Under California Labor Code § 226.7, and the Industrial Welfare Commission (“IWC”) wage orders, employers must provide employees with a premium payment of one-hours’ worth of wages for every non-compliant meal and rest breaks. Non-compliant meal breaks include failing to provide employees with at least 30 minutes, failing to completely relieve employees of job duties during the meal break, and failing to provide employees with the opportunity to take a meal break within the first five-hours of employment. Non-compliant rest breaks include failing to provide two 10-minute paid breaks during a regular eight-hour workday and failing to relieve employees of all job duties during the break.
In the newly published California Supreme Court decision Naranjo v. Spectrum Security Services, Inc. the Court held that these premium payments are properly classified as “wages” under California law. As a result, failure to treat premium payments as wages exposes employers to penalties, fees, and other potential damages.
The employer in Naranjo provides transportation services for federal prisons. Due to the nature of the work, the employer claimed that it could not relieve employees of job duties for meal breaks. California allows for on-duty meal breaks if the nature of the work prevents an employee from being relieved of all duties. That exception, however, only applies if there is a written agreement between the employer and employee. Here, Spectrum did not have a written agreement with its employees, so it was found to have violated its employees’ meal breaks.
The employer did not appeal the ruling that it violated its employees’ meal breaks. Instead, it appealed the issue of whether the premium payment should be classified as “wages” under California law. The Supreme Court ruled that premium payments are classified as wages.
While it may seem like a trivial matter for the Court to classify premium pay as wages, this ruling has significant ramifications for employers. First, any unpaid premium payments are due at the time of the employee’s resignation or termination. Failure to timely pay the premium payments, as well as the rest of the wages due, would result in the employer being liable for waiting time penalties. Waiting time penalties are awarded at a rate of one day of pay for every day wages are outstanding, up to 30 days.
Second, waiting time penalties need to be included on employees’ pay stubs. Failure to include these amounts subjects the employer to penalties of $50 for the first paystub violation and $100 for each subsequent violation, up to a total of $4,000 per employee.
Third, the premium pay would need to be included for any overtime calculations. California requires employees who work in excess of eight hours per day or 40 hours per week to be paid 1.5 times their regular rate of pay. “Regular rate of pay” is a broad term and includes all wages earned during that workweek. To calculate “regular rate of pay,” employers must include commissions, scheduled bonuses, and premium pay in the calculation. Failure to properly pay overtime can result in class action lawsuits seeking to recover unpaid wages, penalties, waiting time penalties, and mandatory attorney’s fees.
The Naranjo ruling adds further complexities to California’s already robust wage and hour laws. It is easy for employers to unknowingly violate these laws, which can result in substantial liability. If you have questions about wage and hour compliance or need assistance in defending a lawsuit, please contact our offices.
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Matthew Wallin is a senior associate in the Los Angeles office where he practices labor and employment law. He has extensive experience defending private business and public entities in litigation and advising clients on labor compliance issues.
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