A recent decision from the Idaho Supreme Court provides a hard lesson for Idaho employers facing a wage claim filed by a current or former employee under the Idaho Wage Claim Act (IWCA). In particular, the decision provides an example of the harsh penalties that can be imposed if your company fails to pay wages within the strict time frames set forth in the Act. Nevertheless, the IWCA does provide safeguards if you satisfy certain statutory requirements. Read on to find out how you can protect your business if you're confronted with a claim for unpaid wages.

A primer: notable sections of the IWCA

"Wage claims" are defined by Idaho Code § 45-601 as an employee's claims against an employer for compensation for his personal services. "Wages" have been defined under the statute as compensation for labor or services provided by an employee, whether the amount is determined on a time, task, piece, or commission basis. The statutory definition of wages has been broadly interpreted to include hourly wages, salary, commissions, bonuses, earned vacation pay, and, in particular, severance packages, as you will learn from the recent decision by the Idaho Supreme Court.

Upon separation from employment for any reason, an employee is entitled under Idaho Code § 45-606 to all wages due and owed by the next scheduled payday or within 10 days of his separation from employment (not including weekends or holidays), whichever is sooner. If an employee makes a written request for earlier payment of wages after his separation, the employer must pay him all wages due within 48 hours of receiving the request (not including weekends or holidays).

Note also that under Idaho Code § 45-613, an employer cannot retaliate in any manner against or discharge an employee for making a claim for unpaid wages, filing a lawsuit alleging that he hasn't been paid, or testifying or cooperating in a wage claim investigation. The statute has been used by employees as a basis to assert claims for wrongful discharge in addition to claims for unpaid wages.

Under Idaho Code § 45-611, if an employer disputes the amount of wages an employee claims he is owed, the employer is still required to timely pay the employee the amount of wages it concedes he is owed, leaving the employee to pursue all the remedies he might otherwise be entitled to under the law. When an employer takes this action, it has certain protections under the IWCA. Specifically, "no penalties may be assessed" against the employer unless it is later shown that the remaining balance of wages owed was withheld willfully, arbitrarily, and without just cause.

Note that the term "penalties," as used by the Idaho Legislature in the statute, has been found by the Idaho Supreme Court not to include triple damages, which may be awarded to an employee who hasn't been timely paid the wages he is found to be owed. That means an employer may still be liable for significant damages above and beyond the wages it is found to owe an employee, even if it pays the undisputed wages. As you can guess, that presents a pitfall for Idaho employers.

Penalties may be imposed against an employer for nonpayment of wages owed to an employee within the time frames specified in the law. Idaho Code § 45-607 states that when an employer doesn't comply with the time frames, the employee's wages accrue at the same rate as if he had continued working until wages are paid in full or for 15 days, whichever is sooner. However, in no event may the penalty exceed $750, and if the full amount of wages is paid before a lien is filed, the penalty may not exceed $500.

Notably, an employee is required to make himself available for payment of wages. If he doesn't (e.g., if he hides from the employer in an attempt to collect additional penalties), he will not be entitled to any penalties provided under the IWCA.

In my opinion, the provision in Idaho Code § 45-615 allowing an employee to recover damages equal to three times the amount of unpaid wages is the most important provision in the IWCA. A triple damages award can result in significant liability for Idaho employers. Moreover, an employee is entitled to recover reasonable attorneys' fees and costs incurred while seeking unpaid wages.

Interestingly, an employee who has a claim for unpaid wages of less than $5,000, excluding potential penalties, has the choice to either file a lawsuit or file a complaint with the Idaho Department of Labor (IDOL) under Idaho Code § 45-617. If a complaint is filed with the IDOL, administrative proceedings are initiated, and the IDOL will investigate the employee's claim and determine if he is entitled to unpaid wages and penalties. If the employer fails to pay the amount found to be due and owed, the IDOL is authorized by Idaho Code § 45-620 to file a lien with the Idaho secretary of state.

Finally, Idaho Code § 45-612 provides protections for Idaho employers against false wage claims filed by employees. If an employee knew his wage claim was false at the time he brought the action, he can be forced to pay the attorneys' fees and costs the employer incurred in defending against the false claim. Moreover, an employee who is found to have knowingly made a false claim for wages is guilty of a misdemeanor punishable by up to six months of jail time or a maximum fine of $1,000. It should be noted that those penalties have rarely, if ever, been imposed on employees found to have made false wage claims.

