California Employers Must Pay 'Regular Rate' for Missed Break Premiums

Businesses in California must provide employees with meal and rest breaks or pay workers a premium equal to an hour of pay. The California Supreme Court recently ruled that the extra pay must be calculated at the employee's "regular rate of pay," which is the formula used to determine overtime premiums under the state labor code. 

In Ferra v. Loews Hollywood Hotel, LLC, a bartender filed a class-action complaint alleging that her employer failed to properly pay premiums for noncompliant meal and rest breaks because it omitted nondiscretionary incentive payments—such as bonuses—from the calculation.

The trial court and appeals court sided with the employer, finding that the employee's base hourly rate was the proper calculation, but the California Supreme Court reversed and remanded the ruling. The "regular rate of compensation" under meal and rest break rules "encompasses not only hourly wages but all nondiscretionary payments for work performed by the employee," wrote Justice Goodwin Liu in a unanimous opinion on July 15.

What does the ruling mean for employers? The key takeaway is that employers must calculate premium pay for missed meal and rest breaks in the same way that they calculate overtime pay, said Jim Evans, an attorney with Alston & Bird in Los Angeles.

The ruling is retroactive, noted Mark Phillips, an attorney with Reed Smith in Los Angeles, which should prompt employers to re-examine past practices in addition to making changes going forward.

Meal and Rest Break Rules

California's nonexempt workers are entitled to a 10-minute paid rest break for every four hours worked "or major fraction thereof." According to the state's Division of Labor Standards Enforcement (DLSE), work periods of more than two hours are a "major fraction" of four, but a rest period isn't required if an employee's total daily work time is less than three and a half hours.

Employees have the right to take a "net" 10-minute rest break. This means employees should be taking their rest breaks near the middle of each four-hour work period, if possible, in a place away from the work area.

Employees must also receive a 30-minute unpaid meal break for every five hours they work. They can waive their right to take a meal break only if they work no more than six hours. A second break must be provided after 10 hours but can be waived if the first break was taken and the employee works no more than 12 hours. 

California employers may consider adopting a process that enables employees to voluntarily waive their first or second meal break if they meet the requirements, suggested Mike Nader, an attorney with Ogletree Deakins in Sacramento, Calif.

Employers may also want to implement an attestation program through which employees can confirm, on a regular basis, whether they received legally compliant opportunities to take timely and duty-free meal, rest and recovery breaks, he said.

Premium Pay

The California Supreme Court has said that employers must provide breaks, relieve employees of their duties during those periods and be sure not to interfere with workers' ability to take breaks. However, employers aren't required to police employees to ensure that no work is performed during that time.

If employees don't receive compliant breaks, they are entitled to one hour of pay for each day a rest-period rule was violated and one hour of pay for each day a meal-period rule wasn't followed. That means workers can receive up to two hours of premium pay per day.

In Ferra, the state high court made clear that such calculations must include more than just the employee's base hourly rate. The case should remind employers that they should already be paying employees a premium for missed meal and rest breaks, Phillips noted. The court's holding establishes that the amount to be paid for those premiums is not employees' base hourly rate but their "regular rate of pay," which is used to calculate overtime pay and is often higher than the base hourly rate, he said.

According to the DLSE, the regular rate of pay "includes a number of different kinds of remuneration" in addition to hourly earnings, such as commissions, nondiscretionary bonuses and piecework earnings that employees may receive for each unit they produce.  

The California Supreme Court provided the following example: Imagine an employee who makes chairs for a furniture manufacturer earns $20 an hour and $10 per piece of furniture produced. If the employee works 40 hours a week and makes 20 chairs, the regular rate would be $25 an hour: (($20 x 40) + ($10 x 20)) / 40.

Evans said employers should review their written policies to ensure they comply with Ferra. "Employers should also consider how the new decision will impact their positions in pending meal- and rest-period lawsuits."

Ashton Riley, an attorney with Fisher Phillips in Irvine, Calif., recommended that employers periodically monitor their practices to ensure breaks are being provided properly. If employers become aware of noncompliant breaks, they should determine whether the issue was caused by something in the employer's control, such as the employee's workload, or if the employee voluntarily skipped the break. Employers need to pay the premium if the employee was not able to take a break because of business needs or another employer action, he noted.

"Employers should be well aware of the need for an employee handbook that includes compliant meal-, rest- and recovery-period policies," Riley said.  "If a handbook hasn't been updated in years, I would put that on the immediate 'to do' list."

[Want to learn more about California employment law? Join us at the SHRM Annual Conference & Expo 2021, taking place Sept. 9-12 in Las Vegas and virtually.]