Court of Appeals: Wage Payment Statute Does Not Provide a Remedy for Wages Paid Later than the Statute Demands

Permanent Link Archived: https://perma.cc/CVB2-9CLB

by: Colin E. Flora

     I have said time and time and time again that Indiana’s process for selecting its appellate judiciary has produced one of the finest judicial bodies in all the nation. But that does not mean that Indiana’s appellate courts always get it right. Today we discuss a decision from last week in which I think the Court of Appeals of Indiana got it wrong. That case is Brown v. Bucher & Christian Consulting, Inc. and the issue was whether an employee could bring a claim under the Indiana Wage Payment Statute for an untimely, as opposed to wholly unpaid, wage.

     We have previously discussed the Indiana Wage Payment Statute and the corresponding Indiana Wage Claims Statute. Our prior focus was largely on the conditions that permit a claim to be brought at all. Today, we shift focus to an amendment to the Indiana Wage Payment Statute which the appellate panel in Brown concluded made all the difference as to the amount that could be recovered.

     Let us begin by looking at the relevant language of the current iteration of the Wage Payment Statute:

Indiana Code § 22–2–5–1(b)
(b)       Payment shall be made for all wages earned to a date not more than ten (10) business days prior to the date of payment. However, this subsection does not prevent payments being made at shorter intervals than specified in this subsection, nor repeal any law providing for payments at shorter intervals. However, if an employee voluntarily leaves employment, either permanently or temporarily, the employer shall not be required to pay the employee an amount due the employee until the next usual and regular day for payment of wages, as established by the employer. If an employee leaves employment voluntarily, and without the employee's whereabouts or address being known to the employer, the employer is not subject to section 2 of this chapter until:

(1)       ten (10) business days have elapsed after the employee has made a demand for the wages due the employee; or
(2)       the employee has furnished the employer with the employee’s address where the wages may be sent or forwarded.

Indiana Code § 22–2–5–2.
Every such person, firm, corporation, limited liability company, or association who shall fail to make payment of wages to any such employee as provided in section 1 of this chapter shall be liable to the employee for the amount of unpaid wages, and the amount may be recovered in any court having jurisdiction of a suit to recover the amount due to the employee. The court shall order as costs in the case a reasonable fee for the plaintiff’s attorney and court costs. In addition, if the court in any such suit determines that the person, firm, corporation, limited liability company, or association that failed to pay the employee as provided in section 1 of this chapter was not acting in good faith, the court shall order, as liquidated damages for the failure to pay wages, that the employee be paid an amount equal to two (2) times the amount of wages due the employee.

     The issue in Brown was that the employer was paying wages, but was not paying the wages within the ten-day period mandated by the Wage Payment Statute. As a result, a former employee brought suit arguing that he and all those similarly situated were entitled to recover costs, fees, and liquidated damages of twice the amount of the wage that had not been timely paid. But both the trial court and the Court of Appeals determined that no such damages were permitted. And the reasoning of both tribunals turned on a single fact: at some point prior to the lawsuit, the employer, although untimely, did actually pay the wages.

     In understanding how those courts reached their conclusions, we need to first look at how the exact opposite result had been reached in cases prior to the 2015 Amendment. The pre-amendment penalty provision stated:

Every [employer] who shall fail to make payment of wages to any such employee as provided in section 1 of this chapter shall, as liquidated damages for such failure, pay to such employee for each day that the amount due to him remains unpaid ten percent (10%) of the amount due to him in addition thereto, not exceeding double the amount of wages due, and said damages may be recovered in any court having jurisdiction of a suit to recover the amount due to such employee, and in any suit so brought to recover said wages or the liquidated damages for nonpayment thereof, or both, the court shall tax and assess as costs in said case a reasonable fee for the plaintiff's attorney or attorneys.

As the Brown decision noted, “Th[e] Court [of Appeals] interpreted the prior version as allowing employees to recover attorney fees and liquidated damages for late-paid wages, even if the employees had received all the wages to which they were entitled before filing suit.”

     But the Court deemed that untimely wages did not permit recovery of liquidated damages because, it reasoned, the statute only applied to “unpaid” wages:

As noted above, Section 2 of the Wage Payment Statute states that an employer who violates Section 1 (by making insufficient or untimely salary payments to its employees)

shall be liable to the employee for the amount of unpaid wages, and the amount may be recovered in any court having jurisdiction of a suit to recover the amount due to the employee. The court shall order as costs in the case a reasonable fee for the plaintiff’s attorney and court costs. In addition, if the court in any such suit determines that the [employer] . . . was not acting in good faith, the court shall order . . . liquidated damages . . . .

