On March 1, 2022, the California Supreme Court heard oral argument in another case that can be expected to have widespread impact throughout California, Naranjo v. Spectrum Security Services, Inc. Under California law, employers owe an extra hour of pay (often called a “premium”) under Labor Code Section 226.7 if they fail to provide meal and rest periods in accordance with the requirements of state law. The Naranjo case focuses on whether and to what extent the premiums owed will be treated as “wages” under the Labor Code. Specifically, it addresses the question of whether employers face additional penalties under Labor Code Section 203 for “waiting time penalties” and Section 226 for pay stub violations if they do not calculate and pay proper premiums for meal and rest period violations and report them on itemized wage statements (aka pay stubs). Labor Code Section 203 authorizes waiting time penalties of up to 30 days’ pay for a willful violation of California’s final pay rules. Section 226 establishes penalties for pay stub violations. (These rules are discussed in detail in the Wage and Hour Manual for California Employers by Attorney Richard J. Simmons of Sheppard Mullin. The new (25th) edition of the Manual was just published.)

In Naranjo, the court of appeal determined that penalties under Labor Code Sections 203 and 226 were not appropriate because the payment for a missed meal period is the payment for not providing a meal period. It is not a “wage” paid for time worked. This was consistent with the Supreme Court’s earlier decision in Kirby v. Immoos Fire Protection, 53 Cal. App. 4th 1326 (1993). Stated differently, the court of appeal found that failure to pay the statutory remedy of an extra hour of pay for meal or rest period violations is not an amount paid for labor or services performed and does not give rise to derivative claims under Section 203 for waiting time penalties or Section 226 for wage statement violations. If the Supreme Court reverses either or both aspects of this holding, employers will face even greater exposure to liability under California law.

The Supreme Court must issue its decision within 90 days of March 1, and is expected to issue it sooner. The ALERT will report on developments regarding the case.

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