Stay Current Labor Law Amendments 2007 - Paul Hastings

October 2007

New York Labor Law Amendments Expand Labor Department's Jurisdiction, Require Written Commission Plans

By Allan S. Bloom and Glenn S. Grindlinger

On July 18, 2007, Governor Eliot Spitzer signed legislation amending the New York Labor Law ("Labor Law") in three significant ways: (1) increasing the salary threshold for determining who is an administrative, executive or professional employee for purposes of Labor Law Article 6; (2) requiring commission plans and agreements to be in writing and signed by both the employee and the employer; and (3) permitting the State Department of Labor to issue civil penalties for violations of New York's meal period and day of rest requirements. These amendments, which were enacted with little fanfare, expand the jurisdiction of the Labor Department to investigate and recover wages and benefits on behalf of an increased number of employees. This client alert discusses these amendments and their implication for New York employers.

MINIMUM COMPENSATION THRESHOLD INCREASE FOR ADMINISTRATIVE, EXECUTIVE AND PROFESSIONAL EMPLOYEES UNDER WAGE PAYMENT LAW

Article 6 of the Labor Law governs the payment of wages in New York. Section 190 of the article defines four distinct categories of employees who have varying rights under Article 6: "manual workers," "railroad workers," "commission salesm[e]n," and "clerical and other workers." The term "clerical and other workers" includes all employees who do not fall into one of the other three defined categories but specifically excludes "any person employed in a bona fide executive, administrative or professional capacity whose earnings are in excess of [$600] a week." Amendments taking effect January 14, 2008 increase this threshold to $900 per week.

Corresponding amendments increase the minimum

threshold compensation for bona fide executive, administrative or professional employees from $600 to $900 per week in other sections of Article 6, including Section 192 (prohibiting the direct deposit of wages absent employee consent) and Section 198-c (including expense reimbursements; health, welfare and retirement benefits; and vacation, separation and holiday pay in the definition of "wages"). Sections 192 and 198-c do not apply to bona fide executive, administrative or professional employees.

COMMISSION PLANS MUST BE IN WRITING

The Labor Law defines "commission salesman" (renamed "commission salesperson" in the amendments) as "any employee whose principal activity is the selling of any goods, wares, merchandise, services, real estate, securities, insurance or any article or thing and whose earnings are based in whole or in part on commissions." The term "commission salesperson" does not include an employee "whose principal activity is of a supervisory, managerial, executive or administrative nature." See N.Y. Lab. Law ? 190(6).

Amendments to Section 191(1)(c) effective October 16, 2007 require employers to reduce to writing the "agreed terms of employment" with their commission salespersons. Such written terms must be signed by both the employer and the employee, and must include "a description of how wages, salary, drawing account, commissions, and all other monies earned and payable [are] calculated." Where the arrangement provides for a recoverable draw, the written description must describe the frequency of reconciliation. The writing must also provide details regarding payments of earned amounts upon the termination of the salesperson's employment.

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The amendments do not require any specific form for the "agreed terms of employment"; a written commission plan or description of the compensation arrangement, the terms of which are acknowledged and agreed to in writing by the salesperson, would appear to satisfy the statute.

Employers are required to keep copies of the written terms on file for at least three years and provide them to the Labor Department upon request. If the employer cannot produce the written terms upon request of the Labor Department, the agency will presume that the salesperson's description of the terms of employment are accurate. There is no indication in the amendments, however, that the presumption is irrebuttable. The employer ostensibly could produce evidence of the terms of the parties' agreement, even if the agreement is unsigned. What proof will be necessary to rebut a presumption that the employee's version of the agreement is accurate remains to be determined by the courts or the Labor Department; the amendments offer no guidance in this respect.

Regardless of whether he or she signs it, an employee who received a copy of a written commission plan and who worked and received payment under the plan likely would have a difficult time convincing the Labor Department ? or a judge or jury, for that matter ? that the written plan does not accurately reflect the parties' understanding or intent. This is especially true if the plan states, as most well-drafted plans do, that the employee's total compensation will be governed by the plan and that no oral or other modifications to the employee's compensation arrangement will be valid or enforceable unless reduced to writing and signed by both employer and employee.

