On May 23, 2022, the California Supreme Court ruled that premium pay for missed meal and rest breaks constitutes “wages” that must be reported on wage statements and paid within the statutory deadlines for when an employee leaves the job, thereby overturning the decision of the Court of Appeal. In its reasoning, the Court noted that the Court of Appeal’s “conclusion that premium pay cannot constitute wages rests on a false dichotomy: that a payment must be either a legal remedy or wages. For these purposes, [Labor Code] section 226.7 is both.” The Court concluded that the fact that missed-break premium pay serves as a remedy for a legal violation does not change that the premium pay also compensates for labor performed “under conditions of hardship.” Separately, the Court also held that the rate of prejudgment interest that applies to amounts due for failure to provide meal and rest breaks is seven percent, which is the default rate set by the California Constitution.

The Naranjo decision involved a security officer working for Spectrum Security Services. Spectrum worked exclusively with federal agencies, and its security officers provided custodial services for those agencies. All of Spectrum’s officers were required to take on-duty meal breaks, and Spectrum prohibited other breaks pursuant to its employee manuals that expressly stated, “This job does not allow for breaks other than using the hallway bathrooms for a few minutes.” The employee manuals (i.e., the original manual and the revised manual) included similar language for meal breaks and did not include any language allowing for employees to revoke the on-duty meal break policy. Further, although employees did not sign the employee manuals, they did sign a separate document that acknowledged their receipt and careful examination of the employee manuals. As a result, Plaintiff Gustavo Naranjo was suspended and later terminated after he left his post for a meal break. Soon thereafter, he filed the putative class action, which started the turn of events culminating in today’s decision by the California Supreme Court.

The Naranjo decision has been long awaited by employers and employees because of its major implications relating to waiting time penalties and inaccurate wage statement penalties deriving from premium pay for unpaid meal and rest breaks. Employers will now need to be cognizant of this change moving forward to avoid a future exposure that could be significant depending on various factors.