American Conference Institute WAGE & HOUR CLAIMS & CLASS ACTIONS CALIFORNIA S MEAL AND REST PERIOD RULES: A DISPATCH FROM THE BATTLEFRONT

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1 American Conference Institute The 3 rd National Forum on WAGE & HOUR CLAIMS & CLASS ACTIONS CALIFORNIA S MEAL AND REST PERIOD RULES: A DISPATCH FROM THE BATTLEFRONT Teresa A. Beaudet 350 S. Grand Avenue, 25 th Floor Los Angeles, CA (213) tbeaudet@mayerbrown.com Jerome M. Jauffret 350 S. Grand Avenue, 25 th Floor Los Angeles, CA (213) jjauffret@mayerbrownrowe.com Copyright 2006,. All rights reserved. No part of this work may be reproduced in any form without written permission from the copyright holder. This Mayer, Brown, Rowe & Maw publication provides information and comments on legal issues and developments of interest to our clients and contacts. It is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed in this publication.

2 CALIFORNIA S MEAL AND REST PERIOD RULES: A DISPATCH FROM THE BATTLEFRONT Teresa A. Beaudet Jerome M. Jauffret, Los Angeles California s requirements that employers provide employees with meal and rest periods are not new. They have been incorporated in the Wage Orders of the Industrial Welfare Commission ( IWC ) for over half a century. 1 were codified in the Labor Code in Some of the meal period rules However, it was not until monetary payments for failing to comply with the meal and rest period rules were added to the IWC Wage Orders (effective October 1, 1 The IWC is the administrative body within the Department of Industrial Relations (which is a department in the State of California s Labor and Workforce Development Agency) charged with, inter alia, adopting the Wage Orders which govern wages, hours and working conditions for most employees in California. (Labor Code 50, 70, and 1173, et seq.; see also Tidewater Marine Western, Inc. v. Bradshaw, 14 Cal. 4 th 557, 561 (1996).) The IWC is comprised of five members appointed by the Governor, with the consent of the Senate. (Labor Code 70.) The IWC has promulgated 12 industry Wage Orders (Wage Orders 1, 2, 3, 5, 6, 7, 8, 9, 10, 11, 12, and 13), and five occupational Wage Orders (Wage Orders 4, 14, 15, 16 and 17). These Wage Orders are codified in Title 8 of the California Code of Regulations at 8 Cal. Code of Regs , 11020, 11030, 11040, 11050, 11060, 11070, 11080, 11090, 11100, 11110, 11120, 11130, 11140, 11150, and To determine which Wage Order applies to its employees, an employer must first determine whether its business is covered by one of the industry orders. If so, all the employees of that business are covered by that industry order. If no industry order is applicable to the employer s business, then each employee will be governed by the Wage order applicable to the individual employee s occupation (e.g., since there is no Wage Order for the legal industry, a clerk working for a law firm is covered by Wage Order 4 which regulates wages, hours and working conditions for Professional, Technical, Clerical, Mechanical and Similar Occupations ). (See Department of Labor Standards Enforcement s 2002 Update of the Enforcement Policies and Interpretations Manual (Revised 2006) [ DLSE Manual ] and 43.7, available on the DLSE s website at see also the DLSE s informational pamphlet entitled Which IWC Order? Classifications, available on the DLSE s website at providing detailed guidance to employers in evaluating which wage orders apply to their employees.) Although the IWC was defunded by the California Legislature on July 1, 2004, its Wage Orders remain in effect. (See Huntington Memorial Hospital v. Superior Court, 131 Cal. App. 4 th 893, 902, fn. 2 (2005).) Because the IWC was defunded, it has been unable to modify or add any Wage Orders since that date.

3 2 2000) 2 and into the Labor Code (effective January 1, 2001) that private litigants began attacking employers compliance with those rules. Before those monetary payments came into effect, there was no financial incentive for private litigation, and enforcement was principally left up to the Department of Labor Standards Enforcement ( DLSE ). 3 Since then, there has been an onslaught of actions claiming meal and rest period violations, some filed with the DLSE, but most filed in the courts, and many as class actions. A number of these cases have resulted in substantial settlements and at least one substantial verdict. 4 This barrage of litigation has produced conflicting interpretations of the scope of an employer s obligation to provide meal and rest periods. As will be discussed below, the debate is not yet over as to whether an employer is required to ensure that employees take their meal and rest periods, or whether making them available to employees is sufficient. There also are conflicting rulings on the issue of whether the monetary payments for failing to provide meal and rest periods are in the nature of a wage, or a penalty, or some other type of payment. As will be explained below, the resolution of this issue, which soon may be decided by the California Supreme Court, will affect important issues relating to the statute of limitations applicable to such payments, the type and 2 The IWC adopted the Wage Orders that became effective October 1, 2000 at a hearing on June 30, At that hearing, opponents of the monetary payments questioned the statutory authority of the IWC to establish what they referred as a new penalty for missing meal and rest periods. However, the 2000 Wage Orders were adopted by the IWC after its counsel issued a legal ruling stating that the IWC had the authority to adopt a regulation imposing a penalty. (See Murphy v. Kenneth Cole Productions, Inc., Murphy v. Kenneth Cole Productions, Inc., 134 Cal. App. 4 th 728, 751 (2005), review granted 2006 Cal. LEXIS 2547 (Cal. 2006) (discussing and citing to the legislative history of the 2000 Wage Orders; however the Murphy court did not decide whether the IWC had the authority to adopt the monetary payments).) 3 The DLSE is the administrative body within the California Department of Industrial Relations charged with enforcing California s labor laws, including the provisions of the Labor Code and the Wage Orders. (Labor Code 61, 74, , ; see also Tidewater Marine Western, Inc., supra.) The Labor Commissioner is the Chief of the DLSE. (Labor Code 82.) 4 Savaglio, et al. v. Wal-Mart Stores, Inc., et al., Superior Court of California for the County of Alameda, case no. C

