Authored by Chandra Winter
California employers often feel they are navigating a mine field when it comes to maintaining wage and hour compliance in the ever-changing landscape of California law. One of the latest changes to that landscape, AB 1003 was signed into law by Governor Newsom on September 27, 2021 and will go into effect as Section 487m of the Penal Code on January 1, 2022. This new Section 487m imposes harsh penalties, including potential jail time, for employers committing intentional wage theft. When changes to employment law take effect, there is always concern about the scope and applicability of those changes, and smart employers take the opportunity to review their current policies.
While the new Section 487m on its face creates harsh penalties, there are some key points the average California employer should understand to alleviate concerns about the threat of jail time. Wage theft is defined in the section as the intentional deprivation of wages, gratuities, benefits, or other compensation by unlawful means with the knowledge that the wages are due to the employee. This definition introduces two main points, the intentional deprivation, and knowledge that the wages are due to the employee. Although the term ‘intentional’ is not defined in the bill, other areas of California state law and provisions in the Labor Code require deliberate acts rather than an honest mistake. While comforting, this does not mean that the bill can be ignored given that this crime carries a potential prison sentence of up to three years in addition to allowing employees or the Labor Commissioner to seek redress through civil action. The second point, that there must be knowledge of the wages being due to the employee has also been addressed under current law but is not specifically addressed in the bill. Under the current legal framework, a good faith dispute regarding wages due precludes the imposition of penalties. These two points serve as protection for well-meaning employers following best practices to ensure that their employees are timely paid all wages owed.
It is important to note that under Section 487m, the code defines an “employee” to include independent contractors, and “employer” to include the hiring entity of an independent contractor this broader definition increases the type of employer who will be potentially liable under the bill. Additionally, the monetary amounts are the only limits placed, so employers of any number of employees need to ensure compliance as this bill is directed at all employers not only those that employ a larger number of employees. Section 487m makes an employer’s intentional wage theft of more than $950 from one employee, or $2,350 total from at least two employees, within a 12-month period, punishable as grand theft. The bill further allows wages, gratuities, benefits, or other compensation subject to the prosecution to be recovered as restitution.
As with any change to the legal requirements regarding wages and employment, this bill should serve as a reminder that frequent reviews of your employment policies are the best way to protect yourself and your company. Now is a great time to review your policies and procedures to keep your company’s practices in line with the best practices related to California wage and hour law. This review should include policies related to all employees and independent contractors, policies for time entry and verification, payment of overtime wages, tracking of all tips and gratuities and the delineation of discretionary and non-discretionary bonuses as appropriate. Our firm can assist your company is organizing a compliance review protocol as well as handling any claims or employment litigation.
