A recent decision from the Idaho Supreme Court provides a hard lesson to Idaho employers who are faced with a current or prior employee's claim for wages under the Idaho Wage Claim Act. In particular, the decision provides an example of the harsh penalties that can be imposed on Idaho employers for the failure to pay wages within strict, defined time frames set forth by the Act. Nevertheless, the Act does provide safeguards to Idaho employers if certain statutory requirements are satisfied. Read on to find out how you can protect your business in the future when confronted with a claim for unpaid wages.
A Primer - Notable Sections of Idaho's Wage Claim Act.
Wage claims are defined by Idaho Code § 45-601 as an employee's claim against an employer for compensation for the employee's own personal services. Wages have been further defined under that same statute as compensation for labor or services provided by an employee, whether the amount is determined on a time, task, piece, or commission basis. As you will see, this statutory definition for "wages" has been broadly interpreted to include hourly wages, salary, commissions, bonuses, earned vacation pay, and, in particular, severance packages, as examined in the Idaho Supreme Court's recent decision discussed below.
Upon separation of employment, and regardless of the reason for separation, Idaho Code § 45-606 requires employers to pay all wages due and owing by the earlier of the next scheduled payday or within 10 days of such separation from employment, not including weekends or holidays. If, however, an employee makes a written request for earlier payment of wages after separation, then the employer must pay the employee all wages due within 48 hours of receipt of the request, not including weekends or holidays. Note also that, under Idaho Code § 45-613, an employer cannot retaliate, in any manner, or discharge an employee for making a complaint for unpaid wages, for filing suit alleging that the employee has not been paid, or for testifying in a wage claim investigation. This statute has been used by an employee as a basis to assert an additional claim for wrongful discharge, in addition to a claim for unpaid wages under the Act.
In the event that an employer disputes the amount of wages that an employee claims are due, then, under Idaho Code § 45-611, the employer is still required to timely pay the employee the amount of wages conceded to be due, leaving to the employee all the remedies that the employee might otherwise be entitled under the law. When an employer takes this action there are certain protections provided by the Act. Specifically, "no penalties may be assessed" against the employer unless it is later shown that the remaining balance of wages due were withheld willfully, arbitrarily, and without just cause. Note that the term "penalties" used by the Idaho legislature in this statute has been found by the Idaho Supreme Court not to include treble damages which may be awarded to an employee who has not been timely paid the wages he or she is found to be owed. This means that an employer may still be liable for significant damages above and beyond the actual wages found to be owed to the employee, as more fully described below, even if the employer pays the undisputed wages. As you can see, this presents a pitfall for Idaho employers.
Penalties may be imposed against an employer for the non-payment of wages owed to an employee within the time frames set forth above. Idaho Code § 45-607 states that, when an employer does not comply with those time frames, then the employee's wages continue to accrue at the same rate as if the employee had continued working until the wages are paid in full, or for 15 days, whichever is less. However, in no event shall this penalty exceed $750.00 and, if the full amount of wages is paid prior to the filing of a lien, then the penalty shall not exceed $500.00. Notably, the employee is required to make himself or herself available for the payment of wages, but if he or she does not (e.g., the employee hides from the employer in an attempt to collect additional penalties), then that employee is not entitled to any penalties provided by the Act.
In this author’s opinion, what follows is one of the most important provisions of the Act. That is, if an Idaho employer is found to have not complied with the Act by not paying wages due and owing in accordance with the express time frames set forth by the Act, then, under Idaho Code § 45-615, an employee may be entitled to recover as damages the sum of 3 times the amount of unpaid wages. Such treble damages can result in significant exposure for Idaho employers. Moreover, and also likely to be significant, the employee is entitled to recover the attorney's fees and costs reasonably incurred by the employee in seeking those unpaid wages.
Interestingly, an employee who has a claim for unpaid wages under $5,000.00, excluding potential penalties, has the choice to either file a lawsuit in court or file a complaint with the Idaho Department of Labor under Idaho Code § 45-617. If a complaint is filed with the IDOL, then administrative proceedings are initiated and the IDOL investigates the employee's claim and determines if the employee is entitled to unpaid wages and penalties. If an employer fails to pay the amount found to be due and owing, then the IDOL is authorized by Idaho Code § 45-620 to file a lien with the Idaho Secretary of State.
Finally, Idaho Code § 45-612 provides protections to Idaho employers who are confronted by employees who make a false wage claim. An employee who is found to have filed a false wage claim, which the employee knew to be false at the time the employee brought the action, can be forced to pay the attorney's fees and costs incurred by the employer in defending against the false claim. Moreover, an employee who is found to have knowingly made a false claim for wages is guilty of a misdemeanor punishable by up to 6 months jail time, or by a fine not to exceed $1,000. It should be noted, however, that these protections for Idaho employers have rarely, if ever, been imposed on employees found to have made false wage claims.
