California employers must furnish employees with both rest periods, which are paid, and meal periods, which are not paid. These requirements first appeared in the Industrial Welfare Commission’s Wage Orders in 1916. But in 2000, the Legislature imposed on employers significant financial consequences for failure to comply with rest and meal period laws.

Under Labor Code Section 226.7, employers that fail to provide a meal or rest period that complies with this law must pay an employee an extra hour’s pay for each day of noncompliance. That means employers may have to pay up to two hours of additional wages if the employer fails to comply with both requirements in the same day.

The new law’s compensation scheme attracted a wave of class actions against employers for failing to provide in-compliance meal and rest periods. One hotly litigated issue was over the applicable statute of limitations, which depended on whether meal- and rest-period pay is considered a “penalty” or a “wage.”

The California Supreme Court’s long-awaited decision in Murphy v. Kenneth Cole Productions, 2007 DJDAR 4981 (2007), held that the mandated extra compensation for meal-break and rest-period laws is a “wage” or “premium pay” rather than a penalty. The Supreme Court’s decision will increase drastically employers’ potential liability for rest-break and meal-period claims. The statute of limitations under California law for unpaid wages is three years, but it is one year for penalties. So the court’s decision in Murphy triples the length of time for which employees may seek unpaid meal- and rest-period premiums. However, claims for unpaid wages probably may be asserted under the Unfair Competition Law, California Business and Professions Code Section 17200, which has a four-year statute of limitations. Section 17200 does not permit recovery of damages or penalties but allows the recovery of wages. Additionally, employees who are not paid all wages due at the time of termination may seek “waiting time” penalties of up to 30 days’ pay under Labor Code section 203. After Murphy, former employees may seek “waiting time” penalties for unpaid meal- and rest-period premiums, which would have been impossible had the court ruled the premium pay is a “penalty.” Employers’ failure to pay meal-period compensation could trigger other penalties under the Labor Code, which may not have been available if the court deemed the extra pay a type of penalty.

Finally, in December 2005, a Superior Court jury assessed millions of dollars in punitive damages against a major retailer based on liability for meal-period violations. Whether punitive damages may be assessed in such cases is an open legal issue on appeal. In all, the cost of failure to comply with alifornia’s meal- and rest-break laws after Murphy may be more dear than previously thought. Murphy did not involve any interpretation of the underlying meal- or rest-period requirements themselves. Although providing meals and breaks for employees is a simple concept, compliance can be tricky. Murphy is a wake-up call to employers to review the applicable rules and implement policies and procedures to ensure compliance.

The basic meal-period requirement is contained in Labor Code Section 512, as well as in the Industrial Welfare Commission’s Wage Orders applicable to California employers:

“An employer may not employ an employee for a work period of more than five hours per day without providing the employee with a meal period of not less than 30 minutes, except that if the total work period per day of the employee is no more than six hours, the meal period may be waived by mutual consent of both the employer and employee. An employer may not employ an employee for a work period of more than 10 hours per day without providing the employee with a second meal period of not less than 30 minutes, except that if the total hours worked is no more than 12 hours, the second meal period may be waived by mutual consent of the employer and the employee only if the first meal period was not waived.”

This short statute contains a number of potential pitfalls. First, the meal period must occur timely. The Division of Labor Standards Enforcement, the agency responsible for enforcement of wage-and-hour law in California, has interpreted the statute as requiring the meal period to start before the sixth hour of work begins, although that is not expressly contained in the statute’s text. Therefore, if an employee starts working at 9 a.m., then the meal period must begin by 2 p.m. or premium pay is due. Under other provisions, time records must reflect when the meal period begins and ends.

Second, the meal period must be long enough. The law mandates “30 minutes,” which means that a meal period that is too short by just a few minutes can result in assessment of the premium. The enforcement division may allow “de minimus” violations of a minute or two, but employers should not rely on a “grace period” that is not contained in the statute. Other requirements applicable to meal periods are contained within the Wage Orders, or imposed by common law and the division’s enforcement position. For example, the meal period must be “duty-free.” The employee therefore must be free to leave the work site.

