On May 23, 2022, the California Supreme Court issued its highly anticipated ruling in Naranjo v. Spectrum Security Services and decided two critical questions: first, whether an employee is entitled to “waiting time penalties” for unpaid premium pay, and second, whether employers are required to report premium pay on their employees’ wage statements.
As all members of the defense bar anticipated, the California Supreme Court answered both of these questions in the affirmative, and in turn significantly increased California employers’ potential exposure in wage and hour litigation.
Naranjo involved a putative wage and hour class action brought by an employee against his former employer alleging the failure to provide proper meal breaks. The legal analysis concerned the intersection of three aspects of California wage and hour law: “premium pay,” “waiting time penalties,” and wage statements. California law provides that employees are entitled to both meal and rest breaks throughout the workday. To the extent an employee does not receive a legally compliant meal and/or rest break, the employee is then entitled to an additional hour of wages for every missed break paid at the employee’s regular rate of compensation, which is referred to as “premium pay.”
As for “waiting time penalties” they are incurred when an employer fails to timely provide an employee with their final wages upon separation. These penalties are equal to the amount of the employee’s daily rate of pay for each day the wages remain unpaid, up to a maximum of 30 days. For example, if an employee earning $10 per hour and working eight hours a day fails to receive their final wages, they can accrue up to a maximum of $2,400 in waiting-time penalties ($10 per hour x 8 hours per day x 30 days).
Lastly, California law requires that employers provide their employees with wage statements containing a detailed list of information, such as hours worked, wages earned, hourly rates, and other identifying information. Employees who are injured by a “knowing and intentional” failure of the employer to provide this information are entitled to the greater of actual damages or $50 for the initial pay period in which the violation occurred and $100 for every subsequent pay period, up to a total penalty of $4,000.
The plaintiff in Naranjo brought an action on behalf of himself and all putative class members for unpaid meal breaks resulting from Spectrum’s requirement that employees take on-duty meal breaks without a written policy in place. After a jury trial, the court directed a verdict in favor of Naranjo and the class because of Spectrum’s failure to implement a valid written on-duty meal break agreement. As a result, the trial court found that Spectrum was liable for failing to provide proper wage statements but not for waiting-time penalties.
On appeal, the California Court of Appeal for the Second District held that a failure to pay premium pay does not trigger an entitlement to waiting-time penalties or wage statement violations.
In analyzing the Court of Appeal’s ruling, the California Supreme Court first began with how “wages” were defined under the Labor Code, which is “all amounts for labor performed by employees for every description whether the amount is fixed or ascertained by the standard of time, task, piece, commission basis, or other method of calculation.” California Labor Code § 200(a). Based on this definition, the Court of Appeal found that premium pay awarded to employees for missed breaks was not for “labor performed,” but rather was intended to act as monetary sanctions against the employer for failing to abide by California meal and rest break law. The Supreme Court disagreed with this analysis, finding that premium pay does not need to either be a legal remedy OR wages, but can act as both simultaneously.
In holding that premium pay is considered “wages” for purposes of Labor Code violations, the Supreme Court found that an employee is entitled to premium pay for noncompliant breaks because they are required to work when they should have been relieved of duties. For meal breaks, premiums are issued when an employee (1) is required to work too long into a shift without a meal break, (2) required to work through a meal break, or (3) required to remain on-duty without an appropriate agreement in place. The Court focused its reasoning on the fact that the California Legislature in authorizing premium pay intended to compensate employees “for hardships they should not be made to suffer,” as well as for rendering work during times employees otherwise would have been entitled to be free from work.
Based on the above reasoning, the Supreme Court ultimately found that premiums under Labor Code § 226.7 are meant to compensate employees for labor performed, and therefore constitute “wages” for purposes of the Labor Code. On that basis, the Court found that employees who are not compensated for premium pay in a timely manner are entitled to waiting-time penalties.
Because the Supreme Court concluded that premium pay is considered wages, the Court had little difficulty in reaching the conclusion that failing to include premium pay on an employee’s wage statement entitles them to recover penalties for noncompliant wage statements.
The Supreme Court’s decision in Naranjo widens the spout of the firehose that is the potential damages and penalties employees may recover under California law. Previously, counsel was limited in asserting a right to waiting-time penalties. Specifically, they could normally only assert a right to such penalties in cases where an employee allegedly worked “off the clock” or did not receive their proper overtime pay. The groups of employees affected by these issues was relatively small when compared to the larger group of employees who counsel may claim did not receive proper meal or rest breaks. With the Supreme Court’s recent decision, however, counsel (particularly in the putative class action context) will now be able to argue that every single former employee has a claim for waiting-time penalties based on an alleged failure to provide premium pay.
Now more than ever it is critical for California employers to review their policies to ensure that (1) employees are receiving proper and timely meal and rest breaks and (2) any employees not receiving proper breaks timely receive premium pay. Any failure to do so just became significantly more expensive.