Wage Statement Violations Now Strict Liability In PAGA Actions?

October 16, 2017 | Bulletin No. 127417.1

In Lopez v. Friant & Associates, LLC, the Court of Appeal of the First District recently addressed a relatively narrow issue, but one that is relevant to all employers – wage statement violations.  This decision is a blow to employers as it allows employees to establish liability for wage statement violations under PAGA without showing injury or employer fault.

California Labor Code Section 226(a) requires the inclusion of very specific information in employee wage statements (“paystubs”), including gross wages, total hours worked, deductions, net wages, correct names of the employee and employer, etc. (See Lab. Code, § 226(a)(1)-(9).)  This is a common area of trouble for employers because it is very easy to make a mistake. For example, employers who are subsidiaries of larger entities may or may not be properly identified on the pay stub as the "employer."

When an employer does not provide the correct information, Section 226(e)(1) allows an employee “suffering injury” as a result of the employer’s “knowing and intentional failure” to comply with Section 226(a) to recover actual damages or certain statutory damages.  The requirement to show “injury” from a “knowing and intentional” violation provides a measure of protection for employers who make an inadvertent mistake on their paystubs. However, if the employee brings a Section 226(a) claim under the Private Attorneys General Act of 2004 (PAGA), that measure of protection is now gone.

The PAGA allows “aggrieved” employees to bring representative claims for Labor Code violations on behalf of the Labor Commissioner.  (See Lab. Code, § 2699.)  The employees can recover civil penalties previously provided for or for the PAGA default civil penalty of $100 per aggrieved employee per pay period (or $200 per employee per pay period for repeat offenders). 

In Lopez, the employee claimed that his employer violated Section 226 by failing to include his Social Security number or his employee identification number on his paystub as required by Section 226(a)(7). The employer acknowledged that it inadvertently issued paystubs without the requisite information and quickly resolved the problem. Nevertheless, Lopez sought civil penalties and brought a single action under PAGA. The District court ruled for the employer  because the employee did not show “injury” from a “knowing and intentional” violation, as stated in Section 226(e)(1).

The Court of Appeal reversed. Through analysis of the statutory language and legislative history, the Court ultimately determined that Lopez’ claim for “civil penalties” under PAGA is distinct from the statutory penalties in Section 226(e)(1). Thus, Lopez did not need to show he “suffered injury” from a “knowing and intentional” violation. This means that a claim for wage statement violations seeking civil penalties under PAGA is now, essentially, a strict liability offense.

Advice for Employers

This case will likely lead to an increase in paystub suits against employers and strongly reinforces the need for employers to regularly review wage statements for compliance with Section 226(a) since an “aggrieved employee” can establish liability without any injury, even when the paystub mistake was neither knowing or intentional.

While this decision undoubtedly bad news for employers, there are two additional points worth noting that make these rules slightly less draconian. First, it is important to be aware that two of the nine potential paystub violations are subject to a cure provision under PAGA. Thus if an employer makes a mistake regarding the dates of the period for which the employee works (Section 226(a)(6)), or puts the wrong employer’s name on the paystub (Section 226(a)(8)), they have a window of opportunity to correct the mistake free of liability.

Lastly, PAGA gives discretion to the court to lower the amount of penalties awarded, which the courts have done when employers have made affirmative efforts to promptly correct their mistakes. Thus, employers are encouraged to regularly review their paystubs and should consult counsel if they have any questions about compliance with the requirements of the Labor Code.   

Questions

If you have any questions concerning this Legal Alert, please contact the following from our office, or the attorney with whom you normally consult.

Rex Berry
rberry@kmtg.com916.321.4570

Christopher Onstott
constott@kmtg.com
916.321.4582

James Ward
jward@kmtg.com | 916.321.4371