California employees now have three years, not just one, to bring suit for violations of missed meal or rest periods under Labor Code section 226.7. On April 16, 2007, a unanimous California Supreme Court ruled that premiums paid to employees for missed meal and rest breaks constitute wages, not penalties. Murphy v. Kenneth Cole Prods., Inc., S140308. With this decision, the Supreme Court resolved a long-contested area of law, and established that a three-year (or possibly four-year) limitations period will apply to these claims.
Labor Code section 226.7 provides that an “employer shall pay the employee one additional hour of pay at the employee’s regular rate of compensation for each work day that the meal or rest period is not provided.” California’s Courts of Appeal had split regarding whether the additional hour of pay should be considered a penalty, in which case California’s one-year statute of limitations would apply, or a wage, in which case California’s three-year statute of limitations would apply. In the proceedings below, the trial court found that the payment constitutes a “wage,” and it awarded a Kenneth Cole store manager premium pay for meal and rest break violations dating back three years. The Court of Appeal reversed the trial court’s finding, holding the payment constitutes a “penalty,” not a “wage,” and applied a one-year limitations period to the employee’s claims.
Justice Carlos Moreno, writing for the Supreme Court, reversed the Court of Appeal’s decision, concluding that “the remedy provided in Labor Code section 226.7 constitutes a wage or premium pay and is governed by a three-year statute of limitations.” Justice Moreno noted that the distinction between a wage and a penalty is derived from whether the Legislature intended primarily to compensate employees or to punish employers.
The Court analyzed the language of section 226.7, its legislative and administrative history, and the “functional” impact of the statute, and found that they each demonstrate that the payment is a premium wage rather than a penalty. The Court found that “whatever incidental behavior-shaping purpose section 226.7 serves, the Legislature intended section 226.7 first and foremost to compensate employees for their injuries,” and punishing the employer was merely a secondary benefit of the statute. In so holding, the Court emphasized the social, health and safety impacts that missed meal breaks have on employees, and noted that treatment of the premium as a wage furthers the intent of the Labor Code to protect workers.
Accordingly, employers are now potentially liable for meal and rest break penalties dating back as far as three years. And, although the court did not address this point, it appears likely that plaintiffs will seek a fourth year of pay under Business and Professions Code section 17200. In light of this increased risk, employers should ensure not only that their meal and rest period policies are compliant with California law, but also that they are rigorously enforced. Finally, the Court's conclusion that these payments are wages raises other questions, for example, implications with regard to tax withholdings. Employers faced with paying these premium wages should consult with their attorneys to evaluate this and other issues.