NEW YORK LABOR LAW § 198-E CONSTRUCTION WAGE THEFT LEGISLATION

NEW YORK LABOR LAW § 198-E CONSTRUCTION WAGE THEFT LEGISLATION Presented by: Richard B. Ziskin, Esq. The Ziskin Law Firm, LLP 6268 Jericho Turnpike, Suite 12A Commack, New York 11725 631-462-1417 (Tel) 631-462-1486 (Fax) richard@ziskinlawfirm.com 1

The information provided in this presentation does not, and is not intended to, constitute legal advice; instead, all information, content, and materials available in this presentation are for general informational purposes only.

TOPIC OF CONVERSATION: NY LABOR LAW § 198-E: Contractors Liable for Wage Violations of Subcontractors The NY Labor Laws contain considerable worker protections and provide for recovery for workers who are not appropriately compensated. In NYS, workers must be paid at or above the minimum hourly wage rate, receive overtime compensation after working more than forty (40) hours per week if they are covered under New York’s overtime provisions, and be provided with certain meal breaks, paid sick leave, and paid family leave.

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NY Labor Laws also require that workers must receive notice of their promised benefits, including vacations, personal leave, and holidays as well as health benefits. NY LL Section 195.5 of the Labor Law states: Every employer shall notify his employees in writing or by publicly posting the employer's policy on sick leave, vacation, personal leave, holidays, and hours. If an employer does not have a written policy, the oral policy (or past practice) may be enforced.

Workers also must receive written wage notices upon hire and detailed payroll stubs with every weekly wage payment.

Employers must maintain payroll records for a period of six (6) years.

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The modifications to § 198-e of the NYLL provide that contractors will be held jointly and severally liable for their subcontractors’ failure to pay proper wages as defined by the NYLL. For example, even if the general or primary contractor had no direct involvement in a subcontractor’s failure to pay minimum or overtime wages, the primary contractor may be liable for up to three (3) times the value of lost wages for such violations.

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The law applies to contracts entered into, renewed, modified, or amended with property owners on or after January 4, 2022.

Additionally, any amendment or revision to applicable construction contracts, even changes unrelated to the use of subcontractors or wages, may trigger liability for contractors.

Due to these recent changes in the law, contractors must not only strive to maintain clear and accurate employee payroll records, but contractors must also confirm that the wage & hour records of subcontractors are also maintained.

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NEW SECTION 198-E CONSTRUCTION WAGE THEFT: The legislature’s stated purpose of this bill was to amend the existing wage theft law to increase the likelihood that “exploited” workers in the construction industry will be able to secure payment and collect unpaid wages and benefits for work that has already been performed.

SUMMARY OF PROVISIONS: Section 1 adds a new section 198-e to the Labor Law pertaining to construction industry wage theft. Pursuant to this new section, a construction contractor, would assume liability for any unpaid wages, benefits, damages, attorney 6

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fees related to a civil or administrative action by a wage claimant or the Department of Labor against a subcontractor, of such contractor.

Section 2 adds a new section 756-f to the General Business Law to clarify that a contractor or subcontractor may withhold payment to their subcontractor for failure to provide certain payroll records. Section 3 provides a severability clause. Section 4 establishes an effective date.

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THE DIFFERENCE BETWEEN ORIGINAL AND FINAL VERSION OF THE BILL: The final version clarified the liability assigned to a contractor and adds section 756-f to the General Business Law to clarify that a contractor or subcontractor may withhold payment to their subcontractor for failure to provide certain payroll records.

THE LEGISLATURE’S JUSTIFICATION: This bill provides New York construction workers with a new remedy against wage theft. Prior to the enactment of NY Labor Law § 198-e, a worker could bring a private lawsuit 8

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against their direct employer to collect any unpaid wages, including overtime and fringe benefits.

This has been a major issue in the construction industry where the direct employer has sometimes been a subcontractor willing to hide assets, change corporate identity and take part in other unscrupulous practices to avoid liability and make themselves judgment proof from a wage theft action.

By holding the prime contractor of the construction project liable for all subcontractors that it chooses to utilize on a jobsite, the New York State Legislature is seeking to ensure that that underpaid construction workers are more likely to 9

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collect unpaid wages, while creating an incentive for the construction industry to better self-police itself.

