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October 25, 2023
In a published decision issued on September 22, 2023, a panel of the U.S. Court of Appeals for the Ninth Circuit held that the Hyatt Corporation violated California’s Labor Code by failing to immediately pay accrued vacation time to the employees that it furloughed at the start of the COVID-19 pandemic. Hartstein v. Hyatt Corporation, No. 22-55276 (9th Cir. Sept. 22, 2023).
Background
In March 2020, at the start of the COVID-19 pandemic, Hyatt temporarily laid off 7,000 workers for an indefinite period, expressing hope that business would return to normal in eight to twelve weeks. Three months later, on June 27, 2020, Hyatt informed the furloughed employees that they were being terminated, with accrued vacation time paid at that point.
In a class action filed on behalf of the terminated workers, lead plaintiff Karen Hartstein argued that Hyatt violated California law by waiting until June 2020 to pay accrued vacation time.[1] The district court dismissed the workers’ case with prejudice. The district court concluded that the March 2020 furlough did not terminate the employee-employer relationship within the meaning of California Labor Code section 227.3, which meant that the prompt payment provisions of section 201 were not triggered until June 2020, when the workers were terminated.
The Ninth Circuit’s Analysis
The question on appeal was when the terminated workers should have been paid. The Ninth Circuit found that the district court misinterpreted California law by relying on section 227.3, which addresses only whether a terminated employee is entitled to accrued vacation, not when the wages are due. By contrast, section 201 provides that payment must occur immediately upon “discharge,” a term that is undefined. So, the proper timing of payment hinged on whether the workers were “discharged” in March 2020 or June 2020.
With no case law that addressed the question, the Ninth Circuit panel — persuaded by the guidance of a California Division of Labor Standards Enforcement opinion letter and policy manual — held that a “temporary layoff with no specific return date within the normal pay period is a discharge within the meaning of § 201.” Although the court characterized Hyatt’s actions as “understandable given the uncertainty during the early period of the pandemic,” because the March 2020 layoff with no return date was a “discharge” that triggered the prompt payment provisions of section 201, the court concluded that Hyatt violated California’s Labor Code by not paying the accrued vacation pay in March 2020. The court remanded the case to the district court to consider whether Hyatt acted “willfully” in delaying payment, which could then result in waiting time penalties under section 203.
Employer Takeaways
The author of this article, Michelle A. Liebesman, is a member of the Bar of Pennsylvania. This article is designed to provide one perspective regarding recent legal developments, and is not intended to serve as legal advice in California, Pennsylvania, or any other jurisdiction, nor does it establish an attorney-client relationship with any reader of the article where one does not exist. Always consult an attorney with specific legal issues.
[1] The class also argued that Hyatt violated California law by failing to pay the value of free hotel rooms that employees received each year. The district court concluded that the complimentary hotel rooms were “gifts” and so did not constitute wages that the employees should have received upon discharge. The Ninth Circuit disagreed with the district court’s finding that they were “gifts . . . as a reward for service” within the meaning of 29 U.S.C. § 207(e)(1). However, the Ninth Circuit still found that the value of the free hotel rooms was properly excluded from the calculation of the workers’ final pay as “other similar payments” under 29 C.F.R. section 778.224.
