Final Paycheck Law - Melmed Law Group P.C.

I. Introduction

Under California employment law, an employer must pay an employee their earned and unpaid wages—commonly known as the final paycheck—within a specific timeline after the employment relationship ends. The timeline depends on how the relationship ends—namely, if the employer fires or lays off the employee or if the employee quits or resigns. The laws also specify where and how the employer must pay the employee’s final paycheck. Additionally, special rules apply to certain types of employees, depending on the employee’s industry.

II. Employees Who Are Fired or Laid Off

When an employer fires or lays off an employee, the employer “discharges” the employee. An employee who is discharged by an employer—regardless of the cause—is entitled to their earned and unpaid wages immediately. [1] This means the employee must receive their final pay on the same day of the termination. Even one day after the termination violates this requirement. When an employer discharges an employee, the employer must pay the employee at the place of the discharge. [2]

III. Employees Who Quit or Resign

An employee who quits their job with less than 72 hours of notice to the employer must receive their pay within 72 hours of quitting or resigning. [3] But if an employee gives an employer at least 72 hours of notice before they plan to leave, the employer must pay them at the time of quitting. [4]

A. Notice to Employer by Email

Quitting or resigning by email raises an interesting question: when does the 72 hours begin to run? (i.e., does it begin to run when the departing employee sends the email, or does it begin to run when the employer receives or reads the email?) In 2018, the California Court of Appeal found that when an employee resigned by email after the close of business on a Friday evening, the 72 hours did not begin to run at the time that the employee sent the e-mail. [5] Unfortunately, the Court did not answer the question as to whether the 72-hour clock began to run on Saturday morning (when the employer read the email) or on Monday morning (when the employer was back open for business). [6] Instead, the Court held that the clock did not start on Friday evening after the employer’s business was closed. [7] The Court reasoned that if it held that the 72-hour clock started to run on a Friday evening after the employer’s business was closed, that it may lead to future “unreasonable results...leading to mischief or absurdity.” [8]

B. Delivery of Final Paycheck

An employer is required to pay an employee who quits “at the office or agency of the employer in the county where the employee has been performing labor.” [9] In the alternative, an employee who quits or resigns may choose to receive this payment by mail and designate a mailing address. [10] If an employer mails the final paycheck, the payment is considered made on the date the employer mails the paycheck and not the date the employee receives the paycheck. [11]

IV. Final Paycheck Amount

The final paycheck must include all earned and unpaid wages at the time of the employee’s departure. [12] The amount due includes the employee’s earned—or “vested”—but unused paid vacation time. [13] The law does not require an employer to include earned but unused paid sick time in the final paycheck. [14] However, if the employment contract or employer policy provides for it, the employer must follow those terms and include the earned but unused sick time in the final paycheck.

V. No Deduction for Unreturned Employer Property

An employer may deduct legally required items such as taxes and Social Security from a final paycheck. Deductions for health insurance premiums and 401(k) contributions may also be permitted if a written agreement is in place. [15] But California law does not allow a deduction for unreturned employer property from the final paycheck. The law requires a final paycheck to be paid “without abatement or reduction.” [16] An employer may not deduct a debt owed by an employee from the employee’s final paycheck. [17] An employer may not withhold an employee’s final paycheck to recoup the employee’s training costs. [18] In short, an employer may not make the employee the insurer of its losses [19] or resort to “self-help” measures like recovering money from an employee’s final paycheck. [20] For example, if an employee doesn’t return a work computer to the employer at the time of the employment separation, the employer may not deduct the value of the work computer from the employee’s final paycheck. The employer can pursue other legal options to recover its unreturned property, such as small claims court. It may not deduct the amount from the employee’s final paycheck.

VI. Can an Employer Pay a Final Paycheck by Direct Deposit?

Many employers typically pay employees by directly depositing the employee’s pay into the employee’s bank account. California law allows for an employer to pay an employee’s wage via direct deposit as long as the employee has voluntarily authorized it. [21] Similarly, California law also allows an employer to pay an employee’s final paycheck by direct deposit, but only if the employee has specifically authorized those final wages to be paid by direct deposit. [22] The Department of Industrial Relations mandates that “[d]irect deposits of wages to an employee's bank, saving and loan, or credit union account that were previously authorized by the employee are immediately terminated when an employee quits or is discharged, and the payment of wages upon termination of employment in the manner described above shall apply unless the employee has voluntarily authorized that deposit and provided that the employer complies with the provisions of California Labor Code Section 213(d) relating to the payment of wages upon termination or quitting of employment.” [23] Therefore, when paying final wages to a departing employee by direct deposit, an employer must obtain consent again. [24]

