BILL ANALYSIS Ó SB 1255 Page 1 Date of Hearing: June 20, 2012 ASSEMBLY COMMITTEE ON LABOR AND EMPLOYMENT Sandre Swanson, Chair SB 1255 (Wright) - As Amended: May 15, 2012 SENATE VOTE : 25-12 SUBJECT : Employee compensation: itemized statements. SUMMARY : Provides a statutory definition for what constitutes "suffering injury" for purposes of recovering damages pursuant to the itemized wage statement requirements of current law. Specifically, this bill : 1)Provides that an employee is deemed to "suffer injury" if the employer fails to provide a wage statement or if the wage statement fails to contain the name of the employee and last for digits of his or her social security number or employee identification number. 2)Provides that an employee is deemed to "suffer injury" if the employer fails to provide accurate or complete information regarding the other specified items on the itemized wage statement and the employee cannot "promptly and easily" determine from the wage statement alone one or more of the following: a) The amount of gross wages and net wages paid to the employee during the pay period and how those gross and net wages were determined by reference only to specified information on the itemized wage statement. b) Which deductions the employer made from gross wages to determine the net wages paid to the employee during the pay period. c) The name and address of the employer and, if a farm labor contractor, the name and address of the legal entity that secured the services of the employer during the pay period. 3)Defines "promptly and easily" to mean a reasonable person would be able to readily ascertain the information without reference to other documents or information. SB 1255 Page 2 4)Provides that a "knowing and intentional failure" does not include an isolated and unintentional payroll error due to a clerical or inadvertent mistake. A hearing officer or fact finder may consider as a relevant factor whether the employer, prior to an alleged violation, has adopted and is in compliance with a set of policies, procedures and practices that fully comply with the requirement to provide accurate itemized wage statement. EXISTING LAW : 1)Requires every employer, semimonthly or at the time of each payment of wages, to provide each employee with an accurate itemized statement, in writing, that contains the following information: a) Gross wages earned; b) Total hours worked by the employee (except salaried and exempt employees); c) Piece rate unite earned and the applicable piece rate (if the employee is paid on a piece rate basis); d) All deductions; e) Net wages earned; f) Inclusive dates of the pay period; g) The name of the employee and the last four digits of his or her social security number or employee identification number; h) The name and address of the legal entity that is the employer and, if the employer is a farm labor contractor, the name and address of the legal entity that secured the SB 1255 Page 3 services of the employer; i) All applicable hourly rates in effect during the pay period and the corresponding number of hours the employee worked at each hourly rate. 2)Provides that an employee "suffering injury" as a result of a knowing and intentional failure by an employer to comply with the itemized statement requirements is entitled to recover the greater of all actual damages or $50 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 $4,000. FISCAL EFFECT : Unknown COMMENTS : As discussed above, existing law requires an employer to provide workers with an accurate itemized wage statement that lists specified information. Existing law also provides that an employee that "suffers injury" as a result of an employer's failure to comply with these requirements is entitled to recover statutory damages. In recent years, courts have grappled with defining what "suffering injury" means for purposes of these provisions - different courts have taken vastly different views as to the meaning of this term. This bill attempts to legislate a compromise by clearly delineating which types of "true" violations will constitute "suffering injury." Supporters contend that this will benefit both workers (by protecting their fundamental right to receive accurate information) and employers (by shielding them from liability over "minor" or "insignificant" inaccuracies on the wage statements). Legislative History of Labor Code Section 226(e) Beginning in 1943, Labor Code section 226 has required employers to provide a detailed wage statement to their workers at the time of payment showing specified information such as wages earned. Since its enactment, the law has been amended several times to expand the information that must be provided to employees. Currently, the law requires itemized wage statements to contain accurate information regarding nine critical payroll elements (discussed above) including hourly rates and total hours worked, among others. SB 1255 Page 4 Labor Code section 226(e) provides specific monetary relief for violation of itemized statement requirements imposed on employers in Labor Code section 226(a): (e) An employee suffering injury as a result of a knowing and intentional failure by an employer to comply with subdivision (a) is entitled to recover the greater of all actual damages or fifty dollars ($50) for the initial pay period in which a violation occurs and one hundred dollars ($100) per employee for each violation in a subsequent pay period, not exceeding an aggregate penalty of four thousand dollars ($4,000), and is entitled to an award of costs and reasonable attorney's fees. Subsection (e) was added to section 226 in 1976 when AB 3731 (Lockyer) was passed and signed into law. That bill added a monetary remedy of $100.00, or all actual damages, for violation of the section, and it also amended another subsection to require the listing of gross and net income, itemized deductions and the employee's social security number. The Assembly Labor Committee analysis of the bill, for hearing May 18, 1976, summarized the purpose of