A California Court of Appeal recently held that employers are subject to waiting time penalties if they fail to properly pay employees and fail to make adequate inquiries into the applicable wage laws. Furthermore, the court held that trial courts may not reduce or waive waiting time penalties on either equitable or fairness grounds.
Background
In April 2010, Grill Concepts Services, Inc. (Grill Concepts) opened Daily Grill, a restaurant, near the LAX Airport. Previously, the area where Daily Grill was located had been designated as the Airport Hospitality Enhancement Zone, meaning that employers within the zone had to compensate workers a “living wage,” which was higher than the state minimum wage. Additionally, this “living wage” increased on an annual basis and the City later increased the rate of the annual adjustments to the “living wage.”
Grill Concepts initially compensated the restaurant’s employees at the “living wage” rate. However, each year, Grill Concepts increased its employees’ pay rate at the old annual adjustment rate instead of the newer, higher annual adjustment rate. Eventually, Grill Concepts began to suspect that it was underpaying its employees; around the same time, the City again increased the annual “living wage” adjustment rate. Despite cursory attempts to ascertain whether it was paying the correct wage to its employees, Grill Concepts continued to underpay its employees for a period of nearly four (4) years.
Procedural History
In April 2014, three employees sued Grill Concepts in a class action lawsuit, alleging that Grill Concepts had failed to pay the “living wage” employees who quit or were terminated while being underpaid and waiting time penalties.
At the trial court level, the issue was whether Grill Concepts was liable for waiting time penalties. The trial court found that Grill Concepts was liable for waiting penalties because Grill Concepts acted willfully when it failed to pay the proper wages. Because Grill Concepts failed to adequately investigate the increase to the annual “living wage” adjustment rate, the trial court held there was no good faith dispute to overcome the finding of willfulness.
At trial, the only issue was whether the trial court had the discretion to waive the waiting time penalties for equitable reasons. The trial court held that it could not waive the penalties. Grill Concepts appealed the ruling.
The Decision
The Court of Appeal began its discussion by noting that California Labor Code § 203 allows courts to award waiting time penalties if the employer willfully fails to pay an employee who quits or is discharged. Furthermore, the court noted that waiting time penalties may be awarded if the employer issues a final paycheck for less than the applicable wage.
The analysis turned on whether Grill Concepts acted willfully in failing to pay the correct “living wage” rate. The court stated that an employer’s failure to pay is not willful if one of the following apply: (1) there is uncertainty in the law, (2) the taxing authority indicated no further payment was required, or (3) the employer has a good faith mistaken belief that wages are not owed which is grounded in a good faith dispute.
The appellate court stated that ignorance of the law is no excuse, and that individuals must not be negligent in looking the law up. Therefore, Grill Concepts was ignorant of the proper “living wage” rate and negligent in not conducting research regarding the same. In particular, the court noted that Grill Concepts had suspected it was underpaying its employees but failed to properly investigate. For example, Grill Concepts did not inquire into the amount that employers in the area were paying their employees. Accordingly, the court found Grill Concepts failure to properly compensate its employees was willful.
The Court of Appeal also made clear that trial courts do not have the discretion to waive waiting time penalties. First, the language of the statute indicates that the California Legislature did not intend to give trial courts discretion over waiting time penalties. Second, giving trial courts discretion in this area would undermine the purpose of the waiting time penalties.
Lessons from the Decision
Failing to pay employees at the applicable rate can be considered willful if an employer does not perform a proper inquiry into the relevant wage laws. Therefore, in order to avoid underpaying employees and waiting time penalties, an attorney should be contacted to ensure compliance.
Courts do not have the discretion to waive or reduce waiting time penalties. Thus, regardless of the circumstances, if a court finds that the failure to pay wages to an employee was willful, the full amount of waiting time penalties will be imposed.
If you have questions about whether your current employee compensation practices are in compliance, and/or questions regarding waiting time penalties, please contact the attorneys at Palmer Kazanjian Wohl Hodson LLP.