Labor Code section 201(a) requires that employers pay final wages "immediately" upon termination of an employee. Labor Code section 203 imposes a "waiting time" penalty that continues the unpaid wages for up to 30 days while they remain unpaid.
Employers – especially out-of-state employers doing business in California – sometimes enact policies that result in routine late payments of employees’ final wages. Often employers have policies where the discharged employee is paid during the next regular payday, or the final paycheck is issued by mail from a payroll location, meaning that the final paycheck may not be received until days or weeks after termination.
These frequent late payments may not result in a very large late penalty for any single employee, but the cumulative liability across an entire work force can be substantial. These late-payment policies often result in class action lawsuits, which can cost large companies hundreds of thousands of dollars.
Recently, in Pineda v. Bank America, the California Supreme Court gave a boost to such class actions by holding that late penalties under Section 203 can be collected for up to three years after the underlying final wages were paid. Prior case law applied only a one-year statute of limitations. Pineda triples the exposure of employers.
In light of Pineda, employers should give their procedures for generating final paychecks a second look. Make sure that employees are given their final paychecks immediately to avoid problems down the road.
