The California Supreme Court has just overturned a Court of Appeal decision which had been seen as a significant “victory” for employers in the wage and hour arena.  That Court of Appeal decision had ruled that unpaid statutory payments owed by a California employer for meal and rest break violations were not “wages” under California law, at least for purposes of determining whether an employee who was not paid such amounts could recover “waiting time” penalties for such failure after termination and whether such penalty payments were required to be documented on an employee’s paystubs. Because such payments were not considered wages, the Court of Appeal ruled that the failure to pay such penalties could not serve as the basis for a claim by the employee for paystub violations or waiting time penalties. However, on May 23, the California Supreme Court held that an employer’s failure to pay an employee the applicable penalties for missed meal periods would give rise to claims by the employee for waiting time penalties upon termination and for failure by the employer to provide proper paystubs.[1]

California law requires employers to provide non-exempt employees with an unpaid, thirty-minute meal break during each shift of at least five hours, during which the employees are not required or permitted to perform work. In addition, employers must provide non-exempt employees with a ten minute paid rest period for each four hours (or major fraction thereof) worked. If employers fail to provide either a meal break or a rest period, employees are entitled to one hour of payment at their regular rate of pay as a “penalty” for having been deprived of the statutorily-required breaks. Such payments are often referred to as “premium” payments.

Prior to the Supreme Court’s Naranjo decision, there was a great deal of confusion as to whether and for what purposes these premium payments were considered wages or penalties. If premium payments were treated as penalties and not wages, employees would not be able to collect waiting time penalties where the premium payments were not made at or before termination.  Likewise, employees would not be able to pursue claims that their employers had provided them with improper or incomplete paystubs based on the failure by the employers to itemize the required premium payments on the paystubs.  Coupled with an earlier California Supreme Court decision which determined that employees could not recover attorney’s fees on meal and rest period violation claims under a statute authorizing an award of attorney’s fees and costs on “actions to recover wages,” the earlier, pre-Naranjo legal landscape took a great deal of the sting out of claims for missed meal and rest periods.

That has now changed. Because the premium payments for missed meal and rest breaks are clearly determined to be wages, employees are entitled to pursue waiting time penalties for the failure of employers to include such premium payments in an employee’s final paycheck upon termination.  Likewise, the failure to provide and properly document such premium payments on each paystub covering a pay period in which they are due to be paid will constitute a separate potential Labor Code violation (subject to applicable defenses).

In addition to employees being able to seek waiting time penalties and penalties related to paystub violations, the classification of premium payments as wages for these purposes also allows employees to seek attorney’s fees and costs solely for such violations indirectly (via attorney fee shifting provisions relating to pay stub violations and failure to pay wages upon termination) despite the Supreme Court’s earlier ruling that these attorney’s fees could not be recovered directly for such claims (discussed above).

Naranjo could have major implications for California employers who fail to comply with the Supreme Court’s ruling. Employers must ensure that all employees receive the meal break and rest periods to which they are entitled. When such meal or rest periods are missed, cut short, or unavailable, it is vital to immediately and accurately identify, account for, and pay the related premium pay to each affected employee. It may be helpful for employers to periodically review employee time and pay records to avoid overdue premium payments. In the event that an employee does not receive a meal break or rest period, the employer must include the premium payments on the employee’s next paystub using the employee’s regular rate of pay (which, it must be noted, does not always mean just the employee’s base hourly rate of pay). For help with this topic or to further discuss your meal and rest period policies to help ensure compliance with the law, please contact the attorneys at Navigato & Battin.

 

[1] Naranjo v. Spectrum Security Services, Inc.