In other words, the employee is entitled to file a lawsuit to recover the amount due to him as well as his costs and fees incurred in the litigation. Under certain circumstances, he may also be entitled to liquidated damages.

In this case, Brown has conceded that there are no wages due to him by BCforward. Instead, he alleges that BCforward at times paid his salary on a timeframe exceeding the Ten-Day Rule. The plain, ordinary, and usual definition of “unpaid” is “not paid.” While it may be the case that BCforward occasionally paid Brown’s wages on a schedule that exceeded the Ten-Day Rule, it is undisputed that the company did, in fact, ultimately pay his wages. We cannot conclude that this scenario equates to the “unpaid wages” referred to in Section 2; nor can we conclude that Brown is entitled to maintain a lawsuit “to recover the amount due to” him, as there is no amount that is, in fact, due. As liquidated damages are “[i]n addition” to the employee’s recovery of unpaid wages, attorney fees, and court costs, the plain statutory language signifies that if one is not entitled to the latter, one may not seek the former. As a result, we find no error in the trial court’s conclusion that because Brown has no unpaid wages, as a matter of law his claim for costs, fees, and liquidated damages under the Wage Payment Statute must fail.

     I could scarcely disagree more with the Court of Appeals’ interpretation. The decision creates three major problems. The first is that it leaves a meaningful portion of the Wage Payment Statute without effect. The second is that it leads to an interpretation that creates patently absurd results by allowing a boundless period of time for payment of wages beyond becoming due. And the third is that the underlying premise of the decision that a plaintiff can only recover damages if there is “unpaid” wages is wrong because that portion of Section 2 is identical in both the pre-amendment and post-amendment versions.

     As to the first point, the Indiana Supreme Court has stated, “It is well settled that an interpretation of a statute which does not give effect to all of a statute’s provisions must be avoided if an interpretation is possible which would give effect to all of the statute’s provisions.” The Brown interpretation leaves no enforcement mechanism whatsoever for an untimely paid wage. The irony is that the timeliness of the frequency of wages is not merely an incidental function of the Wage Payment Statute, it is actually its primary thrust. The Brown decision cites to a recent Indiana Supreme Court opinion for the statement “that the purpose of the Wage Payment Statute ‘is to prevent employers from stealing their employees’ wages and profiting from their labor.’” But that statement is an oversimplification clearly not meant to diminish the importance of frequency of payment.

     The primary focus of the statute is clearly not “unpaid wages.” The word “unpaid” appears exactly once, and only in Section 2. The title of the chapter is “Frequency of Wage Payments.” Indeed, there was a split in the caselaw not resolved until 2002 as to whether the statute addressed only the frequency of wages or both frequency and amount, with the Indiana Supreme Court determining the latter to be correct. The operative portion of the Wage Payment Statute did not change with the 2015 Amendment, only Section 2’s enforcement mechanism. Thus, the thrust of the Wage Payment Statute remains entirely unchanged.

     The interpretation in Brown means that there can be no enforcement of untimely but ultimately paid wages. There can be no attorney fees and costs if there is no action to be brought, and there can be no action if the available recovery cannot exceed the loss. The result is that there is no way at all to enforce the very thrust of the statute: timely payment of wages. Consequently, the interpretation has rendered the entirety of the ten-day period requirement meaningless.

     As to the change in the enforcement provision of Section 2, the only substantive change in the section is the transition from the 10% per day up to an amount that would equate to double damages into an automatic double-damages provision and the addition of a good faith defense. Both the old version and the new version use the word “unpaid.” In the old, it clearly meant unpaid as of the date it was due: “each day that the amount due to him remains unpaid ten percent (10%) of the amount due to him in addition thereto, not exceeding double the amount of wages due[.]” That means that the liquidated damage became due the moment the original wage was due and not paid. Under that language, the law was clear: an employee could recover the liquidated damages by mere virtue of payment being untimely. Indeed, that was the only way the daily increase in exposure could function.

