Texas Payday Law Claims: What Employers Need to Know

Who and what the law covers

The Texas Payday Law is Labor Code chapter 61. It applies to every private employer in Texas with one or more employees; it does not apply to the United States, the state or its political subdivisions. It covers employees, and its definition of employee excludes independent contractors and close relatives of the employer. A franchisor is not the employer of a franchisee's workers for these purposes unless a court has found it exercised unusual control.

“Wages” under section 61.001(7) means compensation owed for labor or services, whether computed on a time, task, piece, commission or other basis, plus vacation pay, holiday pay, sick leave pay, parental leave pay and severance pay owed under a written agreement or written policy of the employer. The second half matters: the law does not require any employer to offer paid vacation or severance, but an employer whose handbook or offer letter promises them has made them wages. Disputes over commissions and bonuses, which section 61.015 says are due according to the parties' agreement, are covered separately in disputes over unpaid commissions and bonuses with departing employees.

The rules employers break most often

• Paydays. Employees exempt from federal overtime must be paid at least once a month; everyone else at least twice a month, in pay periods as nearly equal as possible. If the employer designates no paydays, they are the first and fifteenth of each month. Paydays must be posted in the workplace.
• Final pay. Section 61.014: a discharged employee must be paid in full not later than the sixth day after discharge; an employee who leaves for any other reason must be paid by the next regularly scheduled payday. A layoff is a discharge.
• Deductions. Section 61.018: an employer may not withhold or divert any part of wages unless ordered by a court, authorized by state or federal law, or the employee has given written authorization to deduct for a lawful purpose. Uniforms, shortages, damaged equipment, unreturned property and advances all require that signed authorization, and the authorization should identify the deduction, not merely say “any amounts owed.”
• Form of payment. Wages must be paid in cash, by a check negotiable on demand at full face value, or by electronic transfer to an account the employee designates or a payroll card account the employer establishes. A bounced check is not payment.

How a wage claim moves through the Texas Workforce Commission

The process in subchapter D is administrative, fast and unforgiving of missed dates.

1. The claim. Under section 61.051 the employee files a verified wage claim with the Commission not later than the 180th day after the wages became due. The statute says the deadline is jurisdictional, and section 61.052 directs the examiner to dismiss a late claim.
2. The investigation and preliminary order. An examiner investigates and issues a preliminary wage determination order either dismissing the claim or ordering payment of wages found due, mailed to each party's last known address. This is the employer's first and best chance to be heard: a short written response with the pay records, the signed deduction authorizations, the written policy or plan, and the final-pay calculation usually decides the preliminary order.
3. The 21-day window. Under section 61.054 either party may request a hearing before a wage claim appeal tribunal, in writing, not later than the 21st day after the examiner mails the preliminary order. If no one does, section 61.055 makes the order final for all purposes with no right to judicial review, and section 61.056 requires an employer ordered to pay to send the net amount to the Commission within the same 21 days.
4. The hearing. The tribunal mails notice within 21 days of the request and holds the hearing, usually by telephone, within 45 days after that. The hearing follows the Commission's unemployment-hearing procedures. The tribunal may modify, affirm or rescind the preliminary order and issues a written decision, which becomes final 14 days after mailing unless a party appeals to the Commission itself.
5. Commission review. The Commission may affirm, modify or set aside the tribunal's order, take more evidence, or allow a further appeal. Its order becomes final 14 days after mailing unless it reopens the case or a party moves for rehearing.
6. Judicial review. Under section 61.062 a party that has exhausted the administrative steps may sue to appeal the order not later than the 30th day after the final order is mailed, in the county of the claimant's residence, naming the Commission and the other party as defendants. Review is by trial de novo under the substantial evidence standard. Under section 61.063 the party ordered to pay must, within 30 days after the order becomes final, either pay the Commission or, if it files for judicial review, send the amount to the Commission for deposit in an interest-bearing escrow account. Money the court later finds not owed is returned with interest.

