Metropolitan News-Enterprise


Friday, November 19, 2010


Page 1


S.C. Rejects Limitation on Penalties in Final-Wages Law


By STEVEN M. ELLIS, Staff Writer


State law requiring immediate payment of final wages to departing employees does not allow employers who pay the wages late to cut short the employee’s time to sue for penalties, the California Supreme Court ruled yesterday, reversing a decision by the Court of Appeal.

The First District’s Div. Three held last year that a three-year statute of limitations period for suits seeking both final wages and penalties became a one-year period where an employee sought only penalties because the employer eventually paid the wages.

However, the high court’s justices rejected an argument that the penalties could be recovered under California’s unfair competition law, reasoning that employees have no ownership interest in the funds until a court awards them.

Labor Code Sec. 203 provides that the wages owed to an employee who resigns or is terminated continue at the same rate from the last day of work for up to 30 days as a penalty if the employer willfully fails to pay the wages timely. The statute also allows an employee to sue for the penalties “at any time before the expiration of the statute of limitations on an action for the wages from which the penalties arise.”

Jorge Pineda sued his former employer, Bank of America, in October 2007 to recover penalties after the bank waited to pay his final wages until four days after his last day of work on May 11, 2006.

Pointing to the phrase “action for the wages,” the bank argued that the Legislature explicitly provided that a suit for penalties was governed not by the three-year limitations period in the Labor Code, but by Code of Civil Procedure Sec. 340(a)’s one-year statute, and Pineda’s suit came too late.

Pineda countered that the Labor Code section set forth a single period governing all actions to recover penalties under that section regardless of whether an employee also sought unpaid wages.

San Francisco Superior Court Judge Harold E. Kahn agreed with the bank that the one-year period applied unless unpaid wages were sought, and he granted judgment on the pleadings. He also rejected Pineda’s contention that he was entitled to restitution of the unpaid penalties on the basis that the bank’s failure to timely pay his final wages violated the unfair competition law.

The Court of Appeal affirmed both decisions in a partially-published opinion by Justice Stuart R. Pollak, but Supreme Court Justice Carlos R. Moreno wrote yesterday that Bank of America’s reading of the statutory language was unreasonable.

“The only plausible inference to be drawn is that the Legislature intended to ensure that the statute of limitations on an action for section 203 penalties tracks the statute of limitations governing actions for unpaid final wages,” he said.

Moreno wrote that the bank’s interpretation meant that employees would not know which limitations period began to run when a claim accrued, noting that a plaintiff who waited more than one year to file an action for wages and penalties in reliance on the three-year period could be foreclosed from collecting any penalties if the employer then decided to pay the wages.

“Defendant’s interpretation would, at best, lead to unwieldy and inconsistent results eroding the stability that statutes of limitation are intended to afford…,” he commented. “At worst, defendant’s construction would risk permitting employers to ‘game the system’ and control what limitations period governs their employees’ section 203 claims. Absent explicit evidence to the contrary, we presume the Legislature did not intend such an absurd result.”

The justice did, however, agree with the Court of Appeal’s determination that Pineda’s UCL claim failed.

“The vested interest in unpaid wages…arises out of the employees’ action, i.e., their labor,” he wrote. “Until awarded by a relevant body, employees have no comparable vested interest in section 203 penalties.”

The case is Pineda v. Bank of America, N.A., 10 S.O.S. 6483.


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