On April 16, 2021, the Washington Wage Recovery Act, SB 5355 (the “Act”) was signed into law. The Act creates a new statutory lien for employees’ unpaid wage claims against their employers. Employees and certain other parties may establish and foreclose upon these liens, potentially resulting in the sale of an employer’s property. Accordingly, the Act has significant implications for employees, employers, and secured lenders. The Act becomes effective January 1, 2022.
Overview of the Act
Currently, an employee can pursue recovery of unpaid wages against an employer by filing a wage complaint with the Washington Department of Labor and Industries or by bringing a civil action against the employer. However, with both of these options, the employee must wait until the merits of the wage claim are resolved to recover the unpaid wages.
The Act provides employees another remedy—the ability to establish a lien against certain employer property to secure the employee’s wage claim. A lien is an interest in the property of another person or entity and is generally used as a means for enforcing a debt. Liens can be created by statute, and Washington has many different types of statutory liens. The Act creates a new type of statutory lien—a wage lien. This wage lien can be established before the merits of the wage claim are decided, providing the employee with a tool for securing unpaid wages during the pendency of the wage claim action or investigation.
A wage claim can include “unpaid wages owed to the claimant as an employee of an employer, as well as any other compensation, interest, statutory damages, liquidated damages, attorneys' fees and costs, or statutory penalties that may be owed for violation of a local, state, or federal wage law, . . . .” However, wage claims do not include “vacation or severance pay, contributions to an employee benefit plan, or paid leave—except paid leave that is statutorily mandated.”
The Act directs that it be liberally construed in favor of providing security for unpaid wages, and its protections cannot be waived in an employee’s contract.
Wage liens will amplify the consequences of a wage claim for an employer and encourage quick resolution of the wage claim, because the employer’s property will be encumbered by the wage lien while the merits of the wage claim are decided. Wage liens will also impact secured lenders, introducing new issues that should be considered to properly protect the secured lender’s interest in its collateral. Employers will need to review whether the existence of a wage lien will cause a default under the employer’s loan documents with its bank.
Stay Tuned for More
Because the Act introduces a new statutory lien in Washington, it is important for employers and secured lenders doing business in Washington to understand how it works. This article is the first installment in a series. Future installments will delve deeper into the details of the Act, discussing topics like
- The scope of persons and property impacted by the Act;
- How wage liens are established and foreclosed;
- How wage liens can be extinguished, contested, and released; and
- How the Act will impact secured creditors’ rights, including the priority of their security interests.
Stay tuned in the upcoming weeks to learn more about the Act. In our next installment, we will explore the scope of the Act, including the persons and property it will impact.