In National Steel and Shipbuilding Company v. The Superior Court of San Diego County (2006 Daily Journal D.A.R. 795, Cal.App. 4 Dist., Jan. 20, 2006), a California Court of Appeal addressed the question of whether an employer’s payments to employees for failing to provide lunch breaks and rest periods, as required by state labor laws and orders from the Industrial Welfare Commission (IWC), should be considered “penalties” against the employer or “wages” earned by the employee. The practical difference is that the statute of limitations for seeking wages is either three or four years depending on the circumstances, but only one year for seeking penalties.
The court ruled that although the payments have the characteristics of both penalties and wages, it is more logical to consider them “wages,” thereby giving employees the benefit of a longer statute of limitations within which to pursue them.
Facts
Employees of National Steel and Shipbuilding Company (NSSC) sued the company, claiming that over a period of four years, they had been forced to work more than five hours per day without receiving the meal breaks and rest periods required by state law. They sought restitution, an injunction barring future violations, and compensation of one hour’s pay for each day of violation of the meal or rest period law, pursuant to state Labor Code Section 226.7.
NSSC moved to strike any reference in the complaint to any alleged violations more than one year old, on the ground that the additional hour of pay amounted to a penalty, which was subject to a one-year statute of limitations. The trial court concluded that Section 226.7 created a wage and denied the motion. NSSC appealed.
Decision
The appellate court reviewed the language and legislative intent of Section 226.7 and found no clear guidance as to whether the payments were penalties or wages. Indeed, the court, said, credible arguments exist for interpreting the payment as both a penalty and a wage.
Turning to the overall statutory scheme, the court noted that Labor Code Section 558 subjects employers to civil penalties for violations of IWC orders regulating hours and days of work, including violations of meal period violations. Given that Section 558 imposes a penalty, the court said, Section 226.7 is more likely a wage “because it is unlikely the Legislature intended to establish two penalties on employers for meal and rest period violations.”
The court also noted that the Legislature could have, but did not specifically label Section 226.7 a “penalty,” and that the Legislature was aware of how the use of the word “penalty” would have affected the applicable statute of limitations.
Also, statutes of employment must be construed broadly in favor of protecting employees, the court said. “Applying this principle here suggests that the longer limitation period should apply.” The purpose of statutes of limitations, the court noted, is to protect potential defendants from stale claims by affording them the opportunity to gather evidence while facts are still fresh. However, because employers are already required to keep all time records for a minimum of three years, they do not need the protection of a shorter statute of limitations, the court ruled.
Therefore, the court denied NSSC’s appeal, and allowed recovery for the entire limitations period at issue.
Legal Alert Disclaimer
Legal Alerts are published by Kronick Moskovitz Tiedemann & Girard as a timely reporting service to alert clients and other friends of recent changes in case law, opinions or codes. This alert does not represent the legal opinion of the firm or any member of the firm on the issues described, and the information contained in this publication should not be construed as legal advice. Should further analysis or explanation of the subject matter be required, please contact the attorney with whom you normally consult.