Today, the California Supreme Court issued a very significant decision for employment litigators and employers in California: Naranjo v. Spectrum Security Services, S258966 (May 23, 2022). As most readers know, if an employer fails to provide a non-exempt employee with a compliant meal or rest break the employer is required to pay that employee with one additional hour's pay at the employee's regular rate of compensation. Those payments are known as "premiums" of "penalties." Because the additional payment can be considered a "penalty" and not compensation for hours actually worked, for several years various courts have disagreed about whether those payments constitute "wages." As the Court explains in its opinion today "whether the wage statement and timely payment statutes apply to missed-break premium pay is a question that has generated confusion in the Courts of Appeal as well as in federal courts."
The characterzation of these payments as "wages" or "non-wage penalties" is important because of the implications for two other Labor Code provisions:
- If the premiums are considered "wages" within the meaning of Labor Code section 203, an employer may be found liable for "waiting time penalties" if an employee proves that he or she was not paid all owed meal and rest break premiums within the deadlines provided by the Labor Code (72-hours from voluntarily resignation without notice, or upon involuntary termination or resignation with at least 72-hours notice).
- If the premiums are considered "wages" for Labor Code section 226 purposes, an employer can be liable for penalties for failing to provide wage statements that do not accurately report all meal and rest break penalties paid in the applicable pay period.
Section 203 and 226 penalties are commonly referred to as "derivative" penalties by employment litigators (unless there is an independent reason those statutes were violated). It is not uncommon for the potential value of such derivative penalties to significantly eclipse the value of the underlying unpaid wages. For example, a full-time employee earning $20.00 per hour with one unpaid meal break premium would be owed $20.00 for the unpaid meal break premium, but up to $4,800 in waiting time penalties under section 203. Extrapolated to class actions, waiting time penalties under section 203 can become a large driver in the litigation.
Perhaps predictably, the generally employee-friendly California Supreme Court held that meal and rest break premiums are "wages" both for purposes of section 203 and section 226. Although this decision is not likely to be welcomed by the employer community, at least litigators and litigants now have clarity on this important issue.