66 Litigating CA Wage & Hour Class and PAGA Actions (23rd Edition) Seyfarth Shaw LLP | www.seyfarth.com Labor Code § 203.318 On its face, the waiting time penalty provision reads as though it were designed to apply when an employer fails to give a terminating employee the employee’s final paycheck at all. The Labor Commissioner, despite regulations providing that a good faith dispute precludes the imposition of penalties,319 routinely applies the penalty provision when the employer has failed to pay any wages over the entire course of employment and continues not to pay them at the time of termination. As a result, an employer who shorts an employee $1 of owed vacation pay could potentially be required to pay the employee the equivalent of six weeks’ pay in penalties. Not every Labor Code violation, however, triggers a waiting time claim. Courts have held that waiting time claims must be tethered to a separate action for unpaid wages. In Naranjo v. Spectrum Sec. Servs., Inc., the California Supreme Court expanded the availability of waiting time penalties pursuant to Labor Code section 226.7, holding that they can be recovered where an employee is not paid all break premiums that are owed at termination.320 Naranjo overturned an earlier Court of Appeal decision that had held that unpaid break premiums did not trigger waiting time penalties.321 The Supreme Court held that meal and rest break premium pay was designed by the state legislature to compensate employees for working through their breaks, and therefore was similar to certain other forms of wages, such as overtime pay, reporting time pay, and split-shift pay.322 Thus, the Court held that waiting time penalties should be available where break premiums have not been properly paid, in order to incentivize employers to comply with meal, rest and recovery period laws.323 The Naranjo decision is expected to increase the number of waiting time penalty suits going forward, and it also increases the exposure presented by such claims, as prevailing plaintiffs may now recover attorney’s fees.324 Unvested stock that employees choose to receive in lieu of wages is not viewed as wages that must be paid to an employee if the employee resigns prior to the vesting date of the stock, though the wages not paid due to the receipt of the stock must be paid (without interest) to an employee who is involuntarily terminated prior to the vesting date.325 The employer's good faith, or lack of willfulness, is a defense to waiting time penalties.326 As the California Supreme Court explained: “A good faith dispute that any wages are due will preclude imposition of waiting time 318 Sillah v. Command Int'l Sec. Servs., 154 F. Supp. 3d 891, 918 (N.D. Cal. 2015); Alvarez v. Hyatt Regency Long Beach, 2009 WL 10673222, at *4 (C.D. Cal. Aug. 6, 2009) (“Finally, Plaintiffs are not entitled to waiting-time penalties under California Labor Code § 203 since they do not have standing to bring the third cause of action for failure to timely pay wages after the termination of employment; none of the three plaintiffs have been terminated.”). 319 8 C.C.R. § 13520 (“[A] good faith dispute that any wages are due will preclude imposition of waiting time penalties under Section 203.”). 320 13 Cal. 5th 93 (2022). See Section VI for in-depth discussion of meal and rest break penalties. 321 Ling v. P.F. Chang's China Bistro, Inc., 245 Cal. App. 4th 1242, 1261 (2016). 322 Id. at 106-107. 323 Id. at 110. 324 Betancourt v. OS Restaurant Services, LLC, 83 Cal.App.5th 132 (2022) (“Naranjo’s holding that premium pay for missed breaks constitutes wages and must be reported on wage statements and paid within statutory deadlines when an employee is discharged fully justifies the trial court's attorney fee award under section 218.5.”). 325 Schacter v. Citigroup, Inc., 47 Cal. 4th 610 (2009). This decision did not foreclose the possibility of a different outcome if the employees were fired rather than voluntarily resigned. 326 Road Sprinkler Fitters Local Union No. 669 v. G&G Fire Sprinklers, Inc., 102 Cal. App. 4th 765 (2002); Davis v. Morris, 37 Cal. App. 2d 269 (1940); see also Cinnamon Mills v. Target, 2023 WL 2363959 (9th Cir 2023) (employer paid vacation
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