California High Court: Unpaid Wage Penalties Not Recoverable Under Section 17200

SAN FRANCISCO - (Mealey's) The California Supreme Court unanimously ruled Nov. 18 that statutory penalties for unpaid wages are not recoverable as restitution under the state's unfair competition law (UCL), Business and Professions Code Section 17200 (Jorge A. Pineda v. Bank of America, No. S170758, Calif. Sup.).

Jorge Pineda sued his former employer, Bank of America, in the San Francisco County Superior Court in October 2007.  Pineda alleged that despite providing two weeks' notice of his May 11, 2006, resignation, the bank did not issue his final pay until May 15, 2006.  Pineda alleged that the conduct violated the Section 17200 and sought restitution of unpaid continuation wages under California Labor Code Section 203.

Bank of America obtained summary judgment on the ground that the California Labor Code's one-year statute of limitations barred the action.  The court also found that the UCL claim failed because the Labor Code's remedy for failure to pay timely wages was a penalty and thus not recoverable under the UCL.  Pineda appealed.

A First District Court of Appeal panel held that the continuation wage remedy imposed under Section 203 is a penalty for an employer's failure to timely pay earned wages, not compensation for the employee's labor.  As a penalty, it is not recoverable under the UCL, the panel said.

The California Supreme Court accepted Pineda's appeal on the issue of the statute of limitations under Section 203 and whether continuation wages are recoverable under the UCL.

The Supreme Court ruled that a different statute of limitations does not apply when an employee seeks to recover only Section 203 penalties as opposed to when an employee seeks final wages and penalties.  "Section 203(b) sets forth a single limitations period governing all actions to recover section 203 penalties regardless of whether an employee seeks both unpaid wages and penalties or penalties alone," the court held.

The high court disapproved of the Fourth District Court of Appeal decision on Section 203 penalties in McCoy v. Superior Court ([2007] 157 Cal. App. 225, 229-230), which the First District cited in its Pineda opinion.

The Supreme Court agreed with the First District court that Section 17200 does not apply to Pineda's claims:  "[S]ection 203 penalties are not recoverable as restitution under the UCL because employees have no ownership interest in the funds," the court said.

"Section 203 is not designed to compensate employees for work performed," the court continued.  "Instead, it is intended to encourage employers to pay final wages on time, and to punish employers who fail to do so."

"The vested interest in unpaid wages, on the other hand, arises out of the employees' action, i.e., their labor," the court said.  "Until awarded by a relevant body, employees have no comparable vested interest in section 203 penalties.  We thus hold section 203 penalties cannot be recovered as restitution under the UCL."

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