California Supreme Court: Unpaid Meal and Rest Period Premiums Can Lead to Wage Statement and Waiting Time Penalties

On May 23, 2022, the California Supreme Court ruled in Naranjo v. Spectrum Security Services, Inc. that unpaid meal and rest period premiums can form the basis of claims for wage statement violations under California Labor Code section 226 and waiting time penalties under California Labor Code section 203.  This is yet another significant decision by the Supreme Court impacting California employers in California particularly since the Court overruled the Court of Appeal, which had held that meal and rest period premiums are not “wages” and therefore cannot lead to wage statement or waiting time penalties.

Background

California law generally requires that employers provide non-exempt employees a reasonable opportunity to take an unpaid, off-duty and uninterrupted meal period of at least 30 minutes before the end of their fifth hour of work, and a second meal period before the end of their tenth hour of work.  Employers also generally must provide 10-minute uninterrupted, paid rest periods to non-exempt employees for every four hours worked (or major fraction thereof).  If an employer does not provide a compliant meal or rest period, the employee in question is entitled to payment of one hour of wages at the employee’s regular rate of pay.  That extra hour of pay is often referred to as a meal or rest period “premium.”

Employers are also required to furnish to employees, at the time employees are paid or semimonthly, wage statements that include specifically enumerated information under Labor Code section 226.  The employee’s “gross wages earned” and “net wages earned” must be included.  A violation of section 226 can carry a penalty of the greater of actual damages or $50 for the initial pay period with violations and $100 for each subsequent pay period with violations, up to a maximum aggregate penalty of $4,000.

California law also mandates specific timing for the payment of wages to a terminated employee.  Under Labor Code section 201, if the employer involuntarily terminates the employee, “wages” earned and unpaid at the time of discharge are due immediately.  Under Labor Code section 202, if an employee voluntarily resigns, unpaid wages are due within 72 hours of resignation, unless the employee gave more than 72 hours’ notice, in which case the employee is entitled to payment at the time of resignation.  If wages are not timely paid, the employee is entitled to “waiting time penalties” under Labor Code section 203, which provides that the wages due and unpaid continue as a penalty for up to 30 days.

The Naranjo decision arose from class claims brought by Naranjo, alleging meal and rest period violations.  Naranjo also alleged wage statement violations and sought waiting time penalties based on his argument that his earned meal and rest period penalties were not reflected on his wage statements and were not timely paid at termination.  Spectrum argued that meal and rest period premiums cannot form the basis for those claims, because they are not “wages.”  The Court of Appeal agreed and held that wage statement and waiting time penalty claims could not be predicated upon unpaid meal and rest period premiums.

The California Supreme Court’s Ruling

The California Supreme Court disagreed and reversed the Court of Appeal.  In so holding, the Supreme Court held that meal and rest period premiums are, in fact, wages.  As such, they must be included on wage statements and any non-payment can form the basis for a claim for wage statement penalties and waiting time penalties.

The Supreme Court reasoned that meal and rest period premiums compensate employees for “hardships” that “include rendering work” and therefore that they could be viewed as wages.  The Supreme Court likened this to other forms of pay premiums to compensate for working under hardship conditions, including overtime pay, reporting-time pay, or split-shift pay.  The Supreme Court stated that the fact that meal and rest period premiums are in place to remedy unlawful conduct and are paid as a lump sum did not make a difference.

On a separate issue, the Supreme Court agrees with the Court of Appeal’s finding that the 7% default rate set by the California Constitution applies to the rate of prejudgment interest that applies to amounts due for an employer’s failure to provide meal and rest breaks.

Takeaways

The Supreme Court’s holding only reinforces the importance for employers to comply with California’s meal and rest period laws, ensuring that meal and rest period premiums are appropriately paid when necessary, and ensuring that the payment of any such penalties is reflected on employees’ wage statements.