Plaintiffs’ attorneys have an extraordinary number of money-making tools built into the law. They do not need more, but they got one last week. The California Supreme Court issued another ruling severely penalizing employers.
At issue in Naranjo v. Spectrum Security Services, Inc. were the premium payments mandated by law when an employee is not provided with a meal or rest break. The lower court ruled that such payments should not be considered “wages” under the law and were more in the nature of a penalty. The supreme court disagreed and reasoned that the premium payments are not only meant to penalize employers for the meal or rest break violation but also to compensate the employee for work performed during the meal or rest period. Because the premium payments are a form of compensation, they must be reported and paid during each relevant pay period.
The case is significant because it triggers two Labor Code penalties that can turn a very small mistake by an employer into a very large, costly lawsuit. These penalties are found in section 203 and section 226 of the Labor Code. Section 203 penalties (“waiting time penalties”) are assessed when an employer does not pay a departing employee “all wages owed” at the time of termination or within 72 hours of resignation. Section 226 penalties are assessed when an employer fails to provide accurate, itemized wage statements each pay period.
If employers fail to properly pay meal and rest break premiums and report them accurately on wage statements, plaintiffs’ attorneys can easily and successfully argue that employees were not paid for all “wages” owed at the end of their employment (section 203) and were not given accurate wage statements (section 226). Because class-action and Private Attorney General Act (PAGA) lawsuits encompass all employees and all pay periods reaching back as far as four years, these penalties frequently multiply into huge liabilities.
Failing to properly pay and report missed meal and rest breaks will leave your organization exposed. This new California Supreme Court’s decision makes it even more important to ensure that your meal and rest break policies and practices are fully compliant.