EFFECTIVE DATE: This act shall take effect on the one hundred twentieth day after it shall have become a law and shall apply to construction contracts entered into, renewed, modified, or amended on or after January 4, 2022.

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§ 198-E. CONSTRUCTION INDUSTRY WAGE THEFT. 1. A contractor making or taking a construction contract shall assume liability for any debt resulting from an action under section one hundred ninety-eight of this article, owed to a wage claimant (“construction worker”) or third party on the wage claimant's behalf, incurred by a subcontractor at any tier acting under, by, or for the contractor or its subcontractors for the wage claimant's performance of labor.

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•No agreement or release by an employee or subcontractor to waive liability assigned to a contractor under this section shall be valid except as otherwise provided herein. The provisions of this section shall not be deemed to impair the rights of a contractor to maintain an action against a subcontractor for amounts for owed wages that are paid by a contractor pursuant to this section.

•Notwithstanding any other provision of law, the remedies available for a claim pursuant to subdivision one of this section shall only be civil and administrative actions.

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•In the case of a private civil action by an employee, such employee may designate any person, organization or collective bargaining agent authorized to file a complaint with the commissioner pursuant to section one hundred ninety-six-a of this article, to make a wage claim on his or her behalf.

•In the case of an action against a subcontractor, the contractor shall be considered jointly and severally liable for any unpaid wages, benefits, wage supplements, and any other remedies available pursuant to the requirements of section one hundred ninety-eight of this article.

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•The provisions of this section shall not be deemed to impair the rights of a contractor to maintain an action against a subcontractor for amounts for owed wages that are paid by a contractor pursuant to this section.

• This provision permits a general contractor to sue a subcontractor for indemnity.

• Prior to this legislation, current case law in NY prohibited indemnity for unpaid wages •"Construction contract" means a written or oral agreement for the construction, reconstruction, alteration, maintenance, moving or demolition of any building, structure, or improvement, or relating to the excavation of or other development or improvement to land.

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• For purposes of this section, a construction contract shall not include: any contract which is subject to article eight (public works); • a home improvement contract between a home improvement contractor and the owner of an owner-occupied dwelling; • and a home construction contract for one- or two-family dwelling units except where such contract or contracts results in the construction of more than ten one- or two-family owneroccupied dwellings at one project site annually.

•"Contractor" means any person, firm, partnership, corporation, association, company, organization, or other 15

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entity, including a construction manager, general or prime contractor, joint venture, or any combination thereof, which enters into a construction contract with an owner.

•"Owner" means any person, firm, partnership, corporation, company, association or other organization or other entity, or a combination of any thereof, that causes a building, structure, or improvement, new or existing, to be constructed, altered, repaired, maintained, moved, or demolished or that causes land to be excavated or otherwise developed or improved.

• "Subcontractor" means any person, firm, partnership, corporation, company, association, organization or other 16 The information provided in this presentation does not, and is not intended to, constitute legal advice; instead, all information, content, and materials available in this presentation are for general informational purposes only.

entity, or any combination thereof, which is a party to a contract with a contractor, and/or party to a contract with the contractor's subcontractors at any tier to perform any portion of work within the scope of the contractor's construction contract with the owner, including where the subcontractor has no direct privity of contract with the contractor.

STATUTE OF LIMITATIONS •Any liability assigned to a contractor pursuant to the provisions of this section shall be applicable for any claims occurring no later than three years prior to the initiation of such claim in a court of competent jurisdiction.

17 The information provided in this presentation does not, and is not intended to, constitute legal advice; instead, all information, content, and materials available in this presentation are for general informational purposes only.

COLLECTIVE BARGAINING AGREEMENTS •Nothing in this section shall be deemed to diminish the rights, privileges, or remedies of any employee under any collective bargaining agreement. The provisions of this section may be waived by a collective bargaining agreement with a bona fide building and construction trade labor organization which has established itself, and/or its affiliates, as the collective bargaining representative for persons performing work on a project, provided that for such waiver to be valid, it shall explicitly reference this section. Provided, however, that such waiver shall not diminish or impair the rights of an employee provided under any other section of this chapter.

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SECTION 756-F WAGE THEFT PREVENTION AND ENFORCEMENT General Business (GBS) CHAPTER 20, ARTICLE 35-E § 756-f. Wage theft prevention and enforcement.

