GIVE THEM A BREAK! THE CALIFORNIA SUPREME COURT CLARIFIES STATUTE OF LIMITATIONS FOR MISSED MEAL AND REST PERIOD CLAIMS

The California Supreme Court has held that meal period premiums are “wages,” not penalties. While this might sound like a positive development for employers, it is actually quite the opposite. The Supreme Court’s holding in Murphy v. Kenneth Cole Productions, Inc. that the premiums are wages means that meal period and rest period claims are subject to a three-year (and sometimes even four-year) statute of limitations, rather than the one-year statute of limitations for penalties.

A Little Background

In an effort to provide a remedy for employees who were not provided meal or rest periods as required by the California wage orders, section 226.7 was added to the Labor Code effective January 1, 2001. Section 226.7 provides for “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.” The issue before the California Supreme Court in Murphy was whether the payments required by section 226.7 are considered a “wage,” subject to a three or four-year statute of limitations, or a “penalty,” subject only to a one-year statute of limitations. The Court held that the payment is considered a “wage.”

What Does This Mean For Employers?

1) Pay on time
Because meal and rest period premiums are wages, employers must pay the premiums for missed meal and rest periods on the payday for the pay period in which the meal or rest periods were missed. Also, all of the premiums that are owed to an employee when his or her employment ends must be paid promptly, because the failure to timely pay meal and rest period premiums can now give rise to waiting time penalties under Labor Code Section 203.

2) Withhold and Record Properly
In addition to its other implications, the Murphy decision also confirms that meal and rest period premiums will, as wages, now be subject to the withholding of income and payroll taxes. This holding is in conformity with a letter opinion previously issued by the IRS that stated premiums were subject to taxation as wages.