Court of Appeal: Wage Statements Need Not Include Vacation and PTO Balances

Labor Code section 226 explains in detail what information must be included in an itemized wage statement, which must accompany paychecks in California.  Here are the section's requirements:

(1) gross wages earned, 

(2) total hours worked by the employee, except for any employee whose compensation is solely based on a salary and who is exempt from payment of overtime under subdivision (a) of Section 515 or any applicable order of the Industrial Welfare Commission, 

(3) the number of piece-rate units earned and any applicable piece rate if the employee is paid on a piece-rate basis, 

(4) all deductions, provided that all deductions made on written orders of the employee may be aggregated and shown as one item, 

(5) net wages earned, 

(6) the inclusive dates of the period for which the employee is paid, 

(7) the name of the employee and only the last four digits of his or her social security number or an employee identification number other than a social security number, 

(8) the name and address of the legal entity that is the employer and, if the employer is a farm labor contractor, as defined in subdivision (b) of Section 1682, the name and address of the legal entity that secured the services of the employer, and 

(9) all applicable hourly rates in effect during the pay period and the corresponding number of hours worked at each hourly rate by the employee and, beginning July 1, 2013, if the employer is a temporary services employer as defined in Section 201.3, the rate of pay and the total hours worked for each temporary services assignment.

The deductions made from payment of wages shall be recorded in ink or other indelible form, properly dated, showing the month, day, and year, and a copy of the statement and the record of the deductions shall be kept on file by the employer for at least three years at the place of employment or at a central location within the State of California. For purposes of this subdivision, “copy” includes a duplicate of the itemized statement provided to an employee or a computer-generated record that accurately shows all of the information required by this subdivision.

Oh, but if you pay a piece rate, you also have to comply with section 226.2:

(a) For employees compensated on a piece-rate basis during a pay
period, the following shall apply for that pay period: * * *  

(2) The itemized statement required by subdivision (a) of Section 226 shall, in addition to the other items specified in that subdivision, separately state the following, to which the provisions of Section 226 shall also be applicable: 

(A) The total hours of compensable rest and recovery periods, the rate of compensation, and the gross wages paid for those periods during the pay period.

(B) Except for employers paying compensation for other nonproductive time in accordance with paragraph (7), the total hours of other nonproductive time, as determined under paragraph (5), the rate of compensation, and the gross wages paid for that time during the pay period.

So, do you see vacation or PTO balances there?  Me neither.  Neither did the Court of Appeal, which rejected the plaintiff's claim in Soto v. Motel 6 Operating LP (opinion here).  The Court wrote:

section 226(a) is highly detailed, containing nine separate categories that must be included on wage statements, and the code section does not identify accrued paid vacation as one of these categories. (See fn. 2, ante.) When a statute omits a particular category from a more generalized list, a court can reasonably infer a specific legislative intent not to include that category within the statute's mandate. (See Blankenship v. Allstate Ins. Co. (2010) 186 Cal.App.4th 87, 94.)
*  *  *  *
[V]acation pay cannot be fairly defined as "gross wages earned" or "net wages earned" under section 226(a)(1) or (a)(5) until the termination of the employment relationship. The employee has vested rights to paid vacation or vacation wages during the time of his employment, but these rights do not ripen and become an entitlement to receive the monetary value of the benefit as wages until the separation date. (Church, supra, at pp. 1576-1577, 1583; see Suastez, supra, 31 Cal.3d at p. 784.) Further, before separation, the amount of vacation pay to which the employee is entitled is not ascertainable. An employee is entitled to obtain the value of unused paid vacation at his or her "final rate." (§ 227.3, italics added.) Because the amount of unused vacation and an employee's final rate may change, an employee's accrued vacation balance depends on the particular circumstances at the employment termination date.

This will help employers not only with claims that vacation / PTO belong on the wage statement, but also with other items not included in section 226.  Section 226 also requires employers to provide a copy of payroll records that include only the above 9 items.  Plaintiff lawyers argue that section 226 requires more than what is listed. This decision in Soto should put that issue to rest. 

One more tip:  employers have to report paid sick leave on the wage statement (or in a separate document) per  Labor Code section 246, subd. (h):

(h) An employer shall provide an employee with written notice that sets forth the amount of paid sick leave available, or paid time off leave an employer provides in lieu of sick leave, for use on either the employee's itemized wage statement described in Section 226 or in a separate writing provided on the designated pay date with the employee's payment of wages.

