California Supreme Court Ruling Changes Calculations For Break Pay

In July 2021, when most California employers were trying to make sense of the state’s Emergency Temporary Standards surrounding COVID-19, the state Supreme Court issued a ruling every employer in the state should know and understand.

Case Background

The case of Ferra v. Loews Hollywood Hotel, LLC involved a former California bartender whose employer paid her premium payments instead of meal and rest breaks as required by state and federal law. The employer, Loews Hollywood Hotel in Los Angeles, compensated her in accordance with her base hourly wage. Previously, this was standard practice among many California employers. 

The former Loews bartender took the issue of her compensation to court. She argued that her former employer should have paid her in accordance with her regular rate of pay instead of the base hourly wage. In California, the regular rate of pay is used to calculate overtime compensation. 

The difference between the regular rate of pay and base hourly wage is that the former takes into account non-discretionary payments like bonuses. Conversely, the base hourly wage of California employees is just that—base wages. Because of this discrepancy, employers and employees alike understood the regular rate of pay to be greater than the base hourly wage for the same worker. Loews, acting as many other companies would, paid the former bartender the lower amount (base hourly wage) for her meal and rest break premiums.

The California Supreme Court essentially held that the regular rate of compensation, as written in state law, is synonymous with regular rate of pay. This ruling reversed the decisions of the trial and appellate courts, which had sided with Loews. 

The important takeaway is this: employers compensating employees in lieu of statutorily required meal and rest breaks must take into account non-discretionary pay. This should prompt all California employers to double-check their policies for break premium payments to ensure compliance with this recent Supreme Court ruling. 

Another important note here is that this ruling appears to apply retroactively to California employers. So, if your company has compensated current or former employees in lieu of statutorily required breaks, you should consider making up the difference to avoid civil liability. 

Conclusion


California employers must adhere to strict rules regarding mandatory meal and rest breaks for certain employees. Not providing these breaks could mean a significant financial loss for your company, especially if you get hit with a PAGA claim (a very expensive type of class action lawsuit that is proliferating rapidly throughout the state). With this recent California Supreme Court ruling, the stakes just got even higher. Our firm can help you make sure your business is in compliance with all applicable federal and state laws. Contact us today.