Just in time for the holiday weekend, the California Supreme Court issued another employee-friendly decision on what constitutes wages under the Labor Code. This decision reminds California employers to stay vigilant on meal period and rest break compliance going into the summer. In Naranjo v. Spectrum Security Services, Inc., the defendant-employer provided security services to federal agencies. Its company policy required guards to remain on duty during meal breaks. The plaintiff-employee was a guard who was suspended, and then fired, for leaving his post during a meal period. The plaintiff filed a putative class action alleging a violation of California meal break requirements, seeking an additional hour of pay, referred to as “premium pay,” for each day the employer failed to supply a legally compliant, duty-free meal break.

The trial court found that the employer did not have a valid on-duty meal break agreement with its employees, resulting in a finding of liability for missed premium pay and the derivative wage statement violations. The trial court granted a 10% prejudgment interest rate to the employer’s liability. The appellate court affirmed that the employer had violated meal break laws, but concluded that the premium pay was not wages and therefore, the employer could not be penalized for failing to timely pay or report such wages. The appellate court also reduced the prejudgment interest rate from 10% to 7%.

The California Supreme Court weighed in and held that missed-break premium pay are wages, subject to the timely payment and reporting requirements. As a small break to California employers, the California Supreme Court affirmed the prejudgment interest rate at 7%, rather than 10%, in asserting these particular claims.

What now?

Prior to Naranjo, premium pay had been accepted as a penalty for unpaid wages. Unfortunately for California employers, the California Supreme Court likened meal period premiums to other forms of wages such as overtime premiums or split-shift premiums and concluded that this premium pay is wages. With this clarification, California employers can now face increased liability for wage statement violations based on premium pay. Similarly, waiting time penalties are available if premium pay is not timely paid at separation. Employers can save time and costs down the road with proper training on these issues, regular internal audits of time records, and consistent enforcement of compliant company policies.

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