Civilizing California’s draconian wage statement laws

For over 75 years, California employers have been vexed by the prolix requirements for the statements accompanying paychecks set out on Labor Code Section 226. After a decade of pitched litigation concerning the scope of penalties for violation of these requirements, a state trial court has now definitively held -- for the first time -- that there are severe statutory limitations on the scope of civil penalties for paystub violations.

In the modern era, California Labor Code Section 226(a) imposes at least 11 different wage statement requirements, ranging from a ban on including an employee's entire Social Security number (only the last four digits are permitted) to requiring the employer's "legal" name and address, to requiring specification of an employee's hourly rate, hours, gross and net wages. The law also imposes strict requirements on employers to maintain records of the required information and permit employees to inspect or copy the records. See Labor Code Section 226(a).

Remedies for violation of these requirements is in the hands of both private litigants and the state. First, the law creates a private right of action for a "statutory" penalty of up $4,000 per employee, plus attorney fees, for violation of any of the 11 requirements of Section 226(a) that cases injury. Labor Code Section 226(e)(1). Injury is presumed when an employee has to turn to sources of information outside of the 'four corners' of the wage statement to obtain required information. Labor Code Section 226(e)(2). But where the missing information can be derived by arithmetic from information on the wage statement, no injury exists. See Price v. Starbucks Corp., 192 Cal. App. 4th 1136, 1142-43 (2011). Accord, Milligan v. American Airlines, Inc., 577 Fed. App'x. 718, 719 (9th Cir. 2014). Employees can also be sued for injunctive relief. Labor Code Section 226(h). In addition to statutory penalties, Labor Code Section 226.3 permits regulators to assess "civil" penalties of up to $1,000 per employee for two of the 11 requirements of Section 226(a): if the employer fails to provide any wage statement at all, or fails to keep the required records.

In 2004, the enactment of California's Labor Code Private Attorneys General Act brought uncertainty into the Legislature's carefully articulated system of statutory and civil penalties. PAGA serves two functions: First, it gives standing to "aggrieved employees" in the place of state regulators to seek civil penalties provided in the Labor Code through representative actions on behalf of similarly-situated employees, subject to a complex set of administrative exhaustion requirements. Labor Code Sections 2699(a), 2699.3, 2699.5. In this respect, it operates as a qui tam statute. Iskanian v. CLS Transportation Los Angeles, LLC, 59 Cal. 4th 348, 382 (2014). Second, it creates a new civil penalty (the "PAGA catch-all") for any violation of the Labor Code "except those for which a civil penalty is specifically provided." Labor Code Sections 2699(f).

One would think, because the Legislature had already "specifically provided" a civil penalty in Section 226.3, that while the qui tam aspects of PAGA would permit aggrieved employees to seek it in a representative action, the PAGA catch-all could not apply. If so, then PAGA would not expand the scope of civil penalties for Section 226(a) violations beyond the limits established by the Legislature in Section 226.3. However, plaintiffs continuously pressed the argument that since Section 226.3 reached only two of 11 types of Section 226(a) violations, there was no civil penalty provided for the other nine, and the PAGA catch-all applied to them. In 2011 and 2012, a pair of federal decisions from the Central District of California accepted this argument, expanding the scope of civil penalties well beyond the limits enacted by the state Legislature. York v. Starbucks Corp., No. CV 08-07919 GAF (PJWx), 2012 WL 10890355, at *8-9 (C.D. Cal. Nov. 1, 2012); Fleming v. Covidien, Inc., No. ED CV 10-01487 RGK (OPx) (C.D. Cal. Aug. 12, 2011).

For several years, both state and federal trial courts adhered to this rule. But in 2017, a decision from the Eastern District of California rejected it on the ground that it ignored the plain statutory language in PAGA as well as Section 226.3. Culley v. Lincare, Inc., 236 F. Supp.3d 1184, 1194 (E.D. Cal. 2017). The next year, the state Court of Appeal took up the issue in Raines v. Coastal Pacific Food Distributors, Inc., 23 Cal. App. 5th 667 (2018). Raines rejected the earlier Central District rulings in favor of the more recent Eastern District one, holding that "section 226.3 sets out a civil penalty for all violations of section 226." Id. at 675. Plainly, Raines meant that "section 226.3 sets out the only civil penalty for violations of section 226." Plaintiffs arguing that it meant instead that "section 226.3 sets out a civil penalty for any violation of section 226" have met with mixed results. A 2019 Northern District of California ruling adopted the latter holding without any substantive analysis. Magadia v. Wal-Mart Associates, Inc., 384 F.Supp.3d 1058, 1109-10 (2019) (appeal pending).

