California Supreme Court Ruling Causes Dramatic Shift for Meal and Rest Breaks

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On July 15, 2021, the California Supreme Court gave its ruling on Ferra v. Loews Hollywood Hotel, LLC. The case involves meal, rest, or recovery premium pay. The decision applies retroactively and requires a dramatic shift for employers in their obligations going forward.

The issue in the case revolved around the rate of compensation to an employee when they are not provided compliant meal and rest periods. Specifically, the question is around the definition of “regular rate of compensation” in Labor Code 226.7. The term itself is not defined within the code. Prior to the California Supreme Court’s ruling, the prevailing practice, seemingly accepted by many lower courts, was to pay the employee their base rate of pay in these instances. With the ruling in Ferra, this now changes.

The California Supreme Court unanimously determined that the term “regular rate of compensation” has the same definition as that of “regular rate of pay,” the term used in the code for calculating an employee’s overtime. This means meal, rest, or recovery premium pay must include “all nondiscretionary payments, not just hourly wages.” This requires such payments to factor in non-discretionary bonuses and commissions, like with overtime pay.

Employers must, of course, review their practices for meal and rest period premium pay. However, with the ruling applying retroactively, they may also find themselves liable for past practices that failed to live up to the definition of “regular rate of compensation,” as the California Supreme Court has now defined it.

With the constant changes that can impact a business, a legal team with experience in employment law can help navigate an ever-changing environment for businesses.