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July 22, 2021

Controversy Laid To Rest: The ‘Regular Rate of Pay’ Dilemma.

On July 15, 2021, the California Supreme Court decided Ferra v. Loews Hollywood Hotel, LLC. The question at issue: The statutory meaning of the wage and hours terms, ‘regular rate of compensation’ and ‘regular rate of pay,’ and “whether the Legislature intended ‘regular rate of compensation’[i][] to have the same meaning as ‘regular rate of pay’[ii][]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.” In a unanimous decision the Court ruled the terms “are synonymous and encompass[] all nondiscretionary payment, not just hourly wages.”

What It Means…

The Court’s determination that the terms are synonymous means that meal, rest, or recovery period premiums (i.e., one additional hour of pay) must be paid using the current calculation for determining overtime using the “regular rate of pay” which factors in all nondiscretionary payments (e.g., bonuses, commissions, piece rate earnings, etc.). Most importantly, the Court’s decision applies retroactively.

To assure compliance with the Court’s ruling employers should consider the following:

  • Immediately audit existing payroll records – going back for the entire statute of limitations period of three years – to determine whether meal/rest breaks or recovery premiums were paid at the employee’s “regular rate of pay” (i.e., factoring in all nondiscretionary payments).
  • If the employer’s audit shows meal/rest breaks or recovery premiums have been paid based on the employee’s “base hourly rate” the employer should consider:
    • Immediately updating existing payroll systems (or contacting their current payroll provider) to adjust to the correct rate of pay (i.e., employee’s regular rate of pay).
    • Initiate a payroll audit process going forward to ensure workers are complying with all wage and hours laws, including meal/rest or recovery requirements. This is especially important for those whose employees are:
      • Paid on a piece-rate or commission basis
      • Earn varying wage rates in a workweek; or
      • Are eligible for non-discretionary bonuses and incentives.
    • Consult with legal counsel to discuss and determine a strategy to reduce the risk of litigation for any retroactive violations.

Growers seeking further information about the implications of the Ferra decision should contact Western Growers.

[i] Cal. Lab. Code section 226.7(c)

[ii] Cal. Lab. Code section 510(a)