In Jessica Ferra et al. v. Loews Hollywood Hotel, LLC (July 15, 2021) the Supreme Court of California held that employers must pay employees one-hour meal and rest period premiums based on the FLSA regular rate employers use to calculate overtime premiums rather than the employee’s base hourly rates. 

Ferra was a bartender at Loews Hollywood Hotel. The hotel paid Ferra hourly wages in addition to quarterly nondiscretionary incentive payments. If Loews did not provide an employee with a compliant meal or rest period, it would pay the employee an additional hour of pay according to the employee’s hourly wage at the time of the missed meal or break. Loews did not factor any nondiscretionary payments, such as Ferra’s quarterly incentive payments, into the calculation of premium pay owed.  

Ferra filed a class action suit against Loews alleging that the hotel failed to pay her for noncompliant meal or rest breaks in accordance with California law by omitting nondiscretionary incentive payments from its calculation of premium pay.

To calculate overtime, California Labor Code section 510(a) requires an employer to pay an hour at the employee’s “regular rate of pay” including nondiscretionary payments. If an employer does not provide an employee with a compliant meal, rest, or recovery period, section 226.7(c) requires the employer to “pay the employee one additional hour of pay at the employee’s regular rate of compensation.” The question the court answered was whether “regular rate of pay” and “regular rate of compensation” were synonymous. If so, Loews erred in not including any nondiscretionary payments for Ferra and other employees’ when calculating compensation for noncompliant meal or rest breaks.  

Both the trial court and the Court of Appeal held that “regular rate of compensation” in section 226.7(c) and “regular rate of pay” in section 510(a) are not synonymous. The Courts concluded that the premium for missed meal and rest periods is the employee’s base hourly wage. The Supreme Court of California reversed these holdings and instead found the two sections to be synonymous. The Court reasoned that “the words “pay” and “compensation” are often used interchangeably and “regular rate” is a well-recognized term of art.” The Court also noted “wage/hour laws are supposed to be protective of employees, so ambiguities should be construed in favor of “more protection”.”  

While this holding pertained to California Labor Code sections largely inapplicable to public employees, the broader holding regarding the meaning of “pay” and “compensation” will significantly impact public employees.  This ruling will likely be given significant weight in contractual disputes over the calculation of leave cash outs and MOU overtime rates.