Opinion ID: 1672017
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Heading: Liability for Penalty Wages

Text: We now consider whether Summit is liable for penalty wages under La. R.S. 23:632 by virtue of its violation of La. R.S. 23:631. La. R.S. 23:632 provides in part that [a]n employer who fails or refuses to comply with the provisions of R.S. 23:631 shall be liable to the employee for 90 days wages at the employer's daily rate of pay.... La. R.S. 23:632. While recognizing that this is a coercive means to compel an employer to pay an employee within the time limits proscribed by La. R.S. 23:631, we have held that the penalty must be strictly construed and may yield to equitable defenses. Bannon v. Techeland Oil Corp., 205 La. 689, 693, 17 So.2d 921 (1944). We have further elaborated that a good-faith non-arbitrary defense to liability for unpaid wages, i.e., a reasonable basis for resisting liability permits the court to excuse the employer from the imposition of additional penalty wages. Carriere v. Pee Wee's Equipment Co., 364 So.2d 555, 557 (La.1978). Summit claims that it should not be assessed penalty wages because it relied on jurisprudence which indicated that, in an appropriate case, an employer's policy which resulted in forfeiture of accrued fringe benefits (as opposed to actual wages for hours worked) might well be approved. See Potvin v. Wright's Sound Gallery, Inc., supra and Huddleston v. Dillard Department Stores, Inc., 94-53 (La.App. 5th Cir. 5/31/94), 638 So.2d 383. Although there is no evidence in the record that Summit based its decision not to pay vacation benefits on these cases, assuming that it did, this is not a valid equitable defense. Potvin, a case which held the employer liable for unused vacation pay, merely recognized that two Fifth Circuit cases, Landry v. Pauli's, Inc., 496 So.2d 431 (La.App. 5th Cir. 1986), writ den., 500 So.2d 428 (La.1987) and Howser, supra, had held that the forfeiture of vacation pay was allowed where company policy precluded compensation for unused vacation time. However, unlike in the Landry and Howser cases, Summit's terms of employment allowed employees to accrue unused vacation time and to be paid for it upon termination of employment. It was only after an employee violated certain regulations that all accrued benefits [were] forfeited in violation of La. R.S. 23:634. Thus, it was unreasonable for Summit to rely on the Potvin case in refusing to pay the accrued vacation pay, as Summit's policy did not preclude the accrual of unused vacation time. Huddleston involved a company policy which provided as follows: Vacation is a benefit and not an earned wage. Accrued Vacation is only considered an earned benefit, and payable upon termination, if the employee terminates due to death, retirement, or voluntarily terminates employment by (1) providing a two weeks notice to their immediate supervisor and/or the personnel office prior to termination, and (2) working all hours scheduled during the two week period, or shorter period as determined by management. Employees involuntarily terminated for cause are not eligible for vacation pay. The Fifth Circuit held that this policy did not violate La. R.S. 23:634 because the right to be paid for unused vacation does not vest in the employee until such time that the appropriate conditions prior to separation from employment are met.... 638 So.2d at 685. While not ruling on the correctness of this decision, we note that Huddleston is distinguishable in that under Summit's terms of employment, the right to be paid for unused vacation benefits vested as the benefits were earned. Summit's policy attempted to require certain employees to forfeit these vested and accrued benefits at termination of employment. In allegedly relying on Potvin and Huddleston in refusing to pay vacation benefits, Summit evidently ignored the plethora of other cases cited above holding that a company policy requiring the forfeiture of earned wages or vacation pay violates La. R.S. 23:634. Furthermore, other courts of appeal have held that reliance on an invalid company policy requiring the forfeiture of earned benefits upon certain conditions will not excuse an employer from the imposition of penalty wages. See Brown v. Navarre Chevrolet, Inc., 610 So.2d 165 (La.App. 3rd Cir. 1992); Hendrix v. Delta Air Lines, Inc., supra ; Soday v. Mall Snacks, Inc., supra ; Duhon v. Prof Erny's Music Co., Inc., supra . We agree. Reliance on an unlawful company policy does not constitute a good faith non-arbitrary defense to liability for unpaid wages.