The California Supreme Court has decided the case of Murphy v. Kenneth Cole Productions, Inc. This case held that pay for employees missing meals is a "wage" rather than "penalty." While this may seem like some arcane legal distinction, the difference is quite dramatic. On its face, the case was about whether Meal Premiums could be sued for going back 1 year or 3 years. The court held they could go back 3 years, but that is just the start of what the decision means, and that is what I will talk about in this blog. A copy of the decision can be found at the California Supreme Court Website. I will also point out that a video broadcast of the entire oral arguments is also available. This is one of only a few cases that the Court has published a video of oral arguments. I had requested to video tape the proceeding with my own camera crew, but the request was denied by the Court. I am glad they put this video online as it is very informative.
While the general consensus from talking to other employment attorneys prior to the decision was that Kenneth Cole would win, the Court did the right thing and held for Murphy. Although the Defendants probably don't see it this way, this was actually the best decision for employers. Had the Court held the other way, the biggest problem is that it would have criminalized having employees work through lunch. That is, if the Meal Premium was a penalty, then it would be because the conduct was illegal. To see why this would be a problem, we can look at how overtime is treated. Overtime is treated as a wage, rather than a penalty. Thus, an employer can require an employee to work overtime, provided he pays the additional premium. The employee can not refuse to work overtime as overtime work is legal -- as long as it is paid. An employee can refuse to work overtime (or any time for that matter) if the employer refuses to pay the proper wage. Thus, if an employee is fired for refusing to work for less than minimum wage, this is a wrongful termination. However, if an employee refuse to work overtime and the employer has a policy of paying for such overtime, the termination is legal.
Now, if meal breaks were required and any violation of them was illegal, then an employee could not be terminated for refusing to work through a meal break. In addition, any employer who required an employee to work through a meal period would be guiltily of a misdemeanor under Cal. Lab. Code § 553. Thus, had the Court decided in Kenneth Cole's favor, I think you would have a large number of issues around the illegality of working through meal breaks.
As it is, the Court held that, like overtime, you need simply pay the employee an extra amount of money, and everything is fine. I think think makes a lot more sense.
Now, the next big thing that the ruling will bring in is that because the Meal Premium is defined as "wages," then it must be used in computing the employee's regular rate of pay for overtime purposes. The general rule is that all wages must be included in computing your regular rate of pay, and your overtime is based upon this computed rate -- not the actual rate you are making at the time of the work. For example, if you make $10 per hour and work 50 hours in a week (5 days, 10 hours), you normally get $10 Straight Time, and $15 Overtime. However, if you miss a meal on 2 of the days, then you get and extra $20 for the week. Thus, you total non-overtime earning for the week are $520 (50 hours at straight time + $20 in meal premiums -- overtime premiums are excluded from the regular rate). Thus, your new regular rate of pay is $520/50 = $10.40 per hour. Thus, when you work overtime, you are entitled to $15.60. As you worked 10 hours of overtime, you are also entitled to an additional $6.00 in overtime pay as a result of your meal premium. For a general discussion about California Overtime Law and how it is applied, please see my website www.gotovertime.com
Another major issue is that because the premium is considered a wage, it is likely that employees will be able to sue going back a period of 4 years under the unfair competition law. Unfortunately, employees who take their claims to the California Labor Board (see this article on why this is usually not a good idea), will only be able to go back 3 years.
I'll cover some more of the issues raised by this case in the coming weeks. Also, if you are an attorney in labor and employment law and have an interesting trial or oral arguments coming up, please let me know as I would like to video tape the proceedings.