The Court of Appeal’s decision in Nishiki v. Danko Meredith, APC (here) contains some good guidance for employers regarding when final pay is due under California Labor Code section 202, when an employee resigns without notice.  And the Court held that waiting time is not due when an employer timely and in good faith provides a final check that a bank would not cash because of a clerical error.  The Court therefore reduced a waiting time award to the employee, awarding the penalty only for 9 days instead of the 17 days’ pay that the Labor Commissioner awarded.   

So, what’s not to like about this case?  I can list about 86,000 things.  Read on.

First, the good news, though, because this is a glass-half-full kind of blog, as you know. Some background, per the Court:

Nishiki worked for defendant, a law firm, as office manager and paralegal. She resigned by sending an email to defendant’s two partners, Danko and Meredith, at 6:38 p.m. on Friday, November 14, 2014. In the email, she noted that her unused vacation time “needs to be paid within 72 hours of my notice of resignation.” She sent a copy of the email to Sharman Blood, defendant’s bookkeeper, and Blood sent an email about Nishiki’s resignation to both partners at 9:08 a.m. on Saturday, November 15. 

At the time Nishiki resigned, she was owed $2,880.31 for her unused vacation time. Defendant mailed her a handwritten check on Tuesday, November 18. The check, signed by Meredith, had an inconsistency: the amount in numerals in the dollar amount box was “2,880.31,” the correct amount; however, the amount as spelled out was “Two thousand eight hundred and 31/100,” or $80 less than the correct amount. 

On Wednesday, November 26, at 9:46 a.m., Nishiki sent an email to Meredith telling her she had been unable to deposit the check because of the inconsistency between the numerical and written amounts, and asserting she was therefore entitled to waiting time penalties. Just after midnight on Thursday, November 27—Thanksgiving Day—Meredith responded in an email, “No check has been refused or returned so we are unable to confirm it was not honored upon presentation to the bank.” Nishiki responded that she had taken the check to the bank, but that the bank could not accept it because of the discrepancy. On Monday, December 1, Meredith sent an email in response: “Notwithstanding what your bank told you, the check you were sent is negotiable. If you would like to return the check to the office, we will issue you a new one. If you wish to keep the check, we’ll issue a second check for $80. We can mail the check or you can pick it up at the office. Let me know what you want to do.” Nishiki replied that the bank was not able to accept a check with two different amounts on it, and said she was out of state but had mailed the check to defendant. Defendant mailed a corrected check for $2,880.31 to Nishiki on Friday, December 5, 2014. 

So, Nishiki resigned without notice on a Friday evening. The Firm paid her within 72 hours of her notice (not counting the after-hours notice on Friday). However, the check had a “typo” of sorts.  Rather than simply stop payment on the check and issue a new one, the employer argued about whether the check could be cashed notwithstanding the employee’s claim that the bank refused to do so. However, the employer replaced the check once the employee mailed the original to the employer. 

Nishiki then filed an administrative claim with the Labor Commissioner. She sought “(1) unpaid vacation wages of $366.88; (2) rest period premiums of $23,718.75; and (3) waiting time penalties for the delay in receiving the $2,880.31 check, in the amount of $7,500, calculated as 30 days at the rate of $250 per day.”  

After the hearing, the Labor Commissioner rejected the first two claims for rest periods and unpaid vacation.  On the waiting time claim, though, the hearing officer awarded Nishiki waiting time from November 18, 2014, through December 5, 2014. That amounts to 17 days, at her daily rate of $250.00 per day, for a total of $4250.00.  Thus, the hearing officer awarded waiting time from the date the payment was due (11/18) through the date the law firm sent the corrected check (12/5). 

Some of you may be thinking: $4250 is a lot of money for a typo on a timely paid check, amiright?   The law firm thought so, too, and decided to appeal the ruling to superior court.  That is an “appeal de novo” where a superior court judge re-hears the case as if it never was presented to the Labor Commissioner. But an employer must post a bond to appeal to superior court. And if the employer does not “prevail,” the employer has to pay “reasonable attorney’s fees.”  

At the superior court, the law firm lost on the waiting time claim.  The superior court awarded the $4250 waiting time, plus $86,160 in attorney’s fees.  The law firm then appealed the superior court’s ruling to the Court of Appeal, as to both the waiting time and attorney’s fees.

First, the Court addressed whether waiting time was due for the poorly drafted check, and how much.  First of all, under Labor Code section 202, when an employee resigns without notice, final pay is due within 72 hours of resignation. (In contrast, when the employee gives more than 72 hours’ notice or is fired, final pay is due on the date of termination).  

The Court held that because Nishiki had given notice after hours on Friday, November 14, the firm’s paying her on November 18 was timely.  However, because the firm paid Nishiki on November 18, the Court did not decide whether the “clock” began to run on the Saturday, November 15, or on the Monday (November 17). Either way, the November 18 payment was timely paid within 72 hours of the Saturday.  

Next, the Court decided whether “waiting time” penalties were due Nishiki, even though the law firm initially had paid Nishiki on time, albeit with a check the bank would not cash.  

Under Labor Code section 203, if the employer “willfully” does not pay an employee on the termination date (or within 72 hours in the case of resignation without notice), the employer must pay one day’s pay per day the payment is late, up to a maximum of 30 days.  So, in this case, had the bank cashed Nishiki’s check that the law firm paid her on November 18, no waiting time would have been due.  But because the bank would not cash the imperfectly written check, the Court had to decide if the law firm’s failure to pay timely was “willful.”

In the context of waiting time, “willful” does not mean malicious.  It just means that the employer knew what it was doing and did not do what is legally required.  Was the law firm held responsible for “willfully” failing to pay because the bank would not cash the original check?  No.  Why? Because a clerical error or mistake is not “willful.”  

