July 20, 2021 – Employers operating in the State of California are already painfully aware of the many legal obstacles present. State labor laws set firm timing requirements for meal and rest periods, wage statements, overtime and double time pay, and harsh, often-times inflexible, penalties for even the tiniest of violations. Last week, the state high court added yet another hurdle.

In Ferra v. Loews Hollywood Hotel, LLC, the California Supreme Court considered the question of whether state-mandated “premium pay” for missed, late, short, or interrupted meal and rest periods is required to be paid at the employee’s hourly rate of pay or at the employee’s “regular” rate of pay, the latter, as with overtime calculations, encompassing non-discretionary payments to the employee.

As background, the state labor code requires that hourly employees receive uninterrupted, duty free meal periods of at least 30 minutes before the end of the fifth hour worked, with obligations to provide second similar meal periods before the end of the tenth hour worked. Rest periods of at least 10 minutes similarly must be provided for every four hours worked or major fraction thereof. For any workday in which a meal period violation occurs, the employee is entitled to one hour of “premium pay” at the employee’s “regular rate of compensation.” Premium pay is also owed for every workday in which a rest period violation occurs.

Traditionally, employers have issued “premium pay” at the employee’s hourly rate of pay, given the Legislature’s departure from the “regular rate of pay” verbiage used to describe overtime calculations. Indeed, both the Superior Court and the Court of Appeals in this case held in favor of Loews on this issue.
Yesterday, however, the California Supreme Court reversed, holding that the terms “regular rate of compensation” and “regular rate of pay” are synonymous, and therefore, the former, like the latter, “encompasses all nondiscretionary payments, not just hourly wages.”

Critically, and unfortunately here, the Court rejected Loews’ argument that the decision should only apply prospectively, holding that because the question presented was not one upon which the court had previously opined, the state of the law was not firmly fixed and therefore neither Loews, nor any other employers, could claim reasonable reliance on settled law. As such, the Court’s clear intent is to grant retroactive effect to this decision.

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As always, feel free to contact the Kullman attorney with whom you regularly work with any legal questions you may have regarding this issue.

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