By Thomas G. Thornton – June 2023
A pair of significant recent California court decisions have clarified two areas of law that regularly feature in wage and hour disputes, namely, claims of wage statement and break period violations. California law imposes strict requirements on what information must be included in an employee’s wage statements. In addition, employers must ensure that employees are afforded the meal and rest periods provided by law. A failure to comply with these requirements can be costly. The recent decisions in the case of Naranjo v. Spectrum Security Services, Inc. clarify the law related to the penalties that can be awarded to employees for wage statement and break period violations and underscore that employers should review their current practices in these areas to ensure they are compliant with law.
In Naranjo v. Spectrum Security Services, Inc. (2022) 13 Cal.5th 93, the California Supreme Court held that the premium payments that must be paid to an employee for missed break periods were wages. As a result, premium payments for missed break periods must be reported on an employee’s wage statement, must be paid on an ongoing basis, and must be timely paid as part of an employee’s end-of-employment compensation just like any other wages. The court concluded that an employer’s failure to report premium pay for missed break periods on wage statements and failure to timely pay all premium pay in a final pay check can result in an award of penalties under Labor Code sections 203 and 226 where the relevant conditions for such penalties are met. In so holding, the Supreme Court reversed the decision of a lower court and resolved a preexisting split between state and federal court decisions on the issue.
The Supreme Court’s Naranjo decision exposes employers to significant penalties. Under Labor Code Section 226, employers are required to provide wage statements to employees which contain specific items of information as set forth in the statute. If an aggrieved employee suffers injury caused by the knowing and intentional failure of an employer to provide a compliant wage statement then the employee is entitled to recover the greater of the actual damages caused by the failure, or a statutory penalty of up to $4,000, and to an award of costs and attorney’s fees. Furthermore, under Labor Code section 203, employers who willfully fail to timely pay all wages owed to an employee who is discharged or quits must pay—in addition to all unpaid wages—a penalty equal to the employee’s daily wage for up to a maximum of thirty day’s wages. The Supreme Court remanded the case back to the appellate court to determine whether certain conditions necessary for the imposition of the two penalties (i.e. “knowing and intentional” and “willful” acts by the employer) were present given the facts of the case.
On remand, the appellate court in Naranjo v. Spectrum Security Services, Inc. (2023) 88 Cal.App.5th 937, explained that an employer has not engaged in a “knowing and intentional” failure to provide an accurate wage statement under Labor Code section 226 where there is a good faith dispute as to whether the employer was in compliance with the wage statement requirements of that statute, thereby precluding an award of penalties and attorney’s fees in such a scenario. Similarly, the decision outlined that if an employer asserts a good faith defense that premium wages for missed break periods were not owed to an employee, then its actions were not “willful” for purposes of the imposition of waiting time penalties under Labor Code section 203. Based on those conclusions, the appellate court ruled that the employer in that case owed neither Labor Code section 226 penalties and attorney’s fees nor Labor Code section 203 waiting time penalties. This decision offers employers a viable defense to wage statement and waiting time penalties claims. However, the appellate court’s decision was based on the particular facts of that case, and it remains to be seen how its holding will be applied in practice.
In light of the potential exposure to significant penalties created by the decision of the California Supreme Court in Naranjo, employers would be well served by reviewing—and, if need be, revising—their current practices and policies to ensure compliance with California law in this area.
Author: Thomas G. Thornton