Employer Due Diligence Required To Locate Former Workers Under California’s Piece Work Safe Harbor

All Steps Must Be Taken by December 15, 2016

In the few weeks remaining before the mid-December 2016 deadline, thousands of California businesses must complete all required steps to accomplish “safe harbor” protection from potentially significant piece rate back pay liabilities. Specified in Labor Code 226.2(b), These actions include:

(1)  accurate calculation of the safe harbor amounts owing to each employee (essentially 4% of each worker’s gross earnings for “piece work” pay periods between July 1, 2012 and December 31, 2015 (Safe Harbor Period);

(2) timely payment of that compensation to each such worker; and

(3) an accompanying detailed statement explaining the basis for the payment and its calculation.

For greater detail, see The End Is Nigh; California’s Piece Work Employers Must Convey All Back Payments and Statements by December 15, 2016; There is No Provision for Extensions (Deadline Article).

As the Deadline Article explains, waiting until the last minute to issue the safe harbor checks will likely not afford the protection the law provides. Section 226.2(d) requires employers to use “due diligence, including the use of people locator services, to locate and pay former employees” in the event those individuals have relocated. For any and all former piece rate workers employed for any portion of the Safe Harbor Period that the employer cannot find despite such “duly diligent” efforts, that employer must submit a lump sum payment to Labor Commissioner by December 15, along with detailed description of the ex-workers included, in both hard copy and electronic form.  No business is going start and finish that process on the eve of that deadline.

Due Diligence and People Locator Services: What actions satisfy an employer’s “due diligence” requirement to track down affected former employees?  The Labor Commissioner’s Frequently Answered Questions on Section 226.2 (226.2 FAQs) state there is no definite answer:

“Labor Code section 226.2 does not define what constitutes ‘due diligence,’ other than to state that it includes, but is not limited to ‘the use of people locator services.’ … There are a variety of people locator services available on the Internet through which someone may search a name in an attempt to locate a current address. Many of these services offer a one-month pass, for a small fee, that allows for an unlimited number of searches. Given the statute’s reference to the use of people locator services, ‘due diligence’ on an employer’s part likely would require use of one of these services for at least one search per employee for whom the employer does not have a current address.

Beyond this specific requirement, what constitutes ‘due diligence’ would depend on the circumstances. In general, the concept of due diligence incorporates elements of both reasonableness (what is reasonable under the circumstances?) and good faith (was a genuine effort made?). As such, relevant factors would include the size of the payment being made to an employee and the nature and extent of the information the employer has about that employee. For example, if the employer does not have current contact information for a former employee, but continues to employ the former employee’s brother, “due diligence” might require the employer to ask the brother if he has a current mailing address for the former employee. If, on the other hand, the employer does not have a current address for a former employee, a people locator search is unsuccessful because the former employee has a very common name, and the employer has no other direct information about how to locate that person, then the employer may have done its ‘due diligence’ as to that particular employee.

“Another way to approach this question is to put oneself in the shoes of someone who has left the area but is now owed some money by a former employer – what efforts would you reasonably expect that employer to make to find you and make sure you get paid?”

The 226.2 FAQs do not go far enough in explaining the use of people locator services.  Just picking the cheapest service may well fall short of the required “due diligence.”  The lowest level of so-called skip tracing, while inexpensive, utilizes a person’s name and address only and significantly less effective than the higher level, somewhat more expensive, service. The latter allows the customer employer to supply the person’s social security number (SSN) and other private information. Where, as the usual practice, an employer maintains former workers’ SSNs, “due diligence” suggests that business should opt for the higher service. While this firm does not recommend any particular “people locator” vendor, we have found, for example, www.locateplus.com helpful in describing its services. To utilize this higher SSN-based locator service and due to the privacy issues involved, a prospective subscriber-employer will have to pass a background check with the vendor.

At this point, a business that is opting to comply with the “safe harbor” requirements should be well-along with the process. For an employer that has not yet begun, the time is now. Please contact any of our lawyers Tim Bowles, Cindy Bamforth, and Helena Kobrin should you need further information.

See also:

Tim Bowles

November 8, 2016

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