Most employers in California know that they are required to provide non-exempt employees with a 30-minute meal break whenever the employee works more than five hours, a second 30-minute meal break if the employee works more than ten hours and a 10-minute rest break for every four hours (or major fraction thereof) an employee works. Most employers probably also know that if they fail to provide an employee with these required meal and/or rest breaks, the employee is entitled to a premium equal to one additional hour of pay. However, until recently, when the California Supreme Court issued its opinion in Ferra v. Loews Hollywood Hotel, LLC, almost nobody knew that these meal and rest break premiums needed to include the value of any commissions, bonuses and other non-discretionary pay the employee earns.
In Ferra, the California Supreme Court held that, similar to the requirement that employers pay overtime at the “regular rate of pay” (which includes commissions, bonuses or other non-discretionary pay), employers are required to pay meal and rest break premiums at a regular rate that includes commissions, bonuses or other non-discretionary pay.
For example, if an employee earns $15 per hour, works 40 hours per week and earns a $100 non-discretionary bonus that week, the employer is required to pay the employee an extra hour of pay, including the value of the $100 bonus, for any meal and/or rest break that was not provided to the employee. This premium is calculated by dividing the employee's total compensation ($15 x 40 + $100 = $700) by the employee's total hours worked ($700 ÷ 40 = $17.50). Instead of paying the meal and/or rest break premium at the employee's $15 hourly rate, the employer must pay $17.50 for each meal and rest break not provided.
Prior to the California Supreme Court's decision in Ferra, several district court decisions held that meal and rest break premiums could be paid at the employee's straight time, hourly rate. These courts found that California law on meal and rest break premiums, which requires an employer to pay an employee “one additional hour of pay at the employee's regular rate of compensation”, was different than California and federal law that requires overtime be paid at one and one-half the employee's “regular rate of pay”. The Supreme Court rejected this reasoning and found that “regular rate of compensation” was synonymous with “regular rate of pay,” and both encompass “all nondiscretionary payments, not just hourly wages”.
Worst of all, the Supreme Court held that its decision applies retroactively. Hence, an employer could be found to have underpaid an employee for any meal and/or rest break premiums previously paid at the employee's straight, hourly rate if the employee earned other non-discretionary pay during that pay period.
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