In Ferra v. Loews Hollywood Hotel, LLC, the California Supreme Court has concluded that an employee’s “regular rate of compensation” for meal and rest period premium pay is synonymous with the employee’s “regular rate of pay” for overtime.  Accordingly, employers paying meal and rest period premiums must pay those,  not at an employee’s base hourly rate alone, but at that rate plus all non-discretionary payments, meaning those that are paid “pursuant to [a] prior contract, agreement, or promise . . . .”

Plaintiff Ferra alleged that Loews improperly calculated her meal and rest period premium payments when it excluded her non-discretionary quarterly incentive bonuses from premium pay calculations.  Loews successfully argued before the trial court and court of appeal that Ferra’s “regular rate of compensation” for meal and rest period premium pay is her base hourly rate of pay and is distinguishable from her overtime “regular rate of pay.”

After a lengthy analysis of legislative history, the California Supreme Court disagreed and reversed the court of appeal.  The Court concluded that the “regular rate of compensation” for meal and rest period premium pay under California Labor Code section 226.7(c) is synonymous with the “regular rate of pay” for overtime as defined under California Labor Code section 501(a).  As a result, when employers pay meal and rest period premiums, they must use the employee’s overtime regular rate of pay, which includes all non-discretionary payments for the work performed.

Moreover, the California Supreme Court rejected Loews’ argument that its decision should only apply prospectively. Following its decision in Vazquez v. Jan-Pro Franchising International, the California Supreme Court held that since it was interpreting a statute, not overruling or disapproving previous case law, its holding applies retroactively.

What should employers do now?

• Review and update payroll policies and procedures pertaining to meal and rest period premiums.

• Audit prior meal and rest period premium payments to those employees who receive non-discretionary bonuses or other wages that are included in their regular rate of pay calculations, to ensure those premiums have been paid accurately.