1. Upon request of a contractor, or a contractor's subcontractor, to any subcontractor which performs any portion of work within the scope of the contractor's construction contract with an owner, such subcontractor shall provide certified payroll records which, at a minimum, contain all lawfully required information required for all employees providing labor on the project. Such payroll records shall contain sufficient information to apprise the 19 The information provided in this presentation does not, and is not intended to, constitute legal advice; instead, all information, content, and materials available in this presentation are for general informational purposes only.

contractor or subcontractor of such subcontractor's payment status in paying wages and making any applicable fringe or other benefit payments or contributions to a third party on its employee's behalf.

Payroll records shall be marked or redacted to an extent only to prevent disclosure of an individual's full social security number but shall provide the last four digits of the social security number.

2. Upon request of a contractor, or a contractor's subcontractor, to any subcontractor which performs any portion of work within the scope of the contractor's construction contract with an owner, such subcontractor 20

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shall provide: (a) the names of all workers of such subcontractor on the project, including the names of all those designated as independent contractors; (b) when applicable, the name of the contractor's subcontractor with whom such subcontractor is under contract; (c) the anticipated contract start date; (d) the scheduled duration of work; (e) when applicable, local unions with whom such subcontractor is a signatory contractor; and (f) the name, address and phone number of a contact for such subcontractor.

3. Failure to timely comply with a request for information as provided herein shall be a basis for a contractor to withhold payments owed to a subcontractor at any tier.

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•For the purposes of this section, "contractor", “owner”, and “subcontractor” are defined as they are in Section 198-e.

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The Wage Theft Prevention Act (WTPA) •took effect on April 9, 2011. Here are some key provisions of the law that employers need to know.

•The WTPA extends the protections under Labor Law Section 215. (Specifically, New York Labor Law Section 215 states that an employer may not "discharge, threaten, penalize, or in any other manner discriminate or retaliate against any employee" because the employee complained of an alleged violation of the Labor Law or otherwise cooperated with a Department of Labor or Attorney General investigation regarding an alleged violation of the Labor Law.) •It also gives the New York State Department of Labor 23

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(“NYS DOL”) more power to enforce this law.

1.It was always illegal to discharge, penalize and/or discriminate against an employee who makes a complaint; threats are now included as a form of retaliation.

2.In the past, NYS DOL could only cite employers for retaliation; now, it is illegal for any person within an organization/ company to retaliate.

3. In the past, penalties for breaking this rule meant NYS DOL could fine an employer up to $10,000. Now, the NYS DOL can order the employer or the person who acted against the employee to pay liquidated damages. The payment can be up to $20,000.

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4.The NYS DOL may order the employer to reinstate the worker’s job. The employer may have to pay the person for lost salary or pay a lump sum in lieu of reinstatement.

5.Retaliation carries criminal penalties for employee complaints about any section of the labor law.

6.The protection applies to any worker who alleges that the employer has done something that the employee thinks breaks a labor law or an order issued by the Commissioner.

This applies even if the employee is mistaken about the law, if they acted in good faith.

It applies even if the employee does not cite a specific part of the labor law.

7.This law protects employees even if the employer incorrectly believes they made a complaint.

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WRITTEN NOTICE • The law already required employers to give notice to employees of their wage rates at the time of hire.

• The WTPA requires employers to give a written notice to each new hire. The notice must include: 1.Rate or rates of pay, including overtime rate of pay (if it applies).

2.How the employee is paid – by the hour, shift, day, week, commission, etc.

3. Regular payday.

4.Official name of the employer and any other names used for business (DBA).

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5.Address and phone number of the employer’s main office or principal location.

6.Allowances taken as part of the minimum wage (tip, meal, and lodging deductions).

7.In the past, the notices were in English; now, the notice must appear both in English and in the employee’s primary language (if the Department of Labor offers a translation).

8.Employers must have each employee sign and date the completed notice; employers must provide a copy to each employee.

9.If any data in the notice changes, the employer must tell employees at least a week before it happens unless they issue a new paystub that carries the notice. The employer must notify an employee in writing before 27

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they reduce the employee’s wage rate. Employers in the hospitality industry must give notice every time a wage rate changes.

10. Employers that do not give notice may have to pay damages of up to $50 per day, per employee, unless they paid employees all wages required by law (This stops at $5,000 per employee in civil lawsuits filed by workers.)

