California Labor Code is Amended, Provides Employers Small Reprieve.

On October 2, 2015, Governor Brown signed AB 1506, legislation that immediately amends the Private Attorneys General Act of 2004 (PAGA).  The purpose of the amendment is to address increased civil litigation alleging technical violations of itemized wage statements employers are required to deliver to employees.  AB 1506 provides employers with a 33 day period to cure certain violations before an employee may bring a civil cause of action under PAGA.

So what is PAGA?  And what is so important about this amendment? 

In essence, PAGA deputizes an employee with a grievance to act as a Private Attorney General, if the employee first informs the Labor and Workforce Development Agency (LWDA) of an alleged violation and the LWDA does not pursue the allegation or does not issue a citation within a certain time period.  Prior to the passage of PAGA, wage and hour claims were enforced by the LWDA. PAGA significantly expands the limited enforcement capabilities of the LWDA by permitting employees to seek civil penalties for certain labor code violations on behalf of the State of California, and the civil penalties recovered are split between the employee and the state.  Unfortunately, although the PAGA was intended to operate as an enforcement action to protect the public, it has in many instances become a vehicle for frivolous employee actions filed for the purpose of a financial windfall rather than to cure actual harm or injury to the employee.

AB 1506 seeks to address this issue by providing employers with a 33 day window to correct the dates of the pay period (Cal. Labor Code 226(a)(6)) and the name and address of the legal employer (Cal. Labor Code section 226(a)(8)) on a wage statement before an employee may bring a civil action under the PAGA.

The Risk to Employers

AB1506 applies only to sections 226(a)(6) and 226(a)(8) of the Labor Code, that is, the date of the pay period, and the name and address of the employer as they appear on wage statements.  Thus, while it does give employers a limited tool to correct inadvertent errors on wage statements, the reprieve for employers is limited. The PAGA still empowers employees to pursue civil penalties against their employers on behalf of the State of California in order to recover fines of $100 per day for an initial violation and $200 per day for each subsequent violation as well as the recovery of attorneys’ fees and costs if the employee prevails.  Furthermore, not only is the employee allowed to seek civil penalties for violations he or she personally suffers, he or she may also seek penalties for violations of other current or former employees, which means the risk employers face is a costly one.

Next Steps

As any good sports fan knows, the best defense is a good offense; so now is the time to review wage statements to be sure that they comply with California law. Under the California Labor Code, a wage statement must provide an accurate itemized statement in writing showing:

(1) gross wages earned,

(2) total hours worked by the employee, except for any employee whose compensation is solely based on a salary and who is exempt from payment of overtime,

(3) the number of piece-rate units earned and any applicable piece rate if the employee is paid on a piece-rate basis,

(4) all deductions (deductions made on written orders of the employee may be aggregated and shown as one item),

(5) net wages earned,

(6) the inclusive dates of the period for which the employee is paid,

(7) the name of the employee and only the last four digits of his or her social security number or an employee identification number other than a social security number,

(8) 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 services of the employer, and

(9) all applicable hourly rates in effect during the pay period and the corresponding number of hours worked at each hourly rate by the employee (if the employer is a temporary services employer as defined, the rate of pay and the total hours worked for each temporary services assignment).

What About Electronic Wage Statements?

The rules above apply to electronic pay stubs and wage statements.  Additionally, in order to comply with the Labor Code, electronic wage systems must also incorporate the following features:

  • Employees may elect to receive paper wage statements at any time;
  • The wage statements must contain all information required under 226(a) and be available on a secure website no later than pay day;
  • Access to the website containing the wage statement should be controlled by a unique employee identification number and confidential personal identification number (PIN). The website must be protected by a firewall and is expected to be available at all times with the exception of downtime caused by system errors or maintenance requirements;
  • Employees must be able to access their records through their own personal computers or company provided computers. Relatively private computer terminals should be available to all employees for accessing these records at work;
  • Employees should be able to print copies of their electronic wage statements at work on printers that are in close proximity to the computer or computer terminal, and there can be no charge to employees for accessing their records or printing them out. Employees should also be able to access their records over the internet and save them electronically and/or print them on their own printer;
  • Wage statements must be maintained electronically for at least three years and continue to be available to active employees for that entire time. Former employees should be provided paper copies upon request.

As a best practice, employers should require employees to provide a signed consent before using direct deposit or receiving an electronic wage statement.   Consent for electronic wage statements and direct deposit can be included with the direct deposit enrollment forms.

Doesn’t My Payroll Service Handle This?

Employers should not necessarily expect that a payroll service provider is operating in compliance with the laws of all states.  California law is complex, and many payroll service providers are based in other states.  Payroll companies do not offer legal advice, and there is a good chance your contract states just that.  This means that ultimate compliance responsibility rests with the employer.

How can we best mitigate our risk?

Given the rapidly changing employment laws on both a state and federal level, there is no better time to conduct an employment audit.  This process reviews each of the company’s policies and practices from advertising and hiring to termination and final paycheck to ensure compliance with state and federal laws.

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