The California Labor Code requires employers to pay employees’ final wages on the day an employee is fired (and on the day she quits if she gives more than 72 hours’ notice). The California Supreme Court recently decided that this rule applies even when the employee is hired to perform a short assignment of just one day.
Final Pay Timing Under the Labor Code
Labor Code section 201 requires employers to pay “discharged” employees “immediately.” The Legislature has provided for a number of exceptions to this rule applicable to movie production, oil drilling, seasonal workers in the curing, canning, or drying of perishable fruit, fish and vegetables, and public employers.
When an employee quits with more than 72 hours’ notice, wages are due on the last day of work under section 202. If the employee gives less than 72 hours’ notice, the wages are due within 72 hours. If the employee was employed for a fixed period of time, the final pay is due on the date of termination.
Smith v. Superior Court (L’Oreal)
When are wages due if an employee is hired for a period of just one day and the work assignment is completed? The California Supreme Court answered that question in Smith v. Superior Court (L’Oreal, Inc.). Amanza Smith spent a day working for L’Oreal as a “hair model.” Her assignment was over at the end of the day. L’Oreal paid her for the assignment about two months later.
Smith sued on behalf of herself and the general public, claiming that L’Oreal’s pay policy violated Labor Code section 201. The trial court found in favor of L’Oreal on the ground that completing a one-day work assignment was not a “discharge” or “layoff” under that section. The court of appeal refused to issue a writ of mandate, and Smith appealed to the Supreme Court.
The California Supreme Court engaged in a lengthy discussion of the history of wage payment laws, recounting the days when employers would make employees wait for weeks and travel to distant locations to collect final pay. The court then found that the completion of an agreed upon term was as much a “discharge” as any other involuntary termination of employment. Therefore, Smith’s wages were due on the day she performed the work.
Penalties Untimely Payment
The wages L’Oreal did not pay Smith on time amounted to $500.00. However, she also sought “waiting time” penalties under Labor Code section 203. Under that provision, an employee who is not paid on time may recover penalties of up to 30 days’ pay. Therefore, Smith sought $15,000 in penalties for the untimely payment of $500. The Supreme Court refused to decide whether Smith would be entitled to penalties for the untimely payment.
“Waiting time” penalties are due when a failure to pay is “willful.” However, the term “willful” means only that the employer knew the wages were due and did not pay them. It does not require “malice” or an evil motive.
The section 203 penalty is harsher than it may seem upon first reading. The 30-day maximum is calculated as one day’s wages times 30. It is not measured as the equivalent of how much money the employee earns in a given 30-day period.
Compensation Covered by Final Pay Rule
The Supreme Court in Smith was concerned with one day’s wages, which were due on the date of termination. Employers should be aware that other forms of compensation may be due on the termination date as well. Vacation pay, for example, is considered to be wages in California. Therefore, all unused and accrued vacation is due at the same time as the unpaid wages.
Things become a little more complex when bonuses and commissions are concerned. Both bonuses and commissions are considered to be wages and are indistinguishable from base salary or an hourly rate. Therefore, under the general rule, all unpaid bonuses or commissions due an employee would be payable on the termination date.
There are occasions, however, when commissions or bonuses are not due as of the termination date. For example, a commission plan may provide that commissions are not payable until a sold item is delivered, which could occur after termination of employment. Similarly, bonuses may not be payable until the Accounting Department can determine whether certain organizational objectives have been met.
Employers must be prepared to assess whether unpaid commissions or bonuses are due on the termination date. The Division of Labor Standards Enforcement, the agency responsible for administering the state’s wage and hour laws, will consider whether the bonus or commission has been “earned,” and whether the amount can be ascertained on the date of termination. If the commission or bonus is earned and can be calculated on the termination date, then it is due and payable on that day. On the other hand, if it is impossible to ascertain the amount or eligibility on the termination date, the additional earnings will not be due until they may be calculated.
Wage and hour law remains a “hot” area in employment law. Employers must endeavor to familiarize themselves with rules regarding payment due on termination. If there is a doubt regarding when wages are due, employers may wish to pay the employee on the date of termination. Failure to do so can give rise to significant penalties. As always, employers should consult with competent employment law counsel.