One of the few areas where Washington law allows the imposition of punitive damages is in employment law, where an employer may be found liable for double damages and attorney's fees when he or she "wilfully and with with intent to deprive the employee of any part of his wages" fails to pay the employee all the wages he or she is due. This law also one of the few areas that "pierces the corporate veil" in that corporate officers are personally (as opposed to corporately) liable for the damages.
So it's a big deal. And there has been some uncertainty over what the law means by a failure to pay wages that is "wilful" and "with intent to deprive." Our Supreme Court has previously held that a struggling employer's financial inability to pay wages owed is no defense to a finding of willful withholding.
This morning, the Supreme Court extended that principle to hold that a legal inability to pay wages is also no defense. In Morgan v. Kingen, the court held 6-3 that an employer's involuntary chapter 7 bankruptcy proceeding, in which its assets are under court supervision and it lacks any legal ability to pay wages, still counts as failing to pay wages "wilfully and with intent to deprive."
Writing for the majority, Justice Charles Johnson stated "The payment of wages holds a preferential statutory position, highlighted by the imposition of personal liability for exemplary damages, costs, and reasonable attorneys fees as a penalty for the willful failure to pay wages owed. As such, we decline to expand the defenses to negate a finding of willfulness to include financial status, specifically chapter 7 liquidation." Describing the employer's court-imposed legal inability to pay as just another kind of financial status problem under the court's prior case law, the majority went on to determine this was still a willful withholding of wages.
In dissent, Justice Richard Sanders argued "The majority incorrectly holds that [the employer] willfully failed to pay their employees. In fact the assets of [employer] were seized, and they could not pay their employees even if they had wanted to pay them. The bankruptcy court's conversion of the proceeding negated [the employer's] willingness to pay. . . . Their failure to pay was not volitional or willful but rather court-imposed."
AWB, joined by six other statewide business organizations, filed an amicus curiae ("friend of the court") brief arguing the position Justice Sanders adopted in dissent. We urged the common-sense view that legal inability to pay a claim should not be mistaken for an intentional refusal to pay it.
Employees are always and rightly entitled to the full wages they have earned. But unfortunately, the court in this case expanded what was meant to be punitive damages for intentional misconduct into a kind of personal payroll guarantee even if an employer has no legal claim to the assets from which wages would be paid because of bankruptcy.
That is a troubling precedent in troubling economic times.
