The New York Labor Law (“NYLL”) grants employees the power to pursue unpaid wage claims against their employers. Despite the NYLL’s protection of earned wages, case law developed in which courts held that a complete failure of an employer to pay a wage owed to an employee (as opposed to an impermissible deduction) was not actionable. In 2021, the State Legislature addressed this issue by passing the No Wage Theft Loophole Act (the “Loophole Act”) with the intention of protecting an employee’s rights to all earned wages. But four years after New York enacted the Loophole Act, the issue remains fluid, as discussed below.  

Earlier this month, the Appellate Division, Fourth Department, based in Rochester, deviated from First Department (New York and Bronx Counties) precedent and determined that the Loophole Act should be applied retroactively. This means, in the Fourth Department’s view, that a wage claim that arose before the enactment of the Loophole Act will be analyzed as though the Act was already in effect. This ruling applies a broader view to the availability of employee wage claims than the First Department, meaning that these claims will be adjudicated differently depending on where in New York the employee files a lawsuit.

Background of New York Labor Law and Reasoning for the Loophole Act

NYLL protections include regulating the frequency of wage payments, the payment of sales commissions, as well as notice and record-keeping requirements. Of significance to the Fourth Department’s recent decision, NYLL Section 193 prohibits employers from making unauthorized deductions from employee wages. Under the NYLL, a prevailing employee may recover liquidated damages and attorneys’ fees from employers in successful wage claim lawsuits. 

Over time, a loophole surfaced in cases where employees sued employers under Section 193 based on an employer’s failure to pay any wages. Based on the phrasing of the NYLL, some courts, following First Department precedent, including Perella Weinberg Partners LLC v. Kramer, would dismiss such claims “because a wholesale withholding of payment is not a ‘deduction’ within the meaning of [NYLL Section 193].” The Fourth Department rejected this approach and has held that the failure to pay a vested wage “constitute[s] a deduction from wages in violation of [NYLL Section 193(1)]. See Zinno v. Schlehr.

In 2021, New York enacted the Loophole Act to address the different analyses of NYLL Section 193 applied by Courts and sided with the Fourth Department’s interpretation. 

The Loophole Act added a subsection to NYLL Section 193 stating, “[t]here is no exception to liability under this section for the unauthorized failure to pay wages, benefits or wage supplements.” In passing the Act, the Legislature stated a purpose of clarifying that “the unauthorized failure to pay wages … has always been encompassed by the prohibitions of [NYLL] Section 193.”  

Different Applications of the Loophole Act by the First and Fourth Departments

Since the Loophole Act was enacted, the First Department ruled against an employee who sought to reinstate his previously dismissed NYLL Section 193 claim. The First Department reasoned that the Loophole Act did not apply retroactively, meaning that it did not apply to actions that occurred before the NYLL was amended. See Raparthi v. Clark. The First Department went further and stated “even assuming the [Loophole] Act was intended to apply retroactively and would be applicable . . . this Court has continued to hold that the wholesale withholding of commissions is not a specific deduction from wages as required by [NYLL Section 193].” This statement indicates that the First Department did not change its interpretation of NYLL Section 193, even after the enactment of the Loophole Act. 

In June 2025, the Fourth Department reached a different conclusion. In Hernandez Tech., Inc. v. Rivera (June 6, 2025), the Fourth Department analyzed alleged conduct of an employer that occurred prior to the effective date of the Loophole Act, and concluded the Loophole Act “should be applied retroactively consistent with the legislature’s intent, and we therefore depart from the First Department, which has held otherwise.” Just a month earlier, in May 2025, the Fourth Department, consistent with its pre-Loophole Act decisions, held that an employer’s failure to pay a nondiscretionary bonus “constituted a deduction from wages in violation of [NYLL Section 193(1)].” Matter of William Mattar, P.C. v Riley (May 2, 2025). 

These recent decisions reveal that the Loophole Act did not resolve the conflicting analyses of NYLL claims by different courts. The First Department and Fourth Department still appear to diverge on whether NYLL Section 193 applies to the wholesale withholding of wages owed to employees, and have reached different conclusions on whether the Loophole Act applies retroactively. The NYLL has a six-year statute of limitations which means that employees can still bring wage claims for employer actions that pre-date the Loophole Act, and the First and Fourth Departments would decide such claims differently. The Court of Appeals, the State’s highest Court, is empowered to hear cases to resolve conflicts among the Appellate Division Departments and may eventually resolve this issue. In the meantime, both employees and employers should be cognizant of this split of authority when analyzing the viability of NYLL wage claims. 

Robert P. Yawman is a partner with the law firm Adams Leclair LLP. Adams Leclair LLP is a litigation law firm that concentrates its practice in a broad range of commercial and construction advocacy throughout upstate New York. Based in Rochester, the Adams Leclair team of dedicated attorneys provides our valued clients with specialized counsel, honed by decades of experience handling disputes and trying cases. 

Rob can be reached at ryawman@adamsleclair.law