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Court of Appeal Reaffirms Low Bar for Employees’ Recovery of Labor Code’s “Waiting Time” Penalties

by D. Gregory Valenza | | May 28, 2018

A restaurant company operating within the L.A. Airport Westin hotel did not comply with Los Angeles County’s special, amended “living wage” ordinance that applies to certain hotel employees. The original ordinance tied annual wage increases to a consumer price index. But an amendment changed the increase to another index, and changed the effective date of increases from January 1 to July 1. To figure out what the minimum “living wage” is under the amendment requires an employer to refer to a “bulletin” put out by another county agency.  Sure, the ordinance is not “user friendly” as the trial court remarked. But it’s not brain surgery to find out the information either. 

Turns out the restaurant company, Grill Concepts Services, Inc., suspected it was underpaying. And the company’s HR director made some attempts to find the amended ordinance, but the efforts were unsuccessful.  Here’s the Court’s summary of those efforts. 

As early as June 2010, Grill Concepts’ human resources director suspected that Grill Concepts might be underpaying its employees. That month, the director saw a newspaper article reporting that the living wage within the Zone was higher than what Grill Concepts was paying. The director contacted Grill Concepts’ outside counsel, who contacted the Los Angeles City Attorney’s Office. A city attorney relayed that an amendment to the ordinance was “in process.” Neither counsel nor the director followed up with the city attorney’s office. Nor did the director or outside counsel ask any of the other hotel operators or restaurateurs in the Zone what living wage they were paying. Instead, the director continued doing what he had always done—namely, typing “Airport Hospitality Enhancement Zone Ordinance” into the search query on the City of Los Angeles’s website to see if an amended ordinance came up. 

:::Wince::: If only there were professionals who figured out these confusing law thingies for employers and provided answers.  But hey, let’s make the bar exam easier, amiright?   

Anyway, after a lawyer for two employees contacted Grill Concepts, the company promptly paid all the back wages due. But a class action proceeded for pre-judgment interest on the underpaid wages, and “waiting time” penalties under Labor Code section 203 for the ex-employees.  

The trial court awarded over $250,000 in waiting time alone, which is a lot of tuna melts. The plaintiffs also wanted the penalty of treble wages under the county ordinance, available for “deliberate failure” to pay the living wage. But the trial court did not agree with the plaintiffs that Grill Concepts “deliberately” did not pay the higher living wage.  In fact, the trial court noted that it would have reduced the waiting time due if it had the discretion to do so.

Perhaps for that reason, Grill Concepts appealed, challenging the award of waiting time on several grounds. None of these challenges was successful.  The Court of Appeal’s opinion is a good reminder to employers about waiting time penalties, and the standards courts must follow when awarding them. 

First, though, what are waiting time penalties?  The Court summarized Cal. Labor Code section 203 like this:

Labor Code section 203 empowers a court to award “an employee who is discharged or who quits” a penalty equal to up to 30 days’ worth of the employee’s wages “[i]f an employer willfully fails to pay” the employee his full wages immediately (if discharged) or within 72 hours (if he or she quits). * * * * It is called a waiting time penalty because it is awarded for effectively making the employee wait for his or her final paycheck. A waiting time penalty may be awarded when the final paycheck is for less than the applicable wage—whether it be the minimum wage, a prevailing wage, or a living wage. 

The Court addressed and rejected a number of arguments by the employer here.  First, here is the Court’s analysis of what a “willful” failure to pay final wages is.  (This is not news and is based on several prior decisions cited in the analysis).  I bolded the text to make it easier to read without the citations. 

Under Labor Code section 203, a “willful failure to pay wages . . . occurs when an employer intentionally fails to pay wages to an employee when those wages are due.” (Cal. Code Regs., tit. 8, § 13520; see also Barnhill v. Robert Saunders & Co. (1981) 125 Cal.App.3d 1, 7 (Barnhill) [“‘willful’ . . . means that the employer intentionally failed or refused to perform an act which was required to be done”]; Kao v. Holiday (2017) 12 Cal.App.5th 947, 963.) The failure to pay is willful if the employer “knows what [it] is doing [and] intends to do what [it] is doing” (In re Trombley (1948) 31 Cal.2d 801, 807 (Trombley)), and does not also require proof that the employer acted with “a deliberate evil purpose to defraud work[ers] of wages which the employer knows to be due” (Barnhill, at p. 7; Davis v. Morris (1940) 37 Cal.App.2d 269, 274 [“‘“wil[l]ful” . . . does not necessarily imply anything blameable, or any malice or wrong toward the other party’”]).2 

Under this definition, an employer’s failure to pay is not willful if that failure is due to (1) uncertainty in the law (Barnhill, supra, 125 Cal.App.3d at p. 8; Amaral, supra, 163 Cal.App.4th at p. 1202), (2) representations by the taxing authority that no further payment was required (Amaral, at pp. 1202-1203), or (3) the employer’s “good faith mistaken belief that wages are not owed” grounded in a “‘good faith dispute,’” which exists when the “employer presents a defense, based in law or fact which, if successful, would preclude any recovery on the part of the employee” (Road Sprinkler Fitters, supra, 102 Cal.App.4th at p. 782; Cal. Code Regs., tit. 8, § 13520, subd. (a); Trombley, supra, 31 Cal.2d at p. 808). A good faith dispute can exist even if the employer’s proffered defense is “ultimately unsuccessful,” but not if the defense is also “unsupported by any evidence, [is] unreasonable, or [is] presented in bad faith.” (Cal. Code Regs., tit. 8, § 13520, subd. (a).) 

Applying this analysis, the Court of Appeal rejected Grill Concepts’s arguments that its failure to pay was not “willful.”  The Court was unimpressed with the company’s efforts to “find” the amended ordinance.

Ignorance of the law is no excuse. 

Said the Court.  The Court also rejected the argument that the ordinance, once found, was too confusing to understand properly. 

Grill Concepts also argued that its failure to comply with the ordinance amounted to a “good faith dispute” precluding waiting time penalties.  As discussed above, the “good faith dispute” is a defense to waiting time penalties liability. But it’s available only in certain circumstances. 

A “‘good faith dispute’” excludes defenses that “are unsupported by any evidence, are unreasonable, or are presented in bad faith.” (Cal. Code Regs., tit. 8, § 13520, subd. (a), italics added; accord, FEI Enterprises, Inc. v. Yoon (2011) 194 Cal.App.4th 790, 802 [good faith defense regulation “imposes an objective standard”].) Any of the three precludes a defense from being a good faith dispute. Thus, Grill Concepts’ good faith does not cure the objective unreasonableness of its challenge or the lack of evidence to support it. 

The Court in essence decided that even if Grill Concepts had a “good faith” belief in its arguments, the lack of supporting evidence for the bona fide nature of the dispute and the fact that the dispute was “unreasonable” precluded the defense to penalties.

Finally, the Court of Appeal decided that courts do not have the power to reduce waiting time penalties if they believe the reduction is warranted for “equitable” reasons. 

We conclude that Labor Code section 203 does not imbue trial courts with the discretion to waive or reduce waiting time penalties, and do so for two reasons.

So, if waiting time penalties are due, the court has no power to reduce them, even if the question of “willfulness” or “good faith dispute” is a close call, or the penalty seems gigantic compared with the wages due.  

In contrast, courts have the power to reduce penalties under the Private Attorney General Act, or PAGA. That is because the PAGA statute grants courts that discretion. And that’s a good thing, which you’ll appreciate when you read my next post. 

The case is Diaz v. Grill Concepts Services, Inc. and the opinion is here. 

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