In response to the COVID-19 pandemic and in an effort to prevent the spread of the virus, many employers are grappling with the need to immediately shut down operations.  This raises the question whether employers must pay out all wages (including paid time off) when employees are temporarily laid off or furloughed. In California, they might.

California law requires immediate payment of final wages upon termination, including payment for accrued vacation time, pursuant to Labor Code sections 201 and 227.3. The California Division of Labor Standards Enforcement (DLSE) has previously provided guidance regarding whether the obligation to pay final wages is triggered by a “temporary layoff.”

On May 4, 1993, the DLSE issued an opinion letter stating, “The Division policy has long been that so long as a shutdown does not exceed ten days and there is a definite date given for return to work, the employee is not considered terminated.”  In that case, a company shutting down its facility for such periods of short duration “would not have an obligation to pay the employees pursuant to the provisions of Labor Code § 201.” On May 30, 1996, the DLSE expanded on this guidance, advising that “if an employee is laid off without a specific return date within the normal pay period, the wages earned to and including the layoff date are due and payable in accordance with Section 201.”

It is not clear whether the courts would follow this guidance in an ordinary situation, let alone the extraordinary situation employers find themselves in today. If the DLSE guidance is followed, employers would need to pay final wages if they cannot specify a date within the normal pay period for employees to return to work. This may not be feasible for many employers in California. For example, all nine counties in the San Francisco Bay Area were placed under a shelter-in-place directive on March 16, and ordered to stay inside their homes for the next three weeks. On March 17, Palm Springs also issued a full shelter-in-place that will remain in effect until April 2. For those employers using a typical two-week pay period, shutdowns of less than two-weeks are likely not feasible and the return to work date is out of their control.

Just one more reason California employers should consult counsel to determine their obligations if they find themselves needing to undertake temporary layoffs in this unprecedented situation.