Risk Update

Risk Reading — Law Firms Criminally Liable for Wage Theft, AI & Ethical Billing Practices, ‘Manufactured’ Mass Arbitration Claims

Law Firms Can Now Be Criminally Liable for Wage Theft. Is Yours?” —

  • “When Governor Kathy Hochul signed an amendment to the New York Penal Law this past fall, designating ‘wage theft’ as a form of criminal larceny, she and the State Legislature targeted ‘bad faith’ employers who violate New York’s Labor Law by improperly withholding timely payment of their employees’ earned wages.”
  • “The most recent amendment to this statute—adding ‘wage theft’ as a form of larceny under the criminal code–was signed into law by Governor Kathy Hochul on September 6, 2023 (Senate Bill S2832A). It became effective immediately. The new law does not include any carve-out provisions or exemptions for particular positions or industries and as such, covers the legal profession.”
  • “The new amendment adds ‘compensation for labor or services’ to the definition of “property”, thereby establishing ‘wage theft’ as another way in which an employer can commit the crime of larceny. Notably, the new wage theft larceny law is in addition to, and does not replace, existing criminal wage theft offenses in New York that apply to employers and their officers and agents for ‘failing to pay the wages of any of [their] employees.'”
  • “This legislative action followed a 2023 announcement by the Manhattan District Attorney’s Office that it had partnered with the New York State Department of Labor to create the Office’s first-ever ‘Worker Protection Unit’ to investigate and criminally prosecute wage theft charges against companies and executives that ‘steal’ wages.”
  • “In recent years, a number of out-of-state law firms with satellite offices in New York have been accused of wage theft when they failed to pay accrued wages owed to a former employee under his productivity-based compensation formula. The employers claimed that upon the attorney’s termination of employment, he automatically forfeited his percentage share of all post-termination collections—even those which were attributable to his pre-termination services on the employer’s behalf.”
  • “Such a financial penalty is intended to discourage employed attorneys from leaving the law firm.”
  • “For those employed attorneys who choose to leave nonetheless, the scheme enables the law firm to unjustly enrich its profit-sharing partners by allowing them to share among themselves the money that their law firm should have paid instead to their former employee as W-2 salary.”
  • “Law firms should review their payroll practices to make sure that their employees (and former employees) receive the compensation they are promised in a timely manner in order to avoid the significant penalties associated with wage theft in New York. Employers should also examine their wage payment practices to ensure: (1) that employees are paid the correct amount and on time; (2) that all statutorily-mandated notifications from the employer to its employees are adhered to; and (3) that accurate payroll records are maintained which establish that their employees have been paid properly.”

NJ Bar Warns of AI’s Impact on Billing in Guidance for Lawyers” —

  • “Lawyers using AI tools must be careful not to run afoul of rules about ethical billing practices, a New Jersey State Bar Association task force warned.”
  • “AI tools for lawyers are promising to make some legal work more efficient, which ‘could significantly disrupt the industry’s traditional hourly billing model,’ the New Jersey task force said.”
  • “‘Significant use of these technologies may conflict with current billing practices’ under the American Bar Association’s model rule 1.5(a)(1), the task force added. That rule describes a reasonable fee as being based on the amount of time, work, skill and difficulty a legal service entails.”
  • “The California bar’s practical guidance on generative AI said lawyers can use AI to work more efficiently, but ‘must not charge hourly fees for the time saved by using generative AI.’
  • “New Jersey appointed a task force late last year made up of 27 lawyers and AI experts. Their report, issued Friday, includes recommendations and is intended to serve as a ‘practical resource.'”

Fox’s Tubi sues law firm over ‘manufactured’ mass arbitration claims” —

  • “Fox Corp’s streaming TV subsidiary Tubi has sued a plaintiffs’ law firm for allegedly manufacturing tens of thousands of meritless discrimination claims against it in the hopes of coercing a settlement.”
  • “In a lawsuit filed Friday, in Washington, D.C., federal court, Tubi accused the firm Keller Postman of filing nearly 24,000 uninvestigated complaints of discrimination with private arbitration service JAMS, putting the streaming company on the hook for $48 million in upfront arbitration fees unless it settled.”
  • “Keller Postman in May demanded a total of $71.2 million to settle the claims, or $3,000 per claimant, Tubi alleged. It accused the firm of ‘weaponizing the arbitration process,’ calling it a pioneer of ‘mass arbitration’ that relies on unethical client solicitation and abuse of arbitration fee provisions.”
  • “‘Keller Postman manufactured claims against Tubi, failed to conduct an investigation to learn specific facts about each of its clients’ claims, and filed tens of thousands of cookie-cutter claims to force Tubi into an arbitration that should not be taking place,’ the lawsuit said.”
  • “Tubi said Keller Postman filed 23,736 arbitration demands alleging discrimination through targeted advertising based on age, gender or sex. The demands did not identify the ads or the claimants’ age, gender or sex, the lawsuit said.”
  • “Lawyers for Tubi declined to comment.”