California Labor Laws on Termination Pay

By Jeffrey Nichols

California labor laws protect certain rights for workers who lose their jobs. Specifically, workers must receive payment in a timely manner for all hours they have worked since the previous payday. State laws are less authoritative on the subject of severance pay, meaning employers do not have to give workers a bonus to ease the burden of losing a job.

Final Wages

California's labor code states that employees who lose their jobs must receive all wages they have earned since the previous payday, and must receive them at the time and place of termination. If the employee leaves the job without giving notice, the employer must pay final wages within 72 hours. In that instance, the employee may ask to receive final payment through the mail. The state considers the date of mailing to be the date of payment.

Vacation Pay

The final paycheck must include pay for any vacation time the employee has accrued but has not used. The state's laws regarding vacation pay are more favorable to employees than the laws in many other states because in California, employers that offer vacation pay must treat accrued vacation time as earned wages. Employers do not have to make payments for any unused sick leave.

Penalty

On behalf of the employee, California's labor department may penalize an employer who willfully withholds final payment. The potential penalty is steep: "continuing wages" up to a maximum of 30 days. The state calculates the exact penalty by multiplying the employee's daily wage rate by the number of days, up to 30, that the payment is overdue. The employer may avoid the penalty under the law by proving that there was a "good-faith" dispute over whether it owed wages. If only some of the wages are in dispute, the employer must pay the rest on time or risk negating the good-faith defense pertaining to the disputed wages.

Severance

Severance packages may include bonus payments based on how much time the employee has worked for the business, payments for unused sick leave, stock options and benefits such as continuing health coverage. California law leaves the issue of severance pay to the employer's discretion. If company policy dictates providing severance pay, the employer must do so for all employees who qualify according to the policy. Employees who do not receive severance pay to which they are entitled should contact the federal Employee Benefits Security Administration for assistance.