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	California's Meal and Rest Period "Penalty" vs. "Wage" Controversy Continues Employment/Labor  As many employers know, California Labor Code section 226.7(b) states that if an employer fails to provide a mandated off-duty meal or rest period, it "shall pay the employee one additional hour of pay at the employee's regular rate of compensation" for every day on which a violation occurs. Since the statute of limitations applicable to penalty claims is one year (and the statute of limitations applicable to wage claims is three years under the Labor Code and four years under the Business and Professions Code), and since the additional remedies applicable to any failure to pay wages do not apply to penalties, the financial significance of the "penalty" vs. "wage" debate is both obvious and substantial. Since the Legislature enacted section 226.7(b) in 2001, a debate has arisen as to whether these payments for missed or otherwise non- compliant meal and rest periods constitute "wages" or "penalties." To maximize potential recoveries, employee rights attorneys have argued that the "one additional hour of pay" required by Section 226.7(b) is a supplemental wage, invoking the longer statute of limitations. In contrast, defense counsel have argued on behalf of employers that the payment required by Section 226.7(b) is a penalty and not a wage, and is subject to a shorter limitations period. Conflicting Court Decisions In the past few months, three California Courts of Appeal have arrived at conflicting decisions on the "penalty" vs. "wage" issue. On December 2, 2005, the First District Court of Appeal held that the Section 226.7(b) payment is a penalty and not a wage, and that a one- year statute of limitations applies to meal and rest period claims. Murphy, et al. v. Kenneth Cole Productions, Inc., 134 Cal.App.4th 728 (2005). On January 20, 2006, the Fourth District Court of Appeal reached the opposite conclusion, holding that Section 226.7(b) mandates payment of a penalty in the form of a supplemental wage payment, and that the applicable statute of limitations is as long as four years under California's Unfair Competition Law. National Steel And Shipbuilding Company, et al. v. Superior Court, 135 Cal.App.4th 1072 (2006). On January 27, 2006, the Second District Court of Appeal unanimously held that the Section 226.7(b) payment is a penalty. Mills v. Superior Court, 135 Cal.App.4th 1547 (2006). The court also addressed the issue of whether the payment under Section 226.7(b) can be cumulative, i.e., whether a missed meal period and a missed rest period in a single day count as two penalties or only one penalty. The court stated that if all of the break periods in one shift are missed, then one hour of pay is due, suggesting that the payment is not cumulative. On February 22, 2006, the California Supreme Court granted review in Murphy v. Kenneth Cole Productions, Inc. The issues the court set for review are: (1) Whether a claim under Labor Code section 226.7(b) for the required payment of "one additional hour of pay at the employee's regular rate of compensation" for each day that an employer fails to provide mandatory meal or rest periods to an employee is governed by the three year statute of limitations for a claim for compensation, as found in Code of Civil Procedure section 338, or the one year statute of limitations for a claim of a penalty under Code of Civil Procedure section 340; and (2) When an employee obtains an award on such a wage claim in an administrative proceeding, and the employee seeks de novo review in superior court, whether the employee can pursue additional wage claims not presented in the administrative proceeding. Conclusion When the Supreme Court decides Murphy v. Kenneth Cole Productions, Inc., it should put to rest once and for all whether employees who sue for missed meal or rest periods can obtain this payment going back one year or for years. In the meantime, employers should continue taking appropriate steps to strictly comply with the rest and meal period requirements. For questions about this eAlert or for more information, contact Wayne Hersh at (949) 474-1880 or whersh@bergerkahn.com. Back
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