4 3 scope of additional remedies available to an employee seeking to recover such payments, and an employer s obligations in administering the meal and rest period payments. I. The Statutory Obligation to Provide Meal and Rest Periods A. Meal Periods California law sets specific requirements for the number and timing of meal periods that must be provided to employees. An employer may not employ any person for a work period of more that five hours in a day 5 without providing a meal period of not less than thirty minutes. (Labor Code 512; 6 Wage Orders 11.) 1. Exceptions to the Meal Period Rules There are a few limited exceptions to the general requirement that employees must be provided with a meal period of no less than 30 minutes: If an employee s workday is five hours or less, no meal period is required. 5 Workday and day are defined in 2 of the Wage Orders as any consecutive 24-hour period beginning at the same time each calendar day. The employer must define the workday, either for the entire company, or for each category of employee, if the employer does not wish to designate the same workday for all of its employees. (See DLSE Manual ) 6 Labor Code 512(a): An employer may not employ an employee for a work period of more than five hours per day without providing the employee with a meal period of not less than 30 minutes, except that if the total work period per day of the employee is no more than six hours, the meal period may be waived by mutual consent of both the employer and employee. An employer may not employ an employee for a work period of more than 10 hours per day without providing the employee with a second meal period of not less than 30 minutes, except that if the total hours worked is no more than 12 hours, the second meal period may be waived by mutual consent of the employer and the employee only if the first meal period was not waived. The meal period provisions also are set forth in 11 of all the Wage Orders, except Wage Order 16 (covering Certain On-Site Occupations in the Construction, Drilling, Logging and Mining Industries ), where the provision appears in 10, and Wage Order 17 (covering Miscellaneous Employees ), where the provision appears in 9. In contrast to all the other Wage Orders, Wage Order 14 (covering Agricultural Occupations ) requires the employer to merely authorize and permit, rather than provide, meal periods. In all other Wage Orders, the authorize and permit language applies only to rest periods. The significance of this difference in language is discussed below.

5 4 If an employee s workday is six hours or less, the meal period may be waived by mutual consent of the employer and the employee. If an employee works more than ten and but no more than twelve hours in a workday, the second meal period in that workday may be waived by mutual consent of the employer and the employee, provided that the employee did not waive the first meal period. (Labor Code 512; Wage Orders 11.) There is no statutory requirement that waivers of unpaid meal periods must be in writing, although many employers opt to document such waivers in a written agreement. In the case of a paid on-duty meal period, however, the employer and employee must enter into a written agreement for the on-duty meal period which states that the employee may, in writing, revoke the agreement at any time. (Wage Orders 11.) However, such on-duty meal periods are permissible only if the nature of the work must prevent the employee from being relieved of all duty, and the nature of the work exception is construed very narrowly. The DLSE test for determining if the nature of the work prevents an employee from being relieved of all duty is whether, based on objective criteria, any employee would be prevented from being relieved of all duty based on the necessary job duties. (DLSE Manual ; DLSE Opinion Letter dated September 4, 2002.) On its website, the DLSE gives the following examples of jobs that may qualify for paid, on-duty meal periods, all of which involve situations where the employee is the only person on duty at the worksite: a sole worker in a coffee kiosk, a sole worker in an all-night convenience store, or a security guard stationed alone at a remote site. ( Essentially, an on-duty meal period will not be permissible unless the nature of the work makes it virtually impossible for the employer to provide the employee with an off-duty meal period. (DLSE Opinion Letter dated September 4, 2002.) And even if all the circumstances exist to allow a paid

