On December 1, 2021, the California Court of Appeal (4th District) issued its decision in Gunther v. Alaska Airlines, Inc., Case No. D076762, holding that heightened penalties for wage statement violations under Labor Code Section 226.3 are available only where an employer fails to provide a wage statement or keep required records at all—not in a run-of-the-mill case where the wage statement is merely inaccurate.
The Private Attorneys General Act (PAGA) permits aggrieved employees to recover civil penalties specified by the Labor Code that previously only the Labor Commissioner could recover. Cal. Lab. Code § 2699(e)(1). Additionally, for any provision of the Labor Code that does not specify a civil penalty, PAGA permits employees to seek a "default" penalty of up to $100 for each aggrieved employee per pay period for an initial violation and up to $200 for each aggrieved employee per pay period for a subsequent violation. Id. § 2699(f)(2). Gunther held that if a PAGA plaintiff proves that the employer provided inaccurate wage statements, the default penalty applies.
Labor Code Section 226(a) sets forth nine items of information that employers must accurately list on wage statements. Section 226.3 provides a penalty of up to "[$250] for an initial citation and [$1,000] for a subsequent citation, 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" (emphasis added). This penalty is far greater than the default PAGA penalty of up to $100 or $200, and is one of the steepest penalties for a wage and hour violation in the entire Labor Code. Before 2018, several federal district courts held that Section 226.3 penalties were available only if the employer failed completely to provide a wage statement or to keep the records required in Section 226(a). However, in Raines v. Coastal Pac. Food Distribs., 23 Cal. App. 5th 667 (2018), the California Court of Appeals held that in a PAGA action, Section 226.3 penalties are available for any wage statement violation.
The court in Gunther disagreed, finding that the "plain meaning of the[] words" bolded above mean that Section 226.3 penalties "apply only where the employer either fails to provide a wage statement or fails to keep required records[.]" Gunther, 2021 WL 5630893, at *17. It found Raines unpersuasive, explaining that the court had failed to analyze the statutory text. It also criticized Raines for setting up a false choice between Section 226.3 penalties and no penalties, when the unavailability of Section 226.3 penalties simply means that a PAGA plaintiff must seek default penalties under Section 2699(f)(2) instead. Id. Although this is a positive decision for employers, it also muddies the law because there are now two Court of Appeal decisions on point that contradict each other.
In concluding remarks, the court also stated that "the increased $200 civil penalty for 'subsequent violation[s]' does not apply unless [plaintiff] presents evidence that the Labor Commission or a court notified [defendant] that it was in violation of the Labor Code." Id. at *18. Under an alternative interpretation (for which plaintiffs frequently advocate), the term "subsequent violation" arguably could mean any pay period after the first pay period in which a violation occurred. Although Gunther's conclusion is consistent with the way courts had widely interpreted the term "subsequent violation" (and how the Court of Appeal had interpreted similar Labor Code provisions), it marks the first time the Court of Appeal has expressly endorsed this interpretation with respect to default PAGA penalties, and should provide clarity to parties attempting to value PAGA claims.
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