In May 2022, the California Supreme Court issued its decision in Naranjo v. Spectrum Security Systems, which considered the issue of whether failing to pay premium wages for meal and rest period violations gave rise to claims for waiting time penalties or violations of wage statement requirements.

The underlying action was a class action brought by former and current employees of Spectrum Security for meal period violations. The class sought waiting time penalties and penalties for failure to provide accurate wage statements.

The California Supreme Court remanded the matter to the California Court of Appeals to consider two issues:

1. Whether the trial court erred in finding Spectrum Security had not acted “willfully” in failing to timely pay employees premium pay, which barred recovery of waiting time penalties.

2. Whether Spectrum Security’s failure to report missed-break premium pay on wage statements was “knowing and intentional” to allow recovery of penalties for failure to provide accurate wage statements.

The Court of Appeal concluded as to the first question that the substantial evidence supported the trial court’s finding that Spectrum Security presented defenses at trial in good faith for its failure to pay meal premium to departing employees and therefore its failure was not “willful” to entitle employees to waiting time penalties.

As to the second question the Court of Appeal held that because Spectrum Security had a good faith belief that it was in compliance with wage statement requirements, the trial court was precluded from finding the violation was “knowing and intentional” and awarding penalties.

While the outcome was good for Spectrum Security, the path to the decision was extremely fact specific based on the defenses presented by Spectrum Security at separate phases of trial, including that the class members were not covered by California labor law because they worked on federal enclaves and/or performed federal functions.

Helpfully in the decision, the Court of Appeal reiterated that the regulations interpreting the California statute for waiting time penalties do not conflict with the statute but act to define terms not defined in the statute. The regulations specifically state that a “good faith dispute” that any wages are due occurs when an employer presents a defense, based on law or fact which if successful, would preclude any recovery on the part of the employee.

Moreover, the Court of Appeal interpreted the knowing and intentional language when it comes to penalties as being willful based on similar language in other statutes that willful is intentional and rejected some federal district court interpretations to the contrary.