11.PAYROLL RECORDS •Under prior law, some of the recordkeeping requirements were in the statute, while others were in the regulations.

•Keep records for six years; records include the new notice and acknowledgment and payroll records 28

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•Keep accurate records of hours worked by employees and wages paid; now, the law clarifies that employers must keep the records on an ongoing basis; the employer may not make up the records after the fact at the end of the week, month, or year For each week an employee works, the payroll records must contain: • Hours worked (regular and overtime) • Rate or rates of pay (regular/overtime) •How the employee is paid – by the hour, shift, day, week, commission, etc.

•Pay at the piece rate must show what rates apply and the number of pieces at each rate • Employee’s gross and net wages 29

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• Itemized deductions • Itemized allowances and credits claimed by the employer, if any (tip, meal and lodging allowances or credits) •

Supplemental Benefits paid

WAGE STATEMENTS Under the law, employers must: 1. Give each employee a wage statement or pay stub each payday that lists all of the above payroll data plus: • Employee’s name • Employer’s name, address, and phone number • Dates covered by the payment 30

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2. Give any employee who asks a written explanation of how they computed wages. Employers that do not give wage statements may have to pay damages of up to $250 per day, per employee, unless they paid employees all wages required by law. (This stops at $5,000 per employee in civil lawsuits filed by employees.)

DAMAGES AND OT0HER PENALTIES The WTPA provides for higher penalties when an employer fails to pay the wages required by law: 1. Under prior law, liquidated damages only covered up to 25% of the unpaid wages. The WTPA provides for liquidated damages on up to 100% of the unpaid wages. Once the NYS 31

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DOL issues an Order to Comply, it includes 100% liquidated damages, as well as other civil penalties and interest.

2.If the violation is for other than wages, benefits or wage supplements, the NYS DOL may assess civil penalties for each violation. This means up to $1,000 for a first violation, $2,000 for a second, and $3,000 for third and subsequent violations.

3.If the Labor Commissioner has issued an Order to Comply against an employer who does not pay the money owed, then 10 days after the appeal period ends, the NYS DOL can require them to post a bond and/or provide a list of their assets. If employers fail to do so, the Commissioner may bring a court case against them. For failure to provide 32

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the list of assets, the NYS DOL may impose a penalty of up to $10,000.

4. The WTPA permits the Department of Labor to add 15% in damages to a judgment if the employer fails to pay in full within 90 days of the final Order to Comply.

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NEW YORK'S MINIMUM WAGE • All New York workers are entitled to receive at least an hourly Minimum Wage rate.

• The Minimum Wage rate varies depending on region and is increasing every year until it reaches $15.00.

Location New York City Long Island & Westchester Remainder of New York State

Minimum Wage as of 12/31/2021* $15.00 $15.00 $13.20*

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MINIMUM WAGE LAW REQUIREMENTS Employers that break the Minimum Wage Law may be subject to orders to pay: • Back wages • Interest • Liquidated damages • Fines Employers may also be subject to criminal prosecution and penalties. The fines for violations can total up to 200 percent of the missing wages. Employers may also have to pay 16 percent interest on the unpaid wages.

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THE NEW YORK STATE CONSTRUCTION INDUSTRY FAIR PLAY ACT •took effect on October 26, 2010.

•The law created a new standard for determining whether a worker is an employee or independent contractor in the construction industry.

•It provided new penalties for employers who fail to properly classify their employees.

•Employee misclassification occurs when employers treat workers who should be considered employees as independent contractors or simply do not report them (pay them “off the books”).

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THE STANDARD The law presumes that individuals working for an employer are employees unless they meet all three criteria below. The individual must be: 1.Free from control and direction in performing the job, both under contract and in fact.

2.Performing services outside of the usual course of business for the company.

3.Engaged in an independently established trade, occupation or business that is similar to the service they perform.

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SEPARATE BUSINESS ENTITY • The law also contains a 12-part test to determine when a sole proprietor, partnership, corporation, or other entity will be considered a “separate business entity” from the contractor for whom it provides a service. If an entity meets all of the 12 criteria, it will not be considered an employee of the contractor.

• Instead, it will be a separate business that is itself subject to the new law regarding its own employees. The 12 criteria for a separate business entity appear on the back page of this fact sheet.

