Ferra v. Loews Hollywood Hotel, LLC, 11 Cal. 5th 858 (2021)

Like the federal Fair Labor Standards Act (FLSA), Cal. Lab. Code § 510 requires that employers pay non-exempt employees overtime at their “regular rate[s] of pay.”  Under a different section of the Labor Code and the Industrial Welfare Commission’s Wage Orders, employers also must provide non-exempt employees with unpaid meal and paid rest breaks at set intervals, depending on how many hours the employees work.  Under Cal. Lab. Code § 226.7(c), if an employer fails to provide an employee with a compliant meal or rest break, the employer must “pay the employee one additional hour of pay at the employee’s regular rate of compensation.”  Since the language in Section 226.7 is different from that in Section 510 (“regular rate of compensation” versus “regular rate of pay”), employers had long understood that the meal-and-rest break premiums were to be paid at non-exempt employees’ base hourly rates (i.e., the premiums did not have to include other forms of compensation above and beyond the base hourly rate).

In this new opinion from the California Supreme Court, however, the rules have changed.  Former hotel bartender Jessica Ferra alleged that Loews violated California law by failing to include her nondiscretionary bonuses when calculating meal and rest break premiums.  Both the trial court and the Court of Appeal held in favor of Loews, concluding that the “regular rate of pay” as used in Section 510 was not synonymous with the “regular rate of compensation” as used in Section 226.7.  The California Supreme Court saw things differently, however.  In an opinion authored by Associate Justice Goodwin Liu, the Court held that “regular rate of compensation” as used in Section 226.7 means the same thing as “regular rate of pay” in this context.  Finally, the Court rejected Loews’s argument that this opinion should apply only prospectively and determined the opinion applies retroactively.