Paystub Errors, Penalties & Claims

Win For Employers – Avoid PAGA Penalties By Curing Paystubs Errors!

On October 2, 2015, California passed a new law that helps California employers. The law (AB 1506) amends the Private Attorneys General Act (PAGA) to reduce frivolous PAGA claims. The new law took effect immediately.

Passed in 2004, PAGA allows an employee to seek civil penalties against an employer not only on the employee’s own behalf, but also on behalf of any other aggrieved current or former employee. PAGA’s penalties depend on the number and type of Labor Code violations. Unfortunately, as many employers know firsthand, PAGA gives a plaintiff-employee powerful leverage in any Labor Code dispute and a way to claim large penalties.

PAGA also gets employees’ attorneys’ salivating because if they win the case they can recover their attorneys’ fees against the employer. Often the employees’ attorneys’ fees in a PAGA case can easily be in the six figures, often resulting in the “tail wagging the dog.”

Now, employers can fight back for certain alleged PAGA violations relating to itemized statements.

PAGA Paystub Claims And Penalties

PAGA applies to Labor Code section 226. Labor Code section 226 requires California employers to provide accurate itemized wage statements (aka “paystubs”). Nine items are specifically required on employee paystubs, including “the legal name and address of the legal entity that is the employer” and “the inclusive dates of the pay period for which the employee is paid.” These items must be “accurate.”

Without AB 1506, California businesses are exposed to huge penalties for not getting their legal name right on their employee paystubs or making errors on the pay period start and end date.

For example, listing an incorrect entity name or address and/or inaccurate pay period dates subjects your business to a LC 226 penalty of $50 for the first pay period and $100 for every subsequent pay period per employee (up to a maximum of $4,000 per employee). Because of PAGA you also face a possible additional $100 penalty under PAGA per employee per pay period.

Example: Your Company’s legal name is “Widgets and Stuff, Inc.” On your paystubs, your company name is listed as “Widgets and Stuff, LLC.” Your business runs biweekly payroll (every two weeks) and issues wage statements listing the incorrect legal name or business address to 20 employees for one year. One employee sues, on her own behalf, and on behalf of the 19 other employees.

On her own behalf, the suing employee can seek statutory penalties in the amount of $50 for the initial pay period and $100 for each of the remaining 25 pay periods (total of $2,550). She can ALSO seek civil penalties under PAGA in the amount of $100 for each of the 26 pay periods (total of $2,600). Thus, the employee can seek a total of $5,150 on her own behalf.

The suing employee can seek PAGA penalties in the amount of $100 for each of the 26 pay periods (the same $2,600 figure as above) on behalf of each of the 19 other employees. For these 19 employees, the total penalty is $49,400 (19 x $2,600)!

The total penalty exposure for your business is $54,550 ($5,150 + $49,400) because your legal business name or address was wrong on your paystub. Consider the penalties if you have 100 employees. And don’t forget, if the plaintiff prevails you get to pay the other side’s attorneys’ fees on top of your own attorneys’ fees.

This simple example shows how a PAGA penalty can be exorbitant and far outweigh the individual penalty for seemingly immaterial violations.

AB 1506 Allows Employers To Avoid PAGA Penalties

AB 1506 allows employers to avoid PAGA penalties for paystub violations for wrong legal entity name or address and/or pay period dates. Would be plaintiffs always had to provide notice of the PAGA violation to their employer. Now California employers have an opportunity to “cure” (i.e. correct or fix) the paystub error before a PAGA claim can be filed for legal name/address or pay period errors.

Before AB 1506, there was no such opportunity to cure. As a result, employers have been tagged large civil penalties for seemingly minor itemized wage statement violations related to incorrect address or business name and/or incorrect pay period dates.

Keep in mind that AB 1506 only allows you to fix itemized wage statements with entity name/address and/or pay period date inaccuracies. There is no ability to cure errors related to the number of hours worked, to employee pay, and to the other wage statement requirements found in Labor Code section 226.

How Does An Employer Cure Under AB 1506?

AB 1506 lists strict procedures and requirements for curing:

Only one opportunity to cure in a 12-month period – Employers are allowed one “get out of jail free” card over any 12-month period for the same itemized wage statement violation. The idea is to provide businesses with a way to avoid PAGA penalties for inadvertent errors. If you cure an initial violation but commit an identical violation within 12 months, you will be unable to cure the second violation. Be aware that this 12-month limit applies regardless of the location of the actual worksite. Employers operating multiple stores, for example, have only one opportunity to cure a business name or pay period date error over a 12-month period, even if a subsequent error involves a different store.
Employers have 33 days to cure the wage statement errors – Employers have 33 calendar days to cure paystub errors. This means an employer has 33 days to correct every single paystub for each and every aggrieved employee.
Notice of the cure to employees – An employer who cures inaccurate itemized wage statements must provide notice, via certified mail, to any aggrieved employees and to the Labor and Workforce Development Agency (Agency). Employers also need to provide a statement describing the corrective actions that were taken.

What If The Employee Disputes Your Cure?

Providing notice to the employee and to the Agency that you have cured the wage statement error may not be the end of the story.

If the employee asserts your cure is inadequate, he or she must notify you and the Agency, in writing via certified mail, of the reasons why the cure was insufficient. The Agency then has 17 calendar days to review your attempt to cure. The Agency has the option of granting you three additional days to provide a legally compliant cure if your first attempt is deemed insufficient.

If the Agency does not respond to the employee within 17 calendar days, the employee may commence a PAGA claim. Also, if the Agency determines that your cure is sufficient but the employee disagrees, the employee may still commence a PAGA claim.

Lessons Learned

Review your wage statements NOW!

To reduce your stress level and to avoid PAGA penalties for minor errors, make sure that your wage statements are legally compliant. If you need help with this seek knowledgeable and experienced employment and labor law counsel. This may seem like overkill but it’s not. Based on the LC 226 issues that we see regularly we strongly suggest you review your paystubs against the specific LC 226 requirements.

Better to avoid paystub problems in the first place so you don’t have to rely on AB 1506 cure provisions at all.

Jimy Hu

Scott Shibayama