The Supreme Court of California recently ruled that so-called premium pay owed to California employees who work through meal and rest breaks is, in fact, a wage that must be reported on official time sheets.
In a unanimous opinion, the justices of the state high court reversed an appeals court's holding that the penalty owed to workers for an unbroken workday was not a wage. Instead, the court ruled, the mandatory extra hour of pay was partially intended to compensate employees for work performed during an untaken break.
Although the extra pay is designed to compensate for the unlawful deprivation of a guaranteed break, it also compensates for the work the employee performed during the break period," Justice Leondra R. Kruger, delivering the opinion of the court, said. "The extra pay thus constitutes wages subject to the same timing and reporting rules as other forms of compensation for work."
Under the California Labor Code, employers who require employees to work through meal and rest breaks are obligated to provide those employees with an extra hour's worth of pay per unbroken workday. That extra pay is owed the moment workers are compelled to miss a meal or rest period, the code says.
Monday's opinion revives a win by class of employees led by security guard Gustavo Naranjo on California Labor Code claims that Spectrum Security Services Inc. failed to pay all wages owed to workers upon the conclusion of their employment. The suit also alleged Spectrum Security failed to provide a class of employees with accurate wage statements inclusive of the premium pay they earned for remaining on duty during their lunch breaks.
On appeal, a panel of California Court of Appeal judges held that Spectrum's wage statements were not inaccurate because premium pay was not a wage paid in exchange for labor, but rather a sanction for the deprivation of workers' rights.
The state Supreme Court held Monday that the Court of Appeal's holding was in error. Premium pay, the high court ruled, is both a wage and a sanction.
"The Court of Appeal was correct that premium pay is a statutory remedy for a legal violation," Justice Kruger said. "But the court's further conclusion that premium pay cannot constitute wages rests on a false dichotomy: that a payment must be either a legal remedy or wages."
Likening premium pay to overtime compensation, the high court held that premium pay operated both as a penalty to dissuade employers from making employees work "under conditions of hardship," and as a tool to compensate workers for the work performed under those conditions.
That overtime accrues on a per-hour basis and an hour of premium pay is assessed no matter the length of the scheduled meal break, the court said.
"The manner in which the pay accrues does not in itself determine whether it is designed to compensate for labor," Justice Kruger said.
In contesting Naranjo's assertion that premium pay was a wage, Spectrum cited the state high court's 2012 opinion in Kirby v. Immoos Fire Protections, Inc. In its Kirby opinion, the court held that missed meal break claims raised under section 226.7 of the California Labor Code were brought "for the non-provision of meal and rest periods, not for the 'non-payment of actions.'"
If a 226.7 action was not for the recovery of wages, Spectrum argued, then the premium pay promised under that section could not be a wage.
That argument misread the Kirby decision, the high court held Monday. While it was true that suits challenging working conditions were different from suits challenging pay practices, the penalties for poor working conditions were still wages, the court said.
"Even if the underlying violation is a failure to provide healthy working conditions by requiring excess work in place of rest, not failure to pay for labor (as Kirby says), the legislature is still free to adopt as a remedy payment of additional wages for that excess labor," Justice Kruger said.
The court also rejected Spectrum's assertion that it was not liable for violating wage statement rules because it never actually paid the premium pay it owed.
"Labor Code section 226 does not require employers to report only those amounts it deigns to pay," Justice Kruger said. "A statement that conceals amounts earned, on the ground that they also were not paid, is not an accurate statement, and it does not comply with the" law.
The high court did, however, affirm the appeals court's decision to reduce Naranjo's prejudgment interest award from 10% to 7%. Under the California Labor Code, victors on unpaid wage claims are entitled to a prejudgment interest rate of 10%.
However, because the high court held in Kirby that claims brought under section 226.7 of the Labor Code challenge working conditions rather than pay practices, the standard 7% interest rate for nonwage suits applied, the justices said.
The high court sent the question of whether Spectrum's failure to list premium pay on wage statements was willful, and therefore punishable via California Labor Code penalties, back to the Court of Appeal.
Jason Marsili of Rosen Marsili Rapp LLP, counsel for the workers, hailed the decision as a needed correction to lower appeals courts that have strayed from the meaning of the Kirby decision.
"The opinion did a good job of correcting some detours in the wage and hour jurisprudence that have gone on in the lower courts of appeal," Marsili told Law360. "It wrenched the evolution of the jurisprudence back on course."