Opinion ID: 1614964
Heading Depth: 2
Heading Rank: 3

Heading: Wage Payment Claim.

Text: The wage claim by Crick is based in two parts. Crick claims Condon Ford withheld his final two paychecks totalling $5525. Additionally, he claims Condon failed to pay him a two percent bonus. Crick asserts he established both wage claims as a matter of law, and the trial court erred by instructing the jury he was required to prove Condon intentionally withheld the wages as a predicate to recovery. We consider the wage claim involving the final two paychecks first. Condon responds that the jury properly rejected the wage claim because Condon Leasing actually employed Crick and it had a valid wage dispute with Crick which allowed it to withhold Crick's wages at Condon Ford to offset the excessive draw he received while employed at Condon Auto. Furthermore, Condon argues any error in the jury instructions was harmless because the jury necessarily found it properly withheld the wages when it found in its favor on the separate breach of contract claim for nonpayment of the excessive draws.
The Iowa Wage Payment Collection Law requires employers to pay all wages due its employees, less any lawful deduction on designated regular intervals of time. Iowa Code § 91A.3(1) (1997). Additionally, when an employee is terminated, the employer is required to pay all wages earned less any lawful deductions within a specific period of time following the termination. Id. § 91A.4. Employers are permitted to make deductions from wages under two circumstances. The first pertains to deductions required or permitted to be deducted by state or federal law, or by a court order. Id. § 91A.5(1)(a). The second involves deductions pursuant to a written authorization from the employee. Id. § 91A.5(1)(b). In the event a dispute arises between an employer and employee over the amount of wages due, the employer is permitted to limit payment to wages conceded to be due less any authorized deduction. Id. § 91A.7. An employer who fails to pay wages to an employee as required under the law is liable to the employee for the unpaid wages, court costs, and attorney fees incurred in the recovery of the unpaid wages. Id. § 91A.8. Additionally, an employer who intentionally fails to pay wages is liable for statutorily defined liquidated damages. Id.; see Audus v. Sabre Communications Corp., 554 N.W.2d 868, 874-75 (Iowa 1996) (attorney fees recoverable); Jackson v. City of Ottumwa, 396 N.W.2d 794, 796 (Iowa App.1986) (liquidated damage award). Liquidated damages are recoverable in an action for wages even if the intentional failure to pay wages resulted from a wage dispute. Iowa Code § 91A.8. Notwithstanding, an employer incurs no liability for withholding wages if the employer withholds the correct amount of wages. See id. The statute imposes liability only when the employer fails to pay the amount of wages actually due to the employee. Id. It was undisputed in this case that Crick was not paid all his wages following his termination from employment at Condon Ford. The wages were withheld and applied to Crick's excessive draw. We therefore must first consider whether Condon's actions were permissible under the statute.
Condon argues it cannot be liable for damages for failing to pay wages to Crick because it had a legitimate dispute over the amount of wages due under section 91A.7. It claimed the dispute meant it was not required to pay any wages because it did not concede Crick was owed any wages. Moreover, Condon asserted it properly withheld the wages as confirmed by the jury verdict in its favor on the breach of contract claim against Crick for nonpayment of the excessive draw. We acknowledge the jury found Crick was liable for the excessive draw. However, Condon's breach of contract claim for excessive draws did not constitute a dispute ... concerning the amount of wages ... due under section 91A.7. The purpose of the Wage Payment Collection Law is to facilitate collection of wages by employees. Phipps v. IASD Health Servs. Corp., 558 N.W.2d 198, 201 (Iowa 1997). Conversely, it does not exist to assist in the collection of claims by the employer. See Iowa Code § 91A.5. The Act requires an employer to pay wages at regular intervals, and the amount of wages owed Crick for the last two pay periods was not disputed. Instead, the dispute in this case was over the excessive draws Crick owed Condon. The purpose of the Act would be seriously undermined if an employer could generate a wage dispute under section 91A.7 and withhold an employee's undisputed wages by asserting a claim separate from its obligation to pay wages. Although Crick may have been responsible to Condon for the excessive draw, there was no evidence Crick was contractually bound to pay Condon for the excessive draw from his wages. In fact, Condon repeatedly requested Crick to allow a portion of the excessive draw to be deducted from his wages, but Crick refused. See Halverson v. Lincoln Commodities, Inc., 297 N.W.2d 518, 521 (Iowa 1980) (evidence that employee admitted responsibility for the bad debt). Thus, there was no wage dispute which authorized Condon to hold back the wages. [2]
