California law has long provided that if an employee misses or is denied the right and/or opportunity to take a timely and otherwise legally compliant meal and rest break, the employee is entitled to be paid one hour at their regular rate of pay as a “penalty.” Labor Code section 226.7(c).
Until yesterday, it was understood that the “penalty payment” for meal and break period violations was not considered a “wage” and did not entitle employees to additional penalties for either inaccurate wage statements or failure to timely pay wages upon separation of employment.
This has now changed … and not for the better…. On May 23, 2022 the California Supreme Court in Naranjo et al. v. Spectrum Security Services, Inc. [1] reversed the Court of Appeals decision from three years ago that had been relied upon by employers and ruled that meal and rest period premiums are wages.
This case started over a decade ago and upon appeal, the court held that the premium pay owed to employees for meal and rest break violations was not a wage, so a failure to record or pay premium pay for missed meal or break periods would not entitle an employee to waiting time penalties or inaccurate wage statement penalties.
On review, The California Supreme Court was asked to determine whether the penalties for missed breaks constitutes “wages” that must be reported on statutorily required wage statements during employment (Lab. Code, § 226) and paid within statutory deadlines when an employee leaves the job (id., § 203).
The Court concluded, contrary to the Court of Appeal, that the answer is yes. The Court stated that although “the extra pay is designed to compensate for the unlawful deprivation of a guaranteed break, it also compensates for the work the employee performed during the break period… The extra pay thus constitutes wages subject to the same timing and reporting rules as other forms of compensation for work.”
Based on this finding, a failure to pay premium payments for meal and rest period violations gives rise to derivative penalties for inaccurate wage statements (Labor Code sections 226) and failure to timely pay wages upon separation of employment (Labor Code section 203).
Additionally, the court ruled that the appropriate prejudgment interest rate for unpaid meal and rest period premium payments owed under Labor Code section 226.7 is seven percent (7%).
If a claim for missed meal and break penalties is brought, it is not automatic that these penalties will be assessed. Employees must first establish an actual violation of the meal and rest break rules to be eligible for an applicable premium. And even if a premium is owed, an employee must still establish that a failure to report premiums on wage statements is knowing and intentional and that a failure to pay all premiums out upon termination is willful.
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[1]Naranjo v. Spectrum Security Services, Inc., No. S258966, slip op. at 9 (C.A. Sup. Ct. May 23, 2022), https://www.courts.ca.gov/opinions/documents/S258966.PDF
WHAT DO I DO NOW?
It is more critical than ever to review your wage and hour procedures, review your policies and monitor the workplace.
- Review your policies to ensure employees are aware of their entitlement to meals, breaks and recovery break periods.
- Review employee work schedules to ensure that employees are being provided legally compliant breaks.
- Review employee time records weekly to ensure meal and rest periods were timely taken and the legally required minimum amount of time was taken.
- Have employees acknowledge, on a per pay period basis, that they have been provided the right and opportunity to, and did take their uninterrupted, duty free meals and breaks.
- If any meal or rest break was not compliant, ensure that the premium payments are paid in the pay period in which the violation occurred.
- Do not have “auto deduct” on your time keeping system for meal breaks.
- Do not use “rounding” for meal breaks.
- Review time and payroll records to ensure that final wage payments include any meal and rest period premium payments.
- Ensure that premium payments are properly recorded on employee wage statements as a separate line item (specify the number of penalties being paid and the applicable rate of pay).
- Request departing employees to acknowledge that they have received their full, timely, and uninterrupted meal and rest breaks or, if they contend otherwise, to identify any non-compliant or missed breaks so that proper premium compensation can be paid to avoid waiting time penalties. (Waiting time penalties attach for a period not to exceed 30 days of pay at the employee’s regular rate of pay if all legally required compensation is not paid at time of separation.)
This Newsletter is intended as a brief summary of employment law. While every effort has been made to ensure the accuracy of the information contained herein, it is not intended to serve as “legal advice,” or to establish an attorney-client relationship. If additional information is needed on any of the topics contained herein, please contact our office. All rights reserved. ©2022.