Employment Law Alert: Employers Subject to Penalties for Untimely Payment of Final Wages to Employees Who Retire

In McLean v. State of California (No. C074515, filed 8/19/14), the California Court of Appeal for the Third Appellate District held that the waiting time penalties of Labor Code section 203 for failure to comply with prompt payment requirements apply to employees who retire. Under section 203, if an employer willfully fails to pay any wages of an employee who is discharged or quits, a penalty is assessed against the employer. The penalty is measured at the employee’s daily rate of pay and is calculated by multiplying the daily wage by the number of days that the employee was not paid, up to a maximum of 30 days. If an employee is discharged, he or she is entitled to immediate payment of earned and unpaid wages. If an employee quits, he or she is entitled to a final paycheck within 72 hours. The court found that there is no distinction between an employee who “quits” and one who “retires.”

The plaintiff in McLean was a retired deputy attorney general who alleged that she did not receive her final wages on her last day of employment or within 72 hours of that date, as required by Labor Code section 202. Defendants filed a demurrer to her complaint on the ground that plaintiff retired, rather than quit, so she had not stated a claim for violation of section 202 or a claim for penalties under section 203.

The McLean court rejected this distinction, finding that the requirements of sections 202 and 203 apply to employees who quit, in addition to those who retire. The court found that there was nothing in the legislative history of the statutes to indicate that by using the word “quit,” the Legislature intended to exclude employees who retire. Further, the court concluded that use of the separate terms “quits, retires, or disability retires” in the statute was simply intended to list types of separation, rather than three entirely distinct occurrences. The court also rejected the defendants’ argument that the two terms are distinguishable in the civil service context: “Nothing in the language of either statute permits an interpretation where the word ‘quits’ has one meaning for the state employer and its employees, and another meaning where the employers and employees are in the private sector.”

The decision in McLean is hardly surprising. Public policy in California has long favored full and prompt payment of wages due an employee. McLean nonetheless serves as a reminder to employers to audit and adhere to their final pay practices to ensure compliance with California law.

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August 21, 2014