McLean v. State

We conclude, as the Court of Appeal held, that Labor Code sections 202 and 203 (section 202 and section 203) apply when employees retire from their employment. We also conclude that McLean’s decision to name the State of California as a defendant rather than the Department of Justice is not a basis for dismissing her suit. We accordingly affirm the judgment of the Court of Appeal.

The prompt payment provisions of the Labor Code impose certain timing requirements on the payment of final wages to employees who are discharged (Lab. Code, § 201 (section 201)) and to those who quit their employment (§ 202). If an employee is discharged, “the wages earned and unpaid at the time of discharge are due and payable immediately.” (§ 201, subd. (a).) If, however, “an employee not having a written contract for a definite period quits his or her employment, his or her wages shall become due and payable not later than 72 hours thereafter, unless the employee has given 72 hours previous notice of his or her intention to quit, in which case the employee is entitled to his or her wages at the time of quitting.” (§ 202, subd. (a).) An “employer” that “willfully fails to pay” in accordance with sections 201 and 202 “any wages of an employee who is discharged or who quits” is subject to so-called waiting-time penalties of up to 30 days’ wages. (§ 203, subd. (a).)

As originally enacted, the prompt payment provisions applied only to private employers. (See Stats. 1937, ch. 90, § 220, p. 200.)^[1] In 2000, the Legislature amended the Labor Code to extend these provisions to “employees directly employed by the State of California.” (Stats. 2000, ch. 885, § 1, p. 6524.) The provisions continue to exempt “employees directly employed by any county, incorporated city, or town or other municipal corporation.” (Lab. Code, § 220, subd. (b).)

In 2002, the Legislature again amended the statute to add special rules governing the prompt payment of accrued leave to state employees upon

McLean retired from her employment in the state Department of Justice on November 16, 2010, and separated from state service on the same date.^[2] Following her retirement, she filed suit under section 203 against the State of California, which she identified as her ‘“employer,” and the State Controller’s Office, as ‘“the State agency with responsibility for timely paying wages to California State employees.” Her complaint alleged, on information and belief, that ‘“when an employee resigns or retires from their employment with the State of California, a common payroll system governed by the State Controller is responsible for disbursing any and all wages owed to that employee.”

McLean raised both individual and class claims. In support of her individual claim, McLean alleged that defendants violated section 202 by failing to pay her final wages on her last day of employment or within 72 hours after her last day; failing to deposit wages for her unused leave and vacation time to her supplemental retirement plans within 45 days of the last day of her employment, despite her request that they do so; and failing to transfer to her before February 1, 2011, wages that she had elected to defer to the 2011 tax year. In support of her class claim, McLean alleged that defendants systematically failed to make “full and prompt payment of wages as required by California Labor Code § 202” to the other members of a proposed class consisting of “employees employed by Defendant in the State of California who resigned or retired from their employment in November or December of 2010 or January, February or March of 2011.”

The Court of Appeal reversed in relevant part, holding that sections 202 and 203 apply when an employee “quits to retire.” The Court of Appeal also rejected the state’s alternative argument that the trial court had properly sustained the demurrer because McLean had erroneously sued the State of California, rather than the Department of Justice.^[3] The Court of Appeal concluded that the “State of California clearly was McLean’s employer” for purposes of the Labor Code’s prompt payment obligations, reasoning that McLean was a civil service employee, and “ ‘[t]he civil service includes every officer and employee of the State except as otherwise provided in th[e] Constitution.’ ” (Cal. Const., art. VII, § 1, subd. (a).) The court further noted that “Sections 202 and 203 apply ‘to the payment of wages of employees directly employed by the State of California,’ ’’and “subdivision (b) of section 202 refers to ‘the state employer’ and subdivision (c) of that section refers to ‘a state employee.’ ” In response to defendants’ contention that McLean lacks standing to represent employees of state agencies other than the Department of Justice, the court reiterated its conclusion that McLean’s employer is the State of California but otherwise declined to address any issue regarding McLean’s class allegations.

We granted review.

As noted, Labor Code section 202 requires prompt payment of wages to “an employee not having a written contract for a definite period [who] quits his or her employment.” (§ 202, subd. (a), italics added.) Section 203 similarly specifies that an employer is subject to waiting-time penalties if it “willfully fails to pay ... in accordance with Section[] . . . 202 . . . any wages of an employee who is discharged or who quits.” (§ 203, subd. (a), italics added.) The state contends that McLean, having retired from state

The state’s contrary argument relies heavily on the 2002 amendments to the prompt payment provisions, which added special rules concerning paying out accrued leave wages to employees separating from state service.^[4] As amended, section 202, subdivision (a) (section 202(a)) sets out a default prompt payment rule that requires prompt payment of all wages due to an employee “at the time of quitting,” while each of the new provisions, subdivisions (b) and (c), sets out an exception governing the payment of accrued leave wages to state employees. Subdivision (b) provides, as relevant here, that, “[n]otwithstanding any other provision of law, the state employer shall be deemed to have made an immediate payment of wages under this section” for, among other things, accrued leave wages “to which the employee is otherwise entitled due to a disability retirement” if the employee chooses to have the funds deposited into a retirement account in accordance with specified procedures. Similarly, subdivision (c) provides that, “[n]otwith-standing any other provision of law, ... a state employee [who] quits, retires, or disability retires from his or her employment with the state” may authorize her employer to defer paying out her accrued leave wages until the following calendar year.

