On July 15, 2021, the California Supreme Court ended a long-standing dispute regarding premium pay. The ruling surprised many California employers and left organizations across the state scrambling to catch-up. It’s crucial that employers learn all they can about this new ruling and how it might impact their business.

Ferra v. Loews Hollywood Hotel, LLC

Earlier this year, a bartender in California filed a class action complaint against her employer alleging she was not properly compensated for noncompliant meal and rest breaks. The complaint alleged the employer omitted nondiscretionary incentive payments when calculating premium payments. This is common practice, and many California employers have used base hourly rate to calculate premium pay.

The trial and appeal courts ruled in favor of the employer, stating that premiums payments should be based on employee base hourly rate. However, this ruling was overturned by the Supreme Court of California. The California Supreme Court ruled that the regular rate of compensation under meal and rest break rules must encompass both hourly wages and all nondiscretionary payments for work performed by the employee.

California’s Meal and Rest Period Rules

In California, all nonexempt employees are entitled to a 10-minute rest period for every four hours or majority thereof of work performed. Employees must also receive a 30-minute unpaid meal break for every five hours worked. Employees can choose to waive their meal break if they work six-hours or less. Employees that work ten hours or more are entitled to a second meal break. However, employees can waive this break if they work twelve hours or less in one day.

Meal and rest period rules and premiums are meant to encourage employers to provide employees with regular breaks throughout the workday.

What Does This Mean for Employers?

Starting immediately, employers need to determine premium pay for missed meal and rest breaks in the same way they would calculate overtime pay.  This ruling is retroactive, meaning employers may face liability for past practices of paying premiums at the base rate of pay. Employers are strongly encouraged to review premium payment history for the past four years and issue true-up payments to ensure compliance with the new ruling.

MEBO offers employee benefit plans, custom-tailored to the needs of organizations today. We strive to provide employers with the tools and information needed to excel in today’s competitive and ever-changing markets. Please contact us for information about our services.