United States: Reminder For N.Y. Employers: Significant Labor Law Amendments Take Effect February 27

Last Updated: February 24 2015
Article by Cindy Schmitt Minniti and Mark S. Goldstein

Most Read Contributor in United States, October 2017

As we previously reported, the New York State Legislature last June passed a Bill, intended to revitalize the Wage Theft Prevention Act (WTPA), that proposed significant changes to the state's labor laws. Among other things, the Bill eliminated the requirement that employers furnish annual wage notices to employees between January 1 and February 1. On December 29, 2014, Gov. Andrew Cuomo signed the Bill into law, with an effective date of February 27, 2015.

With the Bill set to take effect in just a few days, Empire State employers should familiarize themselves with its requirements and obligations. The following is a summary of the Bill's most significant provisions:

Elimination of the Annual Wage Notice for N.Y. Employers

Initially enacted in 2010 to curb wage payment abuses, the WTPA required employers to furnish written wage-related information – including pay rate, employer intention to claim an allowance, overtime entitlement and applicable rate and regular payday – to all existing employees between January 1 and February 1 of each year, and to all new hires upon commencement of employment.

In a welcome move for employers, the Bill eliminated the WTPA's annual wage notice requirement. As we previously explained, this was the only provision of the Bill that took effect December 29, when Gov. Cuomo signed it into law.

Increased Penalties for Other WTPA Violations

The WTPA originally sought to combat employee misclassification. Recognizing that the annual wage notice obligation failed to achieve this, lawmakers strengthened other WTPA provisions. Despite abolishing the annual notice, the Bill still requires employers to furnish wage notices to all new hires, and increases the penalties for non-compliance.

Originally, the WTPA levied a $50 penalty – per workweek, per worker – against an employer that failed to provide a wage notice upon commencement of the employment relationship, up to $2,500. As amended by the Bill, the WTPA now imposes a $50 penalty – per workday, per worker – against an employer that fails to provide a wage notice within the first 10 days of employment, up to a maximum assessment of $5,000.

The Bill also increases the penalties for employers that fail to provide employees with a written statement identifying the employee's pay rate and related information with each wage payment, as required by the WTPA. Under the Bill, the affected employee and the New York State Department of Labor (NYSDOL) may now recover $250 per workday from delinquent employers, also subject to a $5,000 cap.

An employer facing sanctions for failure to provide compulsory wage notices or wage statements may still evade liability by proving: (1) that it made complete and timely payment of all wages to the affected employee(s), or (2) that it reasonably believed, in good faith, that it was not required to provide the notice or statement to the employee. The employer bears the burden of establishing each of these affirmative defenses.

Despite these affirmative defenses, employers should be sure to provide timely wage notices to new employees, and wage statements to new and existing employees alike. The penalties for noncompliance are now greater than ever.

Creation of New Successor Employer Liability

In addition to augmenting the WTPA, the Bill creates new successor liability for certain entities. Specifically, it provides that an employer similar in operation and ownership to an entity that previously committed labor law violations will be held accountable for the acts and liabilities of the predecessor entity. For purposes of the Bill, the successor employer will be deemed the "same employer" as its predecessor where "the employees of the new employer are engaged in substantially the same work in substantially the same working conditions under substantially the same supervisors, or if the subsequent employer has substantially the same production process, produces substantially the same products and has substantially the same body of customers." We anticipate disputes regarding the inherent ambiguity of this language and its practical application.

The successor liability clause effectively precludes companies from restructuring operations, or dissolving and creating a new entity with the same business purpose, to sidestep wage-related liability. Entities can no longer merely switch names or corporate identities to elude the NYSDOL's grasp.

Imposition of Individual Liability for Certain LLC Members

Consistent with its stated purpose of "provid[ing] additional protections for employees against wage theft," the Bill amends the New York Limited Liability Company Law by specifying that the 10 members of a New York LLC with the largest ownership interests may be held personally liable for any unpaid wages. This provision echoes a similar obligation already embodied in the Business Corporation Law, pursuant to which employees may recover unpaid compensation from the 10 largest shareholders of a corporation.

However, in order to recover wages from an LLC member, an employee must first provide prior written notice to such member. In addition, any action to collect unpaid sums from an LLC member must be commenced within 90 days after "the return of an execution unsatisfied against the Limited Liability Company upon a judgment recovered against it."

Like the creation of new successor liability, the amendment to the Limited Liability Company Law provides an avenue for employees and the NYSDOL to seek redress where an entity is dissolved or restructured, or where it simply attempts to eschew its wage payment obligations.

Increased Penalties for Repeat Wage and Hour Offenders

One of the Bill's primary emphases is on preventing repeated violations of the wage and hour laws. For instance, if the NYSDOL issues an order directing payment of wages for a "repeated, willful, or egregious violation," the errant employer must now report to the NYSDOL certain employee and wage data, which the department will in turn post on its website. The required data includes: (1) the number of permanent and temporary full-time and part-time employees, and the number of temporary staffing agency employees rendering services to the company; (2) the respective hourly pay rates of such employees; and (3) the number of hours worked by such employees during the relevant calendar period, organized in five-hour and 10-hour increments. Given that the Bill does not discern between exempt and nonexempt employees, compliance with the latter two requirements may prove especially challenging.

In another measure intended to deter recidivism, the Bill doubles the maximum civil penalty – from $10,000 to $20,000 – for employers found to have committed a second labor law violation within a six-year period.

It remains unclear how these provisions will affect employers who agree to settle administrative claims pending before the NYSDOL, or how they will affect the threshold decision of whether to settle. What is clear, however, is that employers should strive to avoid falling prey to these sanctions.

Contractors Must Provide Written Notice of Violations

Another statutory change intended to safeguard against wage theft is that construction contractors and subcontractors found to have violated the labor law must notify all of their respective employees of the violation(s). Notification must be made via paycheck attachment in a form and manner to be determined by the NYSDOL.

How Does This Affect My Company?

Once it takes effect February 27, the Bill presents a mixed bag for employers. On one hand, elimination of the annual wage notice requirement eradicates a significant administrative headache. On the other hand, the vast majority, if not all, of the remaining provisions of the Bill are employee-friendly, intending to deter violations – especially repeated violations – of New York's wage and hour laws. To that end, expect the NYSDOL to waste little time effectuating its apparent mandate from the state legislature to vigorously prosecute wage and hour violations. Consequently, all New York employers, regardless of size, should immediately review their wage payments practices to ensure compliance with both the WTPA and the Bill.

This article is presented for informational purposes only and is not intended to constitute legal advice.

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