California HR

Wage and Hour: California Supreme Court Opens the Floodgates for Meal and Rest Period Suits and Expands Damages Available for Violations; Steps You Should Take Now






Under California Labor
Code Section 226.7, a nonexempt employee who works through a required meal or rest
break must be paid one extra hour of pay for that day in addition to being paid
for the time the employee worked during the break period. California courts have long disagreed over
whether this extra hour of pay is a wage or a penalty. Why does it matter? Because
employees have up to three years to file wage claims for up to three years of
back wages, but just one year to file a claim to recover a penalty. Now, in a
major decision that could lead to even more wage and hour litigation in California, the state’s high
court has unanimously ruled that the extra hour of pay for missed breaks is a
wage.

 

No Overtime, No Breaks

John Paul Murphy was an
exempt store manager in a Kenneth Cole Productions (KCP) retail clothing store in
San Francisco
for two years. He was paid on salary without overtime pay. He worked 9- to
10-hour days, was able to take a lunch break only about once every two weeks,
and rarely had time for rest breaks. Most of Murphy’s workday was spent
performing nonmanagement tasks, such as stocking, cleaning, and assisting customers.

 

Wage Claim Filed

Murphy resigned and
filed a wage claim with the labor commissioner seeking unpaid overtime. The labor
commissioner determined that Murphy was a nonexempt employee and awarded him
unpaid overtime.

 

KCP appealed the award
to a trial court. While the case was pending, Murphy added claims for missed meal
and rest breaks and itemized wage statement violations. KCP objected to these
new claims, contending that Murphy couldn’t raise them for the first time on appeal.
But the trial court allowed the new claims and found in Murphy’s favor on all
counts. The trial court applied a three-year statute of limitations to the
break violations, assessing Labor Code Section 226.7 payments (an additional
hour of pay for each day a break was missed) for most of Murphy’s time at KCP.

 

Subsequently, a California court of
appeals ruled that the Section 226.7 payments were penalties and a one-year statute
of limitations applied. However, the appeals court also said Murphy couldn’t
raise new claims that he didn’t assert before the labor commissioner.

 

Premium Pay, Not Penalty

But the California
Supreme Court has now ruled that the Section 226.7 payment is a premium wage
intended to compensate employees for working through a required meal or rest
period, and thus the three-year statute of limitations for wage claims applies.
Had lawmakers intended the payment to be a penalty, said the court, they easily
could have specified that. The high court also ruled that when a labor
commissioner ruling is appealed to a trial court, an employee may add related
claims to the court action that weren’t raised at the labor commissioner level.
1

 

Serious Impact

The high court has
handed employees a huge victory, with serious repercussions for businesses that
employ nonexempt workers in California.
First, if an employer doesn’t provide required breaks, the employee now can
wait three years to file a claim and collect up to three years of back payments
under Section 226.7, rather than being limited to recovering one year of
penalties. Note, too, that the statute of limitations could be as long as four
years if the employee also chooses to file an unfair competition claim for the unpaid
wages.

 

Second, because Section
226.7 payments are wages, when an employee is terminated, you could owe waiting-time
penalties for up to 30 days on these payments. Third, because Section 226.7
payments are not penalties, employees will be able to seek a separate penalty
for the missed breaks under the Private Attorney’s General Act (PAGA). (Note
that if the court had ruled the 226.7 payments were penalties, PAGA penalties
might have been unrecoverable as a double penalty). And if the claim is filed
as a representative or class action, the liability could snowball into huge amounts.

 

Finally, the court’s
decision to allow employees to raise related wage claims for the first time on
appeal from a labor commissioner ruling means that you could get blindsided by
issues that weren’t raised before the labor commissioner.

 


The HR Management & Compliance Report: How To Comply with California Wage & Hour Law, explains everything you need to know to stay in compliance with the state’s complex and ever-changing rules, laws, and regulations in this area. Coverage on bonuses, meal and rest breaks, overtime, alternative workweeks, final paychecks, and more.


 

Attorney Steve
Zadravecz, a partner in the Orange
County
office of law firm
Morrison & Foerster, told CWHA that the decision, by increasing
damages and exposure, will make it more difficult for employers to reach an
early out-of-court settlement in wage and hour suits. And unfortunately, says
Zadravecz, despite the fact that the Supreme Court has raised the stakes in break
cases, there continues to be inadequate guidance for employers on what it means
to “provide” meal periods or “authorize and permit” rest breaks.

 

Five Protection Measures

Here are five steps to
take now to avoid problems:

1. Have and enforce a
break policy.

 

2. Document breaks. Zadravecz says employers
must keep records indicating that required breaks were taken. Consider having employees
sign time cards that include a statement that the card accurately reflects the hours
worked by the employee and that the employee was provided an opportunity to
take all breaks to which he or she is entitled.

 

3. Train managers. Make sure your managers know
the meal and rest break rules and the importance of ensuring employees get
their required breaks.

 

4. Pay the penalty. If an employee misses a
meal or rest break, consider making the Section 226.7 payment in the next
paycheck, being sure to itemize it on the paystub.

 

5. Watch exempt
classification.
One of the biggest areas of meal and rest break liability stems
from improperly classifying employees as exempt, as the employer did here,
therefore not affording them the opportunity to take regular breaks.

 

_

1 Murphy v. Kenneth Cole
Productions, Inc., Calif.
Supreme Court No. S140308, 2007