Pachter v. Bernard Hodes Group, Inc.

Decision Date10 June 2008
Docket NumberNo. 86,86
Citation891 N.E.2d 279,10 N.Y.3d 609
PartiesElaine PACHTER, Respondent, v. BERNARD HODES GROUP, INC., Appellant.
CourtNew York Court of Appeals Court of Appeals
OPINION OF THE COURT

GRAFFEO, J.

The United States Court of Appeals for the Second Circuit has certified two questions to this Court concerning the scope of protections afforded by article 6 of the Labor Law. We hold that an "executive" falls within the ambit of the protections afforded to "employees" under sections 190 and 193 of the Labor Law, and that the determination of when a commission is earned is governed by the parties' express or implied agreement.

I

Plaintiff Elaine Pachter was employed as a vice-president for defendant Bernard Hodes Group, Inc. from April 1992 to December 2003. The company specialized in providing recruitment, marketing and staffing services for other businesses. Pachter's primary duties involved arranging for media advertisements for clients. Pachter had the option of receiving a fixed salary but instead chose to be compensated on a commission basis. By availing herself of this incentive arrangement, for many years she was able to earn between $100,000 and $200,000 annually, rather than the $40,000 to $75,000 paid to salaried employees who did similar work.

Pachter's commission earnings were calculated using a formula. When a client of Hodes agreed to a media buy, Hodes would advance payment to the media company and the client would subsequently reimburse Hodes and pay a fee for Pachter's services. When the client was billed, Pachter received a percentage of the amount billed minus particular charges that are central to the dispute in this case — client receipts were reduced by certain business costs, such as finance charges for late payments, losses attributable to errors in placing advertisements, uncollectible debts and Pachter's travel and entertainment expenses. In addition, she chose to work with an assistant, and half of the assistant's salary was deducted from Pachter's percentage of billings.1 Each month, Pachter received a commission statement that listed her total billings and the percentage of those billings that represented her gross commission. The expenses attributed to her activities and any advances she had drawn from her commission account were then deducted to reach the net amount of income she had earned for that period. Pachter concedes that she was aware of the charges Hodes subtracted from her gross commissions and acquiesced in the compensation scheme for over a decade.

After Pachter left her employment with Hodes in December 2003, she sued the company in federal court, claiming that Labor Law § 193 — which prevents employers from making certain deductions from an employee's "wages" — prohibited Hodes from subtracting business expenses from her percentage of client billings in arriving at her commission income. Hodes countered that Pachter was an "executive" at the firm and, as such, she was not an "employee" for purposes of sections 190 and 193 of the Labor Law; and, in any event, the deductions were not taken from her commission but were used to calculate her earned commission. The United States District Court for the Southern District of New York granted summary judgment to Pachter, concluding that executives are covered by section 193 and that the adjustments made to Pachter's gross commissions were illegal deductions from wages.2

The Second Circuit has certified two questions of law to us regarding the scope of Labor Law article 6 protections. Noting that courts have reached different conclusions as to whether "executives" are embraced by section 190 of the Labor Law, the Second Circuit has requested that we determine whether an executive is entitled to the protections extended to employees in article 6 of the Labor Law. Assuming that executives are employees for the purposes of that statute, we are asked to decide when, in the absence of a written agreement between employer and employee, a commission is "earned" and becomes a "wage" subject to the prohibition on deductions in Labor Law § 193.

II

Article 6 of the Labor Law regulates the payment of wages by employers. Section 190(2) defines an "employee" as "any person employed for hire by an employer in any employment" — a description that plainly embraces executives. Other subdivisions in section 190 address particular classes of employees and explicitly exempt executives. For example, subdivision (6) deals with a "commission salesman," a term that "does not include an employee whose principal activity is of a supervisory, managerial, executive or administrative nature" (Labor Law § 190[6]). Similarly, the statute defines the phrase "clerical or other worker" to exclude any person employed in an executive capacity who earns more than $600 a week (Labor Law § 190[7]; see also Labor Law § 190[5] [excluding executives from the definition of "railroad worker"]).

