McLean v. State of California, No. C074515 (August 19, 2014): In a recent decision, a California Court of Appeal held that state law requirements for payment of final wages and waiting time penalties payable to employees who quit also apply to employees who retire. The court held that a putative class of retired employees who were not timely paid their final wage under California Labor Code section 202 could proceed with their claims for waiting time penalties under Labor Code section 203.

Janis McLean worked as a deputy attorney general for the State of California until she retired in November 2010. She allegedly did not receive her final wages on the day that she retired, or within 72 hours of that date. In addition, pursuant to another portion of Labor Code section 202, McLean had elected to have her unused leave and vacation time transferred into her supplemental retirement plan. She alleged that this payment was not transferred within 45 days of her last day of employment, as required by state law.

On behalf of herself and other state employees who resigned or retired from November 2010 to March 2011, McLean sued the state for failure to issue prompt payment of wages under Labor Code section 202, and sought waiting time penalties under section 203. Under section 202 if an employee quits his or her job, the employer must pay the employee’s final wages within 72 hours, or immediately at the time of separation, if the employee has given at least 72 hours’ notice that he or she will quit. Employers that willfully fail to comply with these requirements are subject to waiting time penalties under section 203.

The state argued that McLean failed to state a cause of action, and contended that Labor Code section 202 does not apply to employees who retire. The trial court agreed, and issued a judgment in favor of the state. McLean appealed.

The California Court of Appeal first examined the plain language of Labor Code section 202 but found that it did not directly address whether the statute applies to employees who quit in order to retire. The court then looked for the legislature’s intent and found nothing in the legislative history to indicate that employees who retire should be excluded from this provision of the statute. The Court of Appeal reversed the trial court, finding that final wages of employees who retire are not excluded from the requirements of section 202 or penalties under section 203. 

According to Dawn Knepper, a shareholder in the Orange County office of Ogletree Deakins: “Unfortunately for the State of California, this could end up being an expensive employment lesson on California's final pay requirements. Since this is a ruling on a demurrer (equivalent to a motion to dismiss), we will have to see how it plays out at trial. Labor Code section 202 is to be liberally construed in favor of protecting employees when it comes to payment of wages. Thus, for both employees in the private and public sector, an employee who ‘retires’ falls into the category of one who ‘quits.’”

Knepper continued, “As a result, all employers should ensure that all employees who quit or retire are promptly paid within the applicable time period. Otherwise, the employee can make the departure even more costly with a claim for additional waiting time penalties, costs, and attorneys’ fees.”