Condon further claims it could not be liable for damages because it was legally permitted to withhold the wages under section 91A.5(1) as a setoff against its claim for the excessive draw. The Act clearly allows the employer to deduct wages only when permitted by law, court order, or authorized by the employee. Iowa Code § 91A .5(1). Condon claims the law recognizes setoff as a mechanism to resolve competing disputes. There is no state or federal law which permits an employer to set off its claims against employees' wages. Moreover, the doctrine of setoff is an incident of a judicial proceeding, and is generally accomplished only by court action. See 20 Am.Jur.2d Counterclaim, Recoupment, Etc. § 6, at 233 (1995); Iowa R.Civ.P. 225. It is not a unilateral procedure legally employed by a party to a dispute. See Cameron v. Neon Sky, Inc., 41 Wash.App. 219, 703 P.2d 315, 317 (1985); see also National Med. Care, Inc. v. Zigelbaum, 18 Mass.App.Ct. 570, 468 N.E.2d 868, 874 (1984) (employer has no right to unilateral setoff); P & L Group, Inc. v. Garfinkel, 150 A.D.2d 663, 541 N.Y.S.2d 535, 537 (1989) (employer not entitled to self-help remedy of withholding money owed by employee). Furthermore, the restrictions on the deductions under section 91A.5 clearly illustrate an employer may not use wages as a basis for any self-help remedies in collecting an indebtedness. Section 91A.5(1) makes it unlawful to withhold any portion of the wages of an employee except under the two statutorily-described circumstances. See Cameron, 703 P.2d at 317 (interpreting wage payment collection statute similar to Iowa statute). None of the circumstances under the statute apply to the facts of this case, and Condon had no right to withhold the wages. We conclude Condon violated the Wage Payment Collection Act by withholding Crick's wages at Condon Ford. Thus, Condon was liable as a matter of law to Crick for the unpaid wages, court costs, and attorney fees. The question turns to whether Condon was also liable as a matter of law for liquidated damages.
The Wage Payment Collection Act distinguishes between the intentional and unintentional failure to pay wages for the purpose of an award of liquidated damages. Iowa Code § 91A.8. Under the statute the intentional failure to pay wages, even if the result of a wage dispute, gives rise to liquidated damages. Id. We have not previously defined the type of intent to support liquidated damages, but have indicated liquidated damages are directed at employers who fail to pay wages knowing the wages are due. Halverson, 297 N.W.2d at 523. Conversely, liquidated damages are not available if an employer maintains a good faith dispute over the amount of wages. Id. Similarly, the intentional failure to pay wages excludes the inadvertent failure to pay. Miller, 356 N.W.2d at 216. In this case Condon had no dispute with Crick over any portion of the wages due from the last two pay periods. It acknowledged the amount of these wages was $5525. Condon knew the wages were due and failed to pay them. Moreover, Condon cannot maintain or claim good faith. The dispute by Condon involved a separate claim for the excessive draw, but there was no dispute over the amount Condon owed. This constitutes the intentional failure to pay under the statute. We find the trial court erred in failing to enter judgment for Crick on this portion of his wage claim. We therefore reverse that portion of the judgment and remand the case for entry of judgment for Crick for reasonable attorney fees attributable to his collection of wages owed, liquidated damages as defined by section 91A.2(6), and court costs. The amount of unpaid wages of $5525 were set off against Condon's judgment for the excessive draw, and must be excluded from the judgment for unpaid wages to avoid a duplication of damages.
The second wage claim by Crick was based upon the failure to pay a bonus of two percent. Condon maintained the bonus was only payable after Crick was employed for one year. Unlike the first wage count claim, this claim involved a factual dispute. The jury found in favor of Condon. Normally, this would exonerate an employer from liability. However, the instructions submitted by the district court to the jury required Crick to prove Condon intentionally failed to pay the compensation. We have already indicated intent is only necessary to support the liquidated damage portion of the wage claim. Thus, the trial court erred by failing to distinguish between intentional and unintentional conduct. Moreover, based upon the instructions, we are unable to discern whether the jury found no bonus was due, or Condon did not intentionally fail to pay the bonus. Accordingly, we are required to reverse that portion of the judgment and remand the claim for a new trial on this issue.