Bring out the calculators and checkbooks: CA retains that penalties for meal / rest breaks include non-discretionary compensation | Hogan Lovells

What were the legal issues in Ferra v. Loews Hollywood?

For the purposes of calculating penalties for meal and rest breaks, the California Labor Code requires employers to pay one hour of the employee’s “regular rate of pay”. The wording is similar, but different, to “regular rate of pay”. While that doesn’t sound like a big difference, the appeals court had previously ruled that the terms have different meanings and that the “regular rate of pay” used for meal and meal break bonuses is only the employee’s basic hourly rate, while the “regular rate of pay” is the rate used in the context of overtime, which must include all non-discretionary payments (for example, lump sum bonuses, post differentials, etc.). In other words, the appeals court made it easier to calculate the meal or meal break premiums – it was simply one hour at the employee’s basic rate.

This reprieve for employers was short-lived as the California Supreme Court ruled the appeals court was incorrect and ruled the two terms were an indistinguishable distinction. Instead, the California Supreme Court ruled that the “regular rate of pay” that must be paid for meal and break premiums must be calculated as the “regular rate of pay” used to calculate the hourly rate. additional.

What does this mean for the calculation of meal break and rest premiums?

California employers are now required to pay severance bonuses using the more complex calculation of the regular rate of pay taking into account all forms of non-discretionary compensation, such as job differentials, non-discretionary bonuses, and similar pay for employees. Hours worked. Instead of simply paying an employee’s base hourly rate for a meal or break premium, the employer must now calculate the applicable regular rate of pay each when a meal or rest break premium is due.

How is the “normal rate” calculated?

As examples of the various ways in which the “regular rate of pay” might differ from an employee’s basic hourly rate, consider the scenario where an employee is paid a basic hourly rate of $ 20 / hour with weekly pay periods. .

If this employee works 40 hours, without any other type of remuneration:

The employee’s regular rate would be $ 20.

If this employee works 40 hours and receives a lump sum attendance bonus of $ 100

According to California Supreme Court calculations set out in Alvarado v. Dart Container Corp., 4 cal. 5th 542 (2018), the employee’s regular rate would be as follows:

If that employee works 20 hours at the employee’s base rate of $ 20 / hour and receives an additional shift differential of $ 10 ($ 30 / hour) for night and weekend work:
If this employee works 40 hours and also receives a commission of $ 1,000 in the same week:

According to the judgment of Ferré, this same employee could theoretically receive meal or rest bonuses in the amount of $ 20, $ 22.50, $ 25 and $ 45 in four separate pay periods, despite having the same basic hourly rate of pay everywhere.

Is the decision retroactive?

Yes, the California Supreme Court has explicitly said its ruling will be retroactive, potentially exposing employers to liability for miscalculating severance pay in the past.

Employers are strongly advised to review and verify their payroll practices immediately, particularly with regard to the calculation of the regular rate of pay and the rates they pay for meal and rest break premiums.

For more information on the impact of this decision on your organization, please contact one of the authors of this article or the lawyer for Hogan Lovells with whom you work.

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