On July 15, 2021, the Supreme Court of California issued a long-awaited decision in Ferra v. Loews Hollywood Hotel, LLC. The Court reversed the trial and appellate court holdings and concluded that California employers must pay meal and rest break premiums at the employee’s higher, blended regular rate rather than the base hourly rate.

Compensation that must be factored into the “regular rate” includes all nondiscretionary payments, such as piecework earnings, commissions, nondiscretionary bonuses, salary and hourly earnings. Other types of payments that are excluded from the regular rate of pay include discretionary bonuses, expense reimbursements, payments for periods of non-work (e.g., vacation, illness) and gifts for special occasions.

The Court’s ruling is a stark departure from existing rulings on this issue—including the October 9, 2019, appellate court ruling, which held that meal and rest break premiums should be paid at the lower base hourly rate. Additionally, and importantly, the Court ruled that this decision does apply retroactively.

California employers with non-exempt employees should review their payroll settings to confirm the rate at which they are currently paying meal and rest breaks and make proper adjustments if needed.

McDermott expects this decision to result in an uptick in meal and rest period litigation, especially against California employers who relied on previously existing law.

Madeline Hassell, a summer associate in the Los Angeles office, also contributed to this article.