Opinion
113477/04.
Decided January 27, 2006.
Heath Olnowich, Esq., Markowitz Rabbach LLP, Melville, NY, for Plaintiff.
Peter A. Walker, Esq. Seyfarth, Shaw, LLP, New York, NY, for Defendant.
This is an action for Breach of Contract, violation of the New York Labor Law, Breach of the Implied Covenant of Good Faith and Fair Dealing, and also for a Declaratory Judgment. Plaintiff alleges that she was fired without cause, and that under the terms of her employment agreement ("Agreement") Defendant owes her salary and commissions. Defendant has moved to dismiss four of her five claims.
Plaintiff, Vanessa Nornberg ("Nornberg"), entered into an employment agreement ("Agreement") with Defendant, Thai Magic Co., Inc. ("Thai"), a jewelry wholesaler, on or about July 8, 2002. She also executed a document entitled "Covenants," which set out non-competition terms should she depart from the employment of the company. Pursuant to the Agreement, she served as President of Thai from July 8, 2002 through May 24, 2004. During that time she maintained a number of her own accounts, and oversaw her employees and the management of their accounts. It is disputed whether Nornberg was terminated "for cause" or "without cause." Thai offered her a "Separation Agreement" setting out terms to which Thai would agree to a termination without cause, even though it believed there was cause. (Walter Aff. Exh B). The Separation Agreement, which Nornberg never signed, offered in pertinent part, separation pay, payment of COBRA and other benefits. It also noted the continued enforcement of the Covenants precludes Nornberg from taking legal action against Thai, and provided that if she did not sign the separation agreement, Thai would consider it a termination for cause and abide by the terms of their initial Agreement.
Thai claims it paid Nornberg her salary and bonus for May, as well as her accrued vacation and sick time, money she earned while still employed at Thai. Because Nornberg chose not to sign the Separation Agreement, Thai considers her terminated for cause. It believes it has paid her what she is due after a termination with cause. The Agreement does not specifically set out what Thai owes Nornberg if terminated for cause.
Nornberg asserts that she was terminated without cause and brings this action to recover the monies allowed her under the Agreement and for alleged Labor Law violation. The agreement states,
In the event that your employment is terminated by the Company without "Cause" (as defined below), you will be entitled to (A) a severance payment equal to eight (8) weeks base compensation; (B) payment of Cobra benefits for a three month period; and (C) a prorated portion of the annual bonus as described above for the calendar year, as well as the full amount entitled to you in escrow.
It is these "wages" Nornberg alleges that Thai owes her, as well as a bonus compensation received in previous years. A main point of contention is the money she was to receive at the end of three years employment, the money "entitled to [her] in escrow." The definition of "Cause" is set out in the Agreement:
"Cause" shall mean (i) your conviction of any act or acts constituting a felony under the laws of the United States or any state thereof or a plea of nolo contender in respect of any such felony charge; (ii) action by you toward the Company or its affiliates involving fraud, embezzlement, misappropriation, or dishonesty (other than good faith expense account disputes); (iii) your willful refusal to perform the services hereunder or abide by or follow written directions from the Chief Executive Officer of the Company; (iv) the engagement by you in willful misconduct that is materially injurious to the Company or any of its affiliates; (v) your willful breach of any material provision of this Agreement that results in financial detriment that is material to the company or any of its affiliates; (vi) the breach by you of any written covenant or agreement with the Company or (vii) other willful gross misconduct that materially injuries any of the Company.
The First Amended Complaint was dismissed for failure to state a bona fide claim, without prejudice, because the claim for declaratory judgment was duplicative of the Breach of Contract claim. Opportunity was given to replead, and Nornberg ultimately filed a Second Amended Complaint, dated May 12, 2005 in which she reasserts the claims for Breach of Contract, and Breach of Implied Covenant of Good Faith and Fair Dealing, changed the sections of Labor Law that she claims Thai violated, and restates the Declaratory Judgment claim. These claims are as follows:
First Cause of Action: Breach of Contract claiming "entitlement to such salary, bonus compensation (including commissions) and other benefits pursuant to the terms of the [Agreement]." Nornberg states the unpaid wages to be no less than $132,892.91. (Second Amend. Comp., ¶¶ 10-14).
