California Supreme Court: Meal and Rest Break Violations Can Trigger Derivative Penalties and Prejudgment Interest at Seven Percent

Employers will face significantly greater exposure for noncompliant meal and rest break practices following a recent California Supreme Court ruling. In Naranjo v. Spectrum Security Services, Inc., the Court held that unpaid meal and rest break premiums are wages that can be the basis of derivative claims for waiting time penalties and wage statement penalties. The Court also determined that the applicable rate of prejudgment interest for amounts due for the failure to provide meal and rest breaks is seven percent.

Background

This consequential ruling arose out a class action lawsuit filed in 2007 by Gustavo Naranjo, a security guard, against his former employer, Spectrum Security Services, for alleged violations of California's meal break requirements. Mr. Naranjo's lawsuit, brought on behalf of Spectrum's nonexempt employees, alleged that Spectrum failed to report meal break premiums on employee wage statements and failed to timely pay such premiums to nonexempt employees upon discharge or resignation.

The primary question before the Court was whether meal and rest break premium payments constitute "wages" that, under California law, employers must report on wage statements and pay upon termination. Acknowledging the confusion this question has generated, the Court clarified that meal and rest break premium payments can be both a penalty for a legal violation and a wage for labor performed when the employee should have been relieved of duty. As a wage, the Supreme Court concluded, the premium payment is "subject to the same timing and reporting rules as other forms of compensation for work," and the derivative penalties for waiting time and inaccurate wage statements therefore apply.

The Supreme Court also resolved a dispute over the appropriate rate of prejudgment interest that applies to amounts due for failure to provide meal and rest breaks and concluded that the seven percent default rate set by the California Constitution was proper.

Impacts on California Employers

This ruling has broad-ranging implications for California employers, who should take immediate steps to ensure compliance with California's meal and rest break laws. To avoid costly penalties, DWT recommends that California employers audit meal and rest break policies and practices, employee wage statements, and final pay policies to confirm that meal and rest break premium payments are timely paid and reported. Additionally, employers should ensure that supervisors, managers, human resources, and payroll personnel understand meal and rest break obligations.

DWT will continue to monitor these issues and provide updates on all developments as they arise. In the meantime, if you have any questions about your company's compliance with California's meal and rest break laws, please feel free to contact a member of DWT's Employment Services Group.