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Wage Theft Prevention Act

As the recent front page news about Nike’s one-million dollar settlement for not paying overtime to its Indonesian workers makes clear, there are employers who take regular short cuts in the wage context by not fully paying employees for all hours worked. Examples of these short cuts include situations where employers simply refuse to pay all wages for hours worked, pay below minimum wage, or intentionally misclassify employees as independent contractors. Some of the worst examples occur against “undocumented workers, with the biggest dollar values being stolen from native born workers.” See, Kim Bobi, Author of Wage Theft In America – Why millions of Workers are not getting paid – and what we can do about it.

However, taking short cuts in the wage context is not the answer for most sensible California employers whom have gone through Olympian like contortions to follow the mandates of the Labor Code in relationship to the payment of wages. For many employers, a single employee’s success with the Labor Commissioner has been sufficient to cause an extensive overhaul of polices and practices related to the payment of wages – and for other employers, the threat of costly, practically door-closing litigation has resulted in the same extensive overhaul.

So after nearly a decade of fierce litigation in the wage context, could it be possible to further burden employers with new legislation regarding the payment of wages? Apparently the answer is a resounding “yes,” as legislation to address wage theft took effect on January 1, 2011 which applies to California’s private employers: the Wage Theft Prevention Act of 2011. The legislation must be broken down in three separate parts in order to digest:

First, five sections of the Labor Code have been amended: Section 98 (allows an employee to recover liquidated damages in hearing with the Labor Commissioner, i.e., a pre-determined sum that must be paid if a party fails to perform – pay wages and the damages are difficult to quantify); 226, Section 240 (extends time required for an employer who fails to satisfy a judgment, to maintain a bond from six months to two years, and allows the Labor Commissioner to seek an accounting of assets if the bond is not maintained); Section 243 (an employer convicted of a second violation under this section will be liable for wages, interest, or damages, an accounting of assets may be required and the employer may be subject to additional sanctions); Section 1174 (extends time an employer is required to maintain payroll records from two years to three years and an employer may not prevent an employee from maintaining a personal record of his hours worked); Section 1197 (provides that an employer who fails to pay the required minimum wage must pay restitution to the employee in the amount of unpaid wages in addition to a penalty or penalties).

Second, five sections of the Labor Code have been added: Section 200.5 (requires the DLSE file a request for entry of judgment on a civil penalty or fee against an employer within three years from the date the penalty or fee became final. Once the DLSE begins such an action, the judgment must be entered immediately); Section 1194.3 (allows an employee to recover attorney’s fees and costs incurred in enforcing a court judgment for unpaid wages); Section 1197.2 (increases sanctions for wage violations by imposing new civil and criminal penalties against noncompliant employers. The severity of penalties, both criminal and civil are linked to the amount of the wages owing and to the number of employees that are owed wages); Section 1206 (provides that, notwithstanding any other provisions of law, the Labor Code establishes minimum penalties for failure to comply with wage-related statues and regulations).

Third, and addressed separately as it is the most comprehensive addition to the Labor Code, is Section 2810.5 which essentially requires that employers provide non-exempt employees with a written statement at the time of hiring. The information required to be provided to new hires has been standardized in template form, which can be found on the DLSE webpage. See, www.dir.ca.gov/dlse/LC_2810.5_Notice.pdf. Employers do not need to rely on the template, but must include in any individualized model all the information contained within the DLSE template. Much of the new information required to be provided to new employees resembles the original requirements of a good wage statement pursuant to Labor Code 226 by requiring that new employees are provided the rate or rates of pay, the basis for the rate of pay, i.e., commission, overtime, piece rate, allowances claimed for meal or lodging, regular paydays, the employer’s legal name and contact information. However, this mimicry of Labor Code 226 is not all that the new provision requires and employers should seek a more comprehensive review by, at minimum, examining the DLSE template.

Also new on the DLSE webpage which supports amended Labor Code Section 1174, is a smart phone application created for those employees who have invested in iphone/ipad technology. But there is nothing smart about this: although the application provides employees a tool to keep track of their working hours, the utility is really nothing more than a simple time tracker, as subject to human error as writing down one’s hours on a pad of paper. However, what’s really troubling about the application is that it appears to be sanctioned by the DLSE, potentially lending records credibility which have otherwise been falsified or carelessly maintained. The only true accomplishment of the publication of the smart phone application is the warning it poses for employers to be more diligent than ever in recording and maintaining employees’ work hours. In the event that a dispute over work hours does arise, employers should require that employees regularly review and sign that their employer recorded work hours are accurate.

But in spite of the increased burden to private employers, with the passing of AB 469, it remains to be seen whether the legislation will be just another employer burden to bear – or will accomplish it’s goal – the protection of California workers from employer wage theft.

Elizabeth Ison is an employment attorney with The Ison Law Group in Sacramento, California, whose mission is to work with employers to create a healthy workplace and reduce employee claims, litigation, attorneys’ fees and costs. Eison@theisonlawgroup.com.