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.

On Friday, Governor Jerry Brown signed AB 1506, which is intended to lessen certain types of employer liability under California’s Private Attorneys General Act. PAGA allows private employees to sue to recover penalties that the state labor commissioner could have collected. It’s been a huge headache for employers. In addition to drastically expanding the ways they could be sued, PAGA provides a cause of action that certain courts say is exempt from an employee’s agreement to arbitrate.

One way that employees have used PAGA claims is to sue if their wage statements don’t contain all the required information. Under the new law, an employer would have an opportunity to cure a PAGA violation based on failure to include the beginning and end dates of the pay period and the employer’s proper name and address. Before suing, an employee would have to give notice of the violation and then the employer would have 33 days to cure the violation. To do so, the employer needs to provide corrected wage statements to all employee who received inaccurate information during the three years before the notice.

Copyright: leeavison / 123RF Stock Photo
Copyright: leeavison / 123RF Stock Photo

Is this the answer to employers’ dreams? No. But it’s a tiny step in the right direction. Moreover, you glass-half-full types may be able to take comfort in the fact that the Governor has not yet signed AB 465 (to ban employment arbitration), SB 588 (to expand liability for wage and hour violations to “persons acting on behalf of an employer”), or AB 1017 (to ban employer inquiries about prior compensation). He has until October 11th to act on those bills.