[co-author: Bradley Emmerson*]
The Supreme Court issued its opinion in Ferra v. Lowes Hollywood Hotel, LLC yesterday, ruling that when employers calculate meal or rest break premium pay, they must calculate and pay the premium based on the employee’s “regular rate of pay.” The court held the term “regular rate of compensation” under Labor Code section 226.7 (applicable to premium payments) has the same meaning as “regular rate of pay” under section 510 (applicable to overtime).
Under California law, employers must provide employees with overtime pay when they work more than eight hours in a day or forty hours in a week. Overtime pay is calculated based on the employee’s “regular rate of pay.” Additionally, if an employer does not provide an employee with a compliant meal, rest, or recovery period, the employer must pay the employee one additional hour of pay “at the employee’s regular rate of compensation.”
Yesterday, after examining the history of the terms “pay” and “compensation” under California and federal law, the court determined they are used interchangeably. Both reflect an employee’s hourly wages as well as nondiscretionary payments for work performed. The “regular rate of pay” is a “weighted average reflecting work done at varying times, under varying circumstances, and at varying rates.” For example, when an “attendance bonus” is paid for weekend work and is therefore an expected part of the employee’s compensation, the employee’s “regular rate of pay” for overtime must take these attendance bonuses into account. Now, the same is true when calculating an employee’s “regular rate” for purposes of missed meal and rest breaks. Employers must ensure the “regular rate” for premium pay encompasses all nondiscretionary payments, not just hourly wages. And this is true even when nondiscretionary payments, including nondiscretionary bonuses, are issued on a quarterly basis instead of each pay period. Therefore, when employers issue nondiscretionary payments, they must ascertain how this affects the employee’s “regular rate” for purposes of both overtime payments and meal and rest break premiums.
Discretionary payments, however, are not included in the calculation of “regular rate of pay” or “regular rate of compensation.” A payment is discretionary when the payment itself and the amount paid are determined at the sole discretion of the employer, and not pursuant to any prior contract, agreement, or promise causing the employee to expect such payment.
The decision made yesterday will apply both prospectively and retroactively.
*Bradley Emmerson, a summer associate at Downey Brand, is a contributing author. He is a student at Pepperdine University School of Law.