Potentia Mgt. v. D.W.: Employer Cannot Recover Wages Absent Special Agreement

On February 10, 2023, Potentia Management Group, LLC filed a lawsuit against a former employee, identified as D.W., in Utica City Court, New York. The company sought $5,747.92, alleging overpayment of wages for work that D.W. purportedly failed to perform adequately. Potentia also claimed breach of an employment agreement but later withdrew a request for additional fees. D.W. denied all claims and filed counterclaims alleging that the lawsuit was retaliatory, filed in response to her prior wage complaint with the New York State Department of Labor.

Defendant’s Counterclaims

D.W. alleged that after she filed a wage claim for unpaid compensation covering May 16–20, 2022, Potentia initiated this lawsuit in retaliation, violating New York Labor Law § 215. She sought $20,000 in liquidated damages for the alleged retaliation, plus additional compensation for unpaid wages and missing wage statements under Labor Law § 195. D.W. asserted that employers are prohibited from suing to recover wages already paid and that her termination was wrongful and retaliatory.

Plaintiff’s Response

Potentia argued that D.W. had submitted false pay vouchers and was paid for time not worked. The company maintained that its claim was based on deliberate misrepresentation, not dissatisfaction with performance, and moved to amend its complaint to include a cause of action for unjust enrichment. Potentia also moved for summary judgment to dismiss D.W.’s counterclaims, asserting that Labor Law § 215 applied only to current employees, not former ones, and that its actions were legitimate responses to misconduct.

Court’s Analysis

The City Court reviewed both motions together. It noted that under New York law, employers may not sue employees to recoup wages already paid unless a “special agreement” exists between the parties, which must be explicit and supported by evidence. Because Potentia had no written contract or special agreement with D.W., the court determined that its claims for breach of contract, unjust enrichment, and fraud were invalid. The court emphasized that New York Labor Law § 193 prohibits indirect recovery of wages through breach or enrichment theories, as doing so would undermine statutory employee protections. The proper remedy for unsatisfactory work performance, the court stated, was termination, not repayment of wages.

The court also rejected Potentia’s fraud claim, finding it indistinguishable from its breach of contract theory. It determined that the allegations did not establish a separate tortious act and therefore did not support an independent cause of action. As a result, the complaint and proposed amendment were dismissed with prejudice.

Retaliation and Wage Statement Claims

Addressing D.W.’s counterclaims, the court held that filing a complaint with the Department of Labor was protected activity under Labor Law § 215. The court concluded that § 215 protects both current and former employees, citing precedent recognizing the statute’s purpose to prevent retaliation that might deter workers from exercising their rights. However, the court determined that it lacked subject matter jurisdiction to issue the remedies available under § 215 and § 195(3), such as injunctions or reinstatement, which exceeded the City Court’s authority. It therefore dismissed the counterclaims without prejudice, allowing D.W. to refile in a court of competent jurisdiction.

Court’s Ruling

The City Court dismissed Potentia’s complaint and denied its motion to amend. It also dismissed D.W.’s counterclaims without prejudice, concluding that while retaliation and wage statement claims were valid under the Labor Law, the City Court could not grant the remedies sought.

Assistance with Labor and Employment Matters

If you have experienced workplace retaliation, wrongful termination, or disputes involving wage or hour claims, Whitcomb, Selinsky PC assists with labor and employment matters. Contact us to learn how our team can help protect your rights.