On October 2, 2015, Governor Brown signed Assembly Bill No. 1506, amending several provisions of California’s Private Attorneys General Act of 2004 (“PAGA”). AB 1506 was passed to “provide an employer with the right to cure” certain PAGA violations. It was passed as an “urgency statute” which means that it took effect immediately. While employers should welcome any possibility of avoiding civil penalties imposed by PAGA, they must understand that: (1) the law only applies to two possible wage statement violations; and (2) there are very strict requirements employers must meet in order to be eligible to “cure.”
What is PAGA?
PAGA (Labor Code § 2698, et seq.) allows private individuals to bring a civil action to recover civil penalties, otherwise assessed and collected by the State, on behalf of other current or former employees for violations of either the California Labor Code or the applicable Industrial Welfare Commission (“IWC”) wage order. To be eligible to recover penalties, the employee(s) must first give written notice to both the State and the employer in accordance with Labor Code section 2699.3. This notice is often referred to as the “PAGA letter.”
The PAGA penalties are generally assessed per pay period, per employee, and are in addition to any other penalties or fines. As such, even small, seemingly technical violations can lead to enormous liability. Additionally, an employee who succeeds on a PAGA claim is entitled to recover their attorneys’ fees. You can read the applicable provisions of the Labor Code here: https://www.leginfo.ca.gov/cgi-bin/displaycode?section=lab&group=02001-03000&file=2698-2699.5.
What is a wage statement violation?
Labor Code section 226 requires employers to issue accurate itemized statements showing (1) gross wages earned, (2) total hours worked by the employee, (3) any applicable piece rates if the employee is paid on a piece-rate basis, (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 his or her social security number or an 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 the corresponding number of hours worked at each hourly rate by the employee. You can read all of the requirements of Labor Code section 226 at the following link: https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=LAB§ionNum=226. If an employer fails to comply with all of these requirements, then the employer can be subject to a penalty ranging from $50 to $100 for each violation. That means that if, for example, an employer issues paystubs that do not include the inclusive dates of each pay period, it could be required to pay a penalty for each employee, for each pay period. The only limitation to the penalty is that it is capped at an aggregate of $4,000, for each employee. However, there is no limit to the total number of employees for which the penalty can be assessed. As such, larger employers could still face hundreds of thousands or even millions of dollars in liability depending on the number of applicable employees.
In addition to underlying penalty imposed by Labor Code 226, the employer can be assessed a separate PAGA penalty for the same violations as well as any other derivative violations. As such, PAGA often acts as a multiplier to double, triple, or even quadruple an employer’s potential liability.
What violations may be cured by AB 1506?
The new law allows for employers to cure two Labor Code 226 wage statement violations for the purpose of PAGA: (1) failure to include the inclusive dates of the pay period as required by Labor Code 226(a)(6); and (2) failure to include the name and legal address of the legal entity that is the employer as required by Labor Code 226(a)(8). No other violations are addressed by the new law. As such, all other violations of either the Labor Code or an applicable IWC wage order remain unaffected. Additionally, while employers can avoid PAGA penalties, the law does not change the requirements of Labor Code 226. That means that while employers can cure violations of Labor Code 226(a)(6) and (8) for the purpose of avoiding PAGA penalties, they cannot avoid the underlining penalty imposed by Labor Code 226.
What must employers do to cure?
Employers will have 33 days to cure violations of Labor Code 226(a)(6) and (8) from the date of the PAGA letter. However, in order to qualify, employers must show they have “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 PAGA letter. That means that employers have 33 days to reissue wage statements to all employees (both current and former) for each pay period for the last three years! Additionally, the 33 calendar day requirement starts as of the postmark date of the PAGA letter and not upon receipt. As such, employers must act quickly in order to be eligible to cure. You can read more about the requirements of the new law at the following link: https://leginfo.legislature.ca.gov/faces/billNavClient.xhtml?bill_id=201520160AB1506.
What should employers do now?
Employers should act now to review their wage statements as well as their wage and hour practices to ensure that they meet the requirements of California law. Although AB 1506 provides an option for avoiding some PAGA penalties, it is very limited and even if employers take advantage of the new provisions, they still will be exposed to liability under Labor Code section 226 up to $4,000 per employee plus payment of the employees’ attorneys’ fees.
Employers who do receive a PAGA letter should contact qualified legal counsel immediately in order to evaluate whether or not they could benefit from AB 1506. If there are concerns that an employer’s wage statements do not meet the requirements of either subsections (6) or (8) of Labor Code 226(a), the employer must act quickly in order to cure the violation(s) within the very short time allowed by AB 1506.