No break from penalties – CA Supreme Court holds unpaid premiums give rise to waiting time penalties

Attorney Nicholas Kanter

Nicholas Kanter | Shareholder

May 23, 2022

Tal Burnovski Yeyni | Associate

May 23, 2022

The California Supreme Court published its decision in Gustavo Naranjo et al., v. Spectrum Security Services holding that employers who fail to pay for meal or rest break premiums, may also be responsible for waiting time and wage statement penalties. As with other holdings, the Court’s recent decision has retroactive application.

The Supreme Court’s decision concerned “premium pay,” “waiting time penalties,” and “wage statement penalties.” Before getting into the decision, here is a quick overview of these wage and hour terms:

Premium pay derives from California Labor Code § 226.7, which states: “If an employer fails to provide an employee a meal period or rest period … the employer shall pay the employee one additional hour of pay at the employee’s regular rate of compensation for each workday that the meal or rest period is not provided.”

A 2021 Supreme Court decision held that “regular rate of compensation” has the same meaning as “regular rate of pay.” Meaning, it must include all compensation received by the employee, including wages, bonuses, commissions, etc.

Waiting time penalties derive from Labor Code § 203 which can impose a penalty on an employer if there is a “willful failure” to pay wages due to the employee when the employment relationship ends. Generally, discharged employees are entitled to their final wages on the day of discharge (Labor Code § 201). Employees who resign are entitled to their final wages at the time their employment ends if they provide sufficient advance notice, and within 72 hours of resignation without sufficient notice (Labor Code § 202).

Employers who do not timely pay final wages risk liability for “waiting time penalties,” which are based on the employee’s daily wage multiplied by the number of days the final wages are late, up to a maximum of 30 days.

Wage statement penalties derive from Labor Code § 226. Generally, Section 226 provides a detailed list of information that must be included in wage statements, including “gross wages earned” and “net wages earned.”

Employers who “knowingly and intentionally” fail to comply with the requirements of Section 226, can be liable for damages or $50 for the initial pay period and $100 for each subsequent pay period, up to a maximum of $4,000, as well as “costs and reasonable attorney’s fees.”  

Naranjo v. Spectrum Background

Spectrum’s employees take temporary custody of federal prisoners and Immigration and Customs Enforcement (ICE) detainees who must travel offsite for medical treatment or other appointments and provide supervision until the prisoners and detainees return to their custodial locations. The employees also guard witnesses awaiting court appearances.

Spectrum’s policies provided for on-duty breaks (“this job does not allow for breaks other than using the hallway bathrooms for a few minutes”). A later policy provided that agreeing to “on-duty” meal periods was a “condition of … employment.”

Plaintiff Naranjo began working for Spectrum in December 2006 but was terminated in May 2007 after he left his post for a meal break.

Plaintiff thereafter filed a class action lawsuit alleging, among other things, that Spectrum failed to provide meal breaks and premium pay for missed breaks. The lawsuit also alleged that due to Spectrum’s failure to pay premium pay for missed breaks, it was also liable for inaccurate wage statements under Labor Code § 226 and waiting time penalties under Labor Code § 203. The trial court held that failure to pay premiums justified penalties under Labor Code § 226 but not under Labor Code § 203 (finding Spectrum’s delay was not “willful”).

The Court of Appeal concluded missed break premiums do not constitute wages and therefore, cannot support a claim for penalties under Labor Code Section 203 and 226.

The California Supreme Court granted review and reversed the Court of Appeal.

Supreme Court’s Decision

Failure to Pay Premium Pay Triggers Waiting Time Penalties

The Supreme Court held that premium pay has a dual role – it is both a legal remedy and wages.

Per the Court, the purpose of the premium is to compensate employees for “working under conditions of hardship.” In this respect, the Supreme Court held that premium pay is akin to overtime pay, which is to “compensate the employee for the hardship incident to such work and to deter the employer from routinely imposing such obligations.” Analogizing premium pay to overtime pay, the Court found that the failure to pay premium pay owed to an employee upon discharge from employment may trigger waiting time penalties.  

Unpaid Premiums May Trigger Inadequate Wage Statement Penalties

In line with its holding that premium pay “is fairly understood as… wages” the Supreme Court concluded that “an employer’s obligation under Labor Code § 226 to report wages earned includes an obligation to report premium pay for missed breaks.” Accordingly, the Court held, “failure to report premium pay … can support monetary liability under section 226 for failure to supply an accurate itemized statement …”

What’s Next for California Employers

If you are not familiar with premium pay, waiting time penalties, and wage statement penalties, you should consult with an employment attorney immediately. As many California employers already know, wage and hour violations can result in expensive and time-consuming litigation. The recent holding in Naranjo is another reminder that the failure to comply with one Labor Code provision (in this case – failure to pay for missed meal breaks) can result in violations of several other provisions of the Labor Code.

Compliant policies, employee training, and audit of current practices can go a long way in preventing, limiting, and defending wage and hour claims. If you are a California employer and have questions regarding wage and hour matters, we encourage you to seek the advice of employment counsel.

Nicholas Kanter and Tal Burnovski Yeyni are employment defense attorneys.

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