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California Appellate Court Provides Another Potential Defense To "Derivative" Wage Statement Claims

May 31, 2018

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California employers defending against wage and hour lawsuits also face derivative claims for "inaccurate" wage statements, in addition to claims for the underlying alleged wage violations.  Labor Code Section 226(a) itemizes nine categories of information that must be included in a wage statement, including gross wages earned, total hours worked, net wages earned, and all applicable hourly rates in effect during the pay period and the corresponding number of hours worked at each hourly rate.  Employees who suffer injury "as a result of knowing and intentional failure by an employer to comply" with these requirements can each recover up to $4,000 in statutory penalties, as well as their costs and attorney's fees. As a result, plaintiffs usually include an inaccurate wage statement claim as a part of a wage and hour lawsuit to increase potential exposure, especially in proposed class actions.

The California Court of Appeal recently published an opinion that could help employers strike derivative wage statement claims from a plaintiff's complaint in which employees are not alleged to have suffered an independent injury. In Maldonado v. Epsilon Plastics, Inc., 232 Cal.Rptr.3d 461 (certified for publication May 8, 2018), Plaintiff Olvin Maldonado sued his employer on behalf of a class of hourly machine operators, claiming, in part, unpaid overtime wages due to an improperly adopted 12-hour/day alternative work schedule (AWS) in which employees were only paid overtime rates after the first 10 hours. Specifically, Maldonado alleged that because the employer had not properly adopted the AWS, employees were entitled to overtime after the first 8 daily hours per California law. The Court agreed that the employer was liable for failure to pay overtime for the ninth and tenth hours of work due to its failure to comply with the legal requirements for an AWS.

The Plaintiff also added a claim under Labor Code §226(a), alleging that because the employer failed to pay overtime for the ninth and tenth hours of work, the employer also violated the duty to provide accurate wage statements. The wage statements (correctly) indicated that the ninth and tenth hours of work had been (incorrectly) paid at the regular rate. The Court rejected the Plaintiff's argument, and held that employees suffered no injury from the inaccurate wage statements because the failure to pay overtime flowed from the improperly adopted AWS, not from any inaccuracy in the wage statements.

In response, Maldonado raised a new theory: that injury can be “presumed” when information is missing under Labor Code §226(a), including “all applicable hourly rates in effect during the pay period and the corresponding number of hours worked at each hourly rate by the employee."

The Court rejected this argument based on legislative intent. The Court agreed with legislative analysis stating that "[t]he 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." Here, the wage statements were accurate in that they correctly reflected the hours worked and the pay received. The Court found it illogical that the California legislature would want to encourage employers to issue wage statements bearing no similarity to the pay the employees were actually receiving. Indeed, the Court recognized that agreeing with plaintiff’s argument would result in "an apparent unintentional double recovery" – anytime an employer failed to pay overtime at the appropriate rate, they would also be automatically penalized for inaccurate wage statements.

This decision is good news for California employers who are defending against derivative inaccurate wage statement claims. Defendant employers and their counsel can potentially argue that – even if underlying wage violations exist – employees did not suffer "injury" under Labor Code 226(a) so long as the wage statements correctly reflected the hours worked and the pay received. Maldonado is the first published decision to address this issue, and if it remains good law, will provide employers with another arrow in their quiver of potential defenses against derivative wage statement claims.

Stay tuned: The California Supreme Court is set to weigh in on a related issue soon. On March 28th, the California Supreme Court agreed to answer questions certified by the Ninth Circuit in Stewart v. San Luis Ambulance, Inc. (9th Cir. 2017) 878 F.3d 883. Specifically, the state's highest court will decide the related question of whether meal period violations may form the basis for improper wage statement claims under section 226.  Hanson Bridgett will follow this case closely and provide updates as available.

For more information, please contact:

Gilbert Tsai

415-995-5874 Direct Phone
415-995-3408 Fax

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