Compensation issues in Texas for departing employees

Eric Hansum
September 29, 2009 — 2,095 views  
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In the current economy, many employees are losing their jobs from company-wide reductions in force.  While this topic is never pleasant, there are some basic paycheck rules companies should follow in Texas while navigating these issues.  These issues have arisen much more frequently with unemployment rising.

One of the first issues to consider is whether the employee is quitting or whether the employer is instead ending the employee's employment.  Under the Texas Payday Act (Chapter 61 of the Texas Labor Code), the timing of when the final paycheck is delivered depends on if the situation is a discharge by the employer, or rather, whether the employee instead leaves on his or her own.   "Employers" (there is an exclusion for governmental entities) are required to provide the final paycheck not later than six days after the date the "employee is discharged."  Unsurprisingly, the Act allows more time for the company to provide the employee's final paycheck when the employee voluntarily leaves employment.  For example, the employee that quits.  In this situation, the last paycheck should be provided "not later than the next regularly scheduled pay period."   

Based upon this law, and as applied to involuntary terminations, it typically is a good idea for the company to have the final paycheck available on the last day of employment to hand to the employee.  Any separation package the company wishes to provide can also be offered at this time.  This advanced planning helps ensure the employee actually receives the paycheck within the six days period.  It also avoids the uncomfortable situation when an employee wants to come back into the office to make a scene while obtaining the final paycheck.  As you can imagine, that is not a pleasant situation to be in for the HR Department.

Of course, the ending of employment creates another equally important issue:  does vacation, separation, or other pay need to be paid to the employee?  Frequently, this issue can be determined by referencing the company's employee handbook or other written agreements that may exist with the employee, such as an employment contract (if applicable). 

The Texas Payday Act may once again shed light on this situation.  The Act states "wages" need to be paid to an employee.  The definition of "wages" includes not only services rendered by an employee, but also "vacation pay, holiday pay, sick leave pay, parental leave pay, or severance pay owed to an employee under a written agreement with the employer or under a written policy of the employer."  Thus, the company will need to examine any applicable written agreements or policies.  From a planning perspective, if the company made any type of oral representations or promises, that may also need to be examined for potential exposure under state law claims.

Finally, the company needs to pay all wages owed under the relevant federal law, for example, the Fair Labor Standards Act.  This generally entails an examination of the minimum wage and any applicable overtime issues.

Following the above guidelines places the company on track towards compliance with the law.  And if the company is ever in doubt, it can always contact an employment lawyer in the area for further guidance.

[Eric J. Hansum is a Partner practicing in the Labor and Employment Law Section for Thompson, Coe, Cousins & Irons, L.L.P. in Austin, Texas.  He is board certified in Labor and Employment Law by the Texas Board of Legal Specialization.  He can be reached at 512-703-5076 or by email at [email protected] ].

Eric Hansum


Eric J. Hansum, Esq., is a partner in the Labor and Employment Section for Thompson, Coe, Cousins & Irons, L.L.P. Mr. Hansum's practice and experience includes employment litigation, as well as consulting in a variety of employment topics. He received a B.A. degree from Trinity University, cum laude, and is a member of Phi Beta Kappa. Additionally, he received a J.D. degree from the University of Texas School of Law and is a member of the Order of Barristers.