This July in Ferra v. Loews Hollywood Hotel, LLC, the California Supreme Court determined how employers must calculate overtime pay.
Under California law, employers must provide employees with overtime pay when employees work more than a certain amount of time. To calculate overtime pay, Labor Code section 510(a) requires an employer to compensate an employee by a multiple of the employee’s “regular rate of pay.” California law also provides for meal, rest, and recovery periods. If an employer does not provide an employee with a compliant meal, rest, or recovery period, Labor Code section 226.7, subdivision (c) (section 226.7(c)) requires the employer to “pay the employee one additional hour of pay at the employee’s regular rate of compensation.”
In Ferra, the California Supreme Court was called upon to determine 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. The Supreme Court held that the terms are synonymous: “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.
Employers should take heed of this holding. The statute of limitations for California wage and hour lawsuits is three (3) years from the date when the most recent violation has occurred. Thus, employers who have not included nondiscretionary payments in their overtime wage payments to employees over the past three (3) years may now be confronted with wage and hour lawsuits to recover additional unpaid sums that occur by applying the Supreme Court’s interpretation of Labor Code section 226.7(c). Employers should consult their attorneys to assure that past workers are immediately paid and that, going forward, the proper calculation is used to avoid statutory penalties for noncompliance.
The information presented is not intended to be, and does not constitute, “legal advice.” Because each situation varies, and only brief summary information is provided here, you should not use this information as a basis for action unless you have independently verified with your own counsel that it applies to your particular situation.
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