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California Labor Code section 206.5: Restrictions on Release of Wage Claims
Pulli v. Pony International, LLC: California appellate court recently gave a decision that helped clarify labor code section 206.5.
(a) An employer shall not require the execution of a release of a claim or right on account of wages due, or to become due, or made as an advance on wages to be earned, unless payment of those wages has been made. A release required or executed in violation of the provisions of this section shall be null and void as between the employer and the employee. Violation of this section by the employer is a misdemeanor.
(b) For purposes of this section, “execution of a release “includes requiring an employee, as a condition of being paid, to execute a statement of the hours he or she worked during a pay period which the employer knows to be false.
This labor code is meant to prevent an employer from withholding wages due to the employee in order to force an employee to waive his/her right to a jury trial, most commonly seen as an arbitration agreement. The arbitration agreement will usually forgo a trial with a jury and in some instances even require mediation with a mediator as opposed to an actual judge. While the court’s opinion did allow such a transaction to occur, it did not speak to the validity of the arbitration agreement itself, meaning the court found that the employer could force the employee to sign an arbitration agreement in change for wages due the employee, but this did not guarantee that the arbitration agreement would later hold up in court, nor was it an automatic disqualifier.
Pulli’s claim against Pony International was for fraudulent inducement to enter into an arbitration agreement and for wrongful termination. Pulli asserted that he was threatened and forced into signing an arbitration agreement in order to receive his final pay and wages that were already earned. Pony International filed a motion to compel arbitration, but the trial courts denied the motion to compel arbitration because the court found that the employment agreement as a whole was unenforceable under section 206.5.
However, the court of appeals felt differently, stating the “existence of an invalid release of a wage claim pursuant to Section 206.5 in an agreement does not provide a defense to the enforcement of an arbitration provision contained in the same agreement.” In other words, applying the doctrine of severability, the court held that, even if the employment agreement had an invalid (and unenforceable) release of wage claims under Section 206.5 (an issue that the court refused to address at this time), only the release portion of the agreement would be invalidated. Consequently, neither the entire agreement nor the arbitration provision would be automatically invalidated.
Labor law is complex; if you have any questions regarding your employment it is recommended that you contact our San Francisco Employment Attorneys, we can help you understand your rights and will review your situation without charge.
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