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On July 15, 2021, the California Supreme Court, in Ferra v. Loews Hollywood Hotel, LLC, clarified the rule for calculating the premium required when employees are unable, because of workload, to take a timely rest or meal period. Given the potential for employees to sue employers in class actions for failing to strictly comply with this rule, and the fact that the holding applies retroactively, this is a significant development.
By way of background, California employers are required to provide nonexempt employees a paid 10-minute rest period for every 4-hours of work, and an unpaid 30-minute uninterrupted meal period by the end of the 5th hour (and 10th hour, if applicable) of work. These rules should already be quite familiar to employers.
The California legislature recognizes this is not always possible due to an employee’s workload or other issues. Therefore, an employee who is not provided required rest and/or meal periods must be paid an additional hour of pay at the employee’s “regular rate of compensation” for every missed meal or rest period. Until the Ferra decision, this “regular rate of compensation” was simply a worker’s hourly wage, without regard to additional, non-discretionary payments, such as bonuses or shift differentials.
In Ferra, the Court held the opposite, that meal or rest period premiums must be paid at a rate of pay that reflects regular pay + incentives, such as non-discretionary bonuses or shift differentials. Calculating this “regular rate of compensation” for rest and meal period premiums now mirrors the formula previously applied to determine the “regular rate of pay” when calculating overtime premium pay.
If an employee is indeed paid non-discretionary bonus or incentive pay, the calculation of his or her “regular rate of compensation” can initially seem somewhat daunting. Consider an employee who earns $17/hr, but also receives an additional $3/hr shift differential when she works a night shift. In a particular week, she works 60 hours (40 regular hours, 13 overtime hours and 5 double time hours). Of those 60 hours, 30 are paid at the employee’s base rate of $17, and the remaining 30 hours are paid at $20/hr to reflect the $3 night shift differential.
Under the old rule, any rest or meal period premium would be paid at the employee’s base pay, $17. However, under the Ferra holding, an additional calculation must be conducted, which establishes the rest or meal period premium must be paid at the weighted average rate of $18.50. (Total compensation is $1,110, divided by 50 hours, equals the weighted average rate of $18.50; this is her “regular rate of compensation” for that week only.)
Given this development, what should employers do? We recommend the following:
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California’s meal period rules generally prohibit employers from having employees work more than 5 hours without providing a meal period of at least 30 minutes. However, the Wage Orders do recognize an exception to this rule where (1) the nature of the work performed by the employee prevents him/her from being relieved of all duty; and (2) the employee and employer agree in writing to an “on-duty” meal period.
It is important to bear in mind this is not a waiver of the meal period. A couple of additional points:
A persistent question is when does “the nature of the work” performed prevent the employee from being relieved of all duty for at least 30 minutes. Department of Labor Standards Enforcement (DLSE) opinion letters and case law suggest this determination must be made on a case-by case basis. Employers who avail themselves of this meal period exception should be wary of any kind of “blanket” application of the “on-duty” meal period for all employees, restricting its use to only those situations in which the employer can make a colorable argument that a normal, “off-duty” meal period is unrealistic.
As the ink from California Governor Jerry Brown’s pen dries on Assembly Bill No. 10, which will raise the hourly minimum wage in our state to $9.00 effective July 1, 2014 (and again to $10.00 on January 1, 2016), employers need to consider the ramifications of this change beyond the obvious increase in take-home pay of hourly workers.
Here are key areas that will be impacted by the increase:
Salary Basis Test For “White Collar” Exemption – In addition to meeting other criteria to qualify as an exempt employee under one of the “white collar” exemptions (i.e., executive, administrative or professional), exempt employees must earn a salary that is at least twice the minimum wage for full-time employment. This minimum increases in July, 2014 to $37,440, and to $41,600 beginning in January, 2016.
Commissioned Sales Employee Exemption – To qualify for this exemption, employees must earn in excess of 1.5 times the minimum wage for all hours worked. This rate will increase to $13.50/hr on July 1, 2014, and $15.00/hr on January 1, 2016.
Employees Who Furnish Own Tools or Equipment – When employees are required to furnish their own tools or equipment necessary to their performance of the job, they must be paid twice the state minimum wage. This rate will increase to $18.00/hr on July 1, 2014, and $20.00 on January 1, 2016.
Calculation of Overtime, Vacation, Sick Leave, Paid Time Off and Meal and Rest Period Premiums – Employers must adjust how these are calculated to reflect the minimum wage increase.
Employer-Required Split-Shift Premiums – If an employer requires an employee to work a split-shift, the employer must pay the employee a premium, of one hour’s pay at minimum wage, in addition to the employee’s regular earnings paid for that shift. (If hourly wage exceeds state minimum wage, difference may be credited toward split-shift premium.)
Voluntary Crediting Agreements – Employers with written agreements with their employees for crediting meals or lodging expenses against the minimum wage will need to adjust this crediting to reflect the increase.
Posting The New Wage – Employers will be required to conspicuously post the new wage in an area frequented by employees where it may be easily read during the workday.
Cities With Higher Minimum Wage – Certain California cities, including San Francisco and San Jose, may impose a higher minimum wage and/or adjust their minimum wage more frequently. Employers should ensure they comply with all applicable federal, state and local laws.
