Last month we examined how an employer, or employer representative, could wind up in jail for failure to pay wages to an employee as required by state statute. (You Can Go To Jail For Failing To Pay Wages: December, 2001). This month we examine the law which allows an employee to bring a lawsuit against an employer who fails to pay wages.

What are wages?

The term "wage" is very loosely defined as: "compensation due an employee by reason of his employment." Wages does not appear to include profit sharing, pension, or medical benefits.

What is an employer?

"Employer" is defined as "any owner or any person, partnership, corporation, limited liability company or association of persons acting directly as, or in behalf of or in the interest of an employer in relation to employees, including the state and any political subdivision thereof." Thus, a company representative is subject to being sued.

Who is an employee?

"Employee" has been defined as "any individual employed or permitted to work by an employer." This, however,doesn't include people who work in camps or resorts that aren't open more than six months annually or who perform domestic service in, or about, a private home.

A question sometimes arises as to whether an individual is an employee or independent contractor. The primary distinction is whether the alleged employer has the right "to control the means and the methods of work." The employment relationship has been examined in a number of situations including real estate brokerage companies. Courts have held that if a company exercises significant control over the individuals, including the ability to discharge them if they don't comply with company rules and require that they be at the office for specified hours, then such individuals are deemed employees even though the brokerage company has treated them as independent contractors.

What is my liability?

There appear to be three situations where an employer may be held liable for failure to pay wages: (1) failure to pay agreed-on wages when due; (2) failure to pay accumulated fringe benefits upon termination; and (3) failure to abide by an arbitration award once the parties have presented their respective cases.

In any of those situations, an employee may sue his employer for twice the value of any wages or benefits due plus reasonable attorneys' fees. An employee may also be entitled to interest dating back to the time when the wages or benefits should have been paid.

The double penalty was enacted by the Legislature to deter employers from violating the requirements of the wage and hour laws. The statute is deemed remedial in nature. Thus, it is given liberal interpretation, and any benefit of the doubt as to whether a violation exists will likely be given to the employee.

If an employee is a member of a union that has negotiated a collective bargaining agreement with the employer, it appears that the employee or his union must exhaust the administrative remedies set forth in any grievance procedure in the agreement before instituting a lawsuit for double damages under the wage and hour statutes.

Are double damages automatic?

The collection of double damages and attorneys' fees isn't automatic – even if the employee prevails in the lawsuit. To receive those awards, the employee must establish that her employer's actions were arbitrary, unreasonable or committed in bad faith.

In one case, an employer promised his workers that they would be paid back wages due them if they continued working after they complained about not being paid. They continued to work but were later terminated and told that they would get paid if they signed releases. But after signing the releases, they still weren't paid. The court had little trouble in upholding an award for double damages and attorneys' fees. Likewise, an employer that breached an employment agreement and made a unilateral decision to reduce an employee's commission rate was held liable for double damages and attorneys fees after his former employee filed suit.

Can I be held personally liable?

Just as we discussed last month about criminal liability, an individual corporate officer may be held liable for civil damages and attorneys' fees. The court will look to see if a particular individual was responsible for such things as setting the hours of work and administering the payroll and will examine who was specifically responsible violating wage and hour laws. Those who have significant involvement in the administrative wage and hour functions or the decisions which result in wage and hour violations are likely candidates for liability.

Bottom line

Civil liability for wage violations can be very expensive. Not only will you be liable for your own attorneys' fees, but you also could be responsible for paying a disgruntled employee's attorneys' fees. Further, if it is shown that you acted unreasonably or in bad faith, it could be hit with twice the amount due. Based on the civil liability noted above and the criminal liability discussed last month, compliance with wage and hour laws should be taken very seriously.

Reprinted with permission of publisher. First appeared in Connecticut Employment Law Letter (February 2002). For subscription information, call (800)274-6774.