Consider the following scenario: A California company hires a model for a single day of work. They agree on a daily wage of $500. Once the day is over and the job finished, the model is released and presumably returns to her regular job. The Company doesn’t pay the model the $500 for 2 months. The result? The company may ultimately pay over $15,000 in wage penalties for the late payment and attorney fees.
In July of 2006, the California Supreme Court ruled on the issue of whether a voluntary release of a short-term employee constitutes a “discharge” under the Labor Code—thereby activating the Labor Code’s “immediate payment” provisions. The following article will address this situation.
The Labor Code
California Labor Code section 201 requires an employer to make immediate payment of all wages earned by an employee who is “discharged.” Section 201 states in pertinent part: “If an employer discharges an employee, the wages earned and unpaid at the time of discharge are due and payable immediately.” The statute does not define when an employee is "discharged.”
What happens if you do not pay on time? Section 203 of the Labor Code allows a discharged employee to seek additional penalties for “willful” late payments. Section 203 states: “If an employer willfully fails to pay.…any wages of an employee who is discharged or quits, the wages of the employee shall continue as a penalty from the due date thereof at the same rate until paid…but the wages shall not continue for more than 30 days.” Thus, if the non-payment of earned wages is determined to be “willful,” an employer could face significant financial penalties for not paying discharged employees on time—up to thirty times the original amount owed!
What About a Voluntary Discharge?
The above scenario is what occurred in California Supreme Court case Smith v. Superior Court (2006) 39 Cal.4th 77. The issue to consider is not always whether the employer pays wages to a discharged employee on time, but whether the employee was actually “discharged.” In Smith, the Court held an employee is considered “discharged” without an “involuntary termination.” Thus, the Court ruled a voluntary “release” of a one-day-only employee was a “discharge” under section 201, and therefore, the employer was required to immediately pay the employee.
In Smith, the Plaintiff was working as a salesperson in a Beverly Hills boutique when she was approached by a representative from the Defendant company. The Plaintiff was asked to be a hair-model at an upcoming show featuring Defendant’s products. After a modeling call, Plaintiff accepted the position, and the company agreed to pay her $500 for the single-day’s work. Once the day was over and Plaintiff’s job was completed, she was released from employment and presumably returned to her regular job. The Defendant, however, did not pay the Plaintiff for 2 months.
The Plaintiff brought a lawsuit against the company alleging, among other things, a violation of Labor Code section 201 for the late payment of her $500 wage. Plaintiff also sought penalties under section 203 for “willfully” failing to pay on time. Ultimately, Plaintiff sought the maximum penalty allowed under Labor Code section 203: $500 (her daily wage) x 30 days, or $15,000.
The Defendant company argued the Plaintiff was hired for a single day of work at an agreed upon wage. Thus, the Plaintiff was not “discharged” but rather, they argued, she was released from further obligation at the completion of a specified task. At most, the company argued, the employee voluntarily quit.
The Smith Court disagreed with the Company, holding the voluntary release did constitute a discharge within Labor Code section 201. The Court examined various definitions of the word “discharge” as well as the legislative history of Section 201 and stated: “Excluding employees like plaintiff from the protective scope of sections 201 and 203 would mean that employees who fulfill their employment obligations by completing the specific assignment or duration of time for which they were hired would be exposed to economic vulnerability from delayed wage payment, while at the same time employees who are fired for good cause would be entitled to immediate payment of their earned wages.”
Although the Court found Plaintiff was “discharged” within the meaning of section 201, it did not consider whether the delay in payment was “willful.” The Court stated: “we express no opinion on the issue whether defendant “willfully” failed to pay wages in accordance with section 201, to warrant the penalty plaintiff seeks pursuant to 203.” Instead, the Court remanded the case back to the trial court for a new hearing. The outcome has not yet been decided.
The Lesson
The Smith decision illustrates the importance the law places upon timely wage payments, whether to an existing or discharged employee. The Court stated at the outset of its opinion: "Delay of payment or loss of wages results in deprivation of the necessities of life, suffering inability to meet just obligations to others, and, in many cases may make the wage-earner a charge upon the public.”
Another important aspect of the Smith decision is the nature of “discharging” an employee. An employee may be considered discharged whether they are terminated involuntarily, or the employee simply leaves after an assigned task is completed.
Employers should take care to ensure prompt and complete wage payments are made to all discharged employees. If you are unsure of whether an employee has been “discharged,” err on the side of caution and pay earned wages sooner rather than later. As the employer, delay in payments may ultimately cost you substantially more than the payments themselves.
This article appeared in the August 21, 2006, issue of the San Diego Business Journal.
