SB 1255 Senate Bill - Bill Analysis

BILL ANALYSIS �

SENATE JUDICIARY COMMITTEE
Senator Noreen Evans, Chair
2011-2012 Regular Session

SB 1255 (Wright)
As Amended April 30, 2012
Hearing Date: May 8, 2012
Fiscal: No
Urgency: No
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SUBJECT

Employee Compensation: Itemized Statements

DESCRIPTION

This bill would clarify what constitutes "suffering injury" by
an employee for purposes of recovering damages pursuant to the
requirement under existing law that an employer provide to an
employee an itemized wage statement.

(This analysis reflects author's amendments to be offered in
committee.)

BACKGROUND

In 1943, the Legislature enacted a requirement that employers
provide an itemized wage statement to employees. (See Lab. Code
Sec. 226.) In 1976, the Legislature enacted AB 3731 (Lockyer,
Ch. 832, Stats. 1976), which provided employees with specified
damages if they could demonstrate they had suffered damages due
to the employer's failure to provide wage statement information.
AB 3731 was enacted to insure that employees were adequately
informed of compensation received, that the employees were not
being short changed their wages, and to assist employees
establish eligibility for unemployment insurance. Labor Code
Section 226 subsequently has been amended numerous times to
require additional information to be itemized on the wage
statement, and to provide additional damages to an employee.

Recently, several court cases have resulted in differing
standards for whether an employee has suffered injury from an
employer's failure to provide required information on a wage
(more)

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statement. This bill is intended to respond to those decisions
and clarify what constitutes "suffering injury" by an employee.

This bill was heard by the Senate Labor and Industrial Relations
Committee on April 11, 2012 and passed out on a vote of 4-0.
CHANGES TO EXISTING LAW

Existing law requires employers to provide each employee, either
as a detachable part of the check, draft, or voucher paying the
employee's wages, or separately, as specified, an accurate
itemized statement in writing showing the following:
(1) gross wages earned;
(2) total hours worked by the employee, except for any
employee whose compensation is solely based on a salary and
who is exempt from payment of overtime under subdivision (a)
of Section 515 or any applicable order of the Industrial
Welfare Commission;
(3) the number of piece-rate units earned and any applicable
piece rate if the employee is paid on a piece-rate basis;
(4) all deductions, provided that all deductions made on
written orders of the employee may be aggregated and shown as
one item;
(5) net wages earned;
(6) the inclusive dates of the period for which the employee
is paid;
(7) the name of the employee and the last four digits of his
or her social security number or an employee identification
number other than a social security number;
(8) the name and address of the legal entity that is the
employer and, if the employer is a farm labor contractor, as
defined in subdivision (b) of Section 1682, 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 worked at each
hourly rate by the employee. (Lab. Code Sec. 226(a).)

Existing law provides that deductions made from payment of wages
shall be recorded in ink or other indelible form, properly
dated, showing the month, day, and year, and a copy of the
statement and the record of the deductions shall be kept on file
by the employer for at least three years at the place of
employment or at a central location within California. (Lab.
Code Sec. 226(a).)

Existing law requires employers to provide employees with

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access, as specified, to wage statement information and provides
specified damages to an employee for an employer's failure to
provide access to this information. (Lab. Code Sec. 226(b),
(c), (f).)

Existing law provides that an employee suffering injury as a
result of a knowing and intentional failure by an employer to
comply with the wage statement information requirement 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. (Lab. Code Sec.
226(e).)

Existing law provides that an employee may also bring an action
for injunctive relief to ensure compliance with the wage
statement information requirement, and is entitled to an award
of costs and reasonable attorney's fees. (Lab. Code Sec.
226(h).)
Existing law provides that the wage statement information
requirement does not apply to the state, to any city, county,
city and county, district, or to any other governmental entity,
except that if the state or a city, county, city and county,
district, or other governmental entity furnishes its employees
with a check, draft, or voucher paying the employee's wages, the
state or a city, county, city and county, district, or other
governmental entity shall use no more than the last four digits
of the employee's social security number or shall use an
employee identification number other than the social security
number on the itemized statement provided with the check, draft,
or voucher. (Lab. Code Sec. 226(i).)

