The Meal And Rest Period Time
Premium Is NOT A Penalty

The California Supreme Court case of Murphy v. Kenneth Cole Productions, Inc., 2007 WL 1111233, confirms an unsettled issue surrounding the proper interpretation of Labor Code section 226.7. Namely, the premium imposed on employers for meal and rest time violations is not a penalty; it must be classified as wages. Disagreement about whether this ruling is good or bad depends on your perspective; however, most will agree that it will have real consequences for employers . . . three (3) times the consequences, to be exact.
Instead of 1 year, an employee can now reach back 3 years to recover for meal and rest time violations. In addition, lifting the penalty classification has unveiled the applicability of Business & Professions Code section 17200 to meal and rest time violations. That section provides for class action lawsuits and further provides a 4 year statute of limitations.
Given the Murphy ruling, it is not enough for employers to simply implement a meal and rest time policy that matches the Labor Code. To protect against costly lawsuits, the employer must also require, enforce and document compliance.

The Backdrop
Most employers are aware that failing to comply with meal and rest time provisions may require the employer to pay an additional hour of pay to the employee for each day that a violation occurred. Specifically, Labor Code section 226.7 provides that:

[I]f an employer fails to provide an employee a meal period or rest period in accordance with an applicable order of the Industrial Welfare Commission, the employer shall 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.

Unfortunately, the “additional hour of pay” language of section 226.7 has been the source of some confusion. The focus of the confusion is whether the additional pay should be treated as wages or, instead, a penalty. Certainly, a literal reading of this language allows the conclusion that additional wages are being paid. An argument can therefore be made that the provision seeks to reimburse the employee for breaks he/she was supposed to receive. On the other hand, given that the meal time provision only requires a thirty (30) minute period of time and required break times are only ten (10) minute periods for every four (4) hours of work, the additional one (1) hour of pay required under section 227.6 does not appear to reflect actual time worked. From that perspective, the extra pay does not resemble wages, but rather a penalty.

Adding to the confusion, the California Division of Labor Standards Enforcement (DLSE) and the Courts have provided conflicting interpretations. In June 2003, the DLSE took the position that the meal and rest break payments were a premium wage and not a penalty. Later, the DLSE changed its position in June 2005 (Case Number 12-56901RB), stating that it is a penalty. In contrast, a federal court, interpreting California law, Tomlinson v. Indymac Bank, FSB (C.D.Cal. 2005) 359 F.Supp.2d 891, concluded that the meal period sanction was not a penalty. Then, in December 2005, the California Court of Appeal, First District, ruled on the issue in Murphy v. Kenneth Cole Productions, Inc. (2005) 134 Cal.App.4th 728. The Murphy Court of Appeal explained,

That payment is not compensation for labor performed, but is 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. It is not overtime pay for an allowed work period, but a penalty for violating the law that prohibits work during those times.

Reversing the lower Court, The California Supreme Court now confirms that Labor Code section 226.7 should not be read as imposing a penalty. Among other reasons, the Court placed emphasis on the fact that the statute itself does not classify the provision as a penalty, noting that the Legislature has made it clear that it knows how to write penalty statutes with clarity. It also points out that interpreting this as a premium wage is consistent with other Labor Code conventions, such as overtime pay, which is not considered a penalty but rather a wage. The Court also reasoned that pay is not transformed into a penalty merely because a one-to-one ratio does not exist between the economic injury caused by meal and rest period violations on the one hand and the remedy selected by the Legislature on the other hand. Stated differently, just because a one-hour premium is earned for a thirty (30) minute violation does not mean that the premium paid is a penalty.

Why Is This Case
Significant To Employers
The significance of the Murphy Court’s ruling is more than academic. It can have a real impact on the actual value at stake for both the employer and employee in a wage dispute involving meal and rest time issues. Most notably,

• The statue of limitations for recovery of a penalty is only one (1) year under C.C.P. § 340. The window of recovery for meal and rest time period violations has therefore been significantly increased, given that claims for unpaid wages are generally subject to a three (3) year statute of limitations under C.C.P. § 338(a).
  
  
• As a penalty, an employee could not seek to recover this amount in an Unfair Business Practices Act lawsuit under Business & Professions Code §17200. Section 17200 typically only allows monetary recovery in the form of restitution (return of something lost). That rule therefore applies to wages but not penalties. Now that Section 17200 is viable, employers are exposed to the class action features of Section 17200 as well as the four (4) year statute of limitations.

Summary of Meal and
Rest Time Requirements

Meal Periods
Each Wage Order promulgated by the Industrial Welfare Commission (except Wage Order 16) contains the same requirements for meal times. First, an employee who works more than five (5) hours in a shift is entitled to a meal period of not less than thirty (30) minutes. An exception exists if the work period is not more than six (6) hours, in which case the meal period may be waived by mutual consent of the employer and employee.

Unless the employee is relieved of all duty during a thirty (30) minute meal period, the meal period is considered an “on duty” meal and counted as time worked. An “on duty” meal period is only permitted when the nature of the work prevents an employee from being relieved of all duty and when by written agreement an on-the-job meal period is agreed to. Such an agreement must expressly provide that the agreement may be revoked at any time.
An employer may not employ an employee for a work period of more than ten (10) hours in a workday without providing a second meal period. The second meal period may be waived if the total number of hours worked are no more than 12 hours and the first meal period has not been waived. (Labor Code § 512; DLSE Enforcement Manual § 45.2.3.)

Employees in certain health care industries or subject to collective bargaining agreements may be subject to variances of these requirements.

Rest Periods
All employees are required to take a paid rest period at the rate of ten (10) minutes net rest time per four (4) hours of work or major fraction thereof. This does not apply to work schedules of less than three and one-half (3½) hours in duration. The DLSE takes the position that the language “major fraction thereof” refers to time in excess of two (2) hours. (Opinion Letter 1999.02.16.)

The DLSE has made clear that the maximum penalty that can be levied for meal time and rest time violations is one (1) per day for a meal time violation and one (1) per day for a rest time violation, even if more than one rest period was mandated for that day. Notwithstanding, meal time violations and rest time violations are treated separately, so a maximum of two (2) hours per day is possible if both meal time and rest time violations occur on the same day.

What Must Employers Do?

1. An employer should always maintain accurate records of the hours actually worked by an employee.
   Often the employee does not have an accurate record of the specific days and will instead describe general practices from which a conclusion can be reached that meal times were not given. An employer will not make much headway by arguing that it has no records regarding whether or not an employee took meal time breaks. If a current system is not in place to track hours worked, it may be time to update the employer’s system.
   
   
2. Do Not Rely On Employees to Self-Police Their Meal/Break Time Periods.
   Similarly, relying on employees to self-police their own meal time and break time periods is simply a bad idea. It is the employer’s responsibility to ensure that meal time periods and break time periods are taken in accordance with law. Some sort of system should be in place to document when meals and breaks are taken. If a time-clock system is used, employees should punch in and out for meal times. For break time periods, even though an employee is being compensated and therefore will not clock out, a notation should be required by the employee on the time card reflecting when they took their break and when they returned. Whatever system is in place, the records should be reviewed regularly by supervisors with an eye toward spotting violations and correcting them.
   
   
3. Monitor and Enforce Compliance Violations
   It is not enough to implement a meal and rest time policy that mirrors the requirements of Labor Code section 226.7. An employer must monitor that policy and enforce violations. Each day holds the opportunity for a new violation and resulting premium. Without some system to check compliance, months or years can go by without correcting an ongoing practice.

Elizabeth R. Ison is a principal with THE ISON LAW GROUP, and can be contacted at (916) 492-6555