BILL ANALYSIS Ó ------------------------------------------------------------ |SENATE RULES COMMITTEE | SB 1255| |Office of Senate Floor Analyses | | |1020 N Street, Suite 524 | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ------------------------------------------------------------ UNFINISHED BUSINESS Bill No: SB 1255 Author: Wright (D) Amended: 8/23/12 Vote: 21 SENATE LABOR & INDUSTRIAL RELATIONS COMM : 4-0, 4/11/12 AYES: Lieu, DeSaulnier, Leno, Yee NO VOTE RECORDED: Wyland, Padilla, Runner SENATE JUDICIARY COMMITTEE : 4-1, 5/8/12 AYES: Evans, Blakeslee, Corbett, Leno NOES: Harman SENATE FLOOR : 25-12, 5/29/12 AYES: Alquist, Calderon, Corbett, Correa, De León, DeSaulnier, Evans, Hancock, Hernandez, Kehoe, Leno, Lieu, Liu, Lowenthal, Negrete McLeod, Padilla, Pavley, Price, Rubio, Simitian, Steinberg, Vargas, Wolk, Wright, Yee NOES: Anderson, Blakeslee, Cannella, Dutton, Fuller, Gaines, Harman, Huff, La Malfa, Strickland, Walters, Wyland NO VOTE RECORDED: Berryhill, Emmerson, Runner ASSEMBLY FLOOR : 50-29, 8/27/12 - See last page for vote SUBJECT : Employee compensation: itemized statements SOURCE : California Rural Legal Assistance Foundation California Employment Lawyers Association CONTINUED SB 1255 Page 2 DIGEST : This bill provides a statutory definition of what constitutes suffering injury for purposes of recovering damages pursuant to the itemized wage statements requirements in current law. Assembly Amendments (1) delete the provision that deems the employee to suffer injury where they cannot determine "how gross wages and net wages were determined," (2) clarify that nothing in this bill alters the ability of the employer to aggregate deductions consistent with the requirements of existing law, (3) Provide that an employee is also deemed to suffer injury where they cannot determine from the wage statement the name of the employee and only the last four digits of his or her social security numbers or employee identification number, (4) incorporate changes to Section 226 of the Labor Code proposed by AB 1744 and AB 2674, to be operative only if this bill and either or both of these bills are chaptered and became effective on or before January 1, 2013, and this bill is chaptered last, and (5) make other related and conforming changes. ANALYSIS : Existing law 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: Gross wages earned; Total hours worked by the employee (except salaried exempt employees); Piece rate units earned and the applicable piece rate, if paid on a piece rate basis; All deductions; Net wages earned; Inclusive dates of the pay period; Name of the employee and the last four digits of his/her social security number or employee identification number; 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 services of the employer; and All applicable hourly rates during the pay period and the corresponding number of hours the employee worked at each hourly rate. CONTINUED SB 1255 Page 3 Under existing law, 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, and is entitled to an award of costs and reasonable attorney's fees. Additionally, existing law requires that employers keep for at least three years, and make available for inspection by current and former employees, a copy of the statements or records. Failure to comply with this requirement is subject to a civil penalty. This bill provides a statutory definition of what constitutes "suffering injury" for purposes of recovering damages pursuant to the itemized statements requirements in current law. Specifically, this bill: 1.Provides that an employee is deemed to "suffer injury" if the employer fails to provide a wage statement. 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 or net wages paid to the employee during the pay period or any of the other information required to be provided on the itemized wage statement, as specified. B. Which deductions the employer made from gross wages to determine the net wages paid to the employee during the pay period. However, nothing in this provision alters the ability of the employer to aggregate deductions, as specified. CONTINUED SB 1255 Page 4 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. D. The name of the employee and only the last four digits of his or her social security number or an employee identification number. 1.Defines "promptly and easily" to mean a reasonable person would be able to readily ascertain the information without reference to other documents or information. 2.Provides that a "knowing and intentional failure" does not include an isolated and unintentional payroll error due to a clerical or inadvertent mistake. A 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. 3.Contains language to avoid a chaptering out conflict with two other pending bills that amend Labor Code Section 226. Background and Recent Court Case Summaries Beginning in 1943, Labor Code Section 226 has required that employers provide a detailed wage statement to their workers at the time they are paid showing specific information such as wages earned. Since its enactment, this code section has been amended several times to expand on the information that must be provided to employees through these itemized wage statements with the intent of providing the necessary information for the workers to be informed and able to ensure proper payment of wages for the work being performed. Currently, itemized wage statements must contain accurate information about nine critical payroll elements (outlined above) including hourly rates and total hours worked, among others. To promote compliance with Labor Code Section 226, in 1976 CONTINUED SB 1255 Page 5 a provision was added to specify that workers who "suffer injury" as a result of a knowing and intentional violation of these requirements are entitled to recover damages. The interpretation of what constitutes "suffering injury," however, has been an issue of dispute in numerous court cases over the last several years. Phillips v. Huntington Memorial Hospital - 2005 . At issue in this 2005 case were alleged violations of Labor Code Section 226(e) for Huntington's failure to provide accurate wage statements to their employees. The Judge in the case found that Huntington's 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 Huntington'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." ( Phillips v. Huntington Mem. Hosp ., 2005 Cal.App. Unpub. LEXIS 7880) Jaimez v. Daiohs Usa, Inc. - 2010 . Similar to the previous, 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 Section 226. In reaching their decision, the appeals court quoted two federal court cases ( Wang v. Chinese Daily News, Inc./Elliot v. Spherion Pacific Work, LLC ) which addressed the same issue and set a minimal standard for the requisite CONTINUED SB 1255 Page 6 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 ÝJaimez has] encountered in attempting to reconstruct time and pay records, may well be further evidence of the injury he has suffered." ( Jaimez v. Daiohs USA, Inc ., 2010 Cal. App.4th1286) Defendant Daiohs requested review and depublication of the appellate court's decision by the California Supreme Court , the request was denied. Price v. Starbucks Corporation - 2011 . 