Top 10 Employment Law Developments of 2018: #4 – CA Appellate Court Limits Scope of Derivative Wage Statement Liability
TOP 10 EMPLOYMENT LAW DEVELOPMENTS OF 2018:
NO. 4 – CA APPELLATE COURT LIMITS SCOPE OF DERIVATIVE WAGE STATEMENT LIABILITY
California class action plaintiffs alleging various wage and hour claims often tack on a derivative wage statement claim under Labor Code section 226. The theory behind a derivative wage statement claim is that if an employee was not properly paid all wages earned, such as overtime, then the wage statements the employee received were not accurate and thus violates Labor Code section 226. The effect of such derivative claim is that even if an employer complies with all technical elements of the wage statement law, and accurately records all wages the employee actually earned, the employer could still face potential class liability under a derivative wage statement claim – which could mean significant penalties reaching a maximum of $4,000 per employee.
Seem unfair? The California Appellate Court in Maldonado v. Epsilon Plastics, Inc., 22 Cal.App.5th 1308 (2018) thought so. Maldonado puts a halt on derivative wage statement claims by adopting a commonsense reading of Labor Code section 226.
Maldonado involved a class of production employees who challenged the validity of their Alternative Work Schedule (AWS) and alleged they weren’t paid daily overtime. In addition, the class alleged that because they were not properly paid overtime, their wage statements were inaccurate. The trial court concluded that the AWS had not been adopted in accordance with the applicable wage order and awarded unpaid overtime and penalties for their derivative wage statement claim. The trial court reasoned that even though the wage statements reflected what the employees were actually paid, they were inaccurate because they did not reflect what the employees should have been paid.
As to the wage statement claim, the Court of Appeal disagreed. The Court adopted a “commonsense position that the pay stubs were accurate in that they correctly reflected . . . the pay received.” Labor Code section 226 only requires that the wage statements correctly record the hours actually worked and the pay actually received – not what should have been paid. The Court explained that if a failure to pay overtime wages also justifies inaccurate wage statement penalties, then there would be an unintentional double recovery. Thus, wage statement penalties are not triggered when they are purely derivative of an underlying wage claim.
While Maldonado remains a favorable decision for employers (the California Supreme Court recently refused to grant review), the end of derivative wage statement claims is far from over.
In Stewart v. San Luis Ambulance, No. 15-56943 (9th Cir. 2017), the Ninth Circuit sought guidance from the California Supreme Court on the issue of whether wage statements penalties generate for failure to record meal and rest break premium pay. While the California Supreme Court agreed to shed light on this issue on March 28, 2018, the decision is still pending.
Ferry Eden Lopez is an associate in the Santa Monica office of Hirschfeld Kraemer LLP. She can be reached at (310) 255-0705, or flopez@hkemploymentlaw.com.