On March 10, 2023, financial markets were rocked by uncertainty over the future of certain significant financial institutions.  Among other concerns, bank failures raise the prospect of temporary or long-term cash flow problems for account holders, as deposits totaling more than $250,000 exceed the amount covered by the Federal Deposit Insurance Corporation.  Often, companies’ largest financial commitments are their payroll obligations to employees, including their tax withholding obligations to applicable government authorities.  Therefore, in these tumultuous times, some employers may find themselves contemplating whether to delay payroll payments.  In such case, they should proceed with extreme caution.

California law requires that employers pay employees their wages within designated time periods, both during employment and upon termination.  See Cal. Lab. Code §§ 201-202 (termination), 204 (during employment).  As to current employees, pursuant to Labor Code section 204 (“Section 204”), paydays must be designated in advance and occur within specific time parameters—both as to exempt and non-exempt employees.  See id. at § 204.  Failure to satisfy Section 204’s pay timing requirements can carry significant consequences:  Employees are able to recover penalties of $100 per employee for each initial violation of Section 204 and $200 plus 25% of the amount unpaid for each subsequent or willful violation per employee.  See id. at § 210(a).  As an alternative, employees can pursue claims for civil penalties on a representative basis and recover attorneys’ fees under the Labor Code Private Attorneys’ General Act (“PAGA”) for Section 204 violations.

Setting aside the potential for civil penalties and fees, employers contemplating payroll delays should consider potential criminal liability.  California Labor Code section 215 makes it a misdemeanor for “[a]ny person, or the agent, manager, superintendent or officer thereof” to fail to pay wages in accordance with Section 204.  And, on top of wage and hour liability, delays in payroll also may impact required contributions to company and union benefit plans.

Employers facing cash flow concerns stemming from a bank collapse and/or related market conditions should consult with seasoned counsel regarding how to navigate this situation.