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California Supreme Court Serves Employers with a Side Order of Penalties for Meal Break Violations

On May 23, 2022, the California Supreme Court issued another employee-friendly decision—Naranjo v. Spectrum Security Services, Inc.—that highlights the importance of complying with California law governing premium pay for missed meal, rest, and recovery breaks.

California has highly technical rules governing breaks.  Failure to comply with these rules results in a penalty of one additional hour of pay at the employee’s “regular rate of compensation” for noncompliant breaks (“premium pay”).[1]  Before Naranjo, it was unclear whether the premium pay was a “wage” or a “penalty” for purposes of additional employer obligations.  Naranjo held that premium payments are wages, which means they that have to be reported on employee wage statements and timely paid upon separation of employment.  Under Naranjo, failure to do so may lead to significant additional derivative penalties that can far exceed the premium pay obligation.  In a minor victory for employers, Naranjo confirmed that a 7% prejudgment interest rate (rather than 10%) applies to premium pay.

Example

What does this mean for California employers?  Primarily, it underscores the significant risk and expense associated with claims for noncompliance with California law regarding meal, rest, and recovery breaks.

Consider this example.  An employee earns California minimum wage of $15 per hour.  If an employee on an eight-hour shift was unable to take her meal break until she had worked five and one-half hours (30 minutes late) and the employer did not add a premium payment for the late meal break to the employee’s paycheck, the employer could be responsible for: (1) the $15 due as the premium pay for the meal break violation (and possibly more if the employee’s regular rate of pay was higher than the base hourly rate); (2) an additional $50 for not recording on the employee’s wage statement the premium pay that was due but unpaid (increasing to $100 for any additional violations in a subsequent pay period); and (3) if the worker’s employment ended without receiving the one hour of premium pay, an additional 30 working days of pay ($3,600, assuming an 8-hour workday for 30 days) as a “waiting time penalty.”  The employer might also be responsible for an additional civil penalty under the California Labor Code Private Attorneys General Act (“PAGA”).  Under this example, just one delayed meal break could result in thousands of dollars of liability.  Aggregating these penalties across a class of many workers over multiple years illustrates how quickly potential liability adds up in these cases.  Even if potentially noncompliant breaks are voluntary or unknown to the employer, the high cost of defending such claims can easily damage a business.

Action Items

California employers should immediately consider the following precautions for nonexempt employees:

• Refresh employees, their managers, and HR personnel on the exact requirements governing recovery, rest, and meal breaks. Engage in periodic training, email reminders, and postings on these requirements.
• Consider implementing meal period waiver forms for eligible first and second meal periods to document the choices of employees who want more flexibility with meal breaks.
• Conduct a legal review of any existing arbitration agreements with class action waivers and consult with legal counsel before rolling out such a program.
• Examine your current timekeeping and payroll systems and evaluate their capabilities and programming for tracking compliant breaks, reporting noncompliance, generating premium payments, if applicable, and recording premium payments on employee wage statements.
• Implement procedures that encourage and allow employees to report instances when they did not have an opportunity to take compliant breaks. Employers should investigate patterns of missed breaks involving particular employees or managers.
• Consult with legal counsel if you are concerned about fixing past practices for premium payments that could become an issue in a current or future lawsuit.

[1] This means that when a meal, rest, or recovery break violation occurs and a premium is due, the employee’s base hourly rate plus any applicable nondiscretionary payments must be included in a calculation of the employee’s “regular rate” of pay to determine the amount of the premium to be paid.

For further information about these new laws, please contact your Ricketts Case, LLP employment attorney.