Furloughs Trigger Employer’s Obligation To Pay Final Wages Immediately

CDF Labor Law LLP

A recent Ninth Circuit panel held that Hyatt employees who were “laid off” in March 2020 were entitled to payment of their accrued vacation time immediately, even though the employees were not officially terminated until June 2020. Hyatt, like many other California employers, suffered a reduction in business when the pandemic struck in 2020. Also, like many other California employers, Hyatt furloughed/temporarily laid off thousands of employees with the hope that business would return to normal within a few weeks. As we know, it did not. As a result, Hyatt terminated the furloughed employees on June 27, 2020 and paid out all unused accrued vacation at the time of the official termination.  

In Harstein v. Hyatt Corporation, the plaintiff filed a class and Private Attorneys’ General Act (“PAGA”) action claiming that Hyatt failed to timely pay the accrued vacation time in March 2020 when it furloughed employees, among other claims, in violation of California law. Importantly, a failure to pay all unused accrued vacation time, along with all other wages earned immediately at the time of termination, triggers penalties of a day’s wages until all final wages are paid (commonly referred to as waiting time penalties). Waiting time penalties are capped at 30 days. 

The case commenced in state court and Hyatt removed it to federal court where a District Court judge granted summary judgment in favor of Hyatt, concluding that the March 2020 furlough was not a termination and did not trigger Hyatt’s obligation to pay accrued vacation time immediately pursuant to the California Labor Code. On appeal, the Ninth Circuit reversed and remanded the case back to the District Court for the District Court to consider whether the failure to pay was “willful.”  

In reaching its decision, the Ninth Circuit panel relied on a non-binding DLSE opinion letter and Policies and Interpretations Manual (this Manual has been found by the California Supreme Court to be an unauthorized underground regulation, and thus “void.”). Particularly, the DLSE materials state that when employees are temporarily laid off without a specific return date within the normal pay period, employment should be treated as terminated and final wages, including accrued vacation pay, should be paid immediately. The Court found that because the Hyatt employees were temporarily laid off in March 2020 for longer than a normal pay period and without a specific return date, Hyatt should have paid the accrued vacation pay in March 2020, not June 2020.  

If, on remand, Hyatt demonstrates to the District Court that it had a good faith dispute as to whether immediate payment of the accrued vacation pay was due in March 2020, it may avoid waiting time penalties liability. Indeed, this is the real issue in this case. Hyatt already paid out the accrued vacation pay in June 2020.  But 30 days of waiting time penalties on behalf of the 7,000 employees that Hyatt furloughed is staggering. As the Ninth Circuit recognized, “an employer’s reasonable, good faith belief that wages are not owed may negate a finding of willfulness.”  

It will be interesting to see how the District Court decides the willfulness issue. The unprecedented impact of the pandemic, and particularly the stay-at-home orders that nearly brought business to a complete halt in March 2020, will certainly be argued by counsel and analyzed by the Court in connection with the willfulness factor.

We will continue to report on the status of this case, as the outcome may have significant ramifications for California employers.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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