Ninth Circuit Interprets When Furlough or Temporary Layoff is a Discharge
A recent Ninth Circuit decision imposes new obligations on California employers that furlough or temporarily lay off workers without giving them a specified return-to-work date within the same pay period. In short, the Ninth Circuit held that a furlough or temporary layoff without a specified return-to-work date within the same pay period constitutes a “discharge” under California law, activating the employer’s duty to immediately pay all wages earned, including vested vacation time. This ruling is meaningful given that California employers are liable for waiting time penalties if they willfully fail to pay all wages due immediately upon discharge. Hartstein v. Hyatt Corporation, --- F.4th ---- (9th Cir. 2023).
Background
The case arose from Hyatt Corporation’s decision to temporarily lay off employees in March 2020 due to the slowdown in business caused by the pandemic. The company did not give employees a return-to-work date, but indicated its hope that they would be able to return in eight to 12 weeks. Hyatt continued to pay health benefits during April and May, but then informed employees in June that their employment would be terminated and they would be paid all unused accrued and earned vacation.
One of the employees filed a class and Private Attorneys General Act representative action contending that the employees should have received final paychecks, including vested vacation, at the time of the initial temporary layoff in March 2020. Hyatt argued that it was not required to issue final paychecks until June 2020, because before that, the employment relationship had not been entirely severed. The trial court granted summary judgment for Hyatt, but the Ninth Circuit reversed.
The Ninth Circuit’s Decision
The case turned on whether the Hyatt employees were discharged in March 2020 or June 2020, given the Labor Code’s requirement that all wages (including accrued vacation) are payable immediately upon discharge. The Labor Code does not define “discharge” and no appellate court decision has interpreted the word, but the California Division of Labor Standards Enforcement (DLSE) has opined (both in a 1996 Opinion Letter and in its Policies and Interpretations Manual) that if an employee is laid off without a specific return date within the normal pay period, the employer must issue a final paycheck (including all vested vacation pay) immediately.
The Ninth Circuit adopted the DLSE’s rationale, holding that because Hyatt’s employees were furloughed in March 2020 without a specific return date within the same pay period, they should have been given final paychecks. The Ninth Circuit remanded the case to the trial court to determine whether the failure to issue final paychecks in March 2020 was “willful” and thus, whether Hyatt must pay waiting time penalties.
Key Takeaways for California Employers
This decision directly impacts California employers who may need to have open-ended furloughs or shutdowns. Going forward, California employers who furlough or temporarily lay off employees without a specific return-to-work date within the same pay period should issue “final” paychecks immediately upon the furlough or temporary layoff, including each employee’s vested and unused vacation or PTO.
This decision may also impact California employers who have holiday shutdowns or other “blackout” periods. There is a 1993 DLSE opinion letter stating that shutdowns do not trigger final pay obligations so long as they do not exceed ten days and there is a definite date given for return to work. The Ninth Circuit’s deference to the DLSE’s 1996 Opinion Letter on this topic of what amounts to a “discharge” for purposes of triggering final pay obligations suggests that it and California courts would give similar deference to the DLSE’s 1993 opinion letter on this same topic. Thus, California employers would be prudent to limit shutdowns or blackout periods to no more than 10 days and provide a definite return-to-work date. Longer shutdowns or failure to provide a definite return-to-work date will likely trigger final pay obligations in light of this new Ninth Circuit decision.
