By now California employers know that meal and rest break rules are a big deal. And, like most other areas of wage and hour law, a small oversight can be very costly. The stakes are now higher in light of the California Supreme Court’s recent unfavorable ruling in Naranjo v. Spectrum Security Services, Inc.
In short, the Court held that the premium pay owed for a missed meal or rest period is a “wage.” The Court reasoned, in part, that while premium payments compensate for the unlawful deprivation of a guaranteed break, they qualify as wages because they also compensate for work performed during a break period. Therefore, a post-employment claim for such would trigger waiting time penalties under Labor Code section 203. What’s more, failing to include earned premium pay on an employee’s paystub could entitle the employee to penalties under Labor Code section 226.3.
What did Spectrum Security do wrong?
Spectrum Security Services provided security guards to federal agencies. It transported guards and prisoners who had appointments outside of correctional facilities. Spectrum required guards to remain on-duty while taking meal breaks. Spectrum’s policy violated labor laws because there was not a valid written agreement for on-duty break periods signed by its employees. Since there was no valid written agreement, Naranjo and the other employees were owed premium pay for each day they worked. The mistake snowballed from there. Wage statements received by employees were not in compliance with the Labor Code because they did not reflect the earned premium payments at all (because Spectrum was not paying them). Waiting time penalties accrued because terminated employees did not receive timely payment of all wages owed at the time of termination. So, Spectrum’s reliance on an invalid agreement resulted in not only meal period premium pay, but derivative penalties for the same mistake under two other code provisions.
Are employers doomed?
Definitely not, but it is more important than ever to be vigilant when it comes to meal and rest break compliance. To stave off nightmares (and reduce any legal exposure), a prudent employer should consider the following proactive steps:
Review your meal and rest break policies. Ensure that your employees are provided an off-duty, thirty-minute meal period for shifts lasting longer than five hours. If the nature of the job requires the employee to remain on duty throughout the shift, the employee needs to agree in writing to an on-the-job meal period. But note that on-duty meal period agreements are tricky and only apply in very narrow situations. Use them with caution and strongly consider working with your legal counsel.
Examine your payroll, timekeeping, and recordkeeping practices. Ensuring employees are getting paid premium pay when they are unable to take a compliant meal or rest break requires detailed recordkeeping and systems for capturing such incidents, and processing them through payroll. Importantly, these payments should be identified as separate premium pay on the paystub.
Train your team. Taking the time to train managers and payroll departments on the meal and rest period rules, including the new implications of Naranjo and the financial consequences of getting it wrong, can help employers stay out of hot water.
Consider remedying past issues. Because exposure on meal and rest claims increase after an employee separates, employers might consider auditing their practices to determine whether past wages are owed to current employees. In addition, if the Naranjo decision is applied retroactively (which is likely given past California Supreme Court decisions), employers face even more exposure to liability for employees who have already separated. There are many legal and practical considerations in remedying past practices. Accordingly, contact your wage and hour attorney to discuss a plan of action.
The attorneys at Duggan McHugh are available to discuss meal and rest break policies, penalty payments, assist with training, or assist employers in determining whether remedial actions are appropriate.