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Texas Supreme Court Bars Wage Lawsuit after Pay Day Law Claim is Decided by Texas Workforce Commission

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Labor and Employment Update

May 19, 2008

In a 5-4 decision on a matter of first impression, the Texas Supreme Court has ruled that when an employee's claim under the Texas Payday Act for unpaid wages is denied by the Texas Workforce Commission (TWC), the employee cannot get “another bite at the apple” by filing a breach of contract lawsuit in state court based on the same claim.

In Igal v. Brightstar Information Technology Group,Inc. No. 04-0931 (May 2, 2008), Saleh Igal (Igal) initially filed a claim with the TWC for $285,000 in unpaid wages, bonus pay and other benefits. Igal alleged that he was fired without cause in violation of his employment agreement with Brightstar and its predecessor, BRBA, Inc. and was therefore owed wages under the terms of his employment agreement. The TWC determined that it lacked jurisdiction over Igal's claim because he failed to file a wage claim within 180 days from the date the wages allegedly were due for payment. Nevertheless, the TWC also ruled on the merits of Igal's claim. The TWC found that, rather than breaching the employment agreement, as Igal claimed, the employer had simply – and lawfully –refused to renew his employment agreement when it expired, and therefore it did not owe Igal any additional money.

After the TWC dismissed Igal's claim, he had the option to seek, within 14 days, a rehearing of the decision by the TWC, or judicial review of the decision in state court within 30 days. Igal did neither. Instead, Igal waited five months before suing Brightstar and BRBA in Texas state court for breach of contract. The trial court granted summary judgment for Brightstar and BRBA, holding that although Igal’s breach of contract claim was not time-barred (such claims have a four-year statute of limitations), a final decision had already been issued on the identical claim by the TWC. The court found that the doctrine of res judicata, which prohibits relitigation of the same claim, barred Igal’s lawsuit. After the Court of Appeals subsequently affirmed the trial court’s decision, Igal asked the Texas Supreme Court to review his case.

In a May 2, 2008 decision, the Texas Supreme Court agreed on the dismissal of Igal's claim. While acknowledging that the

Texas Payday Act was intended to provide employees with a less-costly and more user-friendly administrative alternative to a lawsuit, the Supreme Court held that once an employee chooses that path and the TWC issues a final decision, the administrative route becomes the employee’s exclusive remedy. At that point, the employee must either ask the TWC for rehearing or seek judicial review of the TWC's decision. The employee does not have the option of initiating a lawsuit for the identical claim under another legal principle, such as breach of contract, rather than under the Texas Payday Act.

One of the more controversial issues the Court faced was Igal’s argument that the TWC decision was not final because the agency explicitly determined that it lacked “jurisdiction” over the case. If the claim was untimely, Igal argued, then the TWC did not have the authority to decide the merits of the case. First, the Court held that, notwithstanding the TWC’s “unfortunate” use of “jurisdiction” terminology, the timeliness of Igal’s claim was simply a procedural matter which did not affect the TWC’s jurisdiction over the substance of Igal’s claim. Next, the Court concluded that, notwithstanding its language, the TWC had indeed decided the merits of Igal’s claim. Thus, the doctrine of res judicata applied. Dismissing Igal’s appeal, the Supreme Court explained that “a party may not initially elect one remedy and then choose the other remedy when dissatisfied with the first result.”

Bottom Line

There are both good-news and bad-news consequences flowing from this decision. On the positive side for employers, the Supreme Court made clear that a TWC decision on the merits of Pay Day Act claims bars further litigation for the alleged unpaid wages. Moreover, the Court showed an inclination to liberally construe when a TWC decision is “on the merits.” Thus, employers should now have an easier time preventing an employee from getting “two bites at the apple" before the TWC and in the courts.

On the negative side, attorneys representing employees may be concerned about the Supreme Court’s apparent willingness to bar a lawsuit following a TWC decision and encourage their employee-clients to forgo a TWC administrative claim and file a lawsuit instead. As a result, employers may face more lawsuits over alleged unpaid wages.

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