Dear Clients and Friends:
On May 23, 2022, the California Supreme Court unanimously ruled that that meal and rest break premium payments are considered “wages” under the California Labor Code. Naranjo v. Spectrum Security Services, Inc. Here is the ruling itself, if you are curious.
In practical terms, as further detailed below, this means that if an employer issues a wage statement that does not accurately include all break premiums paid to an employee (or that omits premium payments that were owed), that employer could be subject to penalty exposure for the failure to issue accurate wage statements. The decision also signals potential additional penalties for an employer’s failure to timely pay break premiums during employment and upon separation. Here is an example of how a simple mistake can escalate into a million dollar exposure.
The Legal Backdrop:
- California Employers are Required to Provide Legally Compliant Meal and Rest Breaks.
California non-exempt employees who work more than 5 hours and up to 10 hours in any work period are entitled to an unpaid uninterrupted meal period of 30 minutes (except that employees who work 6 or fewer hours in a work period can waive their right to that meal period). Non-exempt employees who work more than 10 hours in a work period are entitled to a second unpaid uninterrupted meal period of 30 minutes (which they can waive if in total they work 12 or fewer hours in a workday, and if they haven’t waived their first meal period). The first meal period should be initiated within the first 5 hours of work (i.e., on or before 5 hours have been worked). The second meal period should be initiated within the first 10 hours (i.e., on or before 10 hours have been worked).
Non-exempt employees who work 3.5 hours or more are eligible for an uninterrupted paid rest period of 10 minutes for every 4 hours of work or for every major fraction of 4 hours (meaning more than 2 hours). Accordingly, employees must receive 10 minutes of rest time for shifts lasting three and one-half hours up to six hours, 20 minutes (split into two 10-minute rest breaks) for shifts lasting more than six hours up to 10 hours, 30 minutes for shifts lasting more than 10 hours up to 14 hours (split into three 10-minute rest breaks), and so on.
- Premium Pay May be Owed Where an Employee is Prevented from Timely Taking a Meal or Rest Break. Specifically, an employer is required to pay an employee a premium equal to one hour of pay when the employee’s meal or rest break is late, interrupted, or missed for work-related reasons. That meal and rest break premium pay must be paid at the employee’s regular rate of pay. Employees are entitled to a maximum of 2 premiums per workday, regardless of the number of untimely meal or rest breaks were taken: one meal break premium and one rest break premium, as applicable.
- Wage Statements Need to Accurately Reflect All "Wages" Paid. Employers are required to provide employees with an itemized statement each pay period that accurately reflects, among other items, “wages” including gross wages earned, net wages earned, and all applicable hourly rates in effect during the pay period. Failure to provide an accurate itemized wage statement or paystub entitles each employee to a penalty for each pay period in which they received an inaccurate paystub.
- Waiting Time Penalties are Owed Where an Employee Doesn't Timely Receive All Wages Owed at Termination. An employer must pay all "wages" (including accrued but unused vacation or paid time off) on the employee's termination date (if termination is involuntary or if an employee resigns and provides at least 72 hours’ notice) or within 72 hours of the termination date (if an employee resigns without notice). For each day that the employer fails to pay the final wages, the employer is liable for a penalty in the amount of a day of the employee’s wages, up to 30 days (“waiting time penalty”).
The Facts in the Naranjo Decision:
In Naranjo, a group of current and former security guards alleged meal and rest break violations and sought additional penalties for (1) their employer’s purported failure to accurately include meal and rest break premium pay on their wage statements; and (2) waiting time penalties for the employer's failure to pay all wages (here meal and rest break premiums) as of the termination date. The Court of Appeals rejected these arguments, holding that meal and rest break premiums did not constitute “wages,” and therefore did not trigger penalties. The California Supreme Court overruled the Court of Appeals and held that meal and rest break premiums constitute “wages” such that the failure to pay premiums or to properly include them on pay stubs triggers both wage statement and waiting time penalties. The Court also ruled that the rate of prejudgment interest for unpaid meal and rest break premiums is 7%.
What Can You Do Today to Reduce Your Risk of Liability?
In California, the risks for failing to give legally-compliant meal and rest periods already posed significant liability, especially the risk for an action brought by a group of employees as a class action or through a Private Attorneys General Act (“PAGA”) action. The decision in Naranjo increases the risks significantly.
Consider these steps you can take today to protect your organization from this increased risk:
- Review your meal and rest period policies. Do your policies accurately reflect employee entitlements? And are you communicating those entitlements to employees in a clear and regular manner?
- Review your meal and rest period practices. Are employees taking their meal and rest periods? If employees are waiving their breaks, are they doing so in writing? Do you have a system in place for employees to affirm they are taking these breaks? Do you have a means for employees to report missed or untimely rest or meal periods and to explain why, so you can determine whether a premium is owed? Are you paying premiums to employees who miss meal or rest periods? Are you paying premiums at the regular rate of pay?
- Audit your meal break, timekeeping and payroll practices to confirm meals are being taken at the right time, and to confirm premiums are being paid where required and at the correct rate. Even where a well-designed system is in place, we see cases fall through the cracks. Review your payroll practices, review time cards to find missed or late or short meals and confirm whether premiums have been paid or are owed, review your pay stubs to ensure they contain legally required information. For even more confidence, consider having an expert do that for you or assist you along the way (we are happy to help!)
- Train your managers. The best systems won't protect you if your managers aren't following them, or don't understand the rules. Educate your managers on the meal and rest period rules so they can ensure your policies and the law are being followed and that employees are receiving their full compensation and breaks.
As always, we are here to support you, and we want you to be protected. We can help you implement or review your policies and practices, together we can audit those practices so you can identify and address any vulnerabilities, and we can train your managers to help protect you from these expensive mistakes. Please let us know how we can help.
We Are Here For You
We hope this information is helpful as you navigate the recent developments and constantly changing laws. Please stay tuned, we will continue keeping you updated. And please, reach out if you have questions or just want to talk.
