The California Supreme Court has held, in a case of first impression that the state’s final pay rules for retiring employees apply in the same manner as to employees who quit. This is an important clarification of California employment law.
Background
California has strict final pay rules when employment ends. Labor Code section 201 requires immediate payment of wages earned and unpaid at the time of discharge when an employer terminates employment. When an employee quits, section 202 provides that an employee receive her final wages within 72 hours, unless the employee has given 72 hours prior notice of her intention to quit. In that case, the employee is entitled to her wages at the time of quitting or on the last day of work. While the statute allows up to 72 hours to pay final wages when an employee quits without notice, final wages often are due sooner. When an employee gives more than 72 hours’ advance notice of her resignation, final wages are due on the last day worked.
Penalties
Violating the timing requirements can create substantial liabilities for California employers. Under section 203 of the Code, an employer who willfully delays payment of any wages of an employee who is discharged or who quits, faces penalties of one day’s wage for each day that wages remain unpaid up to 30 days. The penalties apply regardless of the amount of wages paid late, resulting in significantly disproportionate waiting time awards in some cases.
What if an Employee Retires?
The Code expressly addresses the timing of final wage payments when an employee “is discharged” or “quits,” but what if she retires?
The court’s unanimous decision in McLean v. State of California held that an employee who retires must be paid final wages the same as an employee who quits. The court rejected the employer’s argument that an employee who retires does not “quit,” and thus would not be subject to the final pay timing requirements and ineligible for waiting time penalties. Applying the ordinary meaning of the word “quits” as to stop doing something or to leave one’s employment, the court held that the term “easily encompasses withdrawal from employment for the purpose of retiring.” An employee necessarily must quit to retire, so a retirement is a form of “quit” under the law.
Retiring is a Form of Quitting
The court further explained that the “ordinary meaning” of the term “quit” is broad, encompassing “a voluntary departure from a particular employment, whatever its motivation: an employee who retires, no less than an employee who ends one job to start another, has “stopped,” “ceased,” or “left” her employment. The reason for quitting makes no difference as to when final wages must be paid.
The court held the prompt payment provisions do not turn on the nature of the employee’s post-employment plans. When an employee retires, an employer may not always know if the employee intends to retire from employment altogether, and the intentions may be unclear even to the employee herself. The court concluded its unlikely the Legislature would have intended the obligation to make prompt payment of final wages turn on matters that may be unknown or unknowable to the employer at the time the payment is due. Thus, for final wage payment purposes a quit is a quit. It doesn’t matter if the employee will retire.
Take Aways
While the case involved the State of California, private employers should pay attention to the decision as well. The same timely payment rules generally apply to the state and private employers because the Legislature extended these provisions to state employees in 2000. On a retiring employee’s election, however, the law allows the state to pay out certain unused paid leave later and still be considered timely. This is an option private employers do not enjoy. Otherwise, private employers and California state agencies face the same final pay timing rules.
Review Final Wage Payment Practices
This case presents a good opportunity for employers to review their final wage payment practices for compliance with California law. Employers should make sure that employees who retire receive their full final wages due within the timing requirements just like any other employee who resigns. As the court noted, wages include not only items such as hourly pay or salary earned through the final date of work, but also accrued and unused vacation or paid time off. Private employers must pay these amounts in a timely manner with final wages as well. Note that California’s paid sick leave law does not require employers to pay out unused sick leave.
Discharging an Employee
When discharging an employee, an employer should ensure the employee receives full final wages on the last day of employment. The only exceptions to the requirement of immediate payment of final wages are a handful of narrow exemptions for particular industries, like seasonal employment, oil drilling, motion picture production, and union employees working at live theaters or concerts.
Voluntary Resignation
Employees who resign with advance notice generally will have their final wages due on the last day, unless an employee gave less than 72 hours’ notice. When an employee quits without any advance notice, the employer gets the benefit of the full 72 hours to pay final wages. Final wages due are anything earned through the last day of employment, including accrued and unused vacation or paid time off.
Final Pay Delivery Options
An employee generally must actually receive the wages by or on the date due for a final wage payment to be timely. An employer may use direct deposit to pay final wages. If the employee has an existing and voluntary direct deposit authorization, Labor Code section 213(d) allows the employer to use direct deposit. Importantly, however, the employer still must comply with the timing requirements, which means the funds still must be available to the employee, through the employee’s account, by the date due. Such timing is not always possible through direct deposit, requiring employers to take other steps.
Employers also should be cautious about mailing an employee’s final wages. Any delay in receipt by mail, beyond the due date, can lead to waiting time penalties. In fact, the final wage payment provisions authorize payment by mail in only narrow situations. The main one is when an employee quits without providing a 72-hour advance notice. That employee may receive payment by mail, but only if the employee requests and designates a mailing address. In that situation, Labor Code section 202(a) provides that the date of the mailing shall constitute the date of payment for purposes of the requirement to provide payment within 72 hours of the notice of quitting. The Labor Code also allows employers in the motion picture production and oil drilling industries, as well as employers laying off seasonal employees in the curing, canning, or drying of any variety of perishable fruit, fish or vegetables, to mail final wage payments in at least some instances.
Given the potential risks that employers face in complying with California’s final wage payment requirements, and the potential exposure to waiting time or other penalties for not making timely or proper payments, employers may wish to consult their employment law counsel to review these matters.