BILL ANALYSIS �
SB 1255
Page 1
Date of Hearing: June 20, 2012
ASSEMBLY COMMITTEE ON LABOR AND EMPLOYMENT
Sandre Swanson, Chair
SB 1255 (Wright) - As Amended: May 15, 2012
SENATE VOTE : 25-12
SUBJECT : Employee compensation: itemized statements.
SUMMARY : Provides a statutory definition for what constitutes
"suffering injury" for purposes of recovering damages pursuant
to the itemized wage statement requirements of current law.
Specifically, this bill :
1)Provides that an employee is deemed to "suffer injury" if the
employer fails to provide a wage statement or if the wage
statement fails to contain the name of the employee and last
for digits of his or her social security number or employee
identification number.
2)Provides that an employee is deemed to "suffer injury" if the
employer fails to provide accurate or complete information
regarding the other specified items on the itemized wage
statement and the employee cannot "promptly and easily"
determine from the wage statement alone one or more of the
following:
a) The amount of 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 specified
information on the itemized wage statement.
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 a farm
labor contractor, the name and address of the legal entity
that secured the services of the employer during the pay
period.
3)Defines "promptly and easily" to mean a reasonable person
would be able to readily ascertain the information without
reference to other documents or information.
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4)Provides that a "knowing and intentional failure" does not
include an isolated and unintentional payroll error due to a
clerical or inadvertent mistake. A 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
that fully comply with the requirement to provide accurate
itemized wage statement.
EXISTING LAW :
1)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:
a) Gross wages earned;
b) Total hours worked by the employee (except salaried and
exempt employees);
c) Piece rate unite earned and the applicable piece rate
(if the employee is paid on a piece rate basis);
d) All deductions;
e) Net wages earned;
f) Inclusive dates of the pay period;
g) The name of the employee and the last four digits of his
or her social security number or employee identification
number;
h) The 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
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services of the employer;
i) All applicable hourly rates in effect during the pay
period and the corresponding number of hours the employee
worked at each hourly rate.
2)Provides that 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.
FISCAL EFFECT : Unknown
COMMENTS : As discussed above, existing law requires an employer
to provide workers with an accurate itemized wage statement that
lists specified information. Existing law also provides that an
employee that "suffers injury" as a result of an employer's
failure to comply with these requirements is entitled to recover
statutory damages. In recent years, courts have grappled with
defining what "suffering injury" means for purposes of these
provisions - different courts have taken vastly different views
as to the meaning of this term.
This bill attempts to legislate a compromise by clearly
delineating which types of "true" violations will constitute
"suffering injury." Supporters contend that this will benefit
both workers (by protecting their fundamental right to receive
accurate information) and employers (by shielding them from
liability over "minor" or "insignificant" inaccuracies on the
wage statements).
Legislative History of Labor Code Section 226(e)
Beginning in 1943, Labor Code 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 (discussed above) including hourly rates and total
hours worked, among others.
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Labor Code section 226(e) provides specific monetary relief for
violation of itemized statement requirements imposed on
employers in Labor Code section 226(a):
(e) An employee suffering injury as a result of a knowing
and intentional failure
by an employer to comply with subdivision (a) is entitled
to recover the greater of
all actual damages or fifty dollars ($50) for the initial
pay period in which a
violation occurs and one hundred dollars ($100) per
employee for each violation
in a subsequent pay period, not exceeding an aggregate
penalty of four thousand
dollars ($4,000), and is entitled to an award of costs and
reasonable attorney's
fees.
Subsection (e) was added to section 226 in 1976 when AB 3731
(Lockyer) was passed and signed into law. That bill added a
monetary remedy of $100.00, or all actual damages, for violation
of the section, and it also amended another subsection to
require the listing of gross and net income, itemized deductions
and the employee's social security number. The Assembly Labor
Committee analysis of the bill, for hearing May 18, 1976,
summarized the purpose of the bill:
"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 enrolled bill report characterizes the "damages" in a way
that addresses injury by stating that "Such damages would be in
the nature of a loss of benefits under a health and welfare plan
if the employer failed to make contributions or deductions and
the employee was unaware of the failure due to lack of
information on the pay stub." (Enrolled Bill Report, AB 3731,
Agriculture and Services, prepared by Al Ryeff, Asst. Labor
Commissioner.)
The sponsor of the bill, California Rural Legal Assistance,
Inc., characterized the injury in their letter supporting the
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bill:
"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."
There is no discussion regarding the "knowing and intentional"
requirement in the analyses or support letters for AB 3731.
However, as originally drafted, the bill required only a
"knowing" violation but, as passed, it required a "knowing and
intentional" failure.
Since 1976, the original 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.
Recent Case Law Regarding "Suffering Injury"
In recent years, courts have been grappling with determining
when an employee has "suffered injury" from an employer's
failure to provide accurate itemized wage statements in actions
arising under Labor Code section 226(e) or the Private Attorney
Generals Act (PAGA).
The co-sponsor of this bill, the California Rural Legal
Assistance Foundation (CRLAF) has submitted an analysis of over
300 published and unpublished decisions that they contend split
about evenly between an interpretation favorable to employees
and one favorable to employers. 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 other
cases, courts have held that failure to receive an itemized
statement at all or failure to receive specified or accurate
information on the statement which results in confusion for the
employee is sufficient to establish "suffering injury."
