By Jaimee K. Wellerstein, Esq.

On May 23, 2022, the California Supreme Court lived up to its pro-employee reputation, issuing yet another major setback to employers by overturning a previously employer-friendly ruling in Naranjo v. Spectrum Security Services, Inc. The Supreme Court held that unpaid premium pay for meal period and rest break violations are wages (and not penalties as the lower court held), and must be reported on the employee’s wage statement for the pay period during which the violation occurred. Additionally, the Court held that failure to report those premiums (wages) on an employee’s wage statements therefore triggers derivative wage statement and waiting time penalties.

The Case

Plaintiff Naranjo, a security guard, was terminated by his employer, Spectrum Security Services, when he left his post during a meal period. According to Spectrum’s policies, security officers were required to take on-duty meal periods and were not permitted to leave their posts. Naranjo filed a putative class action, seeking premium pay for each workday Spectrum failed to comply with California’s meal period requirements. Naranjo’s complaint also alleged that Spectrum was required to report the premium pay on employees’ wage statements pursuant to California Labor Code Section 226 and timely provide the pay to employees upon their discharge under California Labor Code Sections 201-203, but had done neither. The complaint sought the damages and penalties, as well as prejudgment interest.

At trial, Spectrum was found liable for wage statement penalties due to a “knowing and intentional” failure to include meal period premiums on the wage statements. However, the trial court determined that waiting time penalties were not recoverable because this failure was not “willful.” Interest was awarded at a rate of 10 percent.

Both parties appealed. The Appellate Court affirmed that Spectrum had violated the meal period laws, but reversed the court’s holding that a failure to pay meal period premiums could support claims for waiting time penalties and wage statement violations. It also ordered the interest rate to be reduced to 7 percent.

The California Supreme Court granted review to determine the following issues: (1) whether the premium pay for missed meal and rest breaks constitutes “wages” that must be reported on wage statements (Labor Code § 226) and paid within statutory deadlines when an employee is terminated (Labor Code § 203); and (2) what is the applicable prejudgment interest rate for meal and rest break premiums.

Noting that meal and rest premiums are not just intended to provide compensation for the missed meal period or rest break, but also “for the work the employee performed during the break period[,]” the California Supreme Court ruled that meal and rest break premiums are wages and must be reported on the employee’s wage statement and paid within the statutory deadline for all wages due upon termination.

The Court also held that 7 percent is the applicable rate of prejudgment interest for meal period and rest break premiums.

Employer Takeaway:

Now, more than ever, steadfast compliance with California’s wage and hour rules is essential. This ruling significantly increases class action and PAGA exposure for California employers with regard to potential meal period and rest break violations, as well derivative claims for inaccurate wage statements and waiting time penalties. If you have any questions about how to stay compliant or need assistance preparing a new policy or employee handbook, please contact your attorneys at Bradley, Gmelich & Wellerstein LLP. We are here to help.

Jaimee K. Wellerstein, Esq.

Jaimee K. Wellerstein, Esq. is a Partner at Bradley, Gmelich & Wellerstein LLP, and the Head of the firm’s Employment Department. Jaimee concentrates her practice on representing employers in all aspects of employment law, including defense of wage and hour class actions, PAGA claims, discrimination, retaliation, harassment, wrongful discharge, misclassification, and other employment-related lawsuits. She also provides employment counseling and training in all of these areas.

Jaimee routinely represents employers in federal and state courts and in arbitration proceedings throughout the state, as well as at administrative proceedings before the Equal Employment Opportunity Commission, the California Department of Labor Standards Enforcement, the United States Department of Labor, and other federal and state agencies.

Jaimee assists as a Legal Advisor to CALSAGA and is a member of ASIS International. She is rated AV-Preeminent by Martindale-Hubbell, the highest peer rating available.