Los Angeles, Calif. (May 31, 2022) - This week, the California Supreme Court clarified in Naranjo v. Spectrum Security Services, Inc. whether meal and rest period violations may also result in wage statement penalties and waiting time penalties against an employer. In its ruling, the California Supreme Court held that meal and rest period premiums may trigger derivative wage statement and waiting time penalties.
California law sets forth what employers must provide in accurate employee wage statements, including, among other requirements, gross wages and net wages earned. Lab. Code § 226, subd. (a). Labor Code Section 226 permits employees to recover wage statement penalties if they "suffered injury" from their employer's intentional failure to provide them with "accurate itemized" wage statements. Lab. Code § 226, subd. (a). This code section permits employees to recover $50 for the initial pay period violation and $100 for every subsequent violation with a $4,000 aggregate cap per employee. Lab. Code § 226, subd. (e).
Labor Code Section 203 permits an employee to recover penalties if they have not timely received all their wages owed upon termination or separation. Lab. Code § 203, subd. (a). Pursuant to Labor Code Section 203, if the employer is liable for waiting time penalties, the employer will owe an amount equal to the employee's daily wages for each day the wages remain unpaid, capped at 30 days. Lab. Code § 203, subd. (a).
In Naranjo, the plaintiff, a guard for Spectrum Security Services, Inc. (Spectrum) filed a putative class action on behalf of all employees, claiming that Spectrum did not properly pay meal period premiums. In addition, the plaintiff sought derivative wage statement and waiting time penalties on the basis of the unpaid meal premiums. The trial court determined that Spectrum was liable for wage statement penalties because it willfully omitted meal break premium pay from the wage statements. However, the trial court held that Spectrum's failure to timely pay all wages upon termination was not willful and therefore, Spectrum was not liable for waiting time penalties.
On appeal, the California Court of Appeal held that the failure to pay meal break premiums could not result in liability for wage statement and waiting time penalties because such premiums were not wages and thus, were not required to be reported on wage statements or paid out to employees pursuant to Labor Code Section 203.
Prior to the California Supreme Court's decision in Naranjo, there was limited authority in California regarding whether meal and rest period premiums could trigger derivative penalties for wage statement penalties and waiting time penalties. Additionally, the federal district courts were split regarding whether employees could recover wage statement and waiting time penalties as derivative claims of meal and rest period violations under California law. Employers previously relied on federal authority to argue that such penalties were not recoverable because meal and rest period premiums are penalties, not wages earned.
The California Supreme Court in Naranjo clarified confusion on the issue of whether meal and rest period premiums constituted wages so that employers were required to include the premiums on wage statements pursuant to Labor Code Section 226 and ensure timely payment of such premiums upon an employee's separation or termination pursuant to Labor Code Section 203. The California Supreme Court held that meal and rest period premiums are both wages and penalties. Specifically, the California Supreme Court reasoned that these premiums constitute wages because not only do these premiums compensate employees for missed breaks, but the premiums provide compensation "for the work the employee performed during the break period." Accordingly, if meal and rest period premiums are not properly paid, are not included on wage statements, or are not timely paid upon termination or separation, an employee may recover derivative wage statement and waiting time penalties.
Takeaways for Employers
With the California Supreme Court's ruling on Naranjo, meal and rest period violations can result in derivative wage statement and waiting time penalties, and thus, result in more liability exposure for employers. Therefore, it is even more crucial now that employers ensure they are properly paying meal and rest period premiums at the regular rate of pay, consistent with California law, for non-compliant meal and rest periods, and are reflecting those premiums on the employee's wage statements, as well as timely paying all wages – including meal and rest period premiums – upon an employee's separation or termination.
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