Most employers know that
exempt, salaried employees aren’t covered by
appeals court decision points out, that doesn’t mean that other state Labor
Code wage protections similarly don’t apply to exempt workers.
Pay Dispute Arises
David Mazur was vice
president of sales and marketing at On-Line Power, Inc., in
for an annual salary of $180,000, paid in weekly installments.
A dispute arose when
Mazur claimed that On-Line Power paid him less than the contract specified. On-Line
Power countered that it properly paid Mazur under a renegotiated agreement that
provided for $80,000 of Mazur’s annual salary to be paid to a separate business
Mazur owned.
Employee Sues for Breach
of Contract, Asks for Attorneys’ Fees
Mazur sued, charging
that On-Line Power breached his employment contract. Mazur sought an
unspecified amount in unpaid wages, penalties, and attorneys’ fees under
various Labor Code provisions. Mazur and On-Line Power reached a compromise
before trial, with On-Line agreeing to pay Mazur $25,000 to settle his claims.
The HR Management & Compliance Report: How To Comply with California Wage & Hour Law, explains everything you need to know to stay in compliance with the state’s complex and ever-changing rules, laws, and regulations in this area. Coverage on bonuses, meal and rest breaks, overtime, alternative workweeks, final paychecks, and more.
Mazur then asked the
court for attorneys’ fees, which weren’t included in the settlement (On-Line
disputed this interpretation of the settlement, although the trial court agreed
with Mazur). Mazur based his claim for attorneys’ fees on Labor Code Section
218.5, which provides that in a suit for unpaid wages, the court will award
attorneys’ fees to the prevailing party in the action.
On-Line Power balked,
arguing that Section 218.5 applies only to actions for nonpayment of wages to hourly,
nonexempt employees. The trial court sided with On-Line Power, ruling that
Section 218.5 was designed to protect hourly workers and not those compensated
by salary under a written employment contract.
Exempt Employees Are
Protected
But a California appeals
court has now decided that Section 218.5 applies to all employees, exempt as
well as nonexempt.1 The court explained that Section 200 of the Labor Code defines
wages broadly as “all amounts for labor performed by employees of every
description, whether the amount is fixed or ascertained by the standard of
time, task, piece, commission basis, or other method of calculation.” Other
sections provide penalties for failing to pay “any wage of any
employee” (Section 203)
and specify the times/intervals when wages must be paid, including for exempt employees
(Section 204). Taken as a whole, said the court, these provisions indicate that
the Labor Code considers salaries of executives to be protected wages. Thus,
the court ruled, Section 218.5’s attorneys’ fees provisions apply to a suit for
nonpayment of such wages.
The court also made it
clear that Mazur wasn’t precluded from seeking unpaid wages under the Labor
Code merely because he also tried to recover the wages under a breach of contract
theory. An employee who is denied wages owed may sue for both breach of
contract and Labor Code violations, said the court.
The court noted that
there were several unresolved issues that would be left to the trial court to
decide: 1) whether the portion of Mazur’s salary paid to his separate
consulting business constituted wages, and 2) which party—Mazur or On-Line
Power— was the prevailing party for purposes of Section 218.5 attorneys’ fees.
Reminder for Employers
This case is a reminder
that the Labor Code provides various wage protections for all employees, not
just hourly, nonexempt workers. These include rules regarding paydays, payment
on termination, wage deductions, itemized wage statements, payroll records
inspection by current and former employees, waiting-time penalties, and more.
_
1 On-Line Power, Inc. v.
Court of Appeals (Dist. 2) No. B189251, 2007