Why it matters

In what the court said was a matter of first impression, a California appellate panel refused to impose wage statement penalties under Labor Code Section 226 based on the employer’s improper use of an alternative workweek schedule (AWS), which would result in a double recovery for the plaintiffs. Workers at Epsilon Plastics sought additional payment based on the AWS, arguing that it was improperly adopted. A trial court agreed, finding that the employer failed to pay overtime for certain hours of work in reliance upon the AWS, and entered judgment for unpaid overtime, interest, waiting time penalties, inaccurate wage statement penalties and attorneys’ fees. Epsilon appealed the award on multiple grounds. While the appellate panel affirmed the finding that the AWS was not properly implemented, it reversed the award of wage statement penalties, holding that the employees did not suffer an injury as required by Labor Code Section 226(e). As the wage statement inaccuracy was not the cause of the plaintiffs’ injury, permitting them to recover penalties for inaccurate wage statements on top of the statutory remedies for the wage and hour violation would amount to an impermissible double recovery, the panel explained.

Detailed discussion

A manufacturer of plastic bags, Epsilon Plastics relies upon lines of machines that are designed to operate 24 hours per day. When the machines are shut down, it takes up to six hours to restart them, a process that wastes a lot of plastic and causes excess wear and tear on the machines.

To keep the machines running constantly, Epsilon utilized an alternative workweek schedule (AWS) on which employees worked 12 hours per day for four days during a given week, earning the regular rate of pay for 10 hours and two hours of overtime per shift.

A pair of employees brought a putative class action against Epsilon for violation of wage and hour laws, including the failure to follow statutorily mandated rules for adopting the AWS. After certifying the class and conducting a bench trial, the trial court ruled that the AWS had not been properly adopted and that the failure to pay overtime for the ninth and tenth hours of work in a given shift, in reliance upon the improperly adopted AWS, was not in good faith.

The trial court entered judgment in favor of the workers for unpaid overtime, interest, waiting time penalties, inaccurate wage statement penalties and attorneys’ fees. Epsilon appealed. In addition to challenging the sufficiency of the evidence, the employer argued that it should not be liable for wage statement penalties under Labor Code Section 226.

Affirming the conclusion that the AWS was improperly adopted, the appellate panel then considered whether the penalties were warranted.

The employees established that their wage statements were inaccurate because the statements did not properly indicate that the ninth and tenth hours were overtime. The trial court found that the plaintiffs were injured by this error because they were not paid all the overtime they were due.

But Epsilon countered that the injury identified by the trial court did not flow from the inaccurate wage statement. Instead, the error derived from the improperly adopted AWS—not the inaccurate wage statements—meaning the employees suffered no injury.

The appellate panel began with the text of the Labor Code itself. Section 226(a) itemizes nine categories of information which must be included in a wage statement. Wage statement penalties are awarded to employees who suffer injury “as a result of a knowing and intentional failure by an employer to comply with subdivision (a),” pursuant to Section 226(e).

Pointing to the missing information from category (a)(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”—the class argued that their rates were listed incorrectly because they should have received more overtime pay.

The court disagreed. “Wage statements should include the hours worked at each rate and the wages earned,” the panel wrote. “In a perfect world, the first numbers will calculate out to the second. But when there is a wage and hour violation, the hours worked will differ from what was truly earned. But only the absence of the hours worked will give rise to an inference of injury; the absence of accurate wages earned will be remedied by the violated wage and hour law itself, as is the case here.”

Otherwise, if the class’s argument were followed to its logical conclusion, Epsilon employees would have been issued wage statements that bore no similarity to the pay they were actually receiving. “As it is illogical to think this is what the Legislature intended, plaintiffs’ counter argument boils down to the proposition that any failure to pay overtime at the appropriate rate also generates a wage statement injury justifying the imposition of wage statement penalties—an apparent unintentional double recovery,” the court said.

Epsilon operated its plant under and paid its employees pursuant to the AWS, and its wage statements accurately reflected the pay under the AWS. “That the AWS ultimately turned out to be invalid mandates that the employees receive unpaid overtime, interest and attorneys’ fees,” the panel said. “It does not mandate that they also receive penalties for the wage statements which accurately reflected their compensation under the rates at which they had worked at the time.”

To read the opinion in Maldonado v. Epsilon Plastics, Inc., click here.