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WAGE STUBS: WHERE LITTLE MISTAKES = BIG LAWSUITS

California law allows employees to sue their employers, on behalf of the State of California.  The Private Attorneys General Act of 2004, known as “PAGA,” is becoming an increasingly dangerous source of litigation for employers.  This is because it allows one employee to bring suit on behalf of all other “similarly-situated,” employees, whether or not other employees have even agreed to participate.

This has the potential effect of transforming even minor bookkeeping mistakes or oversights into major lawsuits that can threaten an employer’s solvency. Because of the potential for substantial recoveries, these actions are proving increasingly attractive to plaintiffs’ lawyers.

One recent case illustrates the problem.  In Raines v. Coastal Pacific Food Distributors, Inc. (May 22, 2018), a former employee claimed that the employer violated the “wage statement” or “pay stub” requirements described in Labor Code, section 226(a) and (e). As every employer knows, several items of information concerning the employee’s compensation and related matters must be specified in writing with every payroll check.

In the Raines case, after the plaintiff was terminated, she sued her former employer for age and disability discrimination.  She also sued, in a representative capacity on behalf of all other similarly-situated employees, under PAGA. The PAGA claims were based on the employer’s alleged failure to include the applicable hourly rates in effect during the pay period, and the corresponding number of hours worked at each hourly rate.  These are two of the numerous, detailed items of information, required by Labor Code, section 226, to be included on pay stubs.

The trial court ruled in favor of the employer, after concluding that the plaintiff failed to show any injury resulted from what was, in essence, a minor bookkeeping oversight.

However, the court of appeal disagreed, and reversed.  It did so after concluding that a representative PAGA claim for civil penalties alleging violations of Labor Code section 226(a) does not require proof of injury or a knowing and intentional violation, even though both elements must be proven to support an individual claim.  With this ruling, the court, in effect, found that it is easier to prevail on a PAGA claim than it would be had the employee filed suit only in her individual capacity. The ominous implications of this finding cannot be overstated.

Obviously, this ruling will have the predictable effect of strongly encouraging employees with pay stub claims to bring suit on behalf of other employees in addition to themselves.  This is particularly true, given that such pay stub mistakes and oversights are typically not restricted to only one employee.  Consequently, even the most trivial pay stub oversights can be expected to result in class action or representative lawsuits.

At the present time, PAGA actions alleging pay stub violations are already the most common source of class/representative lawsuits in California. With the disturbing ruling in the Raines case, this problem can only get worse before it gets better.

A couple of features unique to representative actions warrant brief mention.  First, successful wage-hour claims often require the courts, by statute, to award attorneys’ fees to the claimant, if he/she wins an award in any amount.  Because the attorneys’ fees required to prosecute a representative action involving tens or hundreds of plaintiffs will predictably be many times that required to represent one client, employers can expect to pay enormous amounts in attorneys’ fees to a prevailing plaintiff, in addition to their own defense costs.

As a practical matter, such fee awards to the prevailing plaintiff these often dwarf the amount of the underlying award.  This feature serves to vastly enhance the legal exposure of employers for even the most innocent and trivial bookkeeping errors. Not incidentally, it appears unlikely that employers utilizing third-party payroll services for the preparation of wage statements can successful shift liability for pay stub errors.  This is true even in situations where the employer had no direct responsibility for the errors resulting in the dispute.

Second, because pay stub violations often involve errors that impact many employees, and potentially the entire workforce, employers can quickly find themselves surrounded by a workforce of hostile litigants.  That is, once a class-action or representative claim is filed, workers quickly become aware that many or all of their fellow-employees are the potential recipients of a windfall.

 In this setting, the peer pressure to participate is frequently irresistible, for financial and other reasons. In such an environment, it can be very difficult to find witnesses who are willing to cooperate with or support the employer’s defense, even where the truth and “fairness” requires it.  Employers who attempt to discipline employees for misrepresenting events to support the lawsuit, or enlisting class members among the workforce are vulnerable to claims of unlawful retaliation, or worse. This is a very uncomfortable position for an employer to be in.

Based on the above, I can offer only the same standard refrain that has become an article of faith in this publication:  “An ounce of prevention is worth a pound of cure.” This begins with an expertly drafted employee handbook and arbitration policy.

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Jay G. Putnam is a Petaluma labor lawyer who has specialized in representing California employers for over 37 years. His practice is devoted to preventing lawsuits against his clients, without sacrificing workplace authority or management prerogatives. He has a remarkable record of success: Not one employer-client acting on his advice has been sued in over 37 years.

For those clients who have arrived with pending lawsuits, Putnam has established an excellent track record of success as well.

You are invited to visit Mr. Putnam’s website, where you will find in-depth discussion of the most common mistakes made by California employers, and how to avoid them. http://www.jaygputnam.com/blog/

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