CLIENT UPDATE

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Month 26, 2010

New York Department of Labor Restricts Permissible Paycheck Deductions Under New York Labor Law § 193

According to a new interpretation by the New York Department of Labor (“NYDOL”), employers are no longer allowed to make deductions from an employee’s paycheck for money owed to the employer, even with the employee’s written consent and even if the deduction does not exceed ten (10%) percent of the employee’s pay.  In a major shift of its position, the NYDOL recently determined that repayment of these amounts may only be made by direct payment from the employee. 

In addition, the NYDOL now states that an employer may not discipline an employee if the employee refuses to pay back an overpayment or other amounts owed to the employer.  Legal action is the only permissible course of action for the employer in such situations.

Labor Law Section 193

Section 193 of the New York Labor Law permits certain deductions made “for the benefit of the employee” which are authorized by the employee in writing in advance.  Permissible deductions expressly include payments for insurance premiums, pension or health and welfare benefits, contributions to charitable organizations, payments for U.S. bonds, payments for dues to or assessments to a labor organization, and similar payments.  All other deductions are prohibited.  The law also prohibits separate transactions between the employee and employer that would amount to a prohibited deduction.

The NYDOL’s Prior Interpretation of Section 193

The NYDOL previously held that certain deductions from pay could be considered “for the benefit of the employee” within the meaning of Section 193 if they were repayments of a debt owed to the employer.  Such previously permitted deductions included deductions for overpayments, loans, salary or benefit advances, and tuition, provided the employer received the employee’s written authorization and provided further the deduction was limited to no more than ten (10%) percent of the employee’s wages for the pay period.

The NYDOL’s Recent Interpretation of Section 193

In an opinion letter dated January 21, 2010, the NYDOL relied on two New York Court of Appeals decisions, Angello v. Labor Ready, Inc., 7 N.Y.3d 579 (2006), and Marsh v. Prudential Securities, 1 N.Y.3d 146 (2003), to expressly reverse its prior interpretation of Section 193.  Specifically, the NYDOL determined that overpayments are not similar to the types of enumerated payments for which deductions of wages are authorized by Section 193.  Therefore, such amounts may not be deducted from an employee’s wages.

The NYDOL has also set forth new restrictions on “separate transactions” under Section 193(2).  Now, if an employer asks the employee to pay back money owed to the employer and states that an employee can be disciplined for refusing to pay it back, this conduct will constitute a prohibited “separate transaction.”  However, an employer may still request that an employee pay back the money so long as the employer communicates to the employee that the employee’s refusal to do so will not result in disciplinary or retaliatory action.  Moreover, the NYDOL made clear that “disciplinary or retaliatory action” does not include bringing legal proceedings against the employee to recover money owed to the employer.

Implications for Employers

Employers should examine their pay practices to ensure that no impermissible deductions are being made from employees’ wages.  Employers should also ensure that they have lawful alternative plans in place to recover overpayments and similar types of payments to employees.  We are available to assist you in this regard.

If you should have any questions regarding the NYDOL’s new interpretation of Labor Law Section 193 or any other related issues, please contact us.