How to close a restaurant in Los Angeles involves California state law, Los Angeles County health department requirements, and city of Los Angeles business tax obligations. California has some of the most employee-protective labor laws in the country, and the California WARN Act is significantly more demanding than the federal version. Here is what Los Angeles restaurant owners need to know.
Final Paycheck Requirements in California
California has the strictest final paycheck laws in the country. Employees who are discharged must receive their final paycheck immediately at the time of termination -- not on the next payday, not within six days, but at the moment they are let go. Employees who resign with at least 72 hours notice must also receive their final paycheck on their last day. Employees who resign without notice have 72 hours from the time of resignation to receive their final paycheck.
California requires employers to pay out all accrued, unused vacation time upon termination. There are no exceptions. If an employee has 40 hours of unused vacation, you owe them 40 hours of pay at their regular rate, regardless of what your employee handbook says.
Violations of California's final paycheck law result in waiting time penalties of one day's wages for each day the paycheck is late, up to 30 days. On a $20/hour employee, that is up to $4,800 in penalties per employee. The California Labor Commissioner (dir.ca.gov) enforces these laws aggressively.
California ABC License Surrender in Los Angeles
California liquor licenses are administered by the California Department of Alcoholic Beverage Control (abc.ca.gov). Los Angeles restaurants surrender their license through the ABC's online portal or by contacting the Los Angeles ABC district office.
California ABC licenses can be transferred to a buyer, and in quota-limited license types (like Type 47 full liquor licenses), they can have significant secondary market value -- sometimes $50,000 to $200,000 or more in high-demand Los Angeles neighborhoods. Before surrendering a California ABC license, consult with a liquor license broker to determine if your license has transfer value.
California Sales Tax Final Return
California requires businesses to file a final sales tax return with the California Department of Tax and Fee Administration (cdtfa.ca.gov) when closing. Los Angeles County's combined sales tax rate is 10.25 percent. Restaurants must remit all collected taxes before closing and cancel their seller's permit.
California WARN Act
California has its own WARN Act that is more demanding than the federal version. The California WARN Act applies to employers with 75 or more employees (compared to 100 under federal law) and requires 60 days advance notice before a plant closing or mass layoff. California's WARN Act also applies to temporary layoffs of 50 or more employees, even if the layoff is expected to last less than six months.
Employers who fail to provide proper California WARN Act notice owe each affected employee 60 days of back pay and benefits. For a restaurant with 75 employees at an average wage of $18/hour, that is over $500,000 in potential liability.
Most independent Los Angeles restaurants have fewer than 75 full-time employees and are not subject to WARN Act requirements. However, multi-location operators need to count employees across all California locations.
Los Angeles Commercial Lease Law
California commercial leases require landlords to mitigate damages -- meaning a California landlord must make reasonable efforts to find a new tenant rather than letting the space sit empty and suing for the full remaining rent. This is a significant difference from Texas, and it gives Los Angeles restaurant owners more leverage in lease exit negotiations.
However, California's duty to mitigate does not eliminate your liability for the period between your departure and when the landlord finds a new tenant. And if you personally guaranteed the lease, the landlord can still pursue you individually. The Restaurant Landlord Negotiation guide covers the specific conversation to have before you default.
LLC Dissolution in California
If you operated your restaurant as a California LLC, you must file a Certificate of Dissolution and a Certificate of Cancellation with the California Secretary of State (sos.ca.gov). The filing fee is $0 for a Certificate of Cancellation. You must also file a final California tax return with the Franchise Tax Board (ftb.ca.gov).
California LLCs owe an $800 annual minimum franchise tax. If you dissolve mid-year, you still owe the full $800 for that year.
Los Angeles-Specific Closing Checklist
- Pay final wages immediately at time of termination (California law)
- Pay out all accrued, unused vacation time to every employee
- File final California sales tax return and cancel seller's permit with CDTFA
- Evaluate California ABC license for transfer value before surrendering
- Provide 60-day WARN Act notice if you have 75 or more employees
- Notify Los Angeles County Department of Public Health of closure
- Cancel City of Los Angeles business tax registration
- File Certificate of Dissolution and Certificate of Cancellation with California Secretary of State
- File final California tax return with Franchise Tax Board
- Close business bank accounts after all checks have cleared
The California Advantage
California's duty-to-mitigate rule and active commercial real estate market in Los Angeles give restaurant owners more negotiating leverage than in most states. A landlord who knows they must make reasonable efforts to re-tenant the space is more likely to accept a negotiated buyout. If you have more than 12 months remaining on your lease, getting a professional assessment of your exit options is worth the cost.