Rise in Wage Statement Claims

Rise in Wage Statement Claims Following Amendment to California Labor Code Section 226

Prior to a 2013 amendment to the Labor Code, it was common for employees to add secondary claims, alleging inaccurate wage statements, to other more substantial claims against an employer. However, prior to the amendment these secondary claims, typically based on technical violations, were generally under-valued or even ignored in the defense of the more substantive claims. The pre-amendment version of the statute held employers to be in violation of Labor Code section 226 only when there was a “knowing and intentional failure” to comply with the key information that was required on wage statements. It also required the employee to show harm from the deficiency.

With the amendment, the current version of Section 226 has significantly lowered the standard by which an employer may be found in violation. Now an employer violates the statute when it fails to provide any wage statement at all or the wage statement fails to provide “accurate and complete” information. See Lab. Code § 226(e)(2)(A)-(B). A wage statement is not “accurate and complete” if an employee is unable to “promptly and easily” ascertain the required key information solely from the wage statement. See Lab. Code § 226(e)(2)(C). Also, the employee no longer has to prove that he or she was actually harmed by the defect in wage statement because the injury is presumed by the statute, making it much easier for an employee to succeed on his or her claim.

What This Means for Employers:

Of late, we have begun to see these “secondary” claims for wage statement violations become increasingly prominent and prolific. Because the amendment made it easier for an employee to succeed on a wage statement claim, employer compliance is more important than ever. Employers must take reasonable steps to ensure compliance and be cautious of relying solely on third party payroll services to ensure that wage statements contain all proper information required by the statute.

The statute caps damages at $4,000.00 per employee for wage statement violations; however in a class action with hundreds or even thousands of employees, wage statement violations may quickly become quite costly. In addition, employers may be subject to PAGA penalties. “PAGA” is the Private Attorneys General Act, which allows aggrieved employees to bring civil actions to recover penalties for violations under the Labor Code when the State declines to act. These PAGA claims broaden the enforceability of the statutory violations and provide additional penalties where no other penalty is specified. In our experience, employees will seek all available penalties under the Labor Code to enhance their primary claims and causes of action.

Moreover, we anticipate that employers will see increased wage statement claims due to the new sick leave law that took effect in July 2015. Sick leave accrual is not required on wage statements (even though Labor Code section 246 encourages its inclusion and requires appropriate notice with the paycheck). Still, employees may claim harm, not only from an employer’s failure to provide the required sick leave, but also from its failure to provide proper notice in the wage statement or with the wage payment. PAGA claims seem likely to follow.

As such, it is important for employers to know and comply with the statutory wage statement obligations. Pursuant to amended Labor Code section 226 a wage statement is in compliance if it includes an accurate itemized statement in writing showing:

  1. Gross wages earned;
  2. Total hours worked by the employee (expect for salaried employees who are exempt from overtime pay);
  3. The number of piece-rate units earned (if the employee is paid on a piece-rate basis);
  4. All deductions;
  5. Net wages earned;
  6. The dates of the period for which the employee is paid;
  7. The name of the employee and only the last four digits of the employee’s social security number;
  8. The name and address of the employer (or legal entity that is the employer); and
  9. All applicable hourly rates in effect during the pay period and numbers of hours worked at each hourly rate by the employee.