On July 15, 2021, the California Supreme Court issued a decision that could have substantial implications for employers both prospectively and for their past action. In Ferra v. Loews Hollywood Hotel, LLC, the Court rejected the view that meal and rest break premiums are paid at the employee’s base rate, rather than at the more complicated “regular rate of pay” used to calculate overtime premiums. The court found that the phrase from the break requirements (“regular rate of compensation”) is synonymous with the phrases used in the overtime context (“regular rate of pay” and the more general, “regular rate”). In reaching this conclusion, the court rejected the enforcement position followed for decades by the Labor CommissionerThe court also refused to hold the decision was prospective only, which means there is a very real possibility the decision will be applied retroactively. California employers will need to examine their meal and rest break procedures and nondiscretionary incentive pay practices to avoid noncompliance.
WHAT DOES THIS MEAN FOR EMPLOYERS MOVING FORWARD:
If you have non-exempt employees incurring meal and rest break premiums for the same work weeks in which they earn additional forms of pay (e.g., shift differentials, bonuses, commissions, etc.), employers will need to calculate the regular rate with the same method they use for overtime. In addition, if you have non-exempt employees that earn a non-discretionary bonus covering multiple pay periods, ensure that your payroll processes and/or providers will provide additional compensation for any break premiums paid during the bonus period (along with additional compensation for any other payment-based on the “regular rate”).
Please do not hesitate to contact me if you wish to ensure the payroll calculations and resulting wage statements are compliant with California’s onerous standards.