Existing law provides that any employer who violates subdivision
(a) of Section 226 shall be subject to a civil penalty in the
amount of $250 per employee per violation in an initial citation
and $1,000 per employee for each violation in a subsequent
citation, for which the employer fails to provide the employee a
wage deduction statement or fails to keep the records required
in subdivision (a) of Section 226. The civil penalties provided
for in this section are in addition to any other penalty
provided by law. In enforcing this section, the Labor
Commissioner shall take into consideration whether the violation
was inadvertent, and in his or her discretion, may decide not to
penalize an employer for a first violation when that violation
was due to a clerical error or inadvertent mistake. (Lab. Code

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Sec. 226.3.)

This bill would provide that an employee is deemed to suffer
injury for purposes of damages related to the wage statement
information requirement if the employer fails to provide
accurate and complete information as required by any one of
items (1) to (6), (8), or (9) of Labor Code Section 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 wages and net wages paid to the
employee during the pay period and how those gross and net
wages were determined by reference only to the information
on the itemized wage statement provided pursuant to items
(2) to (4), inclusive, (6), and (9) of subdivision (a);
(ii) Which deductions the employer made from gross wages to
determine the net wages paid to the employee during the pay
period; and
(iii) 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.

This bill would provide that "promptly and easily determine"
means a reasonable person would be able to readily ascertain the
information without reference to other documents or information.
This bill would provide that "knowing and intentional failure"
does not include an isolated and unintentional payroll error due
to a clerical or inadvertent mistake.

This bill would provide that the reviewing hearing officer or
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
which fully comply with Labor Code Section 226.

COMMENT

1. Stated need for the bill

The author writes:

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SB 1255 . . . (1) �r]esponds to a recent series of poorly
reasoned court decisions which threaten effective public and
private enforcement of, and compliance with, wage statement
requirements, and (2) �p]rovides 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.

Under SB 1255, a worker generally would be deemed to "suffer
injury" if she is unable to readily and easily determine from
the wage statement alone:
-How the employer determined her gross and net wages;
-What deductions were made to her pay; and
-What is the name and address of the employer issuing the wage
statement, and, if the employer is �a farm labor contractor]
FLC, the name and address of any entity that was furnished
labor during the pay period.

The definition of "suffering injury" provided by SB 1255 . . .
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.

Co-sponsor, California Rural Legal Assistance Foundation (CRLAF)
writes:

CRLAF has been working with employer and employee
representatives to reach consensus on a statutory definition
of "suffering injury" for purposes of recovering damages under
Labor Code section 226(e) for a violation of the itemized wage
statement disclosures �law]. . . . CRLAF determined there was
a need for this legislation after researching whether an
employee could successfully litigate an employer's failure to
include any single item of the required . . . disclosures on a
worker's paystub. The issue is of critical importance to our
farm worker clients because of the passage in 2011 of CRLAF's
AB 243 (Alejo), which . . . has mandated that farm labor
contractors disclose on workers' paystubs the names and
addresses of the legal entities for whom workers provided
labor or services during the pay period. . . .

In its support of prior legislation, AB 3731 (Lockyer, Ch. 832,
Stats. 1976), which added the award of damages to employees
suffering injury for an employer's failure to provide wage

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statement information, CRLAF stated:

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. (Alex Saldamando, CRLAF, letter to Governor
Edmund G. Brown re Assem. Bill No. 3731 (1975-1976 Reg. Sess.)
Aug. 13, 1976.)

Co-sponsor, California Employment Lawyers Association (CELA)
writes:

This remedy �under Labor Code section 226] was added to the
labor code in 1976 specifically to help ensure employer
compliance. The legislature then understood that the paystub
information required under Section 226 was important not only
so that workers could determine whether they were being paid
properly, but also so that they had the information needed for
taxes, unemployment, welfare, and other such purposes.

Within the last few years however, some courts have ignored
the spirit and legislative intent of Section 226(e) and have
erroneously interpreted the term "suffering injury" under this
section to strictly mean that workers must have suffered lost
wages as a result of an incomplete wage statement in order
�to] pursue a claim. 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. It also renders the
provision unworkable and meaningless in many instances since
workers with incomplete wage statements would not have the
information necessary to even know that they were not being
paid properly and bring a claim forward in the first place.
In other words, what function does a law serve when
non-compliance often makes it harder to bring a claim?
(Emphasis in original.)

