The California Supreme Court ruled on May 23rd, that premiums paid to employees who are unable to take a full and timely meal or rest period are considered “wages.”
California law requires employers to provide daily meal and rest breaks to most unsalaried employees. If an employee is unable to take a full and timely meal or rest period, the employer must pay the employee a “premium” consisting of an additional hour of pay. The issues before the Court were: (1) whether this extra pay for missed breaks constitutes “wages” that must be reported on the employee’s wage statement; and (2) whether the premiums must be paid within statutory deadlines for paying wages when an employee leaves the job.
The Court of Appeal had held that this additional hour of premium pay is a “penalty,” and not a wage, and that was understood to be the state of the law in California. In reversing the appellate court, the Supreme Court said the answer to both questions above is yes. “Although the extra pay is designed to compensate for the unlawful deprivation of a guaranteed break, it also compensates for the work the employee performed during the break period.” The Court went on to explain, “The extra pay thus constitutes wages subject to the same timing and reporting rules as other forms of compensation for work.”
While not a great result for employers, the court did say that to obtain waiting time penalties, employees must still prove that they were denied the meal and rest breaks and that the employer’s failure to include the premiums on the wage statements is “knowing and intentional” and “and that the failure to pay all premiums due upon termination is “willful.”
The Naranjo case serves as an important reminder to employers to have and adhere to compliant meal, rest, and recovery period policies. If an employee is denied a statutory break period, ensure that the employee is paid the one-hour premium when the violation occurs. Considering the decision, employers will have to adjust their wage statements to ensure that premiums are properly reported and calculated into the regular rate of pay for purposes of calculating overtime, and for paying out final pay.