Ferra v. Loews Hollywood Hotel, LLC
The meal- and rest-period premium under Labor Code section 226.7 must be paid at the “regular rate of compensation,” which means the same as the overtime “regular rate of pay” — including all nondiscretionary pay, not just the base hourly wage — and the rule applies retroactively.
Ferra v. Loews Hollywood Hotel, LLC (2021) 11 Cal.5th 858
Wage & Hour
Meal & Rest Premiums
Regular Rate
Section 226.7
Reversed
In brief. The Court held that “regular rate of compensation” in Labor Code section 226.7, subdivision (c) — the measure of the meal/rest premium — “has the same meaning as ‘regular rate of pay’ in . . . section 510, subdivision (a),” and “encompasses not only hourly wages but all nondiscretionary payments for work performed.” (Ferra v. Loews Hollywood Hotel, LLC (2021) 11 Cal.5th 858, 870–871.) Employers must therefore calculate the premium to include bonuses, commissions, and similar nondiscretionary pay, and the holding applies retroactively. (Id. at pp. 871, 890–895.)
Facts
Jessica Ferra worked as a bartender at the Loews Hollywood Hotel. (11 Cal.5th at pp. 864–865.) She earned hourly wages plus quarterly nondiscretionary incentive payments. (Ibid.) When Loews owed a meal- or rest-period premium under section 226.7, it paid the premium at Ferra’s base hourly rate only, excluding her nondiscretionary incentive pay. (Ibid.) Ferra sued, contending the statutory phrase “regular rate of compensation” requires including nondiscretionary payments, just as the overtime “regular rate of pay” does. (Id. at p. 865.)
Procedural history
The trial court granted summary adjudication for Loews, and the Court of Appeal affirmed, reasoning that the Legislature’s use of different phrases — “regular rate of compensation” (§ 226.7) versus “regular rate of pay” (§ 510) — signaled different meanings, so the premium could be paid at the base hourly rate. (11 Cal.5th at pp. 865–866.) The Supreme Court granted review and reversed. (Id. at pp. 866, 895.)
Issue
Does “regular rate of compensation” in section 226.7, subdivision (c), mean the same as “regular rate of pay” in section 510, subdivision (a) — so that the meal/rest premium must include nondiscretionary payments — or may an employer pay the premium based on the base hourly rate alone? And if the former, does the rule apply retroactively? (11 Cal.5th at pp. 863–864.)
Holding
The two phrases mean the same thing. “[T]he term ‘regular rate of compensation’ in . . . section 226.7, subdivision (c), has the same meaning as ‘regular rate of pay’ in . . . section 510, subdivision (a), and encompasses not only hourly wages but all nondiscretionary payments for work performed by the employee.” (11 Cal.5th at pp. 870–871.) Employers must compute the section 226.7 premium at that fuller rate. (Ibid.) The holding applies retroactively. (Id. at pp. 890–895.) Reversed. (Id. at p. 895.)
Reasoning
1. “Regular rate” is a term of art. The Court explained that “regular rate of pay” under section 510 is “a term of art” that, since at least the FLSA and California’s parallel scheme, “encompass[es] not only hourly wages but” also “nondiscretionary payments” such as bonuses, shift differentials, and commissions. (11 Cal.5th at pp. 866–870.) The word “regular” signals an all-in measure of the employee’s actual compensation rate, not merely the stated hourly wage. (Ibid.)
2. “Compensation” and “pay” are interchangeable here. The Court rejected the inference that the Legislature meant something different by using “compensation” rather than “pay.” (11 Cal.5th at pp. 870–878.) Reading the statutes together, it found “regular rate of compensation” and “regular rate of pay” “synonymous” — the words “regular rate” carry the established meaning, and “compensation” is not narrower than “pay.” (Id. at pp. 871–878.) Construing the premium to track the overtime rate also harmonizes the wage scheme and serves the protective purpose of section 226.7. (Ibid.)
3. Purpose and consistency. The Court emphasized that California wage laws are construed to favor employee protection, and that paying premiums at a diminished base-only rate would let employers shortchange workers who earn nondiscretionary incentive pay. (11 Cal.5th at pp. 878–882.) A single, consistent “regular rate” across overtime and meal/rest premiums avoids arbitrary disparities and aligns with the IWC wage orders. (Ibid.)
4. Retroactivity. The Court applied its holding retroactively, following the general rule that judicial decisions interpreting statutes operate retroactively. (11 Cal.5th at pp. 890–895.) It rejected Loews’s plea for prospective-only application, finding no sufficiently compelling reliance or unfairness to justify departing from the default — exposing employers who had paid premiums at base rates to recalculation and back-pay liability. (Ibid.)
Significance
Ferra is the controlling authority on how meal- and rest-period premiums must be calculated, and a significant expansion of employer exposure. By equating “regular rate of compensation” with the overtime “regular rate of pay,” it requires employers to fold nondiscretionary bonuses, commissions, and differentials into every section 226.7 premium — and its retroactive application reached back at prior pay practices. It is the premium-calculation counterpart to Alvarado v. Dart Container Corp. (2018) 4 Cal.5th 542 (regular-rate computation of flat-sum bonuses) and builds on Murphy v. Kenneth Cole Productions, Inc. (2007) 40 Cal.4th 1094 (the premium is a wage). Because underpaid premiums can also drive derivative wage-statement and waiting-time claims under the Naranjo line, Ferra materially increases the value of meal- and rest-period cases. See the Review’s coverage of the wage-and-hour line.
Key quotes
“[T]he term ‘regular rate of compensation’ in . . . section 226.7, subdivision (c), has the same meaning as ‘regular rate of pay’ in . . . section 510, subdivision (a), and encompasses not only hourly wages but all nondiscretionary payments for work performed by the employee.” (Ferra, supra, 11 Cal.5th at pp. 870–871.)
Practice pointer
Recalculate premiums at the full regular rate. After Ferra, any meal- or rest-period premium must be paid at the regular rate of compensation that includes nondiscretionary bonuses, commissions, and shift differentials — not the base hourly wage. In wage cases, examine whether the employer paid premiums at base rates while employees earned nondiscretionary incentive pay; the shortfall supports class and PAGA claims and, given retroactivity, reaches back through the limitations period (four years via the UCL under Murphy). Coordinate the regular-rate math with Alvarado for flat-sum bonuses, and assert derivative wage-statement and waiting-time claims under Naranjo. Employers should update payroll systems so premiums automatically incorporate all nondiscretionary pay.
Open questions
How the regular-rate computation operates for varied compensation structures — production bonuses, percentage commissions, multiple concurrent incentive plans — continues to generate disputes, as does the precise interaction of Ferra with Alvarado’s divisor rules. The scope of retroactive exposure and the availability of good-faith defenses to derivative penalties (a question sharpened in the Naranjo line) also remain actively litigated.