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California Penalties Of $72,000 Affirmed For Failure To Provide Adequate Pay Stubs

Published by on February 7, 2011

The California Court of Appeal, Sixth District, recently held that employers who intentionally issue defective wage statements, or who skip issuing them on purpose, will not qualify for the statutory leniency set out in California Labor Code section 226.3.  In this case, the employer had misclassified workers as “independent contractors” and did not provide the […]

The California Court of Appeal, Sixth District, recently held that employers who intentionally issue defective wage statements, or who skip issuing them on purpose, will not qualify for the statutory leniency set out in California Labor Code section 226.3.  In this case, the employer had misclassified workers as “independent contractors” and did not provide the workers with wage statements.  More after the break.

Defendant, operator of seven residential care facilities, employed 24 workers.  Defendant admittedly treated 16 of these employees as independent contractors because they lacked social security numbers and issued each Form 1099 tax statements instead of the itemized wage statements required by California Labor Code section 266(a).  In 2008, the California Division of Labor Standards Enforcement (DLSE) performed a workplace inspection at defendant’s premises.  The DLSE issued defendant a citation for penalties under section 226.3 in the amount of $72,000, representing 288 violations for failing to provide the employees classified as independent contractors with itemized wage statement during the previous year.  The citation and penalty was affirmed after an administrative hearing before the DLSE and defendant’s writ of administrative mandamus was denied by the trial court.    

The California Court of Appeal affirmed the penalty amount and held that defendant’s failure to provide itemized wage statements to its employees was not “inadvertent” under the meaning of Labor Code section 226.3.  Under the Labor Code, the DLSE is instructed to take into consideration whether the employer’s failure to provide proper wage statements was “inadvertent” and may decide not to penalize an employer for a first violation when that violation is due to a “clerical error or inadvertent mistake.”  The Court of Appeal concluded that “inadvertent” has the commonplace meaning of “unintentional,” “accidental,” or “not deliberate.”  The Court of Appeal concluded that regardless of defendant’s subjective intent to comply with the Labor Code, defendant’s failure to provide its employees with wage statements was an intentional act and not an accident.  Accordingly, the DLSE was not required under section 226.3 to consider whether to mitigate the penalties awarded against defendant.         

To read the full opinion, click here.

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