BILL ANALYSIS Ó SENATE COMMITTEE ON LABOR AND INDUSTRIAL RELATIONS Senator Tony Mendoza, Chair 2015 - 2016 Regular Bill No: AB 1506 Hearing Date: June 24, 2015 ----------------------------------------------------------------- |Author: |Roger Hernández | |-----------+-----------------------------------------------------| |Version: |June 15, 2015 | ----------------------------------------------------------------- ----------------------------------------------------------------- |Urgency: |No |Fiscal: |Yes | ----------------------------------------------------------------- ----------------------------------------------------------------- |Consultant:|Alma Perez-Schwab | | | | ----------------------------------------------------------------- Subject: Labor Code Private Attorneys General Act of 2004. KEY ISSUES Should the Legislature provide an employer with the right to "cure" the minor violations of (1) not including the dates of the pay period on an employee's wage statement or (2) not including the correct legal name and address of the employer before an aggrieved employee can bring a civil action under the Private Attorneys' General Act? 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 (Labor Code §226): 1) Gross wages earned; 2) Total hours worked by the employee (except salaried exempt employees); 3) Piece rate units earned and the applicable piece rate, if paid on a piece rate basis; 4) All deductions; AB 1506 (Roger Hernández) Page 2 of ? 5) Net wages earned; 6) Inclusive dates of the pay period; 7) Name of the employee and the last four digits of his/her social security number or employee identification number; 8) 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 during the pay period and the corresponding number of hours the employee worked at each hourly rate. 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. Under existing law , an employee is deemed to suffer injury if the employer fails to: 1. Provide a wage statement. 2. Provide accurate and complete information as required in items (1) to (9) above and the employee cannot promptly and easily determine from the wage statement alone one or more of the following: a. Amount of gross wages or net wages paid or any of the other information required to be provided on the itemized wage statement. b. Which deductions the employer made to determine net wages paid. c. The name and address of the employer, and if the employer is a farm labor contractor, the name and address of the legal entity that secured the services. d. Name of the employee and last four digits of his/ her SSN or employee ID number. Under the existing Private Attorneys General Act of 2004 (PAGA) , any provision of the Labor Code that provides for a civil penalty to be assessed and collected by the Labor and Workforce Development Agency or any of its departments, divisions, AB 1506 (Roger Hernández) Page 3 of ? commissions, boards, agencies, or employees, for a violation of this code, may, as an alternative, be recovered through a civil action brought by an aggrieved employee on his/her behalf or that of other current and former employees. Among other things, PAGA authorizes (Labor Code §2698-2699.3): 1. For all provisions of this code, except those for which a civil penalty is specifically provided, a civil penalty for a violation of these provisions, as specified. 2. An aggrieved employee who prevails in a civil action may recover the civil penalties awarded and shall be entitled to an award of reasonable attorney's fees and costs. 3. Employers to "cure" the alleged violation within a specified timeframe. The employer must give written notice to the employee (or representative) and the agency of the action taken to cure the violation and no civil action may commence. If the alleged violation is not cured within the specified time, the employee may commence the civil action. a. "Cure" means the employer abates each violation alleged, he/she is in compliance with the underlying statutes, and all aggrieved employees are made whole. 4. Civil penalties recovered by aggrieved employees are divided, giving 75 percent to the Labor and Workforce Development Agency and 25 percent to the aggrieved employees. This Bill would amend PAGA in order to provide employers with the right to cure a violation of law related to itemized wage statements before a civil action can be brought by an aggrieved employee. Specifically, this bill: 1. Provides that if the alleged violation involves the wage statement's inclusion of (1) the name and address of the employer, or (2) the inclusive dates of the pay period, then the employer shall have an opportunity to "cure" the violation before a PAGA claim may be filed. 2. Specifies that "cure" in this case means that the employer has provided a fully compliant, itemized wage AB 1506 (Roger Hernández) Page 4 of ? statement to aggrieved employees for each pay period of the previous three-years. 3. Deletes references to obsolete provisions of law. COMMENTS 1. Background on the Private Attorneys General Act of 2004 (PAGA): The Labor Code Private Attorneys General Act went into effect on January 1, 2004 pursuant to SB 796 (Dunn) of 2003. The Legislative findings accompanying the enactment of SB 796 stated the following: "Adequate financing of essential labor law enforcement functions is necessary to achieve maximum compliance with state labor laws in the underground economy and to ensure an effective disincentive for employers to engage in unlawful and anticompetitive business practices. Although innovative labor law education programs and self-policing efforts by industry watchdog groups may have some success in educating some employers about their obligations under state labor laws, in other cases the only meaningful deterrent to unlawful conduct is the vigorous assessment and collection of civil penalties as provided in the Labor Code. Staffing levels for state labor law enforcement agencies have, in general, declined over the last decade and are likely to fail to keep up with the growth of the labor market in the future. It is therefore in the public interest to provide that civil penalties for violations of the Labor Code may also be assessed and collected by aggrieved employees acting as private attorneys general, while also ensuring that state labor law