It’s official - the California Supreme Court has ruled on employer meal/rest period penalties, via the case of Ferra v. Loews Hollywood Hotel. The ruling, which affects employers across the state, establishes the amount an employer has to pay when an employee who receives a non-discretionary flat sum bonus in addition to his/her base hourly rate when there is a meal or rest period violation.
Prior to the Supreme Court’s ruling in Ferra, it was common practice for employers to base the penalty associated to a meal or rest break violation on the employee’s base hourly rate. However, according to the high Court’s ruling, any non-discretionary, flat sum bonus an employee receives must be added to the employee’s base hourly rate for purposes of calculating the penalty.
The decision is based on California’s law on calculating overtime compensation for those employees who receive a non-discretionary flat sum bonus. When calculating the proper overtime in those situations, an employer needs to add such a flat sum bonus to the employee’s hourly rate. Adding the flat-sum bonus to the employee’s base hourly rate results in a “regular rate of pay,” which is then multiplied by 1.5 for any hour over 8 in a day and over 40 in a week.
The Supreme Court in Ferra determined that, similarly, when calculating the penalty associated with meal and rest break violations should also factor in any non-discretionary, flat sum bonus an employee receives.
What is a Meal/Rest Violation?
A meal/rest violation occurs when an hourly employee is not afforded the opportunity to receive a timely, legally compliant meal or rest break during the work day. An hourly employee who works over a six hour day is entitled to receive an uninterrupted, 30 minute meal period before the end of the fifth hour of work. Similarly, an hourly employee is entitled to receive a 10 minute rest break for every four hours, or "major fraction thereof" worked.
What This Means for Employers
Whenever there is a meal or rest break violation, employers must add any non-discretionary, flat sum bonus an employee receives when calculating what "premium pay" at the employee's "regular rate of compensation" is. This is not an issue unless a non-exempt employee is receiving a non-discretionary, flat sum bonus - not merit based bonuses or commissions. Additionally, the ruling will be retroactive, meaning that if they have previously paid a meal/rest period violation penalty, they may now have to go back and pay the difference between the newly calculated "regular" amount and what they have already compensated the employee.
You can read more about the court’s ruling on Ferra v. Loews Hollywood Hotel by clicking here.
