On December 7, 2018, Governor Andrew M. Cuomo signed into law an amendment to New York Labor Law (“NYLL”) Section 193 (“NY Wage Deduction Law”) extending the NY Wage Deduction Law, which had expired on November 6, 2018, until November 6, 2020.

Introduced in 2012, the NY Wage Deduction Law amended the NYLL to permit employers to make certain deductions from the wages of their employees, including deductions for accidental overpayments, salary advances (including advances of vacation time), and insurance premiums. The NY Wage Deduction Law also introduced rules regulating the scope and limitations on such deductions, as well as the required authorization that employers must obtain from employees prior to making a deduction.

Additional information about the regulations pertaining to wage deductions under the NY Wage Deduction Law is provided in Epstein Becker Green’s Act Now Advisory titled “New York Wage Deduction Rules Extended for Three Years.”

Read the full Advisory online.

by Shane Sagheb

For years, employers in California have been cautioned about deducting debts from employees’ final paychecks. On January 9, 2014, the Ninth Circuit Court of Appeals issued an unpublished opinion in Ward v. Costco Wholesale Corp., No. 11-56757 (9th Cir. Jan. 9, 2014), holding that under certain limited circumstances, such deductions do not run afoul of federal law or the California Labor Code. In light of the fact that this decision is not published and no state court opinion has adopted its holding, however, employers should remain cautious about making such deductions.

During their employment with Costco, the plaintiffs in Ward signed an agreement authorizing the company to deduct from their final paychecks, upon separation of employment, any balance due on their company-issued credit card. When Costco deducted unpaid credit card balances from the plaintiffs’ final paychecks, applying those balances against their accrued vacation and sick pay, the plaintiffs sued, alleging violations of the Fair Labor Standards Act (“FLSA”) and the California Labor Code.

The trial court rejected the plaintiffs’ claims following a bench trial, and the Ninth Circuit affirmed. With respect to the FLSA claims, the court observed that federal law did not require employers to pay accrued vacation and sick pay upon discharge and thus evaluated whether such deductions violated federal overtime and minimum wage requirements. It concluded that because the amount of the deductions exceeded the employees’ accrued vacation and sick pay, “the district court correctly found that the credit card deductions did not effect a violation of the overtime and minimum wage requirements.”

The court also concluded that the plaintiffs in Ward failed to prove a violation of California Labor Code Sections 201 or 203, which require the payment of all earned wages at termination. The Ninth Circuit relied on and analogized the decision in Schachter v. Citigroup, Inc., 47 Cal. 3d 610 (2009), in which the California Supreme Court enforced vesting and forfeiture provisions contained in an incentive plan. The incentive compensation plan in Schachter provided employees with shares of restricted company stock at a reduced price in lieu of a portion of their annual salaries. The plan included vesting requirements and provided that the employees would forfeit any such stock, as well as the cash compensation they directed to be paid in the form of stock, if their employment ended before the entitlement to the stock vested. The Court in Schachter held that the forfeiture provision was enforceable, at least as to employees who were discharged with cause or who resigned, because the rights under the incentive plan had not yet vested and, therefore, had not been earned.

Without analyzing the differences between the incentive plan in Schachter and the credit card expense agreement before it, the Ninth Circuit in Ward simply paraphrased Schachter as follows: “Having elected to receive some of [their] compensation in the form of [credit card balances], … [Plaintiffs] cannot now assert that [they] should have been paid in cash that portion of [their] compensation [that Plaintiffs] elected to receive [in the form of credit card balances].” Thus, the court equated the credit card balance agreement and incentive plan and concluded that “Costco did ‘not run afoul of the Labor Code because no earned, unpaid wages remain outstanding upon termination according to the terms of” Plaintiffs’ agreements with Costco” (quoting Schachter).

State courts in California are not obligated to abide by the conclusion reached by the Ninth Circuit in Ward. Moreover, it is unclear from the Ninth Circuit’s opinion in Ward why the court concluded that the credit card agreement signed by the plaintiff in that case was analogous to the vesting and forfeiture provisions in the incentive plan at issue in Schachter. Employers thus are well-advised to continue to proceed with caution when considering whether to make deductions from employees’ final paychecks.

By William J. Milani, Dean L. Silverberg, Jeffrey M. Landes, Susan Gross Sholinsky, Anna A. Cohen, and Jennifer A. Goldman

The New York State Department of Labor (“DOL”) has adopted wage deduction regulations (“Final Regulations”) pertaining to the expanded categories of permissible wage deductions in the New York Labor Law, effective October 9, 2013. 

As we previously reported (see the Act Now Advisory entitled “New York State Releases Proposed Wage Deduction Regulations”), among other things, the Final Regulations (i) set forth information concerning the subset of permissible wage deductions referred to as “similar payments for the benefit of the employee,” (ii) provide information regarding prohibited deductions and requirements relating to an employee’s authorization, and (iii) specify procedures and notice requirements concerning the recovery of overpayments and wage advances to employees.

The Final Regulations are codified at 12 New York Code of Rules and Regulations Part 195.

The Final Regulations are substantially similar to the proposed regulations issued during the summer.  Of note, the Final Regulations clarify the following:

  • A single written authorization containing more than one deduction is permissible as long as all the required information is provided.
  • For the purpose of calculating time frames, any reference to “days” means calendar days, not business days. Any reference to a “week” means seven consecutive days.
  • Dispute resolution provisions contained in collective bargaining agreements existing at the time the Final Regulations are issued will be deemed compliant so long as they provide at least as much protection to the employee as the Final Regulations.  In this regard, the employee must be permitted to provide written notice of his or her objections to the deduction, the employer must provide a written reply containing its position with regard to the deduction and a reason why the employer agrees or disagrees, and the employer must cease deductions until the reply has been provided and any appropriate adjustments have been made.
  • Dispute resolution provisions in collective bargaining agreements executed after the issuance of the Final Regulations must provide at least as much protection to the employee, as described above, AND must specifically reference the applicable dispute resolution section of the Final Regulations.

During the Public Comment period, which ended on July 6, 2013, commenters requested, among other things, that the regulations permit employers to charge employees for the reasonable replacement value of items provided by the employer that had been lost, stolen, or destroyed while in the employee’s possession. The DOL responded that “[n]either the statute nor the regulations allow this to take place through deductions.”  Accordingly, it is important that employers do not make any deductions from wages for lost, stolen, or destroyed property.

In response to commenters, the DOL also clarified that the Final Regulations expressly repeal the “10 percent rule,” which capped deductions relating to “similar payments for the benefit of the employee” at 10 percent of the employee’s gross pay for the particular pay period.  Employers should keep in mind, however, that certain deductions may not reduce an employee’s hourly wage below the statutory minimum wage. 

What Employers Should Do Now

  • Review employee handbooks and other policies and procedures to reflect the rules set forth in the Final Regulations (including updating lists of permissible deductions).
  • Ensure that payroll systems (including any third-party vendors used for this purpose) have the capability to make any newly implemented deductions.
  • Inform payroll, human resources, and any other applicable departments responsible for implementing wage deductions of the specific deadlines and dispute procedures set forth in the Final Regulations.
  • Update wage deduction authorization forms so that such forms comply with the rules set forth in the Final Regulations.
  • Ensure all new loan or repayment arrangements comply with the new rules.
  • Implement procedures that allow employees to contest deductions for overpayments and wage advances in compliance with the procedures set forth in the Final Regulations.
  • Prepare notices in connection with deductions relating to overpayments.