enforcement agencies' enforcement actions have primacy over any private enforcement efforts undertaken pursuant to this act." The author and sponsors of SB 796 argued that the bill would address inadequacies in labor law enforcement in two major ways. First, the bill assigned civil fine amounts to the large number of Labor Code provisions, which previously AB 1506 (Roger Hernández) Page 5 of ? carried prohibitions or criminal fines, but not civil penalties. Second, it authorized the filing of civil actions to recover existing and new civil penalties by aggrieved workers acting as private attorneys general. The provisions of PAGA were significantly amended by SB 1809 (Dunn) of 2004 by enacting specified procedural and administrative requirements that must be met prior to bringing a private action to recover civil penalties. Moreover, SB 1809 provided that no action shall be brought for a posting, notice, agency reporting, or filing requirement, except as specified. Provisions of SB 1809 also expanded judicial review of PAGA claims by requiring courts to review and approve any penalties sought as part of a proposed settlement agreement, and those portions of settlements concerning violations of health and safety laws. In addition, courts were authorized to award a lesser amount if to do so otherwise would result in an award that is unjust, arbitrary and oppressive, or confiscatory. 2. Procedural Requirements under PAGA: As discussed above, SB 1809 significantly amended the provisions of the PAGA by enacting specified procedural and administrative requirements that must be met prior to bringing a private action to recover civil penalties. SB 1809 essentially enacted three different procedural requirements depending on the type of violation. First, for "serious" labor code violations, SB 1809 established a new procedure that an aggrieved employee must follow prior to bringing a civil action to recover penalties for enumerated, serious Labor Code violations (including, but not limited to, violations of wage and hour, overtime, child labor, agricultural, entertainment and garment industry labor laws, and public works laws). First, the aggrieved employee must provide written notice of the violation to the Labor and Workforce Development Agency (LWDA) and to the employer. The LWDA has 30 days to decide if it will investigate the violation. If the LWDA decides to investigate, it must notify the employer and the aggrieved employee within 33 days. Within 120 days of that decision, the LWDA may investigate and issue any appropriate citation. If the LWDA fails to act, the aggrieved employee may pursue a civil action under PAGA. AB 1506 (Roger Hernández) Page 6 of ? Second, it established specified "notice and cure" provisions for those Labor Code violations not enumerated as "serious" above, nor subject to the Cal-OSHA provisions specified below. For these violations, the aggrieved employee must give written notice to the LWDA and the employer of the alleged violation. The employer may "cure" the violation within 33 days and give written notice to the employee and the LWDA of its actions. If the violation is cured, no civil action pursuant to PAGA may commence. If the alleged violation is not cured, the aggrieved employee may commence a civil action pursuant to PAGA. If the aggrieved employee disputes that the alleged violation has been cured, the employee must provide written notice to the employer and the LWDA - who must then review the actions of the employer and make a determination. If the LWDA determines that the violation has not been cured or if the agency fails to provide timely or any notification, the aggrieved employee may proceed with a civil action pursuant to PAGA. If the agency has determined that the alleged violation has been cured, but the employee still disagrees, the employee may appeal that determination to the superior court. Finally, with regards to health and safety violations, SB 1809 established procedures that an aggrieved employee must follow prior to initiating a civil action to recover penalties for violations, other than sections that are specifically enumerated as serious violations. First, the aggrieved employee must give written notice to the Division of Occupational Safety and Health (DOSH) within the Department of Industrial Relations (DIR) and the employer of the alleged violation. DOSH must inspect or investigate the alleged violation and if DOSH issues a citation, no civil action pursuant to PAGA may commence. If, by the end of the period for inspection or investigation, DOSH fails to issue a citation and the employee disputes that decision, the employee may challenge the decision in the superior court. If the court finds that DOSH should have issued a citation and orders DOSH to issue a citation, then no civil action pursuant to PAGA may commence. If DOSH fails to inspect or investigate the alleged violation within the period specified in existing law, the "notice and cure" provisions outlined above apply to the determination of the alleged violation. 3. Recent Concerns over PAGA Litigation for "Minor" Violations: AB 1506 (Roger Hernández) Page 7 of ? According to the author, recently some employers have reported being sued under PAGA over very minor or technical violations of the itemized wage statement requirements in law. These examples include: (1) placing the company logo on the wage statement rather than spelling out the name of the employer; (2) failing to include items like "LLC", "LP", or "Inc." after the name of the employer; and (3) listing the last date of the pay period, but not the beginning date of the pay period (even though the employees are paid every two weeks. Some employers have reported that because the civil penalties can be quite large, even for such minor violations, they have been forced to settle such claims for hundreds of thousands of dollars rather than risk higher penalty awards by litigating the claims further. The author cites as an example of such litigation, the case of Elliot v. Spherion Pacific Work, LLC, 572 F.Supp.2d 1169 (2008), in which 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, the employer incurred unnecessary legal costs and attorney's fees to have it dismissed. 