On July 10, 2006, the California Supreme Court issued its long-awaited decision in Smith v. L’Oreal. The Court found that an employee is “discharged” for purposes of Labor Code Section 201 (requiring immediate payment at discharge) and Section 203 (waiting time penalties) not just when an employee is involuntarily terminated from an ongoing employment relationship, but also when an employee is released after completing a job assignment or time duration for which the employee was hired.
Amanza Smith was hired by L’Oreal to be a hair model for one day in a show featuring L’Oreal products. L’Oreal agreed to pay her $500 for her one day of work. However, L’Oreal did not pay Smith until more than two months after the day of the show. Smith filed a class action lawsuit alleging, among other claims, that L’Oreal violated Labor Code Section 201 when it did not pay her or the other models “immediately” upon discharge, as required by Labor Code Section 201. (Labor Code Section 201 states, “If an employer discharges an employee, the wages earned and unpaid at the time of discharge are due and payable immediately.”) Smith also sought waiting time penalties under Labor Code Section 203 in the amount of $15,000, representing 30 days of the applicable daily wage rate ($500).
Both the trial court and the court of appeal found that Smith could not recover waiting time penalties under Labor Code Section 203 because the job termination that occurred when Smith completed her one day assignment did not constitute a “discharge” under Labor Code Sections 201 and 203. The California Supreme Court granted Smith’s petition for review and reversed the decision.
The Supreme Court held that Smith was, in fact, “discharged” for purposes of Labor Code Sections 201 and 203. Citing public policy and legislative intent, as well as relying on the overall statutory scheme and legislative history of the Labor Code Sections, the Court concluded that “an employer effectuates a discharge within the contemplation of sections 201 and 203, not only when it fires an employee, but also when it releases an employee upon the employee’s completion of the particular job assignment or time duration for which he or she was hired.” Accordingly, the Court found employees in either group must be paid all wages earned and unpaid immediately upon the cessation of employment. Failure to do so will subject the employer to waiting time penalties.
This decision is especially troubling for employers that regularly hire employees for designated time periods. Based on a strict reading of the Court’s decision in this case, an employer that hires an employee for a specific job assignment or duration of time will be required to pay the employee “immediately” upon completion of that assignment or time period. Any delay can result in the employer having to pay waiting time penalties under Labor Code Section 203. To minimize the risk of late payments and claims for waiting time penalties, employers should carefully review their payment practices in connection with the cessation of an employee’s employment to ensure compliance with the L’Oreal decision.