Unpaid Wages Can Cost You a Lot More in New York Debt Collection Litigation

A puzzle of a $100 bill meant to represent unpaid wages and debt collection.In New York, civil action for unpaid wages is considered a debt collection claim. Unpaid wages are considered a “breach of contract,” as the employee fulfilled their terms of employment but the employer breached the “contract” by failing to pay the employee as agreed. You do not need to have a written employment contract to be sued for breach of contract.

If sued in New York, withholding wages from your employees can cost you more than just their unpaid salary. An employee can file a civil action to collect unpaid wages. As part of the lawsuit, the begrudged employee can ask the court to award additional damages to punish you for wrongdoing.

Unpaid Wages and Debt Collection

The punishment — or in polite terms, “penalty” — is referred to as “liquidated damages” under New York state law. Specifically, the unpaid employee can demand relief against you, which can include:

  • Unpaid wages owed
  • Interest at the legal rate
  • Reasonable attorneys fees
  • An additional 100% of the total wages found due and owing by the court.

The additional relief afforded to the unpaid employee can be found in Labor Law, section 198. The statute allows unpaid employees to recoup costs, interest, attorneys fees and the additional 100% of their wages. The 100% liquidated damages is a big increase over what the law previously provided. Prior to the enactment of the Wage Theft Prevention Act, unpaid employees were able to demand an additional 25% as liquidated damages in addition to the unpaid wages.

What happens if the underpayment or non-payment was an error? You meant to pay or paid part but not the full amount? Don’t worry. As long as the omission was done in good faith, you may be able to escape the penalty of paying the additional 100% of the unpaid wages. That’s because the statute allows an exception if the employer “proves a good faith basis” that the underpayment was in compliance with the law. What constitutes “good faith” is something you should discuss with your labor law attorney.

For more information about debt collection and best practices for your business, reach out to Frank, Frank, Goldstein and Nager.