CA Labor Code Section 226

If you are an employer in California, you are likely well aware of Labor Code § 226 and the many items that our state requires to be on employee paystubs: gross wages, legal name of employer, inclusion dates for the pay period, etc. (Labor Code § 226) Failure to adhere to all of Labor Code § 226’s paystub requirements can result in penalties owed to the employee, and worse still, the possibility of a dreaded PAGA action. It is no surprise then that vigilant employers have kept a close eye on their paystubs to ensure inclusion of all the necessary information.

Businessman handing over paycheck at desk in officeBut what about the paychecks themselves? Often forgotten is Labor Code § 212 which imposes certain requirements on employers who pay employees with traditional paychecks (as opposed to direct deposit). A traditional paycheck must be “payable in cash, on demand, without discount, at some established place of business in the state, the name and address of which must appear on the instrument…” Labor Code § 212(a). The point being that employees must have the opportunity to know where they can cash their paycheck and receive their wages immediately, without paying a fee.

Does this mean an employer must pick out one specific location where an employee can cash their paycheck and then list the location and its address on the check? Lucky for employers and employees, the answer is no. As long as the drawee of the check is a bank, the bank’s address need not appear on the paycheck itself. In other words, if the employer uses a bank with branches in California for its payroll checks, the employer need only list the name of the bank, so long as the check can be cashed immediately without a fee to the employee at any of the bank’s branches.

Failure to comply with Labor Code § 212 can result in minor penalties to an individual if they can establish that they were denied the opportunity to immediately obtain their wages. However, a purely facial violation on the check, and nothing more, could potentially result in a much larger PAGA lawsuit.

Although many workplaces find that the vast majority of employees receive their pay through direct deposit, there are still many employees who receive their wages in the form of a traditional paycheck. Accordingly employers should examine their paychecks and ensure the following:

  1. Paychecks should list the name of a national or state bank that has conveniently located branches where employees can cash their paychecks; and
  2. Employers should confirm with the bank used for its paychecks that all employees can cash their paychecks immediately at any of the bank’s locations without a fee (even if the employee does not otherwise bank there).

Plaintiffs’ attorneys in California love making claims based on technical violations related to paystubs.  An employee will go see a lawyer complaining about wrongful termination or harassment or discrimination and the lawyer will say, “Let me see your paystub.”  Labor Code Section 226 lists at least 9 items that an employer must include on employees’ paystubs.  Even omitting one item (e.g., pay period dates on a “final” paycheck) can expose employers to extensive liability depending on the nature of the oversight, the number of affected employees, and how often the improper paystubs were issued.  Under the Private Attorneys General Act (“PAGA”) a single employee can bring a lawsuit on behalf of all affected employees, also known as “aggrieved employees,” regardless of whether those employees want to be included, and without having to go through the rigorous requirements of class certification.  [We told you about this in a 2009 California employment law newsletter,]

Up close of wage statementEmployees (or rather, the class action attorneys that bring these cases) do not have to prove that anybody was injured by the omission on the paystub because the code section provides an automatic penalty per paycheck in place of requiring employees to prove actual damages (which are typically non-existent).  Because employers have virtually no defense to these paystub cases, they are generally referred to as “gotcha” claims.

Recently a California Court of Appeal handed PAGA attorneys a “gotcha” of their own.  In Khan v. Dunn-Edwards Corporation, the appellate court upheld summary judgment dismissing Plaintiff Khan’s PAGA claims because he failed to comply with required administrative procedures.  Though Plaintiff’s regular paychecks appeared to be in order, his final paycheck failed to list the start date of the pay period.  On the basis of that single oversight on a single check, Khan and his attorneys filed their lawsuit seeking to recover penalties on behalf of a group of employees who may have received a similar final paycheck.  Khan’s notice and exhaustion letter to California’s Labor and Workforce Development Agency, however, was peppered with references to violations of his rights, and nowhere referenced any other employee other than himself.  The Court was not impressed.  It held that Khan’s use of the word “my” instead of “we,” or any other language indicating that he was seeking to claim penalties on behalf of anyone but himself, constituted a failure to give proper notice to the individuals involved, and a failure to comply with administrative requirements.  Thus, the Court upheld summary judgment in favor of the employer, and dismissed Khan’s PAGA claim.

If you are in the unfortunate position of having to defend yourself (or a client) against a PAGA action, make sure you take a very close look at the employee’s letter to the Labor Workforce and Development Agency to make sure the employee has followed every technical requirement of the law in giving notice to the employer and the Agency.  You might find a technical shortcoming in the letter on which to defend your client.  Or better yet, make sure that your employees’ paystubs contain the required information in advance.

As we’ve discussed, while AB 1506 scales back certain PAGA claims, it doesn’t change what information must be included on every employee’s regular wage statement. Labor Code § 226 requires that each itemized wage statement include:

  1. Gross wages earned;

    Copyright: andrewgenn / 123RF Stock Photo
    Copyright: andrewgenn / 123RF Stock Photo
  2. Total hours worked by a nonexempt, hourly employee;
  3. All deductions;
  4. Net wages earned;
  5. The inclusive dates for the period the employee is paid;
  6. The name of the employee and the last four digits of his/her social security number or an employee identification number;
  7. The employer’s legal name and address;
  8. All applicable hourly rates in effect during the pay period and the corresponding number of hours worked at each hourly rate; and
  9. For employees paid on a piece-rate basis, the number of piece rate units earned, regardless of time worked.

This information must be presented in a way that employees can “promptly and easily” determine from the wage statement alone.

The Take Away: Employers must provide California employees with itemized wage statements clearly detailing how their pay is calculated. Employers who fail to include the required information are setting themselves up for potential PAGA claims. Anytime one of your employees talks to a lawyer about a claim against your company, the lawyer will ask to see a pay stub. These claims are far easier to prevent than they are to resolve.