On September 26, 2017, the plaintiffs’ bar scored a win against California employers. In Lopez v. Friant & Associates, LLC, a Court of Appeal held that a Private Attorneys General Act (“PAGA”) action for allegedly non-compliant wage statements under Labor Code section 226 could proceed even though the employer’s alleged error was not shown to be “knowing and intentional.” (A PAGA action is brought by an aggrieved employee on behalf of other current and former aggrieved employees and need not satisfy formal class action procedural requirements).
Labor Code section 226(a) sets forth nine items that must be included on an employee’s itemized wage statement. Omitting any of the required items can subject an employer to statutory and civil penalties. To recover statutory penalties directly under section 226, a plaintiff must show that he suffered an injury resulting from the employer’s knowing and intentional omission of certain information on the itemized wage statement.
A plaintiff need not show wage statement omission was knowing and intentional under PAGA
In Lopez, the plaintiff sought civil penalties under PAGA because his wage statements did not include the last four digits of his social security number or his identification number, an item required by section 226(a). The employer argued that because the plaintiff could not show the omission was “knowing and intentional,” as would be required to recover statutory penalties under section 226, his PAGA action for civil penalties based on the same alleged error must fail. The appellate court held that a plaintiff does not have to satisfy the “injury” and “knowing and intentional” elements in section 226 to prevail on a claim for civil penalties under PAGA because PAGA only requires showing that the required information was omitted from the wage statement.
What is the financial exposure employers face for inadequate wage statements?
Basic statutory penalties under section 226 are assessed at $50.00 for the initial pay period in which the violation occurs, and $100.00 per employee for each violation in a subsequent pay period, not to exceed an aggregate penalty of $4,000.00. On the other hand, civil penalties can be significantly higher, even though PAGA plaintiffs are required to remit 75% of their recovered civil penalties to the State. PAGA contains a default civil penalty amount, where the Labor Code does not provide one for a specific violation. PAGA’s default penalty is $100.00 for each aggrieved employee per pay period for the initial violation and $200.00 for each aggrieved employee per pay period for each subsequent violation. The PAGA civil penalties can add up quickly and are not capped like the statutory penalties in section 226.
How can employers reduce the risk of liability under PAGA?
Employers must ensure the itemized wage statements their employees receive comply with section 226(a). In the Lopez case, the employee was permitted to proceed with his PAGA action simply because the employer’s wage statements did not contain either the last four digits of the employee’s social security number or an employee identification number, one of the nine items required on a pay statement by section 226(a). (Note- Employers must also provide employees with the amount of paid sick leave or paid time off available on either the employee’s itemized wage statement or in a separate writing).