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Wal-Mart Hit with $102M Judgment for Noncompliant Pay Stubs

Published by and on July 26, 2019

Court finds Wal-Mart liable for Labor Code wage statement violations in California class action.

In Magadia v. Wal-Mart Associates, Inc., the U.S. District Court for the Northern District of California recently ordered Wal-Mart to pay $102 million for noncompliant pay statements. Plaintiffs alleged violations for failure to pay adequate compensation for missed meal breaks, failure to provide accurate wage statements with regard to final pay and overtime incentive payments; and Private Attorneys General Act (PAGA) claims. California’s PAGA allows employees to bring claims against their employers and recover penalties on behalf of themselves and the State of California. An estimated 52,000 to 76,000 current and former Wal-Mart employees joined the class action, which certified three classes of plaintiffs:

  1. All current and former California non-exempt retail store employees who received nondiscretionary remuneration and were paid any meal period premium payments in the same period that the non-discretionary remuneration was earned, from December 2, 2012, through the present (“the meal period class”);
  2. All current and former California non-exempt employees who received a certain overtime designation on their wage statement from December 2, 2015, through the present (“the overtime incentive class”); and
  3. All former non-exempt employees in the State of California whose employment terminated from December 2, 2015 to the present (“the final pay class”).

In California, a meal break is defined as “a meal period of not less than 30 minutes” every five hours. Cal. Lab. Code § 512(a). Under California law, if an employer fails to provide a compliant meal break, “the employer shall pay the employee one additional hour of pay at the employee’s regular rate of compensation.” Cal. Lab. Code § 226.7(c).

Section 226(a)(6) of the Labor Code requires wage statements to contain “the inclusive dates of the period for which the employee is paid.” Section 226(a)(9) of the Labor Code requires wage statements to contain “all applicable hourly rates in effect during the pay period and the corresponding number of hours worked at each hourly rate by the employee.” For each line item, including overtime and bonus incentives, employees should be able to figure out how the amount of pay was calculated based on the hourly rate and the number of hours worked.

Although the court ultimately decertified the meal period class and dismissed the lead plaintiff’s meal period claim, the court awarded the plaintiffs $70,000 in PAGA penalties as it found that Wal-Mart’s meal period calculation was unlawful. Wal-Mart’s meal period compensation formula did not include the employees’ overtime incentive payments in its calculation of the regular rate of compensation for missed meal periods. Therefore, compensation for any missed meal periods that resulted from management’s direction (rather than the employee’s choice to miss a meal period), resulted in a violation.

The court also found that Wal-Mart’s wage statements were noncompliant with Labor Code Section 226 because the final pay statements did not include the pay period start and end dates in violation of Section 226(a)(6). Furthermore, the court found that the overtime incentive line-item on the pay statement did not list the hourly rate or hours worked in violation of Section 226(a)(9). Therefore, employees could not discern how the overtime incentive payment was calculated without looking at other information. The court found Wal-Mart’s violations were intentional because it failed to take any substantial corrective action after being put on notice that its pay statements were noncompliant when it granted partial summary judgment for the plaintiffs on these particular claims in May 2018.

As a result of these violations, the court ordered Wal-Mart to pay $48,046,000 in Labor Code statutory damages and $53,901,700 in total PAGA penalties.

Welter Insight

Employers should ensure their pay statements comply with state requirements in all states in which they have employees. In California, employers are required to provide meal periods of not less than 30 minutes every five hours. If the employee does not provide the required meal period, the employer must pay employee an additional hour of pay at the employee’s regular rate of compensation, which is calculated based on the employee’s base rate of compensation plus the employee’s incentive pay and overtime premiums. Additionally, employers should ensure that their pay statements (including final pay) clearly indicate the pay period start and end dates and list the hourly rate and hours worked for any line-item calculated on those bases. Finally, employers who discover that their wage statements do not comply with the law should take prompt remedial action, as substantial penalties can result.

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