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Payroll default in CA -- legal ramifications

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  • Payroll default in CA -- legal ramifications

    I'm new to this Forum so please forgive me if I inadvertently overstep any guidelines.

    I have an awkward situation and I wanted to know how to find the answers I'm looking.

    I work for a small privately owned company in Southern California with less than 10 full-time employees, of which I am one of them. Recently the company has entered cash flow problems. Our pay periods are the 1st and 15th of every month, something that is in writing and given to every employee.

    On February 15th of this year, payroll was disbursed. On February 22nd, I discovered that my payroll check had bounced. I brought to the owner's attention who said she would make good on it by Friday the 23rd. Friday, became Monday, which became Tuesday -- still no repayment. Today was the 1st -- payroll again. Payroll was not disbursed and basically the company is "officially" mum, but the actions of the company are that no one is getting paid until there's money to cover it. I am now out two paychecks. What are the California labor laws regarding payroll default? Am I technically "terminated" and eligible for unemployment insurance?

    Any feedback would be greatly appreciated.

    Thank you.

  • #2
    The basic rule for bounced payroll checks is from Cal. Labor Code 203.1:

    203.1. If an employer pays an employee in the regular course of
    employment or in accordance with Section 201, 201.5, 201.7, or 202
    any wages or fringe benefits, or both, by check, draft or voucher,
    which check, draft or voucher is subsequently refused payment because
    the employer or maker has no account with the bank, institution, or
    person on which the instrument is drawn, or has insufficient funds in
    the account upon which the instrument is drawn at the time of its
    presentation, so long as the same is presented within 30 days of
    receipt by the employee of the check, draft or voucher, those wages
    or fringe benefits, or both, shall continue as a penalty from the due
    date thereof at the same rate until paid or until an action therefor
    is commenced. However, those wages and fringe benefits shall not
    continue for more than 30 days and this penalty shall not apply if
    the employer can establish to the satisfaction of the Labor
    Commissioner or an appropriate court of law that the violation of
    this section was unintentional. This penalty also shall not apply
    in any case in which an employee recovers the service charge
    authorized by Section 1719 of the Civil Code in an action brought by
    the employee thereunder.
    In terms of being terminated, this would depend on the likelyhood of it recurring in the future. If one payroll is accidently missed, you can not go on unemployment. However, if there is a likelyhood that future payrolls will be missed, you can not be required to continue working there. You should be cautioned that this interpretation is fact specific and depends on all the issues around how likely it is that you will miss payroll and how frequently. Thus, you should consider the option carefully to make sure that your decision is sound before quiting.
    Michael Tracy

    Disclaimer: The above response is a general statement of the law and should not be relied upon as legal advice. It only assumes the facts that are stated in the message. The above response does not serve to form an attorney-client relationship.


    • #3
      Thank you very much for your response. I just wanted to know what my options are.


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