On September 27, 2021, Governor Gavin Newsom signed Assembly Bill No. 1003 (“AB 1003”) into law, adding Section 487m to the California Penal Code, which creates a new type of felony for intentional “wage theft.” The law takes effect on January 1, 2022.
While theft is commonly thought of as an intentional crime, the California Labor Commissioner defines “wage theft” much more broadly, to include not only egregious intentional conduct such as forcing employees to work off-the-clock, but also violations that might result from simple mistakes, such as failing to pay reporting time pay or failing to correctly calculate the overtime due on a commission.
The California Labor Code attempts to discourage wage theft by imposing criminal penalties on employers that violate provisions regulating payment of wages. Running afoul of dozens of the most commonly-violated wage provisions of the Labor Code may result in a misdemeanor offense, including provisions such as:
- Labor Code section 204, which requires timely payment of wages twice a month;
- Labor Code section 206.5, which prohibits releasing claims for unpaid wages unless payment of the wages has been made;
- Labor Code section 207, which requires employers place employees on notice of regular pay days and the time and place of payment;
- Labor Code section 216, which prohibits employers from failing to pay wages owed to an employee or falsely denying the amount due after the employee has made a demand for payment; and
- Labor Code section 226.6, which requires employers provide accurate itemized wage statements to employees.
While Labor Code wage theft statutes classify violations as misdemeanors, the new law goes one step further by creating a new felony offense under the Penal Code. Specifically, under the new law, the intentional theft of employee wages in an amount greater than $950 from a single employee or $2,350 from two or more employees within a consecutive twelve-month period is considered “grand theft” under California Penal Code section 487m. Importantly, the theft must be intentional to be actionable. Accordingly, inadvertent mistakes or errors are not contemplated by the new code section. Of note, the law also classifies independent contractors as “employees” for purposes of the offense, and includes individuals or entities hiring independent contractors as “employers.”
Employers (and entities that engage independent contractors) that violate the new law risk serious consequences. Prosecutors have the authority to charge those responsible for intentional wage theft violations with a misdemeanor or felony, either of which may be punishable by imprisonment (up to one year for a misdemeanor, and 16 months, or 2 or 3 years for a felony), a specified fine, or both a fine and imprisonment.
AB 1003 is a notable escalation in efforts to classify disputes over wages as serious criminal conduct. The author of the bill, Assemblywoman Lorena Gonzales, confirmed the intent of AB 1003 was to send a clear message to employers that intentionally stealing wages from employees is criminal and can result in imprisonment.
It is not yet clear how “intentional wage theft” will be interpreted and applied under the new law once it goes into effect next year. Employers should remain vigilant about compliance with wage and hour laws by regularly reviewing and updating their compensation policies and practices for employees and independent contractors, and making adjustments where needed. Employers should also take steps to ensure that hourly employees and managers are appropriately trained on wage and hour compliance and appropriately disciplined for violations.
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