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New York Employers Paying Biweekly Hit With Wage Class Actions

Aug. 11, 2022, 9:15 AM

Walmart Inc. wants a higher court to determine if New York workers can sue for damages if they were paid less than weekly, an interpretation of state wage law that employer advocates say has exposed companies to billions of dollars in potential liability.

Walmart is defending against a class action complaint alleging it violated New York law by paying certain workers biweekly instead of at least once per week. The lawsuit could seek hundreds of millions of dollars in damages, depending on how many of the retailer’s estimated 35,000 New York employees fall under the weekly pay requirement.

Other large companies also hit with late payment lawsuits include Costco Wholesale Corp., Walgreen Co., Bed Bath & Beyond Inc., Quest Diagnostics, and Banana Republic.

US District Judge Thomas McAvoy, a Reagan appointee, is considering Walmart’s request to contest his decision rejecting the company’s motion to dismiss at the US Court of Appeals for the Second Circuit. If granted, Walmart said it would then petition the Second Circuit to ask New York’s highest court to rule on whether workers can sue for late-payment damages under state wage law.

Walmart’s quest for court review—backed by the US Chamber of Commerce, National Retail Federation, and other business groups—reflects the high stakes for employers who pay workers in New York on a biweekly basis.

“All told, the potential monetary liability on this issue could easily exceed several billion dollars,” the business groups said in a brief.

Workers have filed more than 150 lawsuits alleging violations of New York’s timely payment requirement since an intermediate state appellate court held in 2019 that individuals have the right to sue under that provision of state labor law, the groups said.

Game-Changing Vega Decision

Before the Appellate Division First Department’s 2019 ruling in Vega v. CM & Associates Construction Management, the pay frequency requirement—which has been on the books for more than a century—was exclusively enforced by the New York Department of Labor. Fines max out at $3,000.

Vega permitted “manual workers” to obtain liquidated damages equal to money they received later than on a weekly basis, which would mean half a year’s wages if the employee was paid biweekly. The numbers can add up, especially in light of New York’s six-year statute of limitations for wage claims.

“These claims can be disastrous for big and small companies alike,” said Brian Murphy, a Sheppard Mullin attorney who represents employers.

Each employee who was paid $15 per hour on a biweekly basis could cost as much as $93,000 in damages, which is a lot of money for small employers and can create huge bills when businesses have large New York workforces, said Murphy, co-author of “The Wage & Hour Manual for New York Employers.”

The timely payment requirement is consistent with New York labor law’s overall design to give the most protection to financially vulnerable workers, who often live paycheck to paycheck, said Douglas Lipsky, an attorney with Lipsky Lowe LLP who represents workers.

Getting paid faster helps low-wage workers take care of bills and other expenses on a timely basis, avoiding late fees and additional debt, said Sally Abrahamson, a worker-side attorney with Werman Salas PC.

New York law defines a manual worker as a “mechanic, workingman or laborer.” That includes employees who spend more than 25% of their time engaged in physical labor, according to the state labor department’s long-standing interpretation of the law.

Companies with 1,000 or more workers can seek an exemption from the pay frequency mandate, though such waivers can be laborious to get and don’t appear to provide retroactive safeguards against liability, Murphy said.

Walmart told Bloomberg Law that it obtained permission from the state in 1993 to pay workers on a semi-monthly basis.

Brian Schaffer of Fitapelli & Schaffer LLP, the attorney for the worker suing the company, didn’t respond to requests for comment.

Second NY Appeals Case

Many pay frequency lawsuits are litigated in federal court. New York’s civil procedure rules bar class action claims that only seek penalties, which is the basis for relief in the form of liquidated damages for alleged violations of the timely payment requirement. The Class Action Fairness Act also can move state law class actions into federal court if they could be worth more than $5 million.

Federal courts have accepted Vega’s view that workers can sue for liquidated damages. The federal judge who turned aside Walmart’s motion to dismiss in March, for example, reviewed relevant case law and said he wasn’t convinced that New York’s highest court would rule differently.

Companies have argued workers didn’t suffer the type of “injury in fact” necessary for standing to sue just because they were paid less than weekly, though that argument has yet to gain significant traction.

Nevertheless, the Second Department in New York’s Appellate Division is considering a case that could upset federal courts’ deferral to Vega and create a split for the state’s highest court to resolve.

A worker has challenged a decision throwing out his untimely payment lawsuit against Global Aircraft Dispatch Inc. The trial court held that workers can only sue under New York law for underpaid or unpaid wages, not for errors related to the frequency of payments.

The same coalition of business groups that backed Walmart’s bid for appellate review also filed a brief with the Second Department supporting Global Aircraft Dispatch.

The company’s lawyer, Jeffrey Brecher of Jackson Lewis PC, declined to comment.

The worker’s attorney, Abdul Hassan of Abdul Hassan Law Group PLLC, said Global Aircraft Dispatch’s arguments are “emotional and financial—not legal in nature.” Hassan also represented the worker in Vega.

To contact the reporter on this story: Robert Iafolla in Washington at riafolla@bloomberglaw.com

To contact the editors responsible for this story: Martha Mueller Neff at mmuellerneff@bloomberglaw.com; Genevieve Douglas at gdouglas@bloomberglaw.com