California Supreme Court Rules on Premium Payments for Meal, Rest, and Recovery Break Violations
In Ferra v. Loews Hollywood Hotel, LLC, the California Supreme Court unanimously ruled that employers must pay premium payments to employees for missed meal, rest, and recovery breaks at the employee’s “regular rate of pay” instead of their base hourly rate, as many employers were doing. The regular rate of pay must include all non-discretionary incentive payments, such as bonuses and commissions. As a result of this decision, California employers should expect a wave of class action and Private Attorney General Act (PAGA) claims.
Jessica Ferra was a bartender for Loews and earned an hourly wage, in addition to quarterly non-discretionary payments. The employer-provided employees with payments for meal, rest, and recovery breaks at the base hourly wage. The case was ruled in favor of Loews by the trial court and appellate court but was reversed by the California Supreme Court.
California law requires daily overtime rates to be multiples of employees’ regular rates of pay. According to National Law Review, “The overtime rate for workers who are paid a guaranteed hourly rate and performance-based incentive bonuses or piecework earnings take those incentive payments to be part of their regular rates—making the overtime pay greater than their base hourly rate. An employee is thus entitled to one and one-half times his or her regular rate of pay for time worked in excess of 8 hours in one day and double his or her regular rate of pay for time worked more than 12 hours in one day.”
The reasoning behind the decision took into consideration research that shows long work hours are linked to increased rates of accident and injury. In addition, family life is negatively impacted when one or both parents are away from the home for an extended period of time on a daily basis. The court mentioned that the higher overtime rate will disincentivize employers from requiring overtime.
The decision was applied retroactively, despite the risk of potential lawsuits targeting employers for “millions” in liability. However, Loews did not provide any evidence that the retroactive application will expose employers to “millions” in liability.
In light of this ruling, California employers should update their premium pay systems, provide restitution payments, consider modifying or eliminating compensation programs, adopt waiver programs, and implement an attestation program that allows employees to confirm they received legally compliant opportunities to take meal, rest, and recovery breaks.