Employers often have employees approach them and request an advance of their unearned salary or use of paid vacation time before it accrues.  Employers often deduct the money owed to them from the employee’s paycheck if the employee leaves his/her employment, but is it legal?

Under New York Labor Law §193, Employers are only allowed to make certain authorized deductions from an employee’s paycheck as authorized by the law such as FICA, Social Security, etc.  There are also specifically enumerated deductions that Employees are authorized to deduct if the deduction is for the employee’s benefit and authorized in writing as follows:  “insurance  premiums,  pension  or health and welfare benefits, contributions to  charitable  organizations,  payments  for  United  States  bonds,  payments for dues or assessments to a labor  organization, and similar payments for the benefit of the employee.”

Until recently, the New York State Department of Labor (NYSDOL) did not seem to object to Employers deducting advancements from an employee’s final paycheck because it was a “similar payment(s) [to those authorized by the law] for the employee’s benefit,” as long as the employee signed an agreement authorizing the deduction. Then if an employee was terminated from his employment, Employers would deduct these advances from the employee’s final paycheck.

The NYSDOL has now changed its position, and Employers can no longer deduct advanced salaries or loans from an employee’s paycheck under any circumstances.  In addition, if an Employer overpays an employee’s salary, he cannot deduct that overpayment from the employee’s next paycheck.  The NYSDOL has relied primarily on a Court of Appeals case and articulated its new view point in two opinion letters.  The New York State Court of Appeals in Angello v. Labor Ready (2006), discussed the issue of an employer deducting monies for a salary processing fee from an employee’s wages.  Specifically, the Court of Appeals in Labor Ready explained that payments that go “directly to the employer or its subsidiary violates both the letter of the statute and the protective policy underlying it,” and wages should not be deducted.

In two opinion letters from the NYSDOL in August 2009 and January 2010, the NYSDOL changed its interpretation of NYS Labor Law §193, and instead relies on the holding in Labor Ready.  In the August 3, 2009 Opinion Letter (RO-09-006), an employer requested an opinion whether it was permissible for an employer to make a deduction from an employee’s final paycheck to recover unearned salary and/or benefit which have been advanced to the employee.  Relying on Labor Ready¸ the NYSDOL determined that these types of deductions are no longer permissible since the over-payments are neither authorized by law nor are they “similar payments,” especially since the money is going back to the employer.

The January 10, 2010 letter reiterated its opinions from the August 2009 letter, but explained how an Employer can get repaid if they advance monies to employees.  The NYSDOL’s answer is that the Employer could always sue the employee, while that employee continues to work at the business, or the Employer could request the employee repay the monies in a separate check.  If the Employer desires to have the employee write a separate check to repay the monies,   the Employer must clearly communicate to the employee that they cannot be disciplined or retaliated against if they refuse to pay back the money.  The reasoning behind this is that under Labor Law §193(2) Employers are prohibited from requiring an employee to make any payment by separate transaction.  The purpose of this law is to assure that “unequal bargaining power between an employer and an employee does not result in coercive economic arrangements by which the Employer can divert a worker’s wages for the Employer’s benefit.” Labor Ready at 586.

With these recent opinion letters, Employers should no longer advance monies to employees or allow them to take unaccrued paid vacation time, unless the Employer is willing to take the risk of not being paid back for these advancements.

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The Statute of Frauds is an often confusing concept, even to a practicing business attorney. The essence of the doctrine is that certain agreements will be unenforceable in a court of law, unless those agreements are in writing and signed by the party against whom enforcement is sought.  In today’s business climate, where it must be assumed that no business or person is providing services for free, the application of the Statute of Frauds to an oral business agreement can produce some seemingly unfair results.

            Such was the case in Snyder v. Bronfman (2009 NY Slip Op 8667 [2009]), a recent Court of Appeals case.  In this case, the Plaintiff, Robert Snyder, was at first a casual business acquaintance of Defendant Edgar Bronfman, a wealthy New York City investor.  The parties then orally agreed that plaintiff would function as defendant’s “experienced right hand’, ‘sounding board’, ‘loyal ally’, ‘principal advisor’, and most importantly, his ‘consigliore”, in connection with a joint venture to acquire and operate companies in the media business. 

            Thereafter, Plaintiff worked on trying to put together acquisitions for the joint venture. He developed for the parties’ joint venture, a series of business relationships with key figures in the corporate and investment banking communities.  He apparently spent countless hours working on aborted deals, before finally bringing to fruition a deal to acquire Warner Music from Time Warner.  Although there was no debate in the record that Plaintiff was a major contributor to the success of the deal, after the deal had closed, Defendant refused to compensate Plaintiff for his efforts in bringing about the deal. 

            Plaintiff then sued, and the Defendant moved to dismiss the complaint.  The Court, in affirming the lower court’s decision granting Defendant’s motion, held that (1) the parties did not have an enforceable contract because the terms of the parties’ agreement were too indefinite, and (2) that Plaintiff’s quasi-contract claim to recover the reasonable value of the years of work he performed finding Defendant a business to acquire and causing an acquisition to take place, was barred by the Statute of Frauds provision relating to negotiating the purchase of a business opportunity.  As a result, despite the clear understanding of the parties that Plaintiff would be compensated in some capacity for his efforts, the Court held that Plaintiff had, in essence, worked for free in bringing about a $2 billion transaction.    

            While this case does not seem to have changed the law, it does bring forth a stark reminder that potential business partners need to firm up their understandings of a deal and put it in writing, before they begin expending resources to bring it about.  Otherwise, the law may not provide a remedy to the aggrieved party, no matter how unfair the circumstances seem. If you require legal advice about your business, contact us and deal with an experienced business attorney.

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      As of January 1, 2010, David Siegfeld will become a named partner and the Firm will be known as Ganz Wolkenbreit & Siegfeld, LLP. This change in Firm name is a recognition of David’s growing contribution to the Firm and his more than 10 years of service. 

      David graduated from the State University of New York at Albany with an Honors Degree in Economics, and from Union University’s Albany Law School. He then worked three years as an Assistant Attorney General for the State of New York and focused on Trusts and Estates and the regulation of charities and not-for-profit organizations.

      When he joined Ganz Wolkenbreit & Friedman in 1999, his practice centered on estate planning and administration as well as business law and, in more recent years, on consulting businesses and real estate transactions. He has attracted numerous clients in the manufacturing, distribution and transportation industries, is frequently appointed by local Surrogates to assist in complicated estates, and works on many commercial real estate and commercial financing projects for small, medium and large businesses.

             In the community, his expertise is sought by various not-for-profits and he presently serves on the Board of Governors of the Endowment Fund of the Jewish Federation for Northeastern New York as Treasurer. David and his wife, Shara, have four young children whose art work is often displayed in David’s office. We are sure that all of you who work with David agree that his recognition as a named partner in the Firm is well deserved.

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