In an eagerly anticipated decision, the California Supreme Court ruled today that the one-hour of additional pay due to employees for each day that they are not provided with a meal or rest period constitutes a "wage" rather than a "penalty." The practical significance of this ruling is that the premium-pay requirement for meal and rest period violations is subject to a three-year statute of limitations (which effectively is extended to four years as a claim under California's Unfair Competition Law, Business & Professions Code sections 17200, et seq.). Employers also may be subject to additional waiting time penalties of up to 30 days pay under Labor Code section 203 for failing to pay the premium wage to employees upon the termination of their employment.

In Murphy v. Kenneth Cole Productions, Inc., a unanimous Supreme Court reversed the appellate court's ruling that the statutory remedy provided in Labor Code section 226.7 is a "penalty." In reaching its decision, the Court reasoned that "[t]he statute's plain language, the administrative and legislative history, and the compensatory purpose of the remedy compel the conclusion that the 'additional hour of pay' is a premium wage intended to compensate employees, not a penalty." Examining section 226.7's legislative history, the Court concluded that the legislature's decision not to label the premium payment a "penalty" reflected its intention to create a premium wage to compensate employees for working through meal and rest periods. The Court also rejected the argument that the statutory remedy should be deemed to be a penalty because the remedy is imposed without reference to actual damage (since an hour of pay is owed whether the employee has missed an unpaid 30-minute meal period, two paid 10-minute rest periods, or some combination thereof). In the same decision, the Supreme Court also held that a trial court conducting a de novo trial may consider additional wage claims not presented in the administrative proceeding before the Labor Commissioner.

For employers, the Court's decision in Murphy underscores the importance of implementing meal and rest break policies which comply with California law and being vigilant in enforcing such policies