The California Supreme Court again has issued a decision damaging to California employers and further heightening the risks associated with managing employee meal and rest breaks in California.
In Naranjo v. Spectrum Security Servs. Inc., ___ P.3d ____ (2022), the California Supreme Court found that an employer’s willful failure to pay meal and rest break premiums under Labor Code section 226.7 by the time of discharge qualifies for waiting time penalties under Labor Code section 203. In addition, the court concluded that a failure to report meal and rest break premium pay on wage statements supports monetary liability under Labor Code section 226 as a failure to supply an accurate itemized wage statement.
The impact of the decision is considerable. Under current law, California employers are required to provide certain unpaid meal breaks and paid rest breaks to non-exempt employees throughout the workday. Employers who fail to provide such meal and rest breaks must pay employees a “premium” equal to “one additional hour of pay at the employee’s regular rate of compensation for each workday that the meal or rest period is not provided.” Under Labor Code section 203, if an employer willfully fails to pay any wages due to an employee at the time of discharge, the employer may receive waiting time penalties equivalent to a day’s wages for each day the wages remain unpaid, for up to 30 days.
In addition, after the Naranjo decision, employers are now exposed to potential liability under Labor Code section 226 of up to $4,000 per employee for paystub violations associated with failure to pay such meal and rest breaks.
The unanimous California Supreme Court opinion reversed a Court of Appeal decision that was favorable to California employers, which held that waiting time penalties allowed under section 203 did not apply to unpaid meal and rest break premiums. The Court of Appeal reasoned that Labor Code section 203 penalties apply only to an employers’ willful failure to pay “any wages of an employee who is discharged or quits.” Thus, the Court of Appeal concluded that section 226.7 is “unambiguously beyond the reach of the wages definition because it is a legal remedy, not payment for labor: the premium pay is due to employees not for work they performed but as a sanction on account of ‘the employer’s recalcitrance’ regarding meal breaks.” Id. (quoting Naranjo v. Spectrum Security Servs., Inc., 40 Cal.App.5th 444, 473 (2019)).
The California Supreme Court found that the Court of Appeal erred in finding that the premium pay due was not for work performed but was a sanction against employers. The Supreme Court relied upon their prior ruling in Murphy v. Kenneth Cole Productions, Inc., 40 Cal.4th 1094 (2007), which had held for purposes of determining whether the three-year statute of limitations for wages or the one-year statute of limitations for a penalty, that the “additional hour of pay provided by section 226.7 can be understood as a wage to compensate employees for the work they performed during a meal or rest period.”
In relying on Murphy to reverse the Court of Appeal decision, the Supreme Court had to distinguish a subsequent contrary holding in Kirby v. Immoos Fire Protection, Inc., 53 Cal.4th 1244 (2012). Kirby found that meal and rest break violations under 226.7 do not entitle a prevailing plaintiff to their attorneys’ fees under Labor Code section 218.5 because “Section 226.7 is not aimed at protecting or providing employees’ wages. Instead, the statute is primarily concerned with ensuring the health and welfare of employees by requiring that employers provide meal and rest periods as mandated by the IWC.” Id. at 1255. The court accordingly concluded that an action to recover meal and rest break premiums under section 226.7 was not an “action brought for the nonpayment of wages” under section 218.5. Id.
In an impenetrable attempt to distinguish the Kirby holding, the California Supreme Court in Naranjo, concluded that the fact that “Kirby explained that our prior conclusion that premium pay is a wage did not necessarily mean that an action under section 226.7 is an action for nonpayment of wages under section 218.5. The characterization of the nature of the action under section 218.5 turns instead on the nature of the underlying legal violation the action seeks to remedy, not the form of relief that might be available to cure that violation. … And to say that a section 226.7 remedy is a wage, as we did in Murphy, is not to say that the legal violation triggering the remedy is nonpayment of wages, as opposed to the deprivation of meal or rest breaks.” Naranjo v. Spectrum Security Servs. Inc., ___ P.3d ____ (Internal quotations omitted). Such internally conflicted legal reasoning will have legal scholars and law students chasing their own tails for years to come.
Nevertheless, the Court’s Naranjo decision puts employers on notice that non-payment of meal and rest break premiums may qualify for waiting time penalties if the non-payment is found by the court to be “willful.” The court kicked the question of willfulness back to the trial court for a subsequent determination.
Finally, as set forth above, the California Supreme Court also found that failure to list meal and rest break premium payments on paystubs violated Labor Code section 226. In doing so, the Court rejected the argument that Labor Code section 226 lists many categories of information that must be reported but contains no separate requirement that missed-break premium pay be reported. The Court stated that this fact “is not meaningful; the statute likewise contains no provision expressly calling out any other specific sorts of pay, such as overtime pay under Labor Code section 510, that compensate employees for their work and therefore must be reported.” Id.
The Naranjo decision is the latest in an increasingly long line of California Supreme Court decisions inimical to employers in recent years and favorable to plaintiffs’ side wage-and-hour class action attorneys. See Iskanian v. CLS Transportation Los Angeles LLC, 59 Cal.4th 348 (2014)(holding that arbitration agreements that waive the right to bring a PAGA representative action in any forum are unenforceable); Dynamex Operations West v. Superior Court, 4 Cal.5th 903 (2018) (creating ABC standard to distinguish employees from independent contractors in wage claims, which led to the passage of AB5); Donohue v. AMN Services, LLC, 11 Cal.5th 58 (2021)(holding that rounding time is impermissible for meal and rest breaks and that non-compliant meal break time records create rebuttable presumption of violation requiring premium pay); and Ferra v. Loews Hollywood Hotel, LLC, 11 Cal.5th 858 (2021)(finding that meal and rest period premiums must be paid at an employee’s “regular rate of pay” as used in the overtime statute and that such determination applied retroactively).
Given the increasingly unfavorable landscape for employers created by this decision and its predecessors, employers are well-advised to review their wage-and-hour practices closely for compliance.
Questions
If you have any questions regarding this Legal Alert, please contact the following attorneys from our office or the attorney with whom you typically consult.
Christopher Onstott
constott@kmtg.com | 916.321.4582
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