My colleague, Jessica Grant, kindly wrote the following summary of the Supreme Court's decision yesterday in Murphy v. Kenneth Cole Productions, Inc., ___ Cal.4th ___ (Apr. 16, 2007), exploring the rationale behind the Court's unanimous conclusion that the extra hour of pay is a "wage," not a "penalty":
In an opinion authored by Justice Moreno, the California Supreme Court unanimously held [yester]day that the remedy provided in Labor Code section 226.7 constitutes a wage or premium pay that is governed by a three-year statute of limitations, as opposed to a one-year statute of limitations for penalties. The Supreme Court further held that a Section 98.2 de novo trial may include additional related wage claims that were not raised during a previous Berman hearing. The Court therefore reversed in full the contrary judgment of the Court of Appeal.
With respect to the classification of the Section 226.7 remedy, the Court first observed that the statutory language ("the employer shall pay the employee one additional hour of pay at the employee's regular rate of compensation") suggests that the additional hour of pay owed for meal period and rest break violations is a wage, as opposed to a penalty. The Court emphasized that Section 226.7 provides the only compensation for these injuries. The Court found it significant that the Legislature's decision not to label section 226.7 a penalty is particularly instructive because it simultaneously established penalties explicitly labeled as such in other Labor Code provisions. Thus, had the Legislature intended section 226.7 to be governed by a one-year statute of limitations, it could have so indicated by unambiguously labeling it a "penalty."
The Supreme Court also concluded that the administrative and legislative history demonstrates that Section 226.7 was intended to establish a premium wage to compensate employees for meal period and rest breaks that the employer failed to provide. In its analysis, the Supreme Court repeatedly noted that meal periods and rest breaks "have long been viewed as part of the remedial worker protection framework" and that "due to a lack of employer compliance, the IWC added a pay remedy to the wage orders" for such violations. The Court also found it significant that the Legislature eliminated the requirement that an employee file an enforcement action, and instead, created an affirmative obligation on the employer to pay the employee one hour of pay. In that way, "a payment owed pursuant to section 226.7 is akin to an employee's immediate entitlement to payment of wages or for overtime." The Court rejected the employer's argument that the DLSE has determined that the Section 226.7 remedy is a penalty. The Court noted that the DLSE's most recent decision "flatly contradicts" its original interpretation that the remedy was in fact a wage.
The Court noted that its conclusion "is consistent with its prior holdings that statutes regulating conditions of employment are to be liberally construed with an eye toward protecting employees."
Turning to the issue of the scope of a Section 98.2 de novo trial, the Court first observed that "a trial court's power to hear a wage dispute extends to the consideration of related issues not reached by the Labor Commissioner" in a previous Berman hearing. The Court reasoned that "permitting trial courts to exercise jurisdiction over the entire wage dispute, including related wage claims not raised in front of the Labor Commissioner, is consistent with trial courts' broad discretion in adjudicating claims at trial." Finally, the Court noted that the "Legislature could not have intended to force employees to choose between effectively waiving claims and pursuing the Berman process. The Court of Appeal's interpretation of section 98.2 would put an employee using the Berman process in a worse position than an employee proceeding directly to court."
Thank you, Jessica!