The recent seizure and shutdown of two prominent regional banks – Silicon Valley Bank and Signature Bank – highlights for employers the issues that an unexpected liquidity crisis may bring. And, it’s not just banking institutions that face wage and hour violations after unanticipated liquidity issues. In 2021, a major Human Resources technology provider, the Ultimate Kronos Group experienced a ransomware attack that prevented their clients, employers, from accessing time and pay records for their employees. As a result, attendance, scheduling, and payroll were all thrown for a loop, and litigation ensued.
Whether failing financial systems, unexpected cyberattacks, or an economic downturn for businesses, employers are still required to honor their wage and hour obligations. Because crisis typically strikes with little to no warning, employers should plan to ensure they can make payroll and consider how to handle furloughs and layoffs in advance of crisis.
Delayed and Non-Payment of Wages
An inability to access funds is not a defense for late or non-payment of wages. Penalties for non-payment of wages arise under both federal and state law -- and these penalties can be significant. For example, under the federal Fair Labor Standards Act (FLSA), failing to pay minimum wage results in civil penalties of $1,000 per violation. Liquidated damages (double the unpaid wages) and even attorneys’ fees and costs are also available to employees who pursue FLSA actions. And, when pursued on a class or collective basis, employers may be exposed to greater liability and attorneys’ fees.
California’s wage and hour laws rank among the toughest in the country. In California, the inability to timely pay all wages results in penalties. California employers rack up penalties of $100 or more per employee for each period where a late payment occurs. Higher penalties for subsequent violations can also apply. Similarly, in California, employees can also seek civil penalties if not provided with a timely or accurate wage statement. And, of course, the dreaded Private Attorney General Act allows any aggrieved employee to represent all other employees without the procedural trappings of a class action lawsuit.
Moreover, not only is the business at risk, but individual liability can be on the line. Under the FLSA, the term “employers” includes individuals that exercise operational control over a company, such as corporate officers or directors who may also be at risk for personal liability. In California, California Labor Code section 558.1(a) similarly imposes such potential liability.
Furloughs and Lay-Offs
If an employer suspects they will not be able to pay their employees, they should immediately consider furloughs or reducing their workforce. For furloughs, employers should notify employees as soon as possible and communicate that they cannot work. Employers will need to be mindful that, for exempt employees, if any work was performed during that workweek, the employee must be paid for the whole workweek (unless the employee was terminated). In California, any furlough without a specific return date within the pay period requires paying out final accrued pay and accrued vacation, too.
In California, waiting time penalties will accrue for up to 30 days after the employee’s termination if an employee does not receive the employee’s final pay, including accrued vacation pay at termination. For both furloughed and laid-off employees, employers must pay for all work performed prior to notice of the furlough or lay-off.
Planning for unexpected crises will spare employers from unnecessary exposure to liability. An “emergency plan” should be in place to avoid running into wage and hour issues after-the-fact. Consider implementing using paper checks if electronic accounts are frozen, contracting with a backup payroll vendor, and identifying alternative means of financing payroll in case an employer’s financial institution experiences a liquidity issue.
