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Affirming judgment in favor of the employer in an action for late payment penalties under Section 203 of the California Labor Code, a state Court of Appeal has held that such penalties may not be recovered as restitution under the California Unfair Competition Law (UCL) (Cal. Bus. & Prof. Code § 17203) (Pineda v. Bank of Am., N.A., No. A122022 (Jan. 21, 2009)). The court further held that the plaintiff’s claim for late payment penalties was barred by a one-year statute of limitations. Accordingly, the plaintiff’s complaint was dismissed.
The plaintiff resigned from the employer on May 11, 2006, after giving the bank two weeks’ notice. The bank paid his final wages on May 15, 2006. More than a year later, in October 2007, the plaintiff sued the employer for late payment penalties under Section 203 of the Labor Code and for restitution under the UCL. The plaintiff sought to represent a class of former employees who did not receive their final paycheck on their last day of employment. The trial court granted the employer motion for judgment on the pleadings, agreeing that the plaintiff’s claim for penalties was time-barred and the UCL claim failed because late payment penalties could not be recovered as restitution. The plaintiff appealed.
The appellate court rejected the plaintiff’s argument that he should be permitted to recover late payment penalties as restitution under the UCL because of the nature of restitution. The court noted that restitution is meant to return to plaintiffs their property. Earned wages constitute a worker’s property. By contrast, penalties under Labor Code Section 203 are not “imposed as compensation for the labor of the employee, but are triggered by the employer’s willful failure to timely pay the wages that have been earned.” The penalties do not restore any property to an employee; rather, they serve to punish the employer.
The plaintiff then argued that a vested right to the penalty arose once the employer failed to timely pay his final wages. The court found no automatic right to the penalty; rather, the employee must bring an enforcement action to recover it.
Finally, the plaintiff argued that the three-year statute of limitations applied to his claim for late payment penalties. Relying on McCoy v. Superior Court (157 Cal. App. 4th 225 (Cal. Ct. App. 2007)), the court held the one-year statute of limitations applied. If the plaintiff had asserted a claim for unpaid wages and penalties, the three-year statute of limitations would have applied under McCoy. However, the plaintiff did not contend that the employer failed to pay his wages; rather, he claimed that the payment was late. Accordingly, the court affirmed judgment dismissing the plaintiff’s complaint.
Professional Pointer: This decision provides some relief to employers confronting wage-hour litigation in California by limiting remedies available under the UCL for late payment penalties. However, other cases have held that waiting-time penalties are wages and recoverable under the UCL. To avoid litigation regarding such penalties in the first instance, employers should review their pay practices to ensure that wages are promptly paid to employees upon termination or resignation from employment.
