TLDR: conversion is not a viable claim in ordinary wage-and-hour actions. It may be viable in other types of unpaid-wage cases, including claims for unpaid commissions or vested stock options.
A question left unanswered for many years is whether the tort of conversion applies to wage-and-hour claims.
Conversion is the wrongful exercise of dominion over the property of another. Farmers Ins. Exchange v. Zerrin, 53 Cal. App. 4th 445, 451(1997). The elements of a conversion are (1) plaintiff’s ownership or right to possession of the property at the time of the conversion; (2) defendants’ conversion by a wrongful act or disposition of property rights; and (3) damages. Id.
Conversion can involve not just physical taking, but also withholding or assumption or control over property, including withholding of money. See id. at 451-52 (“It is not necessary that there be a manual taking of the property; it is only necessary to show an assumption of control or ownership over the property, or that the alleged converter has applied the property to his own use. Money can be the subject of an action for conversion if a specific sum capable of identification is involved.”).
Why would plaintiffs want to allege conversion where there are many statutory provisions to invoke? Because conversion comes with general damages (e.g., emotional distress) and the potential for punitive damages.
The argument for allowing conversion claims in wage-and-hour cases was this: if money of a determinable amount can be the subject of conversion, and if title to money wages passes to the employee once the employee’s labor is performed, then the withholding of money (e.g., by the failure to pay earned wages) constitutes unlawful conversion of the money for the employer’s benefit.
Sometimes a judge would agree; other times not. Here’s how it sometimes went down.
Where conversion was alleged in an ordinary wage-and-hour case, defendants would often argue that the Labor Code was the exclusive remedy and preempted other tort causes of action because it provided a general and comprehensive legislation intended to displace the common law.
The first response: the right to bring a common-law tort of conversion for stolen or taken money preexisted the Labor Code provisions for unpaid wages, and therefore the Labor Code did not create a new right. Why is this important? Because under the “new right/exclusive remedy” rule, “where a statute creates a right that did not exist at common law and provides a comprehensive and detailed remedial scheme for its enforcement, the statutory remedy is exclusive.” Rojo v. Kliger, 52 Cal. 3d 65, 79 (1990). Since the right to sue for conversion was not a new right, the Labor Code did not provide an exclusive remedy—it provided cumulative or additional remedies.
In Rojo, the California Supreme Court rejected a similar exclusive-remedy argument and held that the California Fair Employment and Housing Act (“FEHA”) does not bar plaintiffs from alleging common-law torts relating to employment discrimination. The exclusivity rule cannot be applied to bar common-law claims unless it appears that the Legislature “intended to cover the entire subject” See id. at 80.
The new right/exclusive-remedy rule does not apply where a statutory remedy is enacted for a preexisting common-law right—in such cases, the newer remedy is considered to be cumulative, and the older remedy may be pursued at the plaintiff’s election:
[W]here a statutory remedy is provided for a preexisting common law right, the newer remedy is generally considered to be cumulative, and the older remedy may be pursued at the plaintiff's election.
Id. at 79 (discussing the new right/exclusivity rule). Observing that the purpose of FEHA was to expand rights and remedies—not limit them—the Rojo court held that “[u]nder the [FEHA], plaintiffs are free to seek relief for injuries arising from discrimination in employment under any state law, without limitation.” See id. at 82; see also id. at 79 (statutory remedies for existing common-law rights are cumulative and do not eliminate common-law claims); Commodore Home Sys., Inc. v. Super. Ct., 32 Cal. 3d 211, 215 (1982) (“When a statute recognizes a cause of action for a violation of a right, all forms of relief granted to civil litigants generally, including appropriate punitive damages, are available unless a contrary legislative intent appears.”)
The second response was that the Labor Code was not intended to supplant the common law. See Rojo, 52 Cal. 3d at 80 (“The general rule is that statutes do not supplant the common law unless it appears that the Legislature intended to cover the entire subject.”).
A key discussion point on this was Cortez v. Purolator Air Filtration Products Co., 23 Cal. 4th 163 (2000). In Cortez, the California Supreme Court found that an employer’s failure to pay overtime wages due under Labor Code sections 203 and 1194 also constituted a violation of California’s Unfair Competition Law (“UCL”), Business & Professions Code section 17200 et seq. The Cal. Supremes held that, once earned, wages become the property of the employee, and employees are entitled to recover overtime wages as a form of restitution. See id. at 177-78. The Cal. Supremes did not hold that recovery under the Labor Code precluded recovery under the UCL. See id.
