Labor Law 193 Does Not Apply to Wholesale Withholding of Pay

On February 21, 2020, Justice Scarpulla of the New York County Commercial Division issued a decision in H. Roske & Assoc., LLP v. Burghart, 2020 NY Slip Op. 30497(U), holding that Labor Law Section 193 does not apply to wholesale withholding of pay, explaining:

In his second counterclaim Burghart alleges that Counterclaim Defendants refused to pay him commissions that he allegedly earned while employed at the Roske Firm, and expenses he incurred on behalf of the Roske Firm, in violation of Labor Law § 193. According to Burghart, he earned commissions based on the business that he brought to the firm, but those commissions were never paid to him. Burghart also alleges that the Roske Firm has refused to reimburse him for expenses incurred in developing clients and generating new business.

Counterclaim Defendants move to dismiss the Labor Law counterclaim, arguing that a breach of contract cause of action is a prerequisite to establishing a violation of Labor Law § 193, and that breach of contract was not established here (I previously dismissed the breach of contract cause of action). Counterclaim Defendants also argue that the counterclaim fails because Labor Law § 193 applies only to a specific deduction of wages. They argue that here, Burghart is not alleging a specific deduction but rather, a wholesale withholding and refusal to pay wages. In opposition, Burghart argues that a breach of contract cause of action is not a prerequisite to establishing a violation of Labor Law § 193. He further argues that bonuses and commissions fall under the purview of "wages" and therefore a deduction of a bonus or commission is a deduction from wages and thus a violation of the Labor Law.

Labor Law § 193 provides in relevant part, that no employer shall make any deduction from the wages of an employee, except deductions which: are made in accordance with the provisions of any law or any rule or regulation issued by any governmental agency including regulations promulgated under paragraph c and paragraph d of this subdivision; or are expressly authorized in writing by the employee and are for the benefit of the employee. The statute provides a list of authorized deductions, stating, Such authorized deductions shall be limited to payments for:

(i) insurance premiums and prepaid legal plans;
(ii) pension or health and welfare benefits;
(iii) contributions to a bona fide charitable organization;
(iv) purchases made at events sponsored by a bona fide charitable
organization affiliated with the employer where at least twenty percent of the
profits from such event are being contributed to a bona fide charitable
organization;
(v) United States bonds;
(vi) dues or assessments to a labor organization;
(vii) discounted parking or discounted passes, tokens, fare cards, vouchers,
or other items that entitle the employee to use mass transit;
(viii) fitness center, health club, and/or gym membership dues;
(ix) cafeteria and vending machine purchases made at the employer's place
of business and purchases made at gift shops operated by the employer,
where the employer is a hospital, college, or university;
(x) pharmacy purchases made at the employer's place of business;
(xi) tuition, room, board, and fees for pre-school, nursery, pnmary,
secondary, and/or post-secondary educational institutions;
(xii) day care, before-school and after-school care expenses;
(xiii) payments for housing provided at no more than market rates by nonprofit hospitals or affiliates thereof; and
(xiv) similar payments for the benefit of the employee.
Labor Law § 193 [1-b] [i]-[xiv]

Here, Burghart alleges a general withholding of pay, and not a deduction as described in the statute. The First Department has held that a wholesale withholding of payment is not a deduction within the meaning of Labor Law § 193. The Roske Firm's alleged failure to pay Burghart's earned commissions and expenses is not the unauthorized deduction, as that term is defined (and illustrated) in Labor Law § 193. In support of his position, Burghart cites cases that predate the holding in Perella and do not address the issue of whether the Labor Law applies to a general withholding of wages. For example, he cites to Ryan v Kellogg Partners Institutional Servs., 19 N.Y.3d 1 (2012) and Wachter v Kim, 82 A.D.3d 648 (1st Dept. 2011), neither of which address the issue here and instead, deal with the definition of wages under the Labor Law. In fact, the Court in Perella expressly noted that the issue of wholesale withholding of wages was not addressed by the Court in Ryan or Wachter (Perella, 153 A.D.3d at 449). Because Burghart' s claims relate to a withholding of pay and not an unauthorized deduction of pay, the second counterclaim alleging a violation of Labor Law § 193 is dismissed.

(Internal quotations and citations omitted).

A significant part of our practice is negotiating and litigating disputes over employment contracts. These disputes often involve not just contract law, but also federal, state and local labor and employment law. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client have questions regarding an employment dispute.