Wal-Mart has appealed a nine figure judgment that sets a daunting precedent for California employers. In Magadia v. Wal-Mart Assocs., Inc. San Francisco federal district court Judge Lucy Koh awarded plaintiffs $102 million after finding that Wal-Mart failed to provide accurate itemized wage statements in violation of California Labor Code section 226. The award was comprised of $48 million in Labor Code statutory penalties and $54 million in civil penalties under the Labor Code Private Attorneys General Act of 2004 (PAGA). The lion’s share of the penalties stemmed from Judge Koh’s decision related to a line item in the Wal-Mart wage statements titled “OVERTIME/INCT” that did not include the hours worked or the rates of pay. The line item represented additional overtime pay Wal-Mart retroactively made to employees who received both a quarterly incentive bonus and also worked overtime in the relevant quarter. Judge Koh found that even though this line item was a bonus award, and did not reflect additional hours worked, it violated Labor Code Section 226(a)(9)’s requirement that wage statements contain “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 court came to this conclusion despite recognizing that at least one California state appellate court had reached the opposite conclusion about whether Section 226(a)(9) applies to bonus payments in an unpublished part of its decision in Fabio Canales v. Wells Fargo Bank, N.A., 23 Cal.App.5th 1262, 234 Cal.Rptr.3d 816 (2018). Judge Koh’s opinion recognized that plaintiffs’ interpretation of the applicable Labor Code provision made it difficult for employers to accurately account for quarterly bonuses in completing wage statements. The court also conceded that this result might discourage employers from offering bonus awards. These, and other statutory and policy arguments, have been made by amicus briefs filed by business groups in the appeal. The steep penalties awarded in this case, and the practical compliance problems presented by the decision will make this one of the most closely-watched wage hour cases in the coming year.