The California Supreme Court’s decision in Naranjo v. Spectrum Security Services, Inc. represents a significant win for employers across the state, providing much-needed clarity on wage statement requirements and the categorization of premium pay for missed breaks. While this ruling alleviates some of the complexities surrounding California’s stringent labor laws, it also serves as a reminder that vigilance in wage and hour issues remains crucial. In this article, we’ll break down the top five takeaways from the court’s decision, highlighting how it benefits employers and emphasizing the ongoing need for meticulous compliance to safeguard against potential penalties and legal challenges:

1. Good Faith Defense for Wage Statements.

The California Supreme Court ruled that if an employer reasonably and in good faith believed it was providing complete and accurate wage statements in compliance with section 226 of the Labor Code, then it has not knowingly and intentionally failed to comply with wage statement requirements. This establishes a good faith defense for employers against penalties for purported wage statement violations.

2. Wage Statement Requirements.

The ruling reaffirms the obligations under Labor Code section 226 that employers must provide employees with detailed wage statements that list hours worked, wages earned, and other pertinent information. Failure to comply, if not based on a good faith belief, can still lead to statutory penalties.

3. Treatment of Missed-Break Premium Pay as Wages.

The Court previously held that employers are required to treat premium pay for missed meal and rest breaks as wages. Under California law, employees are entitled to certain rest and meal breaks during their workday. If an employer fails to provide these mandated breaks, the employee is typically owed one hour of pay at their regular rate for each day that the break was not provided—this is known as “premium pay.”

The California Supreme Court confirmed that this premium pay for missed breaks should be treated as wages, rather than penalties. This distinction has significant implications for reporting on wage statements, calculating timing payment of wages and final wages, and penalties. 

4. Penalties for Non-Compliance.

The Supreme Court confirmed that penalties for not including required information on wage statements can be avoided if the employer can demonstrate a reasonable and good faith belief in their compliance, even if that belief is later shown to be mistaken.  If an employer knowingly and intentionally fails to provide a wage statement with all required information, the employee may recover statutory penalties. Specifically, for initial violations, an employee can recover $50, and for each subsequent violation, the penalty increases to $100 per employee, up to a maximum of $4,000. In addition to these penalties, the employee can also recover costs and reasonable attorney’s fees.

5. Distinction in Handling Missed-Break Premium Pay.

The Supreme Court clarified that missed-break premium pay must be treated as wages, not penalties. This interpretation is crucial because it means that premiums paid for missed meal and rest breaks must be included in the final wage payments upon an employee’s termination and reported on wage statements. If these payments were to be considered penalties, the payments would not be subject to the same stringent reporting and payment requirements as wages. This distinction impacts how employers should handle missed-break premiums both during employment and in final paychecks, emphasizing the need for accurate payroll practices and compliance with wage statement requirements to avoid additional liabilities.