On Wednesday, the California Supreme Court held that the one hour of premium pay owed to an employee when they are not provided with a compliant meal or rest break constitutes “wages.” This ruling in Naranjo v. Spectrum Security Services, Inc., has significant effects and exposes employers to additional penalties and liability.  As a consequence of premium pay being declared to be wages, the following results:

**Meal and rest period premium wages must be reported on an employee’s wage statement. 

**If these premium wages are not shown on the wage statement for the corresponding pay period, the employee’s wage statement would not comply with Labor Code section 226, entitling the employee to $50 (and in some cases $100) for each noncompliant wage statement up to a maximum of $4,000.

**If an employee did not receive the one hour of premium pay for each and every noncompliant meal or rest period and separate from the company, they would not have received all wages owing as of their separation and would be entitled to up to 30 days’ pay as waiting time penalties as well as PAGA penalties.

** As if that wasn’t enough, the Court also held that unpaid meal and rest period premiums wage accrues 7% interest until paid.

The repercussions of this decision are significant.  For example, if Jane Smith, who earns $20 per hour, did not receive just one meal period premium for a late meal period she may be entitled to the following: 1) $20 as a meal period premium plus 7% interest, 2) since the payment was not recorded on her wage statement, an additional $50 for an incorrect wage statement, 3) if Jane later left employment, she would also be owed 30 days’ pay (i.e., $4,800) as waiting time penalties, and 4) an additional $100 penalty under the Private Attorney General Act.  As a result, in this example, not paying a premium wage for one noncompliant meal period results in over $5,000 in penalties.

It cannot be forgotten that the California Supreme Court has issued two other recent decisions affecting meal and rest periods.  In February 2021, the Court held that meal periods cannot be rounded and in July 2021, the Court held that meal and rest period premiums must be paid at the regular rate of pay.  Take the example above. Even if Jane’s employer paid her a $20 meal period premium at her base hourly rate, if Jane earns a non-discretionary bonus includable in her regular rate of pay,  the employer would still be subject to all the same penalties.

It is important for all employers to review their meal and rest period policies and practices, and implement changes and safeguard to reduce possible liability under the current law.  We suggest taking the following actions:

1. Evaluate how meal and rest period compliance is tracked;
2. Consider changes to your time reporting to allow for employees to indicate on their time records whether they had a noncompliant rest period on any day during the pay period;
3. Consider have a method for employees to indicate whether a noncompliant meal or rest period was due to business or personal reasons (if for personal reasons, a premium wage may not be required);
4. Review your meal and rest period policies to ensure compliance with all applicable requirements and that your policy reflects your actual practice;
5. Periodically send employees a reminder about the company’s meal and rest period policies and the need for them to take compliant meal and rest periods;
6. Provide training to supervisors managers meal and rest periods requirements and how to address noncompliant meal or rest periods;
7. Confirm that meal and rest period premiums are paid at the employee’s regular rate of pay, not their base hourly rate;
8. Confirm that meal and rest period premiums are reported on employees’ paystubs;
9. Consider providing employees “true-up” payments for prior missed meal and rest periods where a premium wage was not paid and/or the premium wage was not paid at the regular rate of pay; and
10. Consider a regular audit process of meal and rest period compliance to ensure than any issues are promptly resolved.

This decision provides all the more reason for employers to review their meal and rest period policies and procedures to ensure that they are complying with all applicable requirements.  Doing so can significantly reduce any future liability.