Governor Brown signed legislation amending Labor Code sections 98 and 1194.2 effective January 1, 2012. The new provisions allow the Division of Labor Standards Enforcement (DLSE) to award “liquidated damages” to employees who file administrative claims with the agency. Previously, liquidated damages were available only in court actions.

Liquidated damages are set at the wages unlawfully unpaid, plus interest. These penalties can increase a claim’s value substantially.

The DLSE is accepting claims for these newly available penalties with gusto, and in a wide variety of cases, even when an employee was paid far more than minimum wage.

Minimum Wage for Every Hour of Work

California law requires the payment of a minimum wage (currently $8.00 per hour) for each hour worked. Can there be a minimum wage violation if the employer pays the employee far more than $8.00 per hour over the course of a week?

In short, yes. Under California law, no matter how much money an employee earns over the course of a day or week, if he or she is not paid at least minimum wage for just one hour, there is a “minimum wage” violation for that unpaid hour. In contrast, under the federal Fair Labor Standards Act (FLSA), one considers whether the total compensation for the week’s work is at least minimum wage on average.

The DLSE, in its Opinion Letter 2002.01.29, rejected the FLSA’s average rate of pay approach. In 2005, the California Court of Appeal in Armenta v. Osmose, Inc. found the DLSE’s Opinion Letter to be persuasive and adopted its rationale in finding an employer liable for minimum wage violations even though the average hourly wage exceeded the minimum wage. Therefore, if an employer does not pay an employee for all hours worked, the employee may seek payment of minimum wage and, potentially liquidated damages as well.

Claims Involving Unpaid Hours

There are a number of circumstances when an employee may be due minimum wage and, therefore, liquidated damages. The Armenta case involved workers who claimed the employer did not pay them for time spent commuting in company vehicles, preparing certain paperwork, and other activities. Although these employees earned far more than minimum wage over the course of the workweek, they sought minimum wage for the uncompensated time worked, plus liquidated damages in the amount of the unpaid minimum wages.

Claims involving illegal “piece rate” compensation plans also may result in liquidated damages. In Ontiveros v. Zamora, a 2010 case, federal district court in California found that the employer’s piece rate compensation plan did not specifically provide payment for attending meetings, setting up work stations, etc. Therefore, employees were not compensated at the minimum wage for these activities. In Cardenas v. McLane Foodservices, Inc., a 2011 case, the federal district court similarly found that even if the employees had an understanding that pre- and post-shift duties fell within the piece-rate, the actual pay formula did not compensate for those duties, and the employer was in violation of minimum wage laws.

Late Payment of Wages

Section 203 of the Labor Code mandates a penalty of one day’s pay for each day that a terminated employee’s final pay is unpaid after the termination date. These “waiting time” penalties may accrue for up to a maximum of 30 days’ pay.

May the DLSE tack on a claim for liquidate damages even when the employer pays the wages in question, albeit untimely? Maybe. Under federal law, there are no “waiting time” penalties. But in Biggs v. Wilson (1993) and Caldman v. State of California (1994), courts found that an employer is liable under the FLSA for liquidated damages for failure to pay wages on the employees’ regular payday. In Biggs, the Ninth Circuit reasoned that the employer is liable for liquidated damages in an amount equal to the minimum wages “overdue,” even if the employer has paid the wages before the lawsuit is filed. Similarly, the California Court of Appeal in Armenta, permitted the employees to recover both liquidated damages under Labor Code section 1194.2 and waiting time penalties under Labor Code section 203.

Conclusion

Liquidated damages penalties can substantially increase employers’ liability when litigating claims before the DLSE. The DLSE has discretion not to award liquidated damages when an employer demonstrates its failure to pay minimum wage was in good faith and based on reasonable grounds. But employers cannot count on the agency to exercise that discretion.

The availability of these new penalties should provide employers with additional incentives to learn about their obligations under wage and hour laws, and to pay employees lawfully and timely. In addition, it is important to either hire competent counsel to litigate wage claims, or to train company representatives to do so effectively.