California Supreme Court: Meal and Rest Period Premiums Are Wages Under State Law

The California Supreme Court issued its long-awaited decision in Naranjo v. Spectrum Security Services, Inc., _ Cal. 5th _, S258966 (2022) on May 23, 2022. The decision answers, with a resounding "yes," the previously unresolved question of whether meal and rest period premium payments were wages under California law. Given the host of broad-ranging implications of the decision with respect to itemized wage statements, pay during employment and final pay upon separation, all employers with any employees in California should take immediate steps to ensure compliance with California's meal and rest break rules.

The Brinker Framework

California law generally requires employers to provide nonexempt employees with an unpaid, uninterrupted, off-duty 30-minute meal period prior to the end of the fifth hour of work, and a second such meal period prior to the end of the tenth hour of work. Employers also are required to provide employees with a paid, uninterrupted 10-minute rest break for every four hours worked (or major fraction thereof) to be taken in the middle of the four-hour working period if practicable. The penalty for failing to provide a legally mandated meal or rest period, providing a short or interrupted meal or rest period or failing to provide a timely meal or rest period entitles the employee to payment of one hour of wages at the employee's regular rate of pay; that is, the "premium" payment. The employer's obligation, under Brinker Restaurant Corp. v. Superior Court, 53 Cal. 4th 1004 (2012), is to authorize and permit the meal or rest period, not police that it is taken. 

Premiums Are Wages, Not Penalties

Divergent approaches to meal and rest premium pay arose following Murphy v. Kenneth Cole Productions, Inc., 40 Cal. 4th 1094 (2007) and Kirby v. Immoos Fire Protection, Inc. 53 Cal. 4th 1244 (2012). In Murphy, the California Supreme Court held that premium payments are wages subject to a three-year statute of limitations. But in Kirby, the California Supreme Court held that attorneys' fees cannot be recovered in actions to recover premium payments because they are not actions brought for the nonpayment of wages. In the wake of Kirby, California state and federal courts have reached diverging interpretations as to whether premium payments are wages for purposes of California waiting time penalties under California Labor Code Section 203 and itemized wage statement requirements under California Labor Code Section 226.

Naranjo ends the confusion and establishes that premium pay constitutes wages (not in and of itself a new proposition, as the court noted) and a penalty. The new territory embraced by the ruling includes explicitly drawing out the implications of treating premium payments as wages to the benefit of employees and detriment of employers. 

Where Do We Go Now?

The immediate impact of treating meal and rest break premium pay as wages is called out in Naranjo itself as an issue on appeal – failing to pay premiums during employment violates an "employer's prompt payment responsibilities" under California Labor Code Sections 201, 202 and 203. Even one unpaid premium permits employees to seek statutory waiting time penalties equal to one day of pay for each day an employee's final wages are withheld or paid late, up to a maximum of 30 days' wages.

Moreover, failing to include premium pay for missed breaks in the "wages earned" reflected on an itemized wage statement "can support monetary liability under [Labor Code] section 226 for failure to supply an accurate itemized statement reflecting an employee's gross wages earned, net wages earned, and credited hours worked." Therefore, compliance with California's itemized wage statement requirements now requires the inclusion of all premium pay in the gross wages, net wages and credited hours on those statements. Merely including an additional hour of pay in an employee's paycheck will not suffice.

New issues involving the regular rate of pay may also arise moving forward. California case law currently holds that the regular rate of pay is generally based on all nondiscretionary pay received during a pay period. With meal and rest premium payments now firmly categorized as wages, it remains to be seen whether such premium payments must now be included in calculating the regular rate of pay for overtime pay, which would increase the daily or week overtime premium.

Naranjo serves as yet another reminder of the importance of strict compliance with California's meal and rest break rules. Employers should review the written policies that are distributed to – and expressly acknowledged by – employees, and ensure that supervisors are adequately trained on California's meal and rest break requirements. Further, periodic "auditing" of meal and rest period practices, prompt issuance of the missed meal or rest period premium and reflecting that premium on wage statements could avoid costly litigation.

For more information or questions on the new California labor and employment laws and their potential impact on employers and employees, contact the authors.

Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem, and it should not be substituted for legal advice, which relies on a specific factual analysis. Moreover, the laws of each jurisdiction are different and are constantly changing. This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship. If you have specific questions regarding a particular fact situation, we urge you to consult the authors of this publication, your Holland & Knight representative or other competent legal counsel.