Posted: July 20, 2021 |
The California Supreme Court issued a decision on July 15, 2021 clarifying the correct methodology for calculating the payment of meal and rest period premiums. The Court issued a unanimous decision in Ferra v. Loews Hollywood Hotel, LLC, which found that employers must pay meal and rest period premiums at an employee’s regular rate of pay.
The case and issue turned upon analysis of California Labor Code section 226.7(b) which states, “If an employer fails to provide an employee a meal period or rest period in accordance with an applicable order of the Industrial Welfare Commission, the employer shall pay the employee one additional hour of pay at the employee’s regular rate of compensation for each work day that the meal or rest period is not provided.”
This decision is the first to determine that an employer must issue any such premium payments at the regular rate of pay, as opposed to the employee’s typical hourly rate. Previously, the Second Appellate District ruled in favor of the employer and determined that meal and rest period premiums only had to be paid at the employee's typical hourly rate. The California Supreme Court reversed that decision in its Ferra opinion.
In Ferra, the employer paid its employees meal and rest period premiums as an additional hour of pay at the employees’ hourly rates of pay. These premiums are required by law when an employee is not provided with the opportunity to take their meal and/or rest breaks as required by law. Employers who fail to provide an opportunity for employees to take a full 10-minute rest break for every four hours worked or major fraction thereof, or fail to allow an employee the opportunity to take a full 30 minute uninterrupted, off-duty meal period starting no later than the end of the fifth hour of work for a shift that exceeds five hours, or a second meal period starting no later than the end of the tenth hour of work (unless an applicable meal period waiver applies), are required to pay premiums for such violations.
The Court of Appeal in Ferra found that the Legislature’s deviation from the term “regular rate of pay” to “regular rate of compensation” was significantly different and showed an intent by the Legislature to limit meal and rest period premiums to only an additional hour of pay at the employee's typical hourly rate. Thus, the Court of Appeal in Ferra found that the employer had complied with its obligations under Labor Code section 226.7.
However, the Supreme Court in Ferra analyzed the statutory history of Labor Code section 226.7 and noted that while the phrases were different, given that the definition of “compensation” is wider in scope than the definition of “pay,” the two terms were intended by the Legislature to require premium payments to be issued at the employee’s regular rate pay.
Employers must now account for all non-discretionary compensation paid to an employee when calculating and paying meal and rest period premiums. Employers should already be calculating their non-exempt employees’ regular rates of pay because employers must use this rate for any overtime an employee works. An employee’s regular rate of pay can change from pay period to pay period because the rate includes many types of non-hourly compensation, such as non-discretionary bonuses, commissions, various employee benefits and employee housing benefits.
The Supreme Court also determined that liability for failure to comply with the issuance of meal and rest period premiums at the regular rate of pay is retroactive. This means any employer who has issued such payments by only providing an additional hour of pay may be liable for failure to pay the premiums at the correct rate. Employers should immediately implement policies to ensure any such premiums are paid at the correct rate and should contact employment counsel about possible options to address any prior payments issued at the incorrect rate.
If you have any questions or concerns regarding meal and rest period premium compliance, the attorneys at Ferruzzo & Ferruzzo, LLP are available to provide guidance.
This blog is not meant to provide specific legal advice. For advice specific to your business, please contact any of the employment attorneys in our Employment Practices Group who are ready to assist you.