United States District Court, S.D. New York
August 25, 2005.
ELAINE PACHTER, Plaintiff,
BERNARD HODES GROUP, INC., Defendant.
The opinion of the court was delivered by: ROBERT PATTERSON, Senior District Judge
OPINION AND ORDER
The Plaintiff, Elaine Pachter, brings this action against her
former employer, Bernard Hodes Group, Inc., alleging that the
formula used to calculate her compensation violated New York
Labor Law § 193. On November 1, 2004, both the Plaintiff and the
Defendant moved for summary judgment pursuant to Rule 56 of the
Federal Rules of Civil Procedure. On January 13, 2005, this Court
heard argument on the two summary judgment motions on the
liability issues only. For the following reasons, the Defendant's
and the Plaintiff's motions for summary judgment are granted in
part and denied in part.
The Plaintiff worked as an account representative for the
Defendant from April 1992 until December 2003. (Def.'s 56.1 Stmt.
¶ 3.) The Defendant is a "recruitment marketing and staffing
services company." (Id. ¶ 2.) Companies hire the Defendant "to
create and implement marketing strategies to attract new
employees." (Id. ¶ 2.)
The Defendant compensated the Plaintiff in the form of
commissions. (Pl.'s 56.1 Stmt. ¶ 5.) The Plaintiff received
monthly Commission Statements ("Statements") that set forth the
formula the Defendant used to calculate her compensation. (Def.'s
56.1 Stmt. ¶ 7.) Under the Plaintiff's compensation arrangement, she
initially received six percent, and later six and one-half
percent, of the gross billings for media advertisements she
placed for clients. (Id. ¶¶ 13, 14.) The Plaintiff also
received a percentage share of the billings for "services related
to preparing and producing media and other miscellaneous
services" ("Other Billings"). (Id. ¶ 15.) Beginning in May
1998, the Statements refer to the Plaintiff's share of both types
of billings as "Total Income." (Pl.'s Statements, attached as Ex.
C to Def.'s 56.1 Stmt.)
The Plaintiff's Statements also demonstrate that she was held
responsible for a number of "Charges," which the Defendant
subtracted from the Plaintiff's "Total Income" to calculate the
Plaintiff's "Commissions Payable." Depending on the Statement,
these "Charges" were comprised of: finance charges for the
Plaintiff's clients' unpaid bills ("Finance Charges") (id. ¶
17); errors made by the Plaintiff in placing or purchasing the
media*fn1 ("Errors") (id. ¶ 18); half of any debts that
the Plaintiff's clients were unable to pay ("Bad Debt") or
unwilling to pay for reasons other than Errors ("Unbillables")
(id. ¶ 20); a percentage of the salary of an assistant who
worked with the Plaintiff (id. ¶ 21); and other miscellaneous
costs for travel, entertainment, marketing, and out-of-pocket
expenses (id. ¶ 22).*fn2
The Plaintiff never agreed in writing to the "Charges" that
appeared on her Statements. (Pl.'s 56.1 Stmt. ¶ 14.) In 1996, the
Plaintiff wrote a letter to the Defendant explaining that she had "concerns" about her compensation
formula; however, the compensation formula remained the same
throughout the Plaintiff's remaining years as an employee for the
Defendant. (Def.'s 56.1 Stmt. ¶¶ 10, 12.)
The Plaintiff initiated this action by filing a Complaint on
December 29, 2003. The Complaint contains twelve claims for
relief, six of which the Plaintiff has chosen not to
pursue.*fn3 The remaining six claims are all brought
pursuant to Section 193 of Article 6 of the New York Labor Law
("Section 193"). The Plaintiff claims that the Defendant violated
Section 193 by making the following deductions from her wages:
(1) deductions for assistants' salary and benefits (First claim);
(2) deductions for Finance Charges (Third claim); (3) deductions
for Errors and Bad Debt (Fifth claim); (4) deductions for
Unbillables (Seventh claim); (5) deductions for legal fees (Ninth
claim); and (6) deductions for other amounts (Eleventh claim).
Both the Plaintiff and the Defendant moved for summary judgment
on November 1, 2004.
