On May 22, 2022, the California Supreme Court held in Naranjo v. Spectrum Security Services, Inc. that premium payments owed by an employer to a non-exempt employee for missed meal/rest periods are “wages” and not penalties. Thus, when those premium payments are owed but not timely paid, the employer can be subject to additional penalties under Labor Code 203 (for late payment of wages) and Labor Code 226 (for inaccurate pay stubs).
Employer’s Meal/Rest Period Obligations
Under Labor Code Section 512 (and the various California Wage Orders), a non-exempt employee who works more than 5 hours in any day is entitled to an uninterrupted meal period of at least 30 minutes. A non-exempt employee who works more than 10 hours in any day is entitled to a second meal period. A meal period may be paid or unpaid.
Under the various California Wage Orders, a non-exempt employee is also entitled to one paid 10-minute rest period for every 4 hours “or major fraction thereof” worked. This means that a non-exempt employee must receive rest breaks on the following schedule in California:
- For a shift that is less than 3.5 hours = no rest period required
- For a shift that is greater than 3.5 hours, but no more than 6 hours = 1 rest period
- For a shift that is greater than 6 hours, but no more than 10 hours = 2 rest periods
- For a shift that is greater than 10 hours, but no more than 14 hours = 3 rest periods
Under Labor Code Section 226.7, if a non-exempt employee does not receive a required meal and/or rest period on any given workday, then the employer is required to pay the employee 1 hour of pay for each missed meal and/or rest period, up to a maximum of 2 hours of pay per day. This additional pay is known as “premium pay” and is paid at the employee’s then-existing regular rate of pay (which is the employee’s base hourly rate plus any non-discretionary bonuses).
..Now Considered “Wages” under California Law
As a result of the California Supreme Court’s decision in Naranjo, we now know that this “premium pay” is considered “wages” in California. Thus, as wages, these payments must strictly adhere to all other California laws requiring the accurate and timely paying and reporting of wages.
Pay Stubs Must Accurately Show All Wages Earned
One such law is Labor Code Section 226(a). Under this statute, an employer is required to provide an employee with an itemized wage statement (i.e., a pay stub) on every pay day that accurately shows all wages owed and paid to that employee. When an employer fails to pay an employee some or all of their owed wages on any given pay day, then by definition the pay stub that the employee received from the employer on that pay day is inaccurate and, thus, in violation of Labor Code Section 226(a).
If the failure to provide the accurate pay stub was “knowing and intentional,” then under Labor Code 226(e)(1), the employer is liable to the employee for the greater of (a) the employee’s actual damages incurred as a result of having received an inaccurate pay stub, or (b) $50.00 for the first pay period in which an inaccurate pay stub was given and $100.00 for each successive pay period in which an inaccurate pay stub was given, up to a maximum penalty of $4,000.00.
Penalties for Late Payment of Wages
Under Labor Code Section 201, when an employer terminates an employee, the employer is required to pay the terminated employee’s final wages “immediately.” Under Labor Code Section 202, when an employee resigns or quits, the employer has 72 hours to provide pay the departed employee’s final wages, unless the employee gave at least 72 hours’ notice of their intention to quit in which case final wages are due at the time of quitting.
Under Labor Code Section 203, an employer who fails to pay a departing employee by the deadlines set forth in Labor Code Sections 201 and 202 is liable to the employee for “waiting time penalties” equal to one day of pay (8 hours of pay) for every day the employer is late, up to a maximum penalty of 30 days (240 hours) of pay.
What Employers Should Do Now
Now that meal/rest period premium pay is considered “wages,” employers must be extra careful to ensure that their non-exempt employees are taking all allowed meal and rest periods; otherwise, the employer will likely be required to pay not only 1 hour of “premium pay” for every missed meal or rest period, but also up to $4,000 in pay stub violation penalties and up to 30 days’ pay in waiting time penalties. For larger employers in particular, this could become very, very expensive because the violations would likely be raised in a class action lawsuit.
To prevent this type of litigation, we are recommending that California employers contact their employment law counsel and have them review your current meal/rest period policies and to analyze whether your current pay practices for “premium pay” are consistent with the requirements of the Naranjo decision.
You can read the California Supreme Court’s full opinion in Naranjo v. Spectrum Security Services, Inc. here.