No Executive Exception to Civil Wage Theft Liability Under Labor Law §§ 193 and 198 After the No Wage Theft Loophole Act

Introduction

In a significant clarification of New York Labor Law following the 2021 “No Wage Theft Loophole Act,” the Appellate Division, First Department, held that a high-earning executive may bring a civil action under Labor Law §§ 193 and 198 to recover unpaid severance pay. The decision reverses the trial court’s dismissal premised on Labor Law § 198-c(3)’s “executive exemption,” which limits criminal liability for nonpayment of wage supplements. The First Department squarely holds that § 198-c’s executive carveout does not bar civil claims under §§ 193 and 198, particularly in light of the Legislature’s 2021 amendments declaring “there is no exception to liability” for unauthorized failure to pay wages, benefits, or wage supplements.

The dispute arose after Ankit Patel, an Executive Director of Asian equities at Maybank Kim Eng Securities USA Inc., alleged that his employer breached a separation agreement promising five months of severance, paying only three. He sued under Article 6 of the Labor Law to recover the unpaid portion along with attorneys’ fees and liquidated damages. The central issue on appeal was whether a high-earning executive is barred from invoking §§ 193 and 198 to enforce unpaid severance, given § 198-c’s executive exemption. The First Department answered no, reinstating the claim and announcing a clear rule: after the 2021 amendments, Article 6 imposes civil liability for wage theft “completely and without exception,” including for executives.

Summary of the Opinion

The First Department reversed the Supreme Court (N.Y. County, Nock, J.) and reinstated Patel’s second cause of action under Labor Law §§ 193 and 198. The Court held:

• Severance is a “benefit or wage supplement” under Labor Law § 198-c(2), which § 190(1) expressly includes within the definition of “wages” for § 193 purposes.
• Labor Law §§ 193(5) and 198(3), as amended by the 2021 No Wage Theft Loophole Act, provide that “there is no exception to liability” for unauthorized failure to pay wages, benefits, or wage supplements and that “all employees” have the right to recover full wages, benefits, and wage supplements and liquidated damages.
• Labor Law § 198-c’s executive exemption limits criminal penalties and does not bar civil claims under §§ 193 and 198. Executives remain “employees” for Article 6 purposes unless expressly excluded, and neither § 193 nor § 198 contains such an exclusion.
• Pre-Act decisions that barred executives’ wage-supplement claims (e.g., Naderi and Riggi) involved causes of action that accrued before the 2021 amendments and are not controlling for post-Act claims.

The Court emphasized that reading § 198-c’s executive exemption to restrict civil remedies under §§ 193 and 198 contradicts the Legislature’s explicit 2021 directive to eliminate “judicially created loopholes” and to ensure that wage theft—whether by deduction or wholesale nonpayment—is actionable by all employees.

Detailed Analysis

1) Statutory Framework and Key Provisions

• Article 6 Purpose. Article 6 (§§ 190–199-a) protects employees’ rights to payment of wages. See Truelove v Northeast Capital & Advisory, Inc., 95 NY2d 220, 223 (2000).
• Definition of “Wages.” Labor Law § 190(1) includes “benefits or wage supplements as defined in § 198-c” within “wages.”
• Severance as Wage Supplement. Section 198-c(2) expressly identifies separation (severance) pay as a “benefit or wage supplement.”
• Who Is an “Employee.” Section 190(2) defines “employee” broadly as “any person employed for hire,” a definition that “plainly embraces executives” absent express exclusion. Pachter v Bernard Hodes Group, Inc., 10 NY3d 609, 614 (2008).
• Civil Remedies. Section 198 provides remedies (e.g., attorneys’ fees and liquidated damages) for “an employee who prevails under a substantive provision of Labor Law article 6.” Frances v Klein, 231 AD3d 535, 536 (1st Dep’t 2024). As amended, § 198(3) states: “All employees shall have the right to recover full wages, benefits and wage supplements and liquidated damages.”
• No Wage Theft Loophole Act (2021). L 2021, ch 397 added § 193(5) and amended § 198(3) to declare: “There is no exception to liability” for unauthorized failures to pay wages, benefits, or wage supplements, clarifying courts’ prior narrow readings of “deductions.” Legislative materials stress that wage theft is prohibited “completely and without exception.”
• § 198-c’s Executive Exemption. Section 198-c authorizes criminal penalties for nonpayment of supplements but exempts certain executives (earning over $1,300/week) from criminal coverage (§ 198-c[3]). Courts, including the Second Circuit in Pachter (505 F3d 129, 132 n.3 [2d Cir 2007]), have recognized this limitation appears confined to that section.

