On November 18, 2010, the California Supreme Court handed down a ruling in Pineda v. Bank of America clarifying two key issues regarding penalties employers must pay for failure to promptly pay a departing employee’s final paycheck. First, the Court ruled that a three-year statute of limitations applies to claims for “holding time” or “waiting time” penalties provided for under California Labor Code Section 203. While California’s Code of Civil Procedure generally provides for a one-year statute of limitations in actions for a “penalty” or “forfeiture,” the California Supreme Court interpreted the language of Labor Code section 203(b) as expressing the legislature’s intent to provide for a longer, three-year statute of limitations for Section 203 penalties.

Second, the Court held that those same Section 203 penalties are not recoverable as restitution under California’s Unfair Competition Law (Business and Professions Code section 17200) (“UCL”). Distinguishing the underlying unpaid wages from the Section 203 penalties, the Court contrasted the earned wages that were property of the employee, and therefore compensable in an action for restitution, from the penalty arising from the employer’s failure to promptly pay the final paycheck. The Court reasoned that permitting recovery of section 203 penalties in a cause of action for restitution would not restore the status quo by returning funds to the employee in which he or she had an existing ownership interest. Accordingly, section 203 penalties cannot be recovered as restitution under the UCL. Given the fact that UCL claims have a four-year statute of limitations, the net effect of the Court’s decision is to definitively set a three-year statute of limitation for claims for “holding time” or “waiting time” penalties under California Labor Code Section 203.