As California businesses continue to navigate their recovery from a difficult public health pandemic, the California Supreme Court issues another decision that could have broad sweeping impacts for California employers. On May 23, 2022, the Supreme Court held in Naranjo v. Spectrum Security Services that if employers fail to timely pay premium pay for missed meal and rest periods, plaintiffs may recover additional penalties for failure to provide accurate wage statements, and waiting time penalties for the failure to timely issue the payments prior to the separation of their employment.
In the underlying class action lawsuit, a putative class of security guards alleged meal period violations and sought to recover not only premium pay, but also additional penalties for failure to provide accurate wage statements and the failure to issue the premium payments upon the separation of their employment. The California Court of Appeal issued a favorable decision for employers, holding that premium pay for missed meal periods and rest breaks were not “wages” and therefore did not give rise to wage statement or waiting time penalties.
On appeal, the California Supreme Court resolved the following questions: Does premium pay for missed meal and rest periods constitute “wages” that must be reported on an employee’s wage statement? Must an employer issue premium pay for missed meal and rest periods within the statutory time limit for the payment of all wages owed when an employee leaves a job? If so, what is the prejudgment interest rate that applies to unpaid premium pay owed to an employee?
Contrary to the Court of Appeal’s prior decision, the Supreme Court held that premium pay for missed meal and rest periods does in fact constitute “wages” and therefore must be reported on an employee’s wage statement. The payments also must be paid within the statutory deadline for the payment of wages when an employee separates employment. The Court reasoned that even though the extra pay is designed to compensate employees for the unlawful deprivation of a break, it also compensates for the work performed during the break period.
This new ruling means that if an employer fails to pay premium pay for a missed meal or rest period, the employee is entitled to additional penalties for failure to provide accurate wage statements and timely make these payments prior to the separation of employment. In resolving the question regarding prejudgment interest, the Supreme Court agreed with the Court of Appeal that the 7 percent default rate set by the state Constitution applies to prejudgment interest on unpaid premium wages.
The Naranjo case clarifies that meal and rest period premiums are in fact wages and that employers can face significant exposure for additional penalties if they do not timely pay—and accurately record—premium payments for missed meal and rest periods. Consequently, employers should immediately audit their pay practices to ensure that premium payments for missed meal and rest periods are included on employee paystubs for the pay period in which they are owed, and that the final wages issued to any separating employees include any premium payments owed.
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