News From the California Class Action Front – Emerging Defenses to Wage Statement Claims . . . But Hold On to Your Seats

California appellate courts have recently offered some relief to employers issuing wage statements that fail to comply with the state’s hyper-technical content requirements. At the same time, California courts have given the green light to class action lawsuits based on violations of relatively obscure provisions of the state’s Wage Orders. California’s 17 Wage Orders, which are industry or occupation specific, govern workplace conditions ranging from temperature to seating. The good news is that compliance with California’s wage statement and Wage Order requirements can be easily targeted for auditing.

Wage Statement Requirements

California Labor Code section 226(a) mandates, among other things, that employers include nine categories of information on their wage statements. The nine categories are: (1) gross wages earned; (2) total hours worked (except for exempt salaried employees); (3) where the employee is paid by piece rate, the number of piece rate units earned and any applicable piece rate; (4) all deductions; (5) net wages earned; (6) inclusive dates for the payroll period; (7) the name of the employee and last four digits of his or her social security number, or employee identification number; (8) the name and address of the legal entity that is the employer; and, (9) all applicable hourly rates in effect during the pay period and corresponding number of hours worked at each hourly rate.

Compliance with these requirements sounds easy, right? Consider the following recent class action challenges to employer wage statements:

• An employer uses an abbreviation of its legal name on the wage statement as part of its “branding” campaign;
• An employer uses the name of a parent or subsidiary on the wage statement, neither of which legally employ the worker;
• The employer includes as “total hours worked” holiday and other pay for which no work is actually performed;
• The employer pays the employee using a piece rate or commissions, and does not list “total hours” worked;
• The employer lists all applicable pay rates used in the pay period and corresponding number of hours worked, but fails to “total” the hours.

On a class-wide basis, damages for violations can be significant. Failure to comply can result in penalties of $50 per employee for the initial pay period in which a violation occurs, and $100 per employee for each violation in a subsequent pay period, with a maximum of $4,000 per employee. Where deduction statements have not been provided, or the employer fails to keep required records, civil penalties can climb to $1,000 per employee for each violation in a citation. Heritage Residential Care, Inc., v. DLSE, 192 Cal.App.4th 75 (January 26, 2011).

Relief From “Mathematical Injury” and “Missing Category” Claims

Courts have begun to offer some relief, but California employers aren’t home free yet. In Price v. Starbucks, 192 Cal.App.4th 1136 (February 20, 2011), a class action lawsuit attacking an employer’s failure to total up regular and overtime hours, the California Court of Appeal emphasized that under Labor Code Section 226(e), the employee must suffer injury as a result of a knowing and intentional failure by the employer to comply with the wage statement requirements. The court held that the requirement cannot be satisfied “simply if one of the nine itemized requirements . . . is missing from a wage statement.” The court concluded that the employee presented only a “mathematical injury” that required him to add up overtime and regular hours to ensure his overtime pay was correct. In dismissing the claim, the court found that Price’s was “not the type of mathematical injury that required computations to analyze whether the wages paid in fact compensated him for all hours worked.” The rule is consistent with other cases requiring injury to state a claim. See, e.g., Elliot v. Spherion Pacific Work, LLC, 572 F. Supp. 2d 1169 (C.D. Cal. 2008)(slightly truncated legal name of employer on wage statement did not cause required injury).

Price is consistent with the recent case of Morgan v. United Retail, 186 Cal.App.4th 1136 (June 23, 2010), another class action lawsuit challenging the employer’s failure to identify “total hours worked” on wage statements, where the employer separately listed total regular and overtime hours. On appeal from an order granting summary judgment to the employer, the court held that the requirements of section 226(a) had been satisfied. The court emphasized that the statement satisfied the legislative purpose behind Labor Code section 226 to provide transparency as to the calculation of wages.

Notwithstanding Price and Morgan, Labor Code section 226 still requires that information on the wage statement be “accurate.” Such “derivative” claims continue to provide a basis for class action lawsuits where inaccurate wage statement information derives from alleged unpaid wages and other claims.

California Wage Order Violations Now a Basis for Class Action Claims

California courts continue to recognize backdoor methods by which employees can assert claims not expressly authorized in the California Labor Code or under common law. Two “seating” cases illustrate the point.

In Bright v. 99¢ Only Stores, 189 Cal.App.4th 1472 (November 12, 2010), cashier employees sought to bring claims against their employer on a class-wide basis for failure to provide “suitable seating.” California Industrial Welfare Commission (IWC) Wage Order 7, the Wage Order applicable to the retail industry, and other Wage Orders, require the employer to provide such seating, although there is no such express seating requirement in the California Labor Code or at common law.

In order to bootstrap their claims into a civil action, the employees relied on California Labor Code section 1198, and California’s Private Attorneys General Act of 2004 (PAGA). Labor Code section 1198 makes unlawful “the employment of any employee . . . under conditions of labor prohibited” by an IWC order. According to the plaintiffs, PAGA in turn, authorizes penalties by way of a civil action for violations of section 1198.

The trial court granted a demurrer to the plaintiffs’ complaint on grounds that a failure to provide suitable seating is not expressly “prohibited” by the Wage Orders, and that PAGA was not a suitable vehicle for penalties because the Wage Orders already provide for penalties. The Court of Appeal reversed, holding that: (1) the Wage Order had been violated; (2) a violation of the Wage Orders is a violation of section 1198; (3) section 1198 contains no penalty provision and therefore PAGA applies; and (4) penalties provided by the Wage Orders are “non-exclusive” and in addition to other penalties provided by law. Relying on Bright, the California Court of Appeal reached a similar result on a seating claim in Home Depot U.S.A. v. Superior Court, 191 Cal.App.4th 210 (January 10, 2011).

Inconsistency of Seating Rulings With Position of California Labor Commissioner

One Labor Commissioner opinion letter has held that the section of the Wage Orders requiring “suitable seating” was established “to cover situations where the work is usually performed in a sitting position with machinery, tools or other equipment,” but not “those positions where the duties require employees to be on their feet, such as sales persons in the mercantile (retail) industry.” No civil case appears to have addressed the position of the Division of Labor Standards Enforcement (DLSE) on the issue.

Impact of Seating and Wage Statement Rulings on California Employers

Regardless of the Labor Commissioner’s position on the seating issue, and given the availability of civil litigation to enforce provisions of the Wage Orders, California employers are advised to audit their practices for compliance with the provisions of the applicable Wage Order. Employers should first determine which Wage Order applies to their business by reviewing California’s 17 Wage Orders, which can be found at www.dir.ca.gov/IWC. Most Wage Orders have 22 sections, regulating a broad range of wages, hours and working conditions, from temperature in the workplace to seating and elevators. In addition, California employers are advised to audit their wage statements for compliance with the nine categories of information required by Labor Code section 226(a).