California Supreme Court: Meal and Rest Premium Payments Are “Wages”

May 27, 2022

On May 23, 2022, the California Supreme Court held that premium pay for missed meal and rest breaks pursuant to Cal. Labor Code Section 226.7 are “wages” that must be reported on wage statements per Cal. Lab. Code § 226 and must be paid within the statutory deadlines set forth in the California Labor Code.

The plaintiff in Naranjo v. Spectrum Security Services, Inc., worked as a custodial guard overseeing prisoners and detainees for his employer. The employer maintained a policy that required such employees to remain on duty during meal breaks. Plaintiff was terminated after leaving his post to take a meal break, and he filed a putative class action lawsuit alleging that his employer had violated meal break requirements under the California Labor Code. Plaintiff’s complaint sought meal break premium payments pursuant to Section 226.7. It also sought wage statement penalties pursuant to Section 226 and waiting time penalties for final pay violations pursuant to Cal. Lab. Code §§ 201, 202 and 203 for the employer’s failure to itemize the break premium payment on its employees’ wage statements and its failure to timely pay such break premiums to employees upon their discharge or resignation, respectively.

Naranjo disagreed with previous decisions by the Courts of Appeal that had concluded “that a payment must be either a legal remedy or wages,” instead holding that Section 226.7 break premium payments are “both.” The California Supreme Court also held that the duty to pay break premium pay attaches before the time of discharge and does not depend on a court first determining that such break premium payments are owed. Consequently, Naranjo held that payments for missed breaks under Section 226.7 are wages for purposes of final pay obligations under the Labor Code, and waiting time penalties are available under Section 203 if break premium payments are not timely paid at the conclusion of employment. It also held that, per Section 226, employers must report break premium payments for missed breaks on employees’ wage statements.

Despite the foregoing, the Supreme Court held that the failure to list break premium payments on wage statements or failure to timely include such payments in final wages did not automatically entitle the Naranjo plaintiff to penalties under either Section 203 or Section 226. Instead, the Supreme Court remanded the case to the Courts of Appeal to determine whether Spectrum had acted willfully under Section 203, and knowingly and intentionally as required by Section 226.

Separately, Naranjo also held that a 7% prejudgment interest rate applies to Section 226.7 break premium payment claims under the California Constitution, rejecting plaintiff’s argument for a higher 10% interest rate under various statutes, including Lab. Code Section 218.6.

For employers, the import of Naranjo is that meal and rest break premium payments must be separately itemized on employee wage statements. It also means that any meal and rest break premium payments that are undisputedly owed must occur within the statutory final pay timing requirements under the Labor Code. A failure to accurately itemize or timely pay these break premium payments will now give rise to statutory penalties under Sections 203 and 226, as well as potential civil penalties recoverable pursuant to the Private Attorneys General Act. Finally, because break premium payments are now deemed to constitute “wages,” they are likely to be subject to a four-year limitations period if tethered to a claim for unfair business practices under California’s Unfair Competition Law (UCL), Bus. & Prof. Code § 17200 et seq., as the UCL provides for a four-year statute of limitations for restitution of unlawfully withheld “wages.”

For questions, please contact the authors or another member of McGuireWoods’ labor and employment team.