Therefore, employers that rely on PTO in lieu of mandatory paid sick leave might well have to provide the PTO balance on the wage statement (or in the separate document).  Apparently that was not the case in the Soto case, or no one brought it up.   

Be careful out there.

Federal Contractors: Federal Paid Sick Leave Final Regulations Are Here

California employers have to provide paid sick leave.  How much paid leave, and how to administer it, depends where your business is located within the Golden State.  There is a statewide law, and a growing list of local ordinances.  San Francisco, Oakland, Emeryville, and Los Angeles are some of the localities that have passed ordinances.  Employers trying to harmonize state and local law must  provide leave on whatever terms are most generous.  That can cause some traps, particularly with respect to how the leave accrual is counted.  And don't forget the posters!

Sure, California could pass a law preempting the local ones to make life easier for employers and still provide employees with leave. But making things easier for employers is just not job 1 at the Legislature.

Now, there is yet another law that requires employers' attention. Back in September 2015, President Obama issued an Executive Order, No. 13706, in which he ordered employers with federal contracts to provide employees working on those contracts with paid sick leave.  The US Department of Labor issued proposed regulations, which are now final.

A summary of the regulations, the comments and the final regulations are in this very long PDF. 

To break it down,

 - the first 10 pages contain a summary of the various regulations
- the next 394 pages are a detailed analysis including responses to the 35,000 comments that were submitted regarding this regulation.
- Page 404 of the PDF is where the regulations begin.

What is  a Contractor and What Contracts are Covered? 

Section 13.2 (p. 406 of the PDF) of the new regulation defines who is a federal contractor, covered by the rule:

Contractor means any individual or other legal entity that is awarded a Federal
Government contract or subcontract under a Federal Government contract. The term contractor refers to both a prime contractor and all of its subcontractors of any tier on a contract with the Federal Government. The term contractor includes lessors and lessees. The term employer is used interchangeably with the terms contractor and subcontractor in various sections of this part.

Of note, the term "employee" is defined (pp. 410-411 of the PDF) as limited to those who work on federal contracts. So, employers that have operations that are separate from servicing the federal contract are not covered by this rule.

The coverage of the types of contracts that the regulation applies to is explained in section 13.3, at pp.  417 et seq. of the PDF.

What Is the Sick Leave Entitlement?

That's explained in section 13.5 of the regulation, beginning at page 420 of the PDF.

a contractor shall permit an employee to accrue not less than 1 hour of paid
sick leave for every 30 hours worked on or in connection with a covered contract. A contractor shall aggregate an employee’s hours worked on or in connection with all covered contracts for that contractor for purposes of paid sick leave accrual.

However,

A contractor may choose to provide an employee with at least 56 hours of paid sick leave at the beginning of each accrual year rather than allowing the employee to accrue such leave based on hours worked over time.

So, like California and other jurisdictions, the sick pay accrues at one hour for every 30 hours worked.  More generous than California, the federal entitlement maxes out at seven, eight-hour days.
And the employer can front-load 56 hours to the employee rather than accrue over time.

There are rules regarding "carrying over" at page 423-24 of the PDF.

Pages 425-428 include the terms of the leave, documentation the employer may require, and more.

Pages 428-431 cover the medical certification the employer may require.

Enforcement
The regulation provides for no private enforcement of the paid sick leave law.  Employees claiming a violation of the regulation must proceed through the Department of Labor.

The DOL will investigate and try to address any violations. However, the DOL may sue an employer or seek "debarment" from federal contracts.


Recordkeeping
  Section 13.5 of the regulations require employers to maintain a record of the sick leave employees have accrued and used, and furnish information to employees with the paycheck or online.
 Section 13.25 (page 441 of the PDF) requires contractors to keep a variety records for three years.
That section also requires employers to keep detailed records if they wish to segregate employees' hours worked on federal contracts versus non-contractor work.

Poster
Of course. Section 13.26 describes the obligation to post a notice prepared by the DOL.

*  *  *
Unless Congress or the new president rescinds this rule, it will go into effect.  So, employers with federal contracts, please get ready for the new sick leave obligation, create policies, and determine how you will address sick leave for employees who are not working on the contract.

Finally, I tried my best to summarize 460 pages of rule making and analysis.  If I left anything out important to you or your business, please accept my apologies.  It's best if you click the link above and read the rules along with your employment counsel!

