Los Angeles, Calif. (May 26, 2021) - Ensuring meal and rest period compliance consistently plagues California employers, particularly those with large hourly work forces. Moreover, employers who seek to properly compensate employees for non-compliant meal and rest breaks are burdened with the task of correctly calculating premiums. Currently, California law requires the employer to pay the employee a meal period premium of one hour's wages at the employee's “regular rate of compensation”. (Cal. Lab. Code § 226.7) Last week, the California Supreme Court heard oral argument centering on the meaning of “the regular rate of compensation” with respect to meal and rest period premiums.
On October 9, 2019, the California Court of Appeal answered the burning question: Does “regular rate of compensation” for calculating meal or rest period premiums share the same meaning as “regular rate of pay” for calculating overtime premiums? The court, in Ferra v. Loews Hollywood Hotel, LLC (Cal. App. 2019) B283218, held that unlike overtime premiums, meal and rest period premiums may be paid at straight time hourly wages. In other words, incentive programs that are normally included in the regular rate of pay for overtime purposes (such as non-discretionary bonuses) are not included in the calculation of meal and rest period premiums.
On January 22, 2020, the Supreme Court of California granted the plaintiff's petition for review on the same question: Did the legislature intend the term “regular rate of compensation” in Labor Code section 226.7 to have the same meaning and calculation method as the term “regular rate of pay” under Labor Code section 510(a) (pertaining to overtime hours)?
On May 18, 2021, the plaintiff in the class action against Loews argued before the Supreme Court of California that the legislature intended for the “regular rate of compensation” used to calculate wage premiums for missed meal and rest periods to have the same meaning (and thus require the same calculation) as the “regular rate of pay” used to calculate wage premiums for overtime hours. The plaintiff's primary argument was that the plain meaning of the terms “regular rate of compensation” and “regular rate of pay” is obviously the same and nothing in the word “compensation” suggests it means anything different from, or less than, the word “pay.” Consequently, the plaintiff claimed she and other class members are entitled to more than just their base hourly rate as premiums for on-duty meal and rest periods.
The defendant, on the other hand, argued that “regular rate of compensation” and “regular rate of pay” are two different terms, and the legislature purposely used a different term in laws that both govern penalties to draw a distinction between the different meanings.
The California Supreme Court has not yet released its ruling on the case. We are closely monitoring the docket and will issue a follow-up client alert after the court rules. In the meantime, employers are encouraged to take stock of the method in which they are currently calculating meal and rest period premiums so that they can make a swift change, if needed, once the court rules.
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