California Supreme Court: Meal and Rest Period Premium Pay = Overtime “Regular Rate of Pay”

July 20, 2021

Employers may want to carefully review the California Supreme Court’s recent decision regarding its interpretation of Labor Code section 226.7(c) and meal and rest period premium pay.  In Ferra v. Loews Hollywood Hotel, LLC, the court clarified the meaning of “regular rate of compensation” for meal and rest period premium pay.

The high court has determined that an employee’s “regular rate of compensation” for meal and rest period premium pay under section 226.7(c) is the same as an employee’s “regular rate of pay” for overtime under section 510(a), not simply the employee’s hourly rate of pay. 

So in practical terms, what does this mean? When calculating meal and rest period premiums, employers must look to the employee’s overtime regular rate of pay.  This then includes all non-discretionary payments for the work performed or those payments that are paid “pursuant to [a] prior contract, agreement, or promise…”, such as bonuses, piece rate and commissions.  In making this determination, the court’s rationale was that if all compensation was not included in a meal or rest break premium, this could then punish employees paid by piece rate by encouraging employers to pay lower hourly rates with higher non-discretionary components.

In addition, and just as importantly, the Ferra court noted that its holding applies retroactively.

What should employers now do going forward?  The repercussions of the decision are not to be taken lightly given the retroactive nature of the now all-encompassing definition of meal and rest period premium pay and the potential for lawsuits, penalties and fees.  Here are some key steps employers should swiftly take:

1.       Look at current payroll practices and fix any errors.

2.       Ensure that payroll practices are correct so that premium pay calculations are using the worker's regular rate of pay.

3.       Contact us at McKague Rosasco LLP to decide on next steps and to build an action plan that addresses past issues.