Heritage Residential Care, Inc. v. Div. of Labor Standards Enforcement

192 Cal.App.4th 75

120 Cal.Rptr.3d 363

17 Wage & Hour Cas.2d (BNA) 269

11 Cal. Daily Op. Serv. 1212

2011 Daily Journal D.A.R. 1451

HERITAGE RESIDENTIAL CARE, INC., Plaintiff and Appellant,

v.DIVISION OF LABOR STANDARDS ENFORCEMENT et al., Defendants and Respondents.

No. H034994.

Court of Appeal, Sixth District, California.

Jan. 26, 2011.

Tandoc & Wehr, Jeffrey D. Wehr, for Appellant.

Division of Labor Standards, Department of Industrial Relations Legal Section, Anne Hipshman, San Francisco, for Respondent.

McADAMS, J.

*78 At issue in this appeal is a civil penalty, assessed under Labor Code section 226.3, for appellant's failure to provide itemized wage statements to all of its employees as statutorily required. Appellant unsuccessfully challenged the penalty below, first at an administrative hearing and later in the trial court, arguing that its noncompliance was inadvertent within the meaning of the statute and that respondent erred in determining otherwise. Appellant renews those arguments here.

Interpreting the pertinent statutory language as a matter of first impression, we conclude that the statute's references to "inadvertent" violations offer no grounds for setting aside the penalty assessed against appellant. We therefore affirm the judgment.

BACKGROUND

The parties to this appeal are Heritage Residential Care, Inc. (appellant) and the Division of Labor Standards Enforcement (respondent, sometimes referred to herein as DLSE or Labor Commissioner). The facts, which are undisputed, are taken from the findings in respondent's administrative decision.

Appellant's Business Operation

Appellant operates seven residential care facilities. During the relevant time period, appellant employed 24 workers, of whom 16 lacked social security numbers. Appellant treated those 16 workers as independent contractors, issuing them Form 1099 federal income tax statements instead of the itemized wage statements required by section 226, subdivision (a), of the Labor Code. ¹

Citation; Subpoena

In October 2008, respondent's agent, Margaret Flanders, performed a workplace inspection of appellant's premises. Based on evidence that appellant had failed to provide all of its employees with itemized wage statements during the past year, Flanders issued appellant a citation for violating section 226(a). The citation included a civil penalty under section 226.3, in the amount of $72,000, representing 288 violations at $250 per violation.

In December 2008, respondent issued a subpoena duces tecum for further documentation, including payroll records. Appellant complied with the subpoena. Based on the records provided, Flanders determined that there had been a total of 504 violations during the past year, rather than the 288 violations reflected in the citation. Nevertheless, Flanders elected not to amend the citation.

Administrative Hearing

Appellant requested an administrative hearing, which was held in January 2009.

At the hearing, respondent appeared through Flanders, who testified and submitted a number of exhibits demonstrating the basis for the citation. Appellant appeared through William Gardner, who testified and argued on appellant's behalf. Gardner explained that a number of appellant's employees "do not hold a social security number. So consequently we treat them as independent contractors or outside service and issue 1099s at the end of the year" rather than itemized wage statements. At the conclusion of the hearing, the hearing officer took the matter under submission.

The following day, respondent affirmed the citation in a written decision, denominated "findings and orders." As relevant here, respondent rejected appellant's argument that its noncompliance was inadvertent and respondent therefore concluded that "there is no basis for exercising discretion to reduce or eliminate the penalty assessment for failure to provide itemized wage statements."

Mandamus Petition

In February 2009, appellant filed a petition for writ of administrative mandamus in Santa Clara County Superior Court.

In September 2009, the court conducted a hearing on the petition. The court thereafter issued a formal order denying the petition.

In November 2009, the court entered judgment in respondent's favor.

Appeal

Appellant brought this timely appeal. Appellant contends that respondent misconstrued section 226.3. Appellant further contends that respondent failed "to examine inadvertence as required" by that provision, thereby abusing its discretion. Alternatively, appellant contends that a "mitigated penalty assessment" is supported by the evidence.

For its part, respondent maintains that substantial evidence supports the administrative decision, that it correctly defined inadvertence for purposes of section 226.3, and that it properly exercised its discretion in determining the amount of the penalty.

*80 DISCUSSION

To establish the proper framework for analyzing these issues, we begin by setting forth the governing legal principles.

I. Legal Principles

A. The Statutory Framework

As part of a comprehensive statutory scheme governing the payment of wages, the Legislature has enacted various provisions concerning itemized wage statements, which are codified in the Labor Code at sections 226 through 226.6. Two of those provisions are of interest here. The first is section 226(a), which requires employers to provide employees with wage statements. The second is section 226.3, which permits civil penalties for noncompliance.

