Recent Developments from Around the States

Under California Labor Code Section 512, employers must allow their employees a 30-minute meal break for every 5 hours worked. Likewise, the California Industrial Welfare Commission (IWC) wage orders mandate that employees also receive a 10-minute break for every 4 hours worked. Should employees be required to skip meal breaks, Labor Code Section 226.7 demands that they receive 1 hour of pay for each missed meal break. Whether these damages are determined to be “penalties” or “wages” affects the statute of limitations for bringing a claim, and thus employers' exposure to liability. Three California appeals courts, in San Francisco, San Diego, and Los Angeles, have come to different conclusions in this regard, leaving state law unsettled.

In Murphy v. Kenneth Cole Prods. Inc., 36 Cal.Rptr.3d 418 (Dec. 2, 2005), an appeals court in San Francisco concluded that based on its “analysis of the wording, history and apparent intent of the Legislature when enacting section 226.7, and the IWC when it promulgated the wage order,” “the payment imposed for impermissibly failing to provide a meal or rest break is a penalty. As a penalty, it ha[s] to be raised within one year of the last date that the claim accrued.” In so holding, the Murphy court noted that “a statute like section 226.7 that imposes a payment without regard to the actual loss suffered, is in the nature of a penalty.” The payments imposed by the wage order and section 226.7 “[are] not compensation for labor performed, but [are] an arbitrary amount imposed on the employer in addition to the salary already paid during the time the employee was not eating or not resting.” Further, the court found that when promoting the establishment of the relevant wage order, the IWC Commissioner stated that “overtime is treated as a penalty and that the IWC would adopt the new penalty under the same authority.”

A California appeals court in San Diego created a split in National Steel and Shipbuilding Co. v. Superior Court, 2006 WL 147520 (Jan. 20, 1996), when it held that because “the Legislature could have, but did not, label the statutory payment of section 226.7 as a 'penalty,' and the entire statutory scheme suggests that the payment under section 226.7 is primarily in the nature of a statutory remedy to employees,” payments under the statute should be labeled “wages.” In so holding, the court found that even though “Section 226.7 has the dual function of deterring employers from requiring their employees to work through mandated meal and rest periods and compensating employees required to work through these periods,” the Legislature's characterization of the payment is controlling.

Finally, just 7 days later, an appeals court in Los Angeles found that the payments made under 226.7 are penalties in that they constitute “fixed sums that become due the moment a break period is missed, regardless of the amount of time wrongly worked during a break period.” Mills v. Super. Ct., 2006 WL 198588 (Jan. 27). These payments “do not compensate an employee for additional services rendered,” as would a wage. Thus, the court held that “[t]he failure of section 226.7 to correlate the payment due to any additional labor performed by an employee undermines any argument the payment is a wage.”

The split among the appeals courts will likely be resolved by the California Supreme Court, as attorneys for Murphy have already asked for supreme court review. A resolution would mean that millions of dollars are at stake. For instance, last December a jury in a California superior court awarded Wal-Mart employees $57,268,673 for unpaid meal and rest breaks and $115 million in punitive damages. Savaglio v. Wal-Mart, 2004 WL 2034092 (Cal. Superior Jul. 20, 2004). However, workers will only receive those punitive damages if they are characterized as wages, rather than penalties, making the supreme court's ruling on this issue a matter of significant interest to the legal community.

CALIFORNIA

CA Supreme Court Likely to Resolve Lower Court Split

A dispute among three California state appeals courts regarding whether payments garnered as the result of violations of California's meal and break regulations are to be characterized as “penalties” or “wages” will likely be resolved by the California Supreme Court in the near future.

Under California Labor Code Section 512, employers must allow their employees a 30-minute meal break for every 5 hours worked. Likewise, the California Industrial Welfare Commission (IWC) wage orders mandate that employees also receive a 10-minute break for every 4 hours worked. Should employees be required to skip meal breaks, Labor Code Section 226.7 demands that they receive 1 hour of pay for each missed meal break. Whether these damages are determined to be “penalties” or “wages” affects the statute of limitations for bringing a claim, and thus employers' exposure to liability. Three California appeals courts, in San Francisco, San Diego, and Los Angeles, have come to different conclusions in this regard, leaving state law unsettled.

In Murphy v. Kenneth Cole Prods. Inc. , 36 Cal.Rptr.3d 418 (Dec. 2, 2005), an appeals court in San Francisco concluded that based on its “analysis of the wording, history and apparent intent of the Legislature when enacting section 226.7, and the IWC when it promulgated the wage order,” “the payment imposed for impermissibly failing to provide a meal or rest break is a penalty. As a penalty, it ha[s] to be raised within one year of the last date that the claim accrued.” In so holding, the Murphy court noted that “a statute like section 226.7 that imposes a payment without regard to the actual loss suffered, is in the nature of a penalty.” The payments imposed by the wage order and section 226.7 “[are] not compensation for labor performed, but [are] an arbitrary amount imposed on the employer in addition to the salary already paid during the time the employee was not eating or not resting.” Further, the court found that when promoting the establishment of the relevant wage order, the IWC Commissioner stated that “overtime is treated as a penalty and that the IWC would adopt the new penalty under the same authority.”

A California appeals court in San Diego created a split in National Steel and Shipbuilding Co. v. Superior Court, 2006 WL 147520 (Jan. 20, 1996), when it held that because “the Legislature could have, but did not, label the statutory payment of section 226.7 as a 'penalty,' and the entire statutory scheme suggests that the payment under section 226.7 is primarily in the nature of a statutory remedy to employees,” payments under the statute should be labeled “wages.” In so holding, the court found that even though “Section 226.7 has the dual function of deterring employers from requiring their employees to work through mandated meal and rest periods and compensating employees required to work through these periods,” the Legislature's characterization of the payment is controlling.

Finally, just 7 days later, an appeals court in Los Angeles found that the payments made under 226.7 are penalties in that they constitute “fixed sums that become due the moment a break period is missed, regardless of the amount of time wrongly worked during a break period.” Mills v. Super. Ct., 2006 WL 198588 (Jan. 27). These payments “do not compensate an employee for additional services rendered,” as would a wage. Thus, the court held that “[t]he failure of section 226.7 to correlate the payment due to any additional labor performed by an employee undermines any argument the payment is a wage.”

The split among the appeals courts will likely be resolved by the California Supreme Court, as attorneys for Murphy have already asked for supreme court review. A resolution would mean that millions of dollars are at stake. For instance, last December a jury in a California superior court awarded Wal-Mart employees $57,268,673 for unpaid meal and rest breaks and $115 million in punitive damages. Savaglio v. Wal-Mart, 2004 WL 2034092 (Cal. Superior Jul. 20, 2004). However, workers will only receive those punitive damages if they are characterized as wages, rather than penalties, making the supreme court's ruling on this issue a matter of significant interest to the legal community.