National Retailer Liable for Wage Statement Violations Under California Law

June 26, 2019

On May 31, 2019, the U.S. District Court for the Northern District of California awarded a $102 million judgment against a national retailer for failing to comply with California’s meal break and wage statement laws. The bulk of the judgment addressed wage statement violations.

After a three-day bench trial, the California federal court awarded approximately $48 million in statutory damages and $54 million in civil penalties under the California Labor Code Private Attorneys General Act (PAGA). This substantial judgment highlights national employers’ risk of running afoul of California’s wage statement and other wage and hour laws.

In an earlier summary judgment ruling, the court had found that the retailer’s pay practices were noncompliant because (1) its statements of final pay that were issued to terminating employees with their last paychecks did not include the pay period start and end dates in violation of California Labor Code § 226(a)(6); and (2) the additional overtime payment that employees received as a result of earned bonuses appeared on wage statements as a lump sum, in violation of the California Labor Code § 226(a)(9) requirement that wage statements list the hourly rate and corresponding hours worked. However, the plaintiffs still needed to prove at trial that the retailer’s failure to provide compliant wage statements was “knowing and intentional” and that the plaintiffs were injured as a result, as required under California Labor Code § 226(e).

The court found that the knowing and intentional requirement of California Labor Code § 226(e) means something more than simply providing an inadequate wage statement that is not a clerical error or inadvertent mistake. It sided with the majority of courts’ view that an employer’s good faith belief that it is not violating the law precludes a finding of a knowing and intentional violation.

Under that framework, the court found that the retailer had a good faith basis for believing that its final wage statements were in compliance with Section 226(a)(6) prior to the issuance of its summary judgment order. The court’s finding was grounded in the language of Section 226(a), which requires employers to issue wage statements “semimonthly or at the time of each payment of wages.” Under the retailer’s pay practices, final wage statements are issued on its semimonthly pay cycle schedule in compliance with Section 226(a), rather than on the day an employee is terminating.

Depending on when the employee is terminated, the court observed, the final wage statement could be delayed up to 14 days after the termination. The court held that employers must comply with Section 226(a) at the time wages are paid (i.e., on the termination date), but found that the retailer had a good faith basis for its mistaken belief that its pay practices complied with Section 226(a); that is, until the court’s summary judgment order was issued. After that decision, the court held that the retailer could no longer claim a good faith mistake. Because the retailer took no steps to rectify the deficient final wage statements after the summary judgment decision, the court found it liable for knowingly and intentionally issuing deficient final wage statements in violation of Section 226(a) from the date of the summary judgment decision through trial.

As for the retailer’s failure to list the hours worked and applicable hourly rates for additional overtime payments, it held that the retailer failed to demonstrate a good faith mistake and that its violations of Section 226(a)(9) were at all times knowing and intentional.

Finally, the court found that the plaintiffs had established the requisite injury for their wage statement claims based on the inability to determine (1) the pay period start and end dates from their final pay wage statements and (2) the rate and hours for additional overtime payments from their other wage statements. Having suffered the type of statutorily defined injury required for liability, the court found that plaintiffs had standing to pursue their wage statement claims.

In assessing penalties for the wage statement violations, the court utilized the higher measure of civil penalties found in California Labor Code § 226.3, rather than PAGA’s default penalty provision. However, the court agreed with the retailer’s argument that any PAGA penalties award should be proportional to actual damages and statutory penalties awarded, and take into consideration whether violations were committed willfully. In doing so, the court exercised its discretion to reduce the PAGA penalties award for the adjusted overtime pay subclass to approximately $48 million, which matched 100 percent of the statutory damages awarded and represents approximately 36 percent of the original amount of PAGA penalties requested for that claim.

The court’s decision to reduce the PAGA penalties award was driven by its recognition that the retailer had made a good faith effort to comply with Section 226, that it would be unreasonable to penalize the retailer by awarding maximum PAGA penalties for violations stemming from its practice of awarding bonuses that benefit employees, and that employers face challenges in calculating and displaying additional overtime wages based on bonus payments.

The court also exercised its discretion to reduce the amount of PAGA penalties awarded to the final wage statement subclass to almost $6 million, which represents 20 percent of the original PAGA penalty request of approximately $29 million. The basis for the court’s decision was twofold. First, the court found that the retailer had a good faith belief that its final wage statement practices were compliant prior to the issuance of the court’s summary judgment order. Second, the court found that a significant reduction in penalties was appropriate given that it declined to award statutory damages on this claim due to the plaintiff’s failure to provide any statutory damages calculations for the period after the court’s summary judgment decision.

While the overwhelming majority of the court’s penalties award was for wage statement violations, the court also awarded the full amount of PAGA penalties requested for meal break-related violations despite decertifying the meal break class claims and finding that the named plaintiff’s individual claim failed. The court was undeterred by the fact that the named plaintiff lacked a viable claim for relief, holding that he may still recover PAGA penalties on behalf of other employees because he was affected by at least one of the Labor Code violations alleged (i.e., the wage statement violations).

On June 11, 2019, the retailer filed an appeal of the judgment.

The substantial award likely will lead to further scrutiny of wage statements by California plaintiffs’ lawyers, and the filing of even more wage statement class and representative action lawsuits in California. Such claims have been on the rise in recent years. This ruling serves as a sobering reminder to companies with employees in California to review both the content of their wage statements and the dissemination process of final wage statements upon an employee’s termination to ensure they are in full compliance with California’s wage statement laws.