California Wage Theft Bill Would Raise the Stakes for Compliance

California Assembly Bill (AB) 1003 would create a new type of grand theft in the state: a company’s “intentional theft of wages” of more than $950 from any individual employee, or $2,350 total from 2 or more employees, in a 12-month period.

The bill requires that the theft be intentional, through fraud and while knowing that the wages are due to the employee. The bill also defines “wages” to include “wages, gratuities, benefits, or other compensation.”

In addition, the bill includes independent contractors within the definition of “employee” and specifies that the hiring entity of an independent contractor is an “employer.”

The bill passed the California Assembly on a 78–0 vote in May 2021, and passed unopposed in the Senate Public Safety Committee in June, so it is likely to become law in California.

According to AB 1003’s author, Assembly Member Lorena Gonzalez (D-San Diego),

Wage theft occurs when employers fail to pay their workers all the earnings they are entitled. Examples of wage theft include paying less than minimum wage, not paying workers overtime, not allowing workers to take meal and rest breaks, requiring off the clock work, or taking workers’ tips.

Supporters of the bill have cited arguments that the consequences for California Labor Code violations have not adequately deterred widespread wage theft in California.

Labor Code Penalties

The California Labor Code already provides criminal penalties for intentionally depriving employees of their earned wages. Section 215 provides that any person who violates certain Labor Code sections requiring wage payments to employees is guilty of a misdemeanor.

As a bill analysis from the California Senate Committee on Labor, Public Employment and Retirement explains, section 216 “[e]stablishes that a person is guilty of a misdemeanor if they do either of the following:

1. Willingly refuse to pay wages due and payable while having the ability to do so.
2. Falsely deny the amount or validity of a claim for wages with the intent to defraud a person owed wages.”

Class and collective actions filed under the Private Attorneys General Act (PAGA) with wage theft claims are in high gear in California, with an average of more than 18 new PAGA claims filed every day.

California Supreme Court Decisions

In addition, two recent California Supreme Court decisions have imposed enhanced civil liability risks on employers.

In February 2021, in Donohue v. AMN Services, LLC, the state’s highest court held that meal break discrepancies in time records warrant a rebuttable presumption of liability.

In Ferra v. Loews Hollywood Hotel, LLC, on July 15, 2021, the high court held that meal and rest break premiums must be paid at the regular rate of pay instead of the base hourly rate, as many employers were doing.

Both decisions emphasized that the court must “liberally construe the Labor Code and wage orders to favor the protection of employees.”

In Naranjo v. Spectrum Security Services Inc., which is pending before the California Supreme Court, the court will decide whether premium payments also qualify as wages.

AB 1003 in Focus

There is no indication that California employers lack a sufficient deterrent to wage theft such that a need exists for new liability for grand theft punishable by up to three years in prison.

AB 1003 would target managers and supervisors tasked with providing wages and breaks to employees in California. Specifically, the relevant provision would include:

• payroll managers and supervisors who manage payroll and calculate the regular rates of pay for overtime purposes, and for meal and rest break premiums;
• human resources personnel who oversee timekeeping systems and practices; and
• managers and supervisors in operations who are tasked with implementing meal and rest break policies and ensuring that off-the-clock work does not occur.

These are the frontline leaders tasked with paying wages and benefits to employees in compliance with thousands of provisions in the California Labor Code, voluminous regulations from the California labor commissioner, and rapidly evolving interpretations of the Labor Code by the courts. With civil wage and hour class actions, even good-faith mistakes made by these professionals are alleged to be acts of wage theft.

As a hypothetical example, consider the following: a safety issue arises at a plant and a supervisor needs to call an hourly, nonexempt team leader to help resolve the issue. The team leader takes the call and spends 30 minutes helping to resolve the issue. The supervisor later forgets to ensure that the team leader records the time worked while off the clock. Just a few of these scenarios could present an enhanced threat of criminal liability for ordinary supervisors under AB 1003.

As another hypothetical example, a supervisor in operations manages 10 direct reports—all hourly, nonexempt employees who earn $20 per hour. Under AB 1003, if those 10 employees all miss both a meal break and a rest break in a single workday, on just 6 separate days over the span of one year, the premiums due could exceed $2,400.

Using the normal 261 working days in a year, and a meal and rest break violation rate that is only around 2 percent of the shifts for that 10-employee team over the year, that supervisor could be liable under AB 1003 for grand theft, especially if the California Supreme Court defines premiums as “wages” in the Naranjo decision. Under AB 1003, the local district attorney could prosecute that supervisor, who might face a potential three years in prison.

Key Takeaways

Anticipating that AB 1003 will pass, California employers may want to stay the course on investing resources to ensure wage and hour compliance, and they may also consider the following steps:

• Providing formal wage and hour training for managers and supervisors in payroll, human resources, and operations on the primary wage and hour issues, including that all time worked must be recorded—including donning and doffing time.
• Reminding managers and supervisors that employees must not work off the clock, that meal and rest breaks are provided, and that employees are provided the option of written waivers and are aware of their revocation rights.
• Additionally, instead of including wage and hour topics in employee orientation programs that also cover harassment prevention, leaves of absence, safety rules and other issues, presenting a separate and focused presentation on the company’s wage and hour policies. These practices may be especially important for meal and rest breaks, timekeeping, and prohibiting off-the-clock work.
• Employers may want to obtain signed acknowledgements from employees of their attendance, their understanding of the rules, their agreement to comply, and their agreement to immediately report any complaints about wage and hour issues.
• Likewise, employers may want to provide training at least once per year on wage and hour topics to all employees, and maintain documentation of all attendees and the material covered.
• In addition, employers may want to adopt systems that enable employees to confirm on a regular basis—perhaps electronically through timekeeping systems—whether they have received compliant break opportunities and pay for all time worked.
• It may also be helpful to establish a separate complaint system for wage and hour matters that are investigated and resolved by managers who are specialists dedicated to investigating and resolving such complaints.
• Finally, employers may wish to regularly audit wage and hour complaints, timekeeping records, and policy implementation and training programs, and report the findings and recommendations to senior leadership.

California employers can now anticipate that AB 1003’s threat of jail time will provide an even stronger incentive to ensure wage payment compliance.

A version of this article was previously published in Law360.