The phrase “regular rate of compensation” for calculating meal or rest break premium payments is not synonymous and interchangeable with the phrase “regular rate of pay” used when calculating overtime premium payments, according to the California Second District Court of Appeal.  On October 9, 2019, the court held in Ferra v. Loews Hollywood Hotel, LLC, that these statutory phrases have different meanings, and the premium for missed meal periods must be paid to the employee at the “regular rate of compensation,” or the employee’s base hourly wage, rather than at the “regular rate of pay” applicable to overtime payments.  This decision is notable because “regular rate of pay” may fluctuate pay period to pay period to include shift differentials or nondiscretionary bonuses.

If an employer fails to provide an employee with a meal or rest period, Labor Code Section 226.7 requires the employer to compensate the employee through a premium payment at the employee’s regular rate of compensation.  (emphasis added).  Labor Code Section 510, which governs overtime payments, mandates that the employee is compensated for overtime work through a premium on top of normal pay calculated according to an employee’s regular rate of pay. (emphasis added). 

No published California opinion has addressed the issue of whether these two phrases are distinguishable.  Therefore, the court evaluated the plain language of the statutes, applicable Industrial Welfare Commission Wage Orders, legislative history, and persuasive federal opinions.  The court concluded that the phrases are not interchangeable and accordingly, the premium payment for missed meal and rest periods is based upon the employee’s base hourly wage – the “regular rate of compensation.”

The key takeaway for employers is that premium payments to employees for missed meal periods must be paid at the “regular rate of compensation,” which is the employee’s base hourly wage, exclusive of incentive compensation such as nondiscretionary bonuses, rather than at the “regular rate of pay” applicable to overtime payments, which would include incentive compensation. 

Given the frequently changing California employment law landscape, this decision serves as a reminder to employers that regular evaluation of company policies and procedures can ensure compliance with the latest judicial interpretation of statutory requirements.  

Do you have questions about how this update may affect you?  For further information contact:

Audrey W. Surridge (asurridge@wilsonturnerkosmo.com)

Wilson Turner Kosmo’s Special Alerts are intended to update our valued clients on significant developments in the law as they occur. This should not be considered legal advice.