Hodes argues that, despite the broad definition of "employee" in subdivision (2) of Labor Law § 190, the term is modified by the language in subdivisions (5), (6) and (7) that excludes individuals employed in executive capacities. We disagree. It is evident from the text and structure of article 6 of the Labor Law that executives are employees within the meaning of Labor Law § 190(2). Although executives are removed from the definitions of certain subcategories of employees in Labor Law § 190(5), (6) and (7), those provisions are not intended to limit the scope of who qualifies as an "employee" under subdivision (2). Rather, their purpose is to eliminate executives from particular requirements in article 6, such as the frequency of wage payments to manual workers, railroad workers, commission salespersons and clerical or other workers (see Labor Law § 191).

Aside from the structure of Labor Law § 190, Hodes' argument is further undermined by the fact that several provisions in article 6 make specific reference to the exclusion of executives. For example, section 192(2) removes executives who earn more than $600 per week from the requirement that wages be paid in cash to "any employee" and section 198-c (3) contains a similar exclusion relating to benefits and wage supplements. If, as Hodes claims, executives are not employees in the first instance, these two unambiguous exclusions would be wholly superfluous; there would be no need to eliminate executives from the enumerated subcategories of employees if they were not within the ambit of the general definition of "employee" in subdivision (2) of section 190 (see e.g. Matter of Amorosi v. South Colonie Ind. Cent. School Dist., 9 N.Y.3d 367, 373, 849 N.Y.S.2d 485, 880 N.E.2d 6 [2007]). In addition, under the interpretation of "employee" proposed by Hodes, Labor Law § 194 would not prohibit employers from paying similarly situated executives at different rates of compensation solely on account of their gender — an absurd proposition that the Legislature surely did not intend.

The Second Circuit recognized that our decision in Gottlieb v. Kenneth D. Laub & Co., 82 N.Y.2d 457, 605 N.Y.S.2d 213, 626 N.E.2d 29 (1993), rearg. denied 83 N.Y.2d 801, 611 N.Y.S.2d 136, 633 N.E.2d 491 (1994) has generated a split of authority in state and federal courts on the issue of whether executives are covered by article 6 of the Labor Law (compare e.g. Kaplan v. Aspen Knolls Corp., 290 F.Supp.2d 335, 340 [E.D.N.Y.2003] [executives excluded] and Davidson v. Regan Fund Mgt. Ltd., 13 A.D.3d 117, 118, 786 N.Y.S.2d 47 [1st Dept 2004] [same], with Miteva v. Third Point Mgt. Co L.L.C., 323 F.Supp.2d 573, 578-579 [S.D.N.Y.2004] [executives included] and Gennes v. Yellow Book of N.Y., Inc., 23 A.D.3d 520, 521, 806 N.Y.S.2d 646 [2d Dept 2005] [same]). We take this occasion to underscore that our decision in Gottlieb was limited to determining whether an employee who asserted a common-law contract cause of action, but did not allege a violation of any substantive provision of article 6, could collect attorney's fees under Labor Law § 198(1-a). We held that the text, history and purpose of that statute indicated that attorney's fees are available only to plaintiffs who prove a violation of article 6 (see 82 N.Y.2d at 464, 605 N.Y.S.2d 213, 626 N.E.2d 29). We noted that

"[c]ertainly nothing in the language of [the statute as originally enacted] suggests that it was intended to provide any remedy whatsoever for the successful prosecution of a common-law civil action for contractually due remuneration on behalf of employees who in all other respects are excluded from wage enforcement protection under the recodified article 6 of the Labor Law" (id. at 462, 605 N.Y.S.2d 213, 626 N.E.2d 29).

This observation was not intended to signal that executives are outside the reach of article 6. Rather, it merely pointed out that employees serving in an executive, managerial or administrative capacity do not fall under section 191 of the Labor Law and, as a result, those individuals are not entitled to statutory attorney's fees under section 198(1-a) if they assert a successful common-law claim for unpaid wages. And because the plaintiff in Gottlieb had not alleged that he was protected by section 191, he was presumptively "excluded from wage enforcement protection" under article 6 (id.). Gottlieb thus poses no obstacle to plaintiffs claim in this case...

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