In Groundbreaking Decision, California Supreme Court Mandates Use Of Regular Rate Of Pay In Calculating Meal And Rest Period Premiums
Los Angeles, Calif. (July 21, 2021) - In an unfortunate and costly shift for employers, the California Supreme Court ruled last week that meal and rest period premiums must be paid at employees’ regular rate of pay, rather than employees’ straight hourly wage. The California Labor Code already made explicitly clear that calculation of employees' overtime wages must be at employees' regular rate of pay. Unlike a straight hourly wage, the regular rate of pay includes all remunerations employees received during the applicable pay period, including non-discretionary incentive compensation and bonuses, shift differentials, commissions, mandatory service charges, meals provided to employees, and the like. Until last week, the question of whether the regular rate of pay should also be used to calculate meal and rest period premiums was unanswered.
On July 15, 2021, however, the California Supreme Court issued a decision in Ferra v. Loews Hollywood Hotel, LLC holding that employers must calculate meal and rest period premiums using the regular rate of pay.
Premiums To Be Paid At Employee’s Regular Rate Of Pay
Labor Code section 226.7(c) governs meal and rest period premiums, and states that the premiums should be paid at the employee’s “regular rate of compensation.” The question before the California Supreme Court was whether the legislature intended “regular rate of compensation” under section 226.7(c) to have the same meaning as “regular rate of pay” under section 510(a), such that the calculation of premium pay for a noncompliant meal, rest, and recovery periods must account for nondiscretionary payments for work performed by the employee in addition to the employee’s hourly wages, as with overtime pay. In its decision on July 15, 2021, the California Supreme Court held that “regular rate of compensation” and “regular rate of pay” are interchangeable terms, and therefore “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 non-discretionary payments for work performed by the employee.” (Emphasis added.)
Decision To Apply Retroactively
The employer defendant urged the California Supreme Court to hold that this decision applies prospectively only, giving employers across the state time to adjust their practices in accordance with the new decision. The court declined to do so, and instead held that this decision applies retroactively and that employers who have not previously paid premiums at the regular rate of pay may be held liable (within the applicable statute of limitations period).
California employers should expect a new wave of class and representative actions for failure to pay meal and rest period premiums at the regular rate of pay. In light of the court’s decision, California employers should take the following actions:
- Update the company’s payroll system where employees’ meal and rest period premiums will be compensated at regular rate of pay;
- Review pay codes with the company’s payroll department to ensure that all necessary forms of payments and benefits are being calculated into employees’ regular rate of pay for both overtime pay and meal and rest period premiums;
- Consider providing restitution to employees who received meal and rest premiums at employees’ straight-time pay (and not regular rate of pay) in the last four-year statutory period; and
- Consider incorporating voluntary meal waivers and on-duty meal break agreements into their practices.
Each of these recommendations will require careful analysis of the employer’s policies, practices, and business. Lewis Brisbois’ Labor & Employment attorneys are available to provide assistance and counseling to employers in light of this new and important decision.
For more information, contact the author or editors of this alert, or visit our Labor & Employment Practice page to find an attorney in your area.
Armine Antonyan, Associate
Thalia Rofos, Partner
Ashleigh Reif Kasper, Partner