Naranjo v. Spectrum Sec. Servs., Inc., S258966

CourtUnited States State Supreme Court (California)
Writing for the CourtOpinion of the Court by Kruger, J.
Citation13 Cal.5th 93,509 P.3d 956,293 Cal.Rptr.3d 599
Parties Gustavo NARANJO et al., Plaintiffs and Appellants, v. SPECTRUM SECURITY SERVICES, INC., Defendant and Appellant.
Docket NumberS258966
Decision Date23 May 2022

13 Cal.5th 93
509 P.3d 956
293 Cal.Rptr.3d 599

Gustavo NARANJO et al., Plaintiffs and Appellants,
v.
SPECTRUM SECURITY SERVICES, INC., Defendant and Appellant.

S258966

Supreme Court of California.

May 23, 2022


Rosen Marsili Rapp; Posner & Rosen, Howard Z. Rosen, Jason C. Marsili, Los Angeles, Brianna Primozic Rapp and Amanda Pitrof for Plaintiffs and Appellants.

Ehlert Hicks and Allison L. Ehlert for California Employment Lawyers Association as Amicus Curiae on behalf of Plaintiffs and Appellants.

Cynthia L. Rice, Oakland, Verónica Meléndez; George Warner, Carole Vigne ; Capstone Law, Ryan H. Wu, Los Angeles; Winifred Kao, San Francisco; Jesse Newmark, Oakland; Miye Goishi; and Jora Trang, San Francisco, for California Rural Legal Assistance Foundation, Legal Aid at Work, Bet Tzedek, Asian Americans for Advancing Justice – Asian Law Caucus, Centro Legal de la Raza, UC Hastings Community Justice Clinics and Worksafe as Amici Curiae on behalf of Plaintiffs and Appellants.

Arbogast Law, David M. Arbogast, Los Angeles; The Bronson Firm and Steven M. Bronson, San Diego, for Consumer Attorneys of California as Amicus Curiae on behalf of Plaintiffs and Appellants.

Carothers DiSante & Freudenberger, Dave Carothers, Robin E. Largent, Steven A. Micheli ; Duane Morris and Paul J. Killion, San Francisco, for Defendant and Appellant.

Casey Raymond for Department of Industrial Relations, Division of Labor Standards Enforcement as Amicus Curiae.

Opinion of the Court by Kruger, J.

293 Cal.Rptr.3d 602
509 P.3d 958

California law requires employers to provide daily meal and rest breaks to most unsalaried employees. If an employer unlawfully makes an employee work during all or part of a meal or rest period, the employer must pay the employee an additional hour of pay. ( Lab. Code, § 226.7, subd. (c) ; Industrial Welf. Com. wage order No. 4-2001, §§ 11(B), 12(B).) The primary issue before us is whether this extra pay for missed breaks constitutes "wages" that must be reported on statutorily required wage statements during employment ( Lab. Code, § 226 ) and paid within statutory deadlines when an employee leaves the job (id. , § 203). We conclude, contrary to the Court of Appeal, that the answer is yes. Although the extra pay is designed to compensate for the unlawful deprivation of a guaranteed break, it also compensates for the work the employee performed during the break period. (See Murphy v. Kenneth Cole Productions, Inc. (2007) 40 Cal.4th 1094, 1104, 56 Cal.Rptr.3d 880, 155 P.3d 284.) The extra pay thus constitutes wages subject to the same timing and reporting rules as other forms of compensation for work.

We also resolve a dispute over the rate of prejudgment interest that applies to amounts due for failure to provide meal and rest breaks. Here, we agree with the Court of Appeal that the 7 percent default rate set by the state Constitution applies. (See Cal. Const., art. XV, § 1.)

I.

Defendant Spectrum Security Services, Inc., (Spectrum) provides secure custodial services to federal agencies. The company transports and guards prisoners and detainees who require outside medical attention or have other appointments outside custodial facilities. ( Naranjo v. Spectrum Security Services, Inc. (2009) 172 Cal.App.4th 654, 660, 91 Cal.Rptr.3d 393 ( Naranjo I ).) Plaintiff Gustavo Naranjo was a guard for Spectrum. Naranjo was suspended and later fired after leaving his post to take a meal break, in violation of a Spectrum policy that required custodial employees to remain on duty during all meal breaks. ( Naranjo v. Spectrum Security Services, Inc. (2019) 40 Cal.App.5th 444, 453–454, 253 Cal.Rptr.3d 248 ( Naranjo II ).)

