In a long-awaited decision, the California Supreme Court has significantly increased the potential liability of employers for violations of the meal and rest periods mandated by California law. Since 2000, California law has provided that nonexempt employees are entitled to one additional hour of pay for each day that they do not receive a required meal period or rest period. However, the law has been unclear as to whether the additional hour of pay is a “wage” or a “penalty.” The issue is important because penalties are subject to a one-year statute of limitations, while wages are governed by a three-year statute of limitations. In Murphy v. Kenneth Cole Productions, the California Supreme Court unanimously held that the additional hour of pay is a “premium wage” and thus governed by the three-year statute of limitations.
The monetary impact of this holding will be immediately felt by employers who are defending class action lawsuits alleging meal or rest period violations. The employees in those lawsuits will be able to seek premium wages going back three years from the date the action was filed. Consider a hypothetical case involving 100 employees who were paid $10.00 per hour and who allege that they did not receive required meal and rest periods: the potential recovery to each employee for meal and rest periods alone is now $15,600 per employee, or $1.56 million for the class. If a one-year statute of limitations applies, the employer’s exposure would be one-third that amount.
Moreover, the court’s decision leaves open the possibility that the courts will allow employees to seek premium wages going back for four years by asserting a cause of action for unfair business practices under California Business and Professions Code section 17200. Although the Supreme Court opinion did not address this issue, one federal court has previously endorsed this result, and plaintiffs’ attorneys can be expected to pursue this argument aggressively.
In determining whether the additional hour of pay is a wage or a penalty, the court first looked at the language of Labor Code section 226.7, which mandates the payment. The court noted that the statute is suppressible to either interpretation, but thought it was significant that the statute nowhere uses the term penalty to describe the payment, while the Labor Code is filled with statutes that specifically describe a sanction as a penalty. The court’s analyses then focused on the legislative history. The legislative history contained material that could support either characterization, but the court was ultimately persuaded by the fact that the initial version of the bill that passed the assembly had contained a specific penalty of $50 per violation in addition to the additional hour of pay. The court found that the eventual deletion of the express penalty provision supported the argument that the legislature did not view the additional hour of pay as a penalty.
The employer’s strongest argument in favor of the penalty characterization was the functional operation of the payment, which does not precisely correlate to the employee’s damages. The employee receives the same amount whether, for example, he misses one or two meal periods, or one or more rest periods. In fact, an employee could receive an additional hour of pay because he or she missed one ten-minute break, or even if he took a meal period that was just a few minutes short of the required thirty minutes. The court rejected this argument, stating that the monetary value of harm to employees can be difficult to ascertain, that the employees suffered non-economic as well as monetary injury, and that is was not necessary that there be a “perfect correlation between the section 226.7 remedy and the employee’s economic injury.” The court further noted that premiums for split shifts and callback pay are considered wages, not penalties, even though they do not exactly correlate to any economic damage. The court concluded that “the Legislature has selected an amount of compensation it deems appropriate.” The court was influenced by the fact that the payment was determined by reference to the employee’s hourly rate of pay, stating that it would be more receptive to the penalty characterization if the amount were a flat dollar amount, such as $100 per violation. Ultimately, the court was guided by the principal that the Labor Code is to be construed liberally in favor of protecting employees.
In one passage that employers will likely find infuriating, the Supreme Court was unsympathetic to the problems employers might encounter in trying to defend claims that are three years old, when evidence is no longer fresh and witnesses may be unavailable. The court found these concerns to be insignificant, observing that “Because employers are required to keep all time records, including records of meal periods, for a minimum of three years, employers should have the evidence necessary to defend against plaintiffs’ claims.” This line of reasoning ignores some important realties, such as the fact that rest periods must be paid as time worked and are generally not recorded. This reasoning also disregards that the fact that litigation often focuses on employee contentions that the time records are not accurate.
The rules regarding meal and rest periods are strictly enforced. Nonexempt employees must be provided with an off-duty meal period (which may be unpaid) of at least 30 minutes for every work period of 5 hours. If the employee works no more than 6 hours total, the meal period may be waived by mutual consent of the employer and the employee. If an employee works 10 hours or more, the employee is entitled to two meal periods. If the workday is not more than 12 hours, the employee may waive the second meal period only if the first meal period was actually taken.
Employers should understand that employees will generally be entitled to the premium pay even where an employee voluntarily skips a meal period. In addition, even where an employee actually takes a meal period, a meal period violation may nonetheless occur where
- the meal period is less than thirty minutes long,
- the meal period does not begin within five hours of start of the shift,
- the meal period ends more than five hours before the shift ends,
- the employee is not free to leave the premises, or
- the employee performs some work during the meal period.
Nonexempt employees must be permitted to take a rest period of at least ten minutes for every four hours of labor “or major fraction thereof” worked, except where the shift is shorter than three and one-half hours. The employer’s goal of avoiding rest period violations is also challenging. A violation does not necessarily occur merely because an employee voluntarily decided to skip a rest period; employers are required only to “authorize and permit” employees to take rest periods. However, whenever an employee does not actually take a rest period, the employer is generally vulnerable to the argument that the press of business effectively prevented the employee from taking the rest period and that a violation has occurred.
With the monetary stakes now even greater than before, employers should take proactive measures to protect their company from claims for “premium wages” for meal and rest period violations. Prudent employers should consider taking the following steps.
- Monitor employees and pertinent time records to make sure that all nonexempt employees take the required meal periods.
- Make sure that meal periods meet all of the legal requirements, including that the meal periods are taken within the prescribed time parameters and that the employee is relieved of all duty and free to leave the premises.
- Implement a system to make sure that employees who do not receive their meal periods or rest periods receive one hour of premium pay as prescribed.
- Have employees sign an acknowledgment on their time cards that they were authorized and permitted to take their rest periods.
- Consider having your meal and rest period policies and practices audited by experienced labor counsel.
For more information on this issue or any other labor or employment law matter, please contact Dale Hudson at 213-629-6015 or email@example.com, or contact your regular Nixon Peabody attorney.