When a California nonexempt employee is not provided a meal or rest period, Cal. Labor Code 226.7 requires an employer to pay a penalty to that employee in the amount of one hour of that employee’s “regular rate of compensation.”  It was an open question whether an employee’s “regular rate of compensation” meant the employee’s ordinary hourly rate of pay, or whether an employee’s “regular rate of compensation” has the same meaning as an employee’s “regular rate of pay” – which is the rate an employer must rely on when calculating overtime pay and includes all forms of compensation in addition to the employee’s hourly wage rate, such as non-discretionary bonuses.

In Ferra v. Loews Hollywood Hotel, LLC, Case No. S259172 (Cal. S. Ct., July 15, 2021), the plaintiff, a hotel bartender, brought a class action against the employer for allegedly underpaying penalties for missed meal or rest periods under California law. The core of her claim was that in calculating the hourly rate for the penalties, it only considered her hourly wage rate and did not consider other forms of compensation, such as incentive pay.

While the lower courts sided with the employer, the California Supreme Court unanimously concluded in that the term “regular rate of compensation” is synonymous with the term “regular rate of pay.”  Therefore, if they don’t do so already, employers should immediately begin paying meal and rest period premiums at an employee’s regular rate of pay.

In reaching its decision, the California Supreme Court relied on principles of statutory construction to conclude that, even though the Legislature could have used the term “regular rate of pay” instead of “regular rate of compensation” and didn’t, the Legislature meant the same thing.  In doing so, the California Supreme Court reversed the Court of Appeal’s decision, which relied on the principle of statutory construction that, because the Legislature could have used the term “regular rate of pay” but did not, the Legislature must have intended the term “regular rate of compensation” to have a different meaning. Finally, the California Supreme Court applied the ruling retroactively.

“Regular rate” cases tend to involve only minor adjustments when computing overtime, but when coupled with the range of claims and penalties under California law can become quite expensive. Most employers find that the administrative time to compute the difference presents greater problems than the actual sums involved. The Ferra decision makes it clear, however, that employers must do so.

The bottom line: If they do not already, employers should immediately begin paying meal and rest period premiums at an employee’s regular rate of pay.