BILL ANALYSIS Ó
AB 2095
Page A
Date of Hearing: April 23, 2014
ASSEMBLY COMMITTEE ON LABOR AND EMPLOYMENT
Roger Hernández, Chair
AB 2095 (Wagner) - As Introduced: February 20, 2014
SUBJECT : Employee compensation: itemized statements:
attorney's fees.
SUMMARY : Authorizes an employer to recover reasonable
attorney's fees and costs from an employee for specified claims
related to itemized wage statements where the employer is the
prevailing party and the court determines that the action was
brought in bad faith.
EXISTING LAW :
1)Requires every employer, at the time of payment of wages, to
furnish each employee with an accurate itemized statement in
writing showing specified information.
2)Authorizes an employee to bring an action for injunctive
relief to ensure compliance with these requirements.
3)Provides that an employee is entitled to an award of costs and
reasonable attorney's fees in bringing such an action.
FISCAL EFFECT : None
COMMENTS : This bill would authorize an employer to recover
reasonable attorney's fees and costs from an employee for
specified claims related to itemized wage statements where the
employer is the prevailing party and the court determines that
the action was brought in bad faith
Brief Background on Existing Labor Code 226 - Itemized Wage
Statements
Labor Code Section 226 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: (1) gross wages earned, (2) total
hours worked by the employee (except salaried and exempt
employees), (3) piece rate unite earned and the applicable piece
rate (if the employee is paid on a piece rate basis), (4) all
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deductions, (5) net wages earned, (6) inclusive dates of the pay
period, (7) the name of the employee and the last four digits of
his or her social security number or employee identification
number, (8) 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 services
of the employer, and (9) all applicable hourly rates in effect
during the pay period and the corresponding number of hours the
employee worked at each hourly rate.
Labor Code Section 226 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.
Existing law also authorizes an employee to bring an action for
injunctive relief to ensure compliance with these requirements,
and provides that an employee is entitled to an award of costs
and reasonable attorney's fees in bringing such an action.
More Thorough 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.
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
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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, 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 sponsor of the bill, California Rural Legal Assistance,
Inc., characterized the injury in their letter supporting the
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."
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.
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Recent Concerns Over "Suffering Injury" and SB 1255 (Wright)
from 2012
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.
Therefore, in 2012 the California Rural Legal Assistance
Foundation (CRLAF) sponsored SB 1255 (Wright) in an attempt to
legislate a compromise by clearly delineating which types of
"true" violations will constitute "suffering injury." As part
of the legislative history of SB 1255, CRLAF submitted an
analysis of over 300 published and unpublished decisions that
they contended split about evenly between an interpretation
favorable to employees and one favorable to employers. In some
cases, courts required employees to show that they did not
receive pay owed to them in order to prove that they suffered
injury. In other cases, courts 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 was sufficient to establish "suffering injury."
Therefore, SB 1255 sought to provide 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. CRLAF argued that this would 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).
SB 1255 was signed by Governor Brown and went into effect on
January 1, 2013.
SB 462 (Monning) from 2013 - Precedent or Legislative
Compromise?
Supporters of this bill argue that it is consistent with the
approach adopted last year in SB 462 (Monning).
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That bill addressed the attorney's fee provision contained in
Labor Code Section 218.5 which, until amended by SB 462,
contained a two-way fee shifting provision. The sponsor of SB
462, the California Employment Lawyers Association (CELA),
argued that the previous two-way fee shifting provision in Labor
Code section 218.5 had a chilling effect on contractual wage
claims. Although these claims may be relatively small, CELA
asserted that exposure to attorney's fees racked repels
plaintiffs (and attorneys) from bringing these types of claims.
The analysis of SB 462 prepared by the Assembly Judiciary
Committee stated the following:
"According to the author, under federal law and the law in
all but three states, workers are protected from the danger
of liability for the employer's attorneys' fees in actions
regarding unpaid wages. However, employees are liable for
the employer's attorney's fees if they do not prevail in
claims under section 218.5. Not only is this provision
anomalous among other states and federal wage claim
statutes, the author argues, it also is one of only two
provisions in the California Labor Code that provides
attorneys' fees for a prevailing defendant. Most provisions
of the Labor Code allow only a prevailing employee to
recover attorneys' fees.
