The Democratic governor appointed David Lanier, Brown's chief deputy legislative affairs secretary, to fill the post.
Morgenstern had been an adviser to Brown since he was governor before, from 1975 to 1983, serving as chief labor negotiator in Brown's first administration. He returned to the Capitol as labor secretary when Brown began his third term in 2011, and Brown on Wednesday named him an unpaid senior adviser.
"Marty is a man steeped in the ways of politics and the practices of labor management relations," Brown said in a prepared statement. "He has provided invaluable advice for decades and will continue to do so."
Brown called Lanier "more than ready" to become labor secretary. The 46-year-old Democrat has been an adviser to Brown since 2011. He was previously a special adviser to the California State Assembly Speaker's Office of Member Services.
Lanier is to be paid $180,250 a year. The position requires Senate confirmation.
Morgenstern, 78, said in a prepared statement that working for Brown "has been a great honor."
"Keeping up with the governor has been sometimes difficult, but never dull," he said.
The appointment was announced as lawmakers opened a hearing into a computer problem at the Employment Development Department that delayed jobless benefits for nearly 150,000 Californians earlier this year.
Editor's note: This post was changed at 1:55 p.m. Wednesday to include the correct salary for Lanier. The number originally provided by the governor's office was incorrect.
PHOTO: Marty Morgenstern speaks with reporters in Oakland on Sept. 25, 2013. The Sacramento Bee/David Siders