California Supreme Court Clarifies Whether Missed-Break Premiums Are “Wages” That Trigger Derivative Penalties

Overview


On May 23, 2022, the California Supreme Court issued its decision in Naranjo v. Spectrum Sec. Servs. Inc. (Naranjo), holding that meal and rest break premiums (also known as extra pay or premium pay) constitute “wages” that: (1) must be accurately reported on employee wage statements pursuant to Labor Code section 226 and (2) must be timely paid to employees to avoid waiting time penalties pursuant to Labor Code section 203. The Court explained 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.” Thus, employees may be entitled to wage statement penalties and waiting time penalties where the employee worked through their break.

In Depth


Labor Code section 226 imposes a penalty against employers for the knowing and intentional failure to print accurate mandated information on wage statements (such as gross wages earned, total hours worked, etc.), known as “wage statement penalties.” Similarly, Labor Code section 203 imposes a penalty against employers who willfully fail to timely pay “wages” at the time of an employee’s separation, known as “waiting time penalties.”

At issue in Naranjo was whether an employer’s failure to pay meal or rest break premiums trigger wage statement penalties under Labor Code section 226 and waiting time penalties under Labor Code section 203. Previously, the California Second District Court of Appeal held that the answer was “no,” reasoning that meal and rest break premiums were not “wages” as that term is contemplated by Labor Code sections 226 and 203, and that an employer’s failure to report or timely pay such meal or rest break premiums could never support a claim for additional penalties under sections 226 and 203.

The California Supreme Court disagreed and held that meal and rest break premiums do constitute “wages” that must be accurately reported on employee wage statements and timely paid to employees when they end their employment.

First, the California Supreme Court reasoned that when evaluating whether a court should impose wage statement penalties against an employer under Labor Code section 226.7, missed-break premiums constitute a legal remedy for the deprivation of a guaranteed break and takes the form of “wages” because it “compensates for the work the employee performed during the break period.” The Court also remanded Naranjo back to the California Second District Court of Appeal to address the factual issue of whether missed meal or rest break premiums supported the conclusion that Naranjo was also entitled to wage statement penalties and waiting time penalties.

Second, the California Supreme Court reasoned that meal and rest break violations trigger waiting time penalties under Labor Code section 203 because section 203 enhances the effectiveness of section 226.7 (which mandates that employers pay employees one additional hour of pay for a missed meal or rest break) by incentivizing employers to pay the missed-break premiums immediately, which is designed to discourage employers from depriving employees of breaks in the first place.

KEY TAKEAWAY

Employers should fear not: exposure to wage statement penalties under Labor Code section 226 only attaches if the employer knowingly and intentionally failed to provide accurate wage statements denoting meal and rest premiums paid, and exposure to waiting time penalties under Labor Code section 203 only attaches if the employer willfully failed to pay earned meal or rest break premiums at the time of separation. Notably, a good faith dispute as to whether an individual is entitled to meal or rest break premiums will serve as a shield to liability under sections 226 and 203.

Still, employers should review their employees’ meal and rest break day-to-day practices to confirm that employees are being afforded the opportunity to take compliant meal and rest breaks.

Employers should also enact a protocol for employees to timely report instances in which they were prevented from taking compliant breaks to determine whether the circumstances warrant the payment of a meal or rest break premium. After all, it will be difficult for an employee to demonstrate that the employer “willfully” and “knowingly and intentionally” violated the law if they fail to report their alleged inability to take breaks to their employer using the employer’s established protocol in the first instance.