Current law regarding recovery of attorney's fees in wage
litigation appears to be inconsistent. When an employee
files an action to recover minimum wages or overtime
pursuant to Labor Code Section 1194, only a prevailing
employee is entitled to recover reasonable attorney's fees
and costs of suit. If the employee's claim is not
successful, the employee is not required to pay the
attorney's fees of the prevailing employer. In other words,
the fee-shifting statute is one-way, in the direction of
the prevailing employee.
By contrast, when an employee files an action to recover
other types of wages pursuant to Section 218.5 - i.e.,
straight-time wages above the minimum wage and
contractually agreed-upon or bargained-for wages - or
related claims for fringe benefits, or health and welfare
or pension fund contributions, the law provides that
attorney's fees may be recovered by the prevailing party,
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whether it is the employee or the employer. In other words,
the fee-shifting statute is two-way. Supporters argue that
the prospect of being forced to pay substantial legal fees,
potentially many times higher than the amount of the
employee's unpaid wages, is a significant deterrent to
asserting what may be valid claims, causing considerable
under-enforcement of the law."
Consequently, SB 462 sought to clarify the existing two-way fee
shifting provision of section 218.5 by expressly providing that
where the prevailing party is a non-employee (e.g., the
employer), fees are to be awarded only upon a judicial finding
that the employee brought the action in bad faith. Again,
according to the Assembly Judiciary Committee analysis:
"The reason for a higher standard of course is that wage
laws reflect a fundamental policy of the state, the
vindication of which is largely left to employees. The
premise of this bill is that the great expense and
unpredictability of exposure to attorney's fees liability
is likely to chill the pursuit of potentially valid claims
by employees of limited means, contrary to the important
policy objectives of the statutory scheme."
Therefore, supporters of this bill contend that it is consistent
with the bad faith standard adopted last year in SB 462:
"Modeled after SB 462 (Monning) (Stats. 2013, Ch. 142),
that was sponsored and supported by the California
Employment Lawyers Association as well as labor groups,
[this bill] seeks to discourage such frivolous litigation
by awarding an employer attorney's fees if the employer can
prove the litigation was filed in 'bad faith.' As the
former president of the Consumer Attorneys of California
stated last year in support of SB 462, '[t]he additional
bad faith language echoes [] the 'frivolous, unreasonable,
or without foundation' standard under the FEHA fee-shifting
provision, which shares with the Labor Code a policy of
encouraging private enforcement of its statutes.' Similar
to SB 462, [this bill] will only award attorneys' fees to
an employer if the lawsuit is proven to be frivolous,
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unreasonable or without foundation."<1>
However, supporters of SB 462 have a different view of the
precedential effect of the standard adopted last year in that
bill. As the sponsor of that bill, the California Employment
Lawyers Association, states:
"Last year, our organization sponsored a bill, SB 462
(Monning), that would allow an employer to recover
attorneys' fees if the court determined that a claim under
Labor Code Section 218.5 was brought in bad faith.
While this bill is similar in that it allows the employer
to recover attorneys' fees for bad faith actions, the
intent of our bill was very different than [this bill]. SB
462 addressed an anomaly in the Labor Code which, prior to
the passage of SB 462, allowed an employer to recover
attorneys' fees simply if the employee lost in a wage claim
action under Labor Code Section 218.5.
California was one of only three states with a pure
'prevailing party' standard where an employee could
unconditionally be liable for the employer's attorneys'
fees in a wage claim action if the employer prevailed. This
-------------------------
<1> It should also be noted that supporters of this bill opposed
SB 462 last year and argued that the "bad faith" standard was
too limiting and unworkable:
"A coalition of opposition argues that this bill 'undermines the
Supreme Court and the clear language of the Labor Code that has
been in place since 1986, in order to provide a one-sided
attorney fee provision that will incentivize further meritless
wage and hour litigation. . . . [Existing law's] two-way
attorney's fee shifting provision was recently affirmed by the
Supreme Court in Kirby v. Immoos Fire Protection, 53 Cal.4th
1244 (2012). SB 462 alters [Labor Code] section 218.5 and the
Court's holding by providing that an employer may only obtain
its attorney's fees if the employer can prove the action was
brought in bad faith. 'Bad faith' is a difficult standard to
prove and will substantially limit an employer's ability to
recover its attorney's fees for defending litigation that lacked
merit. . . . SB 462 disrupts this balance by limiting an
employer's ability to recover its attorney's fees for meritless
claims, which could create more frivolous litigation.' (From
Assembly Labor Committee Analysis of SB 462).
