Meal and rest period nightmare for employers

Meal and rest period nightmare for employers

Most people are aware that California law requires employers to provide meal and rest periods for their employees. In general, employers must provide a 10- minute paid rest period for every four hours worked. Meal breaks of at least 30 minutes must be provided to employees who work more than five hours. A second meal break must be provided to employees who work more than 10 hours.
California law provides that an employer must pay a full hour of pay for each meal or rest period that is not provided. While any individual employee will typically have only a relatively small claim against an employer for failing to provide meal and rest breaks, all employees can combine their claims in a class action, or in a PAGA (Private Attorney General Act) claim. This greatly increases the potential liability employers face and creates an incentive for lawyers (like me) to pursue the claims. California law also provides for the recovery of attorney’s fees, so that in successful claims brought for failure to provide meal and rest breaks, the employer must pay the lawyers who represented the employees.
The California Supreme Court recently (July 15, 2021) decided a case that may prove to be a nightmare for many employers. In Ferra v. Loew’s Hollywood Hotel, Inc., a bartender brought a lawsuit against her employer alleging that her employer had not paid her the correct amount for each missed meal or rest period. The employer had paid its bartenders one hour of pay based on the employees’ hourly wage rate. However, since bartenders also received every three months a non-discretionary incentive payment (a bonus), Ms. Ferra argued that to calculate one hour of pay, the employer should have factored in the bonus payments.
The first judge to hear the case (a Superior Court judge in Los Angeles County) ruled against Ms. Ferra. The judge decided that the employer properly paid Ms. Ferra (and all other employees) an hour for each missed meal and rest period based on their hourly wage rate. For example, if an employee was paid $17.00 per hour and was not provided with one rest period the employer properly paid that employee $17.00. Ms. Ferra appealed to a three-judge panel (Court of Appeal). The appeals court ruled in a 2-1 decision that the first judge was correct – they rejected Ms. Ferra’s claim.
Undaunted, Ms. Ferra sought review in the California Supreme Court which accepted her case and in a unanimous decision, as noted above, accepted Ms. Ferra’s argument that an hour of pay should be based on more than just her hourly wage rate – that her bonuses needed to be considered in calculating that amount. The Court, among other things, noted that the same calculation must be made when determining how much is owed for overtime hours worked. If employees work more than eight hours per day, they are entitled to 1½ times their “regular rate of pay.” If employees receive bonuses and commissions, in addition to an hourly wage, those bonuses and commissions must be considered in determining the “regular rate of pay.”
To make matters worse for employers, the employer of Ms. Ferra tried to convince the California Supreme Court not to make its ruling retroactive. In other words, the employer argued that it would be unfair to impose this requirement on employers who for years had calculated missed breaks based solely on hourly wage rates. After all, three of the four judges who first heard Ms. Ferra’s case (before it reached the Supreme Court) had ruled that employers were correct in calculating missed breaks in this manner. Mr. Ferra’s employer argued that this new rule should only apply to future cases.
This argument was rejected by the Supreme Court which means that employees can pursue these cases based on not being paid the proper amount for missed meal and rest periods. Since the statute of limitations for these types of cases is three years, employees can go back three years in pursuing these claims.
Employers beware.