6 5 on-duty meal period, the employee still must be provided with an opportunity to actually eat a meal while performing the required work. (DLSE Manual, ) 7 2. Application of the Meal Period Rules As currently construed by the IWC and the DLSE, California law requires that a meal period must begin before the conclusion of each period of five hours worked in a workday. 8 Thus, an employee must begin the first meal period before the start of the 7 Although the majority of California employees are covered by the general rules governing meal periods, there are limited exceptions in the Labor Code and IWC Wage Orders for employees in a few industries, and employers should be careful to check whether any special rules apply in their particular industry. Labor Code 512 provides special rules exempting from its meal period requirements certain union employees in the wholesale baking industry (Labor Code 512(c)), and certain union employees in the motion picture industry or the broadcasting industry (Labor Code 512(d)). And Labor Code 512(b) authorizes the IWC to adopt a Wage Order permitting a meal period to commence after six hours of work [rather then five] if the commission determines that the order is consistent with the health and welfare of the affected employees. Pursuant to that provision, the IWC has permitted a meal period to start after six hours of work for certain union employees in the manufacturing industry (Wage Order 1), and allowed a meal period for each six-hour period for employees in the motion picture industry (Wage Order 12). (See Statement as to the Basis for Wage Orders 1-13, 15 & 17, 11; Statement as to the Basis for Amendment to 11 of Wage Order 1.) Agricultural workers covered by Wage Order 14 are excluded from the provision of Labor Code 512 pursuant to Labor Code 554, but must (as discussed above in fn. 6) be authorized and permitted to take meal periods pursuant to that Wage Order. Although there are no further exceptions to Labor Code 512, the IWC also has inserted special meal period rules in Wage Orders 4 and 5: Wage Orders 4 and 5 permit health care workers who work shifts in excess of eight hours to voluntarily waive their right to one of their two meal periods if there is a written waiver signed by the employer and the employee, and the employee may revoke the waiver on one day s written notice to the employer; Wage Order 5 permits employers in certain residential care facilities to require employees to take paid, on-duty meal periods without meeting the nature of the work test. The IWC adopted these special rules pursuant to Labor Code 516, which states that [e]xcept as provided in section 512, the Industrial Welfare Commission may adopt or amend working condition orders with respect to break periods [and] meal periods... for any workers in California consistent with the health and welfare of those workers. (Statement as to the Basis for Wage Orders 1-13, 15 & 17, 11.) However, the special rules permitted by the IWC in Wage Orders 4 and 5 may be in jeopardy in light of the decision in Bearden, et al. v. U.S. Borax, 138 Cal. App. 4 th 429 (2006), in which the California Court of Appeal ruled that another IWC-created exemption in Wage Order 16 (i.e., an exemption from meal period requirements for certain union employees in the construction, drilling, logging and mining industries) was invalid because it was not expressly permitted by Labor Code 512. The Bearden court held, inter alia, that the provisions of Labor Code 516 do not authorize the IWC to enact wage orders inconsistent with the language of section 512. The Bearden decision may raise questions regarding on-duty meal period provisions in the Wage Orders which also are not expressly permitted by Labor Code See DLSE Manual stating that if the employee took the first meal period in the sixth hour... the [Labor Code 226.7] premium would apply. See also Labor Code 512(b), discussed above in fn. 7, authorizing the IWC to adopt a Wage Order permitting a meal period to commence after six hours

7 6 sixth hour of work, 9 and, if the employee works an additional five hours and one minute after the conclusion of the first meal period, a second meal period also will be due. Consequently, it is important for employers to schedule meal periods in a manner that does not inadvertently create an obligation to provide additional meal periods in a workday of ten hours or less. For example, if an employee scheduled for an eight-hour day starts the first meal period at the completion of the second hour of work (as may be the case for shifts starting at odd hours), the employee must be provided a second meal period, which must begin before the start of the eighth hour of work. If the second meal period is provided any later or not provided at all, it will be deemed untimely or missed, and a violation of Labor Code Meal periods may not be combined with another meal period, a rest period, or be taken at the start or end of the workday. Meal periods may be unpaid. However, they must be uninterrupted for a full 30 minutes, and the employee must be relieved of all duty and free to leave the workplace. If all the foregoing conditions are not met, the employee must be paid for the full meal period, as well as the payment due under Labor Code 226.7, absent a valid waiver or other exception to the meal period rules discussed above. (See DLSE Opinion Letters dated September 17, 2001 and January 28, 2002.) of work, and the IWC s Statements as to the Basis for the amendments to Wage Order 1 and Wage Order 12 permitting meal periods for certain employees to commence after six hours of work. 9 In regulations proposed by the DLSE in December 2004, and withdrawn in January 2006 in the face of strong opposition primarily from groups representing employee interests, the DLSE would have permitted meal periods under all the IWC Wage Orders to begin by the end of the sixth hour of work. (Proposed DLSE regulation, 8 Cal. Code of Regs (d)(2).) However, the authority of the DLSE (rather than the IWC) to adopt such a regulation was challenged. (See Labor Code 512(b), which gives the IWC the authority to adopt a Wage Order permitting a meal period to commence after six hours of work. ) As noted in fn. 1, above, the IWC is not able to amend the Wage Orders currently because it was defunded by the California Legislature on July 1, Other aspects of the proposed DLSE regulations, which the DLSE planned to codify at 8 Cal. Code of Regs , are discussed later in this article. 10 As discussed below, if any meal period mandated by a Wage Order is not provided at all, or is shorted, or is provided late, the employer will be subject to the one-hour payment provisions of Labor Code 226.7(b). (See also DLSE Manual )

8 7 3. Recording Meal Periods Section 7(A) of most of the Wage Orders requires employers to keep payroll records which must include, among other information, [t]ime records showing when the employee begins and ends each work period, 11 including the times when meal periods were taken. 12 The records also must include the total hours worked in each payroll period and the applicable rate of pay for those hours. (Id.) Payroll records must be kept at the place of employment or at a central location within the State of California for a minimum of three years. (Id.) Time clocks are not required. 29 C.F.R (a). It is the employer s responsibility to keep accurate records of time worked by employees. If the employer fails to keep accurate time records, the employee s testimony or evidence concerning hours worked will, if credible, be deemed sufficient to prove a wage claim, and the employer will have the burden to prove that the hours claimed by the employee were not worked. (See Hernandez v. Mendoza, 199 Cal. App. 3d 721 (1988) (following the reasoning in Anderson v. Mt. Clemens Pottery, 328 U.S. 680, rehg. denied, 329 U.S. 822 (1946)); see also DLSE Manual, 41.) In Cicairos, et al. v. Summit Logistics, Inc., 133 Cal. App. 4 th 949 (2005), the court reversed summary judgment in favor of an employer in a meal period class action, citing the employer s failure to maintain records of meal periods as required by the applicable Wage Order. (133 Cal. App. 4 th at ) The court held that the employer had failed to establish that it had provided its employees with the required meal periods (id.), implying that, had the employer complied with the record-keeping 11 The record-keeping provisions of Wage Order 16 are set forth in 6. Wage Order 17 does not include any record-keeping provisions. See also Labor Code 1174 requiring all employers to keep payroll records showing [inter alia] the hours worked daily... by employees, and requiring employers covered by the Wage Orders to keep their payroll records in accordance with the record-keeping rules established by the IWC. 12 The Wage Orders do not require meal periods to be recorded if all operations cease during the meal periods (e.g., meal periods taken at a factory which closes down all operations for the duration of the meal period). (Wage Orders 7(A)(3).)

