Ruling Clarifies Meal, Rest Break Penalties Calculation
On Wednesday, October 9, 2019, the California Court of Appeal issued a long-awaited clarification of California’s meal and rest break penalty provision (Ferra v. Loews Hollywood Hotel, LLC). The court was asked to interpret whether the phrase “regular rate of compensation” meant the same as the “regular rate of pay,” which is used to calculate overtime premiums, or whether it meant the base hourly rate that employers pay their nonexempt employees.
Jessica Ferra worked as a bartender for Loews Hollywood Hotel (Loews). Loews paid Ferra, and other hourly employees, a one-hour premium payment if the employee did not receive their meal or rest breaks. Loews paid the premium based on Ferra’s base hourly rate; however, California Labor Code section 226.7 requires premium payments to be paid at the “regular rate of compensation.”
In a class action lawsuit, Ferra alleged, amongst other things, that Loews improperly calculated the pay rate for meal and rest period premiums, because Loews didn’t properly calculate the “regular rate of compensation” when it only used the Ferra’s base hourly rate. Ferra argued that Loews should have calculated the “regular rate of compensation” the same way employers must calculate the “regular rate of pay” for overtime purposes, which includes all compensation received during the workweek such as the base hourly wages, commissions and nondiscretionary bonuses.
In a welcome ruling for employers, the court disagreed. In comparing both the overtime and meal and rest period statutes, the court reasoned that if the Legislature wanted the terms “compensation” and “pay” to mean the same thing, they would have used the same words.
Additionally, the “central purpose” of the overtime statute is to pay employees for time spent working, while meal and rest period premiums are extra compensation for missed breaks. Because the statutes use two different terms and have two different purposes, the court reasoned that “regular rate of compensation” in the meal and rest break statute does not mean the same thing as “regular rate of pay” in the overtime statute.
What Does This Mean For Employers?
Although this opinion provides some long-needed clarity, the opinion is not yet final. The Court of Appeal could grant a rehearing of the matter, or the California Supreme Court could depublish the opinion and/or decide to hear the matter for itself. Employers who wish to change their policies for how they pay meal and rest break premiums should consult with legal counsel.