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In California, we often see what are referred to as “derivative” additional claims when employees bring suits against employers for wage-related violations. Frequently, these “derivative” claims include an assertion that the employer issued incorrect wage statements. For example, if employees were suing their employer for not paying minimum wage, they would also claim that the employer issued incorrect wage statements, as the wage statements would, of course, not include the pay the employees claimed they should have earned. This may trigger as much as $4,000 per employee in penalties.

Fortunately, in a recent employer-friendly opinion, a California Court of Appeal reversed an award for wage statement penalties, noting that the wage statement claims fail as a matter of law when based on the alleged failure to show all wages “earned” when the wage statements accurately show all wages paid to the employee.

In Maldonado v. Epsilon Plastics, Inc., Case Nos. B278022/B281129 (2d Dist., Div. 8 Apr. 18, 2018) (unpublished; published May 8, 2018) (“Maldonado”), employees of plastic manufacturer Epsilon Plastics, Inc., (“Epsilon”) sued Epsilon for numerous wage and hour violations stemming from the company’s use of an Alternative Workweek Schedule (“AWS”). Under the AWS, employees worked a 12-hour day, 10 hours paid at their regular rate and two hours paid as overtime. The claims included failure to pay overtime for hours 9 and 10 under the AWS, denial of meal and rest breaks, and failure to provide accurate pay stubs, as the pay stubs did not reflect the overtime rate for all overtime hours actually worked.

It was discovered through the trial process that Epsilon had not properly adopted the AWS in accordance with legal requirements. Though the appellate court agreed with the trial court that the AWS was not properly adopted and therefore employees should be compensated for additional overtime, it agreed with Epsilon’s “commonsense position” that the pay stubs were accurate in that they correctly reflected the hours worked and the pay received. It noted that, logically following the plaintiffs’ claims of inaccurate wage statements, the only way Epsilon could have avoided wage statement penalties while operating under the AWS would have been to issue wage statements that did not resemble the pay employees were actually receiving.

The appellate court continues, adding that, as it is illogical to think that this interpretation of inaccurate wage statements is what the Legislature intended, “plaintiffs’ counter argument boils down to the proposition that any failure to pay overtime at the appropriate rate also generates a wage statement injury justifying the imposition of wage statement penalties – an apparent unintentional double recovery.”

COUNSEL TO MANAGEMENT:

For now, this is good news for employers, as it reduces plaintiffs’ attorneys’ ability to rack up lucrative penalties for this derivative claim. However, should the California Supreme Court review Maldonado, it is possible that it would reverse the appellate court’s decision, as it has made several employee-friendly decisions in recent years, so we will keep you informed should Maldonado reach that level. If you are facing wage and hour claims, or if you have any questions or concerns regarding your company’s wage statement liability, please contact the experts at The Saqui Law Group.

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