California Supreme Court Rules That Unpaid Break Premiums May Give Rise To Derivative Penalties

• Published date: 26 May 2022
• Subject Matter: Employment and HR, Employee Benefits & Compensation
• Law Firm: Akin Gump Strauss Hauer & Feld LLP
• Author: Mr Gregory Knopp, Donna M. Mezias, Aileen M. McGrath, Jonathan P. Slowik and Jennifer McDermott

Key Points

• On May 23, 2022, in Naranjo v. Spectrum Security Services, Inc., the California Supreme Court held that a failure to provide premium pay for meal or rest break violations under California Labor Code ' 226.7 may give rise to derivative liability for failure to pay final wages and failure to provide accurate wage statements.
• The final pay and wage statement statutes provide steep monetary penalties to a plaintiff who is able to prove the elements of those claims, so the Naranjo decision could significantly increase the potential exposure to defendants in some meal and rest break cases that do not otherwise include wage claims.
• A plaintiff seeking final pay or wage statement penalties must still prove the elements of those claims, including that a failure to provide an accurate wage statement was "knowing and intentional." That showing may be difficult as a practical matter in current cases, considering that employers' obligation to report break premiums on wage statements was unclear.

On May 23, 2022, the California Supreme Court held in Naranjo v. Spectrum Security Services, Inc., Case No. B256232, that a failure to pay meal and rest break premiums can give rise to derivative liability for failure to provide accurate wage statements and failure to provide final pay.

In Naranjo, the plaintiff brought class claims alleging that his former employer failed to provide proper meal breaks. Labor Code ' 226.7(c) provides that an employer who fails to provide a compliant meal or rest break must compensate the employee with an additional hour of pay. The issue before the Court was whether this premium pay should be considered "wages" that must be reported accurately on wage statements (Lab. Code ' 226) and timely paid upon termination of employment (Lab. Code ' 201-203). The Court held that break premiums are wages under the final pay and wage statement statutes. Therefore, an employer who fails to pay break premiums may be subject to derivative liability under Labor Code ' 203 for failing to timely pay final wages (up to 30 days' pay), and under Labor Code ' 226(e) for failing to provide accurate wage statements ($50-100 per pay period, to a maximum of $4,000 per employee).

In reaching its decision, the Court rejected the Court of Appeal's reasoning that break premiums are a "legal remedy, not payment for labor." Slip op. at 8. The Court noted that such a conclusion "rest[ed] on a false dichotomy: that a payment must be either a legal remedy or wages."...