The state argues that section 202, subdivision (c)’s specification that its special deferred-payment rule applies “when a state employee quits, retires, or disability retires” demonstrates that the Legislature understood that a “retirement” is not the same thing as a “quit”; otherwise the references to retirements in section 202, subdivision (c) would be superfluous. The separate references to quitting and retiring, the state contends, reflect the Legislature’s recognition that in the context of public employment, resignation, retirement, and disability retirement are different types of separation, each governed by a

The state also notes that the statute presently in force includes various provisions setting out modified prompt payment obligations for persons holding specific types of employment, including temporary workers, motion picture industry employees, oil industry workers, and agricultural employees, in which short-term employment is common or logistical concerns otherwise render infeasible immediate payment upon termination of employment. (Lab. Code, §§ 201.3, 201.5, 201.7, 205.) The state argues that these provisions demonstrate that the Legislature did not intend for sections 201, 202, and 203 to apply comprehensively to all employees whose employment is terminated. But the Legislature’s decision to enact modified prompt payment rules for employees in these industries provides no support for the state’s contention

Practical considerations reinforce our conclusion that the application of the prompt payment provisions do not turn on the nature of the employee’s post-employment plans. Although an employer may often know in advance that an employee plans to retire from employment altogether, that will not always be the case. Indeed, an employee’s intentions at the time of quitting may be unclear even to the employee herself. It is unlikely that the Legislature would have intended the obligation to make prompt payment of final wages turn on matters that may be unknown, and perhaps unknowable, to the employer at the time payment is due.

Finally, interpreting sections 202 and 203 to cover retiring employees is consistent with the purposes of the prompt payment provisions. (See Brinker, supra, 53 Cal.4th at pp. 1026-1027 [wage and hour laws enacted for the protection of workers “ ‘are to be liberally construed with an eye to promoting such protection’ ”].) As we explained in Smith, “California has long regarded the timely payment of employee wage claims as indispensable to the public welfare: ‘It has long been recognized that wages are not ordinary debts, that they may be preferred over other claims, and that, because of the economic position of the average worker and, in particular, his dependence on wages for the necessities of life for himself and his family, it is essential to the public welfare that he receive his pay when it is due.’ ” (Smith, supra, 39 Cal.4th at p. 82, quoting In re Trombley (1948) 31 Cal.2d 801 , 809-810 [ 193 P.2d 734 ]; see also Kerr’s Catering Service v. Department of Industrial Relations (1962) 57 Cal.2d 319 , 326 [ 19 Cal.Rptr. 492 , 369 P.2d 20 ] [“California courts have recognized the public policy in favor of full and prompt payment of wages due an employee.”].) Section 203 implements “this fundamental public policy regarding prompt wage payment.” (Smith, at p. 82, citing Smith v. Rae-Venter Law Group (2002) 29 Cal.4th 345 , 360 [ 127 Cal.Rptr.2d 516 , 58 P.3d 367 ].)

The statutory policy favoring prompt payment of wages applies to employees who retire, as well as those who quit for other reasons. It may be, as the

The state argues in the alternative that the trial court properly sustained the demurrer without leave to amend because McLean did not sue the proper defendant. Under section 203, the proper defendant in a suit alleging the willful failure to make prompt payment of wages is the plaintiffs “employer.” The state argues that in the context of state employment, the term “employer” refers solely to the specific department or agency for which the employee worked—in McLean’s case, the Department of Justice—and not the State of California as a whole.

We begin, as we must, by considering the text of the statute. (See, e.g., Martinez v. Combs (2010) 49 Cal.4th 35 , 51 [ 109 Cal.Rptr.3d 514 , 231 P.3d 259 ].) As the state acknowledges, its proposed interpretation of the term “employer” does not depend on any explicit statutory instruction. The Labor Code provides no generally applicable definition of the term and the prompt payment provisions contain none, whether in the context of state employment or otherwise. And it appears that no previous state or federal case has addressed the meaning of “employer” for the purposes of section 203.^[7]

The state’s argument rests primarily on inferences drawn from section 202, subdivisions (b) and (c), which refer to situations in which “the state

In the absence of explicit statutory direction, we begin from the premise that in the context of public employment, as in other contexts, an individual may have multiple employers, both direct and indirect. In this case, one might say that McLean’s employer was the Department of Justice and also that her employer was the State of California; the Department of Justice is, after all, a department of the state government. (Gov. Code, § 15000.) This much appears undisputed, and indeed, the state made clear at oral argument that it would have no objection had McLean merely named the State of California as a defendant on the pleadings.^[8] The core of the state’s objection is, rather, that McLean’s complaint—and, in particular, her class claim on behalf of all “employees employed by [the State of California]”—appears designed to draw into the dispute state departments and agencies that the state contends cannot, as a matter of law, bear responsibility for the prompt payment violations she alleges.

The judgment of the Court of Appeal is affirmed.

Cantil-Sakauye, C. L, Werdegar, L, Chin, L, Corrigan, L, Liu, L, and Cuéllar, L, concurred.