California Supreme Court Expands Pay for Missed Breaks

The Long Road to Meal and Rest Break Penalties

California has long required meal and rest periods for hourly employees. The requirement was often ignored, for many years, because failure to provide breaks resulted in almost no penalties.

This changed in 2000 after the state legislature mandated one-hour “wage” penalties for each day an employer fails to provide meal or rest periods as required. Since then employers have faced up to two penalties each day payable at an employee’s “regular rate of compensation," a definition that has confused employers for decades.

Now, more than 20 years after California first implemented meal and rest penalties, the California Supreme Court has (finally) clarified how they should be calculated.

What is an Employee’s “Regular” Rate?

Under Labor Code section 226.7 and state “wage orders,” employees who miss a meal period, rest period, or recovery period (a cooldown period afforded to employees to prevent heat illness) are entitled to an additional hour of pay (or "Wage Penalty") at the employee’s “regular rate of compensation.”

But what does “regular rate of compensation” actually mean?

Calculating the “regular rate” has been complicated by competing interpretations taken by different courts and agencies. On the one hand, “regular” could mean an employee’s usual base hourly wage – which is the rule employers have followed under a state appellate court opinion published in 2019. On the other hand, it could mean an employee’s “regular rate” as used for calculating overtime, which requires that an employee’s base rate be increased to reflect other nondiscretionary types of pay such as differentials and incentive bonuses. The conflict between these two possible interpretations confused employers for decades until the 2019 decision.

California Supreme Court Adopts a Broader “Regular Rate” Definition

On July 15, 2021, the California Supreme Court overturned the 2019 appellate court decision, holding that employers must use the broader definition of “regular rate” when calculating Wage Penalties.

In calculating amounts due to an employee, employers now need to include hourly pay and non-discretionary payments such as shift differentials and incentive bonuses. This should be a familiar calculation because it is the same formula used for calculating the “regular rate” for overtime premiums.

One example would be an employee working at a winery for 20 hours at $15.00 per hour, but who also receives a $25.00 bonus for wine club signups. Her usual base wage is $15.00 but her ‘regular rate’ is $16.25 ($15.00 x 20 hours plus $25.00 [$325], divided by 20 hours worked). If she missed rest periods on three days that week, but was paid only $45 in Wage Penalties, she would have been underpaid $3.75.

The New Definition Will Have a Massive Retroactive Impact

The Supreme Court’s opinion may seem like a small change, but it will have a huge impact. Depending on the Supreme Court’s opinion in another forthcoming case, for example, underpaid Wage Penalties may result in an overall wage underpayment when employees are terminated. If so, the “waiting time” penalty for a single underpayment would be up to 30 times an employee’s average daily pay. This, in addition to other potential penalties, including the dreaded Labor Code Private Attorneys General Act ("PAGA") suits faced by so many California employers each year.

The opinion also applies retroactively, so employers may have liability if they did not previously include non-discretionary compensation in Wage Penalties. Thus, beyond making proper payments going forward, employers may wish to examine their previous operations to make sure they were compliant over the past several years.

The case, Ferra v. Loews Hollywood Hotel, LLC, can be viewed here.

Entry Editors: Kristopher Lopez and Richard Rybicki

NLRB Continues Scrutiny of Employment Arbitration Agreements

Several years ago, employers often faced challenges to handbooks under the National Labor Relations Act ("NLRA"), a federal law regulating union-management relations. This threatened many basic policies such as privacy, confidentiality, professionalism, and at-will employment.

Employment arbitration agreements suffered the same scrutiny with additional arguments that (1) class action waivers prevented "concerted activity" under the NLRA, and (2) the agreements suggested that employees were prohibited from filing charges with, or seeking help from, the National Labor Relations Board ("NLRB").

The Supreme Court resolved the first issue a few years ago, holding that employers cannot be forced to arbitrate class claims without an employer's express consent. (Opinion can be viewed here.) And until recently, businesses faced less pressure when drafting arbitration agreement language given federal courts' deference to national arbitration law.

But change in is the air. The NLRB has a new 'acting' General Counsel - and the NLRB just issued an opinion essentially requiring language informing employees they may file charges directly with the agency.

In a decision issued last week, the Board held an arbitration agreement unlawful even though it contained an express exclusion providing that it did not "limit an employee’s ability to complete any external administrative remedy (such as with the EEOC)." The panel concluded that, even though NLRB proceedings are administrative remedies, an employee could "read [the arbitration] language to encompass filing a charge with the Board, rather than, as stated, with the EEOC" (quoting a similar prior NLRB opinion). The decision, Brinker National Payroll Co., can be downloaded here.

The opinion briefly mentions exclusions that were permitted in other cases. We nonetheless suggest that employers use caution, as current agency staff are likely to enforce the case broadly. We recommend language making clear that NLRA-governed activity is not subject to mandatory arbitration.

A sample agreement containing a clear NLRB exclusion - but with broad application and an express class-action waiver - can be viewed here.

(Our usual disclaimer: not to be used without attorney advice!)

Documentation Dilemma: Recording Worker Vaccination Status

California employers are tasked with documenting "Fully Vaccinated" workers under newly released state standards. Without this documentation, employers must treat an employee as unvaccinated (requiring full masking if the employee comes into contact with others).

But the regulations contain no guidance for "documenting" vaccination status. We believe that expansive forms such as that required in Santa Clara County go too far - requesting unnecessary information beyond whether an individual is currently "Fully Vaccinated." (The Santa Clara County form can be viewed here.)

Cal-OSHA admits that the new regulation "does not specify a particular method," noting only that employers "must record the vaccination status for any employee not wearing a face covering indoors and this record must be kept confidential." It suggests options such as keeping copies of vaccination cards, recording the identity of employees who have proof without keeping a copy, and maintaining the identity of employees who "self-attest to vaccination status." (Se DOSH FAQs, here.)

Requesting medical information not expressly required by law can be an unlawful inquiry under state and federal law. Overly broad inquiries are a major concern, particularly as the pandemic recedes and government agencies become less forgiving (as they have) of medical information collection.

We have prepared a sample form that can be used for discussion under the new regulations. Employers adopting a form should remember that it is a sensitive document covered by laws such as the California Confidentiality of Medical Information Act and federal HIPAA. Employers should also remember that vaccination requirements are subject to potential disability and religious belief accommodation, and that the use of face coverings may require physical, mental, and hearing disability/communication accommodations as well.

A sample of our current form (disclaimer: not to be used without attorney advice!) can be viewed here.