On July 15, the California Supreme Court issued a decision in Ferra v. Loews Hollywood Hotel, LLC., a pivotal case that addresses meal and rest break premium payments. The decision ruled in favor of the employee, establishing that the “additional hour of pay” for meal or rest period violations must encompass all non-discretionary payments, as well as hourly wages. Thus, if an employer pays an employee non-discretionary incentive pay or bonuses, or commissions, those amounts must be included in determining the “hour of pay” the employer owes to the employee for missed, late or short meal or rest periods.

Before this change in law, the California Court of Appeal and several federal district courts previously held that California Labor Code section 226.7’s use of the term “regular rate of compensation” meant that premium payments for meal or rest period violations should be calculated using only an employee’s base hourly rate, and did not include the employee’s other non-discretionary compensation.

Key Takeaways

  • The decision applies retroactively.
  • Employers will need to update payroll policies to ensure compliance with the new method of calculating meal and rest period premiums.
  • Employers need to know that nondiscretionary payments, such as nondiscretionary bonuses and commission payments, are included in the calculation of the regular rate for both overtime and meal and rest premium pay purposes.

What Should Employers Do Now?

  • Review your meal and rest period policies to ensure strict compliance, as potential violations are more costly now.
  • Assure that all non-discretionary payments are included in the calculation of meal and rest period premium payments.
  • Contact experienced employment counsel to ensure that your current non-discretionary pay practices and meal and rest period premium pay policies and practices align with the new standards, and to learn how to adjust them to ensure compliance.

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