2. Differing court opinions regarding what is required for an
employee to "suffer injury"

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The author states that this bill is intended to address the
problem that, since the wage statement requirement went into
law, courts have been applying different standards of when an
employee suffers injury under the terms of this statute.

In some cases, courts are requiring employees to show that they
did not receive pay owed to them in order to prove that they
suffered injury. In Brinkley v. Public Storage, Inc. (2008) 167
Cal.App.4th 1278, the court concluded that, although the
employee was unable to show that his former employer
intentionally and knowingly failed to provide required
information on its paystubs, the employee's claim also failed
specifically because he could not show that he suffered any
injury. The court reasoned that the employee did not actually
receive less pay because of the employer's mistake on the wage
statement, and therefore the employee suffered no injury. (Id.
at 1275.) The court also stated:

The present case is distinguishable from Wang v. Chinese Daily
News, Inc. (C.D.Cal. 2006) 435 F.Supp.2d 1042. In Wang, the
pay stubs stated that the employees worked 86.66 hours
regardless of the number of hours actually worked, the length
of the pay period, or the number of workdays in the pay
period. This caused the employees to suffer injury because
they might not be paid for overtime work to which they were
entitled and they had no way of challenging the overtime rate
paid by the employer. ? Here, by contrast, plaintiff was not
underpaid or given insufficient information to challenge the
payments he received. This inadvertent technical violation of
section 226 caused no resulting damages. (Id. at 1278.)

That same year, another case, Kisliuk v. ADT Sec. Servs. (2008)
263 F.R.D. 544, was decided by the California Central District
Court, which held that the class-member employees had a
statutorily protected right to receive accurate, itemized wage
statements, and the failure to provide these statements was the
injury. The court first noted that the wage statement statute,
and case law interpreting it, did not provide a definition for
"injury." The court then looked to Black's Law Dictionary and
further to Witkin's summary of California tort law to arrive at
its decision in favor of the employees:

The Restatement Second of Torts, Section 7, likewise defines
"injury" as "the invasion of any legally protected interest of
another." Thus, according to Witkin's summary of California

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tort law, "'�i]njury' is the invasion of �a] legally protected
interest; it differs from 'harm' or tangible and material
detriment in that there may be injury . . . without any
tangible harm.'" ?

California Labor Code Section 226(e) adheres to the
distinction between "injury," as the invasion of a legal
right, and actual damages flowing from that injury, stating
that "�a]n employee suffering injury . . . is entitled to
recover . . . all actual damages. . . ." Moreover, the
provision for statutory damages indicates the Legislature's
understanding that violation of Section 226(a) might result in
unquantifiable or nominal damages that would fall short of
Defendant's proposed standard for standing.
?
�I]n context, the phrase "�a]n employee suffering injury as a
result of a knowing and intentional failure by an employer to
comply with subdivision (a)" narrows the universe of those who
have standing to sue under the statute to those whose injury
flows from intentional violation of Section 226(a). Moreover,
Defendant's construction would render meaningless the
Legislature's distinction between the "injury" that creates
standing and the "actual damages" that are recoverable under
the statute. (Id. at 548-549; internal citations omitted.)

Last year in Lamps Plus Overtime Cases (2011) 195 Cal.App.4th
389, the Court of Appeal again held that an employee must suffer
an injury arising from the missing information, and the injury
requirement "cannot be satisfied simply if one of the nine
itemized requirements in section 226, subdivision (a) is missing
from a wage statement." (Id. at 409.) The California Supreme
Court has granted review of Lamps Plus.

Also last year in Yuckming Chiu v. Citrix Sys. (2011) U.S. Dist.
LEXIS 151365, the District Court, in denying the defendant
employer's motion to dismiss, held that a defendant employer's
failure to provide required information in a wage statement
caused injury to the plaintiff. The court, held that:

It is well established that failure to provide information
that results in an employee's confusion over whether he has
received all wages owed and forces an employee to make
mathematical computations to analyze whether the wages paid in
fact compensated him are sufficient injuries. See Cicairos v.
Summit Logistics, Inc., 133 Cal.App.4th 949, 955, 35 Cal.
Rptr. 3d 243 (2005) ("If it is left to the employee to add up

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the daily hours shown on the time cards or other records so
that the employee must perform arithmetic computations to
determine the total hours worked during the pay period, the
requirements of section 226 would not be met"). (Id. at
15-16.)

