The California Supreme Court sides with employees in Naranjo v. Spectrum Security Services, finding derivative claims available for waiting time and pay stub penalties available for meal and rest break violations.
This week, the California Supreme Court issued its opinion in Naranjo v. Spectrum Security Services Inc., No. S258966 (May 23, 2022), resolving a long-standing debate over whether waiting-time and wage statement penalties are recoverable when an employer fails to pay employees premium pay owed for meal and rest break violations. Siding with employees, the Court held that that they are. Moreover, the Court additionally interpreted California's wage statement statute to require that wage statements reflect "all amounts earned and now owing, not just those amounts actually paid."
The decision reverses a 2019 decision by the Court of Appeal, which had held that unpaid meal period premiums were not "wages" under the Labor Code, and thus did not trigger derivative penalties for inaccurate wage statements under Section 226(e) or waiting time penalties for unpaid final wages under Section 203. In disagreeing, the Supreme Court explained that the Court of Appeal's holding rested on a "a false dichotomy" that assumed "that a payment must be either a legal remedy or wages." (Naranjo, No. S258966 at *9.) Premium pay, the Court held, "is both."
Reaching an issue that the Court of Appeal had not addressed, the Supreme Court additionally rejected the employer's argument that no wage statement violation occurs when a wage statement accurately reports all wages paid, but omits additional wages owed but not paid. Focusing on statutory language requiring that wage statements accurately report all wages "earned," the Court distinguished the holdings in Maldonado v. Epsilon Plastics, Inc., 22 Cal.App.5th 1308 (2018) and Soto v. Motel 6 Operating, L.P., 4 Cal.App.5th 385 (2016) and found that the injury requirement of the statute is met where the employer did not include premium pay owed but not paid on wage statements.
Post-Naranjo, employers can expect that plaintiffs will continue to seek derivative final pay and wage statement claims in meal and rest break litigation. They can also expect plaintiffs to rely on Naranjo in wage statement cases even where meal and rest break violations are not at issue to argue that a wage statement violation occurs automatically any time there are unpaid wages of any kind, even if the statement does accurately reflect pay the employee did receive. The decision does not, however, alter the statutory requirements to recover Section 203 and 226(e) penalties: A plaintiff must still demonstrate that the employer's failure to pay premium pay was "willful" (for final pay penalties) or "knowing and intentional" (for wage statement penalties). Nor does it eliminate employers' good faith affirmative defenses to such claims. Regardless, all California employers should take stock of their practices with respect to wage statements, final paychecks, and meal and rest break premiums.
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