April 15, 2007 California Supreme Court Sets Limitation Period On Meal And Rest PeriodClaims At Four Years

Summary

In a case that has been carefully watched by California employers, this morning the California Supreme Court unanimously ruled that the “one hour of pay” employers are required to pay to employees for each day that the employer fails to provide a meal or rest period as required by law is a “wage”. The Court’s ruling resolves a hotly debated and economically very significant question, because this ruling means that: (1) employee claims for missed meal or rest periods can reach back four years from the date of filing, instead of just one year, and (2) terminated employees who have received at least one hour’s pay for a missed meal or rest period can recover up to an additional 30 days’ pay as a “waiting time” penalty under Labor Code section 203.

Details

The Court today issued its decision in the case of Murphy vs. Kenneth Cole Productions. The case was argued on March 7, 2007, and the Court issued its opinion very quickly. The question before the Court was the subject of heated debate because the stakes were very high. Class action lawsuits for missed meal and rest periods are rampant. In these class actions, attorneys representing classes of employees have classified the one hour of pay for each day the employer failed to provide a meal period or allow a rest period as a “wage.” Based on this, they have routinely sought recovery for a period of four years before the complaint was filed -- three years based on an alleged violation of the Labor Code, and one additional year of based on the routinely asserted claim for violation of California’s Unfair Competition Law. In addition, they sought waiting time penalties of up to 30 days’ pay for all class members whose employment terminated over the four years preceding the filing of the complaint, on the theory that the unpaid compensation is unpaid wages and as such, triggers the waiting time provisions of Labor Code section 203. Employers, on the other hand, have argued that the additional pay is in the nature of a “penalty,” which would mean that a one year statute of limitations applies, and Labor Code 203 is not triggered by the failure to pay the penalty.

The answer to the question is not evident in Labor Code section 226.7. This statute, which was added to the Labor Code in 2000, is the source of the rule requiring the additional pay when an employer is not provided a meal period or not allowed a rest period. Trial court judges ruled different ways, as did state Courts of Appeal in a series of cases. A majority of these appellate decisions, including Cole, decided this issue favorably for employers. The California Supreme Court accepted review of the Cole case to resolve this issue, and this morning it reversed the decision in Cole.

The Court looked at the language of section 226.7, its purpose and legislative history, and how it fit within the Labor Code as a whole. It concluded based on this analysis that the one hour premium pay is properly characterized as a wage. This means that employee claims based on Labor Code section 226.7 can extend back a full four years from the date the complaint is filed, and employees bringing these claims are entitled to add a claim for waiting time penalties to their meal/rest period claims. This is the final resolution of this issue in California.

What This Means

Meal and rest period class actions are hugely significant to employers. Large employers in the retail and restaurant industry have been hit particularly hard, primarily because they have many employees and relatively high turnover. These factors lead to large classes, sometimes in the tens of thousands, which in turn results in huge liability for many, minor violations. Settlements and judgments in meal/rest period cases routinely cost employers millions of dollars, with the largest case being the $172 million dollar jury verdict last year against Wal-Mart.

A one year statute of limitations would have quelled the rising tide of meal and rest period class action litigation by significantly limiting the stakes. The Supreme Court’s decision that the one hour of premium pay is a wage insures that the tide of these cases will continue to rise, unless the Legislature provides relief for employers.

The decision today means that employers throughout California must make sure that they have strong policies and procedures in place that require employees receive a 30 minute, duty-free meal period after working for five hours and a paid 10-minute rest period per four hours of work. This requires training of employees and of supervisors, and a proactive system to monitor compliance, and impose disciplinary action on employees who do not take breaks as required, and on supervisors who do not require their employees to do so.

This E-Update was authored by Fred Plevin. For more information, please contact Mr. Plevin or any Paul, Plevin attorney at 619-237-5200.