under the Labor Law. The Wage Act went into effect April 9, 2011. Employers ignore the statute's requirements at their peril in light of the potential monetary damages and other penalties for violations of the Labor Law.

Notices Upon Hiring And Annual Notices

The new requirements under Section 195 of the Labor Law, including those pursuant to the Wage Act, mandate that employers provide wage information to employees upon their hiring and on an annual basis thereafter. The information that must be provided includes: (1) the rate of pay; (2) the regular payday; (3) the regular hourly rate (for non-exempt employees); (4) the overtime rate of pay (for non-exempt employees); (5) the basis of the wage payment (e.g., salary, hourly, commission, etc.); (6) any allowances claimed as part of the minimum wage (such as tip, meal or lodging allowances); (7) the name of the employer, the physical address of its main office or principal place of business and its mailing address if different, and its telephone number; and (8) any doing business as (d/b/a) name(s) of the employer.

In addition to providing this information within ten business days of the employee's commencement of employment, employers are required to furnish a written wage notice to every employee each year between January 1 and February 1 containing the information outlined above; notices at other times of the year do not satisfy the annual notice requirement. The first such deadline is February 1, 2012. Employers also must receive a signed and dated acknowledgment from each employee of his or her receipt of both the pre-hire notice and the annual notice. Copies of these documents must be provided to employees, and these records must be maintained for six years.

The New York State Department of Labor (the "NYSDOL") is required by the Wage Act to prepare templates that comply with the requirements of the statute, and sample notices are now available on the NYSDOL's website. However, an employer may use any form that it wishes, so long as the statute's requirements are met.

The notices and acknowledgements must be in English and in the language "identified by each employee as the primary language of such employee." This requirement applies only with respect to those languages as to which the NYSDOL provides a template. In addition to English, the NYSDOL has supplied templates in Spanish, Chinese, and Korean, and has indicated it will supply them in Creole, Russian, and Polish.

The Wage Act provided that the notice must be updated and provided again to the employee at least seven 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 pay statement ( see below). The NYSDOL has taken a more expansive position, stating that "notice is not required where there is an increase in a rate and the new rate is shown on the next payment of wages. For any reduction of wage rate, an employee must be notified in writing prior to the reduction being implemented."

An additional requirement under the Wage Act is that the employee must affirm the employee accurately identified his or her primary language to the employer and that the notice provided by the employer at the time of hiring and in the annual notice to such employee was in the language so identified or otherwise complied with the statute.

Pay Statements

The Wage Act requires that employees be provided on each payday with a pay statement listing the dates of work covered by that payment; the name of the employee; the name, address and phone number of the employer; the rate of pay and basis thereof (e.g., salary, hourly, commission, etc.); the gross wages; any deductions; any allowances claimed as part of the minimum wage; and the net wages. For non-exempt employees, the statement must also include the employee's regular hourly rate and overtime rate, the number of regular hours worked and the number of overtime hours worked. Employers are required to maintain these payroll records for at least six years.

Monetary Damages And Other Penalties

Prior to the adoption of the Wage Act, an employer would be liable for underpayment of wages for the full amount of the underpayment plus interest; other potential recoveries included reasonable attorneys' fees and liquidated damages up to 25 percent for willful violations. The Wage Act leaves intact the employer's liability for unpaid wages, interest, and the right to recover reasonable attorneys' fees. With respect to liquidated damages, the Wage Act provides that unless the employer proves a good faith basis to believe its underpayment of wages complied with the law, liquidated damages equal to 100 percent of the total amount of the wages found to be due may be recovered. The statute also permits an employee (or the NYSDOL in an action brought on behalf of the employee) to recover prejudgment interest if the employee prevails in the action. In addition, any judgment that remains unpaid after ninety days is subject to a 15 percent increase.

The Wage Act also includes penalties for violations of the notice and pay statement requirements contained in Section 195 of the Labor Law. An employee who is not provided with the required notice within ten business days of the commencement of his or her employment may recover in a civil action damages of $50 per week, not to exceed $2,500, plus attorneys' fees; the NYSDOL may also bring an action to enforce this notice requirement and assess against the employer damages of $50 per week, with no cap on such damages. An employee who is not provided with the required pay statement may recover in a civil action damages of $100 per week, not to exceed $2,500, plus attorneys' fees; the NYSDOL may also bring an action to enforce the pay statement requirement and assess against the employer damages of $100 per week, again with no cap on such damages. Injunctive relief for violations of the notice and pay statement requirements also is available. In any such action described in this paragraph, the employer may establish an affirmative defense by demonstrating that (i) it made complete and timely payment of all wages to the employee or (ii) it reasonably believed in good faith that it was not required to provide the employee with such notice; it is unclear, however, whether the good faith affirmative defense will be applicable other than in rare circumstances.