the bill: "The purpose of requiring greater wage stub information is to insure that employees are adequately informed of compensation received and are not shortchanged by their employers. Lack of wage information or improper information can also make it difficult for employees to establish eligibility for unemployment insurance." The enrolled bill report characterizes the "damages" in a way that addresses injury by stating that "Such damages would be in the nature of a loss of benefits under a health and welfare plan if the employer failed to make contributions or deductions and the employee was unaware of the failure due to lack of information on the pay stub." (Enrolled Bill Report, AB 3731, Agriculture and Services, prepared by Al Ryeff, Asst. Labor Commissioner.) The sponsor of the bill, California Rural Legal Assistance, Inc., characterized the injury in their letter supporting the SB 1255 Page 5 bill: "Serious consequences for employees can result. They do not know whether deductions for state and local taxes, social security and other authorized deductions are being made. Further if it becomes necessary for these employees to prove their earnings record for unemployment, welfare or other purposes in El Centro, for example, they may not be able to do so without going back to the employer in Madera. Such delays in proving eligibility create severe hardships for workers and their families. The law should permit them to recoup their losses from an employer who knowingly and intentionally flaunts the law." There is no discussion regarding the "knowing and intentional" requirement in the analyses or support letters for AB 3731. However, as originally drafted, the bill required only a "knowing" violation but, as passed, it required a "knowing and intentional" failure. Since 1976, the original statute has been amended on several subsequent occasions to make the monetary award available for each employee, for each pay period, and to cap it at $4,000. Recent Case Law Regarding "Suffering Injury" In recent years, courts have been grappling with determining when an employee has "suffered injury" from an employer's failure to provide accurate itemized wage statements in actions arising under Labor Code section 226(e) or the Private Attorney Generals Act (PAGA). The co-sponsor of this bill, the California Rural Legal Assistance Foundation (CRLAF) has submitted an analysis of over 300 published and unpublished decisions that they contend split about evenly between an interpretation favorable to employees and one favorable to employers. In some cases, courts are requiring employees to show that they did not receive pay owed to them in order to prove that they suffered injury. In other cases, courts have held that failure to receive an itemized statement at all or failure to receive specified or accurate information on the statement which results in confusion for the employee is sufficient to establish "suffering injury." Some of the more notable decisions are as follows: SB 1255 Page 6 PHILLIPS v. HUNTINGTON MEMORIAL HOSPITAL (2005 Cal.App. Unpub. LEXIS 7880) - At issue in this 2005 case were alleged violations of Labor Code section 226(e) for the employer's failure to provide accurate wage statements to their employees. The trial court found that the paystubs did not violate law and no damages were due; however, the case was appealed and the decision reversed. The court of appeals determined that the employer's pay stubs did violate law; however, they did not determine whether or not the violation was knowing and intentional. Among other things, the court concluded that: "To adopt the hospital's position would turn a simple informational process into a mathematical hurdle for many employees?Employees should not be required to master 30 pay codes, identify which of numerous items on a pay stub should be used in determining gross wages and total hours worked, and be forced to calculate the correct amounts without the aid of backup data. Such a burden would defeat the purpose of section 226 - to provide employees with an easily read pay stub so they can ensure they have been fully compensated for all hours worked." (Emphasis provided). JAIMEZ v. DAIOHS USA, INC. (2010 Cal. App.4th 1286) - Similar to the previous decision, at issue in this case (among other things) was alleged failure by the employer to provide legally compliant paystubs. The employer argued that such a violation must establish "actual injury" arising from the receipt of inaccurate paystubs. In other words, if there was no actual loss of wages they did not believe they were in violation of the requirements of Labor Code §226. In reaching their decision, the appeals court quoted two federal court cases which addressed the same issue and set a minimal standard for the requisite injury. Overall, it was decided that the purpose of the paystub requirement is that employees shouldn't have to engage in the discovery and mathematical computations to analyze the very information that the law requires. The court found that, "While there must be some injury in order to recover damages, a very modest showing will suffice." Additionally, the decision stated that, "this lawsuit, and the difficulty and expense Ýthe worker has] encountered in attempting to reconstruct time and pay records, may well be further evidence of the injury he has suffered." The defendant requested review and depublication of SB 1255 Page 7 the appellate court's decision by the California Supreme Court, but the request was denied. PRICE v. STARBUCKS CORPORATION (2011 Cal. App.4th 1136) - In this case, the court of appeal took a rather different approach to the alleged failure by the employer to issue an accurate wage statement. The employee alleged that he and the class he sought to represent were injured because they had been deprived of the requisite information on their wage statements which caused confusion and possible underpayment of wages due. According to the court, the plaintiff failed to allege an injury arising from the