§ 1204.Priority of Claims When Assignment Made For Benefit of Creditors Or Assignor

Title 4. Of the Enforcement of Liens · Chapter 3. Certain Liens and Priorities for Salaries, Wages and Consumer Debts · Last amended 2000 · Last verified July 29, 2026

In one sentenceSection 1204 gives unpaid wage, salary, commission, and employee-benefit-plan claims priority over other creditors when a business makes an assignment for the benefit of creditors or enters insolvency or receivership, capping the wage priority at $4,300 per person for amounts earned in the 90 days before the triggering event.

Full Text of § 1204

Text sizeJump to: (a) (b) (c) (d)

When any assignment, whether voluntary or involuntary, and whether formal or informal, is made for the benefit of creditors of the assignor, or results from any proceeding in insolvency or receivership commenced against him or her, or when any property is turned over to the creditors of a person, firm, association or corporation, or to a receiver or trustee for the benefit of creditors, the following claims have priority in the following order:

(a) Allowed unsecured claims, but only to the extent of four thousand three hundred dollars ($4,300) for each individual or corporation, as the case may be, earned within 90 days before the date of the making of such assignment or the taking over of the property or the commencement of the court proceeding or the date of the cessation of the debtor's business, whichever occurs first, for either of the following:

(1) Wages, salaries, or commissions, including vacation, severance and sick leave pay earned by an individual.

(2) Sales commissions earned by an individual, or by a corporation with only one employee, acting as an independent contractor in the sale of goods or services of the debtor in the ordinary course of the debtor's business if, and only if, during the 12 months preceding the date of the making of the assignment or the taking over of the property or the commencement of the proceeding or the date of the cessation of the debtor's business, whichever occurs first, at least 75 percent of the amount that the individual or corporation earned by acting as an independent contractor in the sale of goods or services was earned from the debtor.

(b) Allowed unsecured claims for contributions to employee benefit plans arising from services rendered within 180 days before the date of the making of the assignment or the taking over of the property or the commencement of the court proceeding or the date of the cessation of the debtor's business, whichever occurs first; but only for each employee benefit plan, to the extent of the number of employees covered by the plan multiplied by four thousand three hundred dollars ($4,300), less the aggregate amount paid to the employees under subdivision (a), plus the aggregate amount paid by the estate on behalf of the employees to any other employee benefit plan.

(c) The above claims shall be paid by the trustee, assignee or receiver before the claim of any other creditor of the assignor, insolvent, or debtor whose property is so turned over, and shall be paid as soon as the money with which to pay same becomes available. If there is insufficient money to pay all the labor claims in full, the money available shall be distributed among the claimants in proportion to the amount of their respective claims. The trustee, receiver or assignee for the benefit of creditors shall have the right to require sworn claims to be presented and shall have the right to refuse to pay any such preferred claim, either in whole or in part, if he or she has reasonable cause to believe that a claim is not valid but shall pay any part thereof that is not disputed, without prejudice to the claimant's rights, as to the balance of his or her claim, and withhold sufficient money to cover the disputed portion until the claimant in question has a reasonable opportunity to establish the validity of his or her claim by court action, either in his or her own name or through an assignee.

(d) This section is binding upon all the courts of this state and in all receivership actions the court shall order the receiver to pay promptly out of the first receipts and earnings of the receivership, after paying the current operating expenses, such preferred labor claims.

End

Plain-English Summary

When a business fails and turns its property over to creditors — through a voluntary or involuntary assignment, an insolvency or receivership proceeding, or handing assets over to a trustee or receiver — this section decides who gets paid first. Employees come ahead of ordinary creditors, up to a point.

Subdivision (a) caps the priority at $4,300 per individual (or per corporation, for the narrow category of single-employee independent-contractor sales commissions it covers) for wages, salaries, commissions, vacation, severance, and sick pay earned within the 90 days before the assignment, takeover, or start of the proceeding — or before the business stopped operating, whichever happens first. A corporate independent contractor with just one employee qualifies for the sales-commission priority only if at least 75 percent of what it earned from sales commissions in the preceding twelve months came from this same debtor.

Subdivision (b) extends a parallel, capped priority to unpaid contributions owed to employee benefit plans for services within the preceding 180 days, calculated per plan based on the number of covered employees, after netting out what's already been paid under subdivision (a). Subdivision (c) requires the trustee, assignee, or receiver to pay these claims before any other creditor, pro rata if funds run short, with authority to demand sworn claims and dispute suspicious ones while still paying the undisputed portion. Subdivision (d) makes the whole scheme binding on every California court, requiring a receiver to pay these preferred labor claims promptly out of the receivership's first receipts, after covering current operating expenses.

Frequently Asked Questions

How much wage priority does an individual employee get when an employer makes an assignment for the benefit of creditors?

Up to $4,300 for wages, salaries, or commissions -- including vacation, severance, and sick leave pay -- earned within the 90 days before the assignment, takeover, or proceeding, or before the business stopped operating, whichever came first.

Does a sales commission earned by an independent contractor qualify for this priority?

Yes, whether earned by an individual or by a corporation with only one employee, if at least 75 percent of what that person or corporation earned as an independent contractor in the preceding 12 months came from the debtor.

What about contributions owed to an employee benefit plan?

Section 1204(b) gives those unsecured claims a capped priority too, for contributions tied to services within the preceding 180 days, calculated per plan and reduced by amounts already paid under subdivision (a).

What if there isn't enough money to pay every preferred labor claim in full?

The available money is distributed among the claimants in proportion to their respective claims.

Can a trustee or receiver dispute a preferred labor claim?

Yes, if there's reasonable cause to believe the claim isn't valid, though the trustee must still pay any undisputed part and hold back only the disputed portion pending the claimant's chance to prove the claim.

Amendment History

EFFECTIVE 1/1/2000. Amended July 28, 1999 (Bill Number: SB 219) (Chapter 202).

Source & verification. Section text is reproduced verbatim from the California Legislative Information. Enacted by the California Legislature. Last verified July 29, 2026. · Official source

Also known as: wage priority assignment for benefit of creditors californiapreferred wage claims california insolvency