Last month, the California Supreme Court issued its ruling in a case that has far-ranging implications for nearly all California employers. In Murphy v. Kenneth Cole Productions, Inc., the plaintiff had worked as a store manager for Kenneth Cole Productions ("KCP"). He had been classified as an exempt employee and was paid on a salary basis. After Murphy resigned from his employment, he filed a claim with the California Labor Commissioner, asserting that he was allowed an uninterrupted, duty-free lunch break only once every two weeks or so. He also alleged that he rarely took rest breaks and, on occasion, was unable to leave the sales floor to use the restroom.

California's wage orders provide that nonexempt workers in most industries are entitled to two ten-minute breaks for every eight hours worked, and are entitled to a half-hour meal break if they work a shift of five or more hours. Employers are not required to provide these rest and meal breaks to exempt employees. If an employer fails to provide a nonexempt worker with a rest or meal period, the employer is required to pay the worker an additional hour of pay at the employee's regular rate for each work day that the meal or rest period was not provided. (California Labor Code section 226.7(b)).

In the administrative proceeding before the Labor Commissioner, KCP contended that Murphy was an exempt employee. The Labor Commissioner disagreed, finding that KCP had failed to establish that Murphy's job duties were those of an exempt worker. Thus, as a nonexempt worker, Murphy should have been provided with rest and meal breaks.

KCP appealed from the Labor Commissioner's ruling, and the matter was transferred to San Francisco Superior Court. In this proceeding, the judge issued a judgment in favor of Murphy, finding that he was entitled to payments for missed rest and meal breaks. The court applied a three-year statute of limitations, which meant that Murphy could collect payments for each work day in the prior three years in which KCP failed to allow him to take his rest breaks or a meal break.1 KCP appealed again, and the Court of Appeal affirmed that Murphy was a nonexempt employee who was entitled to payments for missed break and meal periods. However, the Court of Appeal concluded that KCP's liability for the missed break and meal periods was a statutory penalty and applied a one-year statute of limitations, which meant that Murphy would be able to collect only for missed breaks and meals that he should have been allowed in the one-year period preceding the filing of his claim.

In a densely worded opinion, the state Supreme Court ultimately concluded that additional hour of pay for a missed rest or meal period was wages, not a penalty, and that the three-year statute of limitations would apply.

The Murphy decision is important in a number of respects. First, it highlights the importance of ensuring that an employer's classification of its employees is correct. An employer that mistakenly classifies a worker as exempt may be liable for overtime as well as the additional compensation for missed rest and meal breaks, among other remedies. Second, it is important for employers to ensure that their nonexempt employees are in fact provided with the required rest and meal breaks. The California Supreme Court did not elaborate on the lengths to which an employer must go to "provide" rest and meal breaks. At a minimum, employers should notify nonexempt employees of their right to take rest breaks and meal breaks and, in most cases, should decline a nonexempt employee's request to "work through lunch" and leave earlier.2 While employers may be loathe to require their employees to sign in and sign out, the reality is that the Labor Commissioner and courts will not require an employee to have detailed time records proving the specific days on which rest or meal breaks were not taken. The Labor Commissioner and the courts will typically allow the employee to testify to the best of his or her recollection, as did Murphy. Having well-documented records of nonexempt employees' breaks and meal times may assist an employer in defending or minimizing the magnitude of an employee's claim for missed breaks and meals.

Employers should also be aware that now that the state Supreme Court has classified the rest and meal payment as wages, an increase is likely in the number of class actions filed on behalf of groups of employees who have been denied rest and meal breaks. In a class action for wages, the lawyers representing the employees will be entitled to recover attorneys' fees from the employer if the employees win the action. Finally, employers should also consider implementing or reviewing existing arbitration agreements to ensure that claims for unpaid rest and meal breaks are encompassed therein.