One Year Statute of Limitations Governs a Claim for Purely Waiting Time Penalties Where the Penalty Claim is not Accompanied by a Claim for Unpaid Wages

Labor Code Section 203 permits an employee to recover “waiting time penalties” if the employer fails to promptly pay the employee’s final wages after termination. See Cal. Lab. Code § 203. Instead of the one-year statute of limitations for penalties provided by Code of Civil Procedure Section 340(a), Section 203 “borrows” the limitations period for an action to recover wages, which can be four years if the claim for wages is brought pursuant to the unfair competition law. Section 203 provides:

If an employer willfully fails to pay…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 therefor 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.

Based upon Section 203’s language of “borrowing” the statute of limitations from an action to recover wages, many plaintiffs have argued that, if an employer belatedly paid their final wages, that delay caused the employer to be liable for waiting time penalties for any violations within the past four years. On Nov. 27, 2007, the Fourth District Court of Appeal rejected this argument in McCoy v. Superior Court (Kimco Staffing Services, Inc.), __ Cal. App. 4th __ (Nov. 27, 2007).

In McCoy, the plaintiff filed a class action seeking penalties under Section 203 based upon his temporary staffing agency employer’s alleged practice of paying employees their final paycheck on the next regular payday instead of upon discharge or within 72 hours of discharge, as required by Labor Code Sections 201 or 202. The plaintiff did not allege any claim for unpaid wages; in fact, he admitted that his underlying wages had been paid. The employer moved to strike the portions of the complaint alleging that waiting time penalties were due for the four-year period prior to the filing of the complaint. The employer argued that the claims of employees who had only a waiting time penalty claim and who left their employment more than a year before the complaint was filed were time-barred. Orange County Superior Court Judge Stephen Sundvold agreed and struck the subject portions of the complaint. The plaintiff filed a writ petition, claiming that, under Section 203, even when an action seeks only waiting time penalties, the statute of limitations should be the same as that which would apply to a claim for wages. That measure, he argued, was four years pursuant to the unfair competition law. See Business & Professions Code Section 17200 et seq.

Finding nothing in the plain language of Section 203 to support the plaintiff’s claims, the Court of Appeal affirmed the trial court’s ruling, holding that when an action seeks only waiting time penalties and is unaccompanied by an underlying claim for wages, the one-year statute of limitations period under Code of Civil Procedure Section 340(a) governs. The court noted that the purpose of Section 203 was “to compel speedy payment of the wages, not to provide for a penalty independent of the wage claim.” The court reasoned that once the wages have been paid, “[a]llowing another three or four years’ time to sue for the penalty does nothing to ensure promptness.”

While McCoy may provide some relief that employers cannot be haunted by stale, four-year-old claims for only waiting time penalties under Section 203 where the underlying wages have been paid in full, to avoid such penalty claims, it is imperative that employers ensure that final wages are paid promptly upon termination or within 72 hours of resignation.