In a disappointing decision for employers across the state, the California Supreme Court ruled 7-0 in Ferra v. Loews Hollywood Hotel, LLC, that the state’s mandatory “premium” payments for non-compliant meal and rest periods (one hour of pay) must include all non-discretionary payments received by the employee, including bonuses or other routine extra payments. Prior to this decision, the lower courts in this case—and several federal district courts in other cases—had ruled that employers could pay meal and rest period premiums solely at an employee's base hourly rate of pay.
The Supreme Court concluded that the phrase “regular rate of compensation” in the Labor Code section authorizing rest and meal period premiums means the same thing as the phrase “regular rate of pay” used for calculating overtime pay. For more than 80 years, employers have been required to include these nondiscretionary payments when calculating overtime pay. The Supreme Court has now ruled that the same rule applies when paying the meal and rest period premiums. Further, the Supreme Court ruled that its decision applies retroactively to cases that are currently pending and those that have yet to be brought.
So what do employers—particularly those in the hospitality industry where additional non-discretionary payments are routine—need to know about this decision?
The takeaway is simple. If your company routinely pays employees any non-discretionary payments in addition to their base rate of pay, these non-discretionary payments must be included when calculating meal or rest period premiums.
Thankfully, many HR and payroll professionals are already familiar with calculating the regular rate of pay for purposes of overtime.
If you have any questions about this decision and what it means for your business, including whether a privileged and confidential audit of your wage and hour practices makes sense, please call your firm contact at (818) 508-3700, or visit us online at www.brgslaw.com.
John J. Manier
David J. Fishman
Daniel J. Corbett*
Ballard Rosenberg Golper & Savitt, LLP
* Currently a Provisionally Licensed Lawyer in California