Employers Need Not Include Monetary Value of Employee Accrued Paid Vacation or PTO on Itemized Wage Statement

By lfsuser on October 22, 2016

In a case of first impression, Lidia Soto v. Motel 6 Operating L.P., the California Court of Appeals for the Fourth Appellate District has found that California Labor Code Section 226(a) does not require employers to include the monetary value of an employee’s accrued paid vacation time in an employee wage statement until such time when the payment is due at the end of the employment relationship.

California Labor Code Section 226(a) requires employers to provide accurate itemized wage statements to their employees. Employers must ensure that the wage statements contain the following nine pieces of information listed in the statute: (1) gross wages earned; (2) total hours worked by a non-exempt employee; (3) the number of piece-rate units earned and any applicable piece rate if the employee is paid on a piece-rate basis; (4) all deductions; (5) net wages earned; (6) the inclusive dates of the period for which the employee is paid; (7) the name of the employee and only the last four digits of his or her social security number or an employee identification number other than a social security number; (8) the name and address of the legal entity that is the employer; and (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 legislative purpose behind Section 226 is to assist an employee in determining whether he or she has been compensated properly.

In its ruling issued on October 20, 2016, the Court of Appeals sustained Defendant Motel 6’s demurrer without a leave to amend on Plaintiff Lidia Soto’s representative action under the Private Attorney General Act of 2004 (PAGA). Ms. Soto, a former employee of Motel 6, contended that her employer violated Labor Code section 226(a) because it did not list the monetary amount of earned vacation pay and paid time off (PTO) on her itemized wage statements. Motel 6 disagreed and argued that section 226(a) does not require employers to itemize the monetary value of vacation balances, including PTO, before an employment relationship has been terminated.

The court agreed with Motel 6. The court first noted that the statutory language of section 226(a) does not identify accrued paid vacation as one of the nine categories set forth in the statute. Second, the court found that prior to the separation of employment, the amount of vacation pay or PTO is not quantifiable. The court reasoned that an employee’s accrued and unused vacation pay or PTO is paid out at the employee’s final rate of pay. However, the employee’s final rate of pay amount and the amount of any accrued and unused vacation pay or PTO to be paid out cannot be ascertained until such time the employment relationship ends. As such, an employer cannot be expected to list the monetary amount of any earned vacation pay or PTO on an employee’s itemized wage statement prior to the employee’s separation from employment.

Finally, the nine categories described in section 226(a) pertain to an employee’s current compensation. It follows that if an employer is not required to compensate an employee for any unused and accrued vacation or PTO in a particular paycheck, then there is no statutory duty to identify the monetary amount of the accrued and unused vacation or PTO balance.

On a related note, the Court did not address how its ruling may affect an employer’s obligations under California’s Paid Sick Leave laws. Although the language of Labor Code section 226(a) does not list this information, Labor Code section 246(h) requires employers to list in an employee’s itemized wage statement (or in a separate written notice) the “amount of paid sick leave [or PTO] available to the employee.” When read in conjunction with the Court’s ruling, Section 246(h) does not require an employer to provide the monetary amount of an employee’s paid sick leave or PTO balance. It only requires employers to provide how much paid sick leave or PTO remains available for an employee to take.

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