The author and sponsors of this bill argue that the clear
definition of "suffering injury" provided by this bill is
necessary to provide guidance to courts, clarity to employers,
and protection to workers.

3. Clarifying original legislative intent

Supporters of this bill argue that it would clarify the original
legislative intent of AB 3731 and would provide that an employee
suffers injury under the wage statement information statute when
the wage information is not provided as required by law.
Existing law provides that an employee suffering injury as a
result of a knowing and intentional failure by an employer to
comply with the wage statement information requirement 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. (Lab. Code Sec.
226(e).)

Kisliuk v. ADT Sec. Servs. (2008) 263 F.R.D. 544 noted that any
construction of "injury" in this statute that requires the
plaintiff to have suffered damages "would render meaningless the
Legislature's distinction between the 'injury' that creates
standing �injury as a result of the employer's knowing and
intentional violation of the statute] and the 'actual damages'
�which could include the money or other benefits owed by the
employer that was misrepresented on the original wage statement]
that are recoverable under the statute." (Id. at 549.) This
statute also provides two remedies to the injured employee:
actual damages or $50 for the initial pay period and $100 per
employee for each violation in a subsequent pay period. These
remedies also demonstrate the Legislature's intent in enacting
AB 3731 because an employee does not have to suffer "actual
damage" in order to uphold his or her rights, but can suffer an
injury without actual damage and be awarded penalties from the
employer.

This bill should be amended to correct a drafting error, which,

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if left uncorrected, could allow an employer to claim that an
employee must prove that all, instead of any one, of the
required information must be missing from a wage statement in
order to have suffered an injury. This potential result runs
contrary to the legislative intent of the original statute
discussed above and the intent of the author and his sponsors.
The Legislature has provided an itemized list of important
information the employee must have with respect to their wages.
The lack of each item of required information in and of itself
could harm the employee. For example, an employer's failure to
provide the gross wages earned by the employee could cause the
employee to be unaware of the actual amount of pay the employee
earned, not know if they were being paid properly, and not know
what information to provide when asked to report their gross
wages for loan or tax purposes. The author has agreed to amend
the bill to provide that, if an employer fails to include any
one, as opposed to all, of the items required to be listed in a
wage statement, an employee could suffer injury.

Author's amendments :

On page 4, at line 9, before "items" insert "any one of"
On page 4, at line 9, strike ", inclusive"
On page 4, at line 9, remove and replace "and" with "or"

Support : Bet Tzedek; California Labor Federation

Opposition : None Known

HISTORY

Source : California Employment Lawyers Association; California
Rural Legal Assistance Foundation

Related Pending Legislation :

AB 1744 (B. Lowenthal, 2012) would add to the list of items that
must be included in a wage statement, if the employer is a
temporary services employer, the name and address of the legal
entity that secured the services of the employer and total hours
worked for each legal entity. This bill is currently in the
Assembly Appropriations Committee.

AB 889 (Ammiano, V. Manuel P�rez, 2011) would enact the Domestic
Work Employee Equality, Fairness and Dignity Act and, among

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other things, require employers to provide itemized wage
statements to domestic work employees. This bill is currently
on suspense in the Senate Appropriations Committee.

Prior Legislation :

AB 243 (Alejo, Ch. 671, Stats. 2011) See Comment 1.

AB 469 (Swanson, Ch. 655, Stats. 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.

SB 1618 (Battin, Ch. 860, Stats. 2004) requires employers to
list only the last four digits of an employee's Social Security
number or an employee identification number on an itemized wage
statement.

AB 2412 (Diaz, Ch. 933, Stats. 2002) requires employers to
provide employees access to employee records under the wage
statement statute.

AB 2509 (Steinberg, Ch. 876, Stats. 2000) requires additional
information, as specified, to be included in an itemized wage
statement and increased the damages an employee may receive for
an employer's violation.

AB 3731 (Lockyer, Ch. 832, Stats. 1976) See Background; Comments
1 and 3.

Prior Vote : Senate Committee on Labor and Industrial Relations
(Ayes 4, Noes 0)

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