Working Indiana - Working for Democracy and Justice

My thanks to Gregor Koso for posing this interesting question.  Law school students learn that penalties and fines are not enforceable in private contractual relationships.   At common law, a stipulated amount of “damages” agreed to by the parties will not be enforced by the courts if it is higher than the “actual” damages.  On the other hand, where it is hard or impossible to figure out “actual” damages a reasonable amount of “liquidated” damages can be stipulated.  An example: agreed damages to compensate the owner for delay imposed by a contractors negligence.

Workers frequently face the specter of fines in addition to the indignity of marginal wages.  Often these penalties are imposed because of customer misconduct; frequently, for example, wait staff are told they are responsible for patrons who walk out without paying or, convenience store managers may find they are being “charged” for drive-offs.  The wage and hour division will not tolerate pay reductions that reduce a workers wages below the federal minimum for regular or overtime pay and publishes a quick guide to worker pay rights [Fact Sheet #16 Deductions from Wages for Uniforms and Other Facilities Under the Fair Labor Standards Act] but as the name implies the question addressed has more to do with protecting workers from employers who charge for uniforms that to the subject of fines themselves.

As it happens, it is a misdemeanor in Indiana for an employer to levy a fine against an employee.  I.C 22-2-8-1 provides:

It is unlawful for any employer to assess a fine on any pretext against any employee and retain the same or any part thereof from his wages. An employer who violates this section commits a Class C infraction.  Indiana law also prohibits unauthorized withholding from employee pay. I.C. 22-2-6-2-(a). 

The “assignment” of wages must be in writing signed personally by the employee, and agreed to by the employer.  It must also be revocable.  And it is limited to the purposes set out in section 2 (b) of the same law.  Those purposes do not include uniforms, covering meals for patrons who walk out without paying, or convenience store drive-offs.

These two laws did not help Ms. Haxton, however, when she quit her job at McClure Oil without fulfilling entirely her promise to give two weeks notice.  Ms. Haxton’s job as cashier was subject to this agreement:

2. Term. The term of this agreement shall begin on October 19, 1995 and shall be an “at will” agreement. The Employee may terminate this agreement at any time by giving a required two weeks notice in writing. This notice is to be given to the Employee's immediate supervisor.... 

* * * * * *

7. Conditions of Wage Reduction. The Employee agrees that their weekly paycheck can be reduced to the Federal Minimum Wage rate if the following conditions exist: 

* * * * * * 

C. Upon resignation, the Employee does not give the required written two weeks notice to their immediate supervisor.

When Ms. Haxton quit four days into her two weeks (but after giving the required notice) , McClure “reduced” her pay.  When she complained that this was a “fine” the Indiana Court of Appeals disagreed on the grounds that the reduction was not called a fine and when Ms. Haxton complained to the same Court that—whatever it was—it was withheld without her written consent the Court excused McClure on the grounds that a reduction in pay was not the same as a withholding.  The case, Haxton v McClure Oil, 697 N.E.2d 1277 (Ind.App. 1998) has since been overruled but on other grounds leaving the question tantalizingly open for employers and frustratingly vague for employees.

The Haxton opinion does note that Ms. Haxton had not provided much in the way of legal authority for her position that the agreement violated the wage assignment statute leaving the door open just a crack for future attacks on this basis although the Court’s acceptance of the employer’s choice to cast the agreement in the form of a wage “reduction” in order to escape the “penalty” statute is an indication that the same formalist argument will prove persuasive in the future. 

The case that overruled Haxton, St. Vincent Hospital and Health Care Center, Inc. v Steele, M.D. 766 N.E.2d 699 (Ind. 2002), resolved inconsistent interpretations of two Indiana statutes aimed at protecting worker wages.  The first statute, (I.C. 22-2-5 or Wage Payment Statute) guarantees a worker’s right to timely payment of wages.  Another statute (I.C. 22-2-9 or Wage Claims statute) permits  workers to submit wage claims to the Indiana Department of Labor.  Different categories of workers are protected by each statute.  The first (I.C. 22-2-5) protects current employees as well as those who have voluntarily left work.  The second, (I.C. 22-2-9) protects workers separated from work by the employer and workers whose jobs are suspended as a result of an industrial dispute.  Both categories of worker are entitled to treble damages and attorney fees.  The Haxton Court, as well as several other Indiana decisions, took the position that timely payment of wages is all the Wage Payment statute guarantees.  It does not reach the amount of wages due.  The Supreme Court reversed this interpretation in favor of one finding that the statute protected both frequency and amount.  “Transfer,” the legal mechanism for actually nullifying a case, was denied in the Haxton case itself leaving the question whether fines disguised as agreed to reductions continue to evade Indiana law.

A “fine” mess, Ollie.