Wage Law

For the first time, a California Court of Appeal has considered, in a holding, the issue of whether the additional hour of pay under Labor Code section 226.7 is a wage or a penalty, and the court concluded that it is a wage.

In National Steel and Shipbuilding Company v. Godinez (December 20, 2006) the primary question presented is what statute of limitations applies to the payment, the one-year statute of limitations for an "action upon a statute for a penalty or forfeiture" (Code Civ. Proc. § 340, subd. (a)), or the three-year statute of limitations for "[a]n action upon a liability created by statute, other than a penalty or forfeiture" (Code Civ. Proc. § 338, subd.(a)). The answer to this question turns on whether the payment is considered primarily a penalty against employers or a wage to employees.

We conclude that a payment under section 226.7 is an obligation created by statute, other than a penalty, subject to a three-year statute of limitations period (Code Civ. Proc. § 338, subd. (a)), and that this remedy will support a claim for restitution under Business and Professions Code section 17203.
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Employees earn the additional hour of pay when they are denied a meal or rest period; thus, the payments under section 226.7 are restitutionary and recoverable under California's Unfair Competition Law.

The publication of this opinion significantly increases the likelihood that the California Supreme Court will review or depublish Murphy v. Kenneth Cole Productions, Inc. Until the Supreme Court acts, there will be a split of authority, and the fact that National Steel and Shipbuilding Company is the first actual holding to address the issue makes it better authority. We'll be spending the next two days filing supplemental briefs on all those motions for reconsideration we are opposing.

If you would like to read the full text of the opinion, you can download it as a Word file or a pdf.