Recently, the Court of Appeal clarified for employers the proper method for calculating meal and rest break premium pay.  In Ferra v. Lowes Hollywood Hotel, LLC, the court held that “regular rate of compensation,” as used in Labor Code Section 226.7 governing premium pay for missed meal and rest breaks, means an employee's base hourly wage, not the "regular rate of pay," that is required to be used when paying overtime wages.

The plaintiff in Ferra formerly worked as a bartender at the hotel.  She alleged, in part, that the hotel improperly calculated premium payments for missed meal and rest breaks. The trial court granted summary judgment in favor of the hotel, finding that “regular rate of compensation” under Labor Code Section 226.7 and “regular rate of pay” under Labor Code Section 510 governing overtime payments have different meanings.  

The Court of Appeal's Decision

The Court of Appeal agreed that “regular rate of compensation” under Labor Code Section 226.7 and “regular rate of pay” under Labor Code Section 510 have different meanings.

Section 226.7, subdivision (c), provides that an employer who fails to provide an employee with a meal or rest period in accordance with state law must pay the employee “one additional hour of pay at the employee's regular rate of compensation for each workday that the meal or rest or recovery period is not provided.”  (emphasis added).

Section 510, subdivision (a), provides, in part, that “[a]ny work in excess of eight hours in one workday and any work in excess of 40 hours in any one workweek . . . shall be compensated at the rate of no less than one and one-half times the regular rate of pay for any employee.”  (emphasis added).  Pursuant to California case law, “regular rate of pay,” when calculating overtime pay, is not the same as the employee's hourly wage.  Rather, “regular rate of pay” includes “adjustments to the straight time rate, reflecting, among other things, shift differentials and the per-hour value of any nonhourly compensation the employee has earned.”

Because California case law does not define “regular rate of compensation” in section 226.7, the court turned to the principles of statutory construction to determine the meaning.  The court found that the plain language of sections 226.7 and 510 indicates that “regular rate of compensation” and “regular rate of pay” have different meanings.  The plaintiff argued that both phrases mean the same because they both include the phrase “regular rate.”  The court rejected this argument, reasoning that the Legislature intended different meanings when it chose to use different qualifiers—“compensation” versus “pay”—particularly since the statutes were enacted at the same time.

The court also rejected Plaintiff's argument that the regulatory history of the Industrial Wage Commission indicates that premium pay for missed meal and rest breaks and overtime premium pay were intended to penalize employers.  According to the plaintiff, since both premium payments act like penalties, they should be calculated the same way.  The court disagreed, finding that the legislative history indicates that premium pay for missed meal and rest breaks is intended primarily to compensate employees for their injuries, notwithstanding any deterrent effect section 226.7 has on employers' behavior.  The court reasoned that the Legislature's decision to eliminate the word “penalty” in section 226.7, while retaining it in other Labor Code provisions, further supports the conclusion that premium pay for missed meal or rest breaks is intended primarily to compensate employees, rather than penalize employers.

In further support of its conclusion, the court found persuasive the opinions of federal district courts who found that “regular rate of compensation” under section 226.7 means the employee's base hourly rate.  According to the court, this conclusion recognizes the difference between overtime premium pay, which compensates an employee for additional work, and premium pay for missed meal or rest breaks, which compensates an employee for the loss of a benefit.

Significance of the Court's Decision

This decision is good news for employers and litigators.  Prior to Ferra, the lack of clarity and inconsistent trial court rulings on this issue made it virtually impossible for employers and litigators to know at which rate meal and rest break premiums were to be paid.