Now please excuse me, I'm feeling a little sick.  SWIDT?

California Legislature Changes Paid Sick Leave Law, Effective Immediately

Governor Brown signed AB 304 - Here, which amends California's paid sick leave law effective immediately.  Here are the highlights:

Change to Labor Code section 246(a) - clarifies that an eligible employee is one who has worked for the same employer within California for at least 30 days.  The new provision also excludes "retired annuitants" (certain public sector retirees) from the definition of employee.

Change to section 246(b) accrual options. This amendment allows the employer greater flexibility regarding how employees earn the minimum paid sick leave:

(3) An employer may use a different accrual method, other than providing one hour per every 30 hours worked, provided that the accrual is on a regular basis so that an employee has no less than 24 hours of accrued sick leave or paid time off by the 120th calendar day of employment or each calendar year, or in each 12-month period.

(4) An employer may satisfy the accrual requirements of this section by providing not less than 24 hours or three days of paid sick leave that is available to the employee to use by the completion of his or her 120th calendar day of employment.

Change to section 246(e), which allows for PTO or sick policies in effect before January 1, 2015, or other equivalent policies that satisfy the law's requirements.  A grandfathered policy has to have provided at least one day/8 hours of sick leave by the 90th day of employment ad 3 days/24 hours by the ninth month.

But if employers changed their existing policy after January 1, 2015, the grandfathering provision does not apply. Instead, the employer has to comply with the accrual method in section 246(b) or "front load" 3 days of paid sick leave at the beginning of each 12 month period.

(e) An employer is not required to provide additional paid sick days pursuant to this section if the employer has a paid leave policy or paid time off policy, the employer makes available an amount of leave applicable to employees that may be used for the same purposes and under the same conditions as specified in this section, and the policy satisfies one of the following:

(1) Satisfies the accrual, carry over, and use requirements of this section.

(2) Provided paid sick leave or paid time off to a class of employees before January 1, 2015, pursuant to a sick leave policy or paid time off policy that used an accrual method different than providing one hour per 30 hours worked, provided that the accrual is on a regular basis so that an employee, including an employee hired into that class after January 1, 2015, has no less than one day or eight hours of accrued sick leave or paid time off within three months of employment of each calendar year, or each 12-month period, and the employee was eligible to earn at least three days or 24 hours of sick leave or paid time off within nine months of employment. If an employer modifies the accrual method used in the policy it had in place prior to January 1, 2015, the employer shall comply with any accrual method set forth in subdivision (b) or provide the full amount of leave at the beginning of each year of employment, calendar year, or 12-month period. This section does not prohibit the employer from increasing the accrual amount or rate for a class of employees covered by this subdivision.

Section 246(h) allows for employers that grant unlimited vacation / sick leave to include the words "unlimited" on the pay stub to satisfy the wage statement requirement.

Section 246(k) prescribes options for employers to calculate the "pay" for sick leave under this law:

(k) For the purposes of this section, an employer shall calculate paid sick leave using any of the following calculations:

(1) Paid sick time for nonexempt employees shall be calculated in the same manner as the regular rate of pay for the workweek in which the employee uses paid sick time, whether or not the employee actually works overtime in that workweek.

(2) Paid sick time for nonexempt employees shall be calculated by dividing the employee’s total wages, not including overtime premium pay, by the employee’s total hours worked in the full pay periods of the prior 90 days of employment.

(3) Paid sick time for exempt employees shall be calculated in the same manner as the employer calculates wages for other forms of paid leave time.

Section 247.5 clarifies that, although employers must keep records of sick leave taken, the employer does not have to inquire why someone took paid time off.   As such, the employer is not liable for failure to accurately keep records when, for example,  it has a PTO policy and the employee does not announce the purpose of the PTO.

Those are the big amendments to the law.  They take effect immediately.  Employers that change their sick leave rules / policies as a result of these amendments should ensure they comply with the appropriate notice requirements!

Be careful out there.

California Confusion over Paid Sick Leave

DLSE: The Wage Theft Templates Need Updating!  Or do they?

Per Labor Code 2810.5, employers must provide non-exempt workers with a Wage Theft Notice at the time of hire and after certain changes to wages and other covered matters.

The DLSE publishes a template on a website, called Wage Theft Protection Act.  The template forms are available in several languages.

