California Ferra v. Loews Hollywood Hotel Effects on Breaking Violations

On July 15, 2021, the California Supreme Court released a ruling that will dramatically increase the potential liability of California employers for missed meals, rest and recovery breaks. In Ferra v Loews Hollywood Hotel, LLC, the court unanimously ruled that employers must pay bonuses to employees for missed meals, rest and recovery breaks at the employee’s “regular rate of pay” instead of their basic hourly rate, as did many employers. The regular rate of pay may be higher than the base hourly rate because the regular rate of pay must include all non-discretionary incentive payments such as bonuses and commissions. Additionally, because the court ruling applies retroactively, the court created exposure for California employers who acted in good faith in trying to comply with the law by paying a premium at the base hourly rate. California employers should expect a new wave of class actions and Private Attorney General Act (PAGA) claims based on the ruling.

Background

Jessica Ferra was a bartender for Loews, who earned an hourly wage as well as non-discretionary quarterly incentive payments. Under Loews’ Meal and Rest Break Policy, hourly employees who do not receive a compliant meal or rest period are entitled to one hour of additional pay based on their base hourly pay at the time meal or rest period was not provided. Loews did not take into account non-discretionary payments (such as quarterly incentive payments from Ferra), which employees may have earned in addition to hourly wages, in calculating the bonus due under section 226.7 (c ) of the California Labor Code.

Ferra alleged that “Lowes, by omitting non-discretionary incentive payments from her bonus calculation, failed to pay her for non-compliant meal or rest breaks in accordance with her” regular rate of pay “as required. section 226.7 (c). The trial court ruled in favor of Loews, and the court of appeal confirmed. The California Supreme Court overturned the decision, finding that bonuses paid for break violations must be at the highest “regular rate of pay,” which must include an incentive pay calculation in its rate.

Regular rate of pay for overtime

California law provides that daily overtime rates are multiples of regular employee rates of pay. The overtime rate for workers who receive a guaranteed hourly rate and performance-based incentive bonuses or piecework rates considers these incentive payments to be part of their regular rates, making overtime pay higher than their basic hourly rate. The employee is therefore entitled to one and a half times his regular rate of pay for time worked over 8 hours in a day and double his regular rate of pay for time worked more than 12 hours in a day.

The court explained that the reasoning behind the application of the regular rate of pay includes statements from the California legislature that “[t]he eight hour work day is the backbone of California workers’ protection ”,“[n]Many studies have linked long working hours to increased accident and injury rates, ”and“[f]Family life suffers when one or both parents are kept away from home for an extended period of daily life. The court also noted that the higher overtime rate serves to deter employees from working overtime.

Regular rate of pay

California law also requires payment of a premium for violations of meals, rest and recovery breaks. “If an employer does not provide an employee with a compliant meal, rest or recovery period, … section 226.7 (c) [of the Labor Code] requires the employer to “pay the employee one hour of overtime pay at the employee’s regular rate of pay.” Loews argued for the application of the statutory interpretation canon that “a legislator is presumed to want a different meaning when using different words in a legal scheme.” Since the legislature used the term “regular rate of pay” instead of “regular rate of pay,” many courts have found that the legislature intended bonuses to be paid at the basic hourly rate of pay.

The California Supreme Court disagreed. The court applied a different principle of interpretation which provides that “when the laws use synonymous words or expressions interchangeably, these words or expressions must be understood as having the same meaning”. The court concluded that the legislature and the courts had used the terms “pay” and “remuneration” interchangeably, and the court therefore interpreted the intention of the legislature to apply the same meaning to both terms.

The court also identified several policy reasons for applying the regular rate of pay to bonus payments, including that “when [employees] are forced to work during breaks, [there are] “Increased risk of accidents at work and increased stress” “and” the refusal of “time off from the control of the employer which is often necessary to be able to accomplish important personal tasks”. “

The court also notes that “[w]when interpreting the labor code and wage regulations, [the court] adopt[s] the construction which gives the best effect to the objective “of protecting the employees concerning” working conditions, wages and hours “. Thus, the court” interprets freely[s] the Labor Code and wage ordinances to promote the protection of employees.

Retroactive request

The court concluded the opinion by stating that its decision applies retroactively, without being convinced by the potential exposure that such a determination presented to employers:

Loews maintains that our decision will have a substantial effect as it will expose employers to “millions” of liability. But Loews cites no evidence that applying retroactively to our participation will expose employers to “millions” of liability, and even if Loews was right, it is not clear why we should promote the best interests of employers by avoiding harm. “Millions” of responsibility rather than interest. employees to obtain the “millions” which are owed to them by law.

California employers can expect another deluge of class and class action lawsuits seeking legal and civil penalties for non-payment of meal, rest and recuperation break premiums at regular rates of pay.

Key points to remember

In light of the court’s decision, California employers may consider taking the following steps:

Update premium payment systems

Employers may want to update their premium payment systems to pay meal, rest or payback premiums in accordance with the applicable regular rate of pay. Since bonus payments are often due before the incentive compensation earned is final and can be calculated, employers may want to develop a retroactive payment process to “adjust” to the regular rate of pay for previously severance bonuses. paid.

Restitution payments

Employers may want to pay compensation to employees who received bonuses in previous periods at the base rate only rather than the regular rate of pay, can help avoid litigation costs, including legal and civil penalties, attorney fees and related costs. fresh.

Incentive compensation programs

Employers may find it helpful to modify or eliminate incentive compensation programs that unreasonably increase the administrative burden of having to perform retroactive “adjustment” calculations for premium payments.

Waiver programs

Employers may want to adopt a first and second meal break waiver program that allows employees to voluntarily forgo their first meal break for shifts of 6 hours or less, and their second meal breaks for longer shifts. 10 hours (but not more than 12 hours) long ,.

Certification programs

In light of the state’s High Court ruling, employers may want to implement an attestation program through which employees can confirm, on a regular basis, whether they have received opportunities that comply with the law to take timely and duty-free meals, breaks and recovery breaks.

During her current tenure, the California Supreme Court is also considering another case dealing with whether severance bonuses should be treated as “wages” which should be accurately recorded on salary statements and are likely. wait time penalties if not paid to departing employees on a timely basis. Now more than ever, California employers may want to closely review their meal, rest, and recovery break policies and practices to avoid growing exposure to class and PAGA responsibility.