VII. Employer Penalties for Late Final Paychecks

As described above, California law mandates strict deadlines for the final payment of wages to departing employees. To enforce these deadlines, Labor Code Section 203 prescribes a sanction (also known as a “waiting-time penalty”) for employers who willfully fail to pay the full amounts due on time. [25] Section 203 penalties for willful delays in the payment of end-of-employment wages are commonly referred to as “waiting-time penalties.” [26]

A. Penalty Amount

If an employer fails to pay a departing employee their final wages, then the employer may be liable to the employee for a penalty of up to 30 days’ pay. [27] These 30 days even include days the employee wouldn't usually work—such as weekends for an employee who only worked weekdays. [28] This law is intended to “to compel the prompt payment of earned wages” [29] and “to encourage employers to pay amounts concededly owed by [them] to [a] discharged or terminated employee without undue delay.” [30]

B. How to Calculate the 30-Days’ Pay Penalty

The computation required is the calculation of a daily wage rate, which can then be multiplied by the number of days of nonpayment, for up to 30 days. [31] In other words, an employee's rate of pay must be calculated as a daily figure, which can then be multiplied by the number of days of nonpayment for a maximum of 30 days. [32] The statute does not provide for an award of “up to one month's salary.” [33] Instead, wages continue to accrue “from the due date thereof at the same rate until paid or until an action therefor is commenced; but the wages shall not continue for more than 30 days.” [34] Therefore, unpaid wages continue to accrue on a daily basis for up to a 30-day period. [35] Penalties accrue not only on the days that the employee might have worked, but also on nonworkdays. [36] Notably, the failure to pay wages has nothing to do with the number of days an employee works during the month. If it did, a part-time employee who worked two days a month would be entitled to only two days’ penalty if they quit and the employer did not pay them wages that were owed. This inconsequential amount would not further the statute’s goal of encouraging prompt payment of wages due upon termination of employment. For example, suppose an employee earns $25.00 per hour for an average workday of 8 hours. In this case, the waiting-time penalties can be up to $200 per day and up to $6,000 for the entire 30-day period. In addition to recovering the waiting-time penalty, an employee may also be entitled to recover any attorney’s fees incurred in attempting to recover these waiting-time penalties. [37] An employee may pursue a claim against an employer for unpaid wages by filing a wage claim with the Labor Commissioner or by filing a lawsuit in civil court. [38] If an employee pursues one of these options, the employee may be entitled to recover any incurred attorneys’ fees and costs. [39]

C. Missed Meal Break and Rest Breaks

Meal and rest break premiums are also subject to California’s final paycheck rules. “[J]ust like other forms of wages, any unpaid premium pay must be paid promptly once an employee leaves the job. [40] California’s Supreme Court held that “missed-break premium pay constitutes wages for purposes of Labor Code section 203, and so waiting time penalties are available under that statute if the premium pay is not timely paid.” [41]

D. Employee’s Filing Deadline

An employee may file a wage claim or a lawsuit for these penalties at any point before the statute of limitations runs out. The statute of limitations—or filing deadline—is three years for unpaid-wage cases. [42] The three-year filing deadline applies “irrespective of whether an employee's claim for penalties is accompanied by a claim for unpaid final wages.” [43] This means that even if an employer has paid the final wages but not an associated penalty, the employee has three years to file a claim for the outstanding penalty.

