The California Supreme Court recently decided that calculation of the required one hour premium payment for missed, late or short meal and rest breaks must take into account all nondiscretionary payments, such as certain types of bonuses and shift premiums. Below we outline the ruling and offer five key takeaways.
In Ferra v. Loews Hollywood Hotel, LLC, the California Supreme Court addressed whether the legislature intended “regular rate of compensation” for meal and rest break premiums under Labor Code Section 226.7(c) to have the same meaning as “regular rate of pay” for overtime under Labor Code Section 510(a), such that the calculation of premium pay for a noncompliant meal, rest, or recovery period, like the calculation of overtime pay, must include not only wages but also other nondiscretionary payments for work performed by the employee.
Jessica Ferra (“Ferra”) was a non-exempt Loews Hollywood Hotel, LLC (“Loews”) employee, meaning that her job duties required that her hours worked be tracked and overtime paid. If Ferra, as a non-exempt employee, missed or had a noncompliant meal or rest break, Loews paid Ferra an additional hour of pay at her hourly rate and did not factor nondiscretionary payments, such as bonuses, into the premium pay calculation. Ferra alleged that Loews improperly omitted nondiscretionary incentive payments from the calculation of premium pay and therefore failed to pay Ferra her “regular rate of compensation” as required under section 226.7(c). The trial and appellate court ruled for Loews, holding premiums paid for breaks need not include nondiscretionary payments. The Supreme Court reversed this decision.
On July 15, 2021, the court held “regular rate of compensation” like “regular rate of pay” encompasses all nondiscretionary payments in addition to the hourly rate of pay. Employees who miss meal or rest breaks, or take late or short meal or rest breaks, must be paid for one additional hour as a premium (in other words, a penalty). The Loews decision means that the premium to be paid includes all nondiscretionary incentive payments, such as bonuses and commissions.
If you have any questions or are concerned about exposure for past practices, please do not hesitate to contact us.
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