BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                      



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          |SENATE RULES COMMITTEE            |                  SB 1255|
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                              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


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           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.

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          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. 

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               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 

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          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 

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          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
           

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          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) 

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          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. 


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           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

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