PAYING MEAL AND REST PERIOD PREMIUMS AT THE EMPLOYEES’ HOURLY RATE
California Labor Code Section 226.7 requires that employers pay employees one additional hour of pay at the employees’ “regular rate of compensation” for the failure to provide compliant meal and rest periods. Employers and the Department of Labor Standards Enforcement have always calculated this “premium” at the employees’ regular (hourly) rate of pay. In Ferra v. Loews, the plaintiff alleged that Loews should include nondiscretionary bonus and other incentive compensation in this premium payment, in the same manner that these wages are included in the regular rate calculation for overtime pay.
The trial court found that the term “regular rate of compensation” differs from the “regular rate of pay” language found in California’s overtime statutes and that meal and rest period premiums under the California Labor Code need only be paid at an employee’s regular hourly rate. The Court of Appeal agreed. The issue is currently pending before the California Supreme Court and is stated as follows: did the Legislature intend the term “regular rate of compensation” in Labor Code section 226.7, to have the same meaning and require the same calculations as the term “regular rate of pay” in Labor Code section 510(a), which requires employers to pay a wage premium for each overtime hour?
Should the Supreme Court disagree with the lower courts, employers would now be required to include additional forms of compensation in the calculation of meal and rest period premiums.
ROUNDING OF EMPLOYEE MEAL PERIOD TIME
Many California employers law-fully round employee time entries to the nearest tenth or quarter of an hour. This generally helps employers budget employee wages and manage overtime. In Donohue v. AMN Services, the California Supreme Court is considering whether employers may also round employees’ time recorded for meal periods.
In AMN, the employer rounded employee time to the nearest tenth of an hour, including when employees clocked in and out for meal periods. Donohue argued that the rounding of employee time was improper as applied to meal periods because California law guarantees an employee precisely 30 minutes to take a meal period and arguably requires that the time records reflect the amount of meal period time taken. The Court of Appeal disagreed and held that rounding is permissible as long as it did not result, over time, in meal period violations.
Should the California Supreme Court reverse the Court of Appeal’s decision, employers would now have to record meal periods to the minute, even where other employee work hours were lawfully rounded to the nearest tenth or quarter hour.
HEIGHTENED STANDARDS OF KNOWLEDGE OF NONCOMPLIANT MEAL AND REST PERIOD VIOLATIONS
When employers pay meal and rest period premiums, these payments should appear on employee pay stubs. However, many times, employers are unaware of whether an employee has missed a meal or rest period and, thus, does not pay the meal and rest period penalty. After an employee has been terminated or quits, the employer learns for the first time that the employee did not receive compliant meal and rest periods because the employee files an individual or class action lawsuit for these violations. Included in the lawsuit are derivative claims for waiting time and wage statement penalties for the employer’s failure to (a) willfully pay employees their meal and rest period premiums at termination (b) knowingly failing to report the payment of meal and rest period premiums on their wage statements.
In Naranjo v. Spectrum Security Services, Inc., the California Supreme Court is considering whether a violation of Labor Code section 226.7, which gives rise to claims for waiting time penalties under Labor Code Section 203 and wage statement penalties under Labor Code Section 226 when the employer does not include the premium wages on the employee’s wage statements. The Court of Appeal held that these derivative penalties were not available because the employer was not aware of the missed breaks and thus, could not have “willfully” withheld the premium wages at termination nor “knowingly and intentionally” failed to record premium payments on the wage statements.
Should the Supreme Court reverse the decision, employers will be left in the impossible position of having to investigate and confirm, at termination, whether any and all meal and rest premiums were due, paid and reported. This position will be remarkable since, oftentimes, employees might quit their jobs without notice and/or discussion. The issue will be