Calif. top court: workers who miss breaks entitled to premium pay

(Reuters) - The California Supreme Court has ruled that employees who work through meal and rest breaks must be paid overtime premiums and other nondiscretionary compensation for those periods under state law, settling an issue that has divided state and federal courts.

The seven-member court in a unanimous decision on Thursday said California employees' "regular rate of compensation," which must be paid to them when they are deprived of breaks, is the same as the "regular rate of pay" used to calculate overtime premiums, and thus includes overtime pay, bonuses and other wages.

The court rejected claims by Loews Hollywood Hotel LLC, which was backed by the U.S. Chamber of Commerce, that the state legislature deliberately chose to use the word "compensation" instead of "pay" to distinguish between wages owed under the two laws.

"Were we to adopt Loews's interpretation, employers would be incentivized to minimize employees’ base hourly rates and shift pay elsewhere, thereby harming employees who are paid in some form other than a base hourly rate," Justice Goodwin Liu wrote for the court.

Loews' parent, New York-based Loews Hotels & Co, and its lawyers at Ballard Rosenberg Golper & Savitt did not immediately respond to requests for comment. Nor did lawyers at Moss Bollinger who represent the plaintiff in a 2015 proposed class action against the hotel.

Jessica Ferra, a former Loews bartender, claimed in the lawsuit that when she worked through meal and rest breaks, the company unlawfully omitted nondiscretionary incentive payments that she normally received from her wages for those periods.

State law requires employers to pay workers who miss meal or rest breaks "one additional hour of pay at the employee's regular rate of compensation." A separate law says that when employees work overtime, they must be paid a multiple of their "regular rate of pay," which includes incentive payments.

A state judge granted summary judgment to Loews, finding that those two terms are distinct and that the hotel was only required to pay workers their regular hourly wage when they were deprived of breaks. A mid-level appeals court in 2019 agreed in a 2-1 decision.

Those rulings squared with several others by state and federal judges in California. But in other cases, some courts have concluded that the terms "compensation" and "pay" were interchangeable.

The California Supreme Court on Thursday settled the split in Ferra's favor. California borrowed the term "regular rate" from the federal Fair Labor Standards Act, which for decades has been interpreted to include overtime premiums, incentive pay and other nondiscretionary wages.

That reading also best serves the purpose of state wage law, which is to grant the same benefit to all hourly workers regardless of how they are paid.

"Had the Legislature intended to diverge from decades of settled usage and, in effect, compel employers to make complex judgments about what is and what is not part of an employee’s 'regular rate of compensation,' it likely would have said so," Liu wrote.

The court remanded the case to the trial court for further proceedings.

The case is Ferra v. Loews Hollywood Hotel LLC, California Supreme Court, No. S259172.

For Ferra: Ari Moss of Moss Bollinger

For Loews: Richard Rosenberg of Ballard Rosenberg Golper & Savitt