California Supreme Court Holds Meal Period Premiums Are Wages
The California Supreme Court, on May 23, 2022, in Naranjo v. Spectrum Security Services, Inc., P.3d (2022), issued an important wage-and-hour decision regarding the meal premiums in California. The Supreme Court in its judgment unanimously held 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.
Meal and Rest Break Law
California Labor Code Section 512 requires employers to 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 5th hour of work, and a second meal period before the end of their 10th hour of work. Employers also generally must provide 10-minute uninterrupted, paid rest periods (IWC Wage Order) to non-exempt employees for every 4 hours worked (or a major fraction thereof). If an employer does not provide a compliant meal or rest period, the employee in question is entitled to payment of 1 hour of wages at the employee’s regular rate of pay. This extra hour of pay is referred to as a meal or rest period “premium.”
The following provisions under the California Labor Code were scrutinized by the Courts:
Section 200, “Wages” includes all amounts for labor performed by employees of every description, whether the amount is fixed or ascertained by the standard of time, task, piece, commission basis, or other methods of calculation.
Section 226 requires employers to provide itemized wage statements to their employees constituting gross and net wages, deductions, the date range of the pay period, and hourly rates and hours worked (for non-exempt workers). Employers must give employees these wage statements every two weeks or on each payday, and they must keep them for 3 years.
Further, according to Section 201, if the employer involuntarily terminates the employee, “wages” earned and unpaid at the time of discharge are due immediately. Under 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 the employees are not timely paid wages due, the employee is entitled to “waiting time penalties” under Section 203, which provides that the wages due and unpaid continue as a penalty for up to 30 days.
The Case Law
Gustavo Naranjo (the plaintiff), a former Spectrum employee, brought a class-action lawsuit alleging meal break violations from June 2004 through September 2007. Plaintiff alleged that Spectrum failed to have valid on-duty meal break agreements and thus failed to provide daily meal breaks to a class of non-exempt employees. Naranjo sought not only meal break premiums but alleged that the failure to list meal break premiums on employee wage statements gave rise to wage statement penalties under Labor Code section 226, and waiting time penalties under Labor Code section 203.
The trial court agreed and awarded the class meal break premiums for each day Spectrum failed to provide employees with a compliant meal break. The court found that Spectrum’s failure to include premium payments on the wage statements was an intentional violation but denied the request for waiting time penalties, holding that the failure to pay premium pay as final wages was not “willful.”
The Court of Appeal affirmed that Spectrum violated the meal break laws between June 2004 and September 2007. But, it held in favor of Spectrum on the wage statement and waiting time penalty claims, concluding that a failure to pay meal break premiums could not support claims for failure to provide accurate wage statements or failure to timely pay all wages upon separation of employment.
California Supreme Court Ruling
The California Supreme Court reversed the decision by the Court of Appeal, holding that meal break premium pay qualifies as “wage” under California law. The Court reasoned that meal break premium pay is an amount that an employer owes to an employee because the employee either worked too many hours before receiving a break or was required to work during a break. In that respect, since it was payment for work performed, it qualifies as wages in accordance with Labor Code Section 200. Subsequently, this meant that the employer had a duty to list any premiums paid as wages on the employee wage statements and to pay any premiums owed within the time limits for paying final wages to a terminated employee under Labor Code sections 201 and 202 or else face waiting time penalties.
The Supreme Court decision clarifies that meal and rest period premium pay constitutes “wages,” and resolves the important questions of whether such payments can be a basis for waiting time and wage statement penalties. Employers will need to be ever more careful in their payroll practices as the monetary penalties for non-compliance may cause significant liability and exposure.
For further information on meal and rest break regulations, kindly refer to Global Compliance Desk – California.