California Labor Commissioner Issues $499,000 Citation For Non-Compliant Wage Statements

By Christopher S. Andre and Scott K. Dauscher

As we previously reported here, failing to comply with the requirements of Labor Code section 226 regarding the information that must be contained on wage statements (aka check stubs) can create significant liability for California employers.  In defending numerous wage and hour class action lawsuits, one thing is constant.  Such lawsuits nearly always include allegations that the employer failed to provide employees with wage statements that comply with Labor Code section 226, which specifies nine items of information that must be stated on each wage statement.  Such allegations take one or both of the following forms: (1) allegations that the employer did not pay employees for all hours worked and, therefore, failed to comply with the requirement of Labor Code section 226(a)(2) that wage statements show all hours worked and/or (2) allegations that the employer's wage statements fail to comply with the requirements of Labor Code section 226(a) in some other respect, such as failing to include the full name and address of the legal entity that is the employer as required by Labor Code section 226(a)(8).    

It is not hard to understand why plaintiff attorneys pursue claims for allegedly non-compliant wage statements -- the awards of penalties and attorney's fees can be very substantial.  Labor Code section 226(e) states that an employee "suffering injury as a result of a knowing and intentional failure by an employer" to comply with Labor Code section 226(a) is entitled to recover the greater of his or her actual damages or $50.00 for the initial pay period in which a violation takes place and $100 "per employee for each violation in a subsequent pay period" up to $4,000.00 per employee.  Plaintiff attorneys typically also seek additional penalties under the California Labor Code Private Attorneys General Act of 2004, which provides for penalties of $100.00 "for each aggrieved employee per pay period for the initial violation" and $200.00 "for each aggrieved employee per pay period for each subsequent violation."

Further, it is not just private attorneys seeking such penalties.  As we previously reported here, we think federal and state agencies charged with enforcement of federal and state employment laws have taken a more aggressive enforcement posture.  For example, in a recent press release, the California Department of Industrial Relations announced that Labor Commissioner Julie Su issued a $499,000 citation to an employer of warehouse workers for allegedly failing to issue compliant wage statements.  Among other things, Sue stated as follows in the press release: "California law also requires that all employees receive wage statements that explain the basis for their paycheck.  This is to help workers identify if they've been cheated out of their hard-earned wages.  Proper wage statements were not provided to these workers."  Less than a week later, the companies targeted by the Department of Industrial Relations were served with a private class action lawsuit.

California employment law enforcement agencies have recently made it a point to tout such enforcement actions.  As we previously reported here, in a press released issued September 12, 2011, the California Department of Fair Employment and Housing touts an administrative award of $846,300 against an employer for allegedly failing to accommodate an employee's medical condition and for allegedly terminating the employee "relying on [an] insufficient travel pretext." As previously reported here, on September 29, 2011, the Department of Industrial Relations issued a press release touting the filing of a lawsuit seeking damages and penalties in excess of $17 Million against ZipRealty for alleged wage and hour violations.

The good news is the risk of being subjected to such awards of penalties and attorney's fees on account of non-compliant wage statements is generally easily avoided.  We recommend that employers consult  competent employment counsel and take the appropriate steps to make certain that their employees are paid for all hours worked and that the wage statements issued to their employees comply with the requirements of Labor Code section 226.

California Supreme Court Declines To Review Helpful Court of Appeal Decision Regarding Penalties For Wage Statement Violations

By Scott K. Dauscher and Christopher S. Andre

As we previously reported here, in in Drake Price v. Starbucks Corporation,, the Court of Appeal held, among other things, that a plaintiff does not state a viable claim for Labor Code Section 226.7 penalties merely because a wage statement does not contain all of the required information. 

 Labor Code Section 226(a)  requires employers to provide to employees with their paychecks a wage statement (sometimes referred to as a check stub) accurately stating the following nine items of information:  (1) gross wages earned, (2) total hours worked by the employee (except exempt salaried employees), (3) the number of piece-rate units earned and any applicable piece-rate(s) if the employee is paid on a piece-rate basis, (4) all deductions, (5) net wages earned, (6) inclusive dates of the pay period, (7) the name of the employee and the last four digits of the employee's social security number or the employee's identification number other than the social security number, (8) the name and address of the legal entity that is the employer, and (9) all applicable hourly rates in effect during the pay period and the corresponding number of hours worked at each hourly rate.