With that framework in mind, let's look at how one Idaho employer was taught a hard lesson when it contested whether certain amounts it owed a former employee constituted "wages" under the IWCA.

A real example: Idaho employer learns expensive lesson

Lightforce Australia is an Australian company that manufactures spotlights for night hunting. In the early 1990s, Ray Dennis, the owner of Lightforce Australia, expanded his business into the United States and formed Lightforce USA (we'll refer to both entities as "Lightforce" throughout the article). Dennis hired Jeff Huber in 1991 to manage Lightforce's daily operations in the United States. By 1997, Huber had been promoted to vice president.

For the next decade, Lightforce enjoyed significant growth, but by 2010, Huber's relationship with the company had started to become strained. In early 2011, after a number of issues with his management of the company had arisen, Lightforce asked Huber to sign what was essentially a nondisclosure and noncompetition agreement (NDA). He signed the NDA, which provided that he would receive 12 months' pay if he was terminated for any reason other than performance-related issues.

As a result of continued complaints, Dennis informed Huber in August 2011 that his termination would be effective one year later, on August 1, 2012. Huber was told the reasons for his termination included, among other things, not being transparent with Lightforce's board and being hostile toward his staff. Dennis and Huber agreed that Huber would receive his full salary and benefits for the next year and that instead of working for Lightforce, he would explore future business opportunities for him and Dennis.

Upon the effective date of his termination in August 2012, Huber sought to collect 12 months' pay (which amounted to $180,000) and benefits he claimed Lightforce owed him under the NDA. However, Lightforce refused to pay him. On August 27, 2012, Huber filed suit, alleging breach of contract and unpaid wages under the IWCA. He later amended his complaint to assert claims related to other benefits he claimed Lightforce owed him.

Huber requested judgment in his favor on a number of issues prior to trial, including whether the amount he claimed he was owed under the NDA was "wages" and therefore subject to a triple damages award under the IWCA. Unfortunately for him, the trial court held that the NDA compensation didn't constitute wages under the IWCA because it was meant to compensate him for complying with the nondisclosure and noncompetition provisions. In other words, the compensation wasn't earned "in increments as services were performed or in consideration for services rendered." That finding left for trial the issue of whether Huber was entitled to any compensation under the NDA at all, which hinged on whether he was terminated for performance-related issues.

At trial, the court held that Huber was owed the NDA compensation because his termination wasn't related to performance issues. Not surprisingly, he appealed the trial court's decision that the NDA compensation didn't qualify as wages under the IWCA because he certainly wanted his compensation to be multiplied by three, for a total award of $540,000.

On appeal to the Idaho Supreme Court, Huber argued that the NDA compensation wasn't conditioned on his agreement not to compete with Lightforce but instead was analogous to severance pay. In past cases, the supreme court has held that severance pay constitutes wages under the IWCA because such pay is meant to protect employees from economic hardship and reward them for past service. Lightforce argued that the NDA compensation wasn't akin to severance pay but was consideration for Huber's compliance with the noncompetition provision of the NDA.

The court found there was no language in the NDA that conditioned the payment of compensation on Huber's compliance with the noncompetition provision. Rather, the payment was intended to secure his well-being and compensate him for his past service. As a result, the NDA compensation constituted wages under the IWCA. The supreme court sent the case back to the trial court with instructions to triple the $180,000 judgment and award Huber $540,000.

Concluding observations and recommendations for Idaho employers

As the Lightforce case demonstrates, the IWCA can present significant issues for Idaho employers confronted with a current or former employee's claim for unpaid wages. There are a number of ways to reduce the amount of risk you are exposed to, however.

For example, if a current employee files a claim for unpaid wages, make sure you don't take any action that could be construed as retaliation against him for making the claim. If you do, you risk a wrongful termination claim in addition to the wage claim. When you're confronted with a claim for unpaid wages, be sure you pay the amount owed in accordance with the time frames set forth in the IWCA to avoid additional penalties. If an employee makes a written demand for immediate payment of unpaid wages, you should pay the wages due within 48 hours.

If you dispute a portion of the amount a current or former employee claims to be owed, pay the undisputed amount in a timely manner. Also, it may be wise to review your employment practices insurance policy to see whether and how it covers wage claims made by your employees.

There are many other ways you can seek to protect your company from liability for unpaid wages, depending on the specific facts at issue. If your company is presented with a claim for unpaid wages, it's wise to seek the assistance of legal counsel.