Lunatic Pay Law Threatens NY Biz

NFixing this mess should be easy: It hurts no one except trial lawyers.

EW York’s stores and restaurants struggling after the pandemic have a new headache, besides inflation and crime. A state court’s aggressive reinterpretation of a more-than-century-old law puts businesses on the hook for, potentially, billions of dollars in unexpected costs. If you have a job, you probably get paid every two weeks — the most common schedule by which employers pay workers. The federal government pays workers every two weeks, as does the city.

New York law has long carved out an exception: “A manual worker shall be paid weekly.” The weekly pay provision goes back to 1890, when the Legislature held that “every manufacturing, mining or quarrying, lumbering, mercantile . . . corporation . . . shall pay weekly.”

The purpose, as discussion around a 1935 amendment made clear, was to “protect the employees of ” firms and individuals “who would set up business . . . , defer the payments of wages” and then “disappear.”

Fine and good — but for decades, all but ignored. In 2018, though, a construction worker named Irma

Vega won a judgment against a

New York firm, CM & Associates.

A Bronx civil court found that CM, in paying her every other week, had violated the law. In 2019, an appeals court upheld the ruling.

But the novel aspect of the Vega ruling was that the New York court reinterpreted the consequences of not following the law in an entirely new way. The court found that

Vega could recoup as “damages” a dollar value equal to 100% of the wages paid late. That is, CM would have to pay an extra week’s pay for all of its every-other-week paychecks, as, by paying every other week, it had been late with one out of every two weeks’ pay.

This new interpretation came despite the fact that as written, the law only allows for such lawsuits for bad-faith “underpayments,” not payments a week late. Though Vega had only worked at CM for a year, the statute of limitations on this law is six years.

And: The definition of manual laborer, which nobody had thought very much about before, applies to any worker earning less than $900 a week who does “physical labor” — interpreted as standing up — more than 25% of the time.

That means hundreds of thousands of employers statewide, from big chains to mom-and-pop stores, could face a massive liability of repaying half of their weekly payrolls for six years — billions of dollars. Lawyers have filed class-action suits against employers ranging from the Sephora makeup chain to Walmart to Urban Outfitters.

This, when the retail and restaurant industries are still missing 96,000 jobs statewide, relative to pre-COVID. Other businesses, too, are in the trap, from those that employ nurses’ aides to security guards.

“This would kill my company,” said one small-business owner.

The law even applies to nonprofits, including nonprofits that employ homeless-outreach and daycare workers under contracts with city government.

Large companies, those with more than 1,000 in-state employees, can apply for an exemption and pay workers every other week. This exemption confirms the intent of the 19th-century law, to prevent fraud by which a company would hire people and then immediately go out of business.

But large companies that didn’t apply for an exemption can’t get one retroactively — plus, the exemption gives chains an advantage over small businesses.

New York’s top court hasn’t yet ruled on the matter and may do so under a different case. Federal courts, too, may have a say, as such a disproportionate penalty may be unconstitutional. But New York’s civil-court schedule is packed, and businesses might not get a final judgment for years.

The governor and state lawmakers can fix this, without waiting for the courts: All they need to do is amend state labor law to retroactively clarify whether workers can sue, and recover such heavy damages, over the fact they were paid every other week instead of every week.

For now, though, state Sen. Kevin Thomas of Nassau County has introduced a bill capping fines at $3,000, which has gone nowhere, with no Assembly counterpart. The governor hasn’t said a word.

Fixing this mess should be easy: It hurts no one except trial lawyers, who have found a lucrative new business.

Not fixing the law, by contrast, could cost tens of thousands of retail and restaurant jobs, as businesses large and small are sued into bankruptcy.