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In a case of first impression, the Wisconsin Court of Appeals for District III (Wausau) recently ruled that an employer who pays overdue wages prior to an employee commencing suit is relieved from the wage penalty obligations under Wisconsin law. The Court of Appeals held in Hubbard v. Shawn Messer, d/b/a Degree Systems, Case No. 02-1701-FT that no penalty was appropriate on the wages that were previously owed to the plaintiff, Neal Hubbard, but were paid by his former employer, Shawn Messer, before Hubbard started his lawsuit. The Court of Appeals reversed the Circuit Court's order that awarded a 70% penalty on the wages previously owed, along with Hubbard's attorney fees.
Background
Hubbard filed a complaint with the Department of Workforce Development (DWD) claiming Messer, his employer, failed to pay wages upon his separation from employment. The DWD concluded that Messer owed Hubbard $4,860.00 in back pay. The DWD subsequently revised this amount, recalculating that Messer owed $2,312.98, and gave him fifteen (15) days to make payment. Messer did not make payment within the fifteen (15) days and the matter was referred to the District Attorney pursuant to Wis. Stat. §109.11(1)(c).
The District Attorney then sent Messer a letter demanding payment of the $2,312.98. Hubbard's private counsel also sent a demand letter to Messer indicating that if payment was not received, Hubbard would commence a lawsuit. Shortly after Messer received these two letters, he issued a check to Hubbard for the $2,312.98, less required withholding.
Subsequent to this payment, the DWD issued another letter to Messer regarding a different wage claim by Hubbard. The DWD determined that Messer owed Hubbard an additional $1,560.93. The DWD demanded payment and Messer subsequently issued a check for that amount, less withholding. Hubbard cashed both of these checks.
Hubbard then filed an action seeking penalty wages of 100% under Wis. Stat. §109.11(2)(b), or a total of $3,873.91, plus his attorney fees. The trial court agreed with Hubbard and granted him summary judgment. The court only awarded a 70% wage penalty, or $2,711.74, plus attorney fees of $1,998.00. Messer then appealed.
The Court's Holding
The Court of Appeals ruled that the penalty structure contained in Wis. Stat. §109.11(2) only applies when wages are "due and unpaid." It went on to find that there were no wages "due and unpaid" at the time Hubbard commenced his lawsuit. Although Messer had to be asked several times, he did eventually pay both DWD calculations of wages that were due but unpaid before Hubbard filed his lawsuit.
The Court of Appeals went on to find that this construction of the wage claim statute is consistent with encouraging employees to utilize the services of DWD to perform an expeditious investigation, and resolve these types of claims short of litigation. The Court of Appeals rejected the argument made by Hubbard that this interpretation would encourage Wisconsin employers not to timely pay due wages because they could avoid the penalty by paying at the "11th hour" before the case was filed in court. The Court reasoned that the criminal penalties are an additional inducement for employers to timely pay due wages, and the employee, like Hubbard, controls when his lawsuit is filed, not the delinquent employer. As a result, the wage penalty, along with the awarding of attorney fees, was not available to Hubbard.
Application of the Court's Holding
Employers should take seriously the DWD administrative/investigative process. These types of claims should be reviewed in detail "up front" and addressing them should not be delayed. If there is a valid claim, the employer should pay it and not wait for the employee to commence suit or hope the employee "just goes away." If an employer pays an undisputed amount of a claim before the employee starts a lawsuit, and there remains a disputed amount, the penalty wages should only be based on the remaining disputed amount and not the original amount claimed.
The Court of Appeals' holding in Hubbard will encourage employees to either bypass the administrative process with DWD and go right to court, or file suit far sooner after exhausting the administrative process in order to have available the wage penalty and attorney fee recoveries under Wisconsin law. The court still has discretion to award the full penalty or a percentage of it, and if an employee bypasses the DWD, the maximum potential penalty wages drop from 100% to 50%. However, once an employee's claim has been filed in court, the stakes will go up as to what the potential recovery will be.
The Hubbard case has been appealed to the Wisconsin Supreme Court. A decision will probably be issued sometime before the end of this year.
For more information regarding Krukowski & Costello's training programs and publications, please call (414) 423-1330 or e-mail Krukowski & Costello's educational services department.
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