Two new laws—both related to employee wage statements—give California employers a safe harbor opportunity to avoid costly liability for small, technical, unintentional, or short-lived violations. Assembly Bill No. 1506 (AB 1506) allows employers to “cure” specific defects in wage statements that would otherwise trigger penalties under California’s Private Attorneys General Act (PAGA).  Assembly Bill No. 1513 (AB 1513) requires employers who pay piece-rate to separately itemize the compensation for so-called “productive” time and “unproductive” time. AB 1513, like AB 1506, provides relief from civil claims in certain cases, where employers may have not paid their employees for unproductive time, but follow specific steps to correct the error.

AB 1506: Pay Period and Employer “Legal Entity” Description

AB 1506, which became effective on Oct. 2, 2015, amends the PAGA statute by providing cure provisions for section 226(a)(6) of the Labor Code—which requires employers to specify on the wage statements the inclusive dates of the period for which the employee is paid—and section 226(a)(8)—which requires employers to state on the wage statements the name and address of the “legal entity” that is the employer. By curing the defects within the prescribed time period, employers can avoid lawsuits with potential penalties totaling thousands, if not millions, of dollars.

PAGA permits any “aggrieved employee” to stand in the shoes of the Labor and Workforce Development Agency (the “LWDA”) and bring a civil action on behalf of him/herself and other current and former “aggrieved employees” to collect civil penalties. See Cal. Lab. Code § 2699(a). Before an individual can sue under PAGA, however, the individual must give the employer and LWDA written notice of the alleged violation. If the LWDA provides notice that it does not intend to take action against the employer, or otherwise fails to respond within 33 days, the individual may then file a civil action.

Section 226(a) of the Labor Code enumerates nine different categories of information that must be included on all wage statements. Failure to include any of these nine different categories of information on wage statements is a technical violation of the Labor Code, and could subject an employer to individual and/or PAGA claims.

However, AB 1506 provides that an employer has the right to cure two of the nine categories of section 226(a) of the Labor Code before an employee is entitled to bring a civil action under PAGA. The categories subject to cure are failure to include on the wage statements: (1) the inclusive dates of the pay period, and (2) the name and address of the legal entity that is the employer.

In today’s parent-subsidiary and “DBA” world, employers should take extra caution in making sure that the correct “legal entity that is the employer” is included on their employees’ wage statements. Even a violation as minor as listing the parent corporation’s name, when the similarly-named subsidiary corporation is the true employer, can subject an employer to penalties under PAGA.

To invoke the safe harbor protections, employers must cure the violations within 33 days of the postmark date of the notice of an employee’s complaint by providing “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 written notice[.]” Then, the employer must give written notice by certified mail within 33 days of the postmark date of the initial written notice to the individual employee who sent the initial written notice and the LWDA, and must include a description of the actions taken. Provided the employer cures the defects and provides proper notice, the complainant is precluded from commencing a civil action under PAGA. An employer may only avail itself of the “notice and cure” provision once in a 12-month period for the same violation or violations in the notice. This is true, irrespective of the location of the worksite.

Since AB 1506 applies only to (1) the inclusive dates of the pay period, and (2) the name and address of the legal entity that is the employer, that means there are still seven technical violations of California law that cannot be cured and could subject employers to steep penalties:

  1. gross wages earned;
  2. total hours worked by the employee, unless that employee is a salaried employee exempt from overtime pay;
  3. the number of piece-rate units earned, if the employee is paid on a piece-rate basis (more on that below);
  4. all deductions;
  5. net wages earned;
  6. the name of the employee and only the last four digits of the employee’s social security number; and
  7. all applicable hourly rates in effect during the pay period and numbers of hours worked at each hourly rate by the employee.

AB 1513: Piece-Rate Pay

If an employer pays on a piece-rate basis, there are additional requirements. As explained above, section 226(a)(3) of the Labor Code provides that wage statements must include the number of piece-rate units earned. AB 1513, which becomes effective on Jan. 1, 2016, requires the itemized statement to also separately state:

  1. the total hours of compensable rest and recovery periods, the rate of compensation, and the gross wages paid for those periods during the pay period; and
  2. the total hours of other nonproductive time, the rate of compensation, and the gross wages paid for that time during the pay period.

In effect, AB 1513 codifies the decisions in Gonzalez v. Downtown LA Motors, 215 Cal. App. 4th 36 (2013) and Bluford v. Safeway, Inc., 216 Cal. App. 4th 864 (2013), which require employers to pay piece-rate employees for rest period, recovery periods, and all other periods of “nonproductive” time separately from and in addition to their piece-rate compensation  Employers that do not pay a separate hourly rate for all hours worked (in addition to piece-rate wages), must also list the total hours of other non-productive time, the rate of compensation for that time, and the gross wages paid for that time during the pay period.

Although AB 1513 codifies additional requirements for employers who pay their employees on a piece-rate basis, it also offers some relief to those same employers. Provided employers satisfy all of the requirements listed below by Dec. 15, 2016, an employer may assert an affirmative defense to all liability for failure to compensate for rest and recovery periods and other non-productive time:
  1. The employer makes payments to each of its current and former employees for previously uncompensated or undercompensated (e.g., where the employer was only paying the employee on a piece-rate basis) rest and recovery periods and other nonproductive time from July 1, 2012 through Dec. 31, 2015. These payments may be calculated using either of the following methods (at the employer’s election):
      1. The actual sums due (with accrued interest) for the recovery and nonproductive time that must be separately compensated; or
      2. Four percent (4%) of the employee’s gross earnings during that period. If the employer already paid additional amounts to account for what is now considered recovery or nonproductive time, those amounts (up to 1% of gross earnings) may be deducted from the payments, resulting in a minimum payment of 3% of gross earnings.
  2. The employer makes a good faith effort to locate and offer these payments to its former employees who would qualify.
  3. The employer provides written notice to the Department of Industrial Relations by July 1, 2016 of its intention to make the payments to its current and former employees.

Although the safe harbor provisions of AB 1513 may result in large payments to employees, defending a class action for wage violations would likely end up costing the employer much more. Employers who pay individuals on a piece-rate basis should re-visit their pay schedules to confirm that they are in compliance with California law.

* * *

PAGA and class action claims are here to stay. While such actions can result in steep penalties and damages, there are ways to mitigate the potential harm. AB 1506 and 1513 are reminders that the California Legislature is interested in, and pays close attention to, wage statements issued to California employees, and how California employers compensate their employees. Employers, especially those who pay on a piece-rate basis, should do the same, and take advantage of the possibility of a safe-harbor, by reviewing paystubs and policies now for compliance.