I. Standard of Review
Summary judgment is appropriate "if the pleadings, depositions,
answers to interrogatories, and admissions on file, together with
the affidavits, if any, show that there is no genuine issue as to
any material fact and that the moving party is entitled to a
judgment as a matter of law." Fed.R.Civ.P. 56(c). The burden
is on the moving party to establish that there are no genuine
issues of material fact in dispute. Anderson v. Liberty Lobby,
Inc., 477 U.S. 242, 256 (1986). A court deciding a motion for
summary judgment must view the facts in the light most favorable to the
non-moving party, drawing all reasonable inferences in his or her
favor. See Young v. County of Fulton, 160 F.3d 899, 901 (2d
Cir. 1998). "When no rational juror could find in favor of the
non-moving party because the evidence to support its case is so
slight, there is no genuine issue of material fact and a grant of
summary judgment is proper." Gallo v. Prudential Residential
Servs., Ltd. Partnership, 22 F.3d 1219, 1223-24 (2d Cir. 1994)
(citation omitted). Lastly, where, as here, the parties submit
cross motions for summary judgment, a court need not "grant
judgment as a matter of law for one side or the other," but "must
evaluate each party's motion on its own merits, taking care in
each instance to draw all reasonable inferences against the party
whose motion is under consideration." Heublein, Inc. v. United
States, 996 F.2d 1455, 1461 (2d Cir. 1993) (citations omitted).
II. New York Labor Law Claims
The Plaintiff alleges that the Defendant made six different
types of deductions from her earned commissions, each of which
violated Section 193 of Article 6 of the New York Labor Law
("Section 193"). The Defendant's argument in response is
two-fold. First, the Defendant argues that the Plaintiff is
barred from recovery under Section 193 because she acted in an
executive or administrative capacity and, therefore, was not a
covered "employee" as that term is used in Article 6. Second, the
Defendant argues that, even if the Plaintiff is covered by the
Labor Law, it did not violate Section 193 when it calculated the
A. Is the Plaintiff an "Employee" Under Labor Law Section
The Defendant's first argument in support of its motion for
summary judgment is that the Plaintiff's Labor Law claims must be
dismissed because she worked in an executive or administrative
capacity and, therefore, was not an "employee" as that term is used in Section 193. The Plaintiff does not dispute whether she
acted in an executive or administrative capacity; rather, she
contends that executives and administrators are "employees" for
the purpose of Section 193.
Section 190 of the Labor Law provides the definitions that
apply throughout Article 6, which includes Section 193. The term
"employee" is defined as "any person employed for hire by an
employer in any employment."*fn4 N.Y. Lab. Law § 190(2).
Courts analyzing the scope of the term "employee" as it is
defined in Section 190(2) and used throughout Article 6 have
disagreed about whether it includes executives, administrators,
and managers. Relying on language in a 1993 New York Court of
Appeals case, Gottlieb v. Kenneth D. Laub & Co., Inc.,
82 N.Y.2d 457 (1993),*fn5 some courts have held that the
definition of "employee" in Section 190(2) does not include
executives and administrators. See, e.g., Rice v. Scudder
Kemper Invs., Inc., No. 01 Civ. 7078 (RLC), 2003 U.S. Dist.
LEXIS 14239 (S.D.N.Y. Aug. 14, 2003); Kaplan v. Aspen Knolls
Corp., 290 F. Supp. 2d 335 (E.D.N.Y. 2003); Deleonardis v.
Credit Agricole Indosuez, No. 00 Civ. 0138 (HB), 2000 U.S. Dist.
LEXIS 16506 (S.D.N.Y. Nov. 15, 2000); Alter v. Bogoricin, No.
97 Civ. 0662 (MBM), 1997 U.S. Dist. LEXIS 17369 (S.D.N.Y. Nov. 6, 1997); Cohen v. Fox-Knapp, Inc.,
226 A.D.2d 207, 640 N.Y.S.2d 554 (1st Dept. 1996).
On the other hand, since Gottlieb, a number of courts have
continued to follow the pre-Gottlieb majority view that the
term "employee" in Article 6 excludes executives and
administrators only when the substantive section of Article 6
expressly so states.*fn6 See, e.g., Miteva v. Third Point
Management Co., LLC, 323 F. Supp. 2d 573 (S.D.N.Y. 2004);
Parker v. Revlon, Inc., 211 A.D.2d 415, 621 N.Y.S.2d 306 (1st
Dept. 1995); Cohen v. Stephen Wise Free Synagogue, No. 95 Civ.
1659 (PKL), 1996 U.S. Dist. LEXIS 4240 (S.D.N.Y. Apr. 4, 1996);
Tuttle v. Geo. McQuesten Co., 227 A.D.2d 754, 642 N.Y.S.2d 356
(3d Dept. 1996).
