AUGUST 2006

JUDICIAL UPDATES

Employer’s Obligation to Pay Wages Upon “Discharge” Includes Situations Where an Employee is Released After Completing a Specific Job Assignment for a Limited Time

In Smith v. Superior Court (California Supreme Court, Case No. S129476) the California Supreme Court clarified the scope of employers’ obligation under Labor Code section 201. That section states that if an employer “discharges” an employee, any wages earned and unpaid at the time of discharge are due and payable immediately. An employer who fails to meet that obligation could incur waiting-time penalties under section 203. In Smith, the Employee was asked to be a “hair model” by L’Oreal USA, Inc. (the “Employer”) at an upcoming show featuring L’Oreal products. The Employer agreed to pay the Employee $500 for one day of work at the show. At the show, the Employee sat on a stage in front of an audience as her hair was colored and styled. She remained at the show until she was told that she could leave. The Employer waited over two months before paying the Employee the $500 in wages.

The Employee sued on behalf of herself and all other similarly situated models who worked for the Employer. The primary claim was the contention that the Employer violated section 201 by failing to pay the Employee, and other models, immediately upon the completion of their job. The Employee sought $15,000 in penalties under section 203 (maximum of 30 days at $500 per day).

After the trial court and the California Court of Appeal issued decisions in favor of the Employer, the Supreme Court granted the Employee’s petition for review. L’Oreal contended that the “discharge” language of section 201 meant that an Employer must affirmatively dismiss an employee from an ongoing employment relationship, such as by firing or laying off the employee. However, the Supreme Court agreed with the position of the Employee: An employer causes a “discharge” within the meaning of sections 201 and 203 not only when it fires an employee, but also when it releases an employee upon completion of the particular job assignment or completion of the time duration for which the employee was hired. After reviewing the language of pertinent statutes and relevant legislative history, the unanimous court concluded that released employees are just as deserving or in need of immediate wage payment than employees who are fired.

If your company hires employees for limited job assignments, be sure that you pay those employees’ final wages promptly, just as if the employees were being discharged from regular employment. As seen in the Smith case, the amount of waiting-time penalties that can result
from failing to make prompt payment can be substantially greater than the wages that were due.

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