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anomalous provision was also one of only two provisions in
the entire California Labor Code that provided for
attorneys' fees for a prevailing defendant. Most provisions
of the Labor Code allow only a prevailing employee to
recover attorneys' fees.
The basic underpinning of this traditional 'prevailing
employee' rule is that it allows aggrieved workers to 'seek
redress in situations where they would otherwise not find
it economical to sue,' (Earley v. Superior Court, 79
Cal.App. 4th at 1430-31) and is based on a fundamental
recognition that employers 'can more readily afford a
protracted' litigation than can their employees. (Jones v.
Tracy School Dist., 27 Cal.3d 99, 111)
As described above, the California Labor Code almost
entirely provides for a 'prevailing employee' standard for
awarding attorneys because of the recognition that a
financial risk, which could be hundreds of thousands of
dollars, is too much to bear, especially for low wage
workers.
Our amendments under SB 462 allowed employers to recover
attorneys' fees for actions found by a court to have been
brought in bad faith as a compromise for eliminating the
existing unconditional liability for employees under Labor
Code 218.5.
Our strong belief is that all provisions of the Labor Code
should allow only for a 'prevailing employee' to recover
attorneys' fees because the vast majority of employees
simply do not have the resources to bear the risk of paying
the employer's attorneys' fees."
Similarly, the California Labor Federation, AFL-CIO writes:
"In 2013, one of the only sections of the Labor Code that
provided for prevailing party attorney fees was amended to
say that when the prevailing party was not the employee,
attorney's fees were only owed if there was bad faith. That
was a compromise reached by parties representing business
and workers because the provision already provided for
two-way fee shifting.
[This bill] seeks to impose a two-way fee shifting
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structure onto claims for failure to provide accurate pay
stubs, which under existing law only permits a prevailing
plaintiff to get attorney's fees. While that may sound
innocuous, it will actually be used by abusive employers to
further discourage workers from filing claims. It will also
cut off access to representation if attorneys worry their
fees will go unpaid."
ARGUMENTS IN SUPPORT :
According to the author, employers have seen a growing trend of
frivolous litigation being filed for alleged technical
violations of Labor Code Section 226 regarding itemized wage
statements that cause no injury to the employee. Labor Code
Section 226 was enacted in order to make sure employees were
properly notified of who their employer is, their wage rates,
and total compensation for each pay period. The frivolous
lawsuits being filed allege violations that have nothing to do
with identifying the employer or the payment of wages.
For example, the author points to a recent case filed in federal
court, Elliot v. Spherion Pacific Work, LLC, 210 WL 675574
(2010), as illustrative of this emerging trend. In Elliot, an
employee alleged a cause of action under Labor Code Section 226
because the employer used a truncated name on the wage
statement. Specifically, the employer's name on the wage
statement was "Spherion Pacific Work, LLC," instead of
Spherion's legal name, "Spherion Pacific Workforce, LLC." The
employee did not allege that this truncated version of the
employer's name misled her, confused her, or caused her any
injury. Although the court ultimately dismissed this cause of
action through summary judgment, the employer incurred
unnecessary legal costs and attorney's fees to have the cause of
action dismissed.
Similarly, the California Chamber of Commerce and other
supporters of this bill state that it will discourage bad faith
litigation regarding alleged technical violations of an itemized
wage statement that do not harm the employee.
They contend that, despite the good intentions of Labor Code
Section 226, there has been a recent trend by plaintiffs'
attorneys to abuse this section and file litigation for "ticky
tack" violations that do not actually result in any harm to the
employee. They note that current law sets forth eight
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categories of information that must be included in an itemized
wage statement provided to the employee. The intent and purpose
of this information is to notify the employee of who his/her
employer is, and how their wages were calculated. An employer's
failure to include required information in the wage statement
can subject the employer to an action for injunction or a
representative action under Labor Code Section 2699. Also, if
an employee "suffers injury" as defined in Section 226(e)(1), as
a result of the error or omission in the wage statement, the
employee is entitled to statutory penalties up to $4,000.
They argue that while this bill will not eliminate all cases
that lack merit, it will certainly dissuade the filing of some
frivolous cases. Any reduction of bad faith litigation will
allow employers to devote more financial resources to growing
their business and growing their workforce. It will also help
reduce the overloaded dockets for courts so that legitimate
cases may be resolved in a more efficient manner.