If the employee must be “on call” during a meal period, such as a waiter on “standby” or an employee who “eats at her desk” while occasionally taking calls, the premium is due. There is a narrow exception for an “on-duty” meal period, under which the employer avoids the penalty when the nature of the employee’s work precludes a duty-free lunch break. But most jobs do not qualify for this exception.

The waiver provisions present more issues. A worker who works no more than six hours in a workday may waive the meal period, but only in a writing that allows him or her to cancel the waiver at any time. If the employer does not require the employee to sign a waiver every shift, the employee can claim he or she revoked consent and the employer did not permit the meal period. Additionally, employees who were scheduled to work no more than six hours may work longer, necessitating the meal period, regardless of waiver.

There also is the issue of abuse. Savvy employees may choose to pick up some extra pay by starting lunch late or by taking 25 minutes for lunch instead of 30. Employers cannot avoid liability because of a malingering employee. Rather, the employer’s remedy is to pay the premium and enforce the policy through discipline or even discharge. Of course, taking action against an employee for requesting meal-period premiums can give rise to retaliation claims. Therefore, employers must proceed cautiously. Employers may take action to minimize liability for noncompliant meal periods and avoid the potential for abuse. Employers must schedule meal periods to occur within the required interval. Managers must implement the schedule and should be trained regarding the costs of compliance.

Employers may wish to consider scheduling meal periods to start well before the sixth hour of work begins and providing a meal period significantly longer than 30 minutes (for example, 45 minutes or an hour) to avoid disputes over whether the break was too short.

Employees should be trained to take their meal periods timely and to remove themselves from the work area. Although none of these measures is an ironclad shield, they may reduce potential exposure.

The Section 226.7 penalty also applies to “rest periods.” Under the Wage Orders, employers must provide 10 minutes of paid rest time for every four hours worked or “major fraction thereof.” That means that, if an employee works an eight-hour shift, the employer must grant two 10-minute rest periods, which are paid time. The rest-period requirements differ considerably from those applicable to meal periods. Because rest periods are paid, they need not be recorded on time cards. Moreover, the Wage Orders merely require the employer to “authorize and permit” rest periods. In contrast, meal periods must be affirmatively “provided.”

The enforcement division interprets this difference to mean that, if an employee voluntarily and without coercion fails to take an authorized and permitted rest period, no penalty is due. However, if an employer refuses to permit a rest period because of the press of business, for example, the premium must be paid.

Rest-period premiums also may be assessed based on a number of enforcement policies observed by the division. Among other things, the division emphasizes that a rest period must be a “net” 10 minutes, such that the employee is able to leave the work area and reach a rest area before the 10-minute clock begins to run.

The agency also requires employers to schedule rest periods for the “middle” of each four-hour work period to the extent practicable. The division does not favor employees’ tacking rest periods onto the beginning or end of meal periods.

Also, the division does not permit ad hoc “bathroom breaks” to count as rest periods, although employees may use their rest periods to use the bathroom.

Employers’ best defense against rest-period claims is a well-drafted policy authorizing and permitting compliant rest breaks of at least 10 minutes every four hours worked. Managers must be trained not to interfere with employees’ rest periods. Employers also may wish to implement an acknowledgment on the time sheet under which the employee certifies that he or she was permitted to take all authorized meal and rest periods. Although not necessarily dispositive, the employee’s certification may be evidence of compliance.

Finally, employers should undertake a wage-hour audit of their practices to identify potential vulnerabilities and take appropriate corrective action. Because such audits may be evidence in future wage-hour class actions, employers should take steps to ensure documentation created as part of the audit is protected by the attorney-client privilege or work-product doctrine.

Murphy is a wake-up call to California employers. Compliance with wage-and-hour laws requires a commitment from human resources professionals and line managers. The time necessary to draft and implement proper procedures will be more than offset by reduced exposure.

D. Gregory Valenza is a partner in the San Francisco office of Shaw Valenza.