Legal Update: New Obligations for Employers for Meal and Rest Period Premiums

On May 23, 2022, the California Supreme Court issued its long-awaited decision in Naranjo v. Spectrum Security Services Inc. ("Naranjo") and ruled that premium pay for meal and rest period violations are "wages", subject to the same wage statement and waiting time penalties under California law.

This article will discuss the immediate and significant impacts of this decision on employers in California.

Background

Under California law, employees must receive a duty-free, uninterrupted meal period of at least 30 minutes no later than the end of the employee's fifth hour of work; and when an employee works more than 10 hours, a second meal period must be provided.

For each workday a meal or rest break is missed, cut short, interrupted, taken late, or is not duty-free, an employer must compensate an employee with one additional hour of pay. This premium must be paid at the employee’s “regular rate of pay”, and includes not only the base hourly rate, but all non-discretionary payments for work performed by the employee such as piecework, bonuses, shift premiums or differentials, and commissions. 

Previously, the Court of Appeal had decided that premium payments for meal and break period violations were considered a penalty rather than wages and did not incur penalties for either inaccurate wage statements or failure to pay wages upon separation of employment. The Court of Appeal also held that unpaid premium wages for meal break violations accrued prejudgment interest at the rate of seven percent.

Court's decision

The dispute in Naranjo arose when Gustavo Naranjo was terminated from his position as a guard at Spectrum Security Services Inc. after he abandoned his post to take a meal break. Spectrum required employees to remain on duty during meal periods.

Naranjo sued, claiming Spectrum violated state wage and hour laws by failing to:  

• Compensate employees with premium pay for missed meal and rest periods;
• Accurately report these premium payments in wage statements; and
• Pay these premiums in a timely manner upon termination.

The Naranjo decision reversed the Court of Appeal's decision and held that premium payments for meal and rest period violations are wages that:

1. must be reported on wage statements during employment (Labor Code section 226)
2. paid within statutory deadlines when an employee leaves the job (Labor Code section 203)

Impact on employers

California employers now may be liable for failing to properly report those premiums on wage statements as well as for waiting time penalties if the premiums are not timely paid at separation. 

To put this into perspective - For a minimum wage ($14 per hour) employee who's full-time, working (8 hours per work day) the penalties cost nearly $3,360! ($112 daily rate of pay x 30 days).

Employers need to ensure that their payroll, time tracking, and wage payment processes accurately identify and account for missed meal and rest periods. 

Tips and recommendations

With distributed workforces specifically, it's easy to be in violation without realizing it — outdated time-tracking hardware and software create further complications.

The safest practice is to have a time and attendance software with a four-punch time clock system. With it, employers can:

• Vigilantly enforce meal and rest breaks to ensure that when employees are denied meal or rest breaks, proper premiums are paid

• Create notifications of approaching, missed, or late meal and rest periods and automatically pay the premium for missed meal breaks

• Include bonuses and other discretionary payments in meal and rest break premiums

• Calculate and display itemized earnings on wage statements with blended rates for employees that worked overtime