Court Denies Motion To Dismiss Labor Law Claim

On May 5, 2024, Justice Andrew Borrok denied defendant’s motion to dismiss defendant’s counterclaim under New York Labor Law. In FF Venture Capital, LLC v. Adam J. Plotkin, RDWC, LLC, Index No. 651314/2023, defendant claimed that plaintiff withheld his compensation and alleged violation of Labor Law § 193. The Court explained that such allegations stated a claim:

New York Labor Law§ 193 prohibits any unauthorized "deductions" from an employee's wages. "Wages" means "the earnings of an employee for labor or services rendered," including severance pay (NYLL § 190[1]; Gertler v Davidoff Hutcher & Citron LLP, 186 AD3d 801 [2d Dept 2020]). In Perella Weinberg Partners LLC v Kramer, 153 AD3d 443, 449 (1st Dept 2017), the Appellate Division recognized the then long-standing authority that the wholesale withholding of compensation did not give rise to a Labor Law claim. The law has however changed since the 2017 Perella Weinberg decision.

On August 21, 2021, Governor Cuomo signed the "No Wage Theft Loophole Act" (the Act) codified at Labor Law § 193(5) which was effective immediately upon signing and provides "[t]here is no exception to liability under this section for the unauthorized failure to pay wages, benefits or wage supplements." In the Act's Sponsoring Memorandum, the legislature specifically noted that:

[t]he purpose of this remedial amendment is to clarify that: (a) the unauthorized failure to pay wages, benefits and wage supplements has always been encompassed by the prohibitions of section 193, see, e.g., Ryan v. Kellogg Partners Inst. Servs., 19 N.Y. 3d 1, 16 (2012) (correctly holding that employer's neglect to pay sum that constitutes a "wage" violated section 193); and (b) consistent with established principles of statutory construction, section 193 should be harmonized with section 198(3)'s guarantee that "All employees shall have the right to recover full wages, benefits and wage supplements and liquidated damages .... " (2021 Sess. Law News of N.Y. Ch. 397 [S. 858]).

Since then, the Appellate Division has had occasion to revisit the application of Labor Law § 193 claims to the wholesale withholding of compensation in two recent decisions, Raparthi v Clark, 214 AD3d 613, 614 (1st Dept 2023) and Perella Weinberg Partners LLC v Kramer, 2024 NY Slip Op 02026 (1st Dept Apr. 16, 2024). Taken together, these cases mean that Labor Law§ 193 claims which arise from post-Act application are not subject to the prior line of cases which held that the wholesale withholding of compensation did not give rise to a claim under Labor Law § 193 and that those case only apply to and bar claims arising from pre-Act conduct. Inasmuch as it is undisputed that the claims in this case arise from post-Act application, ffVC’s argument that the wholesale withholding of allegedly vested severance pay does not give rise to a Labor Law§ 193 claims fails. Nor is ffVC entitled to dismissal based on their allegation that Adam Plotkin resigned. Mr. Plotkin disputes this fact and alleges termination without cause pursuant to which his severance vested. As such, this involves a factual issue not resolvable at this stage of the litigation.

The attorneys at Schlam Stone & Dolan frequently advise clients with respect to compensation issues. Contact the Commercial Division Blog Committee at commercialdivisionblog@schlamstone.com if you or a client have questions concerning such issues.