On May 23, 2022, the California Supreme Court issued a unanimous decision in the case Naranjo v. Spectrum Security Services, Inc., concluding that meal and rest break premiums are “wages” that must be reported on California wage statements and paid within statutory deadlines when an employee leaves the job.  The Court confirmed that employers who fail to pay necessary missed break premiums are thus exposed to potential waiting time penalties under Labor Code section 203 and wage statement penalties under Labor Code section 226 (in addition to potential liability for the premiums themselves and civil penalties under the Private Attorneys General Act of 2004 (“PAGA”).)  Employers should ensure that when missed break premiums are paid, they are listed on the employees’ wage statements and timely paid upon termination of employment, if not previously paid.  Employers should also carefully consider their compliance with California meal and rest break policy, since the newly-clarified penalties for violation add to the already substantial risks attendant to violation of the law.

The Court also decided that the if meal and rest breaks are not provided, the applicable prejudgment interest rate is 7%, rather than 10%.

Missed Break Premiums Must Be Listed On Wage Statements

A California employer who unlawfully denies an employee a meal or rest period on any given day must pay the employee an additional hour of pay at their regular rate.  This penalty, set forth in Labor Code section 226.7, is often referred to as a “missed break premium.”

Labor Code section 226 requires employers to list a number of specific items on employees’ wage statements, including gross wages earned, net wages earned, and hours worked.  An employee who is injured by a “knowing and intentional failure by an employer to comply with” this requirement may recover the greater of actual damages or $50 for the initial pay period in which a violation occurs and $100 per subsequent pay period, not to exceed an aggregate penalty of $4,000.

The Supreme Court addressed confusion in the lower courts and held that missed break premiums constitute wages, and thus both the additional credited hour of work and the corresponding premium pay must be reported on the wage statement.  The Court essentially noted this extra hour is not simply a penalty for the missed meal period or rest break, but also wages to compensate the employee for worked performed during this period.

The Court expressly concluded that if missed break premiums are illegally withheld and thus not listed on wage statements, employers may be subject to section 226 penalties if the failure to list the premiums is knowing and intentional. 

Missed Break Premiums Must Be Timely Paid Upon Termination of Employment

California law specifies payment deadlines for employers to pay any unpaid wages to an employee whose employment relationship comes to an end.  If an employer “willfully fail[s]” to timely pay the full amounts due, it is subject to sanctions under Labor Code section 203 equal to the employee’s daily wages for every day the amount remains unpaid up to a maximum of 30 days.  These amounts are often referred to as “waiting time penalties.”

The Supreme Court resolved a split among the lower courts and clarified that missed break premiums are wages that must be timely paid at the conclusion of employment.  The Court explicitly held that an employer who fails to pay missed break premiums may be subject waiting time penalties if their failure to timely pay final wages is willful, stating that this will “incentiviz[e] employers to pay missed-break premium pay immediately,” and thus “enhance[] the effectiveness of the section 226.7 premium itself, which is designed in part to discourage employers from depriving employers of breaks in the first place.”

Prejudgment Interest Rate

Finally, the Supreme Court clarified the rate of prejudgment interest that applies to a meal or rest break claim.  The California state Constitution establishes a default interest rate of 7%, and prevailing parties in civil litigation are entitled to this interest rate in the calculation of prejudgment interest absent a statute specifying a higher rate.  Labor Code section 218.6 provides that a 10% interest rate shall apply in any action brought for the nonpayment of wages.

The Supreme Court concluded that Labor Code section 218.6 does not apply to a lawsuit regarding failure to provide meal and rest breaks, because such an action is not an action for “nonpayment of wages,” but is instead a suit “brought for the nonprovision of meal and rest periods.” (The court explained that even though the remedy for violation of section 226.7 (the missed break penalty) is a wage, the legal violation triggering the penalty is the deprivation of meal or rest breaks, not the nonpayment of wages.) Therefore, the default rate of 7% applies.

What Does This Mean For California Employers?

• Employers should ensure that wage statements reflect any missed break premiums paid and the additional credited hours of work associated with the premiums.
• Employers should ensure that final pay includes any missed break premiums owed.
• Because failure to pay missed break premiums can expose employers to waiting time penalties under Labor Code Section 203 and wage statement penalties under Labor Code Section 226 (in addition to the premiums themselves and PAGA penalties), it is even more important to ensure that employers comply with California’s meal and rest break requirements.

If you want to confirm that your meal and rest period policies, wage statements, and final pay practices are compliant with California law, or if you have any other questions, please contact us.

• Katie M. McCray (kmccray@wilsonturnerkosmo.com)
• Emily J. Fox (efox@wilsonturnerkosmo.com)
• Michael Kalt (mkalt@wilsonturnerkosmo.com)
• Lois M. Kosch (lkosch@wilsonturnerkosmo.com)

Wilson Turner Kosmo’s Special Alerts are intended to update our valued clients on significant employment law developments as they occur. This should not be considered legal advice.