The court also held that its decision will apply retroactively, meaning many employers may face exposure for past meal and rest break payments made in good faith.
On July 15, 2021, the California Supreme Court issued a unanimous decision in Ferra v. Loews Hollywood Hotel, LLC, holding that employers must pay premiums for missed meal and rest breaks at an employee’s “regular rate of pay.”
Though the prevailing practice among most employers has been to pay missed meal and rest break premiums at an employee’s base hourly rate, and though several courts have upheld this practice, the California Supreme Court instead found employers must pay such premiums at the regular rate of pay, which includes all hourly wages and other nondiscretionary earnings (such as shift differentials, nondiscretionary bonuses and so forth). The court also held that its decision will apply retroactively, meaning many employers may face exposure for past meal and rest break payments made in good faith.
“Regular Rate” in the California Labor Code
California Labor Code Section (CLC) 226.7(c) requires employers to pay employees one additional hour of premium pay at their “regular rate of compensation” for meal and rest break violations. A meal or rest period violation occurs when the employer fails to provide meal breaks and/or rest periods to employees who are eligible to receive them.
Similarly, CLC Section 510(a) requires employers to pay employees for overtime hours worked at premium rates based on the employee’s regular rate of pay. Courts have long established that, for overtime calculation purposes, an employee’s regular rate of pay includes hourly wages and other nondiscretionary earnings.
Appellate courts (including the Court of Appeal in this case) have held that the regular rate of compensation was different than the regular rate of pay, and that unlike overtime pay, meal and rest break premiums only needed to be paid at the employee’s usual hourly rate.
Ferra v. Loews Hollywood Hotel, LLC
In Ferra, the plaintiff filed a putative class action asserting that the term “regular rate of compensation” in Section 226.7(c) has the same meaning as the term “regular rate of pay” in Section 510(a). The plaintiff argued that this meant payments made for missed meal and rest break violations should, like overtime payments, include other nondiscretionary earnings on top of hourly wages. The trial court and Court of Appeal sided with Loews, finding that the two phrases meant different things.
However, the California Supreme Court reversed and sided with the plaintiff, finding that “regular rate of compensation” and “regular rate of pay” can be used interchangeably. Accordingly, “premium pay for a noncompliant meal, rest, or recovery period, like the calculation of overtime pay, must account for not only hourly wages but also other nondiscretionary payments for work performed by the employee.”
The court further held that its decision applies retroactively, reasoning that the California Supreme Court had never previously issued a decision on this topic.
Though the defendant employer argued, among other things, that a retroactive decision would expose employers to “millions” in liability, the court found the employer cited to no evidence of such a result, nor, in any event, did the court think it “should favor the interest of employers in avoiding ‘millions’ in liability over the interest of employees in obtaining the ‘millions’ owed to them under the law.”
What This Means for Employers
Employers should review their current practices and policies to ensure they are paying employees their regular rate of pay for any meal or rest break premium payments. Like overtime payments, the regular rate should include hourly wages and nondiscretionary earnings, such as incentive compensation, nondiscretionary bonuses, shift differentials and piece-rate compensation. Because of the decision’s retroactive application, employers should also work with counsel to review past meal and rest break premium payments and make any appropriate adjustments.
For More Information
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