1. Wage Statement Requirement

Employers are required to provide itemized wage statements to employees, containing specified information, all as set forth in section 226(a). ² The requirement is mandatory. (§ 15 ["shall" is mandatory].) An employer's failure to comply constitutes a statutory violation. (§ 22 [noncompliance with any Labor Code provision constitutes a violation]; see Cicairos v. Summit Logistics, Inc. (2005) 133 Cal.App.4th 949, 961, 35 Cal.Rptr.3d 243 [statutory requirement of itemized wage statement was violated; statements and driver trip summaries did not list the employer's name and address and *81 did not show how many hours driver worked]; Brewer v. Premier Golf Properties (2008) 168 Cal.App.4th 1243, 1249, 86 Cal.Rptr.3d 225 [statutory requirement was violated; substantial evidence supported jury finding that employer did not pay employee wages for all of the hours that she actually worked and thus "did not give her accurate itemized wage statements"]; Elliot v. Spherion Pacific Work, LLC (2008) 572 F.Supp.2d 1169, 1179 [statutory requirement was not violated; "the wage statements provided" were satisfactory; as allowed under the statute, they contained plaintiff's employee number instead of her social security number].)

2. Civil Penalties for Violation

"When proven, Labor Code violations give rise to civil penalties." ( Amaral v. Cintas Corp. No. 2 (2008) 163 Cal.App.4th 1157, 1195, 78 Cal.Rptr.3d 572.) "Imposition of civil penalties has, increasingly in modern times, become a means by which legislatures implement statutory policy." ( Hale v. Morgan (1978) 22 Cal.3d 388, 398, 149 Cal.Rptr. 375, 584 P.2d 512; Starving Students, Inc. v. Department Of Industrial Relations (2005) 125 Cal.App.4th 1357, 1367, 23 Cal.Rptr.3d 583.)

**368 For employers who violate section 226(a), civil penalties are assessed as provided in section 226.3. As relevant to this appeal, that provision states: "In enforcing this section, the Labor Commissioner shall take into consideration whether the violation was inadvertent, and in his or her discretion, may decide not to penalize an employer for a first violation when that violation was due to a clerical error or inadvertent mistake." (§ 226.3, italics added.) ³

In this case, the parties dispute whether appellant's admitted failure to provide itemized wage statements to 16 of its workers was "inadvertent" within the meaning of section 226.3. That dispute presents a question of statutory interpretation.

B. General Principles of Statutory Construction

In interpreting a statute, our primary task is determining legislative intent. ( Van Horn v. Watson (2008) 45 Cal.4th 322, 326, 86 Cal.Rptr.3d 350, 197 P.3d 164.) In doing so, we "look first to the words of the statute, 'because they generally provide the most reliable indicator of legislative intent.' " ( Murphy v. Kenneth Cole Productions, Inc. (2007) 40 Cal.4th 1094, 1103, 56 Cal.Rptr.3d 880, 155 P.3d 284; Manson v. Shepherd (2010) 188 Cal.App.4th 1244, 1262, 116 Cal.Rptr.3d 1.) Where a statutory term "is not defined, it can be assumed that the Legislature was referring to the conventional definition of that term." ( Connerly v. State Personnel Bd. (2006) 37 Cal.4th 1169, 1176, 39 Cal.Rptr.3d 788, 129 P.3d 1; Manson v. Shepherd, at p. 1262, 116 Cal.Rptr.3d 1.) We thus give the words in a statute "their plain and commonsense meaning." ( Murphy v. Kenneth Cole Productions, Inc., at p. 1103, 56 Cal.Rptr.3d 880, 155 P.3d 284.) "Furthermore, a particular clause in a statute must be read in harmony with other clauses and in the context of the statutory framework as a whole." ( Esther B. v. City of Los Angeles (2008) 158 Cal.App.4th 1093, 1099, 70 Cal.Rptr.3d 596.) Additionally, "statutes governing conditions of employment are to be construed broadly in favor of protecting employees." ( Murphy v. Kenneth Cole Productions, Inc., at p. 1103, 56 Cal.Rptr.3d 880, 155 P.3d 284.)

Statutory construction presents a question of law, which we review de novo. ( Van Horn v. Watson, supra, 45 Cal.4th at p. 326, fn. 5, 86 Cal.Rptr.3d 350, 197 P.3d 164; Wright v. Issak (2007) 149 Cal.App.4th 1116, 1120, 58 Cal.Rptr.3d 1.) "While the DLSE's construction of a statute is entitled to consideration and respect, it is not binding and it is ultimately for the judiciary to interpret this statute." ( Murphy v. Kenneth Cole Productions, Inc., supra, 40 Cal.4th at p. 1106, fn. 7, 56 Cal.Rptr.3d 880, 155 P.3d 284.)

II. Analysis

With those principles in mind, we analyze the...