Waiting-Time Penalties: What Every Employer Should Know
by: Jennifer Duggan
When an employee quits or is terminated, what is the employer's obligation with respect to payment of accrued wages and vacation time?
Labor Code section 201 governs an employer's responsibility to ensure that an employee is fully compensated at or near the date of separation, depending on the circumstances. If the employee leaves by termination or quits with 72 hours notice to the employer, all accrued wages and vacation time must be paid on the final date of employment. If the employee quits without giving notice, all accrued wages and vacation time must be paid within 72 hours of the final date of employment.
However, arguably the most important role of the employer is to ensure that the employee's final paycheck represents all wages due and owing at the time of separation. This includes all applicable hourly wages and all accrued vacation time.
If an employer should fail to timely pay all accrued wages and vacation time, the employer may face penalties. Labor Code section 203 provides for waiting-time penalties for any willful failure to timely pay all wages due, i.e., penalties for having to wait for the payment of the wages due and owing.
Therefore, what happens when an employer miscalculates the wages due to an employee? Or what happens when an employer believes that nothing is owed to the employee, and accordingly does not pay the employee any wages upon termination?
The courts have uniformly defined "willful" to mean "intentionally failed or refused to perform an act which was required to be done." The driving force behind this statute is to penalize an employer who is "at fault." Unfortunately, this definition of willful has been interpreted to not require any deliberate or evil purpose by the employer to defraud the employee of wages due. Therefore, unlike a willful act in a criminal setting, it is much easier to prove the willful failure to pay accrued wages.
So what does willful really mean? Essentially, an employer who fails to pay all wages due may be subject to penalties if the failure to pay was intentional. In other words, the employer knew the employee was entitled to a certain sum and purposefully withheld that money.
If the employer has a good faith reason to believe that the employee is entitled to nothing, an applicable section of the California Code of Regulations may prohibit the imposition of waiting-time penalties. The employer has a "good faith dispute" when the employer has "a defense, based in law or fact which, if successful, would preclude any recover[y] on the part of the employee." 8 Cal. C. Regs. Section 13520(a). The employer's defense is required to actually be successful, but the argument must be reasonable, supported by evidence, and brought in good faith.
Although there is no case law exactly on point, it follows that where an employer accidentally miscalculates the amount that an employee is owed upon termination, waiting-time penalties should not be awarded to the employee because there has been no willful withholding of money owed. Similarly, where an employer has a good faith reason, grounded in law or fact, to believe that no wages are owed, waiting-time penalties should not be awarded.
Where an employer's failure to pay accrued wages was willful, the employee is entitled to penalties calculated as their daily rate of pay multiplied by the number of days before the employee is paid the wages, but not exceeding 30 days. It is important to note that if the 30-day maximum is reached, the penalty is not simply an additional month's salary. Rather, it is 30 times the employee's daily wage rate, a number that is far greater than monthly salary alone. Furthermore, any judgment in a wage dispute collects interest, and the prevailing party may recover reasonable attorneys' fees and court costs.
The Labor Code also carries a criminal provision, enforceable by the Labor Commission, making it a misdemeanor for any person, agent, manager, superintendent, or officer, "having the ability to pay, willfully refuse[ ] to pay wages due and payable after demand has been made." This offense is punishable by a $1,000.00 fine and/or 6 months imprisonment, in addition to any other statutory penalties. However, similar to above, good faith disputes regarding whether the wages are owed will not subject a person to criminal liability.
The takeaway message for employers is to ensure that accrued wages and vacation time are both accurately calculated and promptly paid to a recently separated employee. Furthermore, any reasons for not doing so need to be supported by valid evidence.