In the words of Tom Cruise’s character Lt. Daniel Kaffee in A Few Good Men, “the hits keep on coming.” This quote crystallizes how California employers will undoubtedly feel following the California Supreme Court’s ruling in Naranjo v. Spectrum Security Services, Inc., decided on May 23, 2022.
Initially decided by the Second Appellate District in 2019, Naranjo previously stood for the proposition that failure to provide missed meal and rest break premium pay did not entitle employees to pursue waiting time penalties under Labor Code section 203 or paystub violation penalties under Labor Code section 226.
The California Supreme Court disagreed. Holding that the failure to pay break premiums created an employees’ right to pursue and receive these derivative penalties, the Court rejected the reasoning that break premiums are a “legal remedy, not payment for labor.” In pointing out that a “legal remedy” and “wages” are not mutually exclusive, the Court reasoned that break premiums were both a legal remedy and wages because “an employee becomes entitled to premium pay for missed or noncompliant meal and rest breaks precisely because she was required to work when she should have been relieved of duty.” Relying heavily on Murphy v. Kenneth Cole Productions, Inc. (2007) 40 Cal.4th 1094, the Court equated break premiums to overtime premium pay, which serves to both compensate employees for work and deter employers for imposing overtime obligations on employees.
As a secondary, but welcome consideration, however, the Court declined to increase the prejudgment interest rate from 7% to 10% when applying these types of penalties. Rather, the Court expressly compared the statutory language of Labor Code section 218.6 which provides a interest rate of 10% on unpaid wages, as opposed to the default interest rate of 7% for non-contractual matters, as set forth in California’s Constitution. The Court explained that the “Legislature did not understand or intend all statutory wage and hour obligations to automatically be governed by the contract rate – and, in particular, that the Legislature intended a difference for section 226.7 claims verses other claims concerning the payment or nonpayment of wages in accordance with the basic employment bargain.”
The result of Naranjo serves to underscore the lessons provided in a number of recent, employee-centric court decisions. Specifically, employers will need to be ever more vigilant in their timekeeping and payroll practices as the monetary penalties for noncompliance threaten significant liability and exposure. California employers should also consult with an experienced employment attorney to ensure that their practices do not run afoul of California’s meal and rest break laws.
