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October 19, 2010
Employer Prevails in Wage Statement Challenge; Tips for Satisfying Standards

Wage and hour litigation has heated up across the country during the economic downturn, and California is no exception. One common target of California employees’ claims is state Labor Code Section 226(a), which lays out the requirements for wage statements. In a new case, though, the California Court of Appeal essentially found that the employees were being much too picky in their reading of the requirements.

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Requirements for Wage Statements

Section 226 of the Labor Code requires employers to provide accurate itemized wage statements to their employees. It lists nine types of information that must be given in the statements, including the total hours the employee worked in the pay period.

Employees who suffer injury as a result of the employer’s knowing and intentional failure to satisfy the statute’s requirements are entitled to damages. An employee can recover the greater of all actual damages or $50 for the initial pay period in which a violation occurs, and $100 for each violation in a subsequent pay period, not exceeding an aggregate penalty of $4,000. Employees can also recover costs and attorney’s fees.

Format Prompts Class Action Lawsuit

“Hensley” worked for United Retail Incorporated as a nonexempt comanager for about a month in 2005. During that time, United Retail issued each nonexempt California employee a weekly itemized wage statement with information on the hours worked, wages earned, pay rates, deductions, and similar data.

Employees who worked no overtime during the pay period received statements that listed the total regular hours worked. Employees who worked overtime received statements that separately listed the total regular hours worked and the total overtime hours worked. The statements, however, didn’t add the regular and overtime hours and list the sum in a separate line.

In November 2006, Hensley filed a class action lawsuit against United Retail. She claimed the employer violated Section 226(a) because the statements didn’t show the total hours worked by each employee. (After the lawsuit was filed, United Retail changed its wage statement format to include an additional line for “total hours worked,” which provides the sum of total regular and overtime hours.) The trial court in Los Angeles dismissed the action, and Hensley appealed.

Wage Statement Passes Muster

The California Court of Appeal found that United Retail complied with Section 226. It pointed out that the statements accurately listed the total regular and total overtime hours and that the employee could determine the sum of all hours worked without referring to time records or other documents. The employee merely needed to add together the regular and overtime hours. Morgan v. United Retail, Inc., Calif. Ct. Appeal (Dist. 2), No. B216130 (2010).

This case underscores the need to comply with all of Section 226’s requirements to avoid being hit with wage and hour claims. To avoid violating Section 226, make sure your wage statements include the following information:

  • Gross wages earned
  • All deductions
  • For employees paid on a piecework basis, the number of piece rate units earned and the applicable piece rate
  • For employees paid by commission, the commission rate and the amount of sales
  • For employees paid an hourly rate, the total hours worked
  • All applicable hourly rates of pay and the corresponding number of hours the employee worked at each rate during the pay period
  • Net wages earned
  • The inclusive dates of the period for which the employee is paid
  • The employee’s name and Social Security number
  • The employer’s name and address

Remember that the deductions must be recorded in ink or other indelible form and properly dated with the month, day, and year. You must keep a copy of the deductions on file for at least 3 years. 

Practice Tip

Although not required by Section 226, employers should consider including a separate line for total hours—if only to preempt potential headaches.

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