When an employee suffers injury as a result of an employer's knowing and intentional failure to provide a compliant wage statement, the employee can recover the greater of either the employee's actual damages or $50.00 "for the initial pay period in which a violation occurs" and $100 "per employee for each violation in a subsequent pay period, not exceeding an aggregate penalty of four thousand dollars, and is entitled to an award of costs and reasonable attorney's fees."  See Labor Code section 226(e).

Drake Price, who was employed by Starbucks for a total of 13 shifts before he was fired after failing to report to work for a scheduled shift, alleged, among other things, that Starbucks was liable to him and to each member of the purported class for Labor Code section 226.1 damages because, according to Mr. Price, the wage statements Starbucks issued do not list total hours worked, net wages earned, and all applicable hourly rates."  Mr. Price contended "'total' means grand total, the sum of the regular and overtime rates."  Price contended Starbucks' use of the words "'amount paid' following gross pay and deductions does not comply with the requirement to show 'net wages.'"  Mr. Price contended, also, that the wage statements "lists the regular rate of pay, but fails to list the overtime rate of pay, requiring him to ensure that the overtime rate is one and one-half his regular rate of pay."  

Recognizing that a non-compliant wage statement is not actionable without injury, Mr. Price contended he was injured because, according to him, "[t]his lack of information 'caused confusion and possible underpayment of wages due,' required the putative class to file [suit], and forced the putative class to attempt to reconstruct their time and pay records."

Notably, the Court of Appeal distinguished a troublesome decision of the United States District Court for the Central District of California in Wang v. Chinese Daily News, Inc. (C.D. Cal. 2006) 435 F.Supp.2d 1042 essentially holding that injury occurs if the employee must perform mathematical calculations to determine whether he or she was paid correctly.  Distinguishing Wang v. Chinese Daily News, the court explained: "Price alleged a 'mathematical injury,' that required him to add up his overtime and regular hours and to ensure his overtime rate of pay is correct, but the allegedly missing information from Price's wage statement is not the type of mathematical injury that requires 'computations to analyze whether the wages paid in fact compensated [him] for all hours worked.'"  Simply put, "[t]he injury requirement in section 226, subdivision (e), cannot be satisfied simply if one of the nine itemized requirements in section 226, subdivision (a) is missing from a wage statement."

On May 12, 2011, the California Supreme Court denied the plaintiff's petition for review of the Court of Appeal's helpful decision.  This means the Court of Appeal's decision stands, and it means the District Court's troublesome decision in Wang v. Chinese Daily News now has even less persuasive value than it previously had.

Although the Court of Appeal's decision makes California employers less vulnerable to claims for Labor Code section 226.7 penalties based on essentially non-material violations of the requirements of Labor Code section 226.7, the best defense to claims for such penalties is to make certain wage statements are fully compliant with all of the requirements of Labor Code section 226.7. 

Court of Appeal Clarifies What Must Be Proven To Recover Damages For Non-Compliant Wage Statements And Clarifies Reporting Pay Requirements

By Christopher S. Andre and Scott K. Dauscher

On February 17, 2011, the California Court of Appeal ordered published (and therefore citable) its previously unpublished (and therefore not citable) decision in Drake Price v. Starbucks Corporation, a decision that should prove helpful to employers defending against claims for allegedly non-compliant wage statements, which are nearly always included in wage and hour class action lawsuits.

Labor Code Section 226(a)  requires employers to provide to employees with their paychecks a wage statement (sometimes referred to as a check stub) accurately stating the following nine items of information:  (1) gross wages earned, (2) total hours worked by the employee (except exempt salaried employees), (3) the number of piece-rate units earned and any applicable piece-rate(s) if the employee is paid on a piece-rate basis, (4) all deductions, (5) net wages earned, (6) inclusive dates of the pay period, (7) the name of the employee and the last four digits of the employee's social security number or the employee's identification number other than the social security number, (8) the name and address of the legal entity that is the employer, and (9) all applicable hourly rates in effect during the pay period and the corresponding number of hours worked at each hourly rate.  

When an employee suffers injury as a result of an employer's knowing and intentional failure to provide a compliant wage statement, the employee can recover the greater of either the employee's actual damages or $50.00 "for the initial pay period in which a violation occurs" and $100 "per employee for each violation in a subsequent pay period, not exceeding an aggregate penalty of four thousand dollars, and is entitled to an award of costs and reasonable attorney's fees."  See Labor Code section 226(e).

