Hotel Lawyer: Disastrous wage and hour decision. California Supreme Court makes it a dark day for employers. Murphy v. Kenneth Cole Productions, Inc. (decided April 16, 2007) | By Jim Butler

On Monday, April 16, 2007, the California Supreme Court handed down a decision that will cost employers millions and that has particular significance for the hospitality industry. The case is called Murphy v. Kenneth Cole Productions, Inc., No. S 140308 (decided on April 16, 2007). Here's a Client Alert that our labor and employment attorneys put together to describe this important development.

A dark day for employers: California Supreme Court ruling on wage and hour issues will cost employers millions

In a much awaited decision, the California Supreme Court unanimously ruled against employers finding that the "additional hour of pay" that employees may be awarded for missing meal breaks and rest breaks under the California Labor Code is subject to a three year, rather than one year, statute of limitations. The Murphy v. Kenneth Cole Productions, Inc. decision (No. S 140308) could, in effect, triple an employer's liability in meal and rest break litigation.

John Paul Murphy, a former store manager, filed a wage and hour claim against his employer Kenneth Cole Productions, a retail clothier alleging that he was denied meal and rest periods from June 2000 to June 2002. Under Section 226.7(b), an employer shall be required to pay "one additional hour of pay" for each day that an employee, such as Murphy, was forced to work through a meal or rest period.

The key issue at the trial court and Court of Appeal level was whether Murphy's claim was subject to a one year or a three year statute of limitations. That determination hinged on whether or not, the award under Section 226.7(b) was properly considered a penalty or a "wage." If a penalty, then under Cal. Code. Civ. Proc. Section 340(a), a one year statute of limitation would apply. If a wage, then under Cal. Code Civ. Proc. Section 338, a three year statue of limitations applies.

Murphy's case was not the only one where Section 226.7's interpretation was at issue. The California appellate court was split on the issue, with the majority of districts holding it was a penalty and a minority holding it is a wage.

The Murphy decision now settles that a Section 226.7(b) is a wage and, therefore, subject to a three year statute of limitations. The Supreme Court's ruling was based on statutory interpretation and an extensive review of administrative and legislative history.

Far reaching and serious impact.

The impact of Murphy is far-reaching. Overnight, the value of wage and hour class actions and individual claims has potentially tripled. Not only has the extended statute of limitations significantly expanded potentially liability for employers, the finding that a Section 226.7 award is a wage also permits waiting time penalties, attorneys' fee and interest to be recovered for meal and rest period claims. The filing of wage and hour class actions is expected to significantly increase. In the wake of Murphy, California employers are advised to contact their labor counsel to review their policies to ensure compliance with the meal and rest break requirements of the California Labor Code. As Murphy has shown, the failure to meet these requirements will now prove three times as costly.

JMBM's labor and employment attorneys recommend that all hospitality employers promptly conduct in-house audits to ensure compliance with wage and hour laws, particularly the appropriate classification of employees. These audits should be conducted with the assistance of knowledgeable counsel to preserve confidentiality (and the attorney-client privilege).