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. Price 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, Price failed to allege an injury arising from the allegedly non-compliant wage statement. Further, the court found that Price was only speculating on the possible underpayment of wages due, which was not evident from the wage statements provided to the complaint. The court 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." ( Price v. Starbucks Corp ., 2011 Cal. App.4th 1136) Comments CONTINUED SB 1255 Page 7 According to the Senate Labor and Industrial Relations Committee analysis, the remedy provided under Labor Code Section 226 was added specifically to help ensure compliance with the wage statement requirements. The information required to be provided in wage statements is necessary for workers to ensure that they are being fully compensated for their work. Given the contradictory and inconsistent interpretations of what constitutes "suffering injury" under Labor Code Section 226 in the various court cases that have been litigated in recent years, it is necessary to provide further clarity on the issue for purposes of recovering damages under this code section. This bill provides a statutory definition clarifying that a worker is deemed to "suffer injury" if he/she is unable to readily and easily determine from the wage statement alone specific information such as the total gross and net wages, employers name and address or which deductions were taken. The author believes that this definition codifies a commonsense understanding of the term consistent with the legislative history of Labor Code Section 226, and provides the courts with an appropriate framework for addressing these issues in the future. Prior Legislation AB 243 (Alejo), Chapter 671, Statutes of 2011, requires an employer who is a farm labor contractor to disclose on the itemized statement furnished to employees the name and address of the legal entity that secured the employer's services. AB 469 (Swanson), Chapter 655, Statutes of 2011, enacted the Wage Theft Prevention Act of 2011 and, among other things, made technical revisions to the wage statement statute and was double-jointed to include the provisions of AB 243. FISCAL EFFECT : Appropriation: No Fiscal Com.: No Local: No SUPPORT : (Verified 8/28/12) California Rural Legal Assistance Foundation (co-source) CONTINUED SB 1255 Page 8 California Employment Lawyers Association (co-source) California Labor Federation Employment Rights Project ARGUMENTS IN SUPPORT : According to the author and proponents, some state and federal courts have adopted a very restrictive and erroneous interpretation of what constitutes "suffering injury" under Labor Code 226 regarding information needed to be provided on itemized statements. In many of those decisions, they argue, these courts found that there was no injury even though there was key payroll information either missing from, or reported incorrectly on, the workers' wage statements. Proponents argue that such an interpretation flouts the entire purpose of this provision, which is to ensure compliance so that workers can easily and adequately understand the breakdown and source of their pay. Proponents contend that central to these decisions are two notions (1) that the injury requirement in this code section cannot be satisfied simply because one of the nine itemized requirements is missing from a wage statement, and (2) that there must be actual injury demonstrated (such as loss of wages) related to the missing/incorrect item in order to recover damages. In other words, proponents argue that these courts have erroneously interpreted the law to a point that a worker, who - on pay day- doesn't know whether he/she has been paid properly, is not enough to establish the suffering of injury. On the other hand, according to proponents, other state and federal courts have taken a different approach and have analyzed "suffering injury" in a manner which is much closer to the legislative intent. The author and proponents believe that this bill is necessary to respond to these series of poorly reasoned court decisions which threaten effective public and private enforcement of, and compliance with, wage statement requirements. This bill would establish a statutory definition of what constitutes "suffering injury" which, according to the author, codifies a commonsense understanding of the term and provides courts with an appropriate framework for addressing these issues in the future. CONTINUED SB 1255 Page 9 ASSEMBLY FLOOR : 50-29, 08/27/12 AYES: Alejo, Allen, Ammiano, Atkins, Beall, Block, Blumenfield, Bonilla, Bradford, Brownley, Buchanan, Butler, Charles Calderon, Campos, Carter, Cedillo, Davis, Dickinson, Eng, Feuer, Fong, Fuentes, Furutani, Galgiani, Gatto, Gordon, Hall, Hayashi, Roger Hernández, Hill, Hueso, Huffman, Lara, Bonnie Lowenthal, Ma, Mendoza, Mitchell, Monning, Pan, Perea, V. Manuel Pérez, Portantino, Skinner, Solorio, Swanson, Torres, Wieckowski, Williams, Yamada, John A. Pérez NOES: Achadjian, Bill Berryhill, Conway, Cook, Donnelly, Fletcher, Beth Gaines, Garrick, Gorell, Grove, Hagman, Halderman, Harkey, Huber, Jeffries, Jones, Knight, Logue, Mansoor, Miller, Morrell, Nestande, Nielsen, Norby, Olsen, Silva, Smyth, Valadao, Wagner NO VOTE RECORDED: Chesbro PQ:n 8/28/12 Senate Floor Analyses SUPPORT/OPPOSITION: SEE ABOVE **** END **** CONTINUED