     But the Court of Appeals held in Brown that “unpaid” now means “unpaid” as of some undefined time. And that is the second problem. It is undisputed that the plaintiff in Brown was not paid in the ten-day interval, so it was unpaid as of the date it was due. But it was paid before he filed suit. So, presumably, the Brown interpretation means that it had to remain unpaid at least until the date suit was filed. With a two-year statute of limitations, that suggests an employer can withhold payment for almost two years and do so without recompense, so long as it eventually makes payment. That facilitates an absurd result.

     Also of note, the contemporary discussions of the 2015 Amendment make no mention of it changing recovery to “unpaid” at the exclusion of “untimely” wages. Instead, universally the discussion of the 2015 Amendment was the addition of the good faith defense. A summary of the 2015 Amendment by the Senate Majority Communications Office states:

HB 1469
Effective: July 1, 2015
Code Citations: 22-2-5-2, 22-2-6-2
Public Law Number: 193-2015

Wage payment and wage assignment. Provides that an employer who fails to make timely payment of wages or withholds wages shall pay the wages due, a reasonable fee for the plaintiff’s attorney, and court costs. Provides that if a court finds that the failure to pay the employee was not in good faith, the court shall order that the employee be paid an amount equal to two times the amount of wages due the employee as liquidated damages. Provides that an employee may assign wages for: (1) the purchase, rental, or use of uniforms or equipment necessary to fulfill the duties of employment, provided that the total amount of wages assigned may not exceed the lesser of: (A) $2,500 per year; or (B) 5% of the employee’s weekly disposable earnings; (2) reimbursement for education or employee skills training, unless the education or employee skills training were provided through an economic development incentive from a federal, state, or local program; (3) an advance for payroll or vacation pay; and (4) merchandise, goods, or food offered by the employer, for the employee’s benefit, use, or consumption, at the written request of the employee.

Another source summarizing the bill states:

This bill changes the damages available to an employee that is still employed or voluntarily terminates his/her employment in the event that the employer fails to pay wage due. Under the previous version of the Wage Payment law, the employer was liable for the amount due, a penalty amount of 10% of the amount due for each day it remains unpaid up to twice the amount due (i.e. treble damages), and reasonable attorney fees and costs, regardless of the reason for non-payment. Under the amended law, the employer is now only liable for the amount due plus reasonable attorney fees and costs in all cases, but only if the employer fails to pay in bad faith, is it liable for twice the amount due as a penalty. Note that this also applies to Wage Claim actions, which is for employees whose employment involuntarily terminated.

In neither source is there any mention of the landmark change to barring recovery of untimely wages that the Court of Appeals read into the 2015 Amendment.

     The Court of Appeals summarized the 2015 Amendment stating:

It is apparent that in effecting these statutory changes, the legislature intended to cure the defect or mischief that existed in the prior statute that permitted exorbitant recovery in cases in which there were no actual unpaid wages and where the employer acted in good faith. For example, if an employer mistakenly delays payment of an employee’s salary by a minimal amount of time and corrects that error as soon as the employee brings the error to the employer’s attention, the employer no longer faces the possibility of a substantial liquidated damages penalty.

And I do not think the Court of Appeals is wholly wrong in that statement. But it mistakenly conflates the addition of the good faith defense, which solves the simple mistake on payment problem, with complete abrogation of claims for untimely payments. If those untimely payments are the product of a good faith mistake, then the new good faith defense prohibits liability. There was no need for the General Assembly to alter any portion of the provision to remove liability for untimely wages which were not done in good faith, which is why it does not appear that the General Assembly did that. Mind you, a bad faith late payment would not fit the problem the Court of Appeals thought was being fixed and, unless done in bad faith, prohibiting recovery of damages for untimely payments serves no purpose because there is now a good faith defense.

     But, of course, it is not enough for me to simply be dissatisfied with the result; I must contend that there is an alternative and equally meritorious interpretation. I think that is easily done and is the exact same interpretation that the Court of Appeals and Indiana Supreme Court had always given the Wage Payment Statute. In both the prior and current versions of Section 2 the word “unpaid” is used exactly once. “Unpaid” is a word whose meaning is inherently dependent upon the surrounding circumstances. A wage is not “unpaid” when it has not yet been accrued. So, the word itself presupposes that the wage has been accrued. But it is not enough just that the wage has been accrued, for it would then not be in violation of the statute unless it is both accrued and due. Thus, it is “unpaid” once it is accrued and required to be paid in accordance with the Wage Payment Statute. In this light, we see that “unpaid” necessarily possesses a temporal component. But, the interpretation in Brown provides no temporal component. It speaks only in relation to whether the underlying wage, at the time the case came before the Court of Appeals, had not been paid. That is why we were left to speculate on when late payment is too late. In fact, we presupposed that failure to pay prior to filing of a lawsuit was too late, but we do not actually even know if payment on the morning of trial would be too late, for Brown provides no insight on the temporal component.

