In 2021, the California Supreme Court handed down two important decisions, Donohue v. AMN Services, LLC and Ferra v. Loews Hollywood, LLC, that reinforce and refine tried-and-true lessons about meal and rest breaks. As California employers look ahead to their 2022 goals and try to lessen their risk of class action employment claims based on meal and rest break issues, compliance with these decisions should be top of mind.

Donohue: Do Not Round, Do Use a Drop-Down Menu

The first case, Donohue, was about an employer that rounded time punches to the nearest preset time increment. The employer in Donohue also used a timekeeping system that prompted an employee who punched a noncompliant break to select whether (a) she was provided an opportunity to take a break but chose not to, (b) she was provided a chance to take a break but chose to take a shorter break, or (c) she was not provided an opportunity to take a break.

The Donohue court held that timekeeping records reflecting meal breaks out of step with wage and hour rules (e.g., too short, too late or missed altogether) raise a rebuttable presumption that the employer has violated the law. Donohue reaffirmed the holding of Brinker Restaurant Corp. v. Superior Court of San Diego County that employers need only provide meal breaks rather than ensure employees take them. Donohue, however, threatens to turn the burden of proof on its head, with serious implications for class litigation. Under Donohue, timekeeping records that reflect a potential violation create a rebuttable presumption that a violation occurred.

Employers looking to guard against the risk of holding the burden of proof in both individual and class claims in California should consider these best practices:

• No Rounding. Keep only actual rather than rounded time entries. In the past, California courts, relying on employers’ rounding up and down to even out over time, have approved of rounding. No more. The Donohue court rejected those courts’ reasoning as applied to meal breaks and hinted that, if technology did not put an end to rounding in California, the court would do so in a future case.
• Include Drop-Down Menus. Deploy a timekeeping system that includes a feature prompting employees who punch in or out of a noncompliant meal period to indicate why. If the employee indicates a reason attributable to the employer, the employer should pay the premium if appropriate. If the employee indicates a reason attributable only to him or her, no premium is due.
• Require Written Attestations of Accuracy and Compliance. In addition to the drop-down feature, consider requiring employees to attest to both time entries’ accuracy and compliance — ideally per day or pay period, depending on your timekeeper’s capabilities.

Ferra: ‘Regular Rate of Compensation’ Means …

The second case, Ferra, explained the rate at which employers are obligated to pay meal and rest break premiums once they learn of noncompliance.

Specifically, Ferra was about how to calculate the “regular rate of compensation” for premiums in instances where there has been a failure to provide compliant meal or rest periods under California Labor Code 226.7. In Ferra, the court held that the Labor Code’s “regular rate of compensation” means the same as the Federal Labor Standards Act’s (FLSA) term of art “regular rate of pay.” Under the FLSA, the regular rate of pay is not an employee’s base hourly rate. Instead, it is a formula to calculate overtime premium and includes much more than just an hourly wage, e.g., nondiscretionary bonuses or commissions.

Calculating the regular rate of pay correctly is important for more than just premiums and overtime. Use of the regular rate is among the ways employers are allowed to calculate paid sick leave, for example. It’s important also because the Ferra court applied its wage premiums formula retroactively, leaving employers to contend with claims arising out of past practice. In light of Ferra, employers should consider taking the following steps to remedy past noncompliance and to remain compliant moving forward:

• Make Sure to Calculate the Regular Rate of Pay Correctly. Beware hidden complexities — the “regular” rate is anything but. It can differ from the base rate and will likely change from one pay period to the next. If you have any doubt, consult with counsel.
• Issue Retroactive Payments. Because Ferra applies retroactively, California employers should analyze meal and rest break premiums that were paid over the preceding four years and determine how to issue retroactive payments to make employees whole, including statutory interest.
• Remedy Even Potential Mistakes. Mitigate the risk of litigation before it begins. Proactive payment of premiums, even for potential violations, will help defend against expensive and time-consuming class or representative litigation by curing potential violations.

Bottom Line

California employers seeking to lower their risk of class action rest and meal period claims should review their timekeeping and compensation practices now to ensure they are up to date and consistent with the court’s recent requirements.

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