New California Law Allows Employers to Correct Wage Statements to Avoid Litigation—Review Your Wage Statements Now

On October 2, 2015, Governor Jerry Brown signed into law Assembly Bill 1506 (AB 1506). The new law amends the California Private Attorneys General Act (PAGA) to allow employers the right to “cure” certain commonly litigated defects in employee wage statements within 33 days of notice by the employee in order to avoid litigation. The cure provisions for wage statements, which can be onerous, apply only to California Labor Code section 226(a)(6)—which requires employers to specify the inclusive dates of the period for which the employee is paid—and section 226(a)(8) —which requires employers to state the name and address of the “legal entity” that is the employer. AB 1506 is urgency legislation and therefore effective immediately.

The legislation has immediate impact for employers in receipt of PAGA letters from plaintiffs’ counsel identifying wage statement defects under Labor Code sections 226(a)(6) and 226(a)(8). Previously, the cure provisions of PAGA did not extend to wage statement defects.

Employer Right to Notice of Defect and Right to “Cure” to Avoid Litigation

AB 1506 provides an employer with the right to cure potential violations of Labor Code section 226(a)—before an employee may bring a civil action under the PAGA—for failing to provide its employees with the following information on wage statements: (1) the inclusive dates of the pay period and (2) the name and address of the legal entity that is the employer. For purposes of this amendment, as codified at Labor Code section 2699(d), violations of sections 226(a)(6) and (a)(8) can only be cured upon a showing that the employer has provided a fully compliant, itemized wage statement to each aggrieved employee for each pay period for the three-year period prior to the date of the employee’s written notice required by paragraph (1) of subdivision (c) of section 2699.3. Employers must cure the alleged violation within 33 calendar days of the postmark date of the notice received from the aggrieved employee.

The employer must give written notice by certified mail within that period of time to the aggrieved employee or representative and the California Labor & Workforce Development Agency (LWDA) if the alleged violation is cured, including a description of actions taken. Once the employer takes these steps, the employee may not commence a civil action pursuant to section 2699 of PAGA.

Under Labor Code section 2699.3(c)(2)(A), if the alleged violation is not cured within the 33-day period, the employee may commence a civil action pursuant to Section 2699.

Under Labor Code section 2699.3(c)(2)(B)(ii), employers may not avail themselves of the notice and cure provisions of this subdivision with respect to alleged violations of paragraph (6) or (8) of subdivision (a) of section 226 more than once in a 12-month period for the same violation or violations contained in the notice, regardless of the location of the worksite.

The legislative history of AB 1506 specifies that the wage statement amendments to PAGA are intended to curb the increase in “frivolous” lawsuits based on technical discrepancies in wage statements that became increasingly actionable because of the 2013 amendments to Labor Code section 226. AB 1506 would help curb this type of “gotcha” litigation with regard to two of the most common forms of wage statement litigation, specifically section 226(a)(6) and section 226(a)(8). However, because AB 1506 is limited to only two subparts of the Labor Code, it raises more questions than it answers.

What Employers Should Do Now 

In light of the publicity surrounding Labor Code section 226(a) and the new PAGA cure provisions, employers doing business in California are advised to carefully review their wage statements for compliance. Pursuant to Labor Code section 226, a wage statement is in compliance if it includes an accurate itemized statement in writing showing the following information:

1. gross wages earned;
2. total hours worked by the employee (expect for salaried employees who are exempt from overtime pay);
3. the number of piece-rate units earned (if the employee is paid on a piece-rate basis);
4. all deductions;
5. net wages earned;
6. the dates of the period for which the employee is paid;
7. the name of the employee and only the last four digits of the employee’s Social Security number;
8. the name and address of the employer (or legal entity that is the employer); and
9. all applicable hourly rates in effect during the pay period and numbers of hours worked at each hourly rate by the employee.

AB 1506 concerns sections 226(a)(6) and 226(a)(8), namely, the dates of the period for which the employee is paid and the name and address of the employer respectively. 

Consequences of PAGA Violations

Since its enactment in 2004, PAGA has become a popular and profitable tool for California employees to assert wage and hour claims and threaten employers with potentially staggering civil penalties. Prior to the passage of PAGA, only the California Labor Commissioner could enforce many provisions of the state’s Labor Code. PAGA effectively “deputized” plaintiffs’ counsel, allowing them to act as private attorneys general and sue employers for various Labor Code violations. For those provisions of the Labor Code that do not include a provision on penalties, PAGA’s catchall provision, section 2699(f)(2), authorizes aggrieved employees to recover $100 per pay period for an “initial” violation and, potentially, $200 per pay period for each “subsequent” violation. PAGA penalties can add up quickly and, in some circumstances, overshadow any actual damages associated with the violation. PAGA also authorizes the recovery of attorneys’ fees and costs by prevailing employees and, thus, incentivizes plaintiffs’ attorneys to pursue large PAGA claims on behalf of employees. 

Key Takeaways

AB 1506 allows an employer to correct unintentional errors without the threat of a multimillion-dollar lawsuit that could put the employer out of business, while still protecting an employee’s ability to obtain accurate information.