Wilson v. Smurfit Newsprint Corp.

EDMONDS, P. J.,

concurring in part, and dissenting in part.

I agree with the majority opinion in all respects except for its conclusion about what is necessary to demonstrate that an employer acts “willfully’ for purposes of a penalty wage claim under ORS 652.150(1). The majority holds that the qualified union plaintiffs’ severance pay became due when the arbitrator determined defendant’s liability for those wages under the collective bargaining agreement (CBA). Contrary to the majoritys holding, I would hold that defendant’s failure to pay severance wages was willful at the time that the sale of the mill was completed and defendant’s employees were deemed terminated from their employment. I write separately to explain my disagreement with the *676 majority on that point. It appears that we disagree only because we understand differently the import of the Supreme Court’s decision in Sabin v. Willamette-Western Corp., 276 Or 1083 , 557 P2d 1344 (1976), and the Court of Appeals cases applying it. 1

A recital of the factual background about seniority rights in this case forms the backdrop as to why I reach a different conclusion than that of the majority. The CBA between defendant and its employees provided for severance pay, based on the number of years worked, if defendant decided “to close permanently the Newberg mill.” The majority asserts that defendant could not reasonably know that its sale of the mill satisfied that condition and that it was liable for severance pay until the arbitrator’s opinion became final. That conclusion does not recognize the effect of defendant’s actions on employees in the context of the CBA. Although the mill did not physically stop producing paper after the transfer of ownership, defendant permanently closed its operation of the mill. The effect of the ownership change on plaintiff employees was, in significant respects, comparable to a plant closure immediately followed by a sale and reopening under new ownership, a circumstance that would have unquestionably entitled plaintiffs to severance pay.

The crucial effect of the sale, as it was structured in this case, is that defendant’s employees lost their seniority rights in addition to suffering the effects on their retirement duties and pensions that the majority mentions. Seniority may be the most important right that an employee acquires under a CBA because it provides job choice and security that would not otherwise exist. From an employee’s standpoint, the effect of the loss of seniority is identical to the loss of one job followed by the beginning of a new job because of the loss of all the job protection and other rights that the employee has built up over the years in the first job. Instead of having a contractual right to a desirable and secure job, an employee under the circumstances in this case could be subject to being assigned a less desirable or less secure job. Such changes could involve a change in job tasks as well as a change in *677 work shift. Thus, severance pay based on the length of time the employee has worked constitutes a contractual method under the CBA to provide recompense for that loss.

Based on those facts, the issue is whether defendant’s failure to pay wages due to plaintiff employees at the time that the sale was complete was “willful” within the meaning of ORS 652.150(1). The statute provides that an employer is liable for penalty wages “if an employer willfully fails to pay any wages or compensation of any employee whose employment ceases [.]” The statute does not define “willfully,” but the Supreme Court has interpreted it in several cases. The starting point for the analysis is State ex rel Nilsen v. Johnston et ux, 233 Or 103 , 377 P2d 331 (1962), in which the Supreme Court established the meaning of the word “willful” that it and we have continued to follow up to this time.

In Johnston, the defendant argued that ORS 652.150 provided for an unconstitutional penalty because the statute was vague, arbitrary, and discriminatory. The Supreme Court noted that all of the defendant’s arguments assumed

“an unwary employer who has been trapped into subjecting himself to a penalty because he was unaware either that the employee’s employment had been terminated or that the employee had actually done the amount of work which he claimed he had done. Throughout their brief the defendants proceed on the assumption that an employer who has made an honest and innocent error either in computing what he owes an employee or in assuming that his employee is still in his employ is unfairly penalized for making this error.”

Id. at 107 . The court responded by pointing out that an employer is not hable for penalty wages unless it acts willfully. It then quoted a definition of the term from a case on which it had previously relied:

“Tn civil cases the word “wilful,” as ordinarily used in courts of law, does not necessarily imply anything blamable, or any malice or wrong toward the other party, or perverseness or moral delinquency, but merely that the thing *678 done or omitted to be done was done or omitted intentionally. It amounts to nothing more than this: That the person knows what he is doing, intends to do what he is doing, and is a free agent.’ ”

Id. at 108 (quoting Davis v. Morris, 37 Cal App 2d 269, 99 P2d 345 (1940) (emphasis added)).

