EMPLOYERS MUST NOW PAY MORE FOR MEAL AND REST PREMIUM VIOLATIONS

In an unfortunate turn of events for employers, the California Supreme Court has just made paying the state’s “premium” for non-compliant meal and rest periods a little more expensive and a lot more difficult to calculate.

Under California law, an employer is required to “pay the employee one additional hour of pay at the employee’s regular rate of compensation” if the employer does not provide the employee with a compliant meal, rest, or recovery period. (Labor Code § 226.7(c).) Prior to this decision, many courts had held that the phrase “regular rate of compensation” simply referred to an employee’s base hourly wage rate. Not so, said the Supreme Court in its July 15, 2021, ruling in Ferra v. Loews Hollywood Hotel, LLC.

Reversing the decision of the lower court, the Supreme Court held that the Legislature intended the phrase “regular rate of compensation” in Section 226 to have the same meaning as the phrase “regular rate of pay” in Labor Code Section 510(a), which governs the calculation of overtime pay. As a result, employers now need to calculate these premium payments in the same manner they calculate the “regular rate” for overtime, which means factoring in any and all “non-discretionary payments” (e.g., shift differentials, attendance bonuses, defined incentive bonuses, etc.) the employee received during that work week.

Rubbing salt into the wound, the Court further held that this change applies retroactively to cases that are currently pending and those that have yet to be filed with the court. What this means is that even companies who believed they were following the law by diligently paying meal and rest premiums may become targets of class action lawsuits that may involve a period dating as far back as four years, and Private Attorney General Act (“PAGA”) claims which go back one year

So, what do employers need to do in response to this decision? First, you should review and update your meal and rest premium policies immediately to ensure that break premium payments are calculated at the “regular rate” of pay rather than the base hourly rate. Failure to do so exposes companies to penalties. Second, to protect yourself from the multitude of plaintiffs’ attorneys who will undoubtedly be looking to exploit this decision, you should audit any prior meal and rest period premiums paid out within the last four years. Feel free to contact our firm to discuss how to best mitigate against the risk of litigation.

Example:

Assume that an employee earns a base hourly rate of $20/hr. plus commissions. After factoring in an earned non-discretionary bonus for that work week, your payroll calculates that the employee’s “regular rate” for overtime purposes was $25/hr. If that employee is also owed a meal premium during this period, it is now clear that the premium paid must be $25 (i.e., 1 hour’s wage at the calculated “regular rate”) not $20 (1 hour at the employee’s base hourly wage).

We will continue to monitor the related key developments and keep you posted. Should you need guidance, please contact our office.

Written by: Arthur R. Connors, Esq.

& Alysha R. Zapata, Esq.

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