A California state appellate court has ruled that the correct rate for paying meal and rest period premiums is one hour of pay at an employee’s base hourly rate, not the regular rate of pay used for calculating overtime wages. This is the first published California case to make this distinction.

Pursuant to § 226.7 of the California Labor Code and the applicable Wage Orders of the Industrial Welfare Commission, an employer that fails to provide an employee a meal or rest period in accordance with a state law shall pay the employee one additional hour of pay at the employee’s “regular rate of compensation” for each workday that the meal or rest period is not provided. In Ferra v. Loews Hollywood Hotel, LLC, it was undisputed that the employer paid meal and rest period premiums at each employee’s base hourly wage (i.e., straight time rate), but the plaintiff argued this practice resulted in an underpayment of break premiums. Specifically, the plaintiff claimed that the “regular rate of compensation” at which break premiums must be paid is the same as the “regular rate of pay” used in Labor Code § 510 for calculating overtime premiums, which includes upward adjustments to the straight time rate reflecting the per-hour value of any non-hourly compensation the employee has earned during the pay period.

Holding that the premium for missed meal and rest periods is one hour at an employee’s base hourly rate, the Second Appellate District Court agreed with the employer that the statutory terms “regular rate of pay” and “regular rate of compensation” are not synonymous. In so ruling, the appellate court reasoned that the legislature could have simply used “regular rate of pay” in both statutes had it intended for the premiums to be calculated the same way, but instead chose to add different qualifiers to establish the proper rates for each premium. Thus, construing the phrases as interchangeable would render meaningless the legislature’s presumably deliberate act to use “of compensation” in one statute and “of pay” in the other. The appellate court further concluded that equating “regular rate of pay” and “regular rate of compensation” would ignore the difference between requiring an employer to pay overtime for the time an employee spends working more than 8 hours a day and/or 40 hours a week, which pays the employee for extra work, and requiring an employer to pay a premium for missed meal and rest hour periods, which compensates an employee for the loss of a benefit. While acknowledging that the Labor Code is to be construed in favor of protecting employees, the appellate court held that requiring employers to compensate employees with a full extra hour at their base hourly rate for working through a 30-minute meal period, or for working through a 10-minute rest break provides a premium that favors the protection of employees.

Importantly, however, the rate at which premiums for missed meal and rest periods should be paid may not be fully settled. Though Ferra is the first published state court decision to distinguish “regular rate of compensation” from “regular rate of pay,” federal district courts in California have been split in their rulings on this issue. Further, as noted in Justice Edmon’s lengthy dissenting opinion in Ferra, the California Division of Labor Standards Enforcement (“DLSE”) has concluded that the two rates are synonymous and that premiums for missed meal and rest breaks should be paid at an employee’s regular rate of pay. Therefore, while Ferra is currently binding authority as to California state courts, employers should be mindful of whether the decision is taken up for review by the California Supreme Court (of if a similar question is certified to the Supreme Court by the Ninth Circuit Court of Appeal).