Hernandez Technology v. Rivera: Fourth Department Holds the “No Wage Theft Loophole Act” Retroactive and Clarifies Commission-Based Wage Deductions

1. Introduction

Hernandez Technology, Inc. (d/b/a First Capital) sued its former sales representative, Bernabe Rivera, for defamation, tortious interference, and breach of restrictive covenants. Rivera counter-sued for unpaid commissions under the employment Compensation Agreements and for violations of New York Labor Law Articles 6 (specifically §§ 193, 195, and 198). Both parties moved for summary judgment. The Supreme Court (Monroe County) largely sided with the employer but allowed portions of the wage-related counterclaims to survive.

On appeal, the Appellate Division, Fourth Department, issued two coordinated decisions (Appeal Nos. 1 & 2) that—while affirming most procedural determinations—create two doctrinal milestones:

Retroactive reach of the 2021 “No Wage Theft Loophole Act.” Departing from a trio of First Department cases, the Court ruled that the Act applies to wage-theft conduct that pre-dated its enactment.
Commission “keeps” as potential unlawful deductions. The Court clarified that an employer’s pre-commission “keep” (here, 30%) is actionable under Labor Law § 193 unless the employment contract unmistakably authorizes it.

2. Summary of the Judgment

The Fourth Department modified the trial court’s order only to extend the wage-recovery period back to March 20, 2014 (accounting for COVID-19 tolls), but otherwise affirmed. Key holdings include:

Rivera’s § 193 and § 198 counterclaims survive because issues of fact remain as to whether the 30% “keep” was contractually authorized.
The “No Wage Theft Loophole Act” is remedial and therefore applies retroactively, allowing § 198 to serve as a stand-alone substantive cause of action for pre-2021 wage violations.
The non-compete covenant was void for overbreadth, but narrower non-solicitation and non-interference clauses are partially enforceable.
The six-year contract and wage-claim statute of limitations is tolled by COVID-19 executive orders.
Rivera’s § 195(3) “wage-statement” claim fails because the statements provided were facially compliant; whether the 30% keep is a “deduction” remains triable.

3. Analysis

3.1 Precedents Cited and Their Influence

Pachter v. Bernard Hodes Group, Inc., 10 NY3d 609 (2008)

Pachter allows parties to agree that “commissions” be calculated net of certain items. The Fourth Department relied on it but emphasized that the employer bears the burden of proving a clear agreement to any downward adjustment. First Capital had none.

Gottlieb v. Kenneth D. Laub & Co., 82 NY2d 457 (1993)

Gottlieb held that § 198 merely provided remedies, not a substantive right. The Legislature targeted this precedent when enacting the No Wage Theft Loophole Act. The Fourth Department read the Act as legislatively overruling Gottlieb, underscoring its retroactive “clarificatory” purpose.

Brothers v. Florence, 95 NY2d 290 (2000) & Matter of Gleason, 96 NY2d 117 (2001)

The Court cited these cases for a three-factor retroactivity test (pronouncement of urgency, overriding a judicial construction, reaffirming legislative intent), applying each to justify retroactivity of the Act.

BDO Seidman v. Hirshberg, 93 NY2d 382 (1999)

A foundational case on restrictive covenants, guiding the Court’s partial enforcement of the non-solicitation clause.

First Department split: Raparthi v. Clark (2023); Kanthan v. Tagstone Tech. (2024); Frances v. Klein (2024).

These decisions applied the No Wage Theft Loophole Act prospectively. The Fourth Department expressly “departed” from them, creating an intra-departmental split that may invite Court of Appeals review.

3.2 Legal Reasoning

3.2.1 Retroactivity of the No Wage Theft Loophole Act

The Court applied the traditional presumption against retroactivity but found three strong indicators of legislative intent:

Statutory Text: “shall take effect immediately” demonstrates urgency.
Express Remedial Purpose: the Act labels itself a “remedial amendment” aimed at closing a “loophole.”
Legislative History: Memoranda explicitly state a desire to “clarify that wage theft is, and has always been, prohibited.”

