What’s In a “Wage”? Ninth Circuit Seeks Clarification from California Supreme Court

California has some of the most employee-friendly laws in the country, many of which turn on whether the allegedly wronged employee is seeking to recover “wages” due. The Ninth Circuit Court of Appeals recently asked the California Supreme Court to resolve a tension in existing case law about what constitutes a “wage,” with potentially far-reaching impact for employment cases—in particular, those involving meal and rest period claims.

Provisions of California law that hinge on whether the claim seeks recovery of “wages” include:

  • A one-year statute of limitations applies to statutory claims to recover “penalties,” whereas a longer three-year limitations period is available for other statutory claims (including those to recover wages due). Cal. Code Civ. Proc. §§ 338(a), 340(a).
  • A prevailing plaintiff can recover attorneys’ fees in “any action brought for the nonpayment of wages.” Cal. Labor Code § 218.5(a).
  • Waiting time penalties of up to 30 days’ wages are available if the employer “willfully” fails to pay “any wages” due to a terminated employee. Id. § 203.
  • Employers are required to furnish semi-monthly itemized statements listing gross and net “wages earned,” and penalties are available for “knowing and intentional” violations of this obligation. Id. § 226(a).

The California Supreme Court has previously addressed the first two issues—the limitations period and the availability of attorneys’ fees—in the context of meal and rest period claims under Labor Code section 226.7. Section 226.7 prohibits employers from requiring employees to work through mandated meal or rest periods, and provides that an employer who fails to provide required breaks “shall pay the employee one additional hour of pay at the employee’s regular rate of compensation.” Id. §§ 226.7(b), (c). When the Court has previously considered whether that additional hour’s pay should be characterized as a “wage,” and whether a claim seeking payment of that amount is one “for the nonpayment of wages,” the results have been difficult to reconcile.

In Murphy v. Kenneth Cole Productions, Inc., 40 Cal. 4th 1094 (2007), the Court evaluated whether a claim for payments due on account of meal period violations was governed by the one-year limitations period for penalties or the three-year period for other statutory claims. The Court found that the extra hours paid for meal period violations should be characterized as “premium wages,” as they were intended to compensate employees rather than impose a penalty on the employer. Thus, the Court held that the longer three-year limitations period applied.

Five years later in Kirby v. Immoos Fire Protection, Inc., 53 Cal. 4th 1244 (2012), the Court evaluated whether a claim for meal period premiums was one “for the nonpayment of wages,” triggering the attorneys’ fee provisions of Section 218.5. One might have thought that Murphy’s holding would dictate the result—i.e., that if hour of pay is a “premium wage,” then an action to recover that pay is one “for the nonpayment of wages.” But the Court pivoted, reasoning that the gravamen of a Section 226.7 claim was one for a violation of the obligation to provide meal periods and not for non-payment of wages. The Court distinguished its holding in Murphy, noting that although the legal remedy for the failure to provide meal periods is an additional hour of pay (which constitutes wages), the claim that gives rise to the remedy is the failure to provide required meal periods.

Enter Stewart v. San Luis Ambulance, Inc., No. 15-56943, 2017 WL 6757543 (9th Cir. Dec. 29, 2017), currently before the Ninth Circuit. There, the relevant issue is whether the failure to pay the Section 226.7 “premium wage” for missed meal periods can also form the basis for a waiting time penalty claim under Section 203 and/or an inaccurate reporting claim under Section 226.

The Court of Appeals in Stewart recognized that lower courts have been inconsistent in their interpretations of Murphy and Kirby when determining waiting time and inaccurate reporting claims.[1] Several courts, relying on Murphy, have held that a meal period violation properly forms the basis for claims under Sections 203 and 226 since Murphy characterized such payments as “wages.” Other courts, relying on Kirby, have found that the failure to provide a meal or rest period is what gives rise to a claim under Section 226.7, not the failure to provide a meal period premium. Therefore, in the view of these courts, because the underlying violation that gives rise to a Section 226.7 claim is not the nonpayment of wages, other claims premised on the nonpayment or non-reporting of wages (including Section 203 and 226 claims) do not arise. See Brewer v. Gen. Nutrition Corp., No. 11-CV-3587 YGR, 2015 WL 5072039, at *17-*18 (N.D. Cal. Aug. 27, 2015) (discussing split of authority and cataloging cases). The Ninth Circuit is seeking guidance from the California Supreme Court on the proper interpretation of California law on this point.

Employers will want to keep a close eye on the Stewart case. A ruling by the California Supreme Court in favor of following the Murphy line of reasoning could give potential plaintiffs two additional causes of action to assert based on missed meal or rest periods, and expand the scope of employer exposure in these types of cases going forward. A contrary ruling following Kirby, by contrast, would clarify the limits of derivative California labor code claims.

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[1] For its part, the district court in Stewart punted on resolving this tension, instead entering summary judgment for the employer based on its finding that the employer did not “willfully” or “intentionally” fail to provide meal period premium wages owed, and that the employee could not bring claims under Sections 203 and 226 for that reason.