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Heritage Residential Care, Inc v. Division of Labor Standards Enforcement et al.

January 26, 2011

HERITAGE RESIDENTIAL CARE, INC., PLAINTIFF AND APPELLANT,
v.
DIVISION OF LABOR STANDARDS ENFORCEMENT ET AL. DEFENDANTS AND RESPONDENTS.



(Santa Clara County Super. Ct. No. CV135204)

The opinion of the court was delivered by: McAdams, J.

CERTIFIED FOR PUBLICATION

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.*fn1

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 ...


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