As many of you know, Labor Code section 226.7 requires employers to pay an employee one additional hour of pay for each work day that the employee misses a meal or rest period. There is heated debate as to whether an employer’s payment to an employee pursuant to Section 226.7 is a “penalty” or “wages.” The issue is of importance to employers because a one year statute of limitations applies if the payment is considered a “penalty” whereas a longer statute of limitations applies if the payment is considered “wages.”
In Murphy v. Kenneth Cole Productions Inc., 134 Cal.App.4th 728, 749-755, decided in December 2005, the California Court of Appeal for the First District analyzed the issue and concluded that a payment under Section 226.7 is a “penalty” and therefore subject to a one year statute of limitations. This case was obviously good news for employers.
In response to Murphy, the DLSE announced on January 13, 2006 that it decided not to file regulations governing meal and rest periods that would have further helped to clarify this issue. In making this decision, the Director cited the Murphy decision and stated that, because it was “in full agreement with our position, … the need for a regulation clarifying that the ‘payment’ is a penalty and not a wage is significantly reduced at this time.” The full press release can be viewed by clicking the following link:
http://www.dir.ca.gov/DIRNews/2006/IR2006-02.html
Unfortunately, the clarity regarding the issue that was provided by the Murphy decision was only fleeting. In National Steel and Shipbuilding Co v. Superior Court, 2006 WL 147520, decided January 20, 2006, the California Court of Appeal for the Fourth District analyzed the issue and reached the opposite conclusion. Interestingly, the Court found the payment to be both a penalty and wages, but concluded that since the payment to the employee is in the form of wages, it is not governed by the shorter limitations period.
Below, for your reference, is a copy of the text of both cases.
Murphy v. Kenneth Cole Productions Inc.
National Steel and Shipbuilding Co v. Superior Court