With this framework in mind, let’s learn how one Idaho employer discovered a hard lesson by contesting whether certain amounts owed to a prior employee constituted "wages" under the Act.
A Real Example - This Idaho Employer Learned the Hard Way.
Lightforce Australia is an Australian company that manufactures spotlights for night hunting. In the early 1990's, Ray Dennis, the owner of Lightforce Australia, expanded into the USA and formed Lightforce USA (we'll refer to both entities as "Lightforce"). Dennis hired Jeff Huber in 1991 to manage Lightforce's daily operations in the United States and, by 1997, Huber had been promoted to vice president.
For the next decade, Lightforce enjoyed significant growth but, by 2010, Huber's relationship with the company had started to become strained. In early 2011, after a number of issues regarding Huber's management of the company had arisen, Lightforce requested that Huber sign an agreement that was essentially a non-disclosure and non-competition agreement ("NDA"). Huber signed the NDA, which also provided that Huber was to receive 12-months' pay if he was terminated and that termination was not related to performance related issues.
As a result of continued complaints regarding Huber, in August 2011, Huber was informed by Dennis that his termination would be effective one year later on August 1, 2012. Huber was informed of the reasons for his termination, which included, among other things, not being transparent with the Lightforce board and being hostile towards staff. During the next year, Dennis and Huber agreed that Huber would receive full salary and benefits, and that he would not return to work for Lightforce, but rather would explore future business opportunities for him and Dennis.
Upon the effective date of termination in August 2012, Huber sought to collect from Lighthouse the 12-months' pay under the NDA (which amounted to $180,000) and other benefits he claimed were owed. Lighthouse, however, refused to pay him. On August 27, 2012, Huber filed suit alleging breach of contract and unpaid wages under the Act. He later amended his complaint to assert other causes of action relating to the other benefits he claimed Lighthouse owed him.
Huber moved for summary judgment on a number of issues prior to trial, including whether the amount he claimed was owed under the NDA were wages and subject to a treble damages award under the Act. Unfortunately for Huber, the trial court held that the NDA compensation did not constitute "wages" under the Act because it was meant to compensate Huber for complying with the non-disclosure and non-competition provisions of the NDA. In other words, the compensation was not earned "in increments as services were performed or in consideration for services rendered" by Huber. This finding left for trial the issue of whether or not Huber was entitled to compensation under the NDA at all, which hinged on the question of whether he was terminated for performance related issues or not.
At trial, the court held that Huber was owed the NDA compensation because his termination was not related to performance issues. Not surprisingly, Huber appealed the trial court's decision on summary judgment that the NDA compensation did not qualify as wages under the Act, because Huber, quite certainly, wanted this compensation to be multiplied by 3, to total $540,000.
On appeal before the Idaho Supreme Court, Huber argued that the NDA compensation was not conditioned on his agreement to not compete with Lightforce, but, rather, the compensation was analogous to severance pay, which the Court had previously held in other cases constituted wages under the Act because such pay is meant to protect employees from economic hardship and to reward employees for past service. In response, Lightforce argued that the NDA compensation was not akin to severance pay, but was consideration for compliance with the non-competition provision of the NDA. The Court found that there was no language in the NDA that conditioned the payment of the NDA compensation on compliance with the non-competition provision, and that the compensation was intended to secure Huber's well-being and to compensate him for his past service. On these bases, the Court held that the NDA compensation constituted wages under the Act, and remanded the case with direction to the trial court to treble the $180,000 judgment, or award Huber $540,000.
Concluding Observations and Recommendations for Idaho Employers
As demonstrated by the Lightforce case, Idaho's Wage Claim Act can present significant issues for Idaho employers when confronted with a current or prior employee's claim of unpaid wages. There are a number of ways that you can reduce the amount of risk you are exposed to, however. For example, if you are presented with a claim for unpaid wages by a current employee, make sure that you do not take any action that could be construed as retaliatory against that employee for making the claim. If this occurs, you could subject your company to a wrongful termination claim, in addition to a wage claim under the Act. This would likely increase the exposure to your company for damages. When confronted with an unpaid wage claim, make sure that you pay those unpaid wages in accordance with the time frames set forth in the Act so that you are not subject to the prescribed penalties - i.e., pay all wages due and owing by the earlier of the next scheduled payday or within 10 days of such separation from employment, not including weekends or holidays. If demand for unpaid wages is made in writing, then you should pay the wages due and owing within 48 hours. And, if a current or prior employee makes a claim for wages, and you dispute a portion of the amount claimed to be owed, timely pay the undisputed amount. It may also be wise to review your employment practices insurance to see if or how you are protected for wage claims made by your employers. There are many other ways that you can seek to protect your company, and the level of protection is often based on the specific facts at issue. As such, if you find your company presented with a claim for unpaid wages, it is recommended that you seek legal counsel.