In a recent case that addressed precisely this issue, Miteva
v. Third Point Management Co., LLC, a plaintiff alleged, inter
alia, that her former employer made deductions from her salary
in violation of Section 193. The employer moved for summary
judgment on the Section 193 claim, arguing that the plaintiff was
barred from recovery under Article 6 because she was an
"executive or professional."
After engaging in a thorough and comprehensive analysis of
whether executives, managers, administrators, supervisors, and
professionals are covered by Article 6 which included a review
of the use of the defined term "employee" in Article 6 and
elsewhere in the Labor Law, the legislative history accompanying the enactment
of Article 6, the purposes of Article 6, and the pre- and
post-Gottlieb case law addressing the definition of "employee"
in Article 6 Judge Marrero concluded that the Gottlieb
court's discussion about the scope of the term "employee" was
confined to employees entitled to protection under
Labor Law § 191. In fact, nothing in the Gottlieb
opinion excludes managers or professionals from
recovery under Article 6 generally.
Miteva, 323 F. Supp. 2d at 585 (citation omitted) (emphasis in
Thus, Judge Marrero held that because the definition of
"employee" in Section 190(2) of Article 6 does not categorically
exclude executives, professionals, managers, and administrators,
those types of employees are protected by the sections of Article
6 that do not explicitly exclude them. Id. at 585. A plain
reading of Article 6 supports the conclusion in Miteva.
Accordingly, because Section 193 does not by its terms exclude
employees who function in an executive or administrative
capacity, the Plaintiff is protected by Section 193 and the
Defendant's first argument in support of its summary judgment
motion, and in opposition to the Plaintiff's summary judgment
B. Did the Defendant Violate Section 193 of the Labor Law When
it Calculated the Plaintiff's Compensation?
The Defendant next argues that its motion for summary judgment
should be granted because its formula for calculating the
Plaintiff's compensation did not violate Section 193. The
Plaintiff, on the other hand, contends that the Defendant's
calculation did violate Section 193 and, for that reason, summary
judgment should be granted in the Plaintiff's favor. The parties
agree that none of the material facts are in dispute. Section 193 strictly limits an employer's ability to make
deductions from an employee's wages. That section states, in
relevant part, the following:
1. No employer shall make any deduction from the
wages of an employee, except deductions which:
a. are made in accordance with the provisions of any
law or any rule or regulation issued by any
governmental agency; or
b. are expressly authorized in writing by the
employee and are for the benefit of the employee;
provided that such authorization is kept on file in
the employer's premises. Such authorized deductions
shall be limited to payments for 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.
2. No employer shall make any charge against wages,
or require an employee to make any payment by
separate transaction unless such charge or payment is
permitted as a deduction from wages under the
provisions of subdivision one of this section.
N.Y. Lab. Law § 193(1)-(2). The term "wages" is defined, in
relevant part, as "the earnings of an employee for labor or
services rendered, regardless of whether the amount of earnings
is determined on a time, piece, commission or other basis." N.Y.
Lab. Law § 190(1).
The parties do not dispute that the Plaintiff consented
either orally or through her course of conduct to the
compensation formula by which the Defendant calculated her pay
and that the Defendant complied with this formula in all
respects. Nor do the parties dispute that the Plaintiff's
compensation formula involved reductions from her commission
income for various "Charges." Thus, the sole issue here is
whether the formula that the Defendant used to calculate the
Plaintiff's compensation violated Section 193.
Before reaching this issue, the Court notes that the Plaintiff
does not contest the Defendant's assertion that the Defendant
made no subtractions from the Plaintiff's compensation for legal fees during the six-year period prior to
December 29, 2003, which is the day on which she filed the
Complaint. (Pl.'s 56.1 Counter Stmt. ¶ 23.) Because claims
pursuant to Section 193 must be brought within six years of the
alleged violation,*fn7 the Plaintiff's claim regarding legal
fees that were subtracted from her compensation (the Ninth claim
for relief) is time-barred and dismissed.
