Fardy v. Physicians Health Rehabilitation Services, Inc.

• Decision Date: 27 October 1988
• Docket Number: No. 75A04-8707-CV-232,75A04-8707-CV-232
• Citation: 529 N.E.2d 879
• Court: Indiana Appellate Court
• Parties: 28 Wage & Hour Cas. (BNA) 1642, 122 Lab.Cas. P 56,945 Paul S. FARDY, Appellant, v. PHYSICIANS HEALTH REHABILITATION SERVICES, INC., and Charles J. Frahm, Appellees.

Page 879

529 N.E.2d 879

28 Wage & Hour Cas. (BNA) 1642, 122 Lab.Cas.

P 56,945

Paul S. FARDY, Appellant, v. PHYSICIANS HEALTH REHABILITATION SERVICES, INC., and Charles

J. Frahm, Appellees.

No. 75A04-8707-CV-232.

Court of Appeals of Indiana,

Fourth District.

Oct. 27, 1988.

Rehearing Denied Dec. 2, 1988.

Gregory S. Reising, Gary, for appellant.

David C. Jensen, John M. McCrum, Eichhorn, Eichhorn & Link, Hammond, for appellees.

MILLER, Judge.

Paul S. Fardy, M.D. brought suit against Physicians Health Rehabilitation Services, Inc. and Charles J. Frahm, M.D. personally to recover unpaid wages, unreimbursed expenses, and damages constituting wages which would have accrued over the remainder of his five-year term of employment pursuant to his contract. Physicians Health countersued alleging that Fardy, as director, had breached a fiduciary duty to the corporation by appropriating corporate clients.

The trial judge entered an amended judgment, after a bench trial, in favor of Fardy and against Physicians Health for $34,285.00 ($17,500 as unpaid wages and $16,785 as unreimbursed expenses and unmitigated damages under the employment contract). On the countersuit, Fardy was found to have breached his fiduciary duty, as a director, to Physicians Health. The trial judge gave Physicians Health credit for Fardy's earnings from competing organizations in mitigation of Fardy's damages of wages under the unexpired term of his employment contract.

Fardy appeals alleging the trial court erred in 1) not awarding him treble damages and reasonable attorney's fees for the unpaid wages earned before resignation; 2) not awarding him salary constituting the remainder of the term of his employment contract; and 3) finding Frahm free from personal liability.

We agree that Fardy is entitled to treble damages and reasonable attorney fees pursuant to statute for unpaid wages earned before his resignation. We reverse and remand to that extent. We affirm in all other respects.

ISSUES

I. Whether Fardy is entitled to treble damages and reasonable attorney fees for unpaid wages pursuant to IND.CODE 22-2-5-1 et. seq.?

II. Whether the court erred in finding Fardy's employment contract damages mitigated?

III. Whether Dr. Frahm is personally liable for the debts of Physicians Health?

FACTS

Drs. Fardy and Frahm entered into various agreements and formed a corporation, Physicians Health Rehabilitation Services, Inc., in May of 1984. Fardy, an expert in cardiac rehabilitation, agreed to provide professional services for salary and a 50% interest. Frahm agreed to loan Physicians Health $150,000.00 for a 50% interest and control of the board. Whether Frahm agreed to assume personal liability for corporate debts was in dispute.

Physicians Health experienced financial difficulties from the beginning and, despite additional capital injections, liabilities far exceeded assets by October 15, 1985. Physicians Health paid Fardy an amount smaller than he was entitled to throughout 1985, and failed to pay him at all in the months of September and October 1985. Fardy resigned employment with the corporation October 15, 1985. He remained executive director of Physicians Health.

In February of 1985--during his employment with Physicians Health--Fardy became employed as a consultant to another health care organization, Safety Harbor Spa of Florida. He remitted his earnings from Safety Spa to Physicians Health. After his resignation, he continued to work for Safety Spa and acquired additional cardiac rehabilitation consulting contracts. He was earning more from these competing organizations than he would have under his contract with Physicians Health by March of 1986.

Fardy brought this suit seeking the unpaid wages earned plus statutory penalties, unreimbursed expenses, and the balance of his salary under the five year contract.

