California Supreme Court Clarifies Calculation Requirements for Noncompliant Meal, Rest, and Recovery Break Premium Payments: Some Employers May Find That Their Payments Have Been Too Low

Well-known California law requires employers who fail to provide a nonexempt employee with a compliant meal, rest, or recovery period to pay the employee one additional hour of pay at the employee’s “regular rate of compensation” for each workday that the compliant meal, rest, or recovery period is not provided.  Cal. Labor Code § 226.7.  But “regular rate of compensation” is not defined in the Labor Code or applicable wage orders, and whether the term “regular rate of compensation” means the employee’s base hourly rate or the regular rate of pay used for overtime pay purposes (under Labor Code § 510) has been the subject of great dispute.

The California Supreme Court’s unanimous decision in Ferra v. Loews Hollywood Hotel, LLC., S259172 (Cal. Sup. Ct., July 15, 2021) puts an end to any dispute: finding that the phrase “regular rate of compensation” in Labor Code section 226.7 is synonymous with the phrase “regular rate of pay” in Labor Code section 510, the Ferra Court concluded the premium pay due employees for noncompliant breaks was the same as the regular rate of pay used for overtime purposes, which encompasses all nondiscretionary payments such as commissions or production bonuses, not just hourly wages.

Focusing on policy considerations, the Ferra Court observed that allowing employers to compensate employees for meal, rest, and recovery period violations at an employee’s base hourly rate of pay would incentivize employers “to minimize employee’s base hourly rates and shift pay elsewhere, thereby harming employees who are paid in some form other than a base hourly rate.”

The Ferra Court notably concluded its decision would apply retroactively, thus exposing employers to potential liability if they have historically paid for noncompliant breaks at rates lower than required by its decision.  Employers should also note that the California Supreme Court is expected to decide later in 2021 whether terminated employees can recover waiting time penalties under California Labor Code section 203 based solely on unpaid premiums for noncompliant breaks.

The Supreme Court’s complete ruling in Ferra can be accessed here.

Next steps

As a result of the Ferra decision, employers should carefully assess whether their employees are entitled to this premium pay for noncompliant meal, rest, and recovery breaks, and ensure they calculate the payment due the same way they would calculate an overtime rate, including factoring in all other nondiscretionary compensation. Employers should thus immediately review their practices to determine whether adjustments are needed to accurately calculate break premium payments.  Employers should also make sure they have compliant break policies as well as time-keeping practices for meal breaks.[1]   Employers might also consider other proactive measures, such as implementing attestation programs where employees can confirm on a regular basis that they received legally compliant opportunities to take breaks.

If you have questions or concerns about this case, please contact the Rogers Joseph O’Donnell attorney with whom you regularly work or a member of our employment law team at employmentlaw@rjo.com.

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[1] See “California Supreme Court Disallows Rounding of Meal Period Time Punches and Establishes a Rebuttable Presumption of Meal Period Violations.”  https://www.rjo.com/publications/california-supreme-court-disallows-rounding-of-meal-period-time-punches-and-establishes-a-rebuttable-presumption-of-meal-period-violations/