On July 15, the California Supreme Court issued a decision that will increase California employers’ potential liability for missed meal, rest and recovery breaks. In that decision (Ferra V. Lowes Hollywood Hotel LLC.), the Court unanimously held that employers must pay premium payments to employees for those meal, rest and recovery breaks missed at the employee’s “regular rate of pay.” The original understanding was that this penalty must be paid at the employee’s base hourly rate. The “regular rate of pay” may be higher because it must include all nondiscretionary incentive payments, such as bonuses and commissions in the calculation of “regular rate of pay.” This decision applies retroactively as well, with no cutoff date to that application to true up employees.
The Court also identified several policy reasons to apply the regular rate of pay to premium payments, including that “when [employees] are forced to work through break periods, [there are] ‘greater risks of work-related accidents and increased stress,’” and “denials of ‘time free from employer control that is often needed to be able to accomplish important personal tasks.’”
Key takeaways for employers:
- Update Premium Pay Systems
Employers may want to update their premium payment systems to pay any meal, rest, or recovery period premium payments in accordance with the applicable regular rate of pay. Because premium payments are often due before earned incentive compensation is final and can be calculated, employers may want to develop a process of retroactively making “true up” payments at the regular rate of pay for break premiums previously paid.
- Restitution Payments
Employers may want to provide restitution payments to employees who received premium payments in prior periods at the base rate only rather than the regular rate of pay, as such payments may help to avoid the costs of litigation, including statutory and civil penalties, attorneys’ fees, and related costs.
- Incentive Compensation Programs
Employers may find it useful to modify or eliminate incentive compensation programs that unreasonably increase the administrative burden of having to make retroactive “true up” calculations for premium payments.
- Waiver Programs
Employers may want to adopt a first and second meal break waiver program that enables employees to voluntarily waive their first meal break for shifts of 6 hours or less, and their second meal breaks for shifts that are more than 10 hours (but not more than 12 hours) long.
For clients with access to the Forms Library, see the waiver documents in the “Breaks” folder or contact your dedicated HR Manager for details.
- Attestation Programs
In light of the state high court’s decision, employers may want to implement an attestation program through which employees can confirm, on a regular basis, whether they received legally compliant opportunities to take timely and duty-free meal, rest, and recovery breaks.
Clients wishing for additional information on meal and break periods, please contact your Guardian HR dedicated Manager.
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