By Jennifer L. Lippi, SPHR, PHRca

On October 9, 2019, the California Court of Appeal in Ferra v. Loews Hollywood Hotel, LLC, issued a decision clarifying the rate of pay at which an employer must pay meal and rest period premiums.  As you likely know, if an employee is unable to take a compliant meal or rest period, then California law requires the employer to pay the employee a premium of one hour’s wages. In the Ferra lawsuit, the employee alleged that her employer calculated her pay rate for missed meal periods and rest breaks improperly.  The employer paid missed meal periods and rest breaks at the base hourly rate of pay instead of at the employee’s regular rate of pay.  (Regular rate of pay must be calculated for overtime purposes and is calculated by adding all compensation (i.e., hourly wages, commission, bonuses, etc.) for the workweek and then dividing by the hours worked the workweek.)  Unlike an employee’s base hourly rate, the regular rate of pay may change each pay period.   

The court was faced with deciding whether the phrase “regular rate of compensation” for calculating meal and rest period premiums under Labor Code Section 226.7(c) has the same meaning as “regular rate of pay” for calculating overtime compensation under Labor Code Section 510.  The Court of Appeal looked at the plain language and legislative history of the two statutes to rule that the two terms have different meanings and therefore meal and rest period premiums need only be calculated based on an employee’s base hourly rate and not the regular rate of pay used to calculate overtime.  This means that other forms of compensation that are normally included in the regular rate of pay for overtime purposes, such as commissions and non-discretionary bonuses, are not included in the calculation of meal and rest period premiums.

The court reasoned that the Legislature made a conscious decision to use different, specific terms in two different statutes that were enacted the same year.  Had the Legislature intended the terms “compensation” and “pay” to mean the same thing, they could have just used the same term. While this interpretation is a win for employers, the decision could be appealed and may ultimately be decided by the California Supreme Court.  Employers wishing to change how they pay missed meal periods should consult with legal counsel.