Penalties and other exposure

Bad-faith penalty. Under section 61.053, if the examiner, the tribunal or the Commission finds that the employer acted in bad faith in not paying wages, it may add an administrative penalty of up to the lesser of the wages in question or $1,000, weighing the seriousness of the violation, prior violations, deterrence and mitigating circumstances. The same penalty can be assessed against an employee who files a claim in bad faith. Withholding a final check to force the return of property, or docking wages for a disputed debt without authorization, is the kind of conduct that draws the finding.

Criminal liability. Section 61.019 makes it a third-degree felony for an employer to hire an employee intending to avoid paying wages and then fail to pay after demand, or to intend to avoid paying while continuing to employ the person and fail to pay after demand, with a separate offense for each pay period. The attorney general may also seek an injunction against an employer that repeatedly fails to pay, and the Commission may require a bond from an employer with two convictions or an unsatisfied final order.

The claim is often not the only claim. A wage claim from a former employee frequently arrives alongside, or shortly before, a discrimination charge, a demand letter or an unemployment claim, and the facts asserted in the wage claim response will be compared with everything else the company says. Consistency across all of them matters; see employer next steps when a former employee's lawyer sends a demand letter.

Defenses an employer actually has

• Not wages. The claimed amount is a discretionary bonus not yet declared, an expense reimbursement, or vacation under a written policy that provides for forfeiture at separation.
• Not an employee. The claimant was an independent contractor, which takes the claim outside chapter 61 entirely. The Commission applies its own direction-or-control analysis, and the label in the contract does not decide it; see contractor misclassification claims against a Texas business.
• Paid. Pay records, the transfer confirmation or the canceled check.
• Authorized deduction. The signed written authorization identifying the deduction, or the court order or statute that permits it.
• Late claim. Wages that became due more than 180 days before the claim was filed are outside the Commission's jurisdiction, pay period by pay period.
• Plan terms. For commissions and bonuses, the written plan showing the amount was not yet earned or due.

Defenses that do not work: the employee quit without notice, the employee owes the company money, the employee has not returned equipment, or the company is waiting on a customer to pay. None of those excuses late payment or an unauthorized deduction.

Example

Suppose a Dallas marketing agency terminates a designer on a Monday and tells her the final check will be issued once she returns her laptop and the agency finishes reconciling her expense account. She returns the laptop on Friday; the agency pays her two weeks later and deducts $400 for a monitor she had taken home and not returned, with no signed authorization. She files a wage claim 40 days later.

The final pay was due by the sixth day after discharge regardless of the laptop or the reconciliation, so it was late. The $400 deduction violated section 61.018. The examiner's preliminary order directs payment of the $400 and, finding that the agency withheld pay to compel the return of property, adds a bad-faith penalty of $400, the lesser of the wages in question and $1,000. The agency has 21 days from the mailing date to request a hearing. Its realistic choices are to pay within those 21 days, or to appeal the penalty only, with the understanding that the deduction itself has no defense. The monitor is recoverable by a demand letter and, if necessary, a small claim, not through payroll.

Responding to a notice: a short checklist

1. Calendar the 21-day hearing-request deadline from the mailing date on the preliminary order, and route all Commission mail to one responsible person.
2. Pull the pay records, the written policies and plans, the signed deduction authorizations, and the final-pay calculation for the claimant.
3. Answer the claim in writing with documents, not argument, and address the 180-day jurisdiction point pay period by pay period if any part of the claim is old.
4. If the claim has merit, pay it before the preliminary order issues. Paying early removes the bad-faith question and usually ends the matter.
5. Check whether the claimant has, or is likely to file, any other claim, and make sure the company's account of the separation is the same in every forum.

A single wage claim rarely justifies a lawsuit, but a claim that signals a broader payroll practice, a claim paired with other allegations, or a tribunal decision the company intends to take to court does. Tina Wysk represents employers in wage and compensation disputes in Dallas; see employment-related business disputes.