The California Supreme Court delivered a one-two punch to employers this week with respect to the penalties for missed breaks. It held that the penalty for a missed break (one hour’s pay) constitutes “wages” that must be reported on statutorily required wage statements during employment. It further held that if an employer fails to pay all missed break penalties during employment, the employer will be liable for waiting time penalties. This means employers may be liable for up to thirty days of full pay for each employee who was not fully paid all break penalties on or before the termination of employment.
Naranjo v. Spectrum Security Services, Inc.
In Naranjo v. Spectrum Security Services, Inc., the plaintiff had filed a putative class action on behalf of Spectrum employees, alleging that the employer had violated state meal break requirements under the Labor Code and the applicable Industrial Welfare Commission (IWC) wage order and seeking “premium pay” – an additional hour of pay – for each day Spectrum failed to provide its employees a legally compliant meal break.
The Court of Appeal found that unpaid premium wages for meal period violations did not entitle employees to pay stub penalties or waiting time penalties. Naranjo, 40 Cal.App.5th 444, 444 (2019). But the California Supreme Court overturned that decision noting that meal and rest period violations “remain pervasive throughout California, disturbingly so in low-wage industries.” As a result, the Legislature adopted Section 226.7 to “incentivize claims for meal and rest period violations.” The Court found it would be absurd for the Legislature, concerned about widespread failure to provide basic worker protections, to strip—without comment—two critical enforcement tools applicable to all other wages due immediately. That is, section 203 waiting time penalties and section 226 wage statement penalties.
Although Labor Code section 226 contains no separate requirement that missed-break premium pay be reported, the California Supreme Court held that pursuant to section 226.7, an additional credited hour of work and the corresponding premium pay owed must be reported on the wage statement. It found that the intent behind section 226 was “to enable employees to verify they have been compensated properly, without shortchanging or improper deduction” and detailing such premium payments meets this goal. The Court specifically held that California employers are required to include these “premium payments” on an employee’s wage statement for any missed, late, or short meal period for the pay period that any such premium payment is incurred.
While the decision places all employers at risk of draconian penalties for the failure to identify a missed break and/or the failure to pay the applicable penalty in a timely fashion, it does recognize that such penalties are not automatic. The Court pointed out that employees who seek such penalties will still need to prove the alleged break violation was known and the failure to pay the premium was willful. So an employee who confirms to have taken timely meal breaks in writing and further confirms that his or her time records are accurate may not be able to establish that full penalties are due.
Unfortunately, because the potential penalties are substantial for large employers, in particular, this decision is sure to increase class action and PAGA claims that are already rampant in the Golden State. Based on this recent ruling, California employers should immediately confirm that their paystubs separately detail meal and rest break premium payments. In addition, employers may want to explore asking questions about any possible missed meal or rest breaks during exit interviews to ensure no waiting time penalties begin to accrue after employees’ separation.