Final Paychecks: How Employers Can Avoid Wait-Time Penalty Claims in California

Posted by Ryan Stygar | Feb 23, 2021

Last month, Attorney Ryan Stygar discussed the wave of wait-time penalty disputes triggered by the unprecedented volume of COVID-19 layoffs. His published American Bar Association article provides a comprehensive guide for law firms seeking to assist workers with California wait-time penalty claims.

His real-life litigation experience suggests that most employers simply misunderstand their obligations under California's final paycheck and wait-penalty laws. Many corporations willingly release former employee's unpaid wages when challenged by local worker's rights attorneys. Educating employers, therefore, can help companies avoid expensive delayed payment penalties and understand their withholding rights.

How to Comply with California's Wait-Time Penalty and Final Paycheck Laws

California has surprisingly simple final wage payment laws. Under California Labor Code § 201, employers must pay discharged employees their earned but unpaid wages immediately upon dismissal. Discharging employers do not have the right to mail final paychecks without employee authorization, force employees to sign releases in exchange for their wages, or send wages for payment via normal payroll procedures. These labor laws apply whether the employee was laid off or terminated for cause, and final wages must include:

  • Wages earned up until termination
  • Unused vacation time
  • Annual, sick, and holiday leave
  • Vested retirement contributes
  • Earned and calculable commission

Employers must tender at-will employees who resign with at least 72-hour notice their final paychecks at the time of official resignation. Likewise, employers must either provide or mail (upon request) employees' final paychecks within 72-hours of an unexpected resignation. Limited exceptions apply to certain commission-based, temporary, oil, event, and entertainment industry employees, but the general rule requires tendering payment within a reasonable time after calculating earnings. Complying with California's final paycheck laws means preparing for layoffs in advance or, if necessary, ensuring accurate wage calculations and compliance before officially terminating employees for cause.

When Employers May Refuse to Tender Immediate Final Payment

California Labor Code § 203 codifies the state's wait-time penalty law. It states that if employers willfully fail to tender payment per the above standards, wages continue accruing at the employee's same rate of pay for up to 30 days. For hourly workers, the daily penalty includes routine and planned overtime pay. For salaried workers, employers must divide the employee's weekly pay by the number of days worked. These penalties continue accruing until the employer tenders full payment owed, including penalties, to its former employee. Tending the employee's final paycheck and benefits without accrued penalties does not suffice.

Despite these strict final wage and penalty laws, employers may lawfully withhold payment temporarily and avoid penalties in the following cases: 

  • The employee refuses timely and lawfully tendered final pay
  • The employee deliberately avoids picking up the offered wages to maximize delayed-payment penalties
  • The requesting worker was an independent contractor or volunteer
  • There exists a good faith (honest) dispute as to the amount of final wages, penalties, and benefits owed

It's recommended employers connect with a local wage and labor lawyer with questions about these exceptions. Attorneys may recommend paying the employee the undisputed portion of his/her wages and placing the remaining balance in escrow. Likewise, law firms might help employers track down former employees and document their lawful attempts to tender payment.

Employee Options for Filing Delayed Final Payment Claims in California

Employees may challenge their employers' right to withhold final payment in one of two ways. First, they or their attorneys may formally complain to the California Division of Labor Standards Enforcement (DLSE). Many aggrieved employees elect to file DLSE complaints because penalties continue accruing during the administrative claims process. The DLSE might also address additional wage and labor violations, including minimum wage and overtime disputes, for less than the cost of litigating employment disputes.

The second option – filing civil complaints (suing) employers in court – immediately stops wait-time penalties from accruing. It also results in increased legal costs and litigation delays. Aggrieved employees generally litigate final paycheck claims in addition to more substantial employment disputes, including breach of contract, tort, and discrimination claims. In either case, employees generally have three years from the date of termination to file unpaid final wage lawsuits and DLSE claims.

Avoiding California Wait-Time Penalty Complaints

Wage and labor law attorneys do not recommend withholding, abating, or qualifying an employee's final paycheck. Doing so often results in unnecessary employment disputes, payment penalties, and wrongful termination litigation. If employers are concerned about possible litigation following mass pandemic layoffs, consider conferring with Centurion Trial Attorneys employment law counsel about the benefits of offering severance packages and the legality of anticipated paycheck withholdings.

About the Author

Ryan Stygar

Trial Attorney Ryan Stygar has earned a reputation for toughness in the legal community. A former firefighter, Ryan spent four years battling California's wildfires. During that time, he also served as a desert-rescue specialist in the Ocotillo Wells region. Ryan has a unique understanding of pe...

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