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California Supreme Court to Rule on Rest and Meal Premium Payments

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Workers and employers watch for consequential ruling

Los Angeles, CAOn May 18, the California Supreme Court heard arguments about what the phrase “regular rate of compensation” means for the purpose of calculating premium payments that must be paid when employers fail to offer meal and rest breaks as required by the California Labor Code. More specifically, the questions are: Does the phrase “regular rate of compensation,” as used in Industrial Wage Order No. 5-2001, mean the same thing as “regular rate of pay” under California Labor Code Section 226.7? Must the premium payments required by Wage Order No. 5 include any additional incentive compensation such as nondiscretionary bonuses, or are they limited to an hourly worker’s base wage?

It matters for workers like Jessica Ferra, who was a bartender at Loews’ Hollywood Hotel, from 2012 to 2014. Jessica Ferra et al. v. Loews Hollywood Hotel LLC turns on what seems like a very small point of law. The consequences of a decision in favor of the workers could be far-reaching, however. Employers with very large hourly workforces have been anxiously watching the lawsuit since it was first filed in 2015.

The workers’ argument

On October 7, 2015, Jessica Ferra filed a Complaint against Loews on behalf of herself and other hourly Loews employees whose employment went as far back as June 26, 2011. Among other issues, she claimed that Loews improperly calculated the premium payment that was due to her and other workers because the company failed to provide them with the meal and rest breaks required under California law. She claims that they were shorted because the payments were calculated on basis of hourly wage alone without the other incentives.

In essence, her argument is that the two words “pay” and “compensation” mean the same thing. It’s a distinction without a difference. It’s an argument that appeals to common sense. It’s an effort to explain what may just have been inartful legal drafting. Underneath the “common usage” argument, however, is an important policy point.

The policy argument is perhaps most compellingly made in a dissent to the Court of Appeals decision, (described below) where Justice Edmon argues that, when a term is ambiguous, the question should be resolved in favor or the party for whose benefit the law is intended:

“First, the obligation to pay meal and rest break premiums reflects a state policy that meal and rest periods are essential to worker health and safety. Second, the state’s labor laws are to be liberally construed in favor of worker protection…. Therefore, in deciding whether to factor a nondiscretionary bonus into an employee’s meal and rest break premium, we are obligated to prefer an interpretation that discourages employers from [depriving employees of meal and rest breaks], and that favors the protection of the employee’s interests.” (Citations omitted)

Up the appellate ladder

At its core, the employers’ argument is equally simple: Different words mean different things. It is a largely textual argument that does not delve into policy issues, other than to note that no strong authority seems to exist for construing “regular rate of pay” and “regular rate of compensation” as meaning the same thing. Where the legislature used different words, the argument goes, it is reasonable to infer that it meant different things.

In 2017, the Superior Court of Los Angeles County held for the employers. Ferra appealed, and in 2019 a divided California Court of Appeals also held for the employers. In 2020, the California Supreme Court granted review of the question and has now heard oral arguments. No decision yet -- that is the hot spot where we are today.

Dollars on the line

As one commentator notes, if the Supreme Court of California determines the that the terms “regular rate of pay” and “regular rate of compensation” mean the same thing, employers paying meal and rest period premiums at the straight-time hourly rate could face substantial financial liability for past practices, especially if the rule is to be applied retroactively.

The pending California Supreme Court decision is momentous enough that the Ninth Circuit put a hold on its ruling on a similar question in Ibarra v. Wells Fargo. In that lawsuit, Wells Fargo argued that “regular rate of compensation” included only hourly pay. Plaintiff employees, on the other hand, contended that “regular rate of compensation” had the same meaning as “regular rate of pay” under IWC No 5. It followed then, they argued, that since “regular rate of pay” included both hourly pay and non-hourly pay such as commissions and bonuses, the same should be true of the “regular rate of compensation” used for rest and meal premium payments.

It’s a bit of a sleeper still, but the outcome in Ferra is being closely watched by both workers and employers. Jessica Ferra, the actual real person, who tended bar seven years ago, may have moved onto other things. But the impact of the California Supreme Court’s decision could last for the brothers and sisters still coming up.


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