California law has specific requirements regarding the payment of final wages to terminated employees. The failure to comply with those requirements can require an employer to pay an individual up to 30 days of pay – known as “waiting time” penalties. As “waiting time” claims are often pursued in the context of class actions, where plaintiffs seek up to 30 days of pay for each former employee, it is critical that employers understand when final wages must be paid. And that deadline is different depending up whether the company has terminated the employment or the employee has quit.

Timing of Payment

Subject to a few limited exceptions, including employees covered by collective bargaining agreements providing for different time limits and employees in certain industries, California Labor Code section 201 requires an employer that discharges an employee to pay the employee’s final wages immediately, meaning at the time of termination. This includes not only involuntary terminations, but also an employee’s release at the end of a specified duration or project-based job assignment. However, different circumstances apply to an employee of a temporary service company upon completion of an assignment at the company’s client.

For employees who quit, final wages are due within 72 hours of resignation, or on the employee’s final day of employment if the employee gives more than 72-hours’ notice. Employees who quit without providing at least 72-hours’ notice may be provided their final wages by mail if they request and designate a mailing address. For the purposes of this requirement, the date of mailing constitutes the date of payment.

Method and Place of Payment

California Labor Code section 208 mandates that a discharged employee must be paid “at the place of discharge.”  It also mandates that a resigning employee must be paid “at the office or agency of the employer in the county where the employee has been performing labor.”

In terms of the method of payment, if an employee has authorized the employer to use direct deposit, the final payment may be paid by direct deposit. Otherwise, generally, the payment must be delivered to the departing employee in the time specified. At least one court has found that an employee was not “paid” by his employer when the employer when his final paycheck was allegedly intercepted. Accordingly, it makes sense to take measures to ensure that employees actually receive their final paychecks in the statutorily required period.

What Must Be Included

In addition to wages, any accrued vacation must also be paid to the employee within the time specified above.

Additionally, if an employment agreement provides for unconditional severance pay, there is an argument that those severance payments are “wages” and must also be paid in the statutorily required time.

Penalties

Under California Labor Code section 203, an employee may receive “waiting time” penalties of up to 30 days’ wages for violations of Labor Code sections 201–202. Under that section of the Labor Code, if an employer “willfully fails to pay, without abatement or reduction,” the wages of any departing employee in accordance with the law, the wages of that employee continue as a penalty up to 30 days at the employee’s daily rate of pay.

For example, an employee who had been working 8 hours per day at $20 per hour could be entitled to up to $4,800 in waiting time penalties. (8 hours per day x $20 per hour x 30 days = $4,800.) An employee may be entitled to as many days of waiting time penalties as the final wages were actually delayed.  IIf, for instance,  an employee’s final pay was two days late, the employee could receive two days of waiting time penalties.

Penalties may be assessed for two types of failure to pay wages at the end of employment. There is the “stand-alone” type, where an employer pays all wages due at the end of employment but does not do so in a timely manner. That timing is addressed above.

Then there is a “derivative” type of violation, where the plaintiffs’ bar has advanced the theory that if an employee was not paid all wages due during employment (e.g., because the employee claims unpaid overtime), and the final wages paid still did not include prior unpaid amounts, then the payment of final wages at the end of employment was not sufficient and there are still owed but unpaid wages. And because there would still be owed wages, waiting time penalties would accrue. However, some courts, including the California Court of Appeal in September of this year, have found that a failure to pay meal or rest period premiums are not grounds for a derivative claim for waiting time penalties. (See Naranjo v. Spectrum Security Services, Inc. (Sept. 26, 2019, B256232) ___ Cal.App.5th ___ [2019 Cal.App.LEXIS 928], and our blog post here.)  Because waiting time claims are often predicated on other alleged wage-hour violations, including meal and rest period violations, this at least narrows the types of claims that plaintiffs may bring and may help plaintiffs agree to more reasonable settlements.

Putting It Together

Because “waiting time” penalties can be significant, it is important to ensure that employees are timely paid their final wages. Employers should put proper policies and procedures in place, including ensuring that paychecks are prepared and ready to be provided to employees on their last day of employment if they are being terminated.