Seyfarth Synopsis: A legislative proposal by the Governor, and a new appellate court decision, may have significant ramifications for weekly pay litigation in New York state and federal courts.

For nearly five years, New York employers have been bedeviled by class action claims for violation of the New York Labor Law's weekly-pay requirement for "manual workers." In the span of a few days, Governor Kathy Hochul and the Appellate Division, Second Department have offered a hint of a significant measure of relief.

Section 191(1)(a)(i) of the Labor Law requires employers to pay "manual workers" on a weekly basis. For decades, courts held that employees could not sue their employers directly to redress violations of this provision. Instead, only the New York Department of Labor could enforce the law, and it was limited to modest administrative penalties.

In 2019, the Appellate Division, First Department, in Vega v. CM & Associates Construction Management, LLC, held that the statute provides a private right of action, opening the door for employees to sue directly, including in class action lawsuits. (See Seyfarth's report on the decision here.) The court further held that manual workers paid less than weekly could recover liquidated damages in the amount of 100% of the late-paid wages. That is, even if manual workers had been paid all their wages in full, they could recover an equal amount if the wages were not paid within a week of the work performed.

Vega generated a wave of class action litigation seeking liquidated damages for untimely wage payments. Many federal courts followed Vega, reasoning that it was the highest New York court to rule on the issue in the absence of controlling authority from the State's Court of Appeals or the Second Circuit. And with New York's six-year statute of limitations on suits for unpaid wages, the potential exposure for employers in liquidated damages has been huge.

This was the state of affairs as we entered 2024. But in the mid-January chill, two important developments occurred that have the potential to upend this cottage industry of wage & hour litigation.

Governor Hochul's Executive Budget Proposal for the 2025 Fiscal Year

First, on January 16, Governor Hochul announced her Executive Budget Proposal for the 2025 fiscal year. She proposed an amendment to Section 198 of the Labor Law (the statute's remedial section) to limit liquidated damages in pay frequency cases. Specifically, the proposed amendment provides: "liquidated damages shall not be applicable to violations of paragraph a of subdivision one of section one hundred ninety-one of this article where the employee was paid in accordance with the agreed terms of employment, but not less frequently than semi-monthly."

This amendment would preclude recovery of liquidated damages for manual workers in pay frequency cases. The practical effect of this revision would be enormous, as it would mean that no damages are available for recovery in a private lawsuit—no back wages would be due because the wages had been paid, and no liquidated damages would be permitted by operation of the amendment.

As with any proposal in the Governor's Executive Budget, it is subject to negotiations with the Legislature. And it remains unclear whether this proposal has enough support in the State Senate and Assembly to secure passage. The New York legislative process is lengthy and byzantine, so it could be many months before we know whether the proposal has a chance of enactment into law.

Appellate Court Rejection of Private Right of Action

A day after the Governor released her proposed Budget, the Appellate Division, Second Department, in Grant v. Global Aircraft Dispatch Inc., expressly declined to follow Vega and refused to find a private right of action for the weekly pay requirement.

The court held that the plain language of Section 198(1-a) of the Labor Law supports the conclusion that the statute is "addressed to nonpayment and underpayment of wages, as distinct from the frequency of payment" (emphasis added), and that payment of full wages on the regular biweekly payday does not constitute a nonpayment or an underpayment. The court emphasized that the recovery of liquidated damages is dependent upon the finding of an underpayment of wages, and thus, "absent an underpayment or nonpayment, liquidated damages are not available."

The court also stated that nothing in the legislative history of Section 191 "suggest[s] that the statute was meant to address circumstances in which an employer pays full wages pursuant to an agreed-upon, biweekly pay schedule that nevertheless does not conform to the frequency of payments provision of law."

The First and Second Departments are the only appellate courts in New York to directly consider this issue so far. With the split between these courts, the issue appears ripe for consideration by the Court of Appeals. But unless and until that court decides the issue, or the Legislature and Governor agree on a statutory amendment, these decisions represent the current state of the law in their respective Departments: Vega is controlling in the First Department (Bronx and New York counties), and Grant is controlling in the Second Department (Dutchess, Kings, Nassau, Orange, Putnam, Queens, Richmond, Rockland, Suffolk, and Westchester counties). So for the near future, weekly pay claims will likely continue to be filed, at least in courts in counties where the claim hasn't yet been precluded.

Seyfarth will continue to monitor these developments and will provide updates as they occur.

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