On July 15, 2021, the California Supreme Court held in Jessica Ferra v. Loews Hollywood Hotel, LLC that Labor Code Section 226.7 requires employers to pay meal and rest period premiums for each workday in which they were not provided a meal or rest period at a rate equivalent to the employee’s regular rate of pay. In sum, the Court held that employers are required to use overtime rules by factoring in all non-discretionary pay earned during the workweek when calculating the employee’s meal and rest period premiums.
Ferra originally brought this wage and hour class action against Loews Hollywood Hotel, LLC in 2015. The case was dismissed in 2017, including Ferra’s meal and rest period claims, on the basis that Loews had already paid meal and rest period premiums at the employees’ base hourly rates of pay. Although Ferra appealed the dismissal, the Court of Appeals upheld the trial court’s decision that non-discretionary pay did not need to be included in the calculation of employees’ meal and rest period premiums.
The California Supreme Court reversed the Court of Appeal’s decision, holding the Court of Appeals erred in distinguishing Labor Code Section 226.7’s reference to the “regular rate of compensation” from the “regular rate of pay,” which has been used in calculating employees’ overtime wages. Rather, the Supreme Court held that the two phrases are synonymous, and therefore, like the calculation of an employee’s overtime wages, employers must factor in non-discretionary bonuses, commissions, and other forms of non-discretionary pay in the calculation of employees’ meal and rest period premiums. Furthermore, the Court held that because it was interpreting an existing statute, its holding applies retroactively.
Impact on Employers
As a result of this decision, employers may be liable for additional payments and penalties even if they previously paid employees for meal and rest period premiums. Accordingly, employers are advised to audit prior payments for meal and rest period premiums and update their policies/practices to ensure that any non-discretionary payments are properly included in the calculation of employees’ meal and rest period premiums. Timekeeping and payroll systems may also need to be updated to ensure that the regular rate of pay is properly calculated, as the meal and rest period premiums owed to employees may now vary from pay-period to pay-period depending on the forms of payment made to the employee.
It is important to note that simply referring to a payment, such as a bonus, as “discretionary” may not necessarily exempt it from the calculation of an employee’s meal and rest period premiums and/or overtime wages. Therefore, it may be necessary to consult competent legal counsel to determine whether specific forms of payment may result in changes to an employee’s regular rate of pay.
If you have any questions regarding this decision or other labor or employment issues impacting California employers, please contact the authors of this Alert, David Cheng, partner in our Los Angels and San Francisco Bay Area offices at dcheng@fordharrison.com, and Jamin Xu, associate in our Los Angeles office at jxu@fordharrison.com. Of course, you can also contact the FordHarrison attorney with whom you usually work.