EMPLOYERS MUST CONFIRM MEAL AND BREAK PREMIUMS PAID IN THE PAST 4 YEARS

The California Supreme Court issued a decision on July 15, 2021 conclusively ruling that the correct rate for paying meal and rest period premium pay is one additional hour of pay at the employee’s “regular rate of pay” and not at the employee’s base rate or straight hourly rate. The case is Ferra v. Loews Hollywood, LLC.

Under California law, employers who fail to provide their employees a compliant meal period or rest break must pay that employee one additional hour of pay at the employee’s “regular rate of compensation” for each workday the premium pay is owed. The issue of what is included in the "regular rate of compensation" is now settled law, and that law is unequivocally retroactive, meaning it encompasses premium pay for the past 4 years.

What California Employers Must Do Now

All California employers must audit their payroll practices to make sure that any premium pay they have paid in the past 4 years was calculated using the employee’s regular rate of pay, which includes not just the base rate or hourly rate but also any non-discretionary payments, which might include bonuses, commissions, shift differentials, and alternate wage rates. The correct calculation method is the same one for calculating overtime pay.

Employers should immediately issue “true up” payments to all current and former employees who were underpaid. This will limit exposure to litigation, including class actions and PAGA representative actions, and will cut off imposition of waiting time penalties if an incorrectly paid employee files a wage claim.

Employers should also review all existing meal period and rest break policies and practices to ensure they are compliant with California law, and remove any reference to premium pay calculations at an employee’s base rate or straight hourly rate.

Key Takeaways:

• All California employers must audit their payroll practices to make sure that any premium pay they have paid in the past 4 years was correctly calculated.
• Employers should immediately issue “true up” payments to all current and former employees who were underpaid.
• Employers should carefully review their meal and break policies and practices and remove any reference to calculations using an employee’s base rate or straight hourly rate.

We encourage California employers work with an experienced employment lawyer to make sure they fully comply with this latest ruling.