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Businesses Beware: Final paychecks are required for “retiring” employees too

Last month, the California Supreme Court handed down a decision that held that businesses must pay employees that “retire” in the same manner as prescribed by the Labor Code for employees who “quit.”  (McLean v. California, 1 Cal. 5th 615 (2016).)

Under current California law, businesses have certain obligations to provide final compensation to employees when they are discharged or resign. (Labor Code §§ 201, 202.) Willful failure to pay wages due to the employee can result “waiting time penalties” equal to the employee’s daily rate of pay for up to 30 days. (Labor Code § 203.)

In McLean, the California Supreme Court considered whether Sections 202 and 2013 of the Labor Code apply when employees retire (as opposed to resignation or discharge). The Court concluded that the word “quit” was not defined within the California Labor Code or its applicable regulations, which meant that an ordinary definition should be applied. The Court found the ordinary usage of “quit” to mean: “‘to stop doing a thing; to cease,’ and, in the employment context, ‘to leave one’s employment.'” (McLean, 1 Cal. 5th at 622.) In the context of retirement, the Court found that “the ordinary meaning of the word ‘quit’ is broad enough to encompass a voluntary departure from a particular employment, whatever its motivation.” (Id.) As a result, the Court held that “the meaning of the word ‘quit’ accords with the role section 202 plays in the statutory scheme.” (Id.)

In other words, the Court held that regardless of whether an employee resigns or retires, employers are required to pay final wages to the employee in accordance with the California Labor Code provisions and may be subject to waiting-period penalties if prompt payment is not provided by the employer. This case serves as a good reminder to businesses, both large and small, to proactively re-evaluate their compensation practices to ensure such penalties never become an costly issue down the road.

Ben Schwefel is an Associate Attorney at The Loftin Firm. For questions relating to a business, nonprofit, real estate, or estate planning matter, contact Ben at 760-814-9649.