9 8 requirements, it could have found those records sufficiently conclusive to grant the employer summary judgment. This record-keeping requirement, as well as the presumption that the employer s payroll records accurately reflect the hours actually worked by its employees, has formed the basis for class certification in a number of meal period cases. (See, e.g., Savaglio, supra.) 13 Meal period compliance issues arise when employees forget to clock out when they actually have taken their meal periods, or they start their meal periods before the completion of the fifth hour of work but they clock out a few minutes late, or they clock in from meal periods a few minutes short of 30 but they take care of personal matters after clocking in early (e.g., buying a soda); as a result, their otherwise compliant meal periods result in payroll records that show a missed, untimely or shorted meal period. If the employer determines that the employee did not perform any work during the unrecorded part of the meal period, the payroll records should be corrected. (See 29 C.F.R (a). See also DLSE Manual, , and ) In at least one case (Savaglio, supra), the trial court permitted the employer to present a de minimis defense to the jury with regard to meal periods that were untimely or short by just a few minutes. 14 The court left the amount of time subject to this defense to the discretion of the jury The trial court s orders in the Savaglio action can be found on the Alameda Superior Court s website. ( me=index.html and follow the link for complex litigation. ) 14 This affirmative defense was entitled Meal Periods Short or Late by Minor Amounts of Time, and it was based on Anderson, supra. In Anderson, a case brought pursuant to the Fair Labor Standards Act (29 U.S.C. 201, et seq.), the United States Supreme Court held that the de minimis doctrine should be applied to insubstantial or insignificant periods of time beyond the scheduled working hours which cannot as a practical matter be precisely recorded for payroll purposes. (See also 29 C.F.R and DLSE Manual, sections and , adopting the de minimis doctrine set forth in Anderson.) 15 The Jury Instructions and the Special Verdict Form in the Savaglio case have been provided as part of the course materials.

10 9 B. Rest Periods Although both Labor Code 512(a) and the Wage Orders set forth express requirements for meal periods, there is no rest period requirement in the Labor Code. Rest periods are covered only by the Wage Orders, which require employers to authorize and permit employees to take paid rest periods at certain prescribed intervals. 16 (Wage Orders 12.) 17 The Wage Orders provide that ten-minute, paid rest periods must be authorized and permitted for every four hours worked or major fraction thereof. Rest periods should, insofar as practicable be in the middle of each work period. Major fraction thereof means more than two hours. Thus, for example, an employee who works an eight-hour workday must be authorized and permitted to take two paid rest periods, as close as practicable to the middle of each four-hour segment of the workday. An employee who works a nine-hour and fifty-nine minute workday also must be permitted to take two paid rest periods, but an employee who works a ten hour and one minute workday must be authorized and permitted to take three paid rest periods. No rest period is required if the employee s workday is less than 3½ hours. Rest periods must be uninterrupted and may not be combined with another rest period, a meal period, or be taken at the start or end of the workday. Employers are not required to document rest periods in their payroll records. (Wage Orders 7(A)(3).) This language differs from the provisions of Labor Code 512(a) which require the employer to provide meal periods. The potential implications of this inconsistency are discussed below. 17 For Wage Order 16, the rest break provisions are in 11. Wage Order 17 does not include a rest period provision. 18 The unwillingness of trial courts to certify rest period claims in class actions stems from this lack of record-keeping requirement, along with the interpretation of the phrase authorize and permit by the DLSE as requiring employers merely to make rest periods available to employees. (DLSE opinion letters dated January 28, 2002 and September 17, 2001; see Savaglio, supra.)

11 10 II. The Monetary Payments For Failure To Provide The Meal And Rest Periods Mandated by the Wage Orders Labor Code 226.7(a) states that [n]o employer shall require any employee to work during any meal or rest period mandated by an applicable order of the Industrial Welfare Commission (emphasis added). And Labor Code 226.7(b) 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 (emphasis added). Additionally, 11 and 12 of the Wage Orders provide for the same monetary payments for a failure to provide meal and rest periods. 19 There is some ambiguity in the language of Labor Code and the Wage Orders regarding the maximum number of one-hour payments that may be imposed on an employer per workday. The DLSE takes the position that for each workday, an employer can be assessed (a) a maximum of one, one-hour payment for missed meal periods, regardless of the number of meal periods missed during that workday, and (b) a maximum of one, one-hour payment for missed rest periods, regardless of the number of rest periods missed during that workday. (DLSE Manual and ) However, the provisions also could have been interpreted to require a maximum of one, one-hour payment per workday regardless of the number of meal or rest periods missed in a workday. The defendant in Murphy, supra, urged the Court of Appeal to adopt that interpretation, but the Murphy court chose not to rule on that issue because it had decided to dismiss the plaintiff s claim for meal and rest period violations on jurisdictional grounds. (134 Cal. App. 4 th at 754, fn. 25.) One other Court of Appeal has adopted this interpretation in an unpublished opinion. (Banda, et al. v. Richard 19 If an employer fails to provide an employee a meal period in accordance with the applicable provisions of a Wage Order, the employer shall pay the employee one hour of pay at the employee s regular rate of compensation for each work day that the meal period is not provided. (Wage Orders 11.) And if an employer fails to provide an employee a rest period in accordance with the applicable provisions of a Wage Order, the employer shall pay the employee one hour of pay at the employee s regular rate of compensation for each work day that the rest period is not provided. (Wage Orders 12.)

