Under California law, if an employer does not provide an employee a compliant meal, rest or recovery period, under Labor Code section 226.7 that employer is required to “pay the employee one additional hour of pay at the employee’s regular rate of compensation.” But how does one determine the amount of that one hour of pay – is it the employee’s base hourly rate of pay or the same regular rate of pay as that used to calculate overtime payments?
On July 15th, the California Supreme Court unanimously answered that question in the case entitled Ferra v. Loews Hollywood Hotel, LLC. Reversing the lower level appellate court, the Supreme Court held that the premium pay that has to be paid when an employee does not receive a compliant meal, rest or recovery period is the same as the hourly rate used to calculate overtime pay.
Why is this important: Because that means the one hour of premium pay “must account for not only hourly wages but also other nondiscretionary payment for work performed by the employee.” For example, that means that the amount of the one hour of premium pay must take into account nondiscretionary bonuses, just like in determining the amount of overtime pay, even if that bonus is paid quarterly or even annually. To add insult to injury, the Court held that its decision and the potential resulting liability is retroactive.
For those employers who have not been adhering to this manner of calculating premium pay for noncompliant meal, rest or recovery periods, here is an important to-do list:
→Immediately calculate the one hour of premium pay in the same manner used in calculating the regular rate of pay for overtime (hourly wage plus all other nondiscretionary payments for work performed).
→When a nondiscretionary bonus is paid, determine the additional payment owing for any premium pay for non-compliant meal and rest periods paid during the bonus earning period. Then pay that amount at the same time as the additional pay for overtime worked during that same period.
→Consider whether to make a retroactive payment for premium pay paid during the past three or four years.
→Due to the risk of class actions, consider adopting an arbitration policy the requires any wage and hour disputes to be individually arbitrated.
The fallout from this new decision could be significant. We strongly suggest turning to this to-do list immediately and contacting our office if you have any questions or wish to discuss your options.
Please do not hesitate to reach out to us for assistance.