California Supreme Court Holds That Meal and Rest Period Violations Warrant Imposition of Statutory Penalties
The California Supreme Court has issued numerous decisions ensuring that employees receive the maximum protection afforded them under California law, and that unscrupulous employers are deterred from and punished for depriving employees of their statutory rights. It has done so again in Naranjo v. Spectrum Security Services, Inc. (2022) 13 Cal. 5th 93.
Background
California law requires employers to provide off-duty meal periods of at least 30 minutes within specified time frames to non-exempt (i.e., overtime pay eligible) employees, except in limited cases where the law allows a meal period waiver or an on-duty meal agreement. The law also requires an employer to authorize and permit non-exempt employees to take off-duty rest periods of at least 10 minutes for every work period of four hours or major portion thereof. If an employer fails to provide an employee with a required meal period or authorize and permit a required rest period, the employee is entitled to one additional hour of pay at the employee’s regular rate of pay for each workday on which a meal and/or a rest period is not provided as required. See Cal. Lab. Code § 226.7(c) (“Section 226.7”). Case law refers to this additional hour of pay as a “premium payment.” An employer may be liable for up to two premium payments per day – one for the failure to provide one or more compliant meal periods and another for the failure to authorize and permit one or more compliant rest breaks.
There were two pre-Naranjo California Supreme Court decisions that caused confusion with respect to whether a meal or rest break premium payment was considered a “wage,” which would be more favorable for employees since they could seek derivative statutory penalties and recover an award of attorney’s fees and costs if they were successful on their unpaid wage claims. In Murphy v. Kenneth Cole Productions, Inc. (2007) 40 Cal. 4th 1094, the California Supreme Court held that the three-year statute of limitations for unpaid wages applies to a claim for the one-hour of premium pay under Section 226.7. Since the Murphy decision was published, these premium payments have been referred to in some cases as a “penalty” and in other cases as a “penalty wage.” Murphy was used by employee rights attorneys to argue that a failure to pay a meal or rest break premium payment was an action for the nonpayment of wages, as evidenced by the applicable statute of limitations. However, the Supreme Court’s decision in Kirby v. Immoos Fire Protection, Inc. (2012) 53 Cal. 4th 1244, muddied the water, by holding that an action for meal and rest break premiums under Section 226.7 is not an action for nonpayment of wages. The conundrum created by the Murphy and Kirby decisions was finally addressed in Naranjo.
Relevant Factual and Procedural History of Naranjo
Plaintiff Gustavo Naranjo worked for defendant Spectrum Security Services, Inc. as a security guard. Naranjo left his post to take a meal break and was fired for violating a Spectrum policy that required him to remain on duty during all meal breaks. Naranjo filed a class action lawsuit against Spectrum, claiming that Spectrum violated California law by failing provide compliant meal periods and by failing to pay Section 226.7 premium payments on days he did not get a compliant meal period. Naranjo’s complaint included derivative claims for waiting time penalties and inaccurate wage statements. The trial court certified meal period, waiting time penalty, and wage statement classes, and the case proceeded to trial. The trial court entered judgment in favor of Naranjo on each of the claims and awarded attorney’s fees and prejudgment interest to Naranjo.
Spectrum appealed the judgment. The Court of Appeal affirmed the trial court’s determination that Spectrum violated California’s meal period law, but it reversed the judgment as to the derivative waiting time and inaccurate wage statement penalties. The Court of Appeal reasoned that the premium payment for missed meal breaks was not for work performed and did not constitute “wages,” and thus, Spectrum could not be penalized for failing to timely pay or itemize the premium payments. The California Supreme Court granted review to answer the question of whether waiting time and wage statement penalties are available when owed meal and rest period premium payments are not paid at or before termination of employment and are not itemized on the employee’s wage statements.