Some of the more notable decisions are as follows:
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PHILLIPS v. HUNTINGTON MEMORIAL HOSPITAL (2005 Cal.App. Unpub.
LEXIS 7880) -
At issue in this 2005 case were alleged violations of Labor Code
section 226(e) for the employer's failure to provide accurate
wage statements to their employees. The trial court found that
the 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 the employer'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." (Emphasis
provided).
JAIMEZ v. DAIOHS USA, INC. (2010 Cal. App.4th 1286) - Similar to
the previous decision, 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 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 �the worker
has] encountered in attempting to reconstruct time and pay
records, may well be further evidence of the injury he has
suffered." The defendant requested review and depublication of
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the appellate court's decision by the California Supreme Court,
but the request was denied.
PRICE v. STARBUCKS CORPORATION (2011 Cal. App.4th 1136) - 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. The
employee 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, the
plaintiff failed to allege an injury arising from the allegedly
non-compliant wage statement. Further, the court found that the
plaintiff was only speculating on the possible underpayment of
wages due, which was not evident from the wage statements
provided to the complaint. The court therefore 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." (Emphasis
provided).
Lamps Plus Overtime Cases (195 Cal. App. 4th 389) - Last year in
Lamps Plus Overtime Cases, 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.
ARGUMENTS IN SUPPORT :
CRLAF, the co-sponsor of this bill, argues that it responds to a
recent series of poorly reasoned court decisions which threaten
effective public and private enforcement of, and compliance
with, wage statement requirements. They state that the bill
provides 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.
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CRLAF contends that both employers and employees benefit from
passage of this bill because it ensures that the most extreme of
the state and federal court decisions would no longer be
reliable guides for courts or agencies in interpreting
"suffering injury".
The co-sponsor states that employees benefit from this bill's
reaffirmation that Labor Code section 226(a) means what it says:
Employees must get an itemized pay stub that contains accurate
and complete information about all nine of the required
pay-related information items, and the analysis of whether the
employee suffered injury is to be based solely on what
information the employer provided on the pay stub.
At the same time, employers benefit by getting relief from
lawsuits that allege employees have suffered injury even though
the employer has provided information on the pay stub that
allows employees to determine all Labor Code section 226(a)
requirements. For example, if an employer provided separate
information about all straight time hours and separate
information about all overtime hours, and the addition of the
two equaled the total hours worked by the employee, he/she would
not suffer injury because the employer did not have a category
on the pay stub that was labeled "total hours". Or, if an
employer provided information about the balance due to a worker
after all deductions, instead of showing this amount as "net
wages" on the pay stub, the worker would not suffer injury.
CRLAF contends that employers benefit in two other ways. First,
they obtain relief from lawsuits that allege that an employer's
pay stub contains "knowing and intentional" errors that, in
fact, are merely isolated and unintentional payroll errors due
to a clerical or inadvertent mistake. Second, employers would
get favorable consideration by a court on the record where,
prior to an alleged violation, an employer had policies and
practices in place that fully comply with itemized pay stub
requirements.
ARGUMENTS IN OPPOSITION :
A coalition of employer groups has been negotiating with the
author and the sponsor in an attempt to reach a compromise on
this measure. Unfortunately, an agreement has not yet been
reached and the employer groups therefore oppose this measure in
its current form.
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These opponents, including the California Chamber of Commerce
argue that the proposed definition of "suffer injury" in this
bill actually reduces the current burden of proof an employee
needs to show in order to obtain this secondary layer of
penalties. Specifically, this bill deems that an employee has
suffered injury if an employer fails to include the employee's
social security number, employee identification number, or name
on the wage statement. Opponents contend that courts have
already affirmed that a mere violation of section 226(a) is
insufficient to justify penalties under section 226(e) without
further proof of injury. This bill would now undo this
standard. This bill would also eliminate any burden on an
employee to perform basic mathematic computation, such as adding
one column of hours with another column of hours to determine
total hours worked for the pay period, which is another
requirement courts currently impose on employees.
Opponents argue that, given the reduction in the burden of proof
on an employee to justify this maximum $4,000 penalty, this bill
will incentivize further litigation against employers for good
faith administrative payroll errors that have not actually
created any harm or injury to the employee. Employers are
already overwhelmed with existing avenues for frivolous
litigation and certainly do not need legislation that creates an
easier path to allege such claims. Opponents conclude that,
while they "have tried to propose amendments that would mitigate
this threat of litigation, we have unfortunately been unable to
reach a resolution" and therefore must oppose this bill unless
amended.
REGISTERED SUPPORT / OPPOSITION :
Support
California Employment Lawyers Association (co-sponsor)
California Labor Federation, AFL-CIO
California Rural Legal Assistance Foundation (co-sponsor)
Employment Rights Project
Opposition
Associated Builders and Contractors of California
Associated General Contractors
California Association for Health Services at Home
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California Association of Health Facilities
California Association of Joint Powers Authorities
California Association of Licensed Security Agencies, Guards and
Associates
California Chamber of Commerce
California Grocers Association
California Hospital Association
California Manufacturers and Technology Association
Analysis Prepared by : Ben Ebbink / L. & E. / (916) 319-2091