4. Need for this bill? Under current law, alleged violations of Labor Code Section 226 are enumerated as "serious" violations under the first procedural mechanism under PAGA. Therefore, an aggrieved employee must first provide written notice of the violation to the LWDA and to the employer. If the LWDA fails to act, the aggrieved employee may pursue a civil action under PAGA for the alleged violation. Because of the recent upward trend of cases being filed under PAGA for the minor violations of not including the dates of the pay period or not including the correct name of the employer, the author believes it is necessary to amend PAGA to give employers the opportunity to "cure" such violations before a case can be brought. This bill proposes to delete Labor Code Section 226 from the list of enumerated "serious" AB 1506 (Roger Hernández) Page 8 of ? violations described above. Therefore, these two specific types of claims for violation of Labor Code 226 would fall under the "notice and cure" provisions of PAGA giving employer the ability to cure the alleged violation within the time provided in PAGA. All other remaining parts of the itemized wage statements would remain as enumerated "serious" violations under PAGA for which an employer would not have an opportunity to cure. Moreover, the bill specifies that "cure" means that the employer must issue fully compliant wage statements to employees for the entire statutory period (three years). This will ensure that employees are provided with accurate wage statements but will also ensure that employers have an opportunity to remedy the situation prior to facing litigation over minor violations. 5. Proponent Arguments : According to proponents, Under PAGA, an employee can immediately sue for the Labor Code violations listed in Labor Code Section 2699.5, including failure to include all the information required in an itemized wage statement. Proponents argue that this is one area in which employers have seen an increase in frivolous litigation regarding technical violations that do not harm or injure the employee. They cite as an example a company who was sued for millions of dollars in PAGA penalties and attorney's fees in Yolo County because the itemized wage statement only included the ending date of the pay period, yet specified the employee was paid on a weekly basis. Proponents cite an April 16, 2014 Los Angeles Daily Journal article titled "An Alternative to Employee Class Actions," which reported that PAGA lawsuits have increased over 400% between 2005 and 2013, given the ease of filing such cases without satisfying class action requirements and the potential financial windfall. The author and proponents of this bill believe that it will help curb this type of frivolous litigation under PAGA with regard to only two sections of Labor Code, by allowing an employer 33 days to cure any alleged violation. If the employer cannot cure the violation, then the employee would still be able file a civil action and obtain any unpaid wages, penalties and attorney's fees. They argue that this reform would provide the appropriate balance of allowing an employer AB 1506 (Roger Hernández) Page 9 of ? to correct unintentional errors for minor violations without the threat of a multi-million dollar lawsuit that could put the employer out of business, while still protecting the employee's ability to obtain accurate information. 6. Opponent Arguments : None received. 7. Prior Legislation : AB 588 (Grove) of 2015: Assembly Labor and Employment Committee AB 588 is almost identical to this bill and would have provided an employer with the right to cure a violation of wage statement law requirements before an employee may bring a civil action under PAGA. The first bill hearing was canceled at the request of the author. SB 1255 (Wright) of 2012: Chaptered SB 1255 provided a statutory definition of what constitutes "suffering injury" for purposes of recovering damages pursuant to the itemized wage statements requirements including failure by the employer to provide a wage statement or failure to provide accurate or complete information regarding the other specified items, as specified. SUPPORT California Chamber of Commerce Air Conditioning Trade Association Associated Builders and Contractors of California Associated Builders and Contractors - San Diego Chapter Associated General Contractors Association of California Insurance Companies Brea Chamber of Commerce California Ambulance Association California Apartment Association California Asian Pacific Chamber of Commerce California Association of Bed and Breakfast Inns California Association of Licensed Security Agencies, Guards and Associations California Association of Realtors California Bankers Association AB 1506 (Roger Hernández) Page 10 of ? California Business Properties Association California Business Roundtable California Cotton Ginners Association California Cotton Growers Association California Defense Counsel California Employment Law Council California Farm Bureau Federation California Forestry Association California Fresh Fruit Association California Grocers Association California Hotel and Lodging Association California League of Food Processors California Manufacturers and Technology Association California Pool & Spa Association California Professional Association of Specialty Contractors California Restaurant Association California Retailers Association California State Council of the Society for Human Resource Management Camarillo Chamber of Commerce Chambers of Commerce Alliance Ventura & Santa Barbara Counties Civil Justice Association of California CompTIA Family Business Association of California Fullerton Chamber of Commerce Goleta Valley Chamber of Commerce Greater Bakersfield Chamber of Commerce Irvine Chamber of Commerce Lodi Chamber of Commerce National Federation of Independent Business Oxnard Chamber of Commerce Plumbing-Heating-Cooling Contractors Association of California Rancho Cordova Chamber of Commerce Sierra Pacific Industries Simi Valley Chamber of Commerce Southwest California Legislative Council Torrance Area Chamber of Commerce Valley Industry & Commerce Association Verizon Western Agriculture Processors Association Western Electrical Contractors Association Western Growers Association Wine Institute AB 1506 (Roger Hernández) Page 11 of ? OPPOSITION None received -- END -