BILL ANALYSIS Ó
AB 2095
Page 1
Date of Hearing: May 6, 2014
ASSEMBLY COMMITTEE ON JUDICIARY
Bob Wieckowski, Chair
AB 2095 (Wagner) - As Introduced: February 20, 2014
SUBJECT : EMPLOYEE COMPENSATION: ITEMIZED STATEMENTS: ATTORNEY'S
FEES
KEY ISSUES :
1)SHOULD THE LEGISLATURE turn the one-way fee shifting provision
in Labor Code Section 226(h) into a two-way fee shifting
provision?
2)GIVEN RECENT IMPROVEMENTS IN THE LAW, IS THIS BILL NECESSARY
TO ADDRESS THE CONCERNS ABOUT THE POTENTIAL FOR FRIVOLOUS
LITIGATION IN ITEMIZED WAGE STATEMENT CASES?
3)MIGHT THE RISK OF BEING REQUIRED TO PAY AN EMPLOYER'S ATTORNEY
FEES WHEN THE EMPLOYEE DOES NOT PREVAIL SUBSTANTIALLY
DISCOURAGE EMPLOYEES FROM FILING POTENTIALLY VALID WAGE CLAIMS
SEEKING TO ENFORCE THE LAW REQUIRING ACCURATE ITEMIZED WAGE
STATEMENTS?
SYNOPSIS
Under Labor Code Section 226, an employee may bring an action
for injunctive relief to enforce the right to have his or her
employer provide an accurate itemized wage statement (sometimes
referred to as a "pay stub.") This bill, sponsored by the
Chamber of Commerce, seeks to turn the one-way fee shifting
provision in Labor Code Section 226(h) into a two-way fee
shifting provision because of concern that there is frivolous
litigation in itemized wage statement cases. Instead of
allowing only the employee to bring the action to be awarded his
or her costs and reasonable attorney's fees in such cases, this
bill would authorize an employer to recover reasonable
attorney's fees and costs from an employee for claims under
Section 226 where the employer is the prevailing party and the
court determines that the action was brought in bad faith.
Proponents of the bill, including many business and industry
groups, contend that the bill is needed to combat a reported
trend of frivolous litigation being filed for alleged technical
violations of Section 226 that cause no injury to the employee,
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and that it is fair and appropriate to award attorney's fees to
employers who can prove that such litigation was filed in bad
faith. The bill is opposed by many employee representatives,
the Consumer Attorneys, and the employment lawyers association,
among others. These opponents contend that imposing a two-way
fee shifting provision upon Section 226, which currently only
permits a prevailing plaintiff to get attorney's fees, would
discourage workers from bringing potentially valid claims and
have an undesirable chilling effect on the pursuit of valid
redress. Opponents also contend generally that the bill is
unnecessary because existing law sufficiently addresses problems
associated with frivolous litigation, and proponents have not
demonstrated sufficient evidence to the contrary.
SUMMARY : Establishes a two-way fee shifting structure
("prevailing-plaintiff standard") for certain claims relating to
itemized wage statements. Specifically, this bill authorizes an
employer to recover reasonable attorney's fees and costs from an
employee for specified claims of failure to provide an accurate
itemized wage statement, 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. (Labor Code Section
226(a). All further references are to this code unless
otherwise stated.)
2)Provides that an employee is deemed to suffer injury for
purposes of these provisions if the employer fails to provide
a wage statement. (Section 226(e)(1).)
3)Provides an employee is deemed to suffer injury for purposes
of these provisions if the employer fails to provide accurate
and complete information, as specified, and the employee
cannot promptly and easily determine from the wage statement
alone one or more of the following:
a) The amount of the 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.
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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 the
employer is a farm labor contractor, as defined, 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 other than a social security number.
(Section 226(e)(2)(b).)
4)Authorizes an employee to bring an action for injunctive
relief to ensure compliance with these requirements, and
provides that he or she is entitled to an award of costs and
reasonable attorney's fees in bringing such an action.
(Section 226(h).)
5)Provides that every trial court may order a party, the party's
attorney, or both to pay any reasonable expenses, including
attorney's fees, incurred by another party as a result of
bad-faith actions or tactics that are frivolous or solely
intended to cause unnecessary delay. (Code of Civil Procedure
Section 128.5.)
6)Authorizes sanctions against parties and attorneys that act in
bad faith, as provided. (Code of Civil Procedure Section
128.7.)
FISCAL EFFECT : As currently in print this bill is keyed
non-fiscal.
COMMENTS : Under Labor Code Section 226, an employee may bring
an action for injunctive relief to enforce the right to have his
employer provide an accurate itemized wage statement (sometimes
referred to as a "pay stub.") This bill, sponsored by the
Chamber of Commerce, seeks to turn the one-way fee shifting
provision in Labor Code Section 226(h) into a two-way fee
shifting provision. Instead of allowing only the employee
bringing the action to be awarded his costs and reasonable
attorney's fees, this bill would authorize an employer to
recover reasonable attorney's fees and costs from an employee
for claims under Section 226 where the employer is the
prevailing party and the court determines that the action was
brought in bad faith.
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Legislative History Of Penalties Under Section 226: Beginning
in 1943, 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, including
hourly rates and total hours worked, among others.
Subdivision (e) provides specific monetary relief for violation
of itemized statement requirements imposed on employers by
subdivision (a), and was added by AB 3731 (Lockyer), Ch. 832,
Stats.1976. The Assembly Labor Committee analysis of the bill
(May 18, 1976) stated that "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 creating such potential redress for
injured employees, California Rural Legal Assistance, Inc.,
described the ways in which employees could be injured by
non-compliance with the statute:
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 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.
