BILL ANALYSIS �
Senate Committee on Labor and Industrial Relations
Ted W. Lieu, Chair
Date of Hearing: April 11, 2012 20011-2012 Regular
Session
Consultant: Alma Perez Fiscal:No
Urgency: No
Bill No: SB 1255
Author: Wright
As Introduced/Amended: March 29, 2012
SUBJECT
Employee compensation: itemized statements
KEY ISSUE
Should the Legislature statutorily define a term in code to
provide clarity regarding the information that must be included
in a workers wage statement in order to be compliant with labor
law?
PURPOSE
To define what constitutes "suffering injury" for purposes of
recovering damages pursuant to the itemized statements
requirements in current law.
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;
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.
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 would provide 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 would provide that an employee is deemed
to suffer injury if:
1) The employer fails to provide a wage statement or if the
wage statement fails to show the name of the employee and
the last four digits of his/her social security number or
employee identification number;
2) The employer fails to provide accurate and complete
information as required by law -- the gross wages, net
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wages, pay period dates, deductions, etc. �Labor Code
�226(a)]-- and the employee cannot promptly and easily
determine from the wage statement alone one or more of the
following:
i. The amount of the gross and net wages paid and
how those were determined by reference only to the
information on the wage statement, as specified;
ii. Which deductions the employer made from gross
wages to determine the net wages paid;
iii. 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
of the employer.
1) For purposes of the bill, "promptly and easily
determine" is defined as a reasonable person who would be
able to readily ascertain the information without reference
to other documents or information.
COMMENTS
1. Background and Recent Court Case Summaries:
Beginning in 1943, Labor Code �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 �226, in 1976 a
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Senate Committee on Labor and Industrial Relations
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 � 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 �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 injury. Overall, it was decided
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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 �Jaimez 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)
2. Need for this bill?
The remedy provided under Labor Code �226 was added
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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 �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 would provide 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 �226, and provides the courts with an
appropriate framework for addressing these issues in the
future.
3. Proponent Arguments :
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
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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.
4. Opponent Arguments :
None received
5. Double Referral :
Should this bill be passed by this Committee, it will next be
referred to the Senate Judiciary Committee for a hearing.
6. Prior Related Legislation :
AB 243 (Alejo) of 2011: Chaptered
AB 243 requires an employer who is a farm labor contractor
(FLC) to disclose on the itemized statement furnished to
employees the name and address of the legal entity that
secured the employer's services.
SUPPORT
California Rural Legal Assistance Foundation - Sponsor
California Employment Lawyers Association - Co-Sponsor
Hearing Date: April 11, 2012 SB 1255
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Senate Committee on Labor and Industrial Relations
OPPOSITION
None received
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Senate Committee on Labor and Industrial Relations