California Supreme Court’s Decision and Key Takeaways
The Supreme Court reversed the Court of Appeal, and in doing so, reconciled the seeming conflict between Murphy and Kirby. The Court held in a unanimous decision that Section 226.7 premium payments are both a penalty and a wage in that they compensate the employee both for the unlawful deprivation of a guaranteed meal or rest period, and they also compensate for the work the employee performed during the meal or rest period, and since they are wages, that they give rise to derivative statutory penalties for: (1) failure to provide accurate, itemized wage statements under Labor Code section 226; and (2) failure to timely pay all wages owed upon termination of employment under Labor Code section 203. The Court analogized meal and rest period premium payments to overtime premium payments, which are designed to compensate non-exempt employees for working under conditions of hardship (extra hours).
The Naranjo decision strengthens the ability to enforce employee meal and rest period rights in two important ways:
- First, employees can now bring claims for waiting time penalties under Labor Code section 203 if owed meal or rest period premium payments are not timely paid upon termination of employment. If the employee establishes a willful violation, in addition to the unpaid wages, the employee will be entitled to a statutory penalty equal to the employee’s final daily wage rate for each calendar day the payment is late, up to 30 days; and
- Second, employees also can now bring claims for inaccurate wage statements under Labor Code section 226 if owed meal or rest period premium payments are not itemized on the wage statements for the pay periods in which they were due. If the employee establishes a knowing and intentional violation causing injury, the employee will be entitled to a statutory penalty of the greater of the plaintiff’s actual damages or $50 for the initial pay period when the violation occurs and $100 for each subsequent violation, up to a maximum aggregate penalty of $4,000, plus an award of attorney’s fees and costs.
Extension of Naranjo to Claims for Attorney’s Fees Under Labor Code Section 218.5
On September 12, 2022, in Betancourt v. OS Restaurant Services, LLC, the California Court of Appeals, Second District, applying Naranjo, reversed the trial court and held that a prevailing plaintiff in an action for meal and rest period premium payments is entitled to an award of attorney’s fees under Labor Code section 218.5 for the nonpayment of wages.
Prior to the Naranjo decision, the plaintiff in Betancourt settled claims against her former employer, OS Restaurant Services, LLC for failure to provide compliant meal and rest periods, inaccurate wage statements, and waiting time penalties. As part of the settlement, the restaurant agreed to pay Betancourt $15,375 and to allow her to file a motion for attorney’s fees related to the claim. The trial court awarded over $280,000 in attorney’s fees pursuant to Labor Code section 218.5. The employer appealed and in May 2020 the Court of Appeal reversed the award of attorney’s fees, holding that the plaintiff could not recover attorney’s fees because, under Kirby, the action was not for the nonpayment of wages. The Court of Appeal further held that an employee could not recover waiting time or wage statement penalties based on meal and rest period violations. The plaintiff sought review by the Supreme Court.
Following its ruling in Naranjo, the Supreme Court transferred Betancourt back to the appellate court for reconsideration. The Court of Appeal reversed its prior decision, including on the issue of attorney’s fees, holding that “Naranjo establishes a clear legal basis for the award.” As a result, the appellate court affirmed the trial court’s award of over $280,000 in attorney’s fees.
Conclusion
The Legislature has articulated a strong public policy in favor of protection of employees by establishing heavy penalties against employers who ignore and violate the law. Naranjo is the latest decision of the California Supreme Court that ensures the enforcement of this public policy and employee rights. Employers are once again on notice that violation of California’s wage and hour laws comes with a heavy price. The availability of waiting time and wage statement penalties are important tools for punishing employers who deprive their employees of complaint meal and rest periods. The decision in Betancourt, awarding attorney’s fees and costs under Labor Code section 218.5, demonstrates how the holding and rationale of Naranjo can be applied in connection with other Labor Code claims. Naranjo thus will help ensure that employees with claims involving minimal actual damages are able to obtain legal counsel to enforce their rights.
Original Published Source: OCTLA “The Gavel” Summer 2022 Issue
