BILL ANALYSIS �
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|SENATE RULES COMMITTEE | SB 1255|
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THIRD READING
Bill No: SB 1255
Author: Wright (D)
Amended: 5/15/12
Vote: 21
SENATE LABOR & INDUSTRIAL RELATIONS COMM : 4-0, 4/11/12
AYES: Lieu, DeSaulnier, Leno, Yee
NO VOTE RECORDED: Wyland, Padilla, Runner
SENATE JUDICIARY COMMITTEE : 4-1, 5/8/12
AYES: Evans, Blakeslee, Corbett, Leno
NOES: Harman
SUBJECT : Employee compensation: itemized statements
SOURCE : California Rural Legal Assistance Foundation
California Employment Lawyers Association
DIGEST : This bill provides a statutory definition of
what constitutes suffering injury for purposes of
recovering damages pursuant to the itemized wage 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:
Gross wages earned;
Total hours worked by the employee (except salaried
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exempt employees);
Piece rate units earned and the applicable piece
rate, if paid on a piece rate basis;
All deductions;
Net wages earned;
Inclusive dates of the pay period;
Name of the employee and the last four digits of
his/her social security number or employee
identification number;
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
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 provides 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 provides 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
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employee identification number;
2.The employer fails to provide accurate and complete
information as required by law, the gross wages, net
wages, pay period dates, deductions, etc., 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 and net wages paid and how
those were determined by reference only to the
information on the wage statement, as specified;
B. Which deductions the employer made from gross wages
to determine the 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
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.
2.That "knowing and intentional failure" does not include
an isolated and unintentional payroll error due to a
clerical or inadvertent mistake.
3.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.
Background and Recent Court Case Summaries
Beginning in 1943, Labor Code Section 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
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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 Section 226, in 1976
a 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
Section 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
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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 Section 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 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
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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)
Comments
According to the Senate Labor and Industrial Relations
Committee analysis, the remedy provided under Labor Code
Section 226 was added 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 Section 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 provides 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 Section 226, and provides
the courts with an appropriate framework for addressing
these issues in the future.
Prior Legislation
AB 243 (Alejo), Chapter 671, Statutes of 2011, requires an
employer who is a farm labor contractor to disclose on the
itemized statement furnished to employees the name and
address of the legal entity that secured the employer's
services.
AB 469 (Swanson), Chapter 655, Statutes of 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
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AB 243.
FISCAL EFFECT : Appropriation: No Fiscal Com.: No
Local: No
SUPPORT : (Verified 5/16/12)
California Rural Legal Assistance Foundation (co-source)
California Employment Lawyers Association (co-source)
California Labor Federation
Employment Rights Project
ARGUMENTS IN SUPPORT : 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 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
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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.
PQ:nl 5/16/12 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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