Soto v. Motel 6 Operating, L.P.

In opposing the demurrer, Soto argued that section 226, subdivision (a) requires itemization of earned “wages” and California cases have recognized (in other contexts) that a “wage” includes vacation pay. (See Murphy v. Kenneth Cole Productions, Inc. (2007) 40 Cal.4th 1094 , 1103 [ 56 Cal.Rptr.3d 880 , 155 P.3d 284 ] (Murphy); Suastez v. Plastic Dress-Up. Co. (1982) 31 Cal.3d 774 , 784 [ 183 Cal.Rptr. 846 , 647 P.2d 122 ] (Suastez).) Soto emphasized the legal principle that vacation benefits are earned and become vested during the pay period when they accrue. (See Suastez, supra, 31 Cal.3d at pp. 778-784.) Soto additionally argued a vacation wage reporting requirement is supported by the strong public policy favoring timely pay for completed work.

After considering the arguments and taking judicial notice of the DLSE sample wage statement, the trial court sustained the demurrer without leave to amend. The court concluded “section 226(a) does not require a wage statement to include the value of vacation or PTO wages accrued and earned.”

On appeal from a judgment dismissing an action after sustaining a demurrer without leave to amend, the “reviewing court gives the complaint a reasonable interpretation, and treats the demurrer as admitting all material facts properly pleaded.” (Aubry v. Tri-City Hospital Dist. (1992) 2 Cal.4th 962 , 967 [ 9 Cal.Rptr.2d 92 , 831 P.2d 317 ].) It “is error for a trial court to sustain a demurrer [if] the plaintiff has stated a cause of action under any possible legal theory.” (Ibid.) We apply a de novo standard in reviewing the court’s ruling sustaining the demurrer. (Lazar v. Hertz Corp. (1999) 69 Cal.App.4th 1494 , 1501 [ 82 Cal.Rptr.2d 368 ].)

The issue before us requires that we ascertain the legislative intent underlying section 226. (See Gattuso v. Harte-Hanks Shoppers, Inc. (2007) 42 Cal.4th 554 , 567 [ 67 Cal.Rptr.3d 468 , 169 P.3d 889 ] (Gattuso).) In so doing, we first examine “the statute’s words, giving them their ordinary and usual

“When the statutory language is ambiguous, a court may consider the consequences of each possible construction and will reasonably infer that the enacting legislative body intended an interpretation producing practical and workable results rather than one producing mischief or absurdity. . . . . [A] court’s “overriding purpose” in construing a statute is “to give the statute a reasonable construction conforming to [the Legislature’s] intent [citation], . . .” ’ [Citation.] ‘The court will apply common sense to the language at hand and interpret the statute to make it workable and reasonable.’ ” (Gattuso, supra, 42 Cal.4th at p. 567; accord, Yohner v. California Dept. of Justice (2015) 237 Cal.App.4th 1 , 8 [ 187 Cal.Rptr.3d 550 ].)

We independently determine the meaning of a statute. (Ramos v. Garcia (2016) 248 Cal.App.4th 778 , 784 [ 204 Cal.Rptr.3d 214 ].)

Section 226 requires “employers [to] provide accurate itemized statements of wages to their employees.” (Morgan v. United Retail Inc. (2010) 186 Cal.App.4th 1136 , 1143 [ 113 Cal.Rptr.3d 10 ] (Morgan)) The employer must provide the wage statement to the employee “semimonthly or at the time of each payment of wages” and furnish the statement “either as a detachable part of the check . . . paying the employee’s wages, or separately when wages are paid by personal check or cash.” (§ 226, subd. (a).) The wage statement must contain the information specified in the statute. (Heritage Residential Care, Inc. v. Division of Labor Standards Enforcement (2011) 192 Cal.App.4th 75 , 80 [ 120 Cal.Rptr.3d 363 ].)

The Legislature enacted section 226 to ensure an employer “document[s] the basis of the employee compensation payments” to assist the employee in determining whether he or she has been compensated properly. (Gattuso, supra, 42 Cal.4th at p. 574; see Morgan, supra, 186 Cal.App.4th at p. 1145.) Section 226 “play[s] an important role in vindicating [the] fundamental public policy” favoring “ ‘ “full and prompt payment of an employee’s earned wages.” ’ ” (Henry M. Lee Law Corp. v. Superior Court (2012) 204 Cal.App.4th 1375 , 1388 [ 139 Cal.Rptr.3d 712 ], italics added.)

Soto contends section 226 requires the monetary amount of earned vacation pay to be listed on each itemized wage statement. Five years ago, a federal district court rejected the identical argument, finding that neither the statutory language nor the statutory purpose supports this requirement.

