On May 23, 2022, the California Supreme Court issued a long-awaited decision in Naranjo v. Spectrum Security Services, Inc., 40 Cal. App. 5th 444 (2019). The Court reversed in part the decision of the Court of Appeal by holding that premium pay for missed meal and rest breaks constitutes “wages” that can give rise to derivative claims for inaccurate wage statements (Labor Code section 226) and waiting time penalties (Labor Code section 203). The Court also affirmed that the default prejudgment interest rate of seven percent set forth in the state Constitution applies to such premiums. The Court’s ruling as to derivative claims will have significant impact, including increasing the exposure for employers in class action lawsuits involving unpaid meal and rest break premiums.
Gustavo Naranjo, a former security officer for Spectrum Security Services, Inc., filed a class action lawsuit alleging that Spectrum failed to provide its employees with meal and rest breaks. Naranjo’s suit sought damages and penalties for Spectrum’s alleged failure to report the premium payment on the employees’ wage statements and failure to timely provide the payments to the employees upon their discharge or resignation. The Court of Appeal held that employees are not entitled to pursue derivative waiting time and inaccurate wage statement penalties for meal and rest break premiums because such premiums are “penalties” not “wages.” Mr. Naranjo appealed the Court of Appeal’s decision.
The California Supreme Court granted review, and reversed the lower court’s ruling, holding that the premiums for missed meal and rest breaks constitute “wages” that must be reported on wage statements and timely paid to employees when they are discharged or voluntarily separated from a job. As such, employers can be liable under Labor Code section 226 for failure to provide an accurate itemized statement if they do not report missed meal and rest break premiums. Likewise, an employer that willfully fails to timely pay any missed meal and rest break premiums when an employee leaves the job can be liable for waiting time penalties under Labor Code section 203.
The Court’s decision raises the stakes for complying with meal and rest break laws. Specifically, the decision increases potential exposure for employers because it allows employees to bring derivative claims for violations of Labor Code sections 203 and 226 based solely on missed meal and rest break premiums. The decision is an important reminder that employers should audit their policies and procedures for meal and rest breaks, and evaluate their timekeeping and payment systems to ensure compliance with meal and rest break laws.