May My Company In New York Make A Deduction From An Employee's Wages To Recoup An Earlier Overpayment Of Wages?

May My Company In New York Make A Deduction From An Employee's Wages To Recoup An Earlier Overpayment Of Wages?

From time to time, because of a mathematical or administrative error by the employer, an employer will, for one or more payroll periods, pay wages to an employee in excess of what the employee has earned.  Periodically, owners of a business in New York, who have overpaid an employee for an earlier payroll period or periods, will ask me whether, the employer may lawfully deduct, from the wages of the same employee, the earlier overpayment of wages.  The short answer is "no."

In New York State, an employer may not make a deduction from a worker's wages to recoup a prior overpayment of wages to that worker.  However, the employer may, in a separate proceeding, lawfully seek to recover, from the worker, the salary overpayment that the employer, in the earlier payroll period(s), erroneously made to that worker.

Further, three months ago, the New York State Senate and State Assembly both passed an amendment to New York's wage deduction statute, N.Y. Labor Law § 193, which, effective 60 days after the amendment's enactment, would permit employers, with an employee's express written authorization, to make, among other wage deductions, a deduction from the employee's wages to recoup a prior overpayment of wages.  Governor Andrew Cuomo is expected to sign the amendment into law.

As a result, employers in New York may, in the near future, be authorized to make wage deductions to take back wage overpayments.

In Counsel Opinion Letter RO-09-0006, the Division of Labor Standards of the New York State Department of Labor addressed "whether New York State law permits an employer to make a deduction from an employee's wage to repay a prior overpayment of or advance on wages."  Division of Labor Standards, New York State Dep't of Labor, Counsel Op. Ltr. RO-09-0006, slip op. at 2 (Aug. 3, 2009).  The Division of Labor Standards held that New York State law does not permit such a deduction.

The Division of Labor Standards reasoned that "[Wage] [d]eductions for overpayments . . . are neither required nor authorized by law, nor are they 'similar payments.'  Division of Labor Standards, New York State Dep't of Labor, Counsel Op. Ltr. RO-09-0006, slip op. at 2 (quoting N.Y. Labor Law § 193(b)).  "Rather," the Division of Labor Standards reasoned, "they are payments that will go directly to the employer and are exclusively for the benefit of the employer."  Division of Labor Standards, New York State Dep't of Labor, Counsel Op. Ltr. RO-09-0006, slip op. at 2.  Therefore, the recoupment by an employer, by deduction from an employee's paycheck, of a prior overpayment of wages would constitute a violation of Labor Law § 193.  See id. at 2.

Although any deduction by an employer from a worker's wages to recover a prior overpayment is improper, "this [fact] does not affect [the employer's ability] to recover the entire amount of overpayment [from the employee] in a separate proceeding."  Hennessey v. Board of Educ., 227 A.D.2d 559, 642 N.Y.S.2d 958 (2d Dep't 1996); see also Huntington Hosp. v. Huntington Hosp. Nurses' Ass'n, 302 F. Supp.2d 34, 42-43 (E.D.N.Y. 2004) ("This court . . . does not read Section 193 [of the New York Labor Law] as prohibiting an employer from taking any and all action to recover salary payments made in error.  It would make little sense to prohibit completely an employer from correcting salary overpayment errors. . . . Thus, while Hennessey [v. Board of Educ., supra] might be read to bar garnishment of wages, nothing in that case prohibits the commencement of a separate proceeding" seeking to recover excess payments made to two of the petitioner hospital's employees).

Further, on June 21, 2012, an amendment to N.Y. Labor Law § 193 passed both the New York State Senate and State Assembly.  See N.Y. State Senate Bill No. S07790 (2012); N.Y. State Assembly Bill No. A10785 (2012).  Governor Cuomo is expected to sign the amendment into law.  This legislation, if enacted, would, effective 60 days after its enactment, permit employers to make a broader range of wage deductions than N.Y. Labor Law § 193 currently allows.

Among other things, the amendment to N.Y. Labor Law § 193, if signed into law, would enable employers, with an employee's express authorization and subject to regulations to be promulgated by the New York State Commissioner of Labor, to deduct, from an employee's wages, deductions that "are related to recovery of an overpayment of wages where such overpayment is due to a mathematical or other clerical error by the employer."

Thus, as stated above, an employer in New York, in the near future, may be allowed, with an employee's express written authorization, to make, among other wage deductions, a deduction from the employee's wages to recoup an earlier overpayment of wages.

Lexis.com subscribers can access Lexis enhanced versions of the Hennessey v. Board of Educ., 227 A.D.2d 559 (N.Y. App. Div. 2d Dep't 1996) and Huntington Hosp. v. Huntington Hosp. Nurses' Ass'n, 302 F. Supp. 2d 34 (E.D.N.Y. 2004) decisions with summaries, headnotes, and Shepard's.

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