With regard to the Plaintiff's five remaining Labor Law claims,
the Defendant argues that its subtraction of various "Charges"
from the Plaintiff's "Total Income" did not violate Section 193
because the Plaintiff agreed to include the subtractions in the
course of the Defendant's calculation of her compensation. In
other words, the Defendant contends that under the terms of the
Plaintiff's employment agreement, her "wages," as that term is
used in Section 193, consisted of her "Total Income" minus
"Charges," not merely her "Total Income." Thus, the Defendant
states that it made no deductions from the Plaintiff's wages. In
contrast, the Plaintiff argues that, regardless of whether she
consented to the compensation formula at the time of her hiring
or through her course of conduct during the employment
relationship, the Defendant violated Section 193 by reducing her
compensation to reflect some of its business expenses.
The Defendant argues that its position is supported by Dean
Witter Reynolds Inc. v. Ross, 75 A.D.2d 373, 429 N.Y.S.2d 653
(1st Dept. 1980), in which the court held that an employer did
not violate Section 193 when it reduced an employee's
compensation for costs related to margin extensions,
long-distance telephone calls, and losses due to errors. After
finding that the subtractions were made from discretionary
"incentive compensation" for the employee and not from his fixed
salary, the court concluded that the deductions did not violate Section 193 because they were made
in the course of calculating the employee's "incentive
compensation" and, therefore, they were not taken out of the
employee's "wages."*fn8 See Dean Witter,
75 A.D.2d at 381-82. The Defendant states that Dean Witter is "directly on
point," (Def.'s Mem. at 12), because it "holds that only after
the agreed-upon calculations have been made is the result the
earned or vested wage to which the employee is entitled, and from
which no deductions can be made contrary to § 193." (Def.'s Reply
Mem. at 4.) As the Defendant acknowledges, however, the Plaintiff
is in a different position than the employee in Dean Witter
the Plaintiff received no guaranteed base salary and the
subtractions were made from her commissions, which were her sole
form of compensation, not from bonus payments or incentive
The Defendant also urges this Court to follow Dwyer v.
Burlington Broadcasters, Inc., 295 A.D.2d 745, 744 N.Y.S.2d 55
(3d Dept. 2002), and Simas v. Merrill Corp., No. 02 Civ. 4400
(RCC), 2004 U.S. Dist. LEXIS 1415 (S.D.N.Y. Feb. 4, 2004), and
dismiss the Plaintiff's claims because the Defendant calculated
the Plaintiff's compensation in accordance with her agreed-upon
terms of employment. In Dwyer, an employee sought commissions
on radio advertisements that she had sold but which were not
broadcast until after her employment terminated. The court ruled
that the employer did not violate Section 191 of Article 6
because, under the terms of the employment agreement, the
employee had not become entitled to payment for receipts for
advertisements that became due after her employment terminated. See Dwyer,
295 A.D.2d at 746. In Simas, an employee brought suit under Section 191
challenging, inter alia, his employer's refusal to pay
commissions on sales for which no revenues had been collected
yet. As in Dwyer, the court ruled against the employee after
determining that the employer had complied with the employee's
agreed-upon terms of employment. See Simas, 2004 U.S. Dist.
LEXIS 1415, at *13.
Although the employees in Dwyer and Simas both challenged
subtractions from their compensation, those cases do not address
the issue presented here. In Dwyer and Simas, the employees
brought claims pursuant to Section 191, which governs the
frequency of wage payments, not Section 193, which governs
deductions from wages. Section 191 states that a "commission
salesman" must be paid "in accordance with the agreed terms of
employment," so long as the agreement complies with the broad
terms of Section 191. N.Y. Lab. Law § 191. Thus, when presented
with claims to enforce Section 191, the courts in Dwyer and
Simas looked to the terms of the employment agreement as to
timeliness of payment and, after determining that the employer
had paid the employee in accordance with those terms, found no
Section 191 violation.
In the instant matter, the Plaintiff is seeking to enforce
Section 193, not Section 191. Unlike Section 191, Section 193
does not refer to the employee's agreed terms of employment.
Instead, it simply states that "[n]o employer shall make any
deduction from the wages of an employee" and "[n]o employer shall
make any charge against wages, or require an employee to make any
payment by separate transaction" aside from the limited types of
charges or payments expressly permitted by Section 193. N.Y. Lab.
Law § 193. Moreover, New York courts have held that an employee
cannot waive the protections of Section 193 through an agreement with an employer.
See Gennes v. Yellow Book of New York, Inc., 3 Misc. 3d 519,
776 N.Y.S.2d 758, 759 (Sup.Ct., Nassau Co. 2004) ("[T]he
protective provisions of § 193 cannot be waived."); Weiner v.