Drake Price, who was employed by Starbucks for a total of 13 shifts before he was fired after failing to report to work for a scheduled shift, alleged, among other things, that Starbucks was liable to him and to each member of the purported class for Labor Code section 226.1 damages because, according to Mr. Price, the wage statements Starbucks issued do not list total hours worked, net wages earned, and all applicable hourly rates."  Mr. Price contended "'total' means grand total, the sum of the regular and overtime rates."  Price contended Starbucks' use of the words "'amount paid' following gross pay and deductions does not comply with the requirement to show 'net wages.'"  Mr. Price contended, also, that the wage statements "lists the regular rate of pay, but fails to list the overtime rate of pay, requiring him to ensure that the overtime rate is one and one-half his regular rate of pay."  

Recognizing that a non-compliant wage statement is not actionable without injury, Mr. Price contended he was injured because, according to him, "[t]his lack of information 'caused confusion and possible underpayment of wages due,' required the putative class to file [suit], and forced the putative class to attempt to reconstruct their time and pay records."

The Court of Appeal affirmed the trial court's decision that Mr. Price failed to allege a cognizable injury.  Notably, the court distinguished a troublesome decision of the United States District Court for the Central District of California in Wang v. Chinese Daily News, Inc. (C.D. Cal. 2006) 435 F.Supp.2d 1042 essentially holding that injury occurs if the employee must perform mathematical calculations to determine whether he or she was paid correctly.  Distinguishing Wang v. Chinese Daily News, the court explained: "Price alleged a 'mathematical injury,' that required him to add up his overtime and regular hours and to ensure his overtime rate of pay is correct, but the allegedly missing information from Price's wage statement is not the type of mathematical injury that requires 'computations to analyze whether the wages paid in fact compensated [him] for all hours worked.'"  Simply put, "[t]he injury requirement in section 226, subdivision (e), cannot be satisfied simply if one of the nine itemized requirements in section 226, subdivision (a) is missing from a wage statement."

As part of its decision, the Court of Appeal clarified, also, the requirements for reporting time pay.  The court rejected Mr. Price's contention Starbucks was required to pay him the one-half of the average of the 13 scheduled shifts he worked as reporting time pay for reporting to his place of work for a brief meeting with his supervisor during which Mr. Price's supervisor informed Mr. Price his employment was terminated effective that date.  The court held because Mr. Price was not scheduled to work that day, Starbucks did not violate Industrial Welfare Commission Wage Order 5-2001 by paying him two hours pay to report for that meeting (which lasted approximately 45 seconds, according to Mr. Price). 

Are Non-Compliant Wage Statements Putting Your Company At Risk?

By Christopher S. Andre and Scott K. Dauscher

In defending numerous wage and hour class action lawsuits, one thing is constant.  Such lawsuits nearly always include allegations that the employer failed to provide employees with wage statements (aka check stubs) that comply with Labor Code section 226, which specifies nine items of information that must be stated on each wage statement.  Such allegations take one or both of the following forms: (1) allegations that the employer did not pay employees for all hours worked and, therefore, failed to comply with the requirement of Labor Code section 226(a)(2) that wage statements show all hours worked and/or (2) allegations that the employer's wage statements fail to comply with the requirements of Labor Code section 226(a) in some other respect, such as failing to include the full name and address of the legal entity that is the employer as required by Labor Code section 226(a)(8).  

It is not hard to understand why plaintiff attorneys pursue claims for allegedly non-compliant wage statements -- the awards of penalties and attorney's fees can be very substantial.  Labor Code section 226(e) states that an employee "suffering injury as a result of a knowing and intentional failure by an employer" to comply with Labor Code section 226(a) is entitled tor recover the greater of his or her actual damages or $50.00 for the initial pay period in which a violation takes place and $100 "per employee for each violation in a subsequent pay period" up to $4,000.00 per employee.  In a class action involving 100 employees, those penalties could total $400,000.00.  In a class action involving 500 employees, those penalties could total $2 Million.  Plaintiff attorneys typically also seek additional penalties under the Labor Code Private Attorneys General Act of 2004, which provides for penalties of $100.00 "for each aggrieved employee per pay period for the initial violation" and $200.00 "for each aggrieved employee per pay period for each subsequent violation."  Again, in a class action, such penalties can add up quickly.  To add insult to injury, in class action cases, courts routinely approve attorney's fees awards to the plaintiff(s)'s attorneys in excess of $1 Million.  

The good news is the risk of being subjected to such awards of penalties and attorney's fees on account of non-compliant wage statements is generally easily avoided.  We recommend that employers consult  competent employment counsel and take the appropriate steps to make certain that their employees are paid for all hours worked and that the wage statements issued to their employees comply with the requirements of Labor Code section 226.