United States: California Supreme Court Rejects Conversion Claim For Unpaid Wages

Seyfarth Synopsis:  In Voris v. Lampert, the California Supreme Court held that unpaid wages cannot be recovered through a tort claim for conversion.

The Facts

Brett Voris, in exchange for promises of later payment of wages and stock, did substantial work for start-up corporations formed by his friend, Greg Lampert. When Voris was fired, he sued the corporations for the wages and stock he had earned but never received. Voris also sought to hold Lampert personally liable on an alter-ego theory and on a claim of conversion. While Voris won his lawsuit against the corporations, he lost his claims against Lampert, which were based on an alter-ego theory, and found himself unable to collect his $350,000 judgment against the financially ailing corporations.

After multiple appeals, the question the California Supreme Court agreed to review was this: while corporate shares are subject to a tort claim for conversion, does the conversion tort also apply to a claim for unpaid wages?

The Supreme Court Decision

In its decision of August 15, 2019, the Supreme Court answered “no,” explaining that “the tort of conversion is … ‘the wrongful exercise of dominion over personal property of another.’” And although money can be the subject of an action for conversion, this is only the case when the money is “a specific sum capable of identification,” as, for example, where a real estate agent accepts commissions on behalf of himself and a business partner, but then refuses to give the partner his share.

The Supreme Court distinguished between an employer exercising “dominion over a specifically identifiable pot of money that already belongs to the employee” and an employer failing “to reach into its own funds to satisfy its debt.” The former wrong is what conversion aims to remedy, whereas the latter wrong is simply a failure to satisfy a mere contractual right of payment.

In declining to extend the tort of conversion to the wrong of unpaid wages, the Supreme Court observed that “there already exist extensive remedies for the nonpayment of wages,” with “the primary bulwark” being the California Labor Code. The Supreme Court reasoned that a conversion claim for unpaid wages would largely duplicate Labor Code remedies, and would be a particularly blunt tool for deterring the nonpayment of wages—reaching not only those who act in bad faith, but also those who make good-faith mistakes, such as clerical errors. 

The Dissenting Opinion

Justice Cuéllar, in dissent, argued two main points: First, plaintiffs have recovered pay for labor through the tort of conversion—a real estate agent seeking unpaid commissions (Sanowicz v. Bacal), a seller of consigned goods seeking a portion of sales proceeds (Fischer v. Machado), an attorney seeking legal fees from a client’s award (Weiss v. Marcus), and an employee seeking promised pay in the form of stock (the present case). Justice Cuéllar saw no principled argument for why the tort of conversion “peters out” when it comes to wages—“the common way by which workers make their way in the world.” Justice Cuéllar also cited a DLSE case in which the Labor Commissioner invoked conversion to collect settlement checks that were returned to a defendant as undeliverable and that the defendant refused to pay into California’s unpaid wage fund. Second, Justice Cuéllar noted that while the Labor Code generally does provide “extensive remedies for the nonpayment of wages,” they proved inadequate for the employee here.

What Voris Means for Employers

Crisis averted! As a Court of Appeal decision has noted, permitting a conversion claim to proceed in this kind of case would mean that “any claimed wage and hour violation would give rise to tort liability for conversion as well as the potential for punitive damages.” Voris is a rare example of judicial restraint recognizing that the Legislature—not the judiciary—has the job to address any meaningful gap that might exist in what is already a comprehensive remedial structure addressing unpaid wages.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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