Labor & Employment Law Daily Wal-Mart’s wage statements violated California Labor Code
Wednesday, May 16, 2018

Wal-Mart’s wage statements violated California Labor Code

By Brandi O. Brown, J.D.

Partially resolving a lawsuit brought by a former Wal-Mart employee who alleged the retailer violated the California Labor Code, a federal district court in California granted summary judgment in his favor on his Private Attorneys General Act (PAGA) claim. The retailer’s wage statements did not list all applicable hourly rates in violation of section 226(a)(9), and their final pay statements did not include pay period start and end dates, running afoul of section 226(a)(6). His additional class claims, already certified, were not part of his motion (Magadia v. Wal-Mart Associates, Inc., May 11, 2018, Koh, L.).

Wage statement claims. The employee had worked for Wal-Mart for eight years. In 2016, he filed a putative class action alleging Labor Code violations arising from the pay statements that Wal-Mart issued to employees in the state. When a nonexempt employee worked overtime during a given pay period and, in the same period, earned nondiscretionary pay, Wal-Mart paid an “additional overtime wage,” which was denoted on the wage statement as “OVERTIME/INCT,” in compliance with Labor Code section 510. However, this overtime/incentive item was listed as a lump sum and did not identify either the hourly rate used or the specific hours worked, which violated state law, he alleged. He also contended that the final pay statements issued to Wal-Mart employees upon termination violated the Labor Code in that they did not include pay period start or end dates.

The claims were brought as part of a putative class and per court order, by July 2017, notice was sent to potential class members, who had 30 calendar days to opt out. In January 2018 the court granted the employee’s motion for class certification, certifying: (1) a meal period regular rate class of California employees who received nondiscretionary pay and were paid meal period premium payments during the same period; (2) an OVERTIME/INCT wage statement class; and (3) a final wage statement class. He also asserted an individual claim under the PAGA. In October 2017, he moved for partial summary judgment on this claim, which the court granted, finding the wage statements did not comport with the requirements of Labor Code section 226.

Failed “threshold” arguments. Wal-Mart made several unsuccessful threshold arguments in opposing the employee’s summary judgment motion. First, it argued that the court should refrain from ruling on the motion based on the one-way intervention rule. That principle, which finds its basis in Rule 23(c)(2), “seeks ‘to ensure that the plaintiff class receives notice of the action well before the merits of the case are adjudicated.’” The problem was, the rule was not applicable here because not only had the deadline for class members to opt out passed, but the summary judgment motion was not based on the class claims in the first place.

Wal-Mart also argued that the employee failed to exhaust his administrative remedies before initiating suit. Indeed, his lawsuit was premature, filed before the end of the 65-day period given to the Labor and Workforce Development Agency to respond to his notice. However, the premature filing was excusable because the state agency failed to act on the notice in the 17 months that followed. In addition, the court rejected the notion that the employee can only claim limited damages under Labor Code section 226(e).

“Too complex” is not simple. Wal-Mart violated the Labor Code by failing to specify how it calculated overtime payments made retroactively based on incentive payments. Specifically, section 226(a)(9) requires rates and hours information to be provided unless the employee can ascertain that information through the use of simple math based on the information that is provided. Wal-Mart did not provide the rate, though, so there was no way for employees to determine it through its own calculation. In fact, in deposition, Wal-Mart’s regional HR director testified (as a Rule 30(b)(6) witness) that the formula used to calculate the sum was not included on the statement because it was “too complex.” Thus, even if an employee thought to use a formula to calculate the rate, he or she couldn’t simply use the usual overtime rate (1.5 times base pay) because the wage statement listed two different overtime payments and only included the rate for one.

Also, contrary to Wal-Mart’s contention, section 226(a)(9) applied to the “OVERTIME/INCT” item. Its witness testified that this item represented overtime pay and, in fact, the only reason it existed on the pay statement was to account for an increase in overtime compensation. Its claim that it was in substantial compliance with the statute also failed.

Start and end dates. Moreover, Wal-Mart’s final wage statements did not list the “inclusive dates of the period for which the employee is paid,” violating section 226(a)(6). Although its usual biweekly wage statements included employee start and end dates, its “Statement of Final Pay” issued to employees upon termination did not. Wal-Mart also generates a final wage statement at the end of the standard pay period that does contain the requisite start and end dates, and, during the exit interview, Wal-Mart explains to terminated employees how to access this final wage statement. This cured any defect in the “Statement of Final Pay,” Wal-Mart argued.

But the court was unpersuaded. A federal court decision cited by the employee, McKenzie v. Fed. Exp. Corp., explicitly rejected Wal-Mart’s argument that a wage statement can be found compliant so long as the missing information was available in another source available to the employee (in this case, the regular pay period statement). That decision lent “strong support” to the employee’s claim that the challenged Statement of Final Pay violated the Labor Code.

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