12 11 Bagdasarian, Inc., case no. E035739, Fourth Appellate District, Div. 2 (2006), review granted September 27, 2006, case no. S144949, at 27 [ An employee required to work through the 30-minute meal break and both 10-minute rest breaks receives the same pay under section as an employee who has been deprived of only one 10-minute rest break. ].) To date, there is no binding authority on this issue. 20 III. The Scope Of The Employer s Obligation To Provide Meal and Rest Periods A. Meal Periods 1. The Courts There is disagreement among the courts as to whether the law imposes an affirmative obligation on employers to ensure that employees timely take their statutorily-required meal periods, or whether it is sufficient for the employer to make the meal period available to the employee. In Cicairos, supra, the court held that an employer s obligation to provide... an adequate meal period is not satisfied by assuming that the meal periods were taken, because employers have an affirmative 20 Since Labor Code payments apply only to failures to provide meal and rest periods mandated by the Wage Orders, such payments should not be applicable with respect to employees who are not subject to the meal and rest period provisions of the Wage Orders (i.e., exempt executive, administrative and professional employees; outside salespersons; employees directly employed by the State or any political subdivision thereof, including any city, county or special district; employees who are the parent, spouse, child or legally adopted child of the employer; and individual participating in certain national service programs). (See Wage Orders 1.) The DLSE Manual notes that because the language of Labor Code 512 does not exclude any class of employee from its meal period requirements, it would appear that exempt employees are... entitled to meal periods in accordance with that section, although they would not be eligible for Labor Code payments because they are excluded from the meal and rest period provisions of the Wage Orders. (DLSE Manual ) However, the DLSE s position regarding meal periods for exempt employees is assailable because the legislative history of AB 60 (Stats 1999 Ch. 134), which included Labor Code 512 and became effective January 1, 2000, makes it clear that 512 was intended to codify the meal period rules in the pre-ab 60 Wage Orders. Exempt employees were expressly excluded from the meal and rest period provisions of all of the pre-ab 60 Wage orders, as were employees directly employed by the State or any political subdivision thereof (including any city, county or special district), and employees who are the parent, spouse, child or legally adopted child of the employer. And although outside salespersons and individuals participating in national service programs were not expressly excluded from the pre-ab 60 Wage Orders meal and rest period provisions, they were (and still are) entirely excluded from regulation by the Wage Orders pursuant to Labor Code 1171.

13 12 obligation to ensure that workers are actually relieved of all duty. (133 Cal. App. 4 th at , quoting DLSE opinion letter dated January 28, 2002, p. 1.) On the other hand, in National Steel and Shipbuilding v. Superior Court, 135 Cal. App. 4 th 1072 (2006), review granted 2006 Cal. LEXIS 4401 (Cal. 2006), the court stated that no Labor Code payment should be imposed on an employer if an employee voluntarily chooses to forego a meal or rest period. However, the National Steel decision is currently not citable as authority because the Supreme Court has granted review on other issues. 2. The DLSE The DLSE s interpretation of the meaning of provide in Labor Code has been in flux. In its opinion letter dated January 28, 2002 (which, as noted above, was cited and quoted by the court in Cicairos), the DLSE stated that, with respect to providing meal periods, an employer has an affirmative obligation to ensure that workers are actually relieved of all duty, not performing any work, and (with the exception of health care workers under Orders 4 and 5) free to leave the employer s premises. The identical statement also was made in a DLSE opinion letter dated September 17, However, pursuant to Governor Schwarzenegger s Executive Order S-2-03, the DLSE opinion letters and the DLSE Manual are currently under review to determine their legal force and effect and to ensure compliance with the requirements of the Administrative Procedures Act. Although the Labor Commissioner has, pursuant to Executive Order S-2-03, ordered that a number of DLSE opinion letters be withdrawn, and also has made a number of revisions to the DLSE Manual, both the January 28, 2002 and the September 17, 2001 opinion letters are still posted on the DLSE s website. 21 And the DLSE Manual still takes the position that 11 of the Wage Orders clearly places the burden on [the] employer to ensure [a] meal period and that 21

14 13 [i]t is the employer s burden to compel the employee to cease work during the meal period. (DLSE Manual ) Additionally, in December, 2004, the DLSE proposed regulations that would have differently interpreted, inter alia, the statutory obligation under Labor Code 512(a) to provide meal periods. 22 The proposed regulations stated that to provide a meal period meant that the employer had to supply or make available a meal period to the employee and give the employee the opportunity to take the meal period. (Proposed DLSE regulation, 8 Cal. Code of Regs (a)(2).) Under the proposed regulations, the employer would not be liable for the one-hour payments under Labor Code if it had actually provided a meal period, or would be deemed to have provided a meal period by (1) informing the employees, either orally or in writing, of their right to take a meal period, (2) giving the employees the opportunity to take the meal period, and (3) maintaining accurate time records as required by the Labor Code and the Wage Orders. (Proposed DLSE regulation, 8 Cal. Code of Regs (b).) An employer who had actually provided or could be deemed to have provided a meal period would not be subject to Labor Code payments even if the meal period was not taken, was short, or was taken late. The proposed regulations were eventually withdrawn on January 13, Nevertheless, these proposed regulations may be instructive regarding the present enforcement policies of the DLSE regarding an employer s obligation to provide meal periods. Until the Supreme Court decides the issue, uncertainty over the meaning of provide will continue. However, in the meantime, prudent employers should follow the more stringent view of the Cicairos case (i.e., that employers must ensure that meal 22 Several versions of the regulations were proposed, the most recent of which was issued on July 7, The DLSE planned to codify the proposed regulations at 8 Cal. Code of Regs At the time the proposed regulations were withdrawn, the DLSE indicated that it would work with all parties to prepare a new set of regulations designed to give clearer guidance to employers on compliance with the meal period rules. The DLSE also stated that regulations remain necessary to provide clarity to those in charge of enforcing those rules.

