Timely Final Paychecks are Still Important After Legislative Changes

by Michael C. Petersen

Spring 2002

Oregon statutes dictate when employers must give employees their final paychecks after termination of employment. Those statutes set forth the following rules:

1. When employers terminate employees or when terminations are the result of mutual agreements, employers must provide final paychecks by the end of the first business day following the date of termination.

2. When employees quit after giving at least 48 hours prior notice (excluding Saturdays, Sundays, and holidays), employers must provide final paychecks on the last day of employment. If the last day of employment is a Saturday, Sunday, or holiday, final paychecks must be given by the end of the next business day.

3. When employees fail to give prior notice, employers must provide final paychecks within five days (excluding Saturdays, Sundays, and holidays) after their last day or at the next regularly scheduled payday, whichever occurs first.

Employees may recover unpaid wages plus penalty wages and attorney fees when employers fail to follow those rules. Penalty wages accrue at the employee's regular hourly rate for eight hours per day from the date the final paycheck was due until paid up to a maximum of 30 days. For example, if an employer fails to pay an employee the final paycheck for the entire 30 day period and the employee's hourly rate is $10.00, the penalty wages for the entire 30 day period total $2,400 ($10 per hour x 8 hours per day x 30 days). Unfortunately for employers, the penalty wage provisions apply not just to a complete failure to provide a final paycheck, but also to the failure to properly pay the full amount of wages in the final paycheck. Consequently, the same amount of penalty wages would be due in the previous example if the employer improperly deducted $50.00 from a final paycheck that was otherwise provided on time.

Employers have long complained that the penalty provisions are unfair in two respects. First, they give employees incentive to stay quiet about final paycheck problems for the entire 30 day period in order to maximize penalty wages. Second, those statutes produce excessive penalties in the context of improper deductions from otherwise timely final paychecks.

In response to those complaints, the 2001 legislature changed the penalty provisions to give employees incentive to promptly bring final paycheck problems to the attention of employers. Under the new statutes, the general calculation of penalty wages remains the same (hourly rate x eight hours per day x maximum of 30 days). However, the amount of penalty wages is capped at the amount of unpaid wages, unless an employer fails to pay the full amount of those wages within 12 days after the employee sends the employer a written demand for the wages. Under the previous example in which $50.00 was improperly withheld from a final paycheck, the employee would be limited to recovering $50.00 in penalty wages, instead of $2,400, unless the employer failed to pay all unpaid wages within 12 days after the employee sends the employer a written demand. The legislature also amended the attorney fee statute to eliminate the right to recover those fees when employees unreasonably fail to give written notice to employers of wage claims before filing litigation.

Although the 2001 legislative changes give employers some relief, qualifications and ambiguities exist in the new statutes. The new cap on penalty wages does not apply to employers who have willfully violated the final paycheck rules one or more times in the year before the termination of an aggrieved employee. Unfortunately, the statute does not define "willful" or "violate." It is possible that those terms refer to simple failures to accurately pay final paychecks during the preceding year. It is also possible that those terms refer to adverse judgments based on knowing violations of the final paycheck rules. Although the 2001 legislative changes generally benefit employers, given these unanswered questions and potentially stiff penalties for violations, employers should still follow the final paycheck rules.