Second Cause of Action: That Thai's refusal to pay these wages upon termination is a violation of sections 191 (3) and 193 of the Labor Law. (Second Amend. Comp., ¶¶ 15-22).
Third Cause of Action: That because Thai violated the above sections, section 198(1-a) of the Labor Law, she is entitled to damages of twenty-five percent of the total wages due, no less than $34,723.23. (Second Amend. Comp., ¶¶ 23-26).
Fourth Cause of Action: Nornberg claims Thai breached the Implied Covenant of Good Faith and Fair Dealing, when it terminated her without cause and was not paid the wages required by the Agreement. Plaintiff alleges that the termination for "cause" was fabricated in order to avoid paying Nornberg commissions that would become due to her after three years of employment or three months from the termination date. (Second Amend. Comp., ¶¶ 27-34).
Fifth Cause of Action: Nornberg also seeks a Declaratory Judgment, "declaring that the Covenants to which Plaintiff Nornberg agreed to be bound shall be of no further force or effect, retroactive to the date of termination." (Second Amend. Comp., ¶¶ 35, 36).
Thai has moved to dismiss the second through fifth causes of actions on documentary evidence and because plaintiff has failed to state a cause of action. Specifically, with regards to second and third causes of action, Thai claims that the Labor Law does not apply to Nornberg, as a bona fide executive, i.e., President of the company. Further, if she is determined to be an employee protected by Article 6, there are no wages due to Nornberg under the Article's definition of "wages." It also moves to dismiss the fourth cause of action, Breach of an Implied Covenant of Good Faith and Fair Dealing, on the grounds that New York does not recognize an implied covenant in an at-will contract. Finally, it moves to dismiss the fifth cause of action, the Declaratory Judgment claim, as duplicative of the Breach of Contract claim, arguing that resolving the contract issue will determine the force of the covenants.
New York Labor Law
At issue is whether Nornberg qualifies as an "employee" under Labor Law sections 191(2) and 193. According to Thai, the protections of Article 6 do not apply to Nornberg because she is an executive employee.
The definitional section of Article 6 (§ 190), states: "Employee' means any person employed for hire by an employer in any employment." Section 190 also defines four categories of employees: manual worker, railroad worker, commission salesman, and clerical (and other) worker. Nornberg is not a "Manual Worker" or "Railroad Worker," but the other two categories are not as clear. The definitions are as follows:
6. "Commission salesman" means any employee whose principal activity is the selling of any goods, wares, merchandise, services, real estate, securities, insurance or any article or thing and whose earnings are based in whole or in part on commissions. The term "commission salesman" does not include an employee whose principal activity is of a supervisory, managerial, executive or administrative nature.
7. "Clerical and other worker" includes all employees not included in subdivisions four, five and six of this section, except any person employed in a bona fide executive, administrative or professional capacity whose earnings are in excess of six hundred dollars a week.
Neither of the categories apply to Nornberg; she was the President of Thai and clearly working in an executive position with a salary that exceeded six-hundred dollars a week. Nornberg does not dispute that she was an executive at Thai.
The categories defined in Section 190 have been read to apply throughout Article 6. "Except for manual workers, all other categories of employees entitled to statutory protection under Labor Law Section 191 are limited by definitional exclusions of one form or another for employees serving in an executive, managerial or administrative capacity." ( Gottlieb v. Kenneth D. Laub Co., Inc., 82 NY2d 457, 461, 1993]; Cohen v. Fox-Knapp, Inc., 226 AD2d 207, [1st Dept., 1996], (distinguishes Gottlieb holding that plaintiff, although previously an executive, was not one at the time of termination and thus was covered by Article 6; see also, Taylor v. Blaylock Partners, 240 AD2d 289, 291, [1st Dept., 1997], In Cohen v. ACM Medical Lab, Inc. ( 265 AD2d 839 [4th Dept., 1998]), the court denied a Section 193 claim because Plaintiff was a bona fide executive and thus prevented from recovering under Section 193 of the Labor Law. ( See also Cantor Fitzgerald Assoc. v. Mines, 2003 WL 23109714 [an employee cannot recover under Article 6 if employed as an executive]).
