Substantial Penalties For Innocent Mistakes Regarding Final Wages Upon Termination

Originally published by Billie Wenter.

The First District Court of Appeal’s August 1, 2018 decision in Nishiki v. Danko Meredith, APC reminds employers of the harsh consequences for failing to timely (and properly) pay an employee’s wages upon resignation or termination.

The Court of Appeal addressed the Superior Court’s order 1) affirming the California Labor Commissioner’s award of $4,250 in “waiting time” penalties (i.e., the statutory penalty under Labor Code section 203 for the time an employee has to wait for the late payment of final wages), and 2) awarding Nishiki attorneys’ fees in the amount of $86,160 following the employer’s unsuccessful appeal from the Labor Commissioner to the Superior Court. On further appeal to the Court of Appeal, the employer argued the waiting time penalties were unwarranted and the attorney fees award was excessive. Though the Court of Appeal reduced the waiting time penalties, it otherwise affirmed the judgment and remanded for the trial court to award Nishiki additional attorneys’ fees incurred in responding to Danko’s appeal to the First District.

 

Case Background

The case arose from Nishiki’s resignation on a Friday evening after business hours. She did so by e-mail on November 14, 2014, with a note reminding Danko that it owed her unused vacation time within 72 hours of her notice of resignation. (The amount of her unused vacation ($2,880.31) was undisputed.) On November 18, Danko mailed Nishiki a handwritten check. The check’s numerals were correct, but the written amount was not, so the check was $80 short. Nishiki raised this issue by e-mail on November 26, asserting the bank would not accept the check and claiming Danko owed her “waiting time” penalties. On December 1, Danko informed Nishiki she had two options: she could return the check for a new one, or she could keep the check and Danko would issue a second check for $80. At Nishiki’s request, Danko mailed a corrected check on December 5, 2014.

Thereafter, Nishiki filed a complaint with the California Labor Commissioner seeking over $30,000 for unpaid accrued vacation, rest period premiums and waiting time penalties. The hearing officer rejected Nishiki’s claims, except for waiting time penalties for $4,250 − i.e., her average daily rate of $250 as an office manager and paralegal for 17 days (November 18 to December 5). Danko appealed under Labor Code section 98.2. The Superior Court affirmed on de novo review and awarded Nishiki statutory attorneys fees under section 98.2.

Key Takeaways

The Court of Appeals’ decision is notable for 3 reasons:

1. The Court considered an issue of first impression−whether the 72-hours during which an employer must pay an employee who resigns his or her final wages runs immediately if the employee resigns in a manner that may prevent the employer from receiving notice until business resumes at a later date.
   • Nishiki argued the time runs as soon as an employee resigns, regardless of whether the employer actually received the notice.
   • The Court disagreed, because such a construction of Labor Code section 202 contravenes a rule of statutory construction that legislative provisions are not intended to produce unreasonable results, such as where an employer may not have received the resignation and, consequently, might have “only the length of a single work day” to calculate and pay the employee’s wages.
   • The Court thus concluded the 72-hours did not begin to run when Nishiki sent her e-mail on Friday evening, and Danko’s November 18 check was timely.
2. The Court interpreted “willful” as capturing the failure to immediately correct an inadvertent clerical error. Though Danko’s inadvertent error in issuing the initial, timely check with two different amounts was not “willful,” the delay in sending a corrected check as soon as Danko learned of the error was. Danko thus violated its statutory obligation to pay wages “promptly,” and the Court concluded Nishiki was entitled to waiting time penalties for a total of nine days (not 17 days) for $2,250.
3. An employee that achieves only minimal success can recover the full amount of attorneys’ fees, because, in contrast to other statutory contexts, Labor Code section 98.2 includes a one-way fee-shifting scheme that penalizes an unsuccessful party that appeals the Commissioner’s decision.
   • The bar for success for an employee is, thus, low; the employee need only recover more than “zero.” Accordingly, it matters not whether the employee recovers only a small portion of the desired amount or the employer partially prevails on appeal.
   • The Court emphasized, “it was defendant, not Nishiki, that chose to appeal and seek a trial de novo after suffering only a relatively modest loss before the commissioner, having defeated two other claims. If Nishiki [] was required to incur substantial attorney fees to retry the entire case, including issues on which she did not prevail before the commissioner, defendant has only itself to blame.”
   • As a result, and despite the employer having partially prevailed before the Labor Commissioner and on appeal, the Court would not reduce the prior award of attorneys’ fees, and the employer would owe even more on remand.

In sum, Danko shows the painful consequences for failing to timely and properly pay final wages. Even an innocent mistake with respect to a small sum can cost tens of thousands of dollars.

Please reach out to your Baker McKenzie employment lawyer with questions.

Curated by Texas Bar Today. Follow us on Twitter @texasbartoday.

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