First, section 226, subdivision (a) is highly detailed, containing nine separate categories that must be included on wage statements, and the code section does not identify accrued paid vacation as one of these categories. (See fn. 2, ante.) When a statute omits a particular category from a more generalized list, a court can reasonably infer a specific legislative intent not to include that category within the statute’s mandate. (See Blankenship v. Allstate Ins. Co. (2010) 186 Cal.App.4th 87 , 94 [ 111 Cal.Rptr.3d 528 ].)

Soto contends the accrued value of a paid vacation benefit need not have been specifically identified because vacation pay falls within the definition of the “gross wages earned” and “net wages earned” statutory categories. (§§ 226, subd. (a)(1), (5); see fn. 2, ante.) Soto relies on language in California Supreme Court decisions recognizing that vacation pay is a form of a “wage[].” (Murphy, supra, 40 Cal.4th at p. 1103 [noting “wages” are defined to “include those benefits to which an employee is entitled . . . , including money, room, board, clothing, vacation pay, and sick pay”]; Suastez, supra, 31 Cal.3d at p. 779 [“[V]acation pay is not a gratuity or a gift, but is, in effect, additional wages for services performed.”].)

Soto’s argument reflects a misunderstanding of the nature of an accrued vacation benefit under California law. Under section 227.3, if an employer provides for paid vacation, “all vested vacation shall be paid to [the employee] as wages at his final rate in accordance with” the employment contract or policy. In interpreting section 227.3 and applying “equity and fairness” principles, the California Supreme Court in Suastez held paid vacation is a form of deferred wages for services rendered, similar to a pension or retirement benefit. (Suastez, supra, 31 Cal.3d at pp. 780-781, 783-784.) Under this view, a proportionate right to a paid vacation vests as the labor is provided. (Id. at p. 784.) On termination, the employee must be paid for a pro rata share of his or her unused vacation time. (Ibid.)

Consistent with Suastez, the courts have recognized that although vacation time vests as labor is provided, unused vacation time does not become a quantifiable vacation wage until the employee separates from the employment. (Church v. Jamison (2006) 143 Cal.App.4th 1568 , 1576 [ 50 Cal.Rptr.3d 166 ] (Church) [“termination of employment is the event that converts the employer’s obligation to allow an employee to take vacation from work into the monetary obligation to pay that employee for unused vested vacation time” (fn. omitted)].) This principle is supported by section 227.3’s language that “upon termination,” vested vacation pay shall be paid to the employee

Under these authorities, vacation pay cannot be fairly defined as “gross wages earned” or “net wages earned” under section 226, subd. (a)(1) or (5) until the termination of the employment relationship. The employee has vested rights to paid vacation or vacation wages during the time of his or her employment, but these rights do not ripen and become an entitlement to receive the monetary value of the benefit as wages until the separation date. (Church, supra, 143 Cal.App.4th at pp. 1576-1577, 1583; see Suastez, supra, 31 Cal.3d at p. 784.) Further, before separation, the amount of vacation pay to which the employee is entitled is not ascertainable. An employee is entitled to obtain the value of unused paid vacation at his or her “'final rate.” (§ 227.3, italics added.) Because the amount of unused vacation and an employee’s final rate may change, an employee’s accrued vacation balance depends on the particular circumstances at the employment termination date.

Additionally, even assuming the statutory term “wages” can be fairly defined to include “vacation pay,” in interpreting a statute’s plain meaning, a court should not focus solely on “ ‘ “a single word or sentence; the words must be construed in context, and provisions relating to the same subject matter must be harmonized to the extent possible.” ’ ” (Morgan v. Beaumont Police Dept. (2016) 246 Cal.App.4th 144 , 151 [ 200 Cal.Rptr.3d 698 ].) The reference to “gross wages earned” and “net wages earned” (§ 226, subd. (a)(1), (5)) must be read in connection with section 226, subdivision (a)’s directory language, which states that “at the time of each payment of wages,” the employer must “furnish ... an accurate itemized statement” of these earned wages. (Italics added.) This mandate requires the employer to “itemize[]” the constituent parts of the total amount to be paid to the employee. (§ 226, subd. (a).) Because unused vacation pay is not owed to an employee and is not paid to the employee until the termination of the relationship, and the monetary value of the unused vacation pay cannot be determined until the termination date, the requirement that an employer identify earned “wages” logically does not extend to accrued vacation benefits.

This interpretation is also supported by section 226, subdivision (a)’s statutory purpose, which is to document the paid wages to ensure the employee is fully informed regarding the calculation of those wages. As Soto recognizes, “ ‘The purpose of requiring greater wage stub information is to insure that employees are adequately informed of compensation received and are not shortchanged by their employers’ ” (quoting Assem. Com. on Labor and Employment, Analysis of Sen. Bill No. 1255 (2011-2012 Reg. Sess.) as amended May 15, 2012, p. 3, italics added). Consistent with this purpose, an

DISPOSITION

Judgment affirmed. Respondent to recover its costs on appeal.

Huffman, Acting P. J., and Nares, J., concurred.