While employers hope every employee hired enjoys a long, productive relationship with the employer, almost every employee ultimately leaves employment. The end of employment most commonly occurs through a voluntary resignation by the employee either with or without advance notice or by the employer terminating the employee with or without advance notice.
Employers terminate employees in many different ways – in person, by phone, text, or email – and for many different reasons. However, while the end of the employment relationship is a common occurrence and terminating an at-will employee is permitted for any reason not illegal, many employers inadvertently expose themselves to liability not for terminating an employee, but for failing to comply with California law governing how, when, and where final wages must be paid.
When Are Final Wages Due?
When an employer terminates an employee, Labor Code section 201 provides, in part: “. . . the wages earned and unpaid at the time of discharge are due and payable immediately.” Such wages include accrued vacation.
An employee, with the exception of those employed under a written employment contract for a definite period of time, who quits without giving 72 hours prior notice must be paid all of his/her wages, including accrued vacation, within 72 hours of quitting.
An employer may decide to terminate an employee unexpectedly. For example, an employee may engage in a sudden act of violence in the workplace or the employer may discover theft by the employee. An unexpected termination can lead to the employer scrambling to prepare a final paycheck on the spot, which may require calculations of the amount of final wages and is taking place at a time when tempers may be hot and the terminated employee may be eager to leave the employer’s premises. This can sometimes lead to an employer, in an effort to end an uncomfortable situation or because of the inability to prepare a check quickly, asking or allowing the employee to leave without a final check, perhaps by telling the employee the check will not be available until the end of the current payroll period.
However, as noted above, final wages are due immediately upon termination. Informing a terminated employee that he/she must wait for the end of a payroll period to receive final wages or otherwise not paying the employee’s final wages immediately may subject the employer to expensive waiting time penalties under Labor Code section 203 (discussed below).
Where Are Final Wages Required to Be Paid?
Under Labor Code section 208, the place of the final wage payment for employees who are terminated is the place of termination. The place of final wage payment for employees who quit without giving 72 hours prior notice, and who do not request that their final wages be mailed to them at a designated address, is at the office of the employer within the county in which the work was performed. Thus, there is an important difference in the obligations owed to a quitting employee compared to a terminated employee.
Employers may mistakenly believe the employer may require without penalty an employee who is terminated remotely, such as by phone or email, to come to the employer’s location to pick up the employee’s final check. However, section 208 provides, in part: “Every employee who is discharged shall be paid at the place of discharge . . . “ If the employee is, for example, at a remote worksite or at home when the employer terminates the employee (most commonly by phone, text, or email), the “place of discharge” is where the employee is at the time of discharge, not at the employer’s place of business. To avoid waiting time penalties, an employer must deliver the final paycheck to the employee where the employee is at the time of the termination.
Another trap for the unwary employer is assuming that payment of final wages may be made by direct deposit based on the employee agreeing to accept direct deposit of wages during employment by direct deposit. Labor Code section 213(d) permits wages to be paid by direct deposit upon authorization from the employee to do so. The Labor Commissioner takes the position that any authorization executed during employment by an employee for direct deposit is immediately terminated when an employee quits or is discharged, and therefore payment of final wages by direct deposit requires that the employee voluntarily agree to accept payment of final wages by direct deposit. An employer should obtain any such agreement in writing to evidence that payment of final wages by direct deposit was agreed to by the employee.
What is the Penalty for Failing to Timely Pay All Wages Due at Termination?
An employer who willfully fails to pay any wages due a terminated or quitting employee when required is subject to a waiting time penalty. Pursuant to Labor Code section 203, the waiting time penalty is an amount equal to the employee’s daily rate of pay for each day the employee’s final wages remain unpaid, up to a maximum of thirty (30) calendar days. For example, an employee who earns $25 per hour and works an eight-hour day earns $200 per day. This would result in a maximum waiting time penalty of $6,000 ($200 per day x 30 days) if final wages remain unpaid for 30 or more days.
There are, however, several exceptions to the recovery of waiting time penalties for non-payment of final wages.
Waiting time penalties are not recoverable under Section 203 where an employee “secretes or absents himself or herself to avoid payment to him or her, or . . . refuses to receive the payment when fully tendered to him or her.” An example would be an employee who knows the employer will be trying to deliver final wages to his/her home and refuses to answer the door. An employer should document unsuccessful efforts made to deliver a final check in order to preserve this defense.
An employee is also not entitled to waiting time penalties if the employer has a good faith dispute over the amount of final wages due. California Code of Regulations, Title 8, Section 13520 provides: A “good faith dispute” that any wages are due occurs when an employer presents a defense, based in law or fact which, if successful, would preclude any recovery on the part of the employee. The fact that a defense is ultimately unsuccessful will not preclude a finding that a good faith dispute did exist. However, a defense that is unsupported by any evidence, is unreasonable, or is presented in bad faith, will preclude a finding of a “good faith dispute.” Employers should be careful before assuming a good faith defense excuses the employer’s obligation to pay any final wages. Even if the employer has a good faith defense to some of the amount that would otherwise be due a terminated employee, the employer remains obligated to pay all wages due, which are not subject to the good faith dispute.
Ideally an employer is prepared for the unfortunate situation where a termination occurs unexpectedly and takes steps to ensure immediate payment of wages to a terminated employee. This can include having multiple managers knowledgeable on how to quickly prepare a manual check and also familiar with the rules for payment of final wages.
Finally, if an employer attempts, but is unable to provide a check for final wages on the day due, the employer should deliver the final wages as soon as possible and may wish to consider adding an amount identified as the appropriate number of days additional wages as a waiting time penalty to prevent the later pursuit of a waiting time penalty by the terminated employee.