According to the Legislature's memoranda in support of the underlying bills, the Labor Department sought the amendments to Section 191 because, in the absence of a written description of the commission arrangement, it had become increasingly "difficult [for the agency] to investigate . . . when and how commissions are earned, what offsets against wages are to be computed, and when commission payments cease after termination of employment." This language suggests that the Labor Department is less concerned with employers who have substantive and clear ? yet unsigned ? commission plans, and more concerned with employers who have no written arrangements whatsoever with their

commissioned employees. This language also suggests that, at least in the view of the Legislature and the Labor Department, offsets against commissions are permissible in New York (and thus are not prohibitive deductions from wages), provided that the offsets are taken before the commission is deemed to be earned and described in detail in the written terms of agreement.

EXPANDED PENALTIES FOR VIOLATIONS OF MEAL PERIOD AND DAY OF REST PROVISIONS

Section 161 generally requires employers to provide employees with at least one day of rest every week. Section 162 requires that employers provide certain categories of employees with meal breaks of varying lengths. Currently, if an employer violates Section 161 or 162, the only enforcement mechanism available to the Labor Department is criminal prosecution, a course of action rarely, if ever, taken. Amendments to Labor Law Section 218, effective January 14, 2008, permit the Labor Department to seek civil penalties against employers who violate the meal period and day of rest provisions. Penalties for such violations range up to $1,000 for the first offense, up to $2,000 for the second offense and up to $3,000 for each subsequent offense. (There currently is no private right of action for meal period or day of rest violations in New York, and none is contemplated by the new legislation.)

EMPLOYERS' PRACTICAL RESPONSES TO THE AMENDMENTS

In light of these amendments, employers should take at least four steps to ensure that they continue to be in compliance with the Labor Law. First, employers should examine their pay practices for compliance with New York's frequency and timing of pay requirements. Under Section 191, "manual workers" must be paid at least weekly, "commission salespersons" must be paid not less frequently than monthly, and "clerical and other workers" must be paid at least semi-monthly. A broad group of employees who might have been excluded from Section 191 (and from Sections 192 and 198-c) prior to the amendments by virtue of earning more than $600 per week may no longer be entitled to that exemption. Employers should ensure that their administrative, executive and professional employees who earn less than $900 per week are paid at least semi- monthly beginning on January 14, 2008. (The minimum

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salary required to be paid to executive and administrative employees to maintain their exempt status for overtime purposes remains at $536.10 per week under New York regulations.)

Second, to the extent they have not already done so, employers should immediately reduce their commission pay plans and arrangements to writing. That writing should detail exactly how commissions are calculated, what other compensation is available to the covered employees and how it is earned and paid, what offsets are being made to commissions or other compensation prior to being earned, and what compensation will be paid to the employees upon termination.

Third, to the extent they have not already done so, employers should give their commissioned employees a copy of their applicable commission plan or arrangement and request that they agree to its terms in writing, either by physically signing a copy or by some other written or electronic form of acceptance. (Electronic signatures generally are binding in New

York.) Employers who already have written commission plans in place, but who do not have written employee acceptance of those plans, should redistribute copies of the plans and ask employees to agree to them in writing. Employers should retain copies of such documents for at least three years, if not for the full six- year statute of limitations period under Article 6.

If an employee refuses to agree in writing to the terms of a commission plan or arrangement, the employer may, among other things ? and provided that no language in the plan prevents it from doing so and that it is otherwise done for lawful means ? refuse to compensate the employee under the plan for any work that has not yet been performed at the time of the refusal. The employer would still be required, however, to provide the employee with the minimum wage required by New York law.

Finally, in order to avoid civil penalties, employers should ensure that all employees receive at least one day off every week, as well as meal breaks required by law.

If you have any questions concerning these developments or the New York Labor Law, please contact either of the following Paul Hastings New York lawyers:

Allan S. Bloom 212-318-6377 allanbloom@

Glenn S. Grindlinger 212-318-6364 glenngrindlinger@

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Paul, Hastings, Janofsky & Walker LLP



StayCurrent is published solely for the interests of friends and clients of Paul, Hastings, Janofsky & Walker LLP and should in no way be relied upon or construed as legal advice. For specific information on recent developments or particular factual situations, the opinion of legal counsel should be sought. These materials may be considered ATTORNEY ADVERTISING in some states. Paul Hastings is a limited liability partnership. Copyright ? 2007 Paul, Hastings, Janofsky & Walker LLP.

IRS Circular 230 Disclosure: As required by U.S. Treasury Regulations governing tax practice, you are hereby advised that any written tax advice contained herein or attached was not written or intended to be used (and cannot be used) by any taxpayer for the purpose of avoiding penalties that may be imposed under the U.S. Internal Revenue Code.

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