Another case often cited was Department of Industrial Relations v. UI Video Stores, Inc. (“Blockbuster”), 55 Cal. App. 4th 1084 (1997), where an appellate court approved the California Department of Industrial Relations, Division of Labor Standards Enforcement’s (“DLSE”) claim of conversion for unpaid wages when Blockbuster refused to turn over undelivered settlement checks to the DLSE where the DLSE was acting as a trustee for absent employees for their unpaid wages. See Blockbuster, 55 Cal. App. 4th at 1091-92. The checks in the Blockbuster case were checks for wages. Blockbuster was therefore sometimes cited as authority that the tort of conversion is proper in unpaid and withheld wages. See, e.g., Sims v. AT & T Mobility Servs. LLC, 955 F. Supp. 2d 1110, 1120 (E.D. Cal. 2013) (“The Blockbuster decision alone is sufficient authority to find that a cause of action for conversion of unpaid wages is viable.”).
And a key case always cited on this issue was Lu v. Hawaiian Gardens Casino, Inc., 50 Cal. 4th 592 (2010). In Lu, the California Supreme Court held that even though Labor Code section 351 (which, among other things, prohibits employers from sharing in employee gratuities) did not provide a private right of action for violations of the Labor Code’s gratuities protections, there was “no apparent reason why other remedies, such as a common-law action for conversion, may not be available under the appropriate circumstances.” See id. at 604-05.
Some federal courts, like the Sims court, cited these cases in allowing conversion claims to go forward:
There is clear authority under California law that employees have a vested property interest in the wages that they earn, failure to pay them is a legal wrong that interferes with the employee’s title in the wages, and an action for conversion can therefore be brought to recover unpaid wages. The Blockbuster decision alone is sufficient authority to find that a cause of action for conversion of unpaid wages is viable. Additionally relying on the holdings in Lu and Cortez, which establish the exact legal nature of earned but unpaid wages under California law, this Court finds that if the issue were presented to the California Supreme Court, it would approve a conversion action for unpaid wages just as it indicated such an action is available for converted gratuities.
Sims v. AT & T Mobility Servs. LLC, 955 F. Supp. 2d 1110, 1119-20 (E.D. Cal. 2013).
Using these arguments, some plaintiffs prevailed over dispositive motions attempting to remove conversion claims from the case.
On August 15, 2019, in Voris v. Lampert, __ P.3d __, 2019 WL 3820000, (Cal. Aug. 15, 2019) (Google Scholar link here) (slip opinion linked here), the California Supreme Court has settled the issue in the courts, absent a legislative change. In a 5-2 opinion, the Cal. Supremes held that the tort of conversion is inappropriate in ordinary unpaid-wage cases. Why? The majority distinguished between situations where actual property (including money) is kept by a defendant (conversion proper) and a promise to pay wages that is unfulfilled by a defendant (conversion improper):
[T]he employee’s claim to earned wages differs from these other claims in the ways that matter for purposes of the law of conversion. The employee’s claim is not that the employer has wrongfully exercised dominion over a specifically identifiable pot of money that already belongs to the employee—in other words, the sort of wrong that conversion is designed to remedy. Rather, the employee’s claim is that the employer failed to reach into its own funds to satisfy its debt. Indeed, in some cases of wage nonpayment, the monies out of which employees would be paid may never have existed in the first place. Take, for example, a failed start-up that generates no income and thus finds itself unable to pay its employees. Because the business accounts are empty, there would not be any identifiable monies for the employer to convert. No one would dispute that the start-up is indebted to its employees. But only in the realm of fiction could a court conclude that the business, by failing to earn the money needed to pay wages, has somehow converted that nonexistent money to its own use.
But to accept this argument would require us to indulge a similar fiction: namely, that once Voris provided the promised services, certain identifiable monies in his employers’ accounts became Voris’s personal property, and by failing to turn them over at the agreed-upon time, his employers converted Voris’s property to their own use.
Slip op. at 15.
