California Supreme Court Retroactively Makes Meal Break and Rest Violations Costlier to Employers | McGuireWoods LLP
On July 15, 2021, the California Supreme Court ruled on a closely watched case, Ferra v Loews Hollywood Hotel, LLC, and unanimously ruled that employers are required to pay premiums for violation of meal and rest breaks at the same “regular rate of pay” they use to pay for overtime.
Contrary to the long-standing practice of most employers, the court ruled that these violation premium payments cannot be paid at an employee’s basic regular hourly rate. Instead, they must include in the calculation of the rate of pay all salaries and other non-discretionary income (such as job spreads, piecework and performance pay, and non-discretionary bonuses). The court also confirmed that its ruling will apply retroactively to premium payments for violation of meal breaks and rests already taken or owed.
The question of the “regular rate” in Ferré
Under Section 226.7 (c) of the California Labor Code, employers must pay employees an additional hour of premium at their “regular rate of pay” for violations of meal and rest breaks.
Under Section 510 (a) of the California Labor Code, employers must pay employees for overtime worked at premium rates based on the employee’s “regular rate of pay”, which is a term Long understood to encompass not only hourly wages but also other non-discretionary income, such as shift differentials, piecework and incentive pay, and non-discretionary bonuses.
At the heart of the litigation between the parties Ferré was whether the term “regular rate of pay” used in Article 226.7 (c) for the premium for failure to comply with meal breaks and rest had the same or different meaning from the term “regular rate of pay” used in article 510 (a) for the overtime premium. The California Supreme Court granted a review to determine whether the California legislature wanted the two terms to be synonymous.
Factual and historical background to the proceedings in Ferré
The complainant in Ferré was a bartender on the property of the defendant employer’s hotel. The complainant received non-discretionary quarterly bonuses which, when paid, triggered a recalculation of her “regular rate of pay” for the payment of overtime bonuses. However, the employer was not using this recalculated rate to make premium payments for violation of meal and rest breaks. Instead, it paid employees an overtime hour of premium pay for meal and rest break violations at their basic regular hourly rate of pay.
The plaintiff filed a putative class action suit claiming that the “regular rate of pay” for the payment of breach violation bonuses was synonymous with “regular rate of pay” for the payment of overtime premiums and that, therefore, the employer had underpaid the premiums for breach violation. The trial court rendered summary judgment in favor of the employer on this issue, and the Court of Appeal upheld, finding that the two sentences were do not synonymous, and that the employer had correctly paid the breach premiums.
California Supreme Court solves the problem
The California Supreme Court granted and overturned, disagreeing with the interpretation of the lower courts. It ruled that “the term” regular rate of pay “in section 226.7 (c) has the same meaning as” regular rate of pay “in section 510 (a) and includes not only hourly wages, but all hourly wages. non-discretionary payments for work performed by the employee ”also. Thus, “the premium for a meal, a rest or a non-compliant recovery period, such as the calculation of overtime pay, must take into account not only the hourly wage. but also other non-discretionary payments for work performed by the employee.
The court explained that when the California legislature enacted Section 226.7 of the Labor Code, “it did so in the context of a long-standing federal law that defined overtime pay in terms of” rates. normal ”of an employee and existing state law that defined overtime pay. in terms of an employee’s “normal rate of pay”. He noted that, despite the difference in wording between the Federal Fair Labor Standards Act (“regular rate of pay”) and section 510 (“regular rate of pay”), courts and agencies ‘execution included’ the regular rate salaryAs used in Section 510 and the California Industrial Welfare Commissions wage ordinances are synonymous with “standard rate” as used in the FLSA. On this basis, the court ruled that “standard rate” is the “applicable term” in section 226.7 (c) of the California Labor Code and that the California legislature intended the modifiers for “salary” and “pay” Be used interchangeably. Thus, “regular rate of pay” as used in section 226.7 (c) does not have a different or distinct meaning from “regular rate of pay” as used in section 510 (a), and is not limited to an employee’s basic regular hourly rate. rate.
Ferré Applies retroactively
Importantly, the California Supreme Court rejected the employer’s contention that the decision should only apply prospectively, finding no reason to deviate from the usual approach that decisions of appeals on statutory interpretation apply retroactively. In doing so, the court said “it is not clear why we should favor the interest of employers in avoiding the liability of ‘millions’ over the interest of employees in getting the ‘millions’ owed to them. under the law. Further, the court ruled that “” if we were to restrict our detention to prospective application, we would in effect nullify “the full scope of the remedy” which the legislature has deemed appropriate in this context. “
Ferré Immediate impact on employers
Employers should undertake an immediate review of how they calculate premiums for non-compliance with meal breaks and rest to ensure that employees are paid the same regular rate of pay that is used to pay premiums. overtime. Thus, the regular rate should include not only hourly wages, but also other non-discretionary income, such as shift spreads, piecework and performance pay, and non-discretionary bonuses earned during the working week. applicable work. In addition to adjusting past overtime calculations to the regular rate when paying non-discretionary compensation earned in prior pay periods, employers will likely need to make similar adjustments to past meal and break premium payments. -rest.
Given FerréThe retroactive enforceability of the, employers should also assess the impact of the decision on any pending litigation regarding meals or breaks, including not only exposure to liability, but the continued viability of past decisions. In addition, employers should work with their attorney to determine whether and how to remedy past violation bonus payments made at the wrong regular rate, whether or not there are pending or imminent litigation involving any. such compliance issues.
The retroactive and prospective exposure created by Ferré, and its likely triggering of a new wave of collective redress against employers on the issue, provides a suitable opportunity for employers who have not already done so to assess whether they now wish to implement labor agreements. employee arbitration with class action waiver. Employers should consult their lawyer to decide if and how to implement such agreements.
Finally, to keep things in perspective, note that Ferré simply clarifies the appropriate “regular rate” for making meal and rest allowance payments. It does not address employers’ defenses of liability for alleged violations of meal and rest breaks and whether such premium payments are due in the first place. As the California Supreme Court recognized in Ferra, the fact remains that an “employer can defend himself against such a claim” for violation of meal or rest breaks “as he always has done”.