A California law requiring employers to pay an employee an additional hour of pay for each work day that a required meal or rest period is not provided is a premium wage intended to compensate employees rather than a penalty, held a unanimous California supreme court. Therefore, the state three-year statute of limitations applies, rather than the one-year period governing claims for penalties (Murphy v Kenneth Cole Productions, Inc, California Supreme Court, April 16, 2007).
Background. Employees in California are entitled to an unpaid 30-minute, duty-free meal period after working for five hours and a paid 10-minute rest period per four hours of work. California Labor Code section 226.7 prohibits employers from requiring employees to work during any mandated meal or rest period. Employers who fail to provide the mandated meal period or rest period must 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.
John Murphy worked as a store manager in a Kenneth Cole Productions (KCP) retail clothing store from June 2000 to June 2002. He was paid a weekly salary and regularly worked nine to ten hours. He rarely was able to take an uninterrupted, duty-free meal period or rest breaks.
Four months after resigning he filed a wage claim seeking overtime and waiting time penalties. After a hearing, the Labor Commissioner awarded Murphy unpaid overtime, interest and waiting-time penalties. KCP sought de novo review in the superior court, at which Murphy also asserted for the first time additional claims for meal and rest period and itemized pay statement violations.
In 2004, the superior court awarded Murphy overtime, payments for missed meal and rest periods, penalties for failing to furnish itemized pay statements, and waiting time penalties. Applying the three-year statute of limitations, the court awarded payments for meal and rest period violations dating from October 2000.
A state court of appeal reversed in part, holding that the payments assessed for meal and rest period violations were penalties subject to the one-year statute of limitations and that claims may not be raised for the first time on de novo appeal from an administrative hearing before the Labor Commissioner. The state supreme court reversed.
Legislative history. The statutory language of Labor Code section 226.7 appeared to indicate that the additional hour of pay is a wage, the supreme court observed. But it could also be interpreted as a penalty intended to punish the employer for denying employees their meal and rest periods. Thus, the court looked for guidance to the law's legislative history.
The court reviewed the evolution of the statute from the early 1900s, when the only remedy for failing to provide meal and rest periods was injunctive relief. In 2000, the current pay remedy was added. At the same time, a bill was introduced in the legislature which contained a pay remedy and a penalty provision. The subsequent deletion of the penalty provision was further support for concluding that the provision was a payment rather than a penalty.
The language of several other amendments referencing "the employee's regular rate of compensation" and "paying the workers one hour of wages" indicated that the committee considered "the additional hour of pay" a wage rather than a penalty. In addition, the court noted that the amendments eliminated the requirement that an employee file an enforcement action, instead creating an affirmative obligation on the employer to pay the employee one hour of pay. "In that way, a payment owed pursuant to section 226.7 is akin to an employee's immediate entitlement to payment of wages or for overtime," unlike provisions imposing penalties where the employee or Labor Commissioner must first take some action to enforce them.
The occasional description of the meal and rest period remedy as a "penalty" during deliberations simply acknowledged that, like overtime pay, "the meal and rest period remedy has a corollary disincentive aspect in addition to its central compensatory purpose," the court concluded.
Functional analysis. The court also rejected the employer's assertion that the payment was more akin to a penalty because its purpose was to shape employer behavior and because it was imposed without regard to the actual loss suffered. Like overtime, dual purpose remedies do not become penalties simply because they are intended to shape employer behavior in addition to compensating employees, the state high court noted.
Furthermore, a one-to-one ratio between the economic injury caused by missed meal or rest periods and the remedy chosen by the legislature does not transform the payment into a penalty. Other statutes authorizing payments for certain kinds of labor or scheduling resulting in harm to an employee use the employee's rate of compensation as the measure of pay and compensate the employee for events other than time spent working, the court reasoned.
The lower court's focus on the lack of a correlation also "ignores the noneconomic injuries employees suffer from being forced to work through rest and meal periods." Employees denied rest and meal periods are at greater risk of work-related accidents and increased stress, the court added.
Avoiding stale claims. Finally, the three-year retention requirement for all time records, including meal period records, eliminates the problem of stale claims and unavailability of witnesses, the court concluded.
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