May 26, 2022Client Alert

California Employers Face Another Wage and Hour Setback

On May 23, 2022, the Supreme Court of California held California’s one-hour penalty pay for missed meal and rest breaks constitutes “wages” and therefore is subject to the same reporting and timing rules as other forms of compensation. For employers with nonexempt employees in California, this means the one-hour penalty pay must be: (a) reported on employees’ regular paystubs as hours worked and wages earned, and (b) paid within the timeframe for paying final wages upon separation from employment. The case in which the Court made this determination is called Naranjo v. Spectrum Security Services, Inc. A copy of the Court’s opinion can be accessed here.

A. Breaking down the Court’s implications

To be sure, California employees always have been able to sue for missed meal and/or rest breaks. But the Court’s decision identifies new implications for employers. First, separated employees can now sue employers who do not pay the one-hour penalty pay for missed meal or rest breaks for what commonly are called “waiting time penalties.” This remedy would be available to employees even if their employer timely pays all other wages due at separation. Second, those employees would have viable claims under California’s wage statement law if their employer also fails to include the one-hour penalty pay on employees’ paystubs. Both the waiting time penalty and wage statement laws impose monetary penalties for violations (the wage statement law also contains a fee shifting provision, which further increases the potential liability and headache for employers).

B. Can employers afford to standby?

In light of the Court’s decision, there now is additional incentive for employers to carefully look at how they handle meal and rest breaks in California. The response, if any, will depend on the nature of the business and there is no “one size fits all” solution. Yet, the potential costs of standing idle are too great. Violations of the waiting time penalty law can result in the employer being required to pay successful plaintiffs up to 30 days of wages. Inaccurate wage statements can result in the employer paying $50 for initial violations and $100 per employee for each subsequent violation up to the law’s damages cap. With the prevalence of wage and hour class actions in California and representative actions under California’s Private Attorneys General Act—which provides another vehicle for employees to pursue large-scale litigation—employers likely will find the potential costs of inaction are too high to ignore.

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