Employers that fail to provide premium pay for missed meal and rest periods in California face additional monetary penalties under the state’s Labor Code, according to a unanimous decision from the California Supreme Court.
Spectrum Security Services provides custodial services to federal agencies, transporting and guarding prisoners and detainees who require outside medical attention or have other appointments.
A guard for Spectrum, Gustavo Naranjo, was suspended and later fired after leaving his post to take a meal break in violation of a Spectrum policy that required custodial employees to remain on duty during all meal breaks.
Naranjo 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.
The complaint sought an additional hour of pay—known as “premium pay”—for each day on which Spectrum failed to provide employees with a legally compliant meal break.
Naranjo also alleged two Labor Code violations related to Spectrum’s premium pay obligations: failure to report the premium pay on employees’ wage statements and failure to timely provide the pay to employees upon their discharge or resignation.
The trial court initially granted summary judgment in favor of Spectrum, but the California Court of Appeal reversed. On remand, the trial court certified a class for the meal break and related timely payment and wage statement claims and then held a trial in stages.
Following this trial, the court directed a verdict for the class on the meal break claim for the period of June 2004 to September 2007 and concluded that the obligation to supply meal break premium pay also carried with it reporting and timing obligations.
The trial court found Spectrum’s wage statement omissions were intentional and awarded Labor Code Section 226 penalties, but the failure to make timely payment was not willful and Spectrum was found not liable for Section 203 penalties. The trial court entered judgment for the class on the meal break and wage statement claims and awarded attorney fees and prejudgment interest at a rate of 10 percent.
Both sides appealed. The Court of Appeal affirmed the determination that Spectrum violated the meal break laws but reversed the trial court’s holding that a failure to pay meal break premiums could support claims under the wage statement and timely payment statutes. It also ordered the rate of prejudgment interest to be reduced from 10 percent to 7 percent.
The California Supreme Court disagreed with regard to the premium payments, holding the extra pay for missed breaks constitutes “wages.”
“Although the extra pay is designed to compensate for the unlawful deprivation of a guaranteed break, it also compensates for the work the employee performed during the break period,” the court wrote. “The extra pay thus constitutes wages subject to the same timing and reporting rules as other forms of compensation for work.”
The court rejected the “false dichotomy” that a payment must be either a legal remedy or wages, finding that Section 226.7 is both.
“That is because under the relevant statute and wage order, an employee becomes entitled to premium pay for missed or noncompliant meal and rest breaks precisely because she was required to work when she should have been relieved of duty: required to work too long into a shift without a meal break; required in whole or in part to work through a break; or, as was the case here, required to remain on duty without an appropriate agreement in place authorizing on-duty meal breaks,” the court said.
“The premium pay due for the deprivation is certainly designed to compensate employees for hardships the Legislature concluded employees should not be made to suffer. But when those hardships include rendering work, the pay owed can equally be viewed as wages.”
In this respect, missed-break premium pay is comparable to other forms of payment for working under conditions of hardship, the court noted, analogizing to overtime premium pay.
The court was not persuaded by any of Spectrum’s arguments, finding that the employer “misread” case law and was incorrect that the legislature did not intend Section 203 to apply to nonpayment of Section 226.7 premium pay, and that the use of the term “pay” rather than “wages” in the text of Section 226.7 was not significant.
Further, because the court held that an employer’s obligation under Section 226 to report wages earned includes an obligation to report premium pay for missed breaks, the failure to report it can support monetary liability under Section 226 for failure to supply an accurate itemized statement reflecting an employee’s gross wages earned, net wages earned and credited hours worked.
Finally, the California Supreme Court addressed the calculation of prejudgment interest, affirming the Court of Appeal’s reduction to the 7 percent default rate set by the state constitution.
The court remanded to the Court of Appeal for consideration of whether the class is owed premium pay penalties.
To read the opinion in Naranjo v. Spectrum Security Services, Inc., click here.
Why it matters: California employers are now on notice from the state’s highest court: Meal and rest break premium payments constitute “wages” and can trigger additional monetary penalties if employers fail to report the amount on wage statements during employment and/or pay within the statutory deadlines when an employee leaves the job.