By Alma Piñan

The California Supreme Court has issued yet another troubling ruling for California employers by holding that meal and rest break premiums are “wages,” which trigger waiting-time penalties and wage statement violations.  Its unanimous decision, in Naranjo v. Spectrum Security Services, Inc., will have a significant impact on California employers because it will result in more lawsuits, increase their liability in wage-and-hour litigation matters, and lead to additional payroll burdens going forward.

In a decision authored by Justice Kruger, the Court held that an employer’s failure to pay meal and rest break premiums for an employee who is denied a meal period triggers waiting-time penalties and wage statement violations.  In other words, any employee who claims to have been denied a meal or rest break and was not paid the proper premium for that break as of the employee’s termination date can sue for waiting time penalties equivalent to 30 days’ pay.  Additionally, an employee can sue for wage statement penalties for each pay period in which the allegedly non-compliant meal or rest break premium was omitted from the corresponding wage statement.  To make matters worse, this ruling will also open the door to corresponding PAGA civil penalties for these violations.

Meal and Rest Break Premiums Issue
The plaintiff in Naranjo was a security officer who alleges he was suspended and later fired after leaving his post to take a meal break, in violation of the employer’s policy that required employees to remain on duty during all meal and rest breaks.  As a result, the employee filed a lawsuit on behalf of himself and similarly situated security officers, claiming that the employees were entitled to premium pay for missed meal and rest periods, and that the employer’s failure to timely pay meal and rest period premiums triggered automatic liability for waiting-time penalties and penalties for inaccurate wage statements.

The Court first addressed whether premium pay for missed breaks constitutes “wages” that must be reported on statutorily required wage statements during employment and paid within statutory deadlines when an employee leaves the job.  The Court found that missed-break premium pay is wages.

The Court emphasized that an employee becomes entitled to premium pay for missed or noncompliant meal and rest breaks precisely because she was required to work when she should have been relieved of duty.  For that reason, the extra pay is designed to compensate for the unlawful deprivation of a guaranteed break and for the work the employee performed during the break period.  Additionally, the Court referenced a previous California Supreme Court case, Murphy v. Kenneth Cole Productions, Inc., where the Court had previously explained that the additional hour of pay can be understood as a wage to compensate employees for the work they performed during a meal or rest period, much as overtime pay is considered wages to compensate employees for work performed in excess of the number of hours the Legislature deems desirable.

The Court noted that the Legislature requires employers to pay missed-break premium pay on an ongoing, running basis just like other forms of wages.  The Court also explained that an employee who remains on duty without a timely break has “earned” premium pay and thus, the premium wages owed for working without a break are owed immediately upon being forced to miss a rest or meal period.  Thus, the premium must be timely paid upon termination.  According to the Court, if an employer willfully fails to comply with this obligation, then the penalties serve as an incentive for employers to pay end-of-employment compensation when it is due, rather than forcing employees to seek administrative relief or to go to court.

For these reasons, the Court held that a missed-break premium pay constitutes wages for purposes of Labor Code section 203, and so waiting time penalties are available under that statute if the premium pay is not timely paid.

Wage Statement Issue
In the second part of its decision, the Court held that an employer can be found to violate the wage statement statute (Labor Code section 226) by not only failing to accurately reflect all wages and premiums that were actually paid to the employee, but also all wages and premiums that should have been paid.  According to the Court, nothing in the text of Labor Code section 226 suggests that the reporting requirement is limited to categories of compensation that were known at the time the reporting requirement was enacted.

Thus, the Court held that an employer’s obligation to report wages earned includes an obligation to report premium pay for missed breaks.  This means that failure to report premium pay for missed breaks can support monetary liability under section 226 for failure to supply an accurate itemized statement reflecting an employee’s gross wages earned, net wages earned, and credited hours worked.

Analysis and Recommendations
As it is, California employers already have been bombarded with meal and rest break class actions and PAGA representative actions, many of them based on meal period rules and timing requirements.  Naranjo will, unfortunately, cause more of these types of lawsuits.

Given that missed-break premium pay now constitutes wages subject to timely payment and reporting requirements and can support waiting time penalties, employers should audit their policies and practices relating to meal and rest break periods and the payment of such premiums.  Employers should ensure that they have in place a reliable mechanism to track and flag all potential missed, late, or short breaks to ensure that the premium pay is paid at the time of termination.  Employers must understand the precise meal break timing rules, train their supervisors on those rules, and take the necessary steps in designing their meal period and timekeeping policies to avoid or minimize liability.  Additionally, employers should also consider including an attestation on employees’ timecards that note that they had the opportunity to take all their breaks.

Notably, the Court did not address whether the employer in the case “willfully” failed to pay the premium wages or “knowingly and intentionally” failed to reflect the unpaid break premium on its wage statement.  Instead, the Court remanded these issues back to the lower courts to be applied to Naranjo’s claims.  Consequently, the Court left open the ability of employers to argue that there was no “willful” failure to pay the premium wages at issue, and thus no waiting time penalties are owed.  Likewise, employers can argue that there was no “knowing and intentional” failure to reflect the unpaid meal or rest break premiums on its wage statements, and thus no pay stub penalties are owed.

The Court did not specifically address any issue of retroactivity in its decision.  However, we believe the decision is very likely to be given retroactive effect.  Therefore, employers will need to evaluate the potential effect of Naranjo on any ongoing litigation regarding meal and rest breaks.

---

If you have questions about any of these provisions, please feel free to contact me or any GBG attorney.

Alma Piñan
almapinan@gbgllp.com
213-358-2824