In another unfavorable ruling for employers that stresses the importance of meal period and wage statement compliance, the California Supreme Court has held in Naranjo v. Spectrum Security Services, Inc. that meal period and rest break violations can also trigger derivative claims for waiting time penalties and wage statement penalties.

Background

The defendant-employer contracted with federal agencies to provide security services. The plaintiff, a security guard, was required to take on-duty meal and rest periods pursuant to company policy. His employment was terminated after he left his post during a meal period. The plaintiff filed a putative class action alleging meal period and rest break violations, as well as derivative claims for waiting time penalties (Labor Code § 203) and wage statement violations (Labor Code § 226).

The trial court certified a class for the meal period, waiting time penalty, and wage statement claims. At trial, a directed verdict was granted on the meal period claim due to the lack of a written, revocable on-duty meal period agreement. Relying on a 2007 California Supreme Court decision,1 the trial court also determined that waiting time penalties and wage statement penalties were potentially applicable. While the employer was found to be liable for wage statement penalties due to a “knowing and intentional” failure to include meal period premiums on the wage statements, the trial court determined that waiting time penalties were not recoverable because this failure was not “willful.” Pre-judgment and post-judgment interest were awarded at a rate of 10 percent.

Both parties appealed and, while the Second Appellate District of California affirmed the award of meal period premiums, the appellate court held that meal period claims do not entitle employees to pursue derivative waiting time penalties and wage statement penalties. The appellate court reasoned that meal period premiums are not for work performed. The appellate court also determined that seven percent was the correct rate for pre-judgment interest for meal period premiums and reversed the denial of class certification of the rest break class. The California Supreme Court granted review to determine: (1) whether a failure to include meal or rest period premiums on the employee’s wage statement gives rise to claims for waiting time penalties and wage statement penalties; and (2) what is the applicable prejudgment interest rate for meal and rest period premiums.

Analysis

The California Supreme Court concluded that meal and rest period premiums must be reported on the employee’s wage statement and paid within the statutory deadline for all wages due upon separation of employment. The court reasoned that the premiums are not just intended to provide compensation for the missed meal period or rest break, but also “for the work the employee performed during the break period.” On the issue of pre-judgment interest, the court sided with the employer and agreed that the correct rate is seven percent for pre-judgment interest on meal and rest period premiums.

In reaching its decision, the court rejected the conclusion of the Court of Appeal that meal period and rest break premiums are a legal remedy rather than a wage for work performed. The court then attempted to harmonize its seemingly contradictory holding in Kirby v. Immoos Fire Protection, Inc.2 that an action for meal period or rest break premiums is not an “action brought for the nonpayment of wages” for purposes of the attorney’s fees provision in Labor Code § 218.5. The court reiterated its decision in Kirby that the legal violation triggering a claim for meal period and rest break premiums is the failure to provide the break and not the failure to provide the premium pay.

Next, the court rejected attempts to limit the type of “wages” that fall within the use of that term in Labor Code § 203 or draw distinctions between the use of the words “pay” and “wages” in the applicable statutory language. The court was also unpersuaded by arguments that meal and rest period premiums are not “earned” wages because they are not paid for work performed. Similarly, the court determined that the premiums constitute “wages earned” for purposes of the information that must be reported on a wage statement. The court cited a broad range of examples of other types of pay that are required to be reported on wage statements and rebuffed the employer’s contention that the Labor Code § 226 requirements apply only to wages paid.

Finally, the court determined that seven percent is the applicable rate of pre-judgment interest for meal period and rest break premiums. The court cited to Kirby for the proposition that an action for meal period and rest break violations is not an “action brought for the nonpayment of wages” and held the same applies for purposes of the pre-judgment interest provision of Labor Code § 218.6. Further, the premiums were not considered to be owed due to a breach of contract that would have resulted in the higher 10 percent rate of pre-judgment interest.

Takeaways for California Employers

This decision significantly increases exposure for meal period and rest break violations, particularly in currently pending and future class actions and PAGA claims. Employers must be even more vigilant about compliance with California’s meal period and rest break requirements, as well as ensure accurate wage statements include any meal period and rest break penalty information.