Nornberg's arguments rest mainly on either Federal cases interpreting Article 6, or on cases decided before Gottlieb. With regard to the federal cases relied on, they are not only not binding on a state court, (e.g., Mayer Bros. Poultry Farms v. Meltzer, 274 A.D. 169, 177 [1st Dep't 1948]; Marsich v. Eastman Kodak Co., 244 A.D. 295, 296 [2nd Dep't 1935], aff'd 269 NY 621), but I am bound by the unequivocal decisions of the First Department which have made it clear that executives do not qualify as employees for purposes of asserting wage claims under Article 6. ( Taylor v. Blaylock Partners, 240 AD2d 289, 292 [1st Dep't 1997]; Cohen v. Fox-Knapp, Inc., 226 AD2d 207, 207-08 [1st Dep't 1996]; See also Cantor Fitzgerald Associates, L.P. v. Mines, 2003 WL 23109714, at *2 [NY Sup. Ct. Oct. 13, 2003]). Moreover, the statement in Parker v. Revlon ( 211 AD2d 415 [1st Dept 1995]), a case decided after Gottlieb, that "the purpose of this statutory remedy is to assure the prompt and expectations payment of wages to employees for hire a category of personnel which, incidentally, includes executives," was a statement that relied on Daley v. Related Cos., 179 AD2d 55 (1st Dept 1992), which was decided before Gottlieb.
Because a claim under Article 6 is not permitted when the employee is employed in an executive position, and since there is no dispute that Nornberg was an executive, her claims under Sections 191 (3) and 193 cannot survive. Moreover, Plaintiff does not dispute that Labor Law Section 198 depends upon a successful claim under another section of Article 6. In her own Memo of Law she states; "Plaintiff Nornberg's claim , pursuant to Section 198(1-a), rises and falls with Plaintiff's Second Cause of Action." (Pl. Memo of law, pg 14). This is additionally supported by Gottlieb, ( 82 NY2d 457), holding that a successful 198(1-a) claim must be limited to actions for wage claims founded on the substantive portions of Article 6. Consequently, claims two and three are dismissed for failure to state a claim.
Implied Covenant of Good Faith
Although Plaintiff claims a Breach of the Implied Covenant of Good Faith and Fair Dealing on the part of Thai, she recognizes that, "New York courts generally will not imply a covenant of good faith and fair dealing in the context of at-will employment, the theory being that to imply such an obligation would be inconsistent with and destructive of the employer's unfettered right to terminate the employee." However, Plaintiff claims that in Wakefield v. Northern Telecom, Inc. ( 769 F.2d 109 [2d Cir 1985] "the Second Circuit has created an exception to New York's at-will policy which allows recovery for breach where the employee's termination was substantially motivated by the employer's desire to avoid paying commissions."
Wakefield, acknowledging that "the New York Court of Appeals has squarely held that the implied covenant of good faith does not give rise to a contract action for the wrongful discharge of an at-will employee under New York law, Murphy v. American Home Products, Inc., 58 NY2d 293, 304-05 (1983)", nevertheless held that "the contract for payment of commissions creates rights distinct from the employment relation, and, whether or not Paragraph J is still effective, obligations derived from the covenant of good faith implicit in the commission contract may survive the termination of the employment relationship." Similar to the Labor Law claims, it is argued that this 1985 federal "exception" should be applied in the instant case. However, it is well-settled New York law that a claim alleging breach of the implied covenant must be dismissed as duplicative when the conduct constitutes the breach of the underlying contract. ( Horn v. New York Times, 100 NY2d 85). Therefore, I decline to follow Wakefield, and dismiss this Fourth cause of action.
Declaratory Judgment
Regarding the Fifth Cause of action, which seeks a declaratory judgment, little discussion is required. Here the plaintiff is seeking "a declaration that the Covenants be retroactively declared null and void." To me the breach of contract claim provides an adequate remedy, e.g., Artech Information System, L.L.C. v. Tee, 280 AD2d 117, 125 [1st Dep't. 2001]), and therefore this cause of action is dismissed.
Accordingly, it is hereby
ORDERED that Thai's motion to dismiss is granted.