Under the definition of “willful” in Johnston, an employer that is excusably ignorant of the facts giving rise to the liability for unpaid earned wages is protected from liability for penalty wages. Said another way, “willfulness” for purposes of ORS 652.150 depends on the employer’s knowledge of the facts that create its obligation to pay earned wages, its intent not to pay those wages, and its freedom to act as it did. The employer’s good faith or lack thereof in failing to pay plays no role in that formulation. Rather, the obligation to pay is absolute once the employer acquires the knowledge of the facts creating its obligation. Thus, under the Johnston formulation, the statute contemplates that the employer must pay the wages when due. If an employer believes that its interpretation of the employment contract does not obligate it to pay the wages under the existing circumstances, or if it believes that it has a defense to the payment of wages or an offset against the amount owed, it must, under the statute, pay the wages in accordance with the time requirements of ORS 652.140 and assert its position separately in the appropriate forum or risk the imposition of penalty wages. The clear purpose of the penalty in ORS 652.150 is to encourage employers to pay earned wages at the time that they are earned and not to require employees to wait for the payment of their earned wage until the outcome of an unrelated dispute. Indeed, if an employer could delay payment of wages because it believed that it had some legal defense under an employment agreement, that purpose would be frustrated.

As the majority correctly points out, two later cases, State ex rel Nilsen v. Lee, 251 Or 284 , 444 P2d 548 (1968), and Hekker v. Sabre Construction Co., 265 Or 552 , 510 P2d 347 (1973), got off track and appear to contradict Johnston in those respects by importing a good faith requirement into the meaning of the word “willfully” in the statute. However, the *679 Supreme Court “righted the ship” in Sabin and unambiguously returned to the Johnston formulation.

In Sabin , the defendant failed to pay the plaintiffs vacation pay when his employment terminated because it did not believe that it legally owed the vacation pay. The defendant relied on the provisions of a confidential memorandum, which it had never communicated to the plaintiff, that employees had no right to vacation pay on termination of employment. At the time of his termination, the plaintiff owed the defendant $91.62, a sum that he refused to pay until he received his vacation pay. When the defendant later rehired the plaintiff, it withheld the $91.62 that the plaintiff admittedly owed from his first paycheck. When the plaintiffs employment was terminated a second time, he still was not paid his vacation pay. The trial court awarded the plaintiff the unpaid vacation pay, less the $91.62 that the plaintiff admittedly owed. It also awarded him penalty wages, apparently based on the defendant’s failure to pay the full amount owed at the time of the second termination.

On appeal, the defendant in Sabin argued, relying on Johnston, Lee, and Hekker , that ORS 652.150 does not penalize an employer whose refusal to pay is “based upon a bona fide belief that he is not obligated to pay[.]” Sabin, 276 Or at 1092 . It contended that it had a good faith belief at the time of the plaintiffs termination that it was not legally obligated to pay the vacation wages. In response to the defendant’s arguments, the Supreme Court first recognized that in Lee it had held that the plaintiff had the burden to prove that the employer acted willfully and that the statute was not intended to impose liability when the employer’s refusal to pay was based on a bona fide belief that it is not obligated to pay. Id. at 1093. The court then explained that, “[i]n defining the term ‘wilfully’ for the purposes of this statute, however, we held in State ex rel Nilsen v. Johnston et ux, supra at 108, as follows[.]” Id. (emphasis added). The court then quoted its discussion about “willfulness” in Johnston. Id.

The Sabin court then turned to the facts of the case in light of the Johnston formulation and concluded:

“Although defendant may not have acted with ‘malice or wrong,’ or with ‘perverseness or moral delinquency,’ we *680 believe that the trial court could reasonably infer from these facts that in making the deduction of $91.62 defendant did not make an ‘unintentional miscalculation’; but “knew what he was doing, intended to do what he was doing, and was a ‘free agent’ and that defendant was a ‘careless employer,’ so as to constitute a ‘wilful failure to pay the wages payable to plaintiff within the meaning of ORS 652.150L’]”

Id. at 1094 .