The Wage Act adds posting requirements for employer violations of the wage payment laws. The NYSDOL has the power to require an employer to post a notice summarizing the violations in an area visible to employees for up to one year. For a willful failure to pay wages, the employer may also be required by the NYSDOL to post a notice of the violations in an area visible to the general public for up to ninety days.

Steeper penalties await employers whose violations of the wage payment or minimum wage requirements of the Labor Law are deemed by the NYSDOL to have been willful or egregious or who have previously violated such requirements of the Labor Law. Under such circumstances, in addition to paying the unpaid wages, benefits or wage supplements and liquidated damages in the amount of 100 percent of unpaid wages, such employers may be liable for an additional sum as a civil penalty not to exceed double the total amount of wages, benefits or wage supplements found to be due.

Further, employers and their officers and agents may be criminally liable for their failure to pay minimum wages or overtime compensation in violation of the Labor Law. Previously, only corporations and their officers and agents were subject to such criminal penalties; the Wage Act added partnerships and limited liability companies (and thus their officers and agents) as entities and individuals who may be subject to criminal penalties for these types of violations.

Retaliation

The Wage Act provides that an employer may not retaliate against an employee who complains that his or her employer engaged in conduct that the employee, reasonably and in good faith, believes constitutes a Labor Law violation. The Wage Act expressly provides that the employee does not need to make an explicit reference to the Labor Law to trigger its anti-retaliation protections. The employee may recover in a civil action against any employer or persons alleged to have violated the anti-retaliation provisions. The court may award back pay, front pay, liquidated damages not to exceed $10,000 and reasonable attorneys' fees, enjoin the offending employer and persons from such conduct and order reinstatement in lieu of front pay. The statute also grants the NYSDOL authority to remedy such retaliation. Conduct in violation of these anti-retaliation provisions has criminal ramifications as well, being classified as a Class B misdemeanor.

Employers Must Take Action

The administrative burdens imposed by the Wage Act are significant. Employers need to become familiar with the requirements of the Wage Act and immediately update their payroll practices to avoid the risks of monetary damages and other penalties for notice, wage payment and other violations of the Labor Law. The templates developed by the NYSDOL satisfy the notice requirements of the Wage Act, and employers need to become familiar with these templates or develop their own wage notices to satisfy these requirements. The NYSDOL has indicated that the notice requirements may not be satisfied by the inclusion of this information in the text of an offer letter or employment agreement. The agency has stated that the information may be part of the offer letter or employment agreement, but it must be included on its own form; employers should consider including the notice required upon commencement of employment in the first-day hire documents provided to employees. Pay statements also need to be updated, and recordkeeping practices must be implemented.

Misclassification of workers as independent contractors instead of employees exposes employers to large potential liabilities. The adoption of the Wage Act exacerbates these risks as misclassified workers, by definition, will not be receiving the required notices and pay statements and may now recover larger liquidated damages for failure to receive required wage payments. Employers should examine those workers that are currently classified as independent contractors to ensure that such workers have been properly classified and consider the additional risks posed by the Wage Act when making future classifications.

Similarly, litigation regarding an employer's classification of an employee as exempt or non-exempt has proliferated in recent years as employees classified as exempt seek to recover overtime by asserting they should have been classified as non-exempt. The Wage Act serves as a further inducement for employers to consider their exempt versus non-exempt classifications, particularly in light of the increase in the liquidated damages cap from 25 percent to 100 percent and the statute's notice and recordkeeping requirements.

Kevin B. Leblang heads Kramer Levin's Employment Law department and concentrates exclusively on representing management on employment law litigation and advisory matters. Robert N. Holtzman concentrates exclusively on representing management in employment law matters. He counsels employers regularly regarding the full range of issues that touch on the employment relationship .

Please email the authors at kleblang@kramerlevin.com or rholtzman@kramerlevin.com with questions about this article.