     The most rational understanding of the temporal component is that the wage is “unpaid” when it has become due and was not paid. From that moment, the entitlement to liquidated damages attaches. The interpretation of Brown leaves the entitlement to liquidated damages to some, perhaps, unascertainable future date, because it has deemed to read “unpaid” as temporally linked to the time the matter is decided by the court. There can be no doubt that the employee’s wage in Brown was unpaid when it exceeded the ten-day payment period. Had the employee filed suit the very next day, he could have recovered liquidated damages. But, by waiting just long enough to allow the tardy employer to pay, the accrued entitlement to liquidated damages simply disappeared. It is an interpretation that undermines the purpose of the Wage Payment Statute and runs afoul of the accepted rules of statutory interpretation.

     But let us take it a step further, I think the underlying premise of the Court of Appeals’ interpretation was wrong. The underlying premise is that the employee could not be entitled to liquidated damages unless he was presently entitled to “unpaid” wages. Indeed, that is how the term “unpaid” even factors in. Section 2 does not say “unpaid” in relation to liquidated damages. The appellate panel concluded that an employee could not recover liquidated damages if his primary claim could not recover unpaid wages. But the exact same thing could have been said of the pre-amendment version of Section 2. The prior version stated:

Every [employer] who shall fail to make payment of wages to any such employee as provided in section 1 of this chapter shall, as liquidated damages for such failure, pay to such employee for each day that the amount due to him remains unpaid ten percent (10%) of the amount due to him in addition thereto, not exceeding double the amount of wages due, and said damages may be recovered in any court having jurisdiction of a suit to recover the amount due to such employee, and in any suit so brought to recover said wages or the liquidated damages for nonpayment thereof, or both, the court shall tax and assess as costs in said case a reasonable fee for the plaintiff's attorney or attorneys.

Ironically, it did not actually state that the unpaid wage itself was recoverable. But it did stress that recovery of liquidated damages was in addition. And remember, the caselaw said that untimely payments permitted additional recovery under the old Section 2.

     The new section 2 states: 

Every such [employer] who shall fail to make payment of wages to any [ ] employee as provided in section 1 of this chapter shall be liable to the employee for the amount of unpaid wages, and the amount may be recovered in any court having jurisdiction of a suit to recover the amount due to the employee. The court shall order as costs in the case a reasonable fee for the plaintiff’s attorney and court costs. In addition, if the court in any such suit determines that the person, firm, corporation, limited liability company, or association that failed to pay the employee as provided in section 1 of this chapter was not acting in good faith, the court shall order, as liquidated damages for the failure to pay wages, that the employee be paid an amount equal to two (2) times the amount of wages due the employee.

The Brown panel determined that the liquidated damages are not recoverable because an employee who has been paid untimely cannot “‘recover the amount due to’ him, [because] there is no amount that is, in fact, due.’” But that exact same language about bringing a claim to recover the “‘amount due to’ him” is in both the old and new Section 2, and the Brown panel explicitly recognized that, under the old Section 2, untimely wages could permit recovery of liquidated damages. The Brown panel makes no attempt to explain why that language has a different meaning in the new Section 2 than it did in the old Section 2 or why the caselaw interpreting the old Section 2 was wrong.

     I think this decision has done a disservice to Indiana employees and the text of the statute. I do not fault the Court of Appeals for lack of attention or effort in resolving this case. It certainly entered into a great deal of analysis to reach the conclusion that it did. But I cannot support that conclusion. I truly hope that the plaintiff seeks transfer to the Indiana Supreme Court and that the Indiana Supreme Court unanimously reverses. This decision is, in my opinion, wrong and needs fixed.

            Join us again next time for further discussion of developments in the law.

Sources

*Disclaimer: The author is licensed to practice in the state of Indiana. The information contained above is provided for informational purposes only and should not be construed as legal advice on any subject matter. Laws vary by state and region. Furthermore, the law is constantly changing. Thus, the information above may no longer be accurate at this time. No reader of this content, clients or otherwise, should act or refrain from acting on the basis of any content included herein without seeking the appropriate legal or other professional advice on the particular facts and circumstances at issue.