Are Your Employee’s Paystubs a Ticking Time Bomb?

Posted: August 18, 2020 |

Wage statements, often known as paystubs, are not usually at the forefront of the minds of business owners. Employers typically view wage statements as nothing more than a vehicle to record how much the employee earned and has been paid. However, Plaintiff lawyers have turned wage statement violations into big business, using them to generate enormous claims against employers.  
Last year, in the case of Robert Magadia v. Wal-Mart Associates, Inc., before the United States District Court for the Northern District of California, a judgment of $102 million dollars was issued against Walmart as the result of non-compliant wage statements. Employers often generate liability by issuing incorrect wage statements even though they are paying their employees properly.  
Using a payroll service does not guarantee that the employer is issuing paystubs correctly or insulate it from liability. Last year, the California Supreme Court issued a decision in Goonewardene v. ADP, LLC, in which the Court held that employees may not sue their employers' payroll companies for wage claims in connection with their employment. Because payroll service providers may not be liable to employees for inaccurate wage statements, it is imperative that California employers take all reasonable steps to ensure their employees' wage statements are accurate.   
California Labor Code section 226 provides that wage statements must contain the following information:

  1. gross wages earned;  
  2. total hours worked by the employee (with some exceptions so check with your attorney);
  3. the number of piece-rate units earned and any applicable piece rate if the employee is paid on a piece-rate basis;
  4. all deductions, provided that all deductions made on written orders of the employee may be aggregated and shown as one item;
  5. net wages earned;
  6. the inclusive dates of the period for which the employee is paid;
  7. the name of the employee and the last four digits of his or her social security number or an employee identification number other than a social security number;
  8. the name and address of the legal entity that is the employer (with some additional requirements for certain employers so seek guidance from your attorney); 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.

Plaintiff lawyers often look for the most hyper-technical violations of Labor Code section 226 to create liability against employers. There are a few reasons that Plaintiff lawyers have become interested in these types of claims.  
First, if there is a violation of section 226 it is often clear and easily provable resulting in a seemingly simple case for the Plaintiff attorney to prosecute.  
Second, section 226 provides that the employee will receive either $50 or the greater amount of actual damages for the first pay period where a defective wage statement is issued, and the employee will receive either $100 or the greater amount of actual damages for each successive wage statement thereafter up to a cap of $4,000. These damages can add up quickly when an employer has a larger number of employees.  
Third, because a violation on one employee's wage statement often means the same violation is reflected on other employees' wage statements, these claims are attractive as potential class action litigation for Plaintiff attorneys unless the employer has an arbitration agreement with a class action waiver to reduce the risk that a class will be certified. If you have a number of non-exempt employees, speak with your employment attorney about implementing an arbitration agreement with a class action waiver.  
Fourth, the same wage statement violation that subjects an employer to liability under section 226 can also serve as a potential Private Attorneys General Act ("PAGA") claim. Under the PAGA, the same violation in a Labor Code section 226 claim can also simultaneously constitute a PAGA claim. An employee asserting a PAGA claim acts on behalf of the State of California and is authorized to seek penalties for violation of the Labor Code, which are often set at $100 per pay period for a first violation and moving to $200 for each subsequent violation.  There is no cap on the amount of PAGA damages that flow from defective wage statements. A significant portion of the Wal-Mart judgment was based upon a PAGA claim.  
In addition to the requirements of Labor Code section 226, employers must show how many days of sick leave an employee has available on the wage statement or on a document issued the same day as the employee's paycheck. If an employer provides unlimited paid sick leave or unlimited paid time off, the employer may indicate "unlimited" on the pay stub or other document.  
The information required by section 226 can become particularly complicated when employees are paid bonuses, commissions, or when they are paid by piece rate. The payment of bonuses without reflecting the information accurately on the wage statements is what resulted in a large judgment against Wal-Mart.  
Employers should have their wage statements audited periodically for each class of employees (exempt, non-exempt, commissioned employees, etc.) by competent employment counsel who can make certain that the wage statements correctly reflect all information required by law.
If you have any questions or concerns regarding wage statement compliance, the attorneys at Ferruzzo & Ferruzzo, LLP are available to provide guidance.

This blog is not meant to provide specific legal advice. For advice specific to your business, please contact any of the employment attorneys in our Employment Practices Group who are ready to assist you.