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By: Adam Khan
On July 15, 2021, the California Supreme Court delivered a victory for employees and an equally tough blow to California employers.
In Jessica Ferra v. Loews Hollywood Hotel, LLC, the California Supreme Court held employers must pay meal and rest period premiums for each workday an employee was not provided a meal or rest period at a rate equivalent to the employee’s “regular rate of pay.” The Court held that the term “regular rate of compensation” under Labor Code section 226.7 (requiring meal, rest and recovery periods) has the same meaning as “regular rate of pay” under Labor Code section 510 (requiring overtime pay). In so holding, California employers are now required to use overtime rules by factoring in all non-discretionary pay earned during the workweek when calculating an employee’s meal and rest period premiums.
Prior to the Ferra decision, if an hourly employee was not provided with a compliant meal or rest period, an employer could pay the employee an additional hour of pay according to the employee’s hourly wage at the time the meal or rest period was not provided without factoring in non-discretionary payments. Quoting the Division of Labor Standards Enforcement Manual, the California Supreme Court defined “nondiscretionary payments” as payments for an employee’s work that are owed “pursuant to [a] prior contract, agreement, or promise,” not “determined at the sole discretion of the employer.” In Jessica Ferra’s case, the non-discretionary payments were quarterly incentive disbursements.
The decision creates added exposure for employers for additional payments and penalties even if meal and rest period premiums were paid at the hourly rate. Employers are therefore encouraged to update their employee handbooks and policies to ensure nondiscretionary payments are properly included in calculating an employee’s meal and rest period premiums.
For more information, please contact Adam Khan at [email protected]