California Supreme Court Rules on Calculation of Pay for Non-Compliant Meal Breaks and Rest Breaks in Bartender’s Wage Claim

California employers are required to provide their employees with rest breaks and meal breaks under the state’s labor and employment laws. When an employer does not provide an employee with the required breaks or provides him or her less time for breaks than what is required under the law, the employer must pay the employee one additional hour of pay. How that additional hour of pay is calculated was the issue in Ferra v. Loews Hollywood Hotel, LLC., Cal. S. Ct. Case No. S259127.[1] The California Supreme Court decided whether the additional hour of pay should be the same as the employee’s regular hourly rate or if it should be calculated based on both the regular hourly rate plus any non-discretionary bonuses or incentives the employee normally receives.

Factual and Procedural Background

Loews Hollywood Hotel employed Jessica Ferra as a bartender from June 16, 2012, until May 12, 2014. Ferra was paid a regular hourly rate and quarterly incentives. When hourly employees were not given compliant meal breaks or rest breaks, Loews paid them an extra hour of pay calculated by their regular hourly rates without including the quarterly incentives in the calculation. Ferra filed a class-action lawsuit against the hotel in 2015. She alleged that the hotel failed to pay her for her non-compliant meal and rest breaks by failing to include her non-discretionary incentive pay when it calculated her regular rate of compensation. Loews filed a motion for summary adjudication, arguing that the regular rate of pay under the overtime statute was not the same as the regular rate of compensation for calculating pay for non-compliant meal breaks. The trial court agreed and granted summary adjudication to Loews. The trial court also granted summary judgment on Ferra’s remaining claims. Ferra filed an appeal. The California Court of Appeals affirmed the trial court’s decision, finding that the regular rate of compensation for calculating pay for non-compliant meal breaks was not the same as the regular rate of pay for purposes of overtime. It found that Loews’ use of Ferra’s regular hourly rate to calculate how much to pay her for non-compliant meal breaks was appropriate. Ferra then appealed to the California Supreme Court, which granted review.

Issue: Whether the regular rate of compensation for calculating pay for non-compliant meal breaks has the same meaning as the regular rate of pay for calculating overtime pay?

On appeal to the California Supreme Court, Ferra argued that the regular rate of compensation for calculating non-compliant meal break pay is synonymous with the regular rate of pay under the overtime statute. Under the overtime statute, the regular rate of pay includes both a worker’s hourly rate and his or her non-discretionary incentive pay. Loews argued that the meaning was not the same under the two laws and that its use of Ferra’s regular hourly rate to calculate how much to pay her for non-compliant meal breaks was proper.

Rule: When an employer fails to provide an employee with a compliant meal or rest break, the employer must pay the employee one additional hour of pay at his or her regular rate of compensation.

Under Cal. Lab. Code § 226.7(c), employers that do not provide employees with the required meal or rest breaks under California law must pay them one additional hour of pay calculated at their regular rates of compensation.[2] Similarly, under IWC Wage Order No. 5-2001, the employers of bartenders and other similar employees are also required to pay them one additional hour at their regular rate of compensation for each workday they did not receive compliant meal breaks or rest breaks.[3] Under Cal. Lab. Code § 510(a), employers must pay an overtime premium to employees when they work more than eight hours in a workday that is calculated at one-and-one-half times their regular rates of pay.[4] The regular rate of pay includes both the employees’ regular hourly rates plus any non-discretionary bonuses or incentives they receive under an employment agreement. In this case, the question was whether or not the regular rate of compensation is the same as the regular rate of pay.

Analysis

Wage and hour claims might include disputes about overtime pay, pay for non-compliant meal breaks and rest breaks, employee misclassification, minimum wage, and related matters.[5] Employers are required to pay their employees what they have been promised, including paying the rate to which they agreed and any non-discretionary bonuses or incentives. Employees who are not paid as promised or who are paid late have the right to file claims against their employers.[6]

The Supreme Court analyzed the legislative intent behind both of these statutes when determining whether or not the regular rate of compensation is synonymous with the regular rate of pay. The Court of Appeals held that it did not mean the same thing because of a presumption that the legislature intended something different by using different words in different parts of the law. However, the Supreme Court said there is a second way to look at how a statute is constructed. When two different statutes use the same terms or phrases interchangeably, they can be understood to mean the same thing. In both statutes, the legislature used “regular rate.” This term is understood to mean both a worker’s hourly pay as well as his or her non-discretionary bonuses or incentives.

Under the Fair Labor Standards Act, the U.S. Supreme Court has held that a person’s regular rate includes both the regular hourly pay and his or her non-discretionary incentives or bonuses when calculating the base rate for overtime premiums. This means that for workers who earn non-discretionary incentives, the base rate is higher than their regular hourly rates. California courts have previously held that regular rate is synonymous with the regular rate of pay under the FLSA and includes all remuneration an employee receives, including non-discretionary pay and his or her regular hourly rate.

When the IWC wrote its wage order, it also wrote a statement about the basis of the law requiring payment for non-compliant meal breaks and rest breaks. In the statement, the IWC used the phrases “regular rate of pay” and “regular rate of compensation” interchangeably. When the legislature subsequently passed § 226.7(c), the law included the term “regular rate of compensation.” The IWC subsequently issued Wage Order No. 5-2001. The legislature explained that § 226.7(c) was meant to track the wage orders issued by the IWC.

Loews argued that the legislative history demonstrates that the legislature intended a regular rate of pay and a regular rate of compensation to mean two different things. It argued that the regular rate of compensation for meal and rest breaks was only meant to include the employees’ regular hourly rates and not any non-discretionary incentives or bonuses. However, the Supreme Court found that the regular rate of pay has been understood to have the same meaning as the regular rate under the FLSA. Since both statutes use “regular rate” in their language, the Supreme Court held that the regular rate of compensation in the non-compliant meal and rest break statute means the same thing as the regular rate of pay in the overtime statute. In other words, Ferra’s regular rate of compensation for missed meals and rest breaks should have been calculated based on both her regular hourly pay and the quarterly incentives she received.

Conclusion

The Supreme Court reversed the decision of the Court of Appeals. The case was remanded to the trial court for further proceedings.

Consult with an experienced employment lawyer

If you believe that your employer has failed to pay you for non-compliant meal breaks or rest breaks or has paid you less than what you should have received, you should talk to an experienced employment lawyer at the law firm of Steven M. Sweat, APC. We can review your hourly records and wage statements to determine whether or not a violation might have occurred and explain the rights that you might have in your case. Call us at 866.966.5240 to schedule a free consultation.

Sources

^[1] In The Supreme Court Of California

^[2] Division 2 – Employment Regulation And Supervision – Part 1

^[3] Industrial Welfare Commission Order No. 5-2001

^[4] Division 2 – Employment Regulation And Supervision – Part 2

^[5] Wage and Hour Claims

^[6] Right to Sue for Late Payment of Wages in California