212 | 2024 Cal-Peculiarities ©2024 Seyfarth Shaw LLP www.seyfarth.com 7.5.2 Method and place of payment The payment of wages must be in a form redeemable in cash on demand, without discount, at an established place of business within California.132 Labor Code sections 208 and 209 require that an employer pay final wages due at the place of employment (when the employee is fired) or the employer’s offices (when the employee quits), and to make the final paychecks of striking workers available on the next regular payday. Payment by direct deposit. Employers generally may satisfy their obligation to pay wages by making direct deposits to the employee’s account in a California bank, provided that the employee has voluntarily consented to this form of wage payment during employment.133 Payment by debit card. The DLSE has opined that California employers can meet their duty to pay wages in cash or by negotiable instruments through the means of an electronic debit card, so long as the employee has agreed in writing to this method of payment and so long as the employee can use the card without fee for the first transaction in each pay period, to permit immediate free access to the entirety of the wages.134 However, employers should ensure that this option is in addition to other methods of wage payment, including traditional paper checks. 7.5.3 Payment upon termination of employment What are the “wages” that must be paid upon termination? A failure to provide an employee with a required meal or rest or recovery break entitles the employee, under Labor Code section 226.7(c), to one additional hour of pay. Does the employer’s failure to pay that extra hour give rise to a section 203 penalty for failing to pay timely termination wages? One might think the correct answer is No, in that the extra hour of pay is a remedy for a violation, not some wage earned through the employee’s labor. The Court of Appeal held as much in a 2016 decision.135 The Supreme Court upset reliance on that sensible result by granting review of the question in another case,136 but then deemed the matter moot because of a later development affecting that case.137 A 2019 Court of Appeal decision confirmed that a failure to pay meal or rest premium pay is not a failure to pay “wages” and thus does not trigger any penalty for an untimely wage payment.138 But then the California Supreme Court granted review of this decision and issued a devastating opinion in 2022, in Naranjo v. Spectrum Security Services, Inc.139 At issue in Naranjo was whether meal premium payments owed because of meal-break violations were “wages earned and unpaid at the time of discharge” under Labor Code section 201. Willful failures to pay such wages trigger statutory penalties under Labor Code section 203. The employer argued that the meal premium pay required by section 226.7(c) is a remedy for a statutory violation rather than wages earned through work. But Naranjo disagreed, reasoning that any meal-break violation has occurred because an employee had worked too long into a shift, and similarly reasoning that meal premium wages are “earned” in that they were due because of the employee’s efforts—the employee worked too long in the light of the meal-break requirements. It mattered not to the high court that its decision was deviating from existing law—established by lower California appellate decisions—that the Legislature over the years had not sought to change.140 Upon remand, the appellate court in Naranjo held that section 203 and section 226 penalties were not warranted as to the meal period claims at issue in that case, because the employer’s violation was not “willful” such that section 203 penalties were supported, and also holding that “there was a good faith dispute regarding whether premium pay constituted ‘wages’ that must be reported on wage statements.”141 On May 6, 2024, the California Supreme Court announced its decision affirming the Court of Appeal.142 It ruled that the “good faith” defense applies to claims seeking to impose penalties under California Labor Code section 226. Thus, in order to establish entitlement to penalties, an employee must show that an employer’s failure to comply with section 226(a) was both knowing and intentional.
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