California Supreme Court holds that failure to pay meal and rest period premium wages can support derivative claims
On May 23, 2022, the California Supreme Court issued its decision in Naranjo v Spectrum Security Services, Inc. In a unanimous decision, the Court concluded that claims for failure to pay meal and rest period premiums can support derivative claims for failure to provide accurate wage statements under Labor Code § 226 (and thus claims for wage statement penalties) as well as failure to pay all wages due to terminating employees under Labor Code §§ 201 and 202 (and thus claims for waiting time penalties under Labor Code § 203).
Background
In Naranjo, the plaintiff security guard was suspended and later fired after leaving his post to take a meal period in violation of the employer’s policy requiring employees to remain on duty during meal periods. The plaintiff filed a class action complaint seeking an additional hour of pay for each day that the employer failed to provide him and other non-exempt employees an off-duty meal period. The plaintiff also sought:
- Wage statement penalties under Labor Code § 226, claiming that, by not reporting meal period premiums (that the defendant was not paying), the defendant was issuing inaccurate wage statements; and
- Waiting time penalties under Labor Code § 203, claiming that, by not paying meal period premiums allegedly due, the defendant was not paying all wages due at the time of termination.
The trial court certified a class on the meal period, wage statement and waiting time penalty claims. The case proceeded to trial, and the trial court entered a directed verdict in the plaintiff’s favor on the meal period claim. The trial court also concluded that the failure to pay meal period premiums could – depending on the employer’s state of mind – support derivative claims for wage statement and waiting time penalties.
The trial court held that the employer’s failure to report meal period premium pay on its wage statements was “knowing and intentional” within the meaning of Labor Code § 226, so the trial court awarded wage statement penalties. However, the trial court concluded that the employer’s failure to make timely payment of meal period premium pay upon separation was not willful, so it declined to award waiting time penalties.
The Court of Appeal affirmed the trial court’s finding that the employer failed to provide meal periods in accordance with the law. However, the Court of Appeal reversed the trial court’s holding that a failure to pay meal period premiums could support claims for wage statement and waiting time penalties.
The California Supreme Court held that claims for failure to pay meal and rest period premium wages could support claims for wage statement and waiting time penalties
The Supreme Court initially analyzed whether Labor Code § 226.7 premium pay constitutes “wages” for purposes of employers’ obligation to pay wages due upon separation. The Court concluded that a failure to pay all meal and rest period premium wages due at the time of termination could support a claim for waiting time penalties because:
- The Supreme Court had previously concluded in Murphy v Kenneth Cole Productions, Inc. (2007) 40 Cal.4th 1094 that meal and rest period premiums were “wages”; and
- By exposing employers to waiting time penalties for failure to pay all meal and rest period premium wages due at the time of termination, the law incentivizes employers to promptly pay those wages.
The Naranjo court further explained that its holding did not conflict with the Supreme Court’s prior holding in Kirby v Immoos Fire Protection, Inc. (2012) 53 Cal.4th 1244, that an action for failure to provide meal or rest periods was not an action for the nonpayment of wages and therefore could not support a claim for attorneys’ fees under Labor Code § 218.5.
The Naranjo court explained that it could harmoniously conclude that the gravamen of a suit for meal or rest period violations is the failure to provide breaks, not the failure to pay wages, and therefore such suits cannot support a claim for attorneys’ fees, and also that the remedy for an employer’s failure to provide meal or rest periods is the payment of a wage, and any failure to pay that wage at termination could support a claim for waiting time penalties.
The Supreme Court next analyzed whether Labor Code § 226.7 premium pay constitutes “wages” for purposes of employers’ wage statement reporting obligations. The Court concluded that a claim for failure to pay meal and rest period premiums could also support a claim for failure to issue accurate itemized wage statements because meal and rest period premiums are like any other “wage” earned by employees.
The Court rejected the defendant’s argument that employers need not report on wage statements any wages that the employers are not, in fact, paying. The Court reasoned that Labor Code § 226 “does not require employers to report only those amounts it deigns to pay; rather, it requires an employer to accompany ‘each payment of wages’ with ‘an accurate itemized statement’ specifying, among other details, the ‘gross wages earned’ and ‘net wages earned’ — in other words, all amounts earned and now owing, not just those amounts actually paid.”
However, the Supreme Court did not ultimately decide whether the defendant in Naranjo owed waiting time or wage statement penalties because the Court of Appeal had not considered (a) the plaintiff’s argument that the trial court erred in finding that the defendant had not acted willfully for purposes of Labor Code § 203 or (b) the defendant’s argument that its failure to report missed-break premium pay on wage statements was not “knowing and intentional” for purposes of Labor Code § 226. The Supreme Court noted that these issues are to be resolved on remand.
Key takeaways
Employers facing claims for waiting time penalties based on a failure to provide meal and/or rest periods may continue to argue that a good-faith defense exists to preclude the imposition of waiting time penalties, including on the basis that there is a good-faith dispute regarding whether the employer provided compliant meal and rest periods and/or whether the employee voluntarily waived their right to meal or rest periods.
Similarly, employers facing claims for wage statement penalties based on a failure to provide meal and/or rest periods may, under the right circumstances, be able to establish that failure to report section 226.7 premium pay was not “knowing and intentional” for purposes of Labor Code § 226.
We will continue to monitor wage and hour developments for employers operating in California. Please reach out to your DLA Piper contact or the authors if you have questions about the Naranjo decision and how it may impact your business.
