Employers who terminate an employee are faced with the clear and sometimes onerous obligation to immediately pay the employee all of their unpaid wages. Employers who fail to do so face the consequence of paying the employee the waiting time penalty for each day that the wages are not paid, in addition to the unpaid wages. (Lab. Code §§ 201, 203.) A similar obligation is triggered when an employee suddenly quits, requiring the employer to pay all wages within 72 hours. (Id.) Both employees and employers should be cognizant of the California waiting time penalty.
What does the law actually say and how is the law applied?
There are three separate laws that describe a California employer’s obligations to pay final wages and the associated waiting time penalty for employers who fail to do so.
First, the law makes clear, “if an employer discharges an employee, the wages earned and unpaid at the time of discharge are due and payable immediately.” (Lab. Code § 201.) California courts have confirmed that this law means exactly what it says; final wages must be paid on the same day of termination. Furthermore, the employer must also pay the employee all other technical forms of wages, including paid time off (“PTO”), commissions, and bonuses.
Second, “If an employee quits his or her employment, his or her wages shall become due and payable not later than 72 hours thereafter, unless the employee has given 72 hours previous notice of his or her intention to quit.” Even if an employee abruptly quits the employer must still pay the employee their final wages within three days. Courts have clarified that an employer’s 72-hour window to pay begins only after receiving actual or constructive notice of the resignation. (Nishiki v. Danko Meredith P.C. (2018) 25 Cal.App.5th 883, 890.)
Finally, Labor Code section 203 defines the waiting time penalty itself, “If an employer willfully fails to pay, any wages of an employee who is discharged or who quits, the wages of the employee shall continue as a penalty from the due date; but the wages shall not continue for more than 30 days.” This means that the waiting time penalty itself depends on the employee’s daily rate of pay.
Courts have repeatedly interpreted the term “willfully” in Labor Code section 203 to mean that the employer “intentionally failed or refused to perform an act that was required to be done,” or “that the person knows what he is doing, intends to do what he is doing, and is a free agent.” (Nishiki v. Danko Meredith, P.C. (2018) 25 Cal.App.5th 883, 891.) In other words, to obtain the penalty the employee does not need to prove that the employer intentionally sought to defraud the employee of his or her final wages. (Nishiki v. Danko Meredith, P.C. (2018) 25 Cal.App.5th 883, 891 [The word “willful” does not imply anything blameworthy, malice toward the other party, or an evil purpose to defraud employees of wages.”].)
Furthermore, Courts have confirmed that ignorance of California’s sometimes draconian labor laws is not a defense. (Diaz v. Grill Concepts Services, Inc. (2018) 23 Cal.App.5th 859, 869.) Employers cannot claim as a defense that they were unaware of the final paycheck requirement.
How is the waiting time penalty calculated?
The amount of the waiting time penalty depends on the employee’s daily rate of pay. (Lab. Code § 203.) Calculating an employee’s daily rate of pay for purposes of the statute can be somewhat confusing, especially if the employee’s wages or hours worked fluctuate from week to week, or if the employee receives occasional commission payments. The rule of thumb, however, is that the daily rate of pay is calculated in a manner that is very favorable to the employee and assures a larger than expected waiting time penalty. The maximum waiting time penalty of thirty days will always exceed what the employee actually earned in salary or wages in any given month while employed.
As an example, an employee who works five days per week and earns $80,000 per year in salary would have a daily rate of pay of $307.69 per day for a maximum waiting time penalty of $9,231, even though the employee’s average monthly salary was just $6,667.00. An article that discusses the calculation of the daily rate of pay in detail may be found here.
As the statute makes clear, there is a thirty-day cap on the waiting time penalty. The waiting time penalty stops at thirty days, once the owed wages are fully paid, or once the employee files a lawsuit. (Lab. Code. § 203.)
How do employers end up owing the waiting time penalty?
There are several common ways that employers may end up owing a waiting time penalty to their former employees.
First, employers will not infrequently require employees to wait until the next normal pay day to give the employee their final paycheck. This approach may be appealing for the many employers who have third-party payroll companies issue pay checks, however the practice immediately triggers liability for the waiting time penalty unless the normal pay day coincidentally falls on the day of termination.
Second, final wages are due regardless of the employee’s conduct or performance as an employee. The world’s worst employee must still be paid immediately upon termination or within 72 hours of their resignation.
Third, employers frequently end up being liable for a waiting time penalty if they misclassify their workers as salaried or “exempt” employees, if the employer allows off-the-clock work to occur, or if the employer fails to pay overtime to an hourly or “non-exempt” employee.
To illustrate, take the hypothetical case of Jared, a former employee of Hot Dog on a Stick. Jared is hired as a restaurant manager for Hot Dog on a Stick and is classified as a salaried or “exempt” employee earning $50,000 per year. However, Jared spends the majority of his time engaged in non-exempt duties such as frying food, squeezing lemons, and washing uniforms rather than exempt duties of hiring and managing the restaurant’s other workers. Jared also works an average of 50 hours per week.
When Jared is fired for theft of food, his employer correctly pays him his last and final paycheck on the actual day of termination, as calculated by his $50,000 salary. However, his final paycheck fails to include the many overtime hours that Jared should have paid all along given that he was an improperly classified exempt employee. His final paycheck therefore did not include all of Jared’s earned wages, triggering the waiting time penalty. Jared may sue his former employer for non-payment of overtime wages and also the associated waiting time penalty.
How may an employee collect their waiting time penalty?
Most employers do not automatically pay the associated waiting time penalty. This means that the employee must take action to collect the penalty, either on their own or with the help of an employment law attorney. An employee may negotiate directly with their former employer, file a civil lawsuit, or may file a claim with the Labor Commissioner. Before attempting to file any type of lawsuit, employees should contact a plaintiff’s employment law attorney to see if representation may be warranted. Most employment attorneys take such cases on contingency and will obtain a result that is greater than what the employee could obtain on his or her own.
Have you been recently terminated from your job? Contact the Law Office of Brian Mathias to see if you may be entitled to the California waiting time penalty.