On May 23, 2022, the California Supreme Court issued its opinion in Naranjo v. Spectrum Security Services, Inc., concluding that the one hour of additional compensation that is owed to an employee who does not receive a legally-compliant meal or rest period, constitutes a “wage.” As a wage, the penalty must be reflected on the employee’s wage statement, and also must be paid in a timely manner.
California’s Wage Orders, as well as Labor Code § 226.7(c), provide that an employee who is denied a meal or rest period on a given day must be paid an additional hour of pay. Just last year, the California Supreme Court held that this additional hour of pay is not merely an hour at the employee’s stated hourly rate, but is an hour at the regular rate for overtime purposes, which is calculated by taking into account all non-discretionary compensation which the employee receives. Ferra v. Loews Hollywood Hotel, LLC (2021) 11 Cal.5th 858.
In Naranjo, the California Supreme Court concluded that missed meal and rest period premium payments constitute wages, even though they are paid without regard to whether the penalty was incurred because an employee missed all or only a portion of a meal or rest period, or was not permitted to take a timely meal or rest period. In other words, the penalty is incurred regardless of whether the employee worked additional hours, and even when the employee actually was paid for working during a meal or rest period. The Court noted that while the penalty is a legal remedy, it also is a wage. This was based on the Court’s conclusion that because the penalty related, in some fashion, to “rendering work,” the “pay [penalty] owed can equally be viewed as wages.”
The Court’s conclusion that the premium penalty is a wage was contrary to the Court of Appeal decision, and led the Court to important conclusions about the consequences of failing to pay the penalty. First, the penalty, like all other wages, must be paid in full at the time the employment terminates, and the failure to make that payment gives rise to a further penalty under Labor Code § 203, which provides that if unpaid wages are not paid in full when the employment ends, then the employee’s wages continue to accrue for up to 30 days. Second, as a wage, the premium must be shown on the employee’s wage statement under Labor Code § 226(a). Third, failing to reflect the premium on the employee’s wage statement could trigger yet another penalty under Labor Code § 226(e) of $50 for the initial violation, and $100 for each succeeding violation. This so, in the Court’s view, even if the premium was not paid. The Court noted that Labor Code § 226(a) refers to wages “earned” and not just to wages actually paid. Employers should note that the Labor Code § 226(e) penalty is triggered not just by a failure to include information, but also by including inaccurate information. (Wage statement violations also create potential PAGA liability, although this was not considered in Naranjo as it was not a PAGA action.)
Although not addressed in Naranjo, the conclusion that the premium penalty is a wage also leads to the conclusion that it must be paid in a timely manner during employment, or the employer risks imposition of penalties under Labor Code § 210, which are $100 for the first violation, and $200 for each subsequent violation.
Naranjo highlights the need to carefully monitor meal and rest periods. An employee who does not receive a compliant meal period, or compliant rest periods, during a given day, must be paid the premium penalty imposed by Labor Code § 226.7. Under Ferra v. Loews, that premium penalty must be calculated by including all non-discretionary compensation. The premium penalty must be reflected on the employee’s wage statement. If the penalty is not shown on the wage statement, or is not shown correctly, the employer can be found liable for penalties. As a wage, the premium penalty must be paid on time like any other wage, and like any other unpaid wage must be paid in full when the employment terminates.
If you have any questions concerning the impact of Naranjo, or with regard to California employment laws in general, please contact your labor and employment counsel at Smith, Gambrell & Russell, LLP.