allegedly non-compliant wage statement. Further, the court found that the plaintiff was only speculating on the possible underpayment of wages due, which was not evident from the wage statements provided to the complaint. The court therefore determined that: "Price has not alleged a cognizable injury. The 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?Thus, the 'deprivation of that information,' standing alone is not cognizable injury." (Emphasis provided). Lamps Plus Overtime Cases (195 Cal. App. 4th 389) - Last year in Lamps Plus Overtime Cases, the Court of Appeal again held that an employee must suffer an injury arising from the missing information, and the injury requirement "cannot be satisfied simply if one of the nine itemized requirements in section 226, subdivision (a) is missing from a wage statement." (Id. at 409.) The California Supreme Court has granted review of Lamps Plus. ARGUMENTS IN SUPPORT : CRLAF, the co-sponsor of this bill, argues that it responds to a recent series of poorly reasoned court decisions which threaten effective public and private enforcement of, and compliance with, wage statement requirements. They state that the bill provides clarity by establishing a statutory definition of what constitutes "suffering injury" for purposes of recovering damages in a lawsuit alleging a violation of Labor Code section 226. SB 1255 Page 8 CRLAF contends that both employers and employees benefit from passage of this bill because it ensures that the most extreme of the state and federal court decisions would no longer be reliable guides for courts or agencies in interpreting "suffering injury". The co-sponsor states that employees benefit from this bill's reaffirmation that Labor Code section 226(a) means what it says: Employees must get an itemized pay stub that contains accurate and complete information about all nine of the required pay-related information items, and the analysis of whether the employee suffered injury is to be based solely on what information the employer provided on the pay stub. At the same time, employers benefit by getting relief from lawsuits that allege employees have suffered injury even though the employer has provided information on the pay stub that allows employees to determine all Labor Code section 226(a) requirements. For example, if an employer provided separate information about all straight time hours and separate information about all overtime hours, and the addition of the two equaled the total hours worked by the employee, he/she would not suffer injury because the employer did not have a category on the pay stub that was labeled "total hours". Or, if an employer provided information about the balance due to a worker after all deductions, instead of showing this amount as "net wages" on the pay stub, the worker would not suffer injury. CRLAF contends that employers benefit in two other ways. First, they obtain relief from lawsuits that allege that an employer's pay stub contains "knowing and intentional" errors that, in fact, are merely isolated and unintentional payroll errors due to a clerical or inadvertent mistake. Second, employers would get favorable consideration by a court on the record where, prior to an alleged violation, an employer had policies and practices in place that fully comply with itemized pay stub requirements. ARGUMENTS IN OPPOSITION : A coalition of employer groups has been negotiating with the author and the sponsor in an attempt to reach a compromise on this measure. Unfortunately, an agreement has not yet been reached and the employer groups therefore oppose this measure in its current form. SB 1255 Page 9 These opponents, including the California Chamber of Commerce argue that the proposed definition of "suffer injury" in this bill actually reduces the current burden of proof an employee needs to show in order to obtain this secondary layer of penalties. Specifically, this bill deems that an employee has suffered injury if an employer fails to include the employee's social security number, employee identification number, or name on the wage statement. Opponents contend that courts have already affirmed that a mere violation of section 226(a) is insufficient to justify penalties under section 226(e) without further proof of injury. This bill would now undo this standard. This bill would also eliminate any burden on an employee to perform basic mathematic computation, such as adding one column of hours with another column of hours to determine total hours worked for the pay period, which is another requirement courts currently impose on employees. Opponents argue that, given the reduction in the burden of proof on an employee to justify this maximum $4,000 penalty, this bill will incentivize further litigation against employers for good faith administrative payroll errors that have not actually created any harm or injury to the employee. Employers are already overwhelmed with existing avenues for frivolous litigation and certainly do not need legislation that creates an easier path to allege such claims. Opponents conclude that, while they "have tried to propose amendments that would mitigate this threat of litigation, we have unfortunately been unable to reach a resolution" and therefore must oppose this bill unless amended. REGISTERED SUPPORT / OPPOSITION : Support California Employment Lawyers Association (co-sponsor) California Labor Federation, AFL-CIO California Rural Legal Assistance Foundation (co-sponsor) Employment Rights Project Opposition Associated Builders and Contractors of California Associated General Contractors California Association for Health Services at Home SB 1255 Page 10 California Association of Health Facilities California Association of Joint Powers Authorities California Association of Licensed Security Agencies, Guards and Associates California Chamber of Commerce California Grocers Association California Hospital Association California Manufacturers and Technology Association Analysis Prepared by : Ben Ebbink / L. & E. / (916) 319-2091