California Supreme Court Holds Premium Pay for Missed Breaks Constitutes “Wages” That Must Be Reported on Wage Statements and Paid Within Statutory Deadlines Upon Termination.
May 25, 2022 • Diana Lerma, Shirley A. Gauvin
Category: Legal Updates
On May 23, 2022, in Naranjo v. Spectrum Security Services, Inc., the California Supreme Court clarified that a violation of Labor Code section 226.7 (payment of premium wages for meal and rest period violations) gives rise to claims under Labor Code sections 203 (waiting time penalties) and 226 (inaccurate wage statements).
Plaintiff Naranjo brought a putative class action seeking premium pay (an additional hour of pay) for alleged meal break violations, as well as damages and penalties for failure to report the premium pay on employees’ wage statements (Lab. Code § 226), and failure to timely provide the premium pay to employees upon termination of their employment. (Lab. Code §§ 201, 202, 203).
The Supreme Court held that missed-break premium pay should be subject to the Labor Code’s timing requirements for the payment of wages at the end of employment pursuant to Labor Code section 203. The Court explained that an employee is entitled to the additional hour of pay immediately upon being forced to miss a rest or meal period. In other words, the duty to pay attaches before the time of discharge and does not depend on a prior court determination. When an employment relationship ends, the Labor Code requires employers to promptly pay any unpaid wages to the departing employee (immediately for discharged employees, and immediately at the time of quitting, if the employee has given sufficient advance notice, and within 72 hours if he/she has not). Thus, waiting time penalties are appropriate when a claim for missed breaks exists.
The Court further reasoned that because premium pay is fairly understood as coming within the Labor Code’s definition of “wages,” it should be treated as reportable wages on wage statements such that the failure to do so will give rise to a claim for inaccurate wage statements under Labor Code section 226. The Court found missed-break premium pay comparable to other forms of wages required for working under conditions of hardship, such as overtime premium pay and reporting-time pay or split-shift pay. Ultimately, the Court found that although missed-break premium pay serves as a remedy for a legal violation, this does not change the fact that it also compensates for labor performed under conditions of hardship; thus, an employer’s duty under Labor Code section 226 to report “wages” earned includes the duty to report pay for missed breaks. Lastly, the Court concluded that the correct prejudgment interest rate on meal break claims is 7 percent.
What does this mean for you? Because missed-break premium pay is considered “wages”, it must be reported on all wage statements during employment, and on the final earnings statement provided within the applicable final pay deadlines. Failure to pay missed-break premium pay will now subject employers to additional claims for inaccurate wage statements and waiting time penalties, resulting in significant liability, especially in class or representative actions.
In light of this decision, employers would be wise to redouble their efforts to ensure meal and rest break policies are in place and that all practices related to meal and rest breaks, including wage statements and waiting time penalties, are legally compliant. Please contact your local SW attorney to ensure compliant break policies.
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THIS DOCUMENT PROVIDES A GENERAL SUMMARY AND IS FOR INFORMATIONAL/EDUCATIONAL PURPOSES ONLY. IT IS NOT INTENDED TO BE COMPREHENSIVE, NOR DOES IT CONSTITUTE LEGAL ADVICE. PLEASE CONSULT WITH COUNSEL BEFORE TAKING OR REFRAINING FROM TAKING ANY ACTION.