Employers Beware

Penalties for withholding paychecks

BY G. KEVIN FASIC, ESQ.

DELAWARE’S WAGE PAYMENT and Collection Act, Title 19, Chapter 11, mandates that employees receive paychecks, in full and without improper withholding, on a regular pay cycle. Section 1103 allows an employee to recover up to double the amount of wages as liquidated damages if the employer violates the statute. Provision for civil penalties, attorney’s fees, and costs of suit appear elsewhere.

Since at least 1965, employers have had a defense built into Section 1103: “If an employer, without reasonable grounds for dispute, fails to pay...” In other words, if the employer demonstrates a reasonable basis for disputing payment, it could avoid the double damages. This Section was put to the test in a 1969 Superior Court case where the court determined that a former employee’s failure to return company property constituted a reasonable basis for withholding of employee wages. Pierson v. Hollingsworth, 251 A.2d 350 (Del.Super. 1969).

While the Department of Labor in 1979 attempted to eliminate the employer’s ability to withhold wages—without the double damages penalty—for failure to return company property, it only did so by regulation. Delaware has long held that where regulations are inconsistent with, or conflict with a statute, the statute prevails. DE State Sportsmans’ Ass’n. v. Garvin, 2020 WL 6813997 (Del.Super. 2020). Having failed to amend the law through the General Assembly, it is an open question whether the agency’s 1979 regulation was valid or effective today.

The employer’s right to withhold wages without suffering the penalty was upheld by the Delaware Supreme Court in 2006, in Delaware Bay Surgical Services, P.C. v. Swier, 900 A.2d 646 (2006). In this case, the employer had a contractual right to recover damages from the employee if they separated from employment before the end of the contract term. The Court, recognizing the authority of Hollingsworth, held in favor of the employer. “It has been the operative case law in Delaware since 1969 without intervention by the General Assembly. We view the Hollingsworth interpretation of the WPCA as a correct interpretation of the General Assembly’s intent.”

Currently before the General Assembly is Senate Substitute 1 for Senate Bill 208. This re-write of Section 1103 would eliminate an employer’s ability to avoid liquidated damages for withholding wages for virtually any reason, aside from: a dispute about the amount of the wages; deductions required by law; deductions for medical expenses; or if a written agreement exists that allows the withholding. This elimination of an employer’s right to withhold wages where the employee has failed to return company property is inequitable and misguided.

While an employer owes a duty to pay an employee for services provided, the employee has a duty to return the employer’s property. The unintended consequence? Employers unable to do an exchange of check for property will be forced to file suit to recover property or seek to have the employee arrested and charged with theft. Hardly equitable, contrary to Hollingsworth and Delaware Bay, and certainly not what must be intended.

Any and all opinions contained in the above article are those of the author. They are not reflective of the Delaware State Chamber of Commerce’s official position on the bill referenced in this article.

G. Kevin Fasic, Esq. is a principal at Offit Kurman, P.A.