Wage and Hour Case Notes

• Jurisdiction: California,United States
• Author: Nicole R.
• Citation: Vol. 38 No. 1
• Publication year: 2024

WAGE AND HOUR CASE NOTES

AUTHOR^*

Nicole R.

Roysdon

FURLOUGH MAY CONSTITUTE DISCHARGE UNDER CALIFORNIA LABOR CODE § 201

Hartstein v. Hyatt Corp., 82 F.4th 825 (9th Cir. 2023)

The Ninth Circuit Court of Appeals recently held that a temporary layoff or furlough constitutes a discharge within the meaning of California Labor Code section 201 when the employer does not provide the employee with a specific return date within the normal pay period. Under these circumstances, an employer must pay all wages due at the time of the temporary layoff or furlough—or it may be subject to waiting time penalties under California Labor Code section 203.

In Hartstein v. Hyatt Corp., Karen Hartstein filed a class action against her former employer, Hyatt Corporation, after she and other employees were temporarily laid off during the onset of the COVID-19 pandemic in March 2020. Hyatt originally told the employees it hoped business would return to normal in eight to twelve weeks, depending on "the circumstances at that time." Hyatt further notified employees that health benefits would continue to accrue, and employees could request accrued vacation pay, but Hyatt was not separating anyone's employment at the time. In June 2020, however, Hyatt informed employees that their employment was being terminated and they would be paid all unused accrued vacation pay.

Hartstein's lawsuit alleged that, at the time of the temporary layoff in March 2020, Hyatt failed to pay all wages due immediately upon discharge in accordance with California Labor Code section 201 and, thus, was liable for waiting time penalties under section 203. She also alleged that Hyatt failed to pay all overtime because it did not include the value of complimentary hotel rooms in the regular rate of pay for purposes of calculating overtime.

The district court granted Hyatt's motion for summary judgment on both causes of action on the grounds that:

• the temporary layoff or furlough was not a termination under California Labor Code section 227.3 because the employment relationship was not severed, and
• the value of the complimentary hotel rooms did not constitute wages due upon termination.

Relying on public policy reasons for prompt payment of wages upon termination and guidance from the Division of Labor Standards Enforcement (DLSE), the Ninth Circuit held that "a temporary layoff without a specific return date within the normal pay period is a discharge that triggers the prompt payment provision of California Labor Code section 201." The court found the district court improperly relied on section 227.3 in granting summary judgment because that section establishes the right to payment of accrued vacation upon termination but does not address the timing of that payment; rather, section 201 establishes that all wages, including accrued vacation, are due and payable immediately upon discharge.

The court then analyzed whether the March 2020 temporary layoff constituted a "discharge" or whether the employees were discharged when their employment was terminated in June 2020. In the absence of applicable case law, it turned to DLSE guidance to define "discharge." In both a 1996 opinion letter and its Policies and Interpretations Manual, the DLSE adopted the position that if an employee is laid off without a specific return date in the same pay period, the wages earned through the layoff date are due immediately and payable under section 201. Given that this...