Naranjo filed a putative class action on behalf of Spectrum employees, alleging that Spectrum had violated state meal break requirements under the Labor Code and the applicable Industrial Welfare Commission (IWC) wage order.1 ( Lab. Code, § 226.7 ;

509 P.3d 959

IWC wage order No. 4-2001, § 11.)2 The complaint sought an additional

293 Cal.Rptr.3d 603

hour of pay — commonly referred to as "premium pay" — for each day on which Spectrum failed to provide employees a legally compliant meal break. (See Lab. Code, § 226.7, subd. (c) ; IWC wage order No. 4-2001, §§ 11(B), 12(B).)

Naranjo's complaint also alleged two Labor Code violations related to Spectrum's premium pay obligations. According to the complaint, Spectrum was required to report the premium pay on employees’ wage statements ( Lab. Code, § 226 ) and timely provide the pay to employees upon their discharge or resignation (id. , §§ 201, 202, 203), but had done neither. The complaint sought the damages and penalties prescribed by those statutes (id. , §§ 203, subd. (a), 226, subd. (e)(1)) as well as prejudgment interest.

The trial court initially granted summary judgment in favor of Spectrum on federal law grounds not relevant here, but the Court of Appeal reversed. ( Naranjo I , supra , 172 Cal.App.4th at pp. 663–669, 91 Cal.Rptr.3d 393.) On remand, the trial court certified a class for the meal break and related timely payment and wage statement claims and then held a trial in stages.

The court first considered Spectrum's liability for meal break violations. Under the governing IWC wage order, an employer ordinarily must provide covered employees an off-duty meal period on shifts lasting longer than five hours. (IWC wage order No. 4-2001, § 11(A); see Brinker Restaurant Corp. v. Superior Court (2012) 53 Cal.4th 1004, 1034–1035, 139 Cal.Rptr.3d 315, 273 P.3d 513.) An exception to this requirement allows for " ‘on duty’ " meal periods if "the nature of the work prevents an employee from being relieved of all duty," but only when "by written agreement between the parties an on-the-job paid meal period is agreed to." (IWC wage order No. 4-2001, § 11(A); see Brinker Restaurant Corp ., at p. 1035, 139 Cal.Rptr.3d 315, 273 P.3d 513.) Naranjo did not dispute that Spectrum had always required on-duty meal periods as company policy because of the nature of its guards’ work but argued that Spectrum did not have a valid written on-duty meal break agreement with its employees. Agreeing with Naranjo that Spectrum had no valid agreement for part of the class period, the court directed a verdict for the plaintiff class on the meal break claim for the period from June 2004 to September 2007. A jury found Spectrum not liable for the period beginning on October 1, 2007, after Spectrum had circulated and obtained written consent to its on-duty meal break policy.

The court then considered the related wage statement and timely payment claims. The court concluded that the obligation to supply meal break premium pay also carried with it reporting and timing obligations. Whether Spectrum was monetarily liable for failure to abide by those obligations depended on its state of mind: The wage statement statute authorizes damages and penalties only for "knowing and intentional" violations and excuses "isolated and unintentional payroll error due to a clerical or inadvertent mistake" ( Lab. Code, § 226, subd. (e)(1), (3) ), while the timely payment statutes impose penalties only for "willful[ ]" failures to make payment (id ., § 203). The trial court concluded Spectrum's wage statement omissions were intentional and awarded Labor Code section 226 penalties, but the failure to make timely payment was not willful

293 Cal.Rptr.3d 604

and so Spectrum was not liable for section 203 penalties. The trial court entered judgment for the plaintiff class on the meal break and wage statement claims and awarded attorney fees and prejudgment interest at a rate of 10 percent.

Both sides appealed. The Court of Appeal affirmed in part and reversed in part. As

509 P.3d 960

relevant here, it affirmed the trial court's determination that Spectrum had violated the meal break laws during the period from June 2004 to September 2007 ( Naranjo II , supra , 40 Cal.App.5th at pp. 457–463, 253 Cal.Rptr.3d 248 ) but reversed the court's holding that a failure to pay meal break premiums could support claims under the wage statement and timely payment statutes ( id. at pp. 463–475, 253 Cal.Rptr.3d 248 ). It also ordered the rate of prejudgment interest reduced from 10 to 7 percent. ( Id. at pp. 475–476, 253 Cal.Rptr.3d 248.)

As the Court of Appeal explained, whether the wage statement and timely payment statutes apply to missed-break premium pay is a question that has generated confusion in the Courts of Appeal as well as in federal courts. ( Naranjo II , supra , 40 Cal.App.5th at pp. 467–471, 253 Cal.Rptr.3d 248.) We granted review to consider the issue.

II.

California's meal and rest break requirements date back to 1916 and 1932, respectively, when the newly created IWC included the requirements in a series of wage orders regulating terms and conditions of employment in various industries and occupations. ( Murphy v. Kenneth Cole Productions, Inc. , supra , 40 Cal.4th at p. 1105, 56 Cal.Rptr.3d 880, 155 P.3d 284 ( Murphy ); see Brinker...

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