No restitutionary recovery of Labor Code section 203 wage penalties

Greatsealcal100Is it a wage, subject to restitution under the Unfair Competition Law, or is it a penalty, which would be considered damages for purposes of the Unfair Competition Law? In connection with California’s Labor Code, this question has arisen on several occasions in recent years, the most memorable instance being Murphy v. Kenneth Cole Productions, Inc. (2007) 40 Cal.4th 1094. In the most recent incarnation of this issue, the Court of Appeal (First Appellate District, Division Three) examined whether “penalties” under Labor Code section 203 are recoverable via the Unfair Competition Law in Pineda v. Bank of America, N.A. (January 21, 2009)

Labor Code section 203 provides, in part, that “If an employer willfully fails to pay, without abatement or reduction, in accordance with Sections 201, 201.3, 201.5, 202, and 205.5, 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 therefore is commenced; but the wages shall not continue for more than 30 days. . . . [¶] Suit may be filed 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.” In McCoy v. Superior Court (2007) 157 Cal.App.4th 225, the Court held that the extended statute of limitations set forth in section 203 applies only if the penalties are sought in connection with an action for unpaid wages. But if the action seeks only waiting time penalties under section 203, the one-year statute of limitations found in Code of Civil Procedure section 340, subdivision (a) applies. (McCoy, at p. 233.)

In Pineda, the Court of Appeal concluded that, since section 203 permitted recovery of something in excess in earned wages, it could not be considered property subject to restitution:

Penalties under section 203, however, are not imposed as compensation for the labor of the employee, but are triggered by the employer’s willful failure to timely pay the wages that have been earned. As the court explained in Tomlinson v. Indymac Bank, F.S.B. (C.D.Cal. 2005) 359 F.Supp.2d 891, 895, “the remedy contained in Section 203 is a penalty because Section 203 does not merely compel [the employer] to restore the status quo ante by compensating Plaintiffs for the time they worked; rather, it acts as a penalty by punishing [the employer] for willfully withholding the wages and forces [the employer] to pay Plaintiffs an additional amount. This type of payment clearly is not restitutionary, and thus cannot be recovered under the UCL.” (See also Montecino v. Spherion Corp. (C.D.Cal. 2006) 427 F.Supp.2d 965, 967 [“§ 203 payments are clearly a penalty, and thus cannot be claimed pursuant to the UCL”]; In re Wal-Mart Stores, Inc. Wage and Hour Litigation (N.D.Cal. 2007) 505 F.Supp.2d 609, 619; Murphy, supra, 40 Cal.4th at pp. 1108-1109.)

(Slip op., at pp. 1-2, footnote omitted.) Plaintiff Pineda advanced the theory that restitution was available because the penalty was a vested property interest due upon failure to timely pay wages.  The Court of Appeal rejected that theory, but complimented Plaintiff for creativity. Nice try, but no cigar.