Is This Bill Necessary Given Existing Protections Against
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Frivolous Litigation? According to the author, the bill is
needed to combat frivolous litigation arising from Section 226.
The author states:
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. AB 2095 would help to
deter some of the frivolous litigation, by awarding
attorney's fees to employers who can prove the litigation
was filed in bad faith.
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, the author
states, 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 the measure 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 insignificant
violations that do not actually result in any harm to the
employee. 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
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growing their business and growing their workforce. They
contend that the bill will also help reduce the overloaded
dockets for courts so that legitimate cases may be resolved in a
more efficient manner.
Countering the claim that the bill is necessary, opponents
contend the bill is unnecessary, particularly in light of recent
enhancements to Section 226 negotiated between business and
labor interests just last year. The California Employment
Lawyers Association (CELA) state:
The standards to file a claim over a paystub violation
were already tightened up to eliminate technical and
frivolous violations pursuant to SB 1255 (Wright) Ch.
843, Stats. 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 agreed 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.
Consumer Attorneys of California (CAOC) argue that the bill is
unnecessary because "the existing frivolous litigation statute,
Code of Civil Procedure Section 128.7, already covers situations
where an employee brings a frivolous claim against his
employer." In addition, CAOC contends that:
The bill attempts to address a flaw that has already
been corrected by SB 462 (Monning), Ch. 142, Stats.
2013. SB 462 retains the right of employers to recover
attorney's fees when they prevail, but requires
evidence that the employee's action was brought in bad
faith. The bill was enacted in response to a recent
court case, Kirby v. Immoose Fire Protection, Inc., 52
Cal 4th 1255 (2012), which left open the attorney's fee
standard for employee wage claim actions. SB 462
corrected this flaw by clarifying that an employer is
entitled to attorney's fees where the employee brought
the action in bad faith.
In response, the sponsor contends that this bill "will only
deter bad faith litigation from being filed, which is a very
high standard [citations omitted]. If an employee has suffered
an injury as a result of any omission or error on the itemized
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wage statement, they will not be impacted by this legislation
and in fact, will be eligible for the award of a statutory
penalty under subdivision (e) of Section 226."
Might A Two-Way Fee Shifting Provision Inadvertently Have A
Serious Chilling Effect On Employee Wage Claims Under Section
226? Opponents of the bill contend that imposing a two-way fee
shifting provision upon Section 226, which currently only
permits a prevailing plaintiff to get attorney's fees, would
discourage workers from bringing valid claims. CAOC states
that:
Adding a fee shifting provision would substantially
impact workers. The risk of being forced to pay an
employer's attorney fees simply because the employee
does not prevail, will substantially deter employees
from bringing potentially valid claims because the
expense would be crippling. This bill could also be
used to intimidate workers in negotiations and
mediations because of the potential consequences of
bringing an unsuccessful suit.
CELA also opposes the bill for similar reasons, stating:
In reality, 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. Our attorneys must 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
this bill, 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 establishes a reputation
for bringing such motions, even unsuccessful ones, can
succeed in dissuading workers and their counsel from
pursuing just claims.
Proponents contend that the bill mirrors a similar two-way fee
shifting provision from SB 462 (Monning) Ch. 142, Stats. 2013,
that was sponsored and supported by CELA as well as labor groups
when enacted last year. They contend that the bill is merely
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consistent with the bad faith standard adopted last year in SB
462, stating:
Modeled after SB 462 (Monning), [this bill] seeks to
discourage 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, unreasonable or without foundation."
CELA, the sponsors of SB 462 and current opponents of this bill,
dispute this comparison between SB 462 and the present bill.
Despite their superficial similarities, CELA argues, the intent
of this bill is very different from the intent of SB 462. CELA
states:
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 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
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employees. (Jones v. Tracy School Dist., 27 Cal.3d 99,
111.)
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
(emphasis added) 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."
In short, SB 462 targeted one of the few sections in the Labor
Code providing for prevailing party attorney fees (i.e. two-way
fee shifting), and, as the result of compromise between business
and labor groups, amended the rule to provide that when the
prevailing party was not the employee, attorney's fees were only
awarded if there was bad faith on the part of the employee.
This bill is distinguishable because it operates on a section of
law, Section 226, that does not already provide for two-way fee
shifting. Instead it seeks to move from the current
prevailing-employee standard, widely embraced throughout the
Labor Code because of its protection of employees, towards the
prevailing-plaintiff standard which, for the reasons described
above, is likely to have a chilling effect on potentially valid
employee wage claims.
Previous/Pending Related Legislation : AB 2494 (Cooley) of 2014
seeks to authorize additional sanctions against parties and
attorneys that act in bad faith. This bill was unanimously
approved by this Committee and is awaiting referral to the
Assembly floor.
SB 462 (Monning), Ch. 142, Stats. 2013, established that if the
prevailing party in an action pursuant to Labor Code Section
218.5 is not an employee, attorney's fees and costs shall be
awarded only if the court finds that the employee brought the
court action in bad faith.
SB 1255 (Wright), Ch. 843, Stats. 2012, revised the statutory
definition of what constitutes "suffering injury" for purposes
of recovering damages pursuant to Labor Code Section 226.
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REGISTERED SUPPORT / OPPOSITION :
Support
California Chamber of Commerce (sponsor)
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 Chapter of American Fence Association
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
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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
California Conference of the Amalgamated Transit Union
California Employment Lawyers Association (CELA)
California Federation of Teachers
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
UNITE HERE
Utility Workers Union of America, Local 132
Analysis Prepared by : Anthony Lew / JUD. / (916) 319-2334