By: Eric J. Wu, Esq.
It is no secret that California employers are wading through choppy waters when it comes to navigating the endless sea of California’s employment laws. The laws are meant to protect employees’ rights, but their construction is often technically dense and difficult to understand. The deck is stacked against the employer, and limiting liability is becoming more difficult.
Economic realities often prevent employers from consistently and thoroughly evaluating their policies and procedures. Ensuring that wage statements (also commonly known as pay stubs) are compliant, however, is one area that is relatively inexpensive to examine and can prevent exposure to significant liability.
$102 Million Award Against Wal-Mart
The past few years have seen a drastic rise in lawsuits alleging failure to provide accurate pay stubs. Employers should note that employees may file class action and representative action lawsuits under the Private Attorneys General Act (PAGA). PAGA essentially allows an employee to act as a state enforcement agency and recover civil penalties on behalf of themselves, other employees, and the State of California for labor code violations. PAGA penalties are awarded on top of statutory penalties provided under the California Labor Code.
The potential damages are devastating and can reach astronomical numbers, as seen in a recent class action against Wal-Mart. On May 31, 2019, the United States District Court for the Northern District of California awarded a putative class almost $102 million in damages against Wal-Mart. The Court found that Wal-Mart failed to provide accurate wage statements, pursuant to California Labor Code Section 226. Specifically, the Court found that an “additional overtime wage,” which Wal-Mart paid to non-exempt employees who worked overtime and earned nondiscretionary pay in the same pay period, failed to identify either the hourly rate or the hours worked. The Court also found that the wage statements failed to include the start and end dates of the payment period on the final pay statements.
The bulk of the award went to damages for failure to provide employees with accurate, itemized wage statements. Approximately half of the award was attributed to statutory damages, while the other half consisted of PAGA penalties.
Wal-Mart is appealing the award before the Ninth Circuit Court of Appeals. Regardless of the Ninth Circuit’s ruling, employers must take this as a stark reminder that non-compliance may be extremely costly.
Penalties for Non-Compliance
Statutory damages are provided under Labor code sections 226.3 and 226(e). Under Section 226.3, employers are assessed a civil penalty in the amount of $250 per employee per violation for the first violation, and $1,000 per employee for each subsequent violation. Where an employer knowingly and intentionally failed to provide an accurate pay stub, Section 226(e) permits additional damages of up to $4,000 per employee.
Under PAGA, employers may be assessed a $100 penalty per employee per pay period for an initial violation and $200 for each subsequent violation. Plaintiffs may also recover attorneys’ fees.
Pay Stub Requirements and Best Practices
Employers should regularly audit their pay stubs to ensure that they comply with California law. Even technical or formatting errors may result in wage statement violations, and the penalties can be staggering. Defending a class action lawsuit that alleges wage statement violations is extremely costly—the penalties add up quickly, and plaintiffs may be entitled to recover their attorneys’ fees.
Employers often assume they are off the hook because they use a third-party payroll vendor. This is far from the case, as employers are ultimately responsible for compliance.
California Labor Code section 226 sets forth specific requirements for information that must be included on an employee’s pay stub. Pay stubs must include all of the following, if applicable:
- Gross wages earned in pay period;
- Total hours worked (not applicable for “exempt” employees);
- Net wages earned in pay period;
- Date range of pay period;
- Employee’s name and last four digits of the employee’s social security number;
- Employer’s entity name and address;
- Hourly rates and corresponding number of hours worked; and
- Piece-rate units earned.
Information related to paid sick leave must also be provided on the pay stub.
Employers who operate in multiple states must consider that California has very specific requirements that are not applicable in other states, so a one-size-fits-all approach will likely result in exposure to liability.
Leech Tishman’s Employment Practice Group can help clients ensure compliance with California’s complex and technical employment laws and can assist clients with defending against civil or administrative actions.
Employers should carefully review and revise their hiring practices and procedures to comply with California’s new laws. If you have any questions about California employment law, please contact Eric J. Wu. Eric is a Partner in Leech Tishman’s California offices and practices in the firm’s Corporate, Employment, and Litigation Practice Groups. He can be reached at 424.738.4400 or firstname.lastname@example.org.
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 Robert Magadia v. Wal-Mart Associates, Inc., United States District Court, N.D. Cal., Case No. 5:17-cv-00062.