15 14 periods are taken), and, accordingly, implement and enforce rules compelling hourly employees to take their full meal periods on a timely basis. B. Rest Periods While Labor Code 512(a) requires that the employer must provide meal periods, the Wage Orders instead require that employers must authorize and permit employees to take paid rest periods at certain prescribed intervals. This discrepancy raises the issue of whether the difference in language gives rise to different employer obligations with respect to meal periods and rest periods. Plaintiff s counsel in at least one case has argued that since Labor Code imposes a monetary payment for failure to provide a meal or a rest period in accordance with a Wage Order, the term provide in Labor Code cannot be construed to have different meanings when applied to rest periods rather than meal periods. 24 The DLSE has taken the position that if an employee who was truly authorized and permitted to take a rest break, as required under the applicable wage order, freely chooses without any coercion or encouragement to forego or waive a rest period, the employer is in compliance with the law and not liable for the one-hour payment under Labor Code (DLSE opinion letter dated January 28, 2002 [emphasis in original]; see also DLSE opinion letter dated September 17, 2001 [same].) There is no published decision on this issue as to rest periods. 25 But in its unpublished opinion in 24 Defense counsel in the same case argued that, for the same reason, provide must mean authorize and permit when applied to meal periods. (Savaglio, supra.) 25 In its opinion as originally published, the Cicairos court quoted the following language from a DLSE opinion letter that was subsequently withdrawn (DLSE opinion letter dated April 2, 2002): [A]s long as an employer authorizes and permits his employees to take their required rest periods (and clearly communicates this authorization and permission), the employer will not be liable for the rest period penalty if the employees fail to take the full amount of authorized time for their rest breaks, provided that the employees did not forego the full rest period as a result of employer coercion or encouragement. 133 Cal. App. 4 th at 963. This quotation was deleted in a modification of the Cicairos opinion (presumably because of the withdrawal of the DLSE s April 2, 2002 opinion letter). (134 Cal. App. 4 th 90a (2005).) However, the DLSE took exactly the same position in the two opinion letters mentioned above (DLSE opinion letter dated January 28, 2002 and DLSE opinion letter dated September 17, 2001), which have not been withdrawn and remain posted on the DLSE website.

16 15 Banda, supra, the Court of Appeal held that an employer s obligation with respect to rest periods is as follows: [E]mployers must authorize and permit rest breaks, and therefore must at a minimum provide employees with the opportunity to take those breaks. The employer, however, does not have an affirmative duty to force an employee to take as rest break that the employer is only required to authorize and permit. Therefore, if an employee voluntarily works through a rest break, the employer has met its obligation to provide that break, as long as the break was authorized and permitted. (Banda, at ) 26 Although the rest period rules, as currently interpreted by the DLSE and in Banda, are less stringent in certain respects than the meal period rules, they nevertheless still require enforcement by the employer. However, because employers are not required to record rest breaks in their time records, and since rest breaks are paid and waivable at the employee s option, obtaining and proving compliance by employees can present a significant challenge for the employer Consistent with this position, the Banda court held that employers covered by Wage Order 14 are required to make meal periods available to their employees, but are not required to ensure that employees actually take meal periods, since Wage Order 14 merely requires employers to authorize and permit meal periods (rather than provide them as required in all the other Wage Orders). (Banda, at ) 27 Although the court in Savaglio declined to grant class certification on the plaintiffs rest period claims because, inter alia, there is no record-keeping requirement for rest periods, the court did grant injunctive relief regarding the rest period claims. (Final Statement of Decision Regarding Injunctive Relief, dated September 27, 2006.)

