As an attorney who specializes in Wills and Trusts, Real Estate Law and Business Law, I have represented several small business owners over the years who have faced wage claims with the California Department of Industrial Relations. Although I tend to represent the business owners rather than the wage claimants, it often amazes me how wage claimants are ill advised by their counsel and often over look some serious pitfalls in bringing a wage claim.
Recently, there have been several claims and lawsuits filed by restaurant workers against employers for unpaid wages, overtime, and rest and meal breaks in the Bay Area. Often, an employee is worried about what would happen if he or she came forward and filed legal claim. Those are concerns are valid and well-grounded and employee should carefully consider several factors and consult with legal advisor for legal options.
First, legal proceedings may take a long time to resolve especially in light of Coronavirus because many courts and administrative agencies have limited operations for hearings and trials.
In addition, an employee can self-righteously claim employer violated wage and employment laws even though he or she may have also violated relevant tax laws for failing to report payment in cash by employer. Employer's tax advisor may recommend issuance of corrected form W-2 for cash payments that may subject employee to state and federal income tax audits.
During legal proceedings, employee needs to provide credible testimony of amount and extent of work for which he or she was not properly compensated. Employee's testimony may incriminate him or herself for accepting cash payment if income was not reported and appropriate taxes paid. Employee may also be investigated if he or she failed to report cash payment when applying and obtaining government benefits (e.g., low income housing).
When faced with large claim for damages, attorneys may advise employer to close restaurant or file bankruptcy petition. Even if employee obtains a judgment for lost wages, there are a number of paths under California law by which he or she may try to collect unpaid wages. Legal process has many barriers for low-wage workers and, all too often, is ultimately unsuccessful. It easier to obtain judgment than actually collecting on judgment from employer. Collecting from employer who refuses to pay or cannot pay is frustrating and problematic.
The court has power to award judgment, but employee has responsibility to enforce it. Unfortunately, this often leaves employee with a piece of paper called “judgment” and employer is probably still refusing to pay. This is when most judgment creditors give up.
Employee may face great difficulty finding attorney or collection agency to assist in collection of judgment. Employee who tries to enforce judgments for unpaid wages often find that employer disappeared, hid assets, shut down, closed business, and reorganized or formed a new legal entity.
United States bankruptcy laws also offer debtor a second chance, fresh start, and opportunity to again become a productive member of society.
Thus, to avoid uncertainty of outcome of administrative proceedings or trial and significant investment of time and monies to obtain a hollow victory, it is in both employee and employer's interest to settle claims and lawsuits if possible. Often, half a loaf of bread is better than no bread.
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