Class Action

Supreme Court UCL restitution decision: Pineda v. Bank of America

By Kimberly A. Kralowec

In Pineda v. Bank of America, N.A., ___ Cal.4th ___ (Nov. 18, 2010), the Supreme Court held that Labor Code section 203 penalties may not be recovered as "restitution" under the UCL.  Slip op. at 13-15.  The opinion contains an interesting discussion, which confirms that while unpaid wages are recoverable under the UCL, Labor Code remedies that amount to penalties, rather than wages, are not: 

In explaining why section 203 penalties are not recoverable as restitution, it is first helpful to briefly discuss why unpaid wages are recoverable.

In Cortez, we held the plaintiff could seek restitution of unpaid overtime wages via the UCL.  (Cortez, supra, 23 Cal.4th at p. 168.)  We explained that, ?[o]nce earned, those unpaid wages became property to which the employees were entitled.?  (Ibid.)  Thus, it was of no import that the overtime wages had never been in the possession of the employees; ?earned wages that are due and payable pursuant to section 200 et seq. of the Labor Code are as much the property of the employee who has given his or her labor to the employer in exchange for that property as is property a person surrenders through an unfair business practice.?  (Id. at p. 178.)  ?An order that earned wages be paid is therefore a restitutionary remedy authorized by the UCL.?  (Ibid.)

By contrast, permitting recovery of section 203 penalties via the UCL would not ?restore the status quo by returning to the plaintiff funds in which he or she has an ownership interest.?  (Korea Supply Co. v. Lockheed Martin Corp. (2003) 29 Cal.4th 1134, 1149.)  Section 203 is not designed to compensate employees for work performed.  Instead, it is intended to encourage employers to pay final wages on time, and to punish employers who fail to do so.  In other words, it is the employers? action (or inaction) that gives rise to section 203 penalties.  The vested interest in unpaid wages, on the other hand, arises out of the employees? action, i.e., their labor.  Until awarded by a relevant body, employees have no comparable vested interest in section 203 penalties.  We thus hold section 203 penalties cannot be recovered as restitution under the UCL.

The Court also held that a three-year, rather than a one-year, statute of limitations applies to all claims for penalties brought directly under Labor Code section 203, regardless of whether unpaid wages are also sought in the same action.  Slip op. at 3-13.  The Court of Appeal had concluded that a one-year statute of limitations applied in some cases.  Id. at 3. 

The practical effect of the opinion, therefore, is that workers will be able to recover section 203 penalties going back three years, not one year, as the Court of Appeal had held, and not four years, as the UCL would have permitted.

Full post as published by The UCL Practitioner on December 07, 2010 (boomark / email).