Payment of final wages upon retirement

Are employees who retire protected by laws requiring prompt payment of final wages?

The California Supreme Court decided last month whether the laws requiring prompt payment of an employee’s final wages apply when the employee retires. In McLean v. State of California (2016) 1 Cal. 5th 615, Ms. McLean was a deputy attorney general who filed suit against the State of California on behalf of herself and a class of former state employees who, having resigned or retired, did not receive their final wages within the time periods set forth in the California Labor Code.

Following her retirement from her employment in the state Department of Justice, Ms. McLean filed suit alleging that her employer violated Labor Code section 202 by failing to timely pay her final wages; failing to timely deposit wages for her unused leave and vacation time to her supplemental retirement plans; and failing to timely transfer to her retirement wages that she had elected to defer to the following tax year.

The trial court dismissed her case at an early stage, concluding that because Ms. McLean “retired” from her job, she had not stated a claim for penalties under Labor Code section 203, which applies only when employees “quit” or are “discharged.” The Court of Appeal reversed, concluding that sections 202 and 203 apply when an employee “quits to retire.”

On appeal to the California Supreme Court, the court in McLean began with a review of the Labor Code. As originally enacted, the prompt payment laws (Labor Code sections 201 through 203) applied only to private employers. In 2000, the Legislature amended the Labor Code to extend these provisions to employees of the State of California. Municipal employees continue to not be covered. In 2002, the Legislature again amended the law to add special rules about the prompt payment of accrued leave to state employees upon termination of their employment.

The California Supreme Court noted that section 202 requires prompt payment of wages to “an employee not having a written contract for a definite period [who] quits his or her employment.” Section 203 specifies that an employer is subject to waiting-time penalties if it “willfully fails to pay…in accordance with Section[]…202…any wages of an employee who is discharged or who quits.” The court determined that the Labor Code does not define the term “quit,” and the regulations of the state agency charged with interpreting and enforcing wage and hour laws (Division of Labor Standards Enforcement) provide no relevant guidance.

Accordingly, the court in McLean considered the word’s ordinary meaning. The term “quit” was and is ordinarily used to mean “to stop doing a thing; to cease,” and, in the employment context, “to leave one’s employment.” So understood, the term easily includes withdrawal from employment for the purpose of retiring, as well as for other purposes. An employee who retires, no less than an employee who ends one job to start another, has “stopped,” “ceased,” or “left” her employment.

The California Supreme Court found that this understanding of the meaning of the word “quit” is consistent with the role section 202 plays in the Labor Code. The Legislature’s apparent purpose was to ensure that employers make prompt payment of final wages upon the termination of the employment of a person who does not have a contract for a definite period. There is no suggestion that the Legislature intended to create a category consisting of retiring employees who would be specially disqualified from seeking prompt payment of final wages.

The court in McLean also determined that practical considerations reinforced its conclusion that the application of the prompt payment provisions do not turn on the nature of the employee’s post-employment plans. An employee’s intentions at the time of quitting may be unclear to the employer or even to the employee herself. It is unlikely that the Legislature would have intended the obligation to make prompt payment of final wages turn on matters that may be unknown, and perhaps unknowable, to the employer at the time payment is due.

Finally, the California Supreme Court found that interpreting sections 202 and 203 to cover retiring employees is consistent with the purposes of the prompt payment provisions. The policy favoring prompt payment of wages applies to employees who retire, as well as those who quit for other reasons.

Posted by deanroyerlaw