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All Wages, Including Nondiscretionary Bonuses, Count for Meal and Rest Break Analysis

Posted by John Marshall | Aug 16, 2021 | 0 Comments

For California employees, overtime and time for meal and rest breaks can be an important part of a compensation package. If employees don't have a chance to take their breaks, employers must compensate them accordingly. In California, state law requires that all employers pay employees overtime when they work more than a certain number of hours. When calculating the overtime pay rate, the employer pays the employee a multiple of their “regular rate of pay.” See Lab. Code § 510(a) (2000). This “regular rate of pay” also includes all nondiscretionary forms of compensation, including things like quarterly incentives or bonuses.

Meal, Rest, & Recovery Periods

In addition to overtime, California employers must also provide meal, rest, and recovery periods for employees. See id. at § 226.7(c). If the employer doesn't provide this “meal, rest, and recovery” break, they must “pay the employee one additional hour of pay at the employee's regular rate of compensation.” But many employers question exactly how to calculate pay for rest break compensation.

“Regular Rate of Pay” Versus “Regular Rate of Compensation”

To determine rest break compensation rates, many California employees had to guess about the meaning of the California code. The question was whether the “regular rate of pay” for an overtime pay calculation means the same thing as the “regular rate of compensation” for a “meal, rest, and recovery” period calculation. The Supreme Court of California recently addressed this in Ferra v. Lowes Hollywood Hotel, LLC, No. 2259172 (Cal. July 15, 2021).

In that case, Jessica Ferra was a bartender for the Loews Hollywood Hotel. Loews paid Ferra an hourly rate, as well as quarterly nondiscretionary incentive payments. The payments weren't discretionary because the company made them under her employment contract, and Loews didn't have discretion over the dollar amount of the payments. Loew's practice was to use Ferra's hourly pay rate, not including her nondiscretionary incentive payments, to determine her pay rate for “meal, rest, and recovery periods.”

In 2015, Ferra filed a class-action lawsuit against Loews, arguing that the company failed to pay her the required “regular rate of compensation” for “meal, rest, and recovery periods” because it didn't include her quarterly incentive payments when calculating her compensation rate. The Supreme Court of California agreed with Ferra, holding that her “regular rate of compensation” for the rest periods should include all nondiscretionary payments, not just hourly wages, in the same way that overtime payments do.

Hire a Skilled Southern California Business Lawyer

If you have questions or concerns about how the Ferra case may affect your company's overtime or rest break compensation for your employees, attorney John Marshall can help. Please contact us online or call us at 949-724-1116 to set up your consultation.

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