Gibson Dunn | California Supreme Court announces new formula for calculating premiums for missed meal times or breaks
July 16, 2021
Click for PDF
On July 15, 2021, the California Supreme Court in Ferra v Loews Hollywood Hotel, LLC adopted a new formula for calculating the overtime hour of premium pay that is owed to employees if an employer fails to provide a compliant meal period or rest break. Specifically, the court ruled that these bonuses must include the hourly value of any non-discretionary income (such as non-discretionary bonuses) and cannot simply be paid at an employee’s basic hourly rate. The ruling aligns the formula for calculating meal break and rest premium payments with the formula for calculating overtime payments under California law.
the Ferré The decision represents a change in law, as the California Court of Appeals and several federal district courts had previously held that Section 226.7 of the California Labor Code’s use of the term “regular rate of compensation.” meant that the premium payment for failure to provide meal periods or breaks should be calculated using an employee’s basic hourly rate. Despite this change, however, the California Supreme Court ruled that its ruling applied retroactively.
The light at Ferré, employers should take steps to assess whether their calculation of premium payments for non-provision of meal and break periods includes non-discretionary payments, as well as to assess the impact of the decision on any pending litigation regarding meal times or breaks.
Ferré Holds that non-discretionary earnings must be included in the calculation of meal and rest period bonuses
California courts have long held that wage premiums for calculating overtime must take into account the hourly value of non-discretionary earnings. Involved in Ferré was whether this same formula applied to bonuses that are owed to employees when an employer fails to provide a meal period or a rest break. Specifically, the California Supreme Court answered the following question: “Did the legislature intend to use the term ‘regular rate of compensation‘in section 226.7 of the Labor Code, which obliges employers to pay a wage premium if they do not provide a legally compliant meal period or rest break, has the same meaning and requires the same calculations as the expression “regular rate of Pay‘under section 510 (a) of the Labor Code, which obliges employers to pay a wage premium for each additional hour? “
The California Supreme Court has ruled that “regular rate of pay” and “regular rate of pay” are interchangeable terms and that “the premium for an improper meal, rest or recovery period, such as the calculation of pay overtime, should not only take into account the hourly wage but also other non-discretionary payments for work performed by the employee.
The Court explained that in enacting section 226.7 of the Labor Code, the California legislature did so understanding that the use of the term “regular rate” by the Federal Fair Labor Standards Act was ” consistently understood. “. . to encompass all non-discretionary payments, not just basic hourly rates. In this context, the Court concluded that “regular rate” was the “applicable term” in the law and that the modifiers “salary” and “pay” were intended to be used interchangeably.
The court also ruled that its ruling applied retroactively, noting that it had not previously rendered a final ruling on the matter.
FerréImpact on employers
Employers should review the way they calculate premium payments for meal periods or rest breaks to ensure that they include the value of any non-discretionary income during the relevant pay period.
As for disputes relating to the incorrect calculation of meal and break premiums, Ferré does not eliminate all defenses against such claims nor does it guarantee that class certification will be granted in such cases. While Ferré clarifies how premiums for meal periods and breaks are to be calculated, it says nothing at all as to whether or not these premiums are due in the first place. It means, like Ferré he himself acknowledged that an “employer can defend itself against” an allegation that it has not provided meal periods or breaks “as it always has”. In other words, the plaintiffs pursuing Ferréclaims based on the database will always have to establish a right to a premium first, and under Brinker Restaurant Corp. vs. Superior court, 53 Cal. 4th 1004 (2012), this means that complainants must establish that a compliant meal period or rest break was not provided. And in a putative class action lawsuit, plaintiffs must demonstrate that this preliminary issue can be resolved group-wide.
Some complainants may attempt to skip this important threshold requirement by pointing out that an employer has voluntarily paid bonuses for meal periods or rest breaks, and argue that these payments are proof that they did not. benefited from compliant breaks. But the fact that an employer may have granted a premium for a meal period or a rest break is not decisive evidence that a compliant meal period or rest break was not provided. Employers often pay these premiums proactively and out of prudence, even when a premium was not due. In other words, employers do not have to admit that the payment of a bonus establishes that an employee was entitled to it. And that will mean that, in many cases, determining whether a conforming meal period or rest break was provided, and therefore whether a premium was due in the former, is a question that cannot be resolved at scale. of style.
Additionally, even though a claimant can demonstrate that they were entitled to a meal or break period bonus, they must also prove that they earned some form of non-discretionary compensation during that same pay period which must be included in the calculation of the amount of the premium under Ferré. Whether a particular payment was discretionary or non-discretionary is also often a very fact-dependent inquiry and therefore may not be suitable for class-wide resolution.
This alert was prepared by Jason Schwartz, Michele Maryott, Katherine Smith, Brad Hamburger, Lauren Blas, Megan Cooney, Katie Magallanes, Amber McKonly, Nick Thomas, Nick Barba and Rebecca Lamp.
Gibson Dunn attorneys are available to answer any questions you may have on these matters. Please contact the Gibson Dunn attorney you normally work with, any member of the firm’s labor and employment practice group, or the following authors:
Jason C. Schwartz – Co-President, Washington, DC (+1 202-955-8242, [email protected])
Michele L. Maryott – Orange County (+1 949-451-3945, [email protected])
Katherine VA Smith – Co-chair, Los Angeles (+1 213-229-7107, [email protected])
Bradley J. Hamburger – Los Angeles (+1 213-229-7658, [email protected])
Lauren M. Blas – Los Angeles (+1 213-229-7503, [email protected])
Megan Cooney – Orange County (+1 949-451-4087, [email protected])
Katie Magallanes – Orange County (+1 949-451-4045, [email protected])
© 2021 Gibson, Dunn & Crutcher srl
Lawyer Advertising: The accompanying documents have been prepared for general information purposes only and are not intended to provide legal advice.