DECISION

I. Whether Fardy is entitled to treble damages and reasonable attorney fees for his unpaid wages?

Fardy asserts that he is entitled to an award three times the wrongfully withheld wages plus reasonable attorney fees pursuant to IND.CODE 22-2-5-1 et seq. The relevant statutes read as follows:

IND.CODE 22-2-5-1

"Every person, firm, corporation or association, their trustees, lessee or receivers appointed by any court whatsoever doing business in the state shall pay each employee thereof at least semi-monthly or bi-weekly, if requested, the amount due such employee and such payment shall be made in the lawful money of the United States or by negotiable check, draft or money order and any contract to the contrary shall be void. Such payment shall be made for all wages earned to a date not more than ten (10) days prior to the date of such payment: Provided, That nothing herein shall be taken to prevent payments being made at shorter intervals than herein specified nor to repeal any law providing for such payments: Provided, however, That should any employee voluntarily leave his employment, either permanently or temporarily, such employer shall not be required to pay such employee any amount due such employee until the next usual and regular day for payment of wages, as established by such employer: Provided, further, That in the event such employee leaves his employment voluntarily, and without his whereabouts or address being known to such employer, such employer shall not be subject to the provisions of IC 1971, 22-2-5-2 of this chapter, unless and until ten (10) days have elapsed, after such employee has made a demand for such wages due him, or has furnished such employer with his address, where such wages may be sent or forwarded to him."

IND.CODE 22-2-5-2 (Supp.1988)

"Every such person, firm, corporation or association who shall fail to make payments of wages to pay such employee as provided in section 1 of this chapter shall, as liquidated damages for such failure, pay to such employee for each day that the amount due him remains unpaid ten percent (10%) of the amount due to him in addition thereto, not exceeding double the amount of wages due, and said damages may be recovered in any court having jurisdiction of a suit to recover the amount due to such employee, and to any suit so brought to recover said wages or the liquidated damages for nonpayment thereof, or both, the court shall tax and assess costs in said cause a reasonable fee for the plaintiff's attorney or attorneys."

I.C. 22-2-5-1 et seq. is a penal statute which, being in derogation of the common law, must be strictly construed. A close examination makes clear that it is concerned with the time of payment of wages. Its thrust is to create a statutory requirement that wages be paid semi-monthly or bi-weekly if so requested by the employee. The remainder of the statute sets out when an employer need pay wages due after the employee terminates his employment. Thus, the statute is one designed to insure the regularity and frequency of wage payments. Wilson v. Montgomery Ward & Co. (D.C.Ind.1985), 610 F.Supp. 1035.

After reviewing Indiana authority, we have determined that section 1 promulgates three distinct regulations, the violation of any of which will trigger the punitive sanctions of section 2. The three regulations are as follows:

1. Employee's wages must be paid in money; Vansickle v. Ferguson (1889), 122 Ind. 450, 23 N.E. 858;

2. If requested, employers must pay employees semi-monthly or bi-weekly; Standard Liquors v. Narcowich (1951), 121 Ind.App. 600, 99 N.E.2d 268;

3. Employees, upon separation from employment, must be paid the amount due them at their next and usual payday. (unless their whereabouts are unknown); Baesler's Super-Valu v. Indiana Com'r of Labor ex rel. Bender (1986), Ind.App., 500 N.E.2d 243.

The facts of the case at bar appear to be quite similar to those in Baesler's where the employee made a demand for unpaid, accrued vacation benefits upon separation from her employer. We affirmed an award of treble damages plus attorney fees holding a demand for wages was not a requisite of the third regulation.

"Baesler's is, in essence, asking us to extend the strict requirements for a demand beyond the timing of payment to the situation where an employee voluntarily leaves employment and seeks unpaid accrued wages, governed by the latter portion of I.C. 22-2-5-1. This we decline to do. The legislature chose not to require a demand for payment upon voluntary termination, explicitly providing that payment not be due until the next usual and regular day for payment of wages." Id. at 500 N.E.2d 248.

In Baesler's, we noted the penalty provision, I.C. 22-2-5-2, was ambiguous with respect to whether it authorized double or treble damages. We refused to address this question because it had not been properly briefed. We did, however, state we would have had difficulty concluding treble damages were contrary to law observing:

"that the Indiana Supreme Court, considering the constitutionality of a statute containing the clause 'not exceeding double the amount of wages due', approved an award of a penalty of twice the amount of wages claimed, in addition to the award of unpaid wages. In that case, the court concluded that the statute was reasonable in that the amount of damages constituting exemplary damages allowed to be assessed could not exceed double the amount of wages due the employee, and thus, such an award of exemplary damages was neither excessive nor oppressive. See Seelyville Coal & Mining v. McGlosson (1906), 166 Ind. 561, 77 N.E. 1044, 1047." Id. 500 N.E.2d at 249.

We interpret I.C. 22-2-5-2 (Supp.1988) to authorize a maximum penalty equal to double the unpaid wages to be awarded in addition thereto the unpaid wages amounting to a total award of three times the wages due. ¹ If the wages remain unpaid twenty days after the usual payday, treble damages attach. [20 (days) X 10% = 2 (penalty) ] [2 (penalty) in addition to 1 (wages due) = 3 (treble damages) ]

In the case at bar, the judge found the statute had not been violated...