In its May 24, 2018 opinion in the matter of Diaz v. Grill Concepts Services, Inc. (Case no. B280846, 2nd Dist.), the California Court of Appeal shed further light on the standard to impose so-called “waiting time penalties” on employers who neglect to pay wages due upon discharge or resignation. Diaz affirmed the maxim that “ignorance of the law is no excuse,” holding that an employer’s failure to investigate a change in the local wage scale constituted a “willful” failure to pay, exposing it to waiting time penalties under the Labor Code. Diaz also held that courts do not have discretion to relieve the employer from such penalties on equitable grounds.
Diaz arose from a class action brought by current and former employees of a Daily Grill restaurant near LAX airport, and located within the City of Los Angeles’ “Airport Hospitality Enhancement Zone.” Restaurants within the Zone were required to pay their employees according to a living wage formula set by the City. In 2010, the City amended this formula to require a higher wage payment. Although the restaurant got wind of the coming amendment and learned during a call with the City Attorney that changes were “in process,” it made no effort to follow-up. As a result, when the increase went into effect in July 2010, the restaurant was ignorant of the adjustment and, accordingly, shortchanged its employees.
The plaintiffs then filed their class action, demanding not only unpaid wages but also waiting time penalties under Labor Code section 203 for employees who had resigned or been discharged since July 2010. Section 203 provides, “[i]f an employer willfully fails to pay…any wages of an employee who is discharged or who quits, the wages of the employee shall continue as a penalty from the due date thereof at the same rate until paid or until an action therefor is commenced; but the wages shall not continue for more than 30 days.” Although the restaurant then reimbursed all current and former employees for unpaid wages, it disputed that waiting time penalties were appropriate, arguing that its failure to pay was not “willful” under section 203, but was instead a good-faith mistake. It argued further that the court should exercise discretion to waive or reduce these waiting time penalties on an equitable basis.
Diaz rejected both arguments. It first held that a “willful failure to pay wages” under section 203 requires only that the employer have acted voluntarily in a manner which fell short of its legal obligations, and does not require any blameworthy, malicious, or fraudulent conduct. Unless the law was itself uncertain, or there was a good-faith mistaken belief coupled with factual or legal support, the violation will qualify as willful and penalties of up to 30 days continuing wages will issue. Because the City’s wage formula was clear, and the restaurant did not perform a diligent investigation into the July 2010 amendment, its ignorance was no excuse. Finally, Diaz concluded that the language of section 203 (“‘the wages of the employee shall continue as a penalty’ for up to 30 days”) and its intent to protect employees left no discretion for courts to reduce the waiting time penalties properly owed.
Diaz serves as another reminder of the care employers must exercise to ensure they pay all earned wages to employees who are discharged or resign. If any wages remain unpaid, the employer will have a high bar to satisfy to demonstrate that its failure to pay was not “willful” within the meaning of Labor Code section 203, and courts do not have discretion to reduce these penalties even where it might seem fair to do so. Please contact your local Jackson Lewis office if you wish to receive more detailed guidance on this, or any other employment issue.