Jan. 26, 2006 Meal and Rest Period Law in California Remains Unsettled
Last week, the Court of Appeal for the Fourth Appellate District in San Diego muddied the waters of California’s controversial (and still unclear) meal and rest period laws. In National Steel and Shipbuilding Co. v. Superior Court (“NASSCO”), the Court of Appeal held that the statute of limitations for the recovery of payments for missed meal and rest periods is three years — the same as wages — rather than one year (as is applicable to penalties).
This opinion was directly in conflict with a December 2, 2005, Court of Appeal decision, Murphy v. Kenneth Cole Productions, Inc., from the First Appellate District in San Francisco; and it is also in direct conflict with the Division of Labor Standards Enforcement’s (“DLSE”) precedent decision published last summer. Thus, it is likely that the California Supreme Court will have this issue on its docket soon, and the issue is far from settled.
Labor Code section 226.7 states that when an employee works through a meal period or is not permitted to take a rest period, that employee is entitled to an extra hour of pay. The question in each of the three decisions cited above is the same: is this hour of pay a penalty or a wage? The distinction is important because penalties can only be recovered going back one year, while wages are recoverable for a three year period. In addition, unpaid wages expose the employer to “waiting time” penalties under the Labor Code; unpaid penalties do not. Thus, the exposure to liability for most employers is significantly impacted by the characterization of the extra one hour’s pay as a penalty or a wage.
While all three decisions cite to legislative history and the nature of a penalty (i.e. something not tied to the amount of work performed), the NASSCO decision is notable in two respects. First, it finds that the payment is a penalty for the employer, but is paid out in the form of a wage to the employee. In essence, the opinion holds that the statute of limitations for this particular type of penalty is three years because it is paid directly to the employee and correlates to the employee’s rate of pay. Second, the Court found that an employee can voluntarily skip a meal period, and no penalty is required. The Court found that only when an employer fails to give an employee the opportunity to take a meal or rest period is the employer liable for the penalty. This interpretation of the law is novel because the regulations do not provide for a waiver of a meal period except in extremely limited circumstances, and it has generally been accepted that the penalty applies to an employer that either requires or permits an employee to miss a meal period. (This novel – and unsettled – interpretation should not be relied on until further clarification.)
In marked contrast, in Murphy, the Court of Appeal had held that (consistent with current regulations and wage orders) an employer does not have the choice to withhold meal periods even at the employee’s request, and is required to provide one hour’s additional pay any time an employee does not receive a meal break. Based on this interpretation of the law, the Murphy court held that the payment was a penalty subject to a one year statute of limitations.
This case highlights an ongoing battle between the legislature and the Governor’s office on California’s wage and hour laws. Just a week before the NASSCO decision, Governor Schwarzenegger withdrew meal and rest period regulations that had been pending for over a year. These regulations would have benefited employers by relaxing the meal and rest period rules, not requiring a penalty where the employee voluntarily missed a meal period, and establishing the one hour premium pay as a penalty, not a wage. The regulations were opposed by organized labor. In withdrawing the regulations, the Governor cited as the basis for his decision the number of comments received and an inability to adequately review and respond to them before a regulatory deadline. In a press release on the issue, the DLSE also stated that the need to clarify the statute of limitations for missed meal and rest breaks was no longer urgent based on the Murphy decision and the DLSE’s own precedent decision. The split in the Court of Appeal created by the NASSCO decision only complicates the picture. It will not be clarified unless and until the Governor starts anew the process to propose new regulations, or the California Supreme Court resolves the issue.
What this Means
We have been reporting on constant developments in meal and rest period laws for over a year. Until NASSCO, it appeared that relief was on the horizon for employers, but now that the regulations have been withdrawn and there is a conflict in the Court of Appeal, any hope of short-term relief has been dashed. As always, to avoid liability in this burgeoning area of litigation, it is best to train supervisors to enforce meal and rest period requirements, have all hourly employees clock in and out for meal breaks (ensuring that a 30 minute, off-duty meal break is taken within the first five hours of work) and have all employees certify each pay period that they received all rest and meal breaks for that pay period.