California's new paid sick leave law, AB 1522,  modified Lab. Code section 2810.5.  The revised law requires the Wage Theft Notice to include information about paid sick leave. Although no sick leave accrues until July 1, 2015, employers must issue a new Wage Theft Notice beginning January 1, 2015.

So, DLSE should have issued a revised template.  Oh, you want the revised template notice?  DON'T look at the Wage Theft Protection Act page linked above.  Instead, go over to the DLSE's paid sick leave page, here. There, you will find the new Wage Theft form.

DLSE, please fix this.

Exempt Employees

Section 2810.5, the Wage Theft Protection Act, requires the notice discussed above. But exempt employees (i.e., executive, administrative and professional exempt) do not count. They are not required to receive the notice.

At the same time, exempt employees ARE required to receive paid sick leave under the new law.  Do you have to provide exempt employees within individualized information about paid sick leave?

Nobody knows. It appears that exempt employees are required to have their accrued sick leave balances on their checks, and they must be able to see the poster.  But, because section 2810.5 does not apply to exempt employees they do not have to receive a Lab. Code section 2810.5 notice.

* * * *

Merry Christmas!

San Francisco Minimum Wage Going Up; Oakland's Too

The San Francisco minimum wage will increase as follows in the years to come:

Effective Date	Minimum Wage Rate
01/01/2015	$11.05
05/01/2015	$12.25
07/01/2016	$13.00
07/01/2017	$14.00
07/01/2018	$15.00
Following Years 07/01	CPI Increase

That is the result of a ballot measure that the San Francisco electorate passed on election day this year.  You can find more information here.  Note that the minimum wage increases twice in 2015: once on January 1 and once on May 1.  That should keep the poster-hangers and payroll services busy.

Over in Oakland, the voters passed a different minimum wage increase. Beginning March 2, 2015, Oakland's minimum wage increases to $12.25 per hour. Yep, higher than San Francisco's, at least for a couple of months.  Then, the Oakland minimum wage will increase annually every January 1, indexed to inflation.

Oakland also passed a paid sick leave ordinance and made it unlawful for hospitality industry employers to retain service charges.  Read about the Oakland ordinance here.

California Enacts Paid Sick Leave

The Governor signed AB 1522, which confers upon most California employees paid sick leave.  The law is somewhat similar to San Francisco's paid sick leave ordinance.

Here is the text of the new law. 

The law adds sections 245-249 to the Labor Code.

Here are key provisions, although we'll have a more detailed article soon:


Coverage 

1.  The effective date is 7/1/15.  So employers will have time to develop their policies.

2.  All employers, of any size, are covered.  Public sector too.

3.  Employees with collective bargaining agreements providing paid sick leave (and other issues), and who make more than 30% more than minimum wage, are not covered.

4.  Employees in the construction industry may not receive any paid sick leave if there is a collective bargaining agreement that expressly waives the new law, provided other requirements in the law are met.

5. Flight crew members covered by the federal Railway Labor Act who receive compensatory time off under certain circumstances are not covered.

6.  Providers of in-home supportive services under certain sections of the Welfare and Institutions Code are not covered.  However, it looks like other home care employees will be.

7.  Employees who work 30 days or more in California are covered.

8.  "Exempt" employees, such as managers, lawyers, etc. are covered.

Sick Leave Terms

1. Sick leave can be used to take care of the employee, as well as family members. Family members include parents, children, foster and step-children, grandparents, siblings, domestic partners, and others.

2.  "Pay" is at the employee's base rate.

3.   The right to use paid sick leave begins at 90 days of employment.

4.  Sick leave accrues from the first day of employment.

5.  The employee earns an hour of sick pay for each 30 hours worked.

6.   The employer can limit paid sick leave to 3 days or 24 hours per 12 month period (rolling, calendar, or anniversary year).

7.  Accrued sick leave carries over to the next year. But the employer can cap accrual at 48 hours or 6 days.

8.  The employer can set a minimum increment of 2 hours of sick pay usage.  However, the employee can use how much he or she wishes.  The employer cannot mandate that the employee use more than the employee wants to use.

9.  PTO  and existing sick plans may be sufficient if they satisfy the minimums in the law.  That is, there is no need to provide additional sick pay above what the employer offers already (assuming the employer's policy is at least as generous).

10. Anyone reinstated < 12 months from termination has accrued, unused sick leave restored.

11.  No payout on termination.

12. The law does not repeal "Kin Care."  So, employers with more generous plans will have to allow employees to use 1/2 of the annual sick leave entitlement for Kin Care under that statute (assuming the employer's plan provides for more than 6 days of paid sick leave per year).

