Effective January 1, 2022, a new California law imposes criminal penalties on employers who intentionally withhold wages and tips from their employees. The law was passed on September 27, 2021, when California Governor Gavin Newsom signed into effect Assembly Bill 1003, making an employer’s intentional theft of wages - in an amount greater than nine hundred fifty dollars ($950) from any one employee, or two thousand three hundred fifty dollars ($2,350) in the aggregate from two or more employees, in any consecutive 12-month period - punishable as grand theft.
Previously, such wrongdoing was punishable as a misdemeanor with civil penalties. AB 1003 increases the severity of the penalty by adding Section 487(m) to California’s Penal Code, pursuant to which an employer can be charged with either a misdemeanor or a felony, and face either a fine or a fine AND imprisonment.
Under AB 1003, “theft of wages” is defined as the intentional deprivation of wages (as defined in Section 200 of the Labor Code), gratuities (as defined in Section 350 of the Labor Code), benefits, or other compensation, by unlawful means, with the knowledge that such wages, gratuities, benefits, or other compensation is due to the employee. AB 1003 also includes independent contractors within the definition of “employee,” and the hiring entity of an independent contractor within the definition of “employer.”
In addition to any criminal penalties, an employer may be responsible for payment, in the form of restitution, of any wages, gratuities, benefits, or other compensation which are the subject of the prosecution. Moreover, AB 1003 does not prohibit the employee or the Labor Commissioner from commencing a civil action to seek remedies provided for under the Labor Code for acts prosecuted under Penal Code 487(m).
Scope of Liability
Employees who are individually responsible for ensuring that employees receive all wages and breaks can now be subject to felony criminal changes. Examples of potential employees at risk include, but are not limited to:
- payroll managers and supervisors who manage payroll and calculate the regular rates of pay for overtime purposes, and for meal and rest break premiums;
- human resources personnel who oversee timekeeping systems and practices; and
- managers and supervisors in operations who are tasked with implementing meal and rest break policies and ensuring that off-the-clock work does not occur.
Even with other legal alternatives for remedies (e.g., wage and hour civil actions), a good-faith mistake made by these individuals might result in an allegation of wage theft which could result in jail time.
Next Steps for California Employers
To stay on the right side of this law, employers should review the adequacy of their wage and hour compliance protocols. Likewise, they also might consider taking the following steps:
- Providing wage and hour training for all managers and supervisors in payroll, human resources, and operations, as well as conducting periodic audits to ensure compliance.
- Monitoring employees to ensure they do not work off the clock and that they are offered proper meal and rest breaks, as well as the option of waiving such breaks in writing (i.e., revocation rights).
- Obtaining signed acknowledgements from employees of their attendance, their understanding of the rules, their agreement to comply, and their agreement to immediately report any complaints about wage and hour issues; also, on a periodic basis, asking employees to confirm that they have received all required rest periods, meal breaks and have received pay for all time worked.
If you have questions about this new law and its impact on your workplace, please contact Michael Brown at firstname.lastname@example.org or 949-636-8128.
Michael Brown is a Partner with our California-based team, bringing over three decades of senior in-house counsel experience in the area of business, employment, healthcare, compliance, and privacy. Michael has served as in-house counsel to healthcare giants such as Tenet HealthSystems (hospitals), Apria Healthcare (Home medical equipment, respiratory and infusion therapy); Clarient, a GE Healthcare company (clinical laboratories); and Edwards Lifesciences (medical device) where he also was a member of the AdvaMed Diagnostic and Compliance Committee that revised the AdvaMed Code of Conduct for the medical device industry.