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California: Final Pay Rules Apply to Layoffs

By Business and Legal Reports, Inc.  3/16/2009
 

To the dismay of employers and employees alike, we’re hearing the word “layoff” used a whole lot these days. Legally, the term has specific meanings that come with specific employer obligations. Here we’ll review the final pay rules that apply to layoffs in California.

What Is a Layoff?

A layoff generally refers to a reduction in force or closure resulting from a lack of funds or lack of work. The term is used to differentiate a layoff from a loss of employment caused by employee misconduct or poor performance—terminations that are “for cause.” For employers, it’s important to remember that your standard termination-related wage requirements still apply to layoffs.

Layoff Pay Obligations

When an employee is terminated, the employer must under California law provide him or her with a final paycheck on the last day that the employee performs work. The final paycheck must include all earned and unpaid wages and benefits, including accrued but unused vacation/paid-time-off compensation as well as earned commissions and bonuses. Not providing the final paycheck at the time of termination automatically entitles the employee to waiting time penalties for each day the final paycheck is late, up to 30 days of pay at the employee’s regular rate.

Meal Period Premium Pay Trap

The meal period rules are confusing, and many employers are waiting with bated breath for the California Supreme Court to finally settle the matter once and for all. But, because it’s unclear how the court will rule, prudent employers should remember that meal period premium pay (the additional hour owed for missed meal periods) is a wage that needs to be paid out in the final paycheck.

Note that an employer that is later found to owe meal period premium pay to laid-off workers will also owe costly final pay waiting time penalties. If you’re unsure whether your meal period policy will hold up under whatever the Supreme Court rules, consider whether you can pay out meal period premiums to laid-off employees. Although it will be an uncomfortable expense to bear in already hard economic times, paying it now is far less expensive than fending off lawsuits later—especially because employees subject to layoffs are particularly prone to becoming disgruntled.

Exception to the Rule

It is easy to forget that these same final pay obligations apply to layoffs as well as terminations, because we tend to think of them as two different kinds of separations. The California Division of Labor Standards Enforcement has long maintained a policy that for final pay purposes, a layoff must be treated as a termination unless the employee is given a return to work date within the same pay period—in those cases, normal payroll schedules can be followed.

For example, this would apply if there is a brief interruption in production between customer orders or between projects. In all other cases, employees must be paid all wages and benefits due on the last day that work is performed. The final pay rules apply whether the layoff involves only one or a few employees, or is a mass layoff affecting many or all employees.

Contributed by BLR, Inc. Read plain-English analysis on Layoff in California.
 

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