17 16 IV. The Split In Authority Regarding Whether Labor Code Payments Are Wages or Penalties Will Be Resolved By The California Supreme Court As discussed in more detail below, there is disagreement among the courts of appeal as to whether Labor Code payments are a penalty or a wage. 28 The outcome of this debate may soon be decided by the California Supreme Court in Murphy, supra. 29 The Supreme Court also could address this issue in four other cases, Mills v. Superior Court, 135 Cal. App. 4 th 1547 (2006), review granted 2006 Cal. LEXIS 4402 (Cal. 2006), National Steel, supra, Banda, supra, and Chalecki v. Superior Court, Los Angeles Superior Court case no. BC300311, petition summarily denied without opinion, case no. B187354, review granted May 24, 2006, case no. S A. The Courts and The DLSE on the Wage/Penalty Issue 1. The Courts Four of the five California courts of appeal that have issued decisions on the wage/penalty issue have characterized Labor Code payments as penalties. Murphy, supra, Mills, supra, Caliber Bodyworks, Inc. v. Superior Court, 134 Cal. App. 28 Federal courts also are split on this issue. Compare Tomlinson v. IndyMac Bank, FSB, 359 F.Supp.2d 891 (C.D. Cal. 2005) (Labor Code are wages) with Corder v. Houston s Restaurants, Inc., 424 F.Supp.2d 1205 (C.D. Cal. 2006) (Labor Code are penalties) and Pulido v. Coca-Cola Enterprise, Inc., 2006 WL (C.D. Cal. May 25, 2006) (unpublished opinion holding that Labor Code payments are penalties). See also Valles v. Ivy Hill Corp., 410 F.3d 1071 (9 th Cir. 2005) (referring to Labor Code payments as penalties). 29 The Supreme Court could decline to reach the wage/penalty issue in Murphy and resolve only the issue of whether the trial court had jurisdiction to consider the plaintiff s claims for Labor Code 226 payments. The proceedings in the trial court were a de novo review of a DLSE proceeding, and plaintiff had not raised his claims for Labor Code payments during those proceedings. The employer in Murphy has urged the Supreme Court to decide the wage/penalty issue even if it rules against the plaintiff on the jurisdictional issue because the issue has become a matter of substantial and continuing public interest in light of the many pending meal and rest period cases whose outcome will require a resolution of the wage/penalty issue. The employer in Murphy also pointed out that the wage/penalty issue (a) had been briefed by the parties in the Supreme Court, (b) had been briefed by the major employment organizations on both sides of the issue in the Court of Appeal and probably would be briefed again by those organizations in the Supreme Court, and (c) was raised in the Mills and National Steel cases. 30 The Supreme Court has issued grant and hold orders in all four cases pending the decision in the Murphy appeal. In Chalecki, the plaintiffs are seeking to overturn a trial court order granting a motion to strike based on a holding that Labor Code payments are penalties.

18 17 4 th 365 (2005), and Banda, supra. In those four cases, the courts have found that, unlike wages, the payment required by Labor Code is not for the performance of labor. 31 Instead, those courts have noted that it is a fixed sum, paid in addition to any wages that the employee is owed for time worked during the missed, shorted or late meal period, and it is unrelated either to the amount of meal or rest period time lost or to any amount of financial loss suffered by the employee. Those courts have emphasized that the payment is designed to punish the employer for a prohibited act (i.e., requiring an employee to work during a meal or rest period mandated by an applicable Wage Order, or failing to provide an employee a meal or rest period in accordance with such Wage Order). The one California Court of Appeal decision at odds with the foregoing decisions is National Steel, supra. In that case, the court held that Labor Code payments have a dual nature: the payments are in the nature of a penalty for the employer while they are a compensatory remedy for the employee. (135 Cal. App. 4 th at 1079.) The National Steel court found that the dual nature of the payment created an ambiguity in Labor Code 226.7, but since statutes governing conditions of employment are construed broadly in favor of protecting employees, the National Steel court concluded that the three-year statute of limitation for statutory claims (Cal. Civ. Proc. Code 338(a)) should apply to Labor Code payments. (Id. at 1084.) 2. The DLSE The DLSE also has weighed in on the wage/penalty issue, and has held in a Precedent Decision that Labor Code payments are penalties. Hartwig v. Orchard Commercial, Inc., DLSE Precedent Decision No RB (May 11, 31 Labor Code 200 provides as follows: (a) Wages includes all amounts for labor performed by employees of every description, whether the amount is fixed or ascertained by the standard of time, task, piece commission basis, or other method of calculation. (b) Labor includes labor, work, or service, whether rendered or performed under contract, subcontract, partnership, station plan, or other agreement if the labor to be paid for is performed personally by the person demanding payment. (See also Ware v. Merrill, Lynch, Fenner & Smith, 24 Cal. App. 3d 35, 44 (1972) holding that wages are compensation for services rendered. )

19 ). 32 In Hartwig, the DLSE stated that that the purpose of the one-hour pay provision in the Wage Orders that became effective on October 1, 2000 was to enforce the meal and rest period requirements and to deter noncompliance, thereby clearly indicating intent to create a penalty. (Hartwig, at 7.) Hartwig also found that Labor Code itself was based on the language in the October 2000 Wage Order and its purpose is to deter employees from violating IWC imposed rules for meal breaks. (Id.) proceedings. 33 Precedent Decisions such as Hartwig are binding authority in DLSE Accordingly, the Labor Commissioner will be bound by Hartwig with respect to any claims for Labor Code payments brought through the DLSE. And the California Supreme Court has held that although the courts are ultimately responsible for the interpretation of statutes, an agency s statutory construction, although not binding on the courts, is entitled to consideration and respect. (Yamaha Corp. of America v. State Board of Equalization, 19 Cal. 4 th 1, 7-8 (1998).) The reaction of the courts to Hartwig has been mixed. In Caliber, supra, the court merely noted that the Hartwig decision concurred with its own conclusion that Labor Code payments are a penalty. But in Murphy, supra, which also held that Labor Code payments are a penalty, the court, although agreeing with the DLSE s position in Hartwig, refused to give it deference and stated that it was the th at court s task to interpret Labor Code and the Wage Orders. (134 Cal. App ) Similarly, the National Steel court (which concluded that Labor Code 32 The DLSE s withdrawn proposed regulations, discussed above, also provided that Labor Code payments were a penalty. (Proposed DLSE regulation, 8 Cal. Code of Regs (e).) 33 Government Code allows for the designation as a precedent decision any decision that contains a significant legal or policy determination of general application that is likely to recur. The [DLSE s] authority to designate a decision as precedent is not subject to judicial review and is not viewed as an underground regulation. Precedent Decisions are binding on any case before the [DLSE s] Deputy Labor Commissioners and Hearing Officers to the extent that they include the same legal or policy issues determined by the precedent. (June 17, 2005 Memorandum of Labor Commissioner designating Hartwig as a precedent decision; Govt. Code (b).) The Labor Commissioner explained in her June 17, 2005 memorandum that she designated Hartwig as a DLSE Precedent Decision [i]n response to the continuing confusion and frustration expressed to [her] regarding the lack of interpretive authority available to the [DLSE] on the issue of meal and rest breaks.

