Plaintiffs’ attorneys can bleed small businesses dry through lawsuits and quick settlements adding up to big paydays. It’s an old tactic, and now plaintiffs’ attorneys have found a new cash cow: suing small businesses that paid their workers bi-weekly instead of weekly.
A century-old statute, Labor Law §191, requires businesses to pay “manual workers” on a weekly basis, defining “manual worker” as a “mechanic, workingman or laborer.” Historically, employees challenged frequency-of-pay requirements by filing a complaint with the state Department of Labor, which determined whether employees would be paid weekly. This changed in 2019, when the Appellate Division in Vega v. CM & Associates Construction Management, LLC, held that payment of wages to “manual workers” other than weekly empowers a private right of action allowing a worker to seek damages equal to 50 percent of their wages for six years, plus interest and attorneys’ fees.
Vega has led to hundreds of businesses, including small businesses, being sued for millions of dollars. These exorbitant amounts are being claimed even in cases where employees were paid their full wages owed. While a large number of these cases remain pending, a considerable number were settled to avoid the excessive amounts being sought in court.
Yes, many of these cases involve employees that were paid for every hour they worked. The only error was that they were paid bi-weekly, not weekly.
Moreover, a small-business owner who mistakenly pays bi-weekly (as many states and federal law permit) and categorizes employees as non-manual, could be liable for up to 50 percent of worker wages for the past six years. A family-owned hardware store with 10 longtime employees making $25 per hour could be on the hook for over $1.5 million in damages.
Most small businesses would be ruined by this. Assessing such damages where employees were paid full wages is unequivocally wrong.
Fortunately, there is a solution to protect Main Street businesses from these absurd lawsuits. Gov. Kathy Hochul’s executive budget proposal includes a provision to clarify that small businesses and other employers are not subject to these extreme damages if they were paid at least semi-monthly. This is a practical and reasonable solution that will dissuade plaintiffs’ attorneys from gouging small businesses where there was no harm to the employee.
The governor’s proposal is true to the existing statute, which historically did not award egregious amounts for workers who had been paid. It’s also supported by a recent appellate court decision, Grant v. Global Aircraft Dispatch, which sensibly found that frequency of payment claims shouldn’t be treated the same as nonpayment and underpayment of wages.
These multi-million-dollar lawsuits must end. Otherwise more small businesses will be shuttered and more jobs will be lost. It’s imperative that the Senate and Assembly include the governor’s common-sense proposal in the final budget deal.