The key to understanding the holding in Sabin is to put the word “however,” as italicized above, in its proper context. The word “however” can mean “nevertheless” or “in spite of,” 2 thus signaling a contrast with what went before. That is the sense in which the Sabin court used it — to contrast what it had said in Lee with what it was about to say regarding the definition of “willfully.” Although the Sabin court expressly acknowledged that it had held in Lee that the statute was not intended to impose liability where the employer’s refusal to pay wages was based on a good faith belief that the employer was not obligated, it implicitly repudiated that understanding in the following paragraph by the use of the word “however” in the lead sentence. In substance, the court returned to the definition of the word “willful” that it had used in Johnston in spite of what it had said in Lee and Hekker . 3

That is the conclusion about the holding in Sabin that we reached in Schulstad v. Hudson Oil Company, Inc., 55 Or App 323, 326, 328 , 637 P2d 1334 (1981), rev den, 292 Or 825 (1982), in which we first considered the relationship between the Johnston!Sabin definition and the Lee and *681 Hekker cases. In Schulstad, the employee brought an action to collect wages that he claimed were due him upon the termination of his employment. The employer counterclaimed, alleging that the employee owed it a sum of money under the terms of the employment contract.

On appeal, the defendant argued that a standard of good faith applied to ORS 652.150. We rejected that argument:

“Although the Supreme Court has applied a standard of good faith in determining the wilfulness question on past occasions, that standard was rejected in [Sabin]. In that opinion, the court returned to the more restrictive definition ofwilfulness in [Johnston]. * **

* * * *

“The court in Sabin found that the defendant wilfully withheld wages from plaintiff, despite a showing of good faith. * * *

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“In the case at bar, the trial court found that defendant intentionally did not pay plaintiff, although it had the ability to do so. The evidence supports that finding. We conclude that defendant’s action was ‘wilful’ and, therefore, defendant was subject to payment of penalty wages under ORS 652.150.”

Schulstad, 55 Or App at 328-29. Since Schulstad, we have uniformly rejected arguments that an employer is exempt from penalty wages if it acted in good faith. See, e.g., Vento v. Versatile Logic Systems Corp., 167 Or App 272, 277-78 , 3 P3d 176 (2000); Wyatt v. Body Imaging, P.C., 163 Or App 526, 531-32 , 989 P2d 36 (1999), rev den, 330 Or 252 (2000). We have also emphasized in the above cases that an employer has an obligation to know what it owes its employees. 4

*682 Finally, the majority seems to suggest that our recent cases are limited to situations in which the employer asserts what the majority describes as an “affirmative defense” to the obligation to pay earned wages. The majority is correct that many cases decided under the statute have involved situations in which the employer withheld earned wages that it owed in an attempt through self-help to collect money that the employee owed it. 197 Or App at 663-66. But those cases describe only a common circumstance where the provisions of the statute are implicated. The definition of “willfulness” in the statute does not depend on the reason advanced by the employer for the failure to pay earned wages, as shown by cases in which the employer asserted a good faith defense on other grounds. For instance, in Schulstad, the defendant argued that the plaintiffs work was not of sufficient quality to entitle him to earned wages. 55 Or App at 326 . In Taylor v. Werner Enterprises, Inc., 329 Or 461, 465 , 988 P2d 384 (1999), the defendant’s arguments included the argument that it was not legally the plaintiffs employer and that a different state’s law applied. Finally, in Vento , the question was whether the defendant owed overtime wages to the plaintiff; other claims against the plaintiff played no role.