But a state trial court recently disagreed and rejected the claim that "all" meant "any," sustaining a demurrer without leave to amend (and entering judgment for defendant) in a PAGA action based solely on a failure to include an employer's mailing address on a wage statement: "Plaintiff has argued that under Raines, she may seek civil penalties as to any and all violations of section 226(a), including an omitted address, and that she is not limited to the civil penalties already specifically set forth under section 226.3. Raines does not support this interpretation of section 226.3." Gordon v. Southern Glazer's Wine and Spirits, LLC, Case No. RG19034039, "Order Re: Demurrer to First Amended Complaint," p. 3 (Alameda County Sup. Ct., Jan. 24, 2020) (appeal pending). The state court also rejected the 2019 Northern District ruling to the contrary.

The state court was on good grounds in so ruling. Construing "all" in Raines to mean 'any' violates at least four "fundamental rules of statutory interpretation." Bay Guardian Co. v. New Times Media LLC, 187 Cal. App. 4th 438, 453 (2010).

First, doing so would violate the rule against rendering statutory language "mere surplusage." Id. at 453-54. Section 226.3 is a short statute. It contains two sentences and 118 words. Construing "all" to mean "any" would render 25 words in it -- "for which the employer fails to provide the employee a wage deduction statement or fails to keep the records required in subdivision (a) of Section 226" -- mere surplusage, because civil penalties in PAGA cases would no longer be limited to the two Section 226(a) violations specifically enumerated in that clause.

Second, by singling out some, but not all, violations for civil penalties, the Legislature necessarily intended that the remaining violations are not be subject to civil penalties at all. Under "the interpretive canon expressio unius est exclusio alterius," "the explicit mention of some things in a text may imply other matters not similarly addressed are excluded." Howard Jarvis Taxpayers Assn. v. Padilla, 62 Cal. 4th 486, 514 (2016). Accord, e.g., International Federation of Professional & Technical Engineers, Local 21, AFL-CIO v. Superior Court, 42 Cal. 4th 319, 343 (2007) ("Ordinarily, the enumeration of one item in a statute implies that the Legislature intended to exclude others.") By enumerating at least 11 types of violations of Section 226 in subdivision (a), but then mentioning only two of the 11 in Section 226.3 -- instead of all 11, or referencing 'any violation' of Section 226(a) (or words of similar import) -- the Legislature signaled a clear intent that there be no civil penalty for the unmentioned violations. There is nothing to suggest that the Legislature intended to impose civil penalties on all 11 types of Section 226(a) violation (or any of the unenumerated types).

Third, construing "all" to mean "any" would entail permitting the general statutory language of the PAGA catch-all to prevail over the more specific language of Section 226.3. But California Code of Civil Procedure Section 1859 requires that it be the other way around: "In the construction of a statute ... a particular intent will control a general one that is inconsistent with it." California Medical Assn. v. Brown, 193 Cal. App. 4th 1449, 1461 (2011). This is even true when the more general language is enacted later than the more specific. See, e.g., State Dept. of Public Health v. Superior Court, 60 Cal. 4th 940, 960 (2015).

Fourth, construing "all" to mean "any" would mean that PAGA somehow impliedly repealed the restrictive language of Section 226.3. Such an implied repeal is also impermissible, unless it is completely impossible to reconcile the two statutes. See, e.g., Richmond Compassionate Care Collective v. 7 Stars Holistic Foundation, 33 Cal. App. 5th 38, 48 (2019) ("implied repeal [is] disfavored and the two acts must be irreconcilable; courts are bound, if possible, to maintain the integrity of both statutes") (citing Stone Street Capital, LLC v. California State Lottery Com., 165 Cal. App. 4th 109, 119 (2008)). Here, the two statutes can be easily harmonized without implied repeal of any language: The PAGA catch-all applies only when the Labor Code does not "specifically provide[]" a civil penalty. Since Section 226.3 "specifically provides" a civil penalty for violations of Section 226(a), the PAGA catch-all does not apply to Section 226(a) violations. Since Section 226.3 specifically and purposefully limits civil penalties to two (of 11) types of Section 226(a) violations, civil penalties are not available for the other nine types under PAGA. (Statutory penalties under Section 226[e] are available, of course, for all 11 types of Section 226[a] violations.)

Moreover, as the California Supreme Court held in Arias v. Superior Court, "[a]n employee plaintiff suing ... under the Labor Code Private Attorneys General Act of 2004, does so as the proxy or agent of the state's labor law enforcement agencies." 46 Cal. 4th 969, 986 (2009). "[T]he employee plaintiff represents the same legal right and interest as state labor law enforcement agencies -- namely, recovery of civil penalties that otherwise would have been assessed and collected by the Labor Workforce Development Agency." Id. But construing "all" in Raines to mean 'any' would give private litigants greater remedial rights to seek civil penalties for Section 226(a) violations than the state.

After five years of illogical and misguided application of the PAGA catch-all in paystub cases, the court are finally restricting civil penalties in paystub cases to the limitations enacted by the Legislature. 

Steven was defense counsel in Gordon v. Southern Glazer's Wine and Spirits, LLC, one of the cases mentioned in this article.