In Ferra v. Loews Hollywood Hotel, LLC, the California Supreme Court departed from the longstanding view that non-exempt employees’ meal and rest break premiums are paid at the employee’s base hourly rate, rather than the employee’s regular rate of pay used to calculate overtime pay. Instead, the Court held that the phrase “regular rate of compensation” used in Labor Code section 226.7 (requiring employers to pay meal and rest break penalties) is synonymous with the phrase “regular rate of pay” used in Labor Code section 510 (requiring employers to pay overtime). The Court further held that the requirement to pay meal and rest break premiums at an employee’s regular rate of pay applies retroactively because the law was not previously settled on this issue given the divided authority from the California Court of Appeal and conflicting opinion of different federal district courts. Thus, employers cannot claim “reasonable reliance on settled law.”
What is the regular rate of pay?
The “regular rate of pay” encompasses not only an employee’s base hourly rate, but also any non-discretionary bonuses, commissions, and certain other amounts that an employee earned in a given work week. The regular rate of pay is calculated by dividing an employee’s total earnings for the workweek (including, but not limited to, any commissions, nondiscretionary bonuses, and piece rate hours) by the total hours worked during the workweek, including the overtime hours, to come up with the regular rate.
What should employers do?
Employers should immediately update their meal and rest break policies to reflect that any meal or rest break premiums will be paid at an employee’s regular rate of pay. In addition, employers should contact an employment attorney to not only evaluate how best to mitigate any potential exposure from this decision from the California Supreme Court, but also how to ensure compliance from an administrative standpoint moving forward.