The Ninth Circuit recently held that when an employer conducts a temporary layoff with no specific return date in the normal pay period, the temporary layoff is a “discharge” under the prompt payment provisions of the California Labor Code, requiring the employer to pay all earned and unpaid wages.^[1] The decision has significant implications for California employers.

As the pandemic hit in 2020, Hyatt, like many other Californian businesses, faced a severe downturn. Hoping for a swift recovery, they temporarily furloughed/laid off 7,000 employees in March 2020. When the situation did not improve, Hyatt officially terminated these employees on June 27, 2020, paying their unused vacation time then.

The plaintiff, in a class-action lawsuit under the Private Attorneys’ General Act (PAGA), argued that Hyatt violated California law by not promptly paying accrued vacation time during the March 2020 furlough. Non-payment of wages at termination triggers waiting time penalties, accumulating at one day’s wage per day, capped at 30 days.

Initially filed in state court, the case moved to federal court, where a judge ruled in favor of Hyatt, stating that the March 2020 furlough did not demand immediate payment under the California Labor Code. However, the Ninth Circuit reversed this decision, sending it back to the District Court to determine if Hyatt’s non-payment was “willful.”

The Ninth Circuit relied on a non-binding Division of Labor Standards Enforcement (DLSE) opinion letter and an invalidated Policies and Interpretations Manual to make its decision.^[2] According to these materials, temporary layoffs without a specified return date within the pay period should be treated as terminations, requiring immediate payment, which should have occurred in March 2020.

The critical issue now is whether Hyatt can convince the District Court that its non-payment in March 2020 was due to a genuine, good-faith dispute. Although Hyatt paid the accrued vacation in June 2020, facing 30 days of waiting time penalties for 7,000 affected employees is a significant concern. The Ninth Circuit recognized that a reasonable, good-faith belief by an employer could mitigate a willfulness finding.

The District Court’s determination on willfulness will be closely monitored. The extraordinary impact of the pandemic, including the near-complete business shutdown in March 2020 due to stay-at-home orders, will play a pivotal role in this case. This ruling highlights the complexities and challenges for both employers and employees in navigating labor laws during unprecedented events like the COVID-19 pandemic.

[1] Harstein v. Hyatt Corporation, No. 22-55276, 2023 WL 6167607 (9th Cir. Sept. 22, 2023)

[2] The California Supreme Court held in Tidewater Marine Western, Inc. v. Bradshaw that a provision in the DLSE manual was a void “underground regulation.” That is, the DLSE issued the manual without going through formal regulatory approval processes.