12.08.2010
California Supreme Court Decision Is A Mixed Bag For Employers

Labor Code section 203(a) provides that "[i]f an employer willfully fails to pay, without abatement or reduction . . . any wages of an employee who is discharged or who quits, the wages of the employee shall continue as a penalty from the due date thereof at the same rate until paid or until an action therefore is commenced; but the wages shall not continue for more than 30 days." Labor Code section 203(b) provides that "[s]uit may be filed for these penalties at any time before the expiration of the statute of limitations on an action for the wages from which the penalties arise."

In Pineda v. Bank of America, N.A., the California Supreme Court resolved two issues associated with Labor Code section 203 "waiting time" penalties:  (1) Does a one-year or a three-year statute of limitations apply when an employee is suing to recover only "waiting time" penalties (i.e., when an employee was paid all of his or her wages but the employer did not timely pay the wages)? (2) Can "waiting time" penalties be recovered as "restitution" under Business and Professions Code section 17200, et seq., which is subject to a four year statute of limitations? The California Supreme Court states the answer to both questions is "no."

As to the question of whether a suit to recover only "waiting time" penalties is subject to a one-year or to a three-year statute of limitations, the court determine that a three-year statute of limitations applies to claims for "waiting time" penalties regardless of whether the employee(s) seeking those penalties are seeking only those penalties or those penalties and the underlying allegedly unpaid wages.  In so holding, the court disapproved the Court of Appeal's decision in McCoy v. Superior Court (2007) 157 Cal.App.4th 225 holding that a claim for "waiting time" penalties only is subject to a one-year statute of limitations." 

As to the question of whether "waiting time" penalties can be recovered as "restitution" under Business and Professions Code section 17200, et seq., which is subject to a four year statute of limitations, the court held that "waiting time" penalties cannot be recovered as "restitution" because, unlike unpaid wages, persons seeking "waiting time" penalties do not have a vested, ownership interest in such penalties until such penalties are awarded "by a relevant body" (i.e., by a court or other tribunal). 

By way of its decision in Pineda, the California Supreme Court continues its trend of construing Labor Code provisions broadly in favor of employees and delivered a mixed bag for employers.  On the one hand, it has always been reasonably clear that "waiting time" penalties are not recoverable as "restitution" and are not subject to a four-year statute of limitations. On the other hand, as did the California Court of Appeal in McCoy v. Superior Court, we do not think the California Supreme Court's decision that claims for "waiting time" penalties are always subject to a three-year statute of limitations and never to a one-year statute of limitations is necessarily compelled by the language of Labor Code section 203(b).

Regardless of what one thinks about what statute of limitations should apply to claims for "waiting time" penalties, such penalties can be substantial, especially when the claims of many former employees are aggregated in a class action lawsuit. For example, if an employer "willfully failed" to pay to an employee earning $20.00 per hour all wages due and owing to that employee at the time that employee's employment ends, the employee's wages would continue as a penalty until paid or until an action seeking those wages is filed up to 30 days wage or up to $4,800.00. If a certified class consisted of 500 such employees, the "waiting time" penalties would total $2,400,000.00. 

On its surface, the "waiting time" penalties seem most applicable to a situation where an employer willfully fails to provide to an employee who quits or is terminated the employee's final paycheck.  However, some courts have ruled that such "waiting time penalties" apply when an employer has provided an employee his or her final paycheck but "willfully" failed to pay some wages to the employee before the employee's employment ended and did not include those wages in the employee's final paycheck.  

Employers concerned about the prospect of becoming subject to such penalties, particularly employers who experience relatively high turnover of employees, should consider consulting with competent employment law counsel about steps that can be taken to reduce the possibility of becoming subject to such penalties. 

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