Hence, the Court characterized the Act as confirmatory of existing policy, not as imposing new substantive obligations—an important analytical pivot to bypass the anti-retroactivity presumption.

3.2.2 Commissions as “Wages” & the 30% “Keep”

Under Labor Law § 190(1), commissions constitute “wages” when they are vested and non-discretionary. Relying on Wachter v. Kim and the Court of Appeals’ decision in Ryan v. Kellogg Partners, the panel reaffirmed that Rivera’s commissions met this test. Consequently, any unauthorized reduction is a § 193 deduction.

Because the Compensation Agreements left “net income” and “residual income” undefined, ambiguity exists. On summary judgment, ambiguity must be construed against the drafter (the employer). However, Rivera still bore the burden to show his interpretation is the only fair one (Dan’s Hauling), which he could not do. Hence triable issues survive.

3.2.3 Statute of Limitations and COVID-19 Toll

Although claims accrue when the breach occurs—not when discovered—the Court applied Governor Cuomo’s pandemic executive orders, which tolled limitations periods from March 20, 2020 to November 3, 2020. Counting that 228-day pause, Rivera’s recovery period reaches back to March 20, 2014 rather than August 28, 2014.

3.2.4 Restrictive Covenants

Applying BDO Seidman, the Court severed the overly broad non-compete but enforced narrower non-solicitation/non-interference provisions limited to accounts Rivera had developed. This balances the employer’s legitimate client-relationship protection with the employee’s right to work.

3.3 Impact of the Decision

Potential ramifications are substantial:

Statewide Split on Retroactivity. Employers in the Fourth Department (Western & Central NY) now face retroactive wage-theft liability dating back six years, while those in the First Department (NYC) currently do not. Unless harmonized by the Court of Appeals, forum shopping and uneven compliance pressures will ensue.
Commission Compensation Clarity. Employers paying commissions must draft agreements that explicitly define “net income,” “keep,” or any other adjustments; ambiguity will defeat summary judgment and invite § 193 claims.
Litigation Strategy. Plaintiffs’ attorneys will plead § 198 as a stand-alone cause dating back six years, add liquidated damages, and seek attorney’s fees—even when the underlying deductions occurred before 2021.
COVID-19 Toll Awareness. The decision underscores that pandemic tolls can enlarge look-back periods well into 2014 for still-pending disputes.
Non-Compete Drafting. Overly broad covenants risk invalidation; narrower customer-specific non-solicitation clauses fare better.

4. Complex Concepts Simplified

Labor Law § 193 Deduction vs. Commission Formula: A “deduction” is money subtracted from wages after they are earned. A “commission formula adjustment” is an agreed-upon method of calculating the wage before it is earned. In practice, the line blurs; the Court places the burden on the employer to prove the adjustment was expressly agreed to.
Remedial vs. Substantive Statute: A remedial law changes procedures/remedies and is often retroactive; a substantive law creates new rights or obligations and usually is not. The Court labeled the Act “remedial.”
Partial Enforcement (Blue Penciling): Courts may excise invalid portions of a restrictive covenant and enforce the rest, provided the employer did not overreach egregiously.
COVID-19 Executive-Order Toll: From 3/20/2020–11/3/2020, all limitation periods in New York were paused; days in that window are subtracted from the elapsed time.

5. Conclusion

Hernandez Technology v. Rivera is a landmark Fourth Department decision that simultaneously:

Affirms employees’ ability to sue for wage theft under Labor Law § 198—even for pre-2021 conduct—by declaring the No Wage Theft Loophole Act retroactive;
Clarifies that undisclosed commission “keeps” may violate § 193 unless unmistakably authorized;
Underscores the continued viability of partial enforcement for restrictive covenants; and
Expands claim windows by incorporating pandemic tolls.

The decision deepens departmental conflict on retroactivity, virtually guaranteeing eventual Court-of-Appeals scrutiny. Pending that review, employers operating in the Fourth Department should audit historical commission practices, revise compensation agreements for clarity, and reassess restrictive-covenant scopes to mitigate newly invigorated wage-theft exposure.