Calif. Supreme Court Rules Wage Penalties Apply to Missed Breaks

California employers that fail to allow employees to take required rest and meal breaks may be held liable for penalties for inaccurate wage statements as well as “waiting time” violations if the workers weren’t timely paid all that is owed, the state Supreme Court ruled.

The high court on Monday overturned an appellate panel’s ruling in a unanimous decision that expands potential penalties against employers. The Supreme Court held that the one hour of “premium pay” that the California Labor Code requires employers to pay for missed rest or meal breaks is the same as a wage payment, which means the amount has to be reported on wage statements and paid immediately to employees who are terminated, or within three days to employees who quit. Penalties can be collected if the violations were intentional.

The 2nd District Court of Appeal had ruled that the required premium payments for missed breaks are not wages, so there are no additional penalties for inaccurate wage statements or “waiting time penalties” for late payment of all wages owed to terminated employees.

“Missed-break premium pay is indeed wages subject to the Labor Code’s timely payment and reporting requirements, and it can support Section 203 waiting time penalties and Section 226 wage-statement penalties where the relevant conditions for imposing penalties are met,” the Supreme Court opinion says.

Howard Z. Rosen, the Los Angeles attorney who represented the plaintiffs, said the decision will be a significant benefit to workers.

“The Supreme Court clarified that the premium wage is an ‘earned wage’ which must be included on a worker’s pay stub,” Rosen said in a statement. “The failure to include the premium wage on a worker’s wage stub is a violation of Labor Code section 226 for which the worker is entitled to a penalty of up to $4,000. The failure the pay any premium wage that is owing to a worker at the time that the worker separates employment will entitle the worker to a “waiting time” penalty of up to 30 days’ pay.”

Legal Aid at Work, the California Rural Legal Assistance Foundation, Bet Tzedek, Asian Americans for Advancing Justice – Asian Law Caucus, Centro Legal de la Raza, the University of California, Hastings Community Justice Clinics and Worksafe filed an amicus brief in favor of the Spectrum employees.

“It definitely creates a big incentive for employers to be on top of their meal and rest break compliance,” said George Warner, an attorney with Legal Aid at Work in San Francisco.

Gustavo Naranjo filed a class-action lawsuit against Spectrum Security Services after the company fired him in 2007 for leaving his post to take a meal break. Spectrum transports and guards federal prisoners and detainees and required its employees to take their rest and meal breaks at the job site.

The Los Angeles Superior Court ruled that Naranjo and his co-workers were owed premium pay for missing meal breaks from June 2004 to October 2007, when Spectrum revised its employee manual and had its employees sign acknowledgements that they were required to take their rest and meal breaks while at their posts.

The trial court also ruled that Spectrum also owed penalties for “knowing and intentional” violations of the the section 226 requirements for accurate wage statements. The court ruled that Spectrum did not owe any waiting-time penalties for untimely final payments to its workers because those violations were not “willful,” as required by Section 203.

Spectrum appealed the penalties, but not the trial court’s ruling that it owed its workers premium pay for missed breaks. The Court of Appeals panel ruled that the one hour of required premium pay isn’t actually a wage, so there was no requirement to report and therefore no penalties for wage-statement violations.

In its opinion, the Supreme Court said California’s meal and rest break requirements have generated confusion in the Courts of Appeal and federal courts. The appellate panel’s finding that the premium pay required by the Labor Code is a penalty, not wages, is the latest example of that.

The high court said the appellate panel based its conclusion on a “false dichotomy.”

“That missed-break premium pay serves as a remedy for a legal violation does not change the fact that the premium pay also compensates for labor performed under conditions of hardship,” the opinion says. “One need not exclude the other.”

The ruling does not resolve Naranjo’s lawsuit. The Supreme Court remanded the case back to the 2nd District Court of Appeal to determine whether Spectrum’s wage-statement violations were made “knowingly” and whether the waiting-time violations were “willful.” The appellate panel did not address those issues because it determined that the required premium pay did not amount to wages owed.

Spectrum won on one point. The trial court had determined that Spectrum must pay 10% prejudgment interest to any amounts due for its failure to provide rest and meal breaks. The Court of Appeals panel reduced the interest rate to 7%, which the Supreme Court affirmed.