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Statute of Limitation on Penalty Claims Just Got Extended

Labor Code Sections 201 and 202 require employers to pay employees all wages owed immediately upon termination or within 72 hours of the employee’s resignation.  If an employer willfully fails to pay all wages owed as provided in Labor Code Sections 201 and 202 are subject to penalties under Labor Code Section 203.  These “waiting time penalties” are equal to the employee’s daily wage multiplied by the number of days it takes for the employer to fully pay the employee, up to a maximum of 30 days.

Prior cases have held that since a one-year statute of limitations applies to claims for the recovery of penalties, a claim for penalties under Labor Code Section 203 has a one-year statute of limitations.  Prior courts held that because the statute allows an employee to sue for “these penalties at any time before the expiration of the statute of limitations on an action for the wages from which the penalties arise,” if the lawsuit alleges a claim for penalties as well as a claim for the actual wages that were unlawfully withheld, employees could use the longer statute of limitations (2 years for oral contract, 3 years for written contract or violation of a statute).  If the penalty claim did not include a claim for unlawfully withheld wages then the one-year statute of limitations applied.

Well, the California Supreme Court disagreed.  In Pineda v. Bank of America (SC S170758 11/18/10) the court found that the three-year statute of limitations applies to Labor Code Section 203 regardless of whether the claim is accompanied by an unpaid wage claim.

The court also held that a claim for restitution under Business & Professions Code 17200 (which typically has a four-year statute of limitations) cannot be used to recover Labor Code Section 203 penalties because the employees have no ownership interest in the funds.   It will be interesting to see how this rationale will be applied to future cases.

The Law Office of Phillip J. Griego
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San Jose, CA 95113
Tel. 408-293-6341
Original article by Robert E. Nuddleman, former associate of The Law Office of Phillip J. Griego.
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