In March 2020, because of the reduction in business caused by the COVID-19 pandemic, Hyatt decided to furlough or temporarily lay off over 7,000 employees.

Plaintiffs, Karen Hartstein filed a class action complaint in Los Angeles County Superior Court on behalf of a putative class of California Hyatt employees, asserting claims under California law for failure to pay all wages upon discharge, waiting time penalties, failure to furnish accurate wage statements, unfair business practices, and enforcement under the Private Attorneys General Act (“PAGA”). Hyatt removed the action to federal court.

The district court granted Hyatt’s motion for summary judgment, denied Plaintiff’s motion for partial summary judgment, and dismissed the action with prejudice. The district court concluded that the March 2020 furlough of Hyatt’s employees was not a termination within the meaning of Labor Code § 227.3 because there was not a complete severance of the employer-employee relationship.

The court also rejected Plaintiff’s claim that the value of the complimentary hotel rooms class members were eligible to receive constituted wages they should have received upon discharge. And because it concluded that Hyatt was not required to pay the accrued vacation in March 2020, the district court declined to address whether Hyatt was liable for waiting time penalties under § 203 and whether Hyatt had a good faith dispute about the payments.

The 9th Circuit Court of Appeals reversed as to the vacation pay claim, and affirmed the dismissal of the value of the hotel room claims in the published case of Harstein v Hyatt Corporation -22-55276 (September 2023).

Hyatt did not contest that it was required to pay its employees their accrued vacation pay when the employees were discharged. The question is when the employees were discharged within the meaning of California’s prompt payment provisions. Plaintiff argues that the indefinite layoff in March 2020 was a “discharge” within the meaning of Labor Code § 201(a), triggering Hyatt’s obligation to pay accrued vacation pay. Hyatt contends that it was not required to pay accrued vacation pay until June 2020, when employees were formally terminated.

Section 201 does not define “discharge.” The question accordingly is whether a temporary layoff, with no specified return date, is a discharge for purposes of § 201. “We have not found, and the parties have not cited, any caselaw that addresses this question. However, the California Division of Labor Standards Enforcement (‘DLSE’) has answered the question explicitly.”

The DLSE is the state agency empowered to enforce California’s labor laws. In Opinion Letter 1996.05.30, the DLSE addressed an employer’s question “regarding the obligation of an employer to pay wages due at the time of a ‘temporary layoff.” The DLSE replied that, “if an employee is laid off without a specific return date within the normal pay period, the wages earned to and including the lay off date are due and payable in accordance with Section 201.”

The DLSE cited Campos v. Employment Development Department, 183 Cal. Rptr. 637 (Ct. App. 1982), which addressed “whether workers on indefinite layoff are disqualified from receiving unemployment benefits when they refuse to accept recall offers in the course of a trade dispute.” Campos concluded that, “where the employees have no contractual right to recall within any specified time period, the better approach is to treat such layoffs as indefinite, thereby terminating any employment relationship.”

Thus the Court of Appeals concluded that the prompt payment provisions of the California Labor Code required Hyatt to pay Plaintiffs their accrued vacation pay in March 2020. It therefore reversed the district court’s grant of summary judgment to Hyatt as to the vacation pay claim and remand for the district court to consider whether Hyatt acted willfully in failing to comply with the prompt payment provisions.

However, the complimentary hotel rooms Hyatt provided to employees were excludable from the calculation of employees’ regular rate of pay under the Fair Labor Standards Act (FLSA). It therefore affirmed the grant of summary judgment as to the complimentary hotel room claim.

Accrued Vacation Pay Immediately Due Upon Temporary Layoff