BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                  SB 1255
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          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.








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          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 








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               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.









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          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 








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          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:








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          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 








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          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.









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          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.








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          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








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          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