E. Employer’s Possible Defenses

The penalty does not apply if the employee intentionally avoids being paid their final wages or somehow refuses payment of their final wages. [44] In other words, an employee cannot avoid receiving the final wage payment for the purpose of later pursuing waiting-time penalties from the employer. Further, for an employee to collect the waiting-time penalty, the employer must have willfully refused to pay a departing employee their final paycheck. [45] This means that the employer intentionally failed to pay the employee their final paycheck when it was due. [46] While an employer’s clerical mistake on a check amount may not be considered to be willful failure to pay final wages by a court, the employer’s failure to promptly remedy the situation may still violate its obligation to pay wages promptly. [47] For example, in a 2018 Court of Appeal case, the Court found that where an employer accidentally wrote the incorrect amount on a check that was intended to pay an employee their timely wages, the mistake did not count as a “willful” failure to pay the departing employee her final wages. [48] However, the Court also found that the employer did not correct the mistake for nine days after finding out about the mistake; therefore, nine days of waiting-time penalties were owed. [49] Further, an employer that fails to pay timely wages to a departing employee may not owe waiting-time penalties if the employer raises a good-faith dispute over whether the employee’s wages were due, and/or the amount of wages that were due at the time of the employee’s departure. [50] “There is no willful failure to pay wages if the employer and employee have a good-faith dispute as to whether and when the wages were due.” [51] “Under long established law, an employer cannot incur civil or criminal penalties for the willful nonpayment of wages when the employer reasonably and in good faith disputes that wages are due.” [52] For example, when the law is unclear or unsettled on whether certain wages may be due to the employee, an employer may have a good-faith defense against paying waiting-time penalties. In one recent case, an employer paid an employee their final wages, but deducted from those final wages a setoff to pay back a loan that the employee owed the employer. [53] At the time that the employer took the setoff, the law was not clear as to whether the employer had a right to take the setoff. [54] Because the law was not yet clear, the Court did not award the employee waiting-time penalties. [55] In order to demonstrate a good-faith dispute over the potentially owed wages, the employer must demonstrate a valid defense that would prevent an employee from recovering their final paycheck. [56] If the employer’s defense has a basis in law or in fact—meaning the employer believes something is true or that a law supports their side—it doesn’t matter if the employer’s defense is ultimately successful or not. “An employer that believes reasonably and in good faith, albeit mistakenly, that it has complied with wage statement requirements does not fail to comply with those requirements knowingly and intentionally.” [57] The employer’s defense must be supported by evidence, reasonable, and made in good faith. [58]

VIII. Industries with Specific Final Paycheck Timelines

Employers in some specific industries have slightly different timelines to provide a final paycheck to a departing employee. The method or location of final paycheck delivery may also be different.

A. Seasonal Agricultural Employees

Employers of seasonal agricultural employees may be entitled to extra time to distribute final paychecks to departing employees. [59] When an employer lays off seasonal agricultural employees as a group at the end of the season, the employer has 72 hours to provide the final paychecks. [60] If the employee requests payment by mail and provides an address, the employer must mail the final payment. [61]

B. Motion Picture Employees

Employers of employees working in the motion picture industry and hired for a project with a specified duration or on a “call” basis must provide the final paycheck by the next regular payday after the employment relationship ends. [62] The employer may mail the paycheck or make the paycheck available to the employee at a location in the county where the employee was hired or where the employee worked. [63] This applies to employees who quit, are fired or laid off, or complete the employment for the specified duration. [64] A collective bargaining agreement may specify other methods or timeframes for the final paycheck, which the employer may follow instead of the California Labor Code if the wages are paid within seven days after the payroll period closes. [65]

C. Print Shoot Employees

“A ‘print shoot employee’ is an individual hired for a period of limited duration to render services relating to or supporting a still image shoot including film or digital photography, for use in print, digital, or internet media.” [66] An employer of a print shoot employee must provide the final paycheck by the next regular payday after the termination. [67] The “‘time of termination’ is when the employment relationship ends, whether by discharge, layoff, resignation, completion of employment for a specified term, or otherwise.” [68] A collective bargaining agreement may specify other methods or timeframes for the final paycheck, which the employer may follow instead of the California Labor Code if the wages are paid within seven days after the payroll period closes. [69]

D. Oil-Drilling Employees

Employers in the oil-drilling industry that lay off or fire an employee must pay the final wages within 24 hours, excluding weekends and holidays. [70] This provides for the fact that oil-drilling operations are often far from the company’s main offices, making calculating and paying wages more time-consuming. [71] If the employer mails the final paycheck, the date of mailing is the date of payment. [72]

E. Events Employees

Events employees are employees who work at a professional baseball venue. [73] For events-based work, the end of an event or series of events—like the end of baseball season at Dodger Stadium—is not a termination or layoff, and the employer is required to pay the employee by the next regular payday. [74] In other words, an events employee is considered continuously employed unless they are fired or quit. [75] At termination, the final paycheck timeline requirements for events employees typically follow California Labor Codes §§ 201 and 202. [76] But a collective bargaining agreement may establish alternative provisions if the wages are paid within seven days after the payroll period closes. [77]

F. Live-Event Venue Employees

Live-event employees are employees who are enrolled in and routinely dispatched through a hiring hall to work at a venue that hosts live theatrical or concert events. [78] Live-event employees and their employers can establish final paycheck timelines in the collective bargaining agreement. [79]

IX. Conclusion

California law requires employers to provide a final paycheck to departing employees almost immediately, with a few exceptions discussed above. A departing employee who does not receive their final paycheck according to these legal requirements may have the right to receive waiting-time penalties from their employer.