Nothing in the record supports a conclusion that defendant knew or intended to do what it was doing when someone wrote two different amounts on the check.6 The attachment to the check shows the gross amount of vacation pay due to Nishiki was $4,500, and it reflected deductions for state and federal taxes totaling $1,619.69. The remaining amount was $2,880.31, and this was the amount entered in numerals on the check. There is no basis to conclude the omission of the word “eighty” in the spelled-out amount was anything other than an inadvertent clerical error. In the circumstances, we conclude the initial error may not properly be treated as “willful” for purposes of an award of waiting time penalties under section 203. (See Heritage Residential Care, Inc. v. Division of Labor Standards Enforcement (2011) 192 Cal.App.4th 75, 84 (“Like inadvertence, clerical error denotes behavior that is accidental, not deliberate”]; Cleveland v. Groceryworks.com, LLC (N.D. Cal. 2016) 200 F. Supp. 3d 924, 959–960 [Where an employer’s failure to pay wages to an employee when those wages are due is a result of a “mistake,” it is not willful].)7 

Not so fast, though. The Court held that the law firm’s failure to replace the original check promptly did justify waiting time penalties.  Because the words on the check recited an amount that was $80 short, even though the numbers on the check were correct, under California law the words written on the check controlled. Therefore, because the amount written on check was short $80, the law firm did not pay Nishiki on time on November 18.  

The law firm’s clerical error became “willful” when the law firm did not immediately issue a new check:

Nishiki told Meredith by email on the morning of Wednesday, November 26, 2014, that she had been unable to deposit the check because of the discrepancy. Meredith sent an email on Monday, December 1, telling Nishiki the check was negotiable, and offering either to issue a second check for $80 or to send a new check for the correct amount if Nishiki returned the original check. 

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Rather that correcting the clerical error immediately when notified of it, either by stopping payment on the original check and issuing a new check for the full amount or by sending an additional check for $80, defendant waited until Friday, December 5—apparently after receiving the original check—to issue a new check, back-dated to November 18. In doing so, defendant violated its statutory obligation to pay wages promptly. We conclude Nishiki was entitled to waiting time penalties for the period between November 26, when defendant had notice of the error, and December 5, when it sent the corrected check, for a total of nine days.

Therefore, it pays to correct errors quickly.  The “stop payment” fee is of course annoying, but way less annoying than a huge waiting time penalty award.  Given the generous definition of “willful,” the Court’s ruling on the waiting time is not completely unexpected, at least not by me.  

What is unexpected was that the Court of Appeal upheld the full award of attorney’s fees.  Not only that, but the Court approved the use of a “multiplier” of 1.5 x Nishiki’s lawyer’s “reasonable” rate of $500 / hour, which resulted in an effective hourly rate of $750 an hour.  That’s how the attorney’s fee award for a $2,250 win came out to $86,160.  

The Court declined to reduce the award even though Nishiki recovered less than 10% of what she initially sought.  And reduction aside, the Court’s use of a “multiplier” resulting in a $750 hourly rate for a $2250 recovery is galling. There is nothing justifying a multiplier in this case.  Nothing.  

Most importantly for employers, even though the Court ruled in the law firm’s favor on all but one issue – the delay in sending the replacement check – the Court blamed the law firm for the fee award.  Don’t believe me?   Here’s what the Court wrote:

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 for which Nishiki sought considerably higher damages. If Nishiki consequently 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.

The Court in essence is saying that even though the Labor Commissioner’s waiting time award was legally wrong, the law firm should have just sucked it up and paid the inflated waiting time award rather than appeal.  As a result, the attorney’s fees provision sounds like a punishment for employers that have the temerity to appeal an erroneous ruling.  A punishment?  That’s just hyperbole, you say? Well, let’s go to the opinion again:

This [attorney’s fees] statute “is not a prevailing party fee provision, instead it is a one-way fee-shifting scheme that penalizes an unsuccessful party who appeals the commissioner’s decision.” (Arias v. Kardoulias (2012) 207 Cal.App.4th 1429, 1435 (Arias).) Its purpose is to “act[] as a disincentive to appeal the commissioner’s decision” (id. at p. 1438) and to “ ‘discourag[e] unmeritorious appeals of wage claims, thereby reducing the costs and delays of prolonged disputes, by imposing the full costs of litigation on the unsuccessful appellant.’ ” (Lolley v. Campbell (2002) 28 Cal.4th 367, 376, italics added.) 

Yes, a punishment. Of course, in this case, the employer was meritorious on most of its arguments, the employer replaced the defective check once Nishiki returned the original, and Nishiki recovered less than $3000 on her claim that was worth more than $30,000 initially.  But a punishment is in order?

Anyway, like Dickens said about the law….nevermind. The Court’s message is clear:  Don’t appeal Labor Commissioner rulings unless you plan to win the entire case.  By the way, the Court of Appeal also held that Nishiki could seek more attorney’s fees for the appeal. Who knows how much that will be? 

In short, employers’ lawyers will have to factor in this ruling on the attorney’s fees issue when counseling employers about whether to appeal an adverse ruling at the Labor Commissioner. Only the most airtight cases will be appealed after this case, unless some intrepid soul seeks to have it depublished by the California Supreme Court.  I hope the law firm employer is making that effort.

Employers who believe the Labor Commissioner is not a hospitable forum for employers may wish to consider arbitration instead. But arbitration of wage claims could be an expensive proposition as well, what with the arbitration administrative fees and arbitrator pay.  And even in arbitration, the arbitrator will award attorney’s fees to a prevailing plaintiff.  

As in many California employment law contexts, the employer has few palatable options here. The best one can do is to implement lawful practices and make every reasonable effort to prevent litigation. I know, it’s not as easy as it sounds.   

 

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