You might find this hard to believe, but litigation attorneys don’t always play nicely together. I remember the time many years ago when a colleague, “Oscar” (not his real name) got into a spat with his boss, “Felix,” and quit his law firm job. Oscar, who was a salaried employee with no written contract, provided Felix with two weeks’ notice. On each workday of the two-week transition period, Oscar arrived on time at the office and stayed for the entire day – and Felix knowingly allowed him to do so. From what I understood, relations between Oscar and Felix were clearly strained during this time period, but no harsh or critical words were exchanged. Felix, in fact, made no complaints about Oscar’s effort and attitude or about the quality of Oscar’s day-to-day work. On the next regular payday following Oscar’s termination date, however, Felix withheld the final paycheck. According to Felix, Oscar “had done nothing” during the last two weeks of his employment and therefore wasn’t entitled to compensation. (Oscar vigorously disputed this characterization.) Felix, an otherwise intelligent lawyer, thus made a dumb mistake – regardless of whether his assessment of Oscar’s work during the pay period was accurate. He had exposed his business to possible liability under his state’s wage-and-hour law.
Most states, in fact, have wage-and-hour laws on their books, and those statutes impose consequences for an employer’s failure or refusal to pay full employee compensation – whether such compensation takes the form of wages, salary, commissions, or something else – when it’s due. (The federal Fair Labor Standards Act, or “FLSA,” addresses wage-and-hour issues as well. The FLSA, like many state statutes, imposes minimum wage and overtime requirements but does not address the issue raised by the Oscar-Felix dispute.) Although certain jurisdictions might vary in this regard – and an employer should check the law in his/her/its own state – state wage laws tend to state, generally, that (i) all wages, salary payments, and other compensation earned by an employee must be paid on the regular “payday” on which they are due; and (ii) if employment terminates prior to the business’s next regular payday, the final payment to the employee must be made no later than that payday. At a minimum, an employer who violates this payment requirement will be held liable for the amount that should’ve been paid. In addition, if it’s found that the withholding of monies did not arise from a “bona fide dispute” (defined by at least one court to mean that the employer had had a “good faith” belief that those monies weren’t owed), the employer might also be required to pay additional sums. The general tendency among states, in fact, is to allow courts in such circumstances to impose a total payment requirement that – depending on the state – is double or triple the amount of the unpaid compensation, plus the employee’s attorneys’ fees and costs.
Felix’s argument that Oscar wasn’t entitled to payment was a shaky one. Oscar was paid a pure annual salary, consisting of periodic payments made during the course of employment. Unlike commission arrangements or certain wage arrangements, it is not dependent on a particular output or result. Further, Felix could not argue that Oscar had violated some written policy that had entitled the firm to dock his pay. Even if Felix had been able to make such an argument, there is no guarantee that a judge or jury would’ve found it convincing. On the other hand, Felix – who had passively allowed Oscar to work at the office during the “notice” period and apparently withheld payment out of spite – faced the possibility of having to pay a sum much higher than the amount of the original paycheck. (In the end, he was lucky. The judge entered judgment for the amount of the paycheck and no more – though a different judge might have responded differently.)
Since Oscar’s compensation was based on salary – as opposed to some other measure – the dispute between Oscar and Felix was perhaps simpler than most. Regardless, even a business owner who considers docking the pay of – or completely withholding payment from – hourly wage employees should take heed. If you believe that one of your employees is “slacking off” and not working for the money, consider terminating his employment sooner rather than later and cutting your losses (although the firing of employees raises its own set of potential issues and must be handled carefully). If, however, you decide to let him continue appearing for work and punching the time clock, withholding his pay could be a bad mistake. Litigation can be disruptive, and you might end up owing more than the paycheck.