Upon the sale or transfer of any business or the stock in trade, in bulk, or a substantial part thereof, not in the ordinary and regular course of business or trade, unpaid wages of employees of the seller or transferor earned within ninety (90) days prior to the sale, transfer, or opening of an escrow for the sale thereof, shall constitute preferred claims and liens thereon as between creditors of the seller or transferor and must be paid first from the proceeds of the sale or transfer.
§ 1205.Unpaid Wages Preferred Claims and Liens Upon Sale Or Transfer of Business Not In Ordinary and Regular Course of Business
Title 4. Of the Enforcement of Liens · Chapter 3. Certain Liens and Priorities for Salaries, Wages and Consumer Debts · Enacted 1961 · no amendments on record · Last verified July 29, 2026
In one sentenceSection 1205 makes unpaid employee wages earned in the 90 days before a bulk sale or transfer of a business preferred claims and liens on the sale proceeds, ahead of the seller's or transferor's other creditors, when the sale or transfer happens outside the ordinary course of business.
Full Text of § 1205
Plain-English Summary
A business can be sold off in bulk — its whole stock in trade, or a substantial part of it — outside the ordinary give-and-take of day-to-day commerce. When that happens, employees who worked for the seller shouldn't be left holding the bag while other creditors get paid from the proceeds.
This section makes unpaid wages earned within the 90 days before the sale, transfer, or the opening of an escrow for that sale, into preferred claims and liens as between the seller's or transferor's various creditors. Those wages have to be paid first out of the sale or transfer proceeds.
Frequently Asked Questions
Does this wage priority apply to any sale of a business?
It applies to a sale or transfer of a business, or its stock in trade, in bulk or a substantial part, that happens outside the ordinary and regular course of business or trade.
How far back do the protected wages reach?
Ninety days before the sale, the transfer, or the opening of an escrow for the sale.
Where do these wage claims rank against the seller's other creditors?
Ahead of them -- Section 1205 makes them preferred claims and liens that must be paid first from the sale or transfer proceeds.
Amendment History
Added by Stats. 1961, Ch. 1083.
Source & verification. Section text is reproduced verbatim from
the Deering's California Codes Annotated / vLex. Enacted by the California Legislature.
Last verified July 29, 2026.
· Official source
Also known as: bulk sale wage priority californiaunpaid wages business sale california