2) Precedents and Authorities Cited

• Truelove v Northeast Capital & Advisory, Inc., 95 NY2d 220 (2000): Affirms Article 6’s remedial purpose to “strengthen and clarify” wage rights, while distinguishing nonwage discretionary bonuses. Here, severance arises from a separation agreement and is a defined wage supplement, placing it within Article 6’s protections.
• Matter of Angello v Labor Ready, Inc., 7 NY3d 579 (2006): Interprets § 193’s prohibition on unauthorized deductions. The 2021 Act responded to decisions narrowly construing “deduction,” clarifying that wholesale nonpayment is actionable under § 193.
• Pachter v Bernard Hodes Group, Inc., 10 NY3d 609 (2008): The Court of Appeals held that executives are “employees” under Article 6 “except where expressly excluded,” and that exclusions in one section do not silently ripple across Article 6. The First Department invokes Pachter’s “core message”: a section-specific exclusion (e.g., § 198-c’s executive carveout) does not limit other sections (such as §§ 193 and 198) unless explicitly stated.
• Pachter v Bernard Hodes Group, Inc., 505 F3d 129, 132 n.3 (2d Cir 2007): Notes § 198-c(3)’s executive limitation “appears to apply only to that particular section,” foreshadowing the present ruling’s statutory compartmentalization.
• Frances v Klein, 231 AD3d 535 (1st Dep’t 2024): Confirms § 198 remedies are available to “an employee who prevails” under a substantive Article 6 provision and that the 2021 Act is not retroactive—important for distinguishing pre-Act case law.
• Naderi v North Shore–Long Is. Jewish Health Sys., 135 AD3d 619 (1st Dep’t 2016), and Riggi v Charlie Rose Inc., 212 AD3d 486 (1st Dep’t 2023): Pre-Act cases that barred executives’ wage-supplement claims under the Labor Law. The First Department confines them to their pre-August 2021 accrual dates, consistent with Frances’s nonretroactivity holding.
• Legislative History and Commentary. Senate Sponsor’s Memorandum for L 2021, ch 397 emphasizes closing “judicially created loopholes,” ensuring “all employees” can recover wages, benefits, and supplements. Secondary authority (Lucas, 80 Alb. L. Rev. 1355) and NELA/NY’s Bill Jacket memo underscore that § 198-c’s executive exemption is a criminal-liability limitation, not a constraint on civil remedies under §§ 193 and 198.

3) The Court’s Legal Reasoning

The Court resolves a statutory interplay question by adhering to text, structure, and legislative purpose:

• Textual clarity post-2021: The Legislature stated “there is no exception to liability” under §§ 193 and 198 for unauthorized failure to pay wages, benefits, or wage supplements. Section 198(3) declares that “all employees” may recover “full wages, benefits and wage supplements and liquidated damages.” Neither provision contains an executive exclusion.
• Structural compartmentalization: Section 198-c is a criminal enforcement provision with its own executive exemption. By Pachter’s logic, that carveout cannot be exported to §§ 193 and 198 absent express language. Article 6’s design uses targeted exclusions where intended; courts should not infer cross-sectional exclusions.
• Legislative purpose: The No Wage Theft Loophole Act was passed to close gaps created by narrow judicial interpretations, including limitations that treated wholesale nonpayment as beyond § 193. Applying § 198-c’s criminal exemption to civil claims would revive the very loopholes the Act sought to eliminate.
• Application to severance: Separation pay is expressly a wage supplement (§ 198-c[2]) and, through § 190(1), a “wage” for § 193 purposes. A promise to pay five months of severance in a separation agreement is enforceable under Article 6’s civil remedies when not paid in full.
• Executive status irrelevant to civil liability: Whether Patel is a high-earning executive affects § 198-c’s criminal reach, not his civil standing as an “employee” under §§ 193 and 198. The Court’s reading honors the “all employees” language and avoids rendering it a nullity for executives.

