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NO HARM, NO FOUL IS NO DEFENSE TO NON-COMPLIANT WAGE STATEMENTS (PAY STUBS)

By Leonard Brazil

Employment lawsuits commonly referred to as PAGA (“Private Attorney General Act”) claims have gained a lot of notoriety and media coverage.  PAGA allows employees to sue not only on their own behalf, but also as a representative of other current and former employees who have raised no complaint.  PAGA claims are similar to a class action, but are much easier to assert against an employer — turning a claim by one employee into a lawsuit on behalf of many, thereby greatly increasing the financial exposure of the company.

On September 26, 2017, the Court of Appeal issued a ruling on a PAGA claim which will further increase the filing of such claims against employers.  (Lopez v. Friant &Associates LLC)  An employee filed a PAGA claim alleging his employer issued wage statements (commonly referred to as pay stubs) which failed to include the last four digits of his social security number or employee ID number as required by California Labor Code Section 226.  This statute specifically states a violation occurs only if the omission of required information on a wage statement (i) was a “knowing and intentional failure by an employer” and (ii) caused injury to the employee.  The statute also expressly states that “a knowing and intentional failure” does not include an isolated and unintentional payroll error due to a clerical error or inadvertent mistake.

The trial court in Lopez rejected the PAGA claim alleging a violation of Section 226 because the employee had no evidence of a knowing and intentional failure by the employer to include the social security numbers and there was no evidence of injury.  However, the Court of Appeal reversed the trial court’s ruling.  The appellate court concluded that while a suit by an individual for a wage statement violation requires proof of an employer’s willful failure to include the social security numbers, in a PAGA suit (a representative claim on behalf of other employees) an employer can be liable even if the omission of the required wage statement information was purely accidental.  The Court went further and held that while an individual claiming a violation of Labor Code Section 226 must suffer an injury, recovery under PAGA is allowed even if the employee cannot demonstrate an injury.  As a result, the representative lawsuit which included hundreds of other employees was allowed to proceed against the employer.

What Should You Do?

A PAGA claim based on Labor Code Section 226 can expose an employer to significant financial risk, but it is easy to avoid.  Be sure your wage statements include all of the following information required by Labor Code Section 226:  (1) gross wages earned, (2) total hours worked by the employee (unless the employee is exempt—not entitled to overtime pay), (3) if the employee is paid on a piece rate basis, the number of piece rate units earned and any applicable piece rate, (4) all deductions, (5) net wages earned, (6) the inclusive dates of the period for which the employee is paid, (7) the name of the employee and only the last four digits of the social security number or employee identification number, (8) the name and address of the legal entity that is the employer (additional requirements exist for a farm labor contractor), and (9) all applicable hourly rates in effect during the pay period and the corresponding number of hours worked at each hourly rate by the employee (there are additional requirements for temporary services employers).

Also, before employees file a PAGA claim, they must send a letter to the employer and the California Labor and Workforce Development Agency specifying the alleged facts giving rise to a PAGA claim.  Immediately provide a copy of the letter to your employment attorney because the letter provides an opportunity to take corrective action if there has been a Labor Code violation.


Thank you for joining us on ClarkTalk! We look forward to seeing you again on this forum. Please note that the views expressed in the above blog do not constitute legal advice and are not intended to substitute the need for an attorney to represent your interest relating to the subject matter covered by the blog. If you have any questions about PAGA claims, or about other labor and employment law issues, please feel free to email Leonard Brazil at lbrazil@clarktrev.com or to call him at 213.629.5700.