Wage Statements: Tomayto, Tomahto, Call the Whole Thing Off?

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Seyfarth Synopsis: Two appellate courts applying California law have rejected hypertechnical challenges to the adequacy of wage statements under Labor Code section 226. The decisions provide some clarity, remind us that the purpose of a wage statement is to enable employees to see how they are paid, and explain that after-the-fact overtime adjustments do not reflect hourly rates “in effect” during the pay period.

General Atomics

The Facts

Tracy Green sued her employer, General Atomics, under Labor Code section 226, claiming a failure to provide accurate, itemized wage statements showing “all applicable hourly rates in effect during the pay period and the corresponding number of hours worked at each hourly rate by the employee.” Green claimed that General Atomics failed to identify the correct overtime rate because its wage statements showed pay at 0.5x the regular rate of pay rather than 1.5x the regular rate.

General Atomics countered that its wage statements were compliant because they showed all applicable hourly rates—the standard contractual hourly rate and the overtime premium rate—and the hours worked at each. General Atomics cited a sample wage statement provided by the Division of Labor Standards Enforcement, which itself shows the overtime premium rate as 0.5x the regular rate.

The trial court nonetheless found for Green, holding that the wage statements should have shown the non-overtime hours and overtime hours separately—each with their own applicable hourly rates.

The Appellate Court

On appeal, the California Court of Appeal found the wage statements compliant, concluding that the wage statements showed the applicable hourly rates in effect and the corresponding number of hours worked at each rate. The wage statements were compliant because they showed (1) the standard wage agreed to by the parties and (2) the overtime premium hourly rate that, by statute, must be added to the standard wage to pay for overtime. The Court of Appeal found that these rates were plainly shown, along with the hours worked at each rate.

The Court of Appeal thus reasoned that the wage statements allowed employees to readily determine whether their wages were correctly calculated, which is the central purpose of Section 226: the wage statements showed both the applicable hourly rates and the total number of hours worked at each. The Court of Appeal noted that “other forms may also be acceptable, given the complexities of determining overtime compensation in various contexts.”

Not only was it unnecessary for a wage statement to show a 1.5x overtime rate, the alternative format Green proposed could make a wage statement more difficult to understand: “Including a 1.5x overtime rate in these wage statements would be incongruous in many circumstances.” The Court of Appeal also held that it was sufficient to label a line item “overtime” rather than “overtime premium.” (The Court of Appeal reached its sound conclusion in line with an argument made in an amicus brief that Seyfarth filed on behalf of General Atomics.)

Walmart

The Facts

Roderick Magadia, a former Walmart employee, filed a class action and PAGA suit alleging that Walmart issued inadequate wage statements in violation of Labor Code section 226. Walmart pays quarterly “MyShare” bonuses to high-performing employees and reports these quarterly bonuses on one of its bi-weekly wage statements. The district court ruled for Magadia, finding that Walmart violated Section 226 by issuing wage statements that did not include the “hourly rates” and “hours worked” associated with the overtime premium wages paid on the Myshare bonus.

The Appellate Court Decision

The Ninth Circuit concluded that “wage statement law did not require Walmart to list the ‘rate’ of the Myshare overtime adjustment on employee’s wage statements.” The Ninth Circuit reasoned that the Myshare overtime adjustment is not an ordinary overtime pay with a corresponding hourly rate, but an “after-the-fact adjustment to compensation based on the overtime hours worked over a quarter.”

The calculation did not involve an hourly rate “in effect” during the pay period, because the hourly rate for the adjusted overtime pay is calculated after the pay period closes. Accordingly, the MyShare overtime adjustment was not “in effect” for the duration of the pay period, but rather was calculated retroactively.

The Ninth Circuit also found Walmart’s statement of Final Pay compliant. The Ninth Circuit noted that, as long as an employer furnishes a wage statement on or before the semi-monthly deadline, the employer complies with Section 226(a)(6). Here, while Walmart did not include the dates of the period for which the employee was paid on Magadia’s Statement of Final Pay, Walmart provided the final wage statement at the end of the next semi-monthly pay period, which was sufficient.

What General Atomics and Walmart Mean for Employers

In tandem, these two cases hold that wage statements that show the applicable hourly rates in effect will be considered valid, so long as they show the total hours paid at the regular rate and at the overtime rate. Furthermore, bonuses calculated after the fact need not report corresponding hours worked at the bonus rate if the payment is quarterly, rather than in each pay period, because the rates are not in effect during the pay period. Walmart also gives guidance on different examples of compliant statements.

At this point, it is not known whether the employees in either case will seek further review of these two commonsensical decisions.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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