ARGUMENTS IN OPPOSITION :
Opponents argue that California's economy is increasingly made
up of low-wage workers who struggle day to day to make ends
meet. They suffer daily indignities and abuses but rarely
report them out of fear they will be punished or fired. They
cannot afford lawyers and often have little access to justice
even when they are willing to take the risks that come with
stepping forward. For these reasons, the California Labor Code
generally provides that only the prevailing plaintiff can
recover attorney's fees. This allows workers who would otherwise
have no way to challenge unfair and illegal practices to find
representation and hold their employer accountable.
They contend that this bill will simply be used as a mechanism
to deter all low-wage workers from bringing valid claims under
Labor Code Section 226 because of the enormous financial threat
it poses. Legal advocates and attorneys would be required to
disclose to all clients any financial liability that may occur
while pursuing their case. For many workers, any risk at all is
enough to deter them from moving forward. Under the proposed
amendments to Labor Code 226, if an employee lost a claim, many
employers would inevitably file a motion for attorneys' fees and
argue that the claim was brought in bad faith. These kinds of
motions are wasteful, injudicious, and are often used only as a
threat against workers with limited resources. An employer that
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establishes a reputation for bringing such motions, even
unsuccessful ones, can succeed in dissuading workers and their
counsel from pursuing just claims. The courts and their public
funding should not be used for intimidation.
In addition, opponents argue that this bill is not needed in
light of the recent changes made to Labor Code Section 226 as
discussed above. For example, the California Labor Federation,
AFL-CIO states:
"In addition, this bill is unnecessary. The standards to
file a claim over a paystub violation were already
tightened up to eliminate technical and frivolous
violations. (SB 1255 (Wright) 2012.) The standard now is
that workers cannot show the requisite harm unless they are
unable to determine from the pay stub if they were paid
properly. That was language agree to by business and labor
and there is no need to further restrict access to justice
for something as fundamental as being able to determine if
one was paid properly for the hours worked."
REGISTERED SUPPORT / OPPOSITION :
Support
Acclamation Insurance Management Services
Air Conditioning Trade Association
Allied Managed Care
Associated Builders and Contractors - San Diego Chapter
Associated Builders and Contractors of California
Associated General Contractors
Brawley Chamber of Commerce
Brea Chamber of Commerce
California Apartment Association
California Association for Health Services at Home
California Association of Licensed Security Agencies, Guards and
Associates
California Association of Winegrape Growers
California Chamber of Commerce
California Chapter of American Fence Association
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California Employment Law Council
California Farm Bureau Federation
California Fence Contractors' Association
California Hospital Association
California Hotel and Lodging Association
California Independent Grocers Association
California Manufacturers and Technology Association
California Professional Association of Specialty Contractors
California Restaurant Association
California Retailers Association
Chambers of Commerce Alliance of Ventura & Santa Barbara
Counties
Civil Justice Association of California
Desert Hot Springs Chamber of Commerce
El Centro Chamber of Commerce
Engineering Contractors' Association
Flasher Barricade Association
Fullerton Chamber of Commerce
Greater Fresno Area Chamber of Commerce
Greater San Fernando Valley Chamber of Commerce
Long Beach Area Chamber of Commerce
Marin Builders Association
National Federation of Independent Business
Oxnard Chamber of Commerce
Palm Desert Area Chamber of Commerce
Plumbing-Heating-Cooling Contractors Association of California
Porterville Chamber of Commerce
Redondo Beach Chamber of Commerce
San Diego East County Chamber of Commerce
San Gabriel Valley Coalition
San Jose Silicon Valley Chamber of Commerce
Santa Clara Chamber of Commerce and Convention-Visitors Bureau
Simi Valley Chamber of Commerce
Southwest California Legislative Council
The Chamber of the Santa Barbara Region
Torrance Area Chamber of Commerce
Turlock Chamber of Commerce
Valley Industry & Commerce Association
Visalia Chamber of Commerce
Western Electrical Contractors Association
Opposition
California Conference of Machinists
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California Conference of the Amalgamated Transit Union
California Employment Lawyers Association
California Labor Federation, AFL-CIO
California Nurses Association
California Rural Legal Assistance Foundation
California Teamsters Public Affairs Council
Consumer Attorneys of California
Engineers & Scientists, Local 20
International Longshore and Warehouse Union, Coast Division
Professional & Technical Engineers, Local 21
Service Employees International Union
State Building and Construction Trades Council
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Utility Workers Union of America, Local 132
Analysis Prepared by : Ben Ebbink / L. & E. / (916) 319-2091