HR Management & Compliance

Exempt Employees: Wage Payment Protections Apply to Corporate Executives, Court Rules

Most employers know that
exempt, salaried employees aren’t covered by California’s overtime requirements. But as a
new case points out, that doesn’t mean that other state Labor Code wage
protections similarly don’t apply to exempt workers.


Employment Contract

David Mazur was vice
president of sales and marketing at On-Line Power, Inc., in Los Angeles. His employment contract provided
for an annual salary of $180,000, paid in weekly installments.


A dispute arose when
Mazur claimed that On-Line Power paid him less than the contract specified. On-Line
Power countered that it properly paid Mazur under a renegotiated agreement that
provided for $80,000 of Mazur’s annual salary to be paid to a separate business
Mazur owned.


Case Settled, Employee
Wants Attorney’s Fees

Mazur sued, charging
that On-Line Power breached his employment contract. Mazur also sought an unspecified
amount in unpaid wages, penalties, and attorney’s fees under various Labor Code
provisions. Mazur and On-Line Power reached a compromise before trial, with
On-Line agreeing to pay Mazur $25,000 to settle his claims.


Mazur then asked the
court for attorney’s fees, which weren’t included in the settlement (On-Line disputed
this interpretation of the settlement, although the trial court agreed with
Mazur). Mazur based his claim for attorney’s fees on Labor Code Section 218.5, which
provides that in a suit for unpaid wages, the court will award attorney’s fees
to the prevailing party in the action.


On-Line Power balked,
arguing that Section 218.5 applies only to actions for nonpayment of wages to hourly,
nonexempt employees. The trial court sided with On-Line Power, ruling that
Section 218.5 was designed to protect hourly workers and not those compensated
by salary under a written employment contract.


The HR Management & Compliance Report: How To Comply with California Wage & Hour Law, explains everything you need to know to stay in compliance with the state’s complex and ever-changing rules, laws, and regulations in this area. Coverage on bonuses, meal and rest breaks, overtime, alternative workweeks, final paychecks, and more.


Labor Code Protects
Exempt Employees, Too

But a California appeals
court has now decided that Section 218.5 applies to all employees,
exempt as well as nonexempt.
1 The court explained that Section 200 of the Labor Code defines
wages broadly as “all amounts for labor performed by employees of every
description, whether the amount is fixed or ascertained by the standard of
time, task, piece, commission basis, or other  method of calculation.” Other sections provide
penalties for failing to pay “any wage of any employee” (Section 203) and
specify the times/intervals when wages must be paid, including for exempt
employees (Section 204). Taken as a whole, said the court, these provisions
indicate that the Labor Code considers salaries of executives to be protected wages.
Thus, the court ruled, Section 218.5’s attorney’s fees provisions apply to a
suit for nonpayment of such wages.


The court also made it
clear that Mazur wasn’t precluded from seeking unpaid wages under the Labor Code
merely because he also tried to recover the wages under a breach of contract
theory. An employee who is denied wages owed may sue for both breach of contract
and Labor Code violations, said the court.


The court noted that
there were several unresolved issues that would be left to the trial court to
decide: 1) whether the portion of Mazur’s salary paid to his separate
consulting business constituted wages, and 2) which party—Mazur or On-Line
Power—was the prevailing party for purposes of Section 218.5 attorney’s fees.


Broad Protections

This case is a reminder
that the Labor Code provides various wage protections for all employees, not
just hourly, nonexempt workers. These include rules regarding paydays, payment
on termination, wage deductions, itemized wage statements, payroll records inspection
by current and former employees, waiting time penalties, and more.



1 On-Line Power, Inc. v. Mazur, Calif.
Court of Appeals (Dist. 2) No. B189251, 2007