Why it matters

A plaintiff seeking civil penalties under the Private Attorneys General Act (PAGA) for a violation of the Labor Code is not required to satisfy the “injury” and “knowing and intentional” requirements of the statute, a California appellate panel has concluded. Eduardo Lopez alleged Friant & Associates violated California Labor Code Section 226(a)(7) by failing to include the last four digits of employees’ Social Security numbers on their itemized wage statements. Friant moved for summary judgment, arguing that the plaintiff failed to show that he suffered any injury resulting from a knowing and intentional violation of Section 226, as required by Section 226(e). The trial court agreed, noting that Friant’s accounting manager testified that she was unaware that the digits were not on the paychecks. But the appellate panel reversed. Consistent with the PAGA statutory framework and the plain language and legislative history of Section 226, a plaintiff seeking civil penalties for a violation of Section 226(a) does not have to satisfy the “injury” and “knowing and intentional” requirements of Section 226(e)(1), the court held.

Detailed discussion

In 2015, Eduardo Lopez filed a single-count complaint under the California Private Attorneys General Act (PAGA) in California state court asserting that his employer, Friant & Associates LLC, failed to include the last four digits of its employees’ Social Security numbers or employee identification numbers on itemized wage statements, in violation of California Labor Code Section 226(a)(7).

The parties stipulated that Friant issued 5,776 itemized wage statements to the plaintiff and other employees that failed to include the required information.

Friant responded with a motion for summary judgment. The employer argued that Lopez did not suffer any injury resulting from a “knowing and intentional” violation of Section 226, as required by Section 226(e), as evidenced by testimony from the company’s accounting manager that she was not aware that the last four digits were not included on employees’ pay stubs.

A trial court agreed, granting the motion in favor of the employer. Lopez appealed, and an appellate panel reversed.

The appellate court explained that under PAGA, a worker is empowered to file a representative action on behalf of him/herself and other current and former employees to recover civil penalties for violations of the Labor Code that otherwise would be assessed and collected by the Labor and Workforce Development Agency. For those provisions of the Labor Code for which a civil penalty is not specific, PAGA creates a default civil penalty.

Lopez premised his PAGA claim on Friant’s alleged noncompliance with Section 226(a)(7). Section 226(e) provides that employees who “suffer[] injury as a result of a knowing and intentional failure by an employer to comply with subdivision (a)” are entitled to either actual damages or an increasing per-pay-period penalty beginning at $50 for the first offense.

The defendant’s argument that Section 226(e) requires the plaintiff to demonstrate both an “injury” and a “knowing and intentional” violation of Section 226(a) to succeed on his PAGA claim “oversimplifies” statutory interpretation and “ignores how a PAGA claim differs from an employee’s individual or class claim for damages or statutory penalties,” the panel wrote.

Section 226(e) states that employees are entitled to recover “actual damages” or a “penalty,” not a “civil penalty,” the court explained. “Because the penalty in section 226(e) is not called a ‘civil penalty,’ it is a statutory penalty. Thus, under the plain language of the statute, the prerequisite that an employee suffer injury as a result of a knowing and intentional failure by an employer to comply with section 226(a) applies to an action for statutory damages under section 226(e)(1).”

Legislative history further reinforced the conclusion that Section 226(e) authorizes a private right of action for statutory damages recoverable by an individual plaintiff rather than a civil penalty for the benefit of the public, the panel said. In 1979, lawmakers created a separate civil penalty recoverable for violations of itemized wage statement requirements, adding to the existing statutory damages, established in 1976, that were available to individuals.

Applying this interpretation of Section 226(e) to Lopez’s PAGA claim, the panel held that his complaint sought only PAGA civil penalties. “Because section 226(e)(1) sets forth the elements of a private cause of action for damages and statutory penalties, its requirement that a plaintiff demonstrate ‘injury’ resulting from a ‘knowing and intentional’ violation of section 226(a) is not applicable to a PAGA claim for recovery of civil penalties,” the court wrote.

The panel further explained that its interpretation was bolstered by “the fact PAGA expressly recognizes a claim for violation of section 226(a), but does not mention 226(e),” the court said. “Thus, by its plain language, PAGA allows a claim for violation of section 226(a) without any reference to subdivision (e).”

Decisions from federal courts have made similar determinations, the court added, and “Friant has not pointed us to a single state or federal case holding that section 226(e)’s ‘injury’ or ‘knowing and intentional’ requirements apply to a PAGA claim for violation of section 226(a).”

“Consistent with the PAGA statutory framework and the plain language and legislative history of section 226(e), we hold a plaintiff seeking civil penalties under PAGA for a violation of section 226(A) does not have to satisfy the ‘injury’ and ‘knowing and intentional’ requirements of section 226(e)(1),” the panel wrote.

To read the opinion in Lopez v. Friant & Associates, LLC, click here.