What constitutes a written contract for a definite period, for waiting-time penalty purposes

STATE OF CALIFORNIA GRAY DAVIS, Governor

DEPARTMENT OF INDUSTRIAL RELATIONS
DIVISION OF LABOR STANDARDS ENFORCEMENT
LEGAL SECTION
455 Golden Gate Avenue, 9th Floor
San Francisco, California 94102
Telephone (415) 703-4863
Fax (415) 703-4806

MILES E. LOCKER, Chief Counsel

September 23, 1999

Jill A. Porcaro, Esq.
Epstein Becker & Green
1875 Century Park East
Suite 500
Los Angeles, CA 90067-2501

Re: What Constitutes A Written Contract "For A Definite Period" Within The Meaning Of Labor
Code Section 202 In Determining The Applicability of Section 203 Penalties

Dear Ms. Porcaro:

This is in response to your April 15, 1999, letter requesting an opinion as to whether an
employer would be subject to penalties pursuant to Labor Code Section 203 if an employee with a
written agreement to work for a definite period of one year voluntarily quits and is not paid his
or her wages within the time specified by Labor Code Section 202 following the employee's
termination. For the reasons discussed below, we do not believe the contract you describe
constitutes a contract for a definite period of employment; and thus, we believe that an employee
who voluntarily quits his or her employment under such a contract is entitled to payment of final
wages in accordance with Section 202, and would be entitled to penalties under Section 203 if the
employer willfully fails to pay final wages within the time required by Section 202.

As you correctly point out, Section 202 states in pertinent part, "If 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, ..." The plain reading of Section 202 is that
its provisions apply only to those employees who do not have a written agreement that provides
for a definite period of employment. Because Labor Code Section 203 is expressly based on a
violation of Sections 201, 201.5, 202 or 205.5, an employer cannot be subject to penalties under
Section 203 where there is a written employment agreement for a definite period of time.

However, the question you present concerns a written contract that we would not interpret as
providing "for a definite period of time." You state that the contracts at issue "contain a
provision that allows the employer or employee to terminate the contract at any time by giving
ten days written notice to the other party." No cause is necessary for such a termination with
notice, as evidenced by another contract provision that allows the employer to terminate an
employee for cause without any prior notice. The provision allowing for termination for any
reason without cause means that instead of a written contract "for a definite period", we are
instead facing a contract for an indefinite period for up to one year.

You also ask whether the final wages of an employee with a written contract for a definite
period of employment must be paid in accordance with Labor Code Section 204, and whether the
failure to pay such final wages in accordance with Section 204 would subject the employer to
penalties under Section 210. Section 204 provides for payment of wages twice each month on
designated pay days for those employees that do not fall within the scope of Sections 201, 202,
204.1 or 204.2. Since the employees you describe do not have written employment contracts for a
definite period of time, Section 202, rather than Section 204, would govern the payment of final
wages following a voluntary quit. On the other hand, an employee covered by a written contract
that truly provides for "a definite period" of employment, would not be covered by Section 202.
Instead, the timing of payments for such an employee's wages would be governed by Section 204,
and an employer's failure to comply with Section 204 would subject the employer to penalties
under Section 210. Again, this is not the situation described in your letter, notwithstanding your
characterization of the contracts at issue as "run[ning] for a definite period of one year."

It should also be noted, that if an employee is terminated, as opposed to resigning voluntarily,
Labor Code Section 201 would apply regardless of whether there is a written employment contract
for a definite period of time. Under those circumstances, failure of the employer to pay all
wages due and owing immediately upon termination would subject the employer to penalties under
Labor Code Section 203.

Thank you for your interest in California labor laws. Please feel free to contact this office
with any further questions.

Sincerely,

Miles E. Locker
Chief Counsel

MEL:bf
cc: Marcy Saunders
Rich Clark
Dan Cornet
Tom Grogan
Roger Miller
Greg Rupp
Nance Steffen
All DLSE Attorneys