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California Wage & Hour Derivative Claims: Wage Statement Penalties and Waiting Time Penalties

By Rolando Gutierrez

When an employee falls victim to an employer’s wage and hour violations, the first and probably only things that come to mind are unpaid wages, unpaid overtime, and meal break and rest break violations. There are, however, other wage and hour claims that arise as a result of an employer’s failure to pay wages or meal and rest break premium payments. These claims, otherwise known as “derivative” claims because they occur as a derivative result of an employer’s failure to pay wages and/or meal/rest break premiums, are (1) Wage Statement Penalties, and (2) Waiting Time Penalties.

A. Wage Statement Penalties

CAL. LAB. CODE § 226 provides that an employer shall provide its employees with accurate, itemized wage statements that include, among other things, “(1) gross wages earned, (2) total hours worked by the employee…, (4) all deductions, provided that all deductions made on written orders of the employee may be aggregated and shown as one item, [and] (5) net wages earned….”

Section 226 also provides that an aggrieved employee “is entitled to recover the grater of all actual damages or fifty dollars ($50) for the initial pay period in which a violation occurs and one hundred dollars ($100) per employee for each violation in a subsequent pay period, not to exceed an aggregate penalty of four thousand dollars ($4,000)....” CAL. LAB. CODE § 226(e)(1).

For example, if an employee works for an employer for a period of four years, receives a wage statement every payroll period, but was deprived of overtime compensation that the employer was required to pay per payroll period, it follows that every wage statement the employee received during this four-year period is inaccurate because the employer do not account for the unpaid overtime that the employer was required to pay the employee. Thus, if the employer is found liable to the employee for unpaid wages, even for as little as one dollar, the employer will also be liable, as a derivative result, under section 226 of the California Labor Code per pay payroll period because it failed to itemize the unremunerated amounts in the employee’s wage statements. But note, because this particular employee in this example worked for this employer for a four-year period, the maximum penalty recoverable would be $4,000. See CAL. LAB. CODE § 226(e)(1) (the penalty is $50 for the initial pay period in which a violation occurs, then $100 for each subsequent violation not to exceed an aggregate penalty of $4,000).

B. Waiting Time Penalties

The analysis for Wage Statement Penalties rings true with Waiting Time penalties. If the employer is found liable for unpaid wages, even for as little as a dollar, the employer will also be liable under sections 201 or 202 of the California Labor Code because the employer failed to pay all wages due upon the employee’s termination.

Sections 201 and 202 of the California Labor Code require employers to pay their employees all wages due immediately upon discharge, or within seventy-two hours of resigning without notice. If an employer willfully fails to pay all wages due upon the termination of the employment relationship in accordance to sections 201 and/or 202 of the California Labor Code, the employee is entitled to waiting time penalties at the employee’s daily rate, up to 30 days. CAL. LAB. CODE § 203. “Willfulness” under section 203 does not require a “deliberate evil purpose to defraud workmen of wages which the employer knows to be due[;] [a]s used in section 203, ‘willful’ merely means that the employer intentionally failed or refused to perform an act which was required to be done.” Barnhill v. Robert Sounders & Co. (1981) 125 Cal.App.3d 1, 7 (emphasis added).

To determine the hourly rate of an employee, and in turn the employee’s daily rate, one must divide the employee’s weekly earnings by 40 hours. CAL. LAB. CODE § 515(d)(1); see also, DLSE 2002 Enforcement Policies & Interpretations Manual, § 49.2.1.1. Weekly earnings include, among other things, wages, salaries, overtime, commissions, and/or bonuses.

If an employee, for example, was misclassified as an exempt employee with a bi-weekly salary of $2,661.01:

  • • First divide the bi-weekly salary by two, which results in a weekly earnings of $1,330.50.

  • • Take the weekly earnings of $1,330.50 and divide it by 40 hours, which results in an hourly rate of $33.26.

  • • Multiply the hourly rate of $33.26 by eight, which represents an 8-hour workday, and the employee’s daily rate is $266.08.

  • • Finally, multiply the daily rate by the number of days the employer failed to pay all wages upon the employee’s termination, up to 30 days, to determine the total amount of Waiting Time Penalties, which in this case the maximum penalty would be $266.08 x 30 for a grand total of $7,982.40.

For additional information, please contact the attorneys at GUTIERREZ & BLANCO, PLC.

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Rolando J. Gutierrez, Esq. is a litigation attorney and founding partner of GUTIERREZ & BLANCO, A PROFESSIONAL LAW CORPORATION, handling matters involving personal injury, medical malpractice, wrongful death, wage & hour individual and class action claims, consumer class action litigation, and business litigation. He can be reached at (310) 904-6210, or by email at rolando@gutierrzblanco.com.

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