20 payments are in the nature of a penalty to the employer and a wage to the employee) stated that [a]lthough the DLSE s construction of the statute [in Hartwig] is entitled to consideration and respect, it is not binding, and the judiciary is ultimately responsible for the interpretation of [Labor Code 226.7]. B. Issues Affected by the Wage/Penalty Determination The resolution of the wage/penalty question is significant because of its likely effect on other issues relating to the litigation of meal and rest period actions. First, it will determine whether the applicable statute of limitations for claims under Labor Code is a one-year limitations period for filing penalty claims (Code Civ. Proc. 340(a)), or a three-year limitations period for filing statutory wage claims (Code Civ. Proc. 338(a)). Second, it will determine the types of additional remedies available to an employee seeking to recover Labor Code payments: If the payments are statutory penalties, punitive damages will not be available in addition to Labor Code payments because a penalty on a penalty is not permitted. (De Anza Santa Cruz Mobile Estate Homeowners Ass n v. De Anza Cruz Mobile Estates, 94 Cal. App. 4 th 890, 912 (2001) holding that a plaintiff cannot recover both punitive and statutory penalties, as this would constitute a prohibited double recovery for the same act. ). However, punitive damages may be available in addition to Labor Code payments if the payments are wages In the Savaglio trial, the court allowed the plaintiffs to seek and recover punitive damages for failing to provide a meal period, but not for failing to make Labor Code payments. (Order Denying Defendant s Motion for Nonsuit and for Reconsideration of Prior Orders, dated December 13, 2005.) The Savaglio court relied on Greenberg v. Western Turf Ass n., 140 Cal. 357 (1905), where the Supreme Court held that punitive damages may be awarded in addition to a penalty (i.e., $100 per incident) statutorily imposed in every situation without regard to the intent of the defendant. (Id., at 5.) The Savaglio court found that the Labor Code payments appear similar to the payments at issue in Greenberg, because Labor Code is a strict liability statute that requires an employer to make a

21 20 If the payments are wages or statutory penalties, then civil penalties will be available in addition to Labor Code payments. (Caliber, supra, and Dunlap v. Superior Court, 142 Cal. App. 4 th 330 (2006) holding that an payment to an employee without regard to whether the violation involved willful, oppressive or fraudulent conduct. (Id.) The Savaglio court stated that Labor Code claims were distinguishable from the claims in De Anza, supra, where the statutory penalty payments at issue were for willful statutory violations. (Id.) In its July 27, 2006 Order Denying Motion of Wal-Mart to Compel Plaintiffs to Elect Remedies (i.e., between Labor Code payments and punitive damages), the Savaglio court suggested (at pp. 1-8) that Labor Code payments could fall within any one of the following several categorizations, potentially triggering different results with respect to the ability to recover punitive damages in addition to the Labor Code payments: Wages (i.e., payments designed to compensate for labor performed). Punitive damages could be recovered. Compensatory damages (i.e., payments designed to compensate for all the detriment caused by breach of contract and noncontractual obligations). Punitive damages could be recovered. Statutory liquidated damages (i.e., payments fixed by statute that are intended in whole or in part to compensate for injuries). The court in Savaglio noted that statutory liquidated damages can usually be awarded based on a finding of liability without requiring the plaintiff to prove actual damages. And because they are designed primarily for compensation, rather than punishment or deterrence, the court indicated that such statutory liquidated damages would not be duplicative of punitive damages. Statutory enhanced damages (i.e., payments designed to encourage enforcement of a statute and awarded in addition to compensatory damages). The court in Savaglio noted that most statutory enhanced damages do not require proof of actual harm, are imposed without regard to motive, and require no showing of malfeasance or intent to injure. Because statutory enhanced damages are not designed to punish or deter, the court in Savaglio noted that they do not preclude an award of punitive damages. Statutory penalties (i.e., payments designed to punish or deter which are collected by private parties). The Savaglio court indicated that these penalties are in addition to compensatory, statutory liquidated or statutory enhanced damages, and that punitive damages, and double or treble damage provisions, are examples of statutory penalties. Civil penalties (i.e., payments designed to punish or deter which are collected by government entities). Criminal penalties (i.e., payments designed to punish or deter which are payable to a government agency and are criminal in nature). The court in Savaglio noted that payment of criminal penalties to a government agency do not preclude a private party from seeking and collecting statutory penalties (which include punitive damages). Although the court in Savaglio did not change its earlier ruling that Labor Code payments are in the nature of wages and not penalties (p. 9), it did state, in a section of the election of remedies order that was expressly designated as dicta (pp ), that if the Court were to revisit the issue, it would be inclined to hold that Labor Code payments are in the nature of statutory liquidated damages (p. 14). The Savaglio court noted that, had that been the court s initial holding on the nature of the Labor Code payments, the plaintiffs still would have been able to seek punitive damages (id.).