Diaz v. Grill Concepts: Ignorance Is (No Longer) Bliss

In May of 2018, a California appellate court handed down an important decision clarifying employers’ liability for waiting time penalties. In Diaz v. Grill Concepts Services, Inc., No. B280846 (2d District, May 24, 2018) (slip op. available here), the Second Appellate District affirmed a judgment in favor of a certified class of employees, finding that an employer’s failure to investigate a suspected increase in the locally mandated “living wage” rendered its failure to pay that wage willful. Invoking the maxim that “ignorance of the law is no excuse,” Diaz found that an employer’s failure to investigate a change in the local wage scale constituted a “willful” failure to pay, exposing it to waiting time penalties under the California Labor Code. Id. at 10. Diaz also held that courts do not have discretion to relieve the employer from such penalties on equitable grounds. Id. at 18-21.

The California Labor Code “waiting time” provision requires that an employer that fails to pay a former employee any required wages is liable for wage underpayment. If the failure to pay was “willful,” the Labor Code imposes on the employer an additional penalty equal to up to 30 days’ of the employee’s wages. See Cal. Lab. Code §§ 203(a), 1194(a). The “waiting time” penalty punishes employers for forcing the employee to wait for his or her final paycheck. Prior to Diaz, an employer could be assessed waiting time penalties if it was aware it was underpaying wages and intended to do so, satisfying the “willful” requirement of California Labor Code section 203. See Kao v. Holiday, 12 Cal. App. 5th 947, 963 (2017); Barnhill v. Robert Saunders & Co., 125 Cal. App. 3d 1, 7 (1981); Cal. Lab. Code § 203(a).  This meant that employers could avoid penalties if the failure to pay was a result of uncertainty in the law or a mistaken belief, under good faith, that the wages were not owed. See Amaral v. Cintas Corp. No. 2, 163 Cal. App. 4th 1157, 1202 (2008); Road Sprinkler Fitters Local Union No. 669 v. G & G Fire Sprinklers, Inc., 102 Cal. App. 4th 765, 782 (2002).

Diaz, in a ruling consistent with the California state legislature’s longstanding tradition of promoting the health and welfare of its employees, replaced the “knowing and intentional” standard with a negligence standard, finding that Grill Concepts Services was subject to the payment of waiting time penalties merely because its compliance efforts fell short of what a reasonable employer should have done. See slip op. at 10 (imposing upon employers a “duty of inquiry” into relevant legislation to ensure that their wage payment policies and practices are compliant with California law). Diaz also found that the language of section 203 (“the wages of the employee shall continue as a penalty’ for up to 30 days”) precludes trial courts from exercising discretion to waive or reduce waiting time penalties properly owed. Id. at 18 (emphasis in original).

In the wake of Diaz, employers can no longer operate in blissful ignorance of California’s wage payment laws, as they will be exposed to hefty waiting time penalties—with no opportunity for discretionary reduction—for the failure to timely pay wages properly owed.

Authored by:
Ari Basser, Associate
CAPSTONE LAW APC