August 31, 2010

Unpaid Wages, Part 1

In the current economy, many employers are finding it difficult to make payroll. In many cases, employers are forced to lay off employees, often before the employer can catch up on overdue wage payments. The employer then risks a lawsuit for unpaid wages. In a discussion of the causes for a recent rise in wage and hour litigation, Christopher M. Pardo laments that reductions in force contribute to litigation by creating "a larger pool of disgruntled former employees who are potential plaintiffs." Christopher M. Pardo, The Cost of Doing Business: Mitigating Increasing Recession Wage and Hour Risks While Promoting Economic Recovery, 10 J. Bus. & Sec. L. 1, 6 (2009). Fearing they have no new job prospects, laid off employees become desperate for any income and, "desperation breeds litigation viewed as 'easy' money." Id. The financially-strapped employer who must lay off workers who are still owed wages is, indeed, in a very dangerous situation.
When there are insufficient funds to meet all financial obligations and an employer is forced to make difficult decisions about who to pay, it is important to know the potential consequences of each option.  The consequences for not paying an employee's wages are rather severe.  Washington employers who cannot pay their employees in full may be forced to pay double the amount of wages owed, plus steep interest and the employee’s attorney’s fees. RCW 49.52.070; Durand v. HIMC Corp., 151 Wn. App. 818 (2009). (An interesting, in-depth discussion of Durand and related cases may be found here.) Attorneys’ fees for both sides can quickly eclipse the actual wages owed. For this reason, it often makes sense for the employer to settle the lawsuit as quickly as possible. One of the factors which can prevent quick settlement is the usual disagreement about whether double damages would be awarded at trial.  This debate is particularly intense (and expensive) when the amount of wages in question is large enough to warrant paying significant attorneys' fees to argue the issue.
Under Washington law, an employer is only liable for double damages if, among other things, the wages were withheld willfully. RCW 49.52.050. Employers often latch onto this willfulness requirement, pointing to a financial inability to pay. They protest that their non-payment cannot be willful if they had no other choice. However, courts have adopted a very narrow definition of “willfully” in this context. Financial inability to pay, even bankruptcy, is insufficient to prevent a finding of willfulness and avoid double damages. Morgan v. Kingen, 166 Wash.2d 526, 535 (2009); Shilling v. Radio Holdings, Inc., 136 Wash.2d 152 (1998).

Whenever at all possible, it is best for employers to pay their employees in full and on time.  Sometimes, that just isn't possible.  If you find yourself unable to pay your employees, or are already facing a lawsuit, consult with an attorney.