California Employees Entitled to Prompt Payment after Termination

In a recent opinion issued by the California Supreme Court, the question regarding when an employee’s final pay and leave benefits are legally required to be paid was resolved. This case was peculiar because the state was the employer being sued, but the holding is applicable to anyone doing business in California. Its holding may serve as a guide to help prevent other employers from running into similar, expensive legal actions.

If you have business ties to California, it probably comes as no surprise that there are a myriad of laws, rules, and regulations that govern business operations. California is renowned as one of the most progressive and worker friendly states in the union, as well as being a beautiful and desirable place to live. Accordingly, it attracts worldwide talent and business expertise. If California were a country, its economy would rank as the 6th largest in the world.

For those companies doing business in California, however, keeping up with all the legal aspects can be daunting. Even the state itself can break the rules as an employer and face large financial consequences as a result. These consequences are readily apparent in the labor lawsuit resolving the legal question of “prompt payment” that was litigated in its highest state court.

The case involved a state employee that was entering into retirement. She had worked for California’s Department of Justice and was owed wages for her final days of work, as well as unused leave and vacation time. The statutory rules are very strict regarding when and how a company should pay due sums of money to employees upon termination of employment. As a result, the court’s interpretation of statutory law determined the outcome of this case.

Under California’s Labor Code, an employer is required to pay final wages to a terminated employee within 72 hours. If the company fails to comply with this rule, especially if it is willfully withholding the money, then it can face stiff penalties. For example, a terminated employee may be entitled to an extra 30 days of wages if he or she is not paid on time. While this penalty is harsh on its own, it gets even worse if delayed payments turn into a system-wide problem.

Staying up to date on California’s labor laws will help ensure your company is in compliance with California employment and business laws. One result of non-compliance with issuing final checks could be a class action lawsuit. Such lawsuits take away resources that could otherwise be reinvested in the company.

This legal scenario is exactly what happened to the state of California. The woman’s individual claim was for a small amount of money. Once it became a class action lawsuit, however, California was required to defend against owing millions of dollars in fees and penalties. Few companies can afford to withstand such losses without real and devastating consequences.

The success of your company lies in proactive business planning and review. At Royse Law Firm, our labor and employment law group will sit down with you and help you understand what steps your company can take to avoid and resolve legal disputes like those at issue in this case. We look forward to hearing from you and working together to create a successful future for your business.

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Allison Kroeker

Allison Kroeker joined the firm after receiving her LL.M. in Taxation. Her areas of focus within the tax practice include business structure planning, corporate transactions, deferred compensation, and income tax compliance. She also writes many of Royse Law Firm’s articles on tax procedure and policy.
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