4) Practical Impact and Forward-Looking Implications

This decision is a watershed for New York wage-and-hour litigation involving executives and other high earners:

• Executives can sue for unpaid severance and supplements. High-earning executives may now invoke §§ 193 and 198 to recover unpaid severance and other wage supplements (e.g., vacation, holiday pay, certain expense allowances) when those obligations are “earned” or otherwise due under contract, policy, or statute.
• Enhanced remedies available. Plaintiffs may seek liquidated damages and attorneys’ fees under § 198—powerful incentives that increase exposure in severance disputes. Employers cannot rely on § 198-c’s executive exemption to avoid civil liability.
• Drafting and payment discipline. Employers should tighten separation agreements and payroll practices. Clear payment schedules and prompt compliance are essential; post-Act, courts will likely resist technical defenses that hinge on narrow definitions of “deduction” or executive status.
• Pleading and motion practice. On a CPLR 3211 motion, a plaintiff who pleads a contractually owed severance not paid in full states a viable § 193/§ 198 claim post-Act. Defenses premised on § 198-c’s executive carveout should fail in the civil context.
• Cabining pre-Act precedents. Decisions like Naderi and Riggi are limited to causes of action accruing before August 2021. For post-Act claims, Patel will likely be cited as the First Department’s controlling construction.
• Beyond severance. The logic applies broadly to “benefits or wage supplements” recognized by § 198-c(2). However, disputes will continue over whether a particular benefit is “earned” (e.g., discretionary bonuses remain outside “wages” absent a binding promise; see Truelove).

Complex Concepts Simplified

• Wages vs. Wage Supplements: “Wages” include not only salary but also “benefits or wage supplements” such as severance, vacation, and holidays when promised by contract or policy. Section 190(1) equates these supplements with wages for § 193.
• Deduction vs. Nonpayment: Some older cases read § 193 to cover only “deductions” (like taking money out of a paycheck). The 2021 Act clarifies that wholesale nonpayment of owed wages is also covered—closing the “loophole.”
• Executive Exemption (Labor Law § 198-c[3]): This exemption removes certain executives from criminal penalties for nonpayment of supplements. It does not eliminate their right to sue civilly under §§ 193 and 198.
• Liquidated Damages: An added sum on top of unpaid wages intended to compensate and deter violations. Under § 198, employees who prevail typically receive liquidated damages unless the employer proves good-faith compliance.
• “Prevails under a substantive provision”: To obtain § 198 remedies, the employee must win under a substantive Article 6 section (e.g., § 193). Patel clarifies that claims predicated on unpaid severance promised by agreement can satisfy this requirement.

Conclusion

Patel v. Maybank Kim Eng Securities USA Inc. cements an important post-2021 principle in New York wage law: there is no executive exception to civil liability for the unauthorized failure to pay wages—including severance—under Labor Law §§ 193 and 198. Anchored in the text and purpose of the No Wage Theft Loophole Act, the First Department harmonizes Article 6 by keeping § 198-c’s executive exemption confined to criminal enforcement while honoring the Legislature’s command that “all employees” may recover full wages, benefits, wage supplements, and liquidated damages.

For employers, the decision heightens the importance of precise drafting and timely payment of severance and other promised supplements. For employees, including high-earning executives, Patel provides a clear pathway to civil recovery with fee-shifting and liquidated damages. More broadly, the ruling advances the Legislature’s goal of eliminating wage theft “completely and without exception,” ensuring Article 6 fully functions as a rights-affirming regime for all New York workers.