Legislators Debate The Creation Of An Employee Lien

Democrats in the state Legislature see the creation of an employee lien as a way to protect workers while Republicans see the idea as duplicative and burdensome.

The state Assembly passed A.486B by an 87-58 vote near the end of the legislative session while the state Senate passed the legislation, sponsored by Sen. Jessica Ramos, D-East Elmhurst, by a 42-20 margin. Gov. Andrew Cuomo has not yet signed the legislation.

The legislation would amend the state’s mechanics’ lien provisions to create an employee lien that would provide a lien remedy for all employees.

Currently, only home improvement workers are included in the mechanics’ lien provision.

The legislation also allows victims of wage theft to seek attachment of the employers assets during a court action, amends the business corporation law so that the largest shareholders of non-publicly traded corporations can be held personally liable for wage theft and amends the state’s limited liability company law so that employees can hold 10 members with the largest ownership interest in a company personally liable for wage theft.

The legislation gives employees three years from the end of their employment to start the employee lien process.

Assemblyman Andrew Goodell, R-Jamestown, and Assemblyman Joe Giglio, R-Gowanda, both voted against the legislation in the Assembly. Goodell questioned Assemblywoman Linda Rosenthal, D-Manhattan, asking a series of questions about how the creation of an employees’ lien would work in conjunction with the rest of the state’s liens and judgement laws. Goodell also asked Rosenthal what the current penalties for wage theft are. Rosenthal responded that she wasn’t talking about penalties on employers but about the ability to attach a lien on the assets of a business or owner.

“Well your explanation of the bill is that this was designed to combat wage theft and it was my understanding that there is a large number of bills and statutory provisions that already apply,” Goodell said. “It’s not like we’re saying it’s OK to steal somebody’s wages right now. We have civil penalties. We have criminal penalties. We have personal liability. We have the full array of the law enforcement power of the state against wage theft.”

Rosenthal replied that the bill concerns helping employees get wages they’re owed. She said there are times that unscrupulous employers dodge court-ordered judgements by declaring bankruptcy, selling the business to an LLC, disappearing and creating a situation where there are no assets to be distributed. She said the employees’ lien is necessary to make sure there are assets from which employees can receive their wages. When Rosenthal mentioned bankruptcy, Goodell said employee wages are one of the expenses that continue throughout the course of a business bankruptcy. He also asked Rosenthal if she was aware that hiding assets in the manner she described is a serious federal crime.

“You are aware of course that hiding assets is federal crime when you file bankruptcy, right?” Goodell asked. “That’s a very serious offense under the bankruptcy law. You have to be honest and up front over where all your assets are. Does this deal with hiding assets under the federal bankruptcy law? So, are you saying the federal bankruptcy law provisions and the criminal sanctions that pertain to hiding assets are insufficient?”

Rosenthal said the legislation didn’t deal with bankruptcy laws, only paying employees. After several minutes of questioning by Goodell and Anthony Palumbo, R-New Suffolk, Rosenthal said the genesis of the legislation is from a Manhattan business owner who owned $4.6 million to 36 employees who said they were illegally fired after trying to form a union. That owner was also charged on more than 400 counts of violating labor laws and ended up serving jail time. After the owner sold the business, new owners were ordered to pay the workers $1.5 million, but only paid $500,000 before the restaurant closed.

“These are serious cases of wage theft,” Rosenthal said. “They’re not regarding inadvertent non-payment. If, and I have said this for many years throughout the life of this bill, if a business pays their workers then they have nothing to fear whether it’s piercing the corporate veil or being dragged to court. If you pay your workers then you have nothing to worry about.”

In addition to his feeling that existing protections for workers suffice, Goodell explained his vote against the employee lien legislation by saying that giving employee liens a priority position compared to other loans and creditors could end up harming workers when a business finds itself struggling in a cash flow crunch.

“The problem that his bill creates is if a company is facing cash flow issues, and some companies do from time to time, if their employee liens automatically take priority over any secured loans like lines of credit, the company will not be able to get a loan,” Goodell said. “They won’t be able to get a line of credit because a bank or lending institution is not assured that their money that they’re advancing to this company will be secured in the future. That will eliminate the very credit necessary for these businesses to survive and pay their employees.”

Rosenthal’s questioning continued by Palumbo, who asked how the court would know how much the lien is for if the case hadn’t gone to court for any sort of argument. The employee lien would be filed before a judgement is actually issued by a court, so there is no certain amount for the lien. The legislation states the judge would attach the lien — before a court case — if the judge was convinced the employee has a good chance at winning the case. Palumbo wondered how a judge could be certain the employee would prevail if the judge hadn’t actually heard from both sides. Palumbo also had an issue with the employee’s ability to forego the business for the lien and attach it to the 10 largest shareholders of the company.

“These remedies are already available,” Palumbo said. “The fact that we’re now going to make these mandatory by statute is a problem. You can pierce the corporate veil in our courts. You can receive a temporary restraining order by showing the likelihood of success on the merits, balancing on the equities and the fact the that you might be losing some assets might be dissolved or hidden in an attempt to avoid a creditor. We do have those remedies, but there is a process for it. And that’s what is important. To not have that discretion and to make this all mandatory by statute is really going to be an onerous burden, specifically and most importantly, because they will not have proven a thing. They don’t necessarily need to have an attachment, which will be specific to those assets, they just need to file the notice of lien three years after left the business. The intentions are understood. It’s a laudable intent. To do it this way is so overly burdensome. It’s going to further crush our businesses in New York. I think it’s a bad idea.”

Assemblyman Harvey Epstein, D-Manhattan, spoke in support of the legislation. He said as a lawyer, he represented wage theft victims who never were able to get their back wages because the company had no assets left.

“There would be no opportunity for those workers who were exploited and had their wages stolen to be able to those wages back,” he said. “It happened time after time after time. This bill seeks to rectify that problem. This bill says at the time of filing we will put a lien on whatever property you have so you can’t just sell the house and the business has no interest anymore. You can’t sell the underlying ability of that business. And it ensures that once those workers do get a job they will have no judgement to collect on. This bill protects workers. This bill does exactly what Assemblywoman Rosenthal talked about. It’s there to ensure when wages are stolen that businesses can’t walk away. This is exactly our job, this is exactly what we’re here to do.”

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