In our most recent decision concerning ORS 652.150, Young v. State of Oregon, 195 Or App 31 , 96 P3d 1239 (2004), rev allowed, 338 Or 57 (2005), we reaffirmed our holding in Schulstad that a good faith belief is not a defense. We explained:

“[W]e have held that, if an employer has actual knowledge that it has an obligation to pay overtime or if such knowledge reasonably can be imputed to the employer, a good faith belief that it has an excuse for not paying overtime will not allow the employer to escape imposition of a penalty under ORS 652.150(1). In Schulstad * * * this court considered the tension between [Johnston] and Sabin , on the one hand, and the Supreme Court’s decisions in Lee and Braddock * * *, on the other. In Lee and Braddock, the Supreme Court held that a good faith belief by an employer that it did not owe an employee wages could excuse payment of a penalty. As noted above, in [Johnston], the court concluded that, despite an apparent good faith belief by the employer that it did not owe the full amount of wages *683 claimed by its employee under the statute, the employer knew that it owed wages to its employee and failed to pay them. The court held that the employer’s failure to pay the wages was willful and subjected the employer to a penalty under the statute. In Sabin , the Supreme Court held that the defendant willfully withheld wages from the plaintiff employee despite a showing of good faith. In Schulstad, we concluded that [Johnston] and Sabin were controlling. We explained that, as found by the trial court, the defendant employer in Schulstad knew that it owed its employee wages at the time that the employee left his employment. We held that, although employer believed in good faith that it had an excuse for not paying the wages, its failure to pay them was intentional and the employee was entitled to penalty wages. Id. at 329.”

195 Or App at 43 (emphasis added). We concluded that an employer is liable for penalties under ORS 652.150(1) either if it knew that the employees were entitled to the unpaid wages or if it could be charged with that knowledge. Id. at 47 .

In Young, there was direct testimony that the employer did not know that the employees were entitled to overtime pay, and the trial court found that the entitlement to overtime pay was the result of an unintentional legislative drafting error. As a result of those facts, we held that the employees had failed to carry their burden of proving that the employer knew of their entitlement or that it was charged with that knowledge. 195 Or App at 47-48 . In contrast, the obligation to pay severance compensation in this case comes from a negotiated agreement between defendant and plaintiffs’ union. Moreover, there is no evidence of an unintentional drafting error in that agreement. Based on the evidence before us, defendant either knew or can properly be charged with knowledge of plaintiffs’ right to severance compensation on November 10, the date that it terminated their employment. Plaintiffs’ severance compensation became due at the end of the business day on November 11, see ORS 652.140(1), and under Schulstad and Young, they were entitled to penalty wages beginning on November 12, as provided in ORS 652.150(1).

Despite the above controlling precedents, the majority concludes that “defendant acquired the requisite information on which to base its decision to pay severance benefits *684 when the arbitrator’s decision requiring it to do so became final.” 197 Or App at 667. It holds therefore that the trial court erred in rejecting plaintiffs’ claims that they were entitled to penalty wages from the date that the sale was complete and plaintiffs’ employments were terminated. That holding is inconsistent with the holdings in Sabin, Young, and Schulstad, for the reasons expressed above. Because the majority fails to interpret the statute as the legislature intended, and as both we and the Supreme Court have construed it, I dissent from that portion of the majority’s opinion.

The practical effect of our difference is the date upon which the interest on the penalty wages begins to run.

Webster’s Third New Inti Dictionary 1097 (unabridged ed 2002).

The majority criticizes my understanding of Sabin, asserting that I do not account for the fact that Sabin continued to recognize that an unintentional miscalculation of wages does not give rise to a penalty under ORS 652.150.197 Or App at 666 n 7. Of course, defendant does not contend in this case that it made an unintentional miscalculation of the wages that it thought were due and owing. Regardless, an unintentional miscalculation of wages could not satisfy the definition of “willfulness” under my understanding of the Sabin requirements because that term depends, in part, on the employer’s knowledge of the facts that create the obligation to pay earned wages; in the case of an unintentional miscalculation, the required knowledge is absent because of the inadvertent nature of the calculation of the amount of wages due.

The Supreme Court has not expressly considered this issue since Sabin . However, my discussion is consistent with its most recent decision concerning penalty wages. In Taylor v. Werner Enterprises, Inc., 329 Or 461 , 988 P2d 384 (1999), the defendant asserted to the trial court that a separate entity was the actual employer, that Nebraska, rather than Oregon, law applied, and that its action in withholding wages was legal under Oregon law. There was no dispute that the defendant knew the historical facts. The Supreme Court decided the legal questions against the defendant and held, as a matter of law, that its failure to pay was willful under ORS 652.150(1), relying on the Johnston definition in doing so.