There has been a significant ruling this week that will impact California employers with hourly employees entitled to additional compensation, like non-discretionary bonuses, shift premiums, or commissions. It will require California employers to review current and past practices to update their calculation of premium payments for meal and rest break violations.
The California Supreme Court has ruled that an employee’s ‘regular rate of compensation’ for meal and rest period premium pay is equal to the employee’s ‘regular rate of pay’ as required for overtime purposes.
The Relevant Law: Premium Pay for Missed Meal & Rest Breaks
Under California Labor Code s. 226.7(c), an employer must pay an employee a premium payment of one hour of pay at the employee’s regular rate of compensation if an employer does not provide the employee with a compliant meal or rest break. An employee who is not provided with the full 30 minutes for a meal break or the complete 10 minutes for each rest break is entitled to the premium payment.
The Ruling in Ferra v Loews Hollywood Hotel, LLC.
Employers have long argued that the regular rate of compensation referred to in s. 226.7(c) is the employee’s base rate of pay. In Ferra, the plaintiffs argued that the phrase ‘regular rate of compensation’ referred to above is synonymous with the phrase ‘regular rate of pay’ used in the California Labor Code overtime provisions in s. 510(a).
To calculate overtime pay in accordance with s. 510(a), employers must include all non-discretionary payments for the work performed, not just the base rate of pay.
The Court agreed with the plaintiff’s argument, relying on a principle of legal construction that provides “where statutes use synonymous words or phrases interchangeably, those words or phrases should be understood to have the same meaning.” With the result being that employers will need to reassess whether they’re paying employees the overtime rate of pay for missed meal or rest breaks.
Action Items for Employers
Following this ruling, employers should take the following steps:
- Monitor employee time cards to ensure employees are taking mandatory breaks.
- Modify pay formulas to calculate meal and rest break premiums at an employee’s regular rate of compensation as required for overtime purposes.
- Audit meal and rest period premium payments made to employees who receive non-discretionary bonuses and/or other wages included in their regular rate of pay calculations. You must retroactively adjust your payments to reflect the overtime regular rate of pay.
- Update your handbook to reflect the payment of meal and rest break premiums at the overtime regular rate of pay.
If you need assistance determining your obligations following this ruling, get in touch. We’re here to help.
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