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HR Hot Topic – Recent California Supreme Court Ruling Invalidates Long-Standing Employer Practice

July 26, 2021 | Written by Admin

On July 15, 2021, the California Supreme Court ruled in Ferra v. Loews Hollywood Hotel, LLC  that employers must pay meal and rest period premiums at the “regular rate” of pay. The regular rate of pay is defined as to include all forms of nondiscretionary compensation paid to non-exempt employees.

The Court held that the long-standing practice of  paying meal and rest period premiums at a base hourly or “straight time” rate is not consistent with the law.

Background

If an employer fails to provide an employee a meal or rest period in accordance with current California requirements, the employer must pay the employee one additional hour of pay at the employee’s regular rate of compensation for each workday that the meal or rest or recovery period is not provided.   

“Regular rate of pay” is a legal term that is not necessarily equivalent to the employee’s base hourly pay. Depending upon the compensation paid to an employee in a particular workweek, it means the higher of:

(i) the employee’s base hourly rate of pay if the employee earns only one rate of pay in the workweek and receives no other nondiscretionary compensation;
(ii) the weighted average of the employee’s hourly rates of pay where more than one hourly pay rate is in effect during the workweek; or
(iii) the weighted average of the employee’s base hourly rate(s) of pay and any additional nondiscretionary compensation an employee earns in the workweek (e.g., commissions, bonuses, pay-in-lieu of benefits).

As a result, an employee who is paid nondiscretionary compensation in addition to an hourly base rate will have a higher regular rate of pay in a workweek in which the employee earns that additional compensation.

Court Finds That Employers Must Pay Break Premiums at the “Regular Rate” of Pay

In Ferra v. Loews Hollywood Hotel, LLC, The California Supreme Court held that “regular rate of pay” and “regular rate of compensation” are interchangeable and determined that premium wages be calculated in the same manner in which overtime is calculated.

Click here to view full opinion and decision

Implications

In deciding this matter, the Court rejected the argument that the decision should only apply going forward. Thus, like most judicial decisions, the ruling by the Court is “retroactive”.

Although the Court stated that there is no evidence that employers will be exposed to such liability, the decision certainly opens the door to future claims.

Immediate Action

Take steps to avoid such claims by reviewing your policies and practices of paying meal and rest break premiums. Seek legal remedies to minimize the risk of possible litigation in this area of wage and hour compliance if exposure exists.

Taking these steps can assist you in avoiding the time and expense of such claims. 

We will continue to provide further guidance regarding developing HR-related news. Should you have any questions, please contact our office at 916.444.6200, info@hrtogo.com, or your HR Consultant directly.

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