Labor & Employment Law Daily Premium pay for missed meal and rest periods must include nondiscretionary payment
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Wednesday, July 21, 2021

Premium pay for missed meal and rest periods must include nondiscretionary payment

By Nadine E. Roddy, J.D.

The legislature intended for the calculation of premium pay, like the calculation of overtime pay, to “factor in” all nondiscretionary payments along with the employee’s base hourly wage.

In an hourly employee’s suit against her employer for violations of the California Labor Code, a unanimous California Supreme Court held that, in calculating premium pay for an employee’s missed meal and/or rest periods pursuant Section 226.7(c), all nondiscretionary payments must be included. The state high court concluded that “regular rate of compensation” under Section 226.7(c), like “regular rate of pay” under Section 510(a), encompasses all nondiscretionary payments, not just hourly wages. Concluding that the statutory terms “regular rate of compensation” in Section 226.7(c), was synonymous with “regular rate of pay” in Section 510(a), the high court found no support in the legislative history for the court of appeal’s contrary conclusion that the premium is calculated using only the employee’s base hourly wage (Ferra v. Loews Hollywood Hotel, LLC, July 15, 2021, Liu, G.).

Missed meal or rest periods. Section 226.7(c) of the California Labor Code requires employers to “pay the employee one additional hour of pay at the employee’s regular rate of compensation” if it does not provide the employee with a complaint meal, rest, or recovery period.

In this suit, a hotel employee who worked as a bartender brought a class action against her employer for violations of the Labor Code. The employee was paid hourly wages as well as quarterly nondiscretionary incentive payments. If an hourly employee was not provided with a compliant meal or rest period, the employer paid the employee for an additional hour according to the employee’s hourly wage at the time the meal or rest period was missed. Nondiscretionary payments, such as the employee’s quarterly incentive payments, were not factored into the calculation of the premium pay.

The question here was whether the legislature intended “regular rate of compensation” under section 226.7(c) to have the same meaning as “regular rate of pay” under section 510(a), such that the calculation of premium pay for a noncompliant meal, rest, or recovery period, like the calculation of overtime pay, must account for not only hourly wages but also other nondiscretionary payments for work performed by the employee.

Nondiscretionary payments. The employee alleged that by omitting nondiscretionary incentive payments from its calculation of her premium pay, the employer failed to pay her for noncompliant meal or rest breaks in accordance with her “regular rate of compensation” as required by Section 226.7(c) of the Labor Code. The trial court granted summary adjudication for the employer, ruling that calculating premium pay according to an employee’s base hourly rate is proper under Section 226.7(c) even though Section 510(a), which governs overtime pay, requires inclusion of all nondiscretionary payments in the calculation of overtime compensation. The court of appeal affirmed, holding that “regular rate of compensation” in Section 226.7(c) and “regular rate of pay” in Section 510(a) are not synonymous, and thus the premium for missed meal and rest periods is the employee’s base hourly wage only.

Statutory terms are synonymous. The California Supreme Court framed the issue for decision as whether the legislature intended “regular rate of compensation” in Section 226.7(c) (the rest/meal break provision) to have the same meaning as “regular rate of pay” in Section 510(a) (the overtime provision), such that the calculation of premium pay for a noncompliant meal, rest, or recovery period, like the calculation of overtime pay, must account for not only hourly wages but also other nondiscretionary payments for work performed by the employee.

The court then noted the rule of statutory construction that “where statutes use synonymous words or phrases interchangeably, those words or phrases should be understood to have the same meaning.” In this case, both Section 226.7(c) and Section 510(a) used the term “regular rate,” and their history revealed that “regular rate” was a term of art encompassing not only hourly wages but also nondiscretionary payments. Further, the words “compensation” and “pay” appeared interchangeably in legislative and judicial usage, and there was no indication that the legislature intended “regular rate of pay” in Section 510(a) and “regular rate of compensation” in Section 226.7(c) to have different meanings.

Specifically, there was no evidence that “regular rate of compensation” was intended to mean hourly wages only. Accordingly, the high court concluded that the statutory terms were synonymous: “regular rate of compensation” in Section 226.7(c), like “regular rate of pay” in Section 510(a), encompassed all nondiscretionary payments, not just hourly wages. Thus, the judgment of the court of appeal was reversed and the case remanded for further proceedings.

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