Prejudgment Interest: A Consideration For Almost Every Cost Of Defense Debate

Workers won a four-year battle over one city’s new $15 per hour minimum wage law. The $2 million settlement announced this week by Washington’s Department of Labor and Industries involves back pay and interest for more than 150 employees of two car rental agencies at Seattle-Tacoma (SeaTac) International Airport. Some workers will receive checks for as much as $30,000 as a result of employers paying lower hourly wages while they disputed the law in court.

Voters in SeaTac, a city of 29,000 that surrounds the airport, narrowly passed the minimum wage law in 2013. When the law took effect in 2014, some employers refused to pay the new minimum. In 2015, Washington’s Supreme Court upheld the law, and ruled that it also applies to employers at the airport, which is operated by the Port of Seattle.

Last September, settlements in two dozen cases brought by airport transportation and hospitality services workers resulted in more than $12 million in back payments for current and former workers.

The largest payment, $8.2 million, was made by an employer of baggage handlers and ramp workers. Seven hundred thirty-eight workers had been paid just $12 an hour. Another airport employer will pay 291 workers nearly $2 million to settle wage and hour claims under the new law, while still another will pay more than $1.8 million to 152 workers. Rick Anderson “Rental car workers at Seattle airport win nearly $2 million in lawsuit over $15 minimum wage,” http://www.latimes.com (Sep. 7, 2017).

The SeaTac settlement demonstrates the additional cost of litigation when an employer is required to pay prejudgment interest. According to the settlement described in the source article, the car rental agencies agreed to pay back wages totaling $1.51 million, plus an additional $458,651 in interest. This large settlement amount resulted, even with the state agreeing to waive penalties.

The Fair Labor Standards Act (FLSA) and state laws regulate wage rates. A common remedy for wage violations is that the employer makes up the difference between what the employees were paid and the amount they should have been paid. This is referred to as “back pay.”

The U.S. Department of Labor (DOL) or a private individual may bring a lawsuit for back pay and liquidated damages. Liquidated damages, in the purist sense, are damages agreed to by the parties during the formation of a contract that establishes how much the injured party will collect if there is a breach. In a wage and hour case, however, liquidated damages are a set amount of damages established by the FLSA or state law.

Prejudgment interest is another remedy available when an employer violates wage and hour law. The FLSA does not specify prejudgment interest as a remedy, so federal courts do not always agree on whether it should be awarded. State laws also vary. However, prejudgment interest is usually awarded in place of liquidated damages to account for the lost use of money from the time the employer owed the wage until the time of payment.

Federal courts generally calculate the rate of interest applied to U.S. Treasury bills. State courts generally use their statutory interest rate for judgments. So, in addition to an award of back pay, an employer may be required to pay prejudgment interest on those unpaid wages accumulated since the time they were owed. This can be especially costly in the case of wage claims when litigation drags out, which it usually does, over several years.

The lesson for employers that find themselves in a wage and hour dispute is that prejudgment interest can be significant, should they lose. For this reason, they should always consult with their attorney on the issue when weighing the costs of litigating the lawsuit versus settling. It is important to discuss the issue sooner rather than later because prejudgment interest will continue to accrue, and accrue, and accrue.