Is an employee who “retires” statutorily entitled to immediate payment of all wages?

Posted in: Employment Law by Dowling Aaron on

Labor Code sections 202 and 203 require employers to make prompt payment of the final wages owed to employees who are discharged or “quit.” An employer that “willfully fails to pay” is subject to waiting time penalties of up to 30 days’ wages.   When an employee retires, is he or she quitting under section 203?  This question is answered in the affirmative by the California Supreme Court in the recent case of McLean v. State of California, S221554 (filed 8/18/16).

Janis S. McLean, a retired deputy attorney general, sued for herself and a class of former state employees who retired or resigned from their jobs and did not receive their final wages within the statutory time periods.  The State’s demurrer was granted, without leave, by the Sacramento County trial court because she “retired” from her job, and thus failed to state a claim that would entitle her to relief under section 203, which it determined applies only when employees “quit.”  The Court of Appeal, Third Appellate District, disagreed and reversed, finding that the statute applied to employees who “quit to retire.” The state high court granted review, and agreed with the Court of Appeal.

The Supreme Court applied the usual rules of statutory interpretation, including the liberal construction of remedial enactments, and the ordinary meaning rule where the statue gives no interpretive guidance. Simply put, quit means “to leave one’s employment.”  Acknowledging the accuracy of the State’s contention that to “retire” connotes permanent withdrawal from gainful employment while to “quit” does not, the court notes the statute is intended to protect persons whether they intend to work further or not; employees’ future motives and intentions should not matter. [As a side note, in 2010, I “retired” from state employment after 29 years on the bench.  For the past 6 years, I have been working, mostly full-time, primarily as a private neutral.  And I am not alone among State retirees who continue to be gainfully employed.]

The State additionally argues that the legislature knows when to use the term “retires” as the term is used in section 202, subdivision (c), which states a special deferred payment rule applies when an electing state employee “quits, retires, or disability retires.” The fact that “retires” is not expressly joined with “quits” in subdivision (a) would make the reference to “retires” in subdivision (c) superfluous, argues the State.   Not so, responds the high court, citing case law that declined to give effect to the canon against surplusage under similar circumstances.  Here, legislative history tends to support, rather than undermine, giving broad interpretation to the term “quit.”  To allow an employee the tax benefit of electing a deferred payment in the following tax year helps a retiree, who would be qualifying under subdivision (a) in the first place, before this “immediate payment” exception comes into play.

The McLean opinion should cause employers, not just the State, to be very precise in the prompt issuance of final pay to retirees, as included in the definition of quitting employees.  As noted by the Supreme Court in a footnote, wages include various types of employment benefits to which employees are entitled, including paid leave.  And employers should not be comforted by the notion that, so long as they do not act with some wrongful intent, they would be not be penalized.  As those attorneys who are familiar with case law concerning proof of willfulness under this statute, it is a relatively low threshold.

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