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COVERAGE The law applies to all contractors in the construction industry. Construction is defined as including constructing, reconstructing, altering, maintaining, moving, rehabilitating, repairing, renovating or demolition of any building, structure or improvement or relating to the excavation of or other development or improvement to land.

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The information provided in this presentation does not, and is not intended to, constitute legal advice; instead, all information, content, and materials available in this presentation are for general informational purposes only.

PENALTIES • An employer that willfully violates the Fair Play Act by failing to properly classify its employees will be subject to civil penalties of up to a $2,500 fine per misclassified employee for a first violation and up to $5,000 per misclassified employee for a second violation within a five-year period.

• Employers also may be subject to criminal prosecution (a misdemeanor) for violations of the act with a penalty of up to 30 days in jail, up to a $25,000 fine and debarment from Public Work for up to one year for a first offense.

• Subsequent misdemeanor offenses would be punishable by up to 60 days in jail, up to a $50,000 fine and 40

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debarment from performing Public Work for up to five years.

• Employers also remain subject to all of the existing penalties, taxes and restitution for Labor Law, Workers’ Compensation Law and Tax Law violations that result from the worker misclassification. Corporate officers and certain shareholders may be personally liable for the fines and penalties under the Act, where they knowingly permit the violations to occur.

POSTING • Construction industry employers must post a notice about the Fair Play Act in a prominent and accessible place on the job site. The required notice is available on 41

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the Department of Labor’s web site. Failure to post the notice can result in penalties of up to $1,500 for a first offense and up to $5,000 for a second offense.

SEPARATE BUSINESS ENTITY TEST To be considered a separate business entity from the business to which services are provided, a sole proprietor, partnership, corporation, or other entity must: 1. Be performing the service free from the direction or control over the means and manner of providing the service subject only to the right of the contractor to specify the desired result.

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2.Not be subject to cancellation when its work with the contractor ends.

3.Have a substantial investment of capital in the entity beyond ordinary tools and equipment and a personal vehicle.

4.Own the capital goods and gain the profits and bear the losses of the entity.

5.Make its services available to the general public or business community on a regular basis.

6. Include the services provided on a federal income tax schedule as an independent business.

7. Perform the services under the entity’s name.

8.Obtain and pay for any required license or permit in the entity’s name.

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9.Furnish the tools and equipment necessary to provide the service.

10.Hire its own employees without contractor approval, pay the employees without reimbursement from the contractor and report the employees’ income to the Internal Revenue Service.

11.Have the right to perform similar services for others on whatever basis and whenever it chooses.

12.The contractor does not represent the entity or the employees of the entity as its own employees to its customers.

The entity must meet all 12 criteria to be considered a separate business entity.

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HOW SHOULD CONTRACTORS ADDRESS CHANGES IN THE LAW: With these new provisions in the law, contractors must consider taking the following steps to monitor their subcontractors in order to avoid potential liability: •Contractors should request certified payroll records from all subcontractors who work on a project, including subcontractors of all tiers, as permitted by GBL section 756f.

•Contractors may need to withhold payment from subcontractors who fail to provide certified payroll records.

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The information provided in this presentation does not, and is not intended to, constitute legal advice; instead, all information, content, and materials available in this presentation are for general informational purposes only.

•Contracts with subcontractors should state clearly that subcontractors must provide certified payroll records with each payment requisition.

•Contractors should include in all contracts with subcontractors, provisions that the subcontractor will indemnify the contractor for all damages under section 198e of the NYLL, including for attorneys’ fees and costs, stemming from the subcontractor’s failure to comply with the NYLL. Any existing contracts with subcontractors that are amended should also include such provisions. (Section 198-e prohibits contracts that prevent employees from exercising their rights to collect lost wages, but contractors may enter into indemnification agreements with subcontractors.)

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•Contractors should monitor their subcontractors and require that their subcontractors notify them immediately if any work on the project is further subcontracted.

• Contractors should retain their subcontractors’ payroll records for a minimum of three years, which is the applicable statute of limitations for claims made pursuant to section 198-e of the NYLL. By retaining the subcontractor’s records, the contractor can defend itself against potential liability.

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The information provided in this presentation does not, and is not intended to, constitute legal advice; instead, all information, content, and materials available in this presentation are for general informational purposes only.