Finklea and Eckhart: Good faith under Wage Payment Statute still developing

Eckhart

Finklea

By Jack Finklea and Jim Eckhart

The unyielding increase in the frequency and magnitude of wage and hour class and collective actions may be driven by the availability of double or treble damages, also known as liquidated damages, under federal and various state laws. Indiana’s liquidated damages provision entitles employees to unpaid wages and “an amount equal to two (2) times the amount of wages due the employee.” Ind. Code § 22-2-5-2. Liquidated damages under Indiana law were initially mandatory, but amendments to the statute in 2015 (the “2015 amendment”) created a good faith defense. However, three years out from the 2015 amendment, the concept of good faith remains relatively undefined by caselaw.

No exception before 2015

Before 2015, most Indiana courts refused to read into the Wage Payment Statute a good faith exception to liquidated damages. The Indiana Court of Appeals generally held that liquidated damages under the Wage Payment Statute were mandatory. See, e.g., Valadez v. R.T. Enterprises, Inc., 647 N.E.2d 331, 333 (Ind. Ct. App. 1995); Osler Inst., Inc. v. Inglert, 558 N.E.2d 901, 905 (Ind. Ct. App. 1990), aff’d, 569 N.E.2d 636 (Ind. 1991). In 2004, the Court of Appeals briefly reversed course and refused to award liquidated damages, holding that “the legislature could not have intended that a company be required to pay treble damages every time a good faith dispute as to wages arises.” David A. Ryker Painting Co. v. Nunamaker, 818 N.E.2d 989, 992 (Ind. Ct. App. 2004).

But when called upon to decide the issue three years later, the Indiana Supreme Court rejected the reasoning from Ryker holding that “there is no generic ‘good faith’ defense to the Wage Payment Statute.” Naugle v. Beech Grove City Schools, 864 N.E.2d 1058, 1065 (Ind. 2007). The Court noted that the plain language of the statute contained no exception, and the court further noted the public policy of the statute involved protection of employees. Id. at 1065.

The 2015 amendment and subsequent caselaw

In 2015, the General Assembly amended the Wage Payment Statute to shield employers acting in good faith. Under the amended statute, an employee will recover liquidated damages only if the court determines that the employer “was not acting in good faith.” Ind. Code. § 22-2-5-2.

Though the Court of Appeals addressed the amended statute last fall, it did not explicitly address the new good faith exception. In Brown v. Bucher & Christian Consulting, Inc., 87 N.E.3d 22 (Ind. Ct. App. 2017), Brown filed a class action complaint alleging his employer violated the Wage Payment Statute by failing to comply with the statute’s “Ten Day Rule,” which generally requires employers to pay all earned wages within 10 business days. See Ind. Code § 22-2-5-1(b). Brown conceded he had already received all earned wages but argued he could recover liquidated damages because his employer, at times, was late in making the payments. The trial court held Brown was not entitled to liquidated damages because at the time he filed suit, he admittedly had been paid for all earned wages.

Applying the 2015 amendment retroactively, the Court of Appeals agreed with the trial court and held that Brown was not entitled to liquidated damages because he did not seek to recover “unpaid” wages. Rather, he alleged only that he received untimely wage payments. The court noted the General Assembly “intended [the 2015 amendment] to cure the defect or mischief that existed in the prior statute that permitted exorbitant recovery in cases in which there were no actual unpaid wages and where the employer acted in good faith.” Bucher, 87 N.E.3d at 27. Therefore, Brown could not bring suit to recover the amount of unpaid wages due to him, “as there [was] no amount that [was], in fact, due.” Id. at 28. The Indiana Supreme Court denied Brown’s petition to transfer. 102 N.E.3d 286 (Ind. 2018).

The 2015 amendment does not define “good faith,” and little case law exists on the issue. Moreover, although the language could be interpreted in a way that would allow an employer to argue the burden of proof lies with the plaintiff to prove a lack of good faith, placement of the burden remains unresolved.

In Weil v. Metal Technologies, Inc., 205 F.Supp.3d 948 (S.D. Ind. 2018), the court evaluated multiple claims relating to “good faith” and the 2015 amendment. In one claim, the court denied liquidated damages relating to a wage deduction directed by the employer’s human resources manager based on vague direction from an insurer that it was for a fee pursuant to the Affordable Care Act. Id. at 953. In the end, the court held it “cannot conclude from that scant evidence presented that Metal Technologies failed to act in good faith when it took the subject deduction from Mr. Weil’s pay.” Id. at 90. In evaluating a separate claim, however, the court awarded liquidated damages when the employer could not explain why it failed to pay according to an employee’s time clock entries — “Absent any explanation as to the discrepancies, the Court simply cannot conclude that Metal Technologies acted in good faith.” Id. at 963.

Moving forward

Decisions interpreting the 2015 amendment will no doubt develop more certainty as time moves on. It is possible courts will adopt the concepts detailed in Ryker, including a view that a lack of good faith must meet the definition of theft or conversion. It is also possible, but less so due to differing statutory language, that Indiana courts could borrow from the FLSA’s standard for good faith, requiring a subjective belief that an employer’s actions are lawful, coupled with an objective reasonableness of that belief. See 29 U.S.C. § 260. It is perhaps more conceivable that the courts will settle somewhere in between. Nevertheless, at this point, Brown and Weil start the discussion, providing some measure of guidance.

Prior to the 2015 amendment, employers had the ability to insulate themselves from substantial attorney fee liability when an employee complained about improper deductions or insufficient wage payment by paying the full amount of wages allegedly due along with liquidated damages. Brown instructs that, post-amendment, paying only the amount in dispute — i.e., leaving no “unpaid wages” due — may insulate the employer from liquidated damages and attorney fees. This practice additionally benefits employees, as they would stand to expediently recover 100 percent of actual wages even if there exists a legitimate dispute as to whether additional wages are actually due.

With respect to “good faith,” regardless of the burden of proof, Weil provides some moderately helpful non-comprehensive bookends in suggesting an absence of explanation will result in liquidated damages, while credible yet vague testimony from an employer may be enough to avoid liquidated damages in some cases. Much remains to be decided. Stay tuned.•

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• Jack Finklea — [email protected] — is a partner and Jim Eckhart — [email protected] is an associate at Scopelitis Garvin Light Hanson & Feary in Indianapolis. Opinions expressed are those of the authors.