California Supreme Court rules break premiums based on regular rate, not hourly rate

On July 15, 2021, the California Supreme Court rejected the view that premiums for missed meal and rest breaks are paid at the employee’s base hourly rate of pay rather than the “regular rate of pay” used to calculate overtime premiums. Like the calculation of overtime pay, the calculation of premium pay for noncompliant meal and rest periods must account for base hourly wages as well as all other nondiscretionary payments.

Facts

Loews Hollywood Hotel, LLC, employed Jessica Ferra as a bartender from June 2012 to May 2014. It paid her (1) hourly wages and (2) quarterly nondiscretionary incentive payments. When an hourly employee didn’t receive a compliant meal or rest period, Loews paid her premium pay of one additional hour of pay based on the employee’s current hourly wage. The hotel didn’t factor in any nondiscretionary payments, such as Ferra’s quarterly nondiscretionary incentive payments, into the calculation of premium pay.

In 2015, Ferra filed a class action suit against Loews. She alleged its failure to include nondiscretionary incentive payments in its calculation of premium pay violated Labor Code Section 226.7(c), which requires payment of the employee’s “regular rate of compensation.”

The trial court dismissed the case without trial, holding that calculating premium pay according to an employee’s base hourly rate is proper under Section 226.7(c). Siding with Loews, the court concluded the “regular rate of compensation” isn’t the same as the “regular rate of pay” in Section 510(a), which governs overtime pay. Ferra appealed.