Penalty Wages — The 12-Day Rule

By Robert F. Blackmore

Mistakes happen. Because of a bookkeeping error, your company paid John Jones $100 less than he was due in wages. You've now received a letter from Jones demanding unpaid wages, penalty wages, and attorney fees, but not specifying the dollar amount demanded. What should you do? Under the pre-2002 law, your $100 mistake could become a very costly problem, requiring the payment of huge attorney fees. A 2001 statutory revision gives your company a chance to avoid that outcome.

Oregon's employment laws protect employees by providing penalties for late payment of wages equal to 8 hours per day at the regular hourly rate for up to 30 days. Employees are also entitled to collect reasonable attorney fees if it becomes necessary for them to hire a lawyer to assist in the collection of wages due. Unfortunately, this seemingly fair law can prove very costly to employers who fail to timely pay wages.

The typical action starts with a written demand that does not specify either the nature of the violation, the amount of wages allegedly owed, or the amount of penalties. Seeking clarification of the damages and penalties may prolong the process, and penalty wages continue to accrue until paid or until the maximum statutory limit is reached. In addition, since the statute provides that the employee's legal fees will be paid by an employer that loses a claim for late payment of wages, a lawsuit may be promptly filed.

As in most cases, the cost of litigation can be substantial.

On January 1, 2002, the "12-Day Rule" went into effect. The rule can limit penalty wages in many claims. Oregon law continues to provide a penalty for nonpayment or late payment of wages. ORS 652.150(2) provides:

"...the penalty may not exceed 100 percent of the employee's unpaid wages unless the employer fails to pay the full amount of the employee's unpaid wages or compensation within 12 days after written notice of such nonpayment is sent to the employer by or on behalf of the employee. If the employee or a person on behalf of the employee fails to send the written notice, the penalty may not exceed 100 percent of the employee's unpaid wages or compensation."

The law requires that the employee or employee representative give the employer written notice of the claim. The company is allowed 12 days after receiving notice within which to pay all amounts due and owing, even if the amount is more than the employee claimed. Those amounts must also include the 100 percent penalty. If the penalty is not included, or if there are other amounts owed and not paid, the employer may still be subject to the 30-day penalty.

To defend your company and take advantage of the 12-Day Rule, upon receiving a demand for payment for earned wages and penalty wages, you should take the following actions:

1. Immediately review the employee time records, to determine the amount owed. Verify with original source documents all hours worked and all payments made. Resolve any doubts in favor of the employee. Make decisions based on facts, not assumptions.
2. If there is a question regarding exempt status, classification, etc., seek direction from your legal counsel.
3. Pay all penalty wages at the same time you pay the earned wages, preferably with separate checks. Pay within 12 days and verify the timing of payment through certified mail, registered mail, or other documentation.
4. Include unused, accrued vacation and other paid benefits attributable to wages in final paychecks. Determine which penalty scheme makes sense, given your potential liability. Are you also exposed to federal liquidated damages?
5. Do not condition payment of earned wages or penalty wages in any way. The checks should not be restricted. Do not demand a settlement agreement or other confirmation of payment-in-full as a condition of negotiating the checks.

The 12-Day Rule is an important tool to assist your company in limiting the amount of penalty wages. Protect your company with accurate records, immediate action, and immediate payment.

This article is intended to inform the reader of general legal principles applicable to the subject area. It is not intended to provide legal advice regarding specific problems or circumstances. Readers should consult with competent counsel with regard to specific situations.

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