What about Cortez, where we got the premise that in California earned wages are the property of the employee, not the employer? The majority held that the Cortez holding is limited to the context of the Unfair Competition Law: “ ‘[U]nlawfully withheld wages are property of the employee within the contemplation of the UCL,’ not within the contemplation of the law in general.” Id. at 16 (italics in original), quoting Cortez at 178. “The reasoning of Cortez does not translate readily to this context: While UCL awards may ‘encompass quantifiable sums one person owes to another’ [citation], conversion claims do not. To extend the reasoning of Cortez to the tort context would collapse the well-established distinction between a contractual obligation to pay and the tortious conversion of monetary interests.” Id. at 16-17.
The Cal. Supremes also distinguished Lu, differentiating between a misappropriation of gratuities (i.e., actual money left by a patron for the employee) and earned but unpaid wages:
When a patron leaves a gratuity for an employee (or employees), it arguably qualifies as a specific sum of money, belonging to the employee, that is capable of identification and separate from the employer’s own funds; indeed, the employee (or employees) for whom it was left has ownership of the gratuity by statute. (Lab. Code, § 351 [gratuity is “sole property of the employee or employees to whom it was paid, given, or left for”].) Unpaid wages are different in each of these respects.
Id. at 19-20.
So the main premise underlying the majority’s rationale is that a failure to pay wages gives rise to a monetary claim against the employer for promised money not yet earmarked for the employee—in that typical unpaid-wage context, conversion is inappropriate:
Unlike the cases involving failure to turn over commissions, for example, which were earmarked for a specific person before being misappropriated and absorbed into another’s coffers, a claim for unpaid wages simply seeks the satisfaction of a monetary claim against the employer, without regard to the provenance of the monies at issue. In this way, a claim for unpaid wages resembles other actions for a particular amount of money owed in exchange for contractual performance—a type of claim that has long been understood to sound in contract, rather than as the tort of conversion.
Id. at 20-21; see also id. at 21 n.11 (key distinction is “between asserting dominion over another person’s property and failing to pay that person the money he or she is owed. Both are a species of legal wrong, but it does not follow that both constitute the tort of conversion.”).
The plaintiff argued that policy reasons exist to broaden conversion to unpaid-wage claims, including broader remedies (emotional distress, consequential damages, and punitive damages) and individual tort liability. The Cal. Supremes rejected this argument:
[A] conversion claim is an awfully blunt tool for deterring intentional misconduct of this variety. As noted, conversion is a strict liability tort. It does not require bad faith, knowledge, or even negligence; it requires only that the defendant have intentionally done the act depriving the plaintiff of his or her rightful possession. (Moore, supra, 51 Cal.3d at p. 144, fn. 38; Poggi, supra, 167 Cal. at p. 375.) For that reason, conversion liability for unpaid wages would not only reach those who act in bad faith, but also those who make good-faith mistakes—for example, an employer who fails to pay the correct amount in wages because of a glitch in the payroll system or a clerical error. We see no sufficient justification for layering tort liability on top of the extensive existing remedies demanding that this sort of error promptly be fixed.
[T]he conversion claim Voris asks us to recognize neither fits well with the traditional understanding of the tort, nor is well suited to address the particular problem he alleges. A conversion claim for unpaid wages would reach well beyond those individual corporate officers who withhold wages to punish disfavored employees or who deliberately run down corporate coffers to evade wage judgments. As the Court of Appeal in this case observed, to recognize such a claim would authorize plaintiffs to append conversion claims to every garden-variety suit involving wage nonpayment or underpayment. The effect would be to transform a category of contract claims into torts, and to pile additional measures of tort damages on top of statutory recovery, even in cases of good-faith mistake. In light of the extensive remedies that already exist to combat wage nonpayment in California, we decline to take that step.
Id. at 26, 31.
There’s a lot more to this opinion, including very good points raised in dissent, and, of course, the factual background and procedural posture. You can read the opinion for these.
Some might think the intellectual distinction between the failure to pay unpaid wages earned and due versus earned commissions or stock options or other property is dubious at best. The dissenting opinion strongly raises this argument.
Some might also think that conversion might well be appropriate in unpaid-wage cases. For example, if refusing to pay a worker’s wages leads to the worker getting evicted from his or her apartment or resorting to high-interest loans and crushing debt, many might think that compensation for emotional distress in those circumstances might be appropriate. Others disagree.
But the case is in, and Voris v. Lampert is now the law of the land absent action by the legislature.