Diebold Group, 173 A.D.2d 166, 167-68, 568 N.Y.S.2d 959 (1st
Dept. 1991) (stating that New York's public policy prohibits
agreements between employees and employers that provide for the
forfeiture of wages). Thus, Section 193 cannot be read to
establish the same level of deference to the agreed-upon terms of
employment as mandated by Section 191.
As the New York Court of Appeals has stated, Article 6 of the
Labor Law was "enacted to strengthen and clarify the rights of
employees to the payment of wages." Truelove v. Northeast
Capital & Advisory, Inc., 95 N.Y.2d 220, 223 (2000). To allow
employers to prove an employment agreement permitting deductions
from commissions, other than those expressly permitted by Section
193, would permit employers to do precisely what Section 193
forbids them to do. Concluding otherwise would permit an employer
to establish and modify terms of employment that deny the
protection of Section 193 to employees, like the Plaintiff, whose
earnings are based solely on commissions.
This conclusion is consistent with other interpretations and
applications of Section 193. For example, a 1992 opinion letter
issued by the New York State Department of Labor explains that
"[t]he Department of Labor interprets Section 193 as prohibiting
an employer from requiring an employee to assume responsibility
for expenses which are part of the employer's costs of doing
business." (N.Y. Dept. of Labor Opinion Letter, dated May 8,
1992, attached as Ex. 5 to Pl.'s 56.1 Stmt.) In addition, the New
York Court of Appeals has stated that Section 193 "was intended to
place the risk of loss for such things as damaged or spoiled
merchandise on the employer rather than the employee." Hudacs v.
Frito-Lay, Inc., 90 N.Y.2d 342, 660 N.Y.S.2d 700 (1997). Lower
courts have also found that employers violate Section 193 when
they make subtractions from an employee's compensation because of
the employee's poor performance. See, e.g., Burke v.
Steinman, No. 03 Civ. 1390 (GEL), 2004 U.S. Dist. LEXIS 8930, at
*20 (S.D.N.Y. May 18, 2004) (stating that under Section 193,
"employers may not assert a claim for damages against an employee
for the employee's alleged negligent acts, or sue employees for
lost profits caused by alleged poor performance"); Cohen v.
Stephen Wise Free Synagogue, No. 95 Civ. 1659 (PKL), 1996 U.S.
Dist. LEXIS 4240 (S.D.N.Y. Apr. 4, 1996) (stating that Section
193 prohibits deductions based upon assertion that employee's
poor job performance caused financial harm to employer); Gennes
v. Yellow Book of New York, Inc., 3 Misc. 3d 519, 521,
776 N.Y.S.2d 758 (Sup.Ct., Nassau Co. 2004) (holding "that the
defendant cannot charge its employees against monies already
earned for failure to renew accounts"); Guepet v. Int'l TAO
Sys., Inc., 110 Misc. 2d 940, 940-42, 443 N.Y.S.2d 321 (Sup.
Ct., Nassau Co. 1981) ("Nowhere does [Section 193] permit an
employer to make contemporaneous deductions from wages because an
employee failed to perform properly."). Similarly, an employer
violates Section 193 when it reduces an employee's wages to
reflect a client's failure to pay for goods or services rendered.
See Edlitz v. Nipkow & Kobelt, Inc., 264 A.D.2d 437,
694 N.Y.S.2d 439 (2d Dept. 1999).
In view of Section 193's express terms, case law, and lack of
any language in that section instructing courts to defer to the
employment agreement, subtractions like those made by the Defendant are prohibited by Section 193
notwithstanding the Plaintiff's consent to the terms of the
compensation formula. The Plaintiff could not waive the
protections of Section 193, and the Defendant was not permitted
to do indirectly what it could not do directly. Accordingly, the
Plaintiff's compensation formula did not comport with Section
193, and summary judgment is granted in the Plaintiff's favor on
the First, Third, Fifth, Seventh, and Eleventh claims for relief.
For the foregoing reasons, summary judgment is granted in the
Plaintiff's favor with regard to her First, Third, Fifth,
Seventh, and Eleventh claims for relief, and summary judgment is
granted in the Defendant's favor with regard to the Plaintiff's
Ninth claim for relief. On or before September 15, 2005, the
Plaintiff shall submit a proposed judgment, on notice to the
Defendant, that sets forth proposed damages, together with an
affidavit that explains the bases for the proposed amounts. The
Defendant shall submit any opposition or objections on or before
September 25, 2005.
IT IS SO ORDERED.
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