Notice

1.  The employee only has to give notice if foreseeable or, if not foreseeable, as soon as practicable. That's a change to employer policies that will have to be implemented.

2.  Employee notice can be written or verbal.

3. The employer must include the accrued balance of sick pay on the wage statement per Lab. Code section 226.  Or, the employer can provide a separate document at each pay day. However, the section 226 penalties do not apply.  Rather the special penalties in this statute apply.

4.  Section 2810.5 (Wage Theft notice law) is amended to now include a notice re paid sick leave.

5.  New poster.  $100 penalty for violating the poster requirement.


Enforcement

1. No private right of action.  This law is enforced by the DLSE or the attorney general.  However, there appears to be a provision that will allow for a "private attorney general" action for "equitable, injunctive, or restitutionary relief, and reasonable attorney’s fees and costs."  That is, no penalties under PAGA.  It is unclear how this will work, given the rest of the statute provides only for enforcement by the DLSE or attorney general.

2. It remains to be seen whether a cause of action for wrongful termination in violation of public policy will lie for those who claim wrongful termination due to taking sick leave.

3.  There is a "safe harbor" from penalties applicable to "isolated" and "inadvertent" record keeping or notice errors.

4.  The labor commissioner can award unlawfully withheld sick pay, reinstatement, and back pay at an administrative hearing.

5.  There are a variety of $50 penalties per day per employee available, which apply for different violations.  It's unclear how they work together. But the  maximum aggregate penalty per violation is $4,000.00 to each person whose rights were violated. That penalty may include triple the sick pay that was withheld.  The labor commissioner can award pre-judgment interest too.

6.   There is a "rebuttable presumption" of retaliation if an employer takes negative action against an employee who files a complaint with the labor commissioner, participates in an investigation about paid sick leave, or opposes an employer practice related to paid sick leave.

7.  The law says that the labor commissioner can conduct hearings, but the law does not specify that the hearings take place under the normal wage hearing statute.   So, if the labor commissioner rules against you on a sick leave / discharge claim, you have to go to superior court on a writ of mandate, maybe?  No appeal de novo and bond filed in superior court?  We'll see I guess.

8.  The labor commissioner can file suit if the employer does not comply with the labor commissioner's rulings.

*  *  *

Well that's a good start.   The nice news is that these modest minimum paid sick leave requirements are easily amended in future years.  So, don't get used to the 3-day minimum, k?

Before July 2015, ensure you revise your sick leave policies, payroll checks, and Wage Theft forms!

We will have more information as it becomes available and so will the DLSE. Good luck.

DGV

Kin Care Case

The California Supreme Court decided that unlimited sick leave is not subject to California's "kin care" law. We blogged about this case (the court of appeal's opinion), McCarther v. Pacific Telesis, here.

To remind you - the company had an unlimited paid sick leave policy. You could take up to five days of paid sick time off. Once five days were up, you had to work a half day, and then you could start taking another five days of paid sick time off again. Yes, there is a union contract.

Labor Code section 233 requires employers to permit employees to use up to 1/2 of sick leave to care for a covered relation. So, the plaintiff in this case argued that she was entitled to use 1/2 of unlimited...

The Supreme Court, disagreeing with the court of appeal, decided that this unlimited sick pay policy was not "sick leave" under Labor Code section 233. Therefore, there was no kin care obligation - and no obligation to permit employees to use up to 1/2 the annual sick pay benefit.

The Supreme Court therefore ducked whether the company could apply its attendance control policy to the use of sick leave to care for a relative, when the employer applied the policy to time off for one's own sickness. The court of appeal had said that the employer was within its rights to apply the same conditions to kin care as to sick leave for one's own illness.

Not a lot of employers have unlimited sick leave. So, this case won't have a LOT of applicability. But for employers interested in the court's ruling, it is here.

DGV

California Paid Sick Leave Bill - Status

AB 2716 is the California bill that would mandate paid sick leave for ALL employers (even small ones), albeit with a few exceptions stated in the bill. The bill is modeled after San Francisco's paid sick leave ordinance, here. This is the probably the bill that would have the most impact on employers if it is passed and signed.
But, according to the Legislature's website, the bill has been placed in the Senate Appropriations Committee's "suspense" file (here). So, this bill may be dead, at least for this session.

DGV