PUBLICATIONS

On February 22, 2006, the California Supreme Court agreed to review one of the most hard-fought issues affecting California employers - are the monies owed to employees for missed meal and rest breaks considered "wages" and governed by a three-year statute of limitations, or are they "penalties" subject to a one-year statute of limitations? The California Supreme Court accepted review of this issue in the case of Murphy v. Kenneth Cole Productions.

 

In Murphy, the California Court of Appeal ruled that the monies owed to employees for missed meal and rest breaks are "penalties," and, thus, subject to a one-year statute of limitations. Prior to the decision in Murphy, a federal court in California held that the three-year statute of limitations governing wages was the applicable limitations period. Since Murphy was decided other appellate courts have weighed in, some agreeing with Murphy, while others have agreed with the earlier federal court decision.

 

In granting review, California Supreme Court has indicated that it seeks to have the following questions addressed by the litigants: (1) Is a claim under Labor Code section 226.7 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" governed by the three-year statute of limitations for a claim for compensation (Code Civ. Proc . § 338) or the one-year statute of limitations for a claim for payment of a penalty (Code Civ. Proc. § 340)? (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, can the employee pursue additional wage claims not presented in the administrative proceeding? Hopefully, this issue will be resolved by the California Supreme Court, once and for all.

 

The issue of whether the monies owed to employees who missed their meal and/or rest breaks is a "penalty" or a "wage" is probably the biggest issue currently before our Labor Commissioner. The amount of money owed to an employee is based on an hour of the employee's wages, so the California Labor Commissioner, historically, and since the enactment of these provisions in 2000, considered the payment as "wages," with a three-year statute of limitations. Further, as a claim for "wages," California attorneys have fashioned other claims (such as claims for violation of the California Business and Professions Code for "unfair business practices") that have a four-year statute of limitations.

 

At the end of 2004, Governor Schwarzenneger proposed "emergency" regulations to provide employers with some relief in this regard. Those regulations eased the burden of providing meal periods by allowing employers (and employees, for that matter) more flexibility in scheduling meal periods (and in waiving them all together). The regulations were immediately withdrawn due to heated scrutiny. Most opponents of the regulations asserted that there was nothing "urgent" about them and that any changes of this sort need to go through the full administrative process. Thus, the status quo remained.

 

The required administrative process proceeded through the entire year of 2005 until early 2006. The agency charged with drafting and proposing regulations went through multiple versions of regulations and revisions, and there were public hearings throughout California between January and July. The deadline for the regulations to be signed, and then implemented, was early January 2006. That date passed with no regulations being implemented. Hence, if any regulations on this issue are to be enacted, the entire regulatory process will need to recommence.

 

Meanwhile, the matter of whether the monies owed are a "penalty" or a "wage" recently came before the Labor Commissioner, as it has in the past. This time, however, the Labor Commissioner "changed her mind," and ruled that the monies owed are penalties and not wages. While this "decision" has some precedential value in matters pending before the Labor Commissioner, it has no precedential value in the courts. That is why final judicial determination on this issue is so vital.

 

We will keep you posted of any developments in this very hot issue brewing in California. If you have any questions regarding this issue or other issues relating to California labor and employment laws, please contact the author of this Alert, Helene Wasserman, in Ford & Harrison's Los Angeles office, at hwasserman@fordharrison.com, (213) 237-2403, or the Ford & Harrison attorney with whom you usually work.