California Supreme Court Interprets Breaking Bonus Requirement To Give Employees Higher Pay CDF Labor Law LLP

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In Ferra v Loews Hollywood Hotel, LLC, the California Supreme Court held that when an employer fails to provide an employee with a compliant rest or meal break, the employee is entitled to a bonus of one hour’s wages at the “regular rate of pay” of employee, as opposed to one hour’s pay at the basic hourly rate or at the agreed upon regular rate. In doing so, the Court sought to maximize employee protections by requiring employers to factor bonuses and other non-discretionary compensation into the severance premium rate. Otherwise, the court said, employers would have an incentive to cut employee hourly wages in favor of non-hourly incentive pay.

The eagerly awaited Ferré The ruling is another example of the court interpreting California labor laws in a way that guarantees higher wages for employees and creates significant liability for employers, despite guidance to the contrary provided by law enforcement agencies. labor law and state courts. The ruling confirms that California employers seeking to avoid liability for wages and hours should adopt payroll practices that sin on the side of overpayments in the absence of clear legal oversight authorities.

the Ferré is also a reminder that a significant wage and hours dispute in California often has nothing to do with inappropriate conduct by an employer, and is instead caused by unnecessarily vague and imprecise legal requirements and a lack of guidance control of the state legislature and labor agencies, reinforced by an aggressive bar of plaintiffs committed to exposing all of these ambiguities and alternative interpretations through class actions and PAGA cases.

The Court’s Analysis of “Employee Protections”

The Court’s judgment in Ferré was based on his interpretation of section 226.7 of the Labor Code, which requires an employer to “pay an employee one hour of overtime at the employee’s regular rate of pay for each working day on which the meal or rest or recovery period is not provided ”. This hour of extra pay is commonly referred to as a severance bonus.

The precise question in Ferré was whether the Legislature intended “regular rate of pay”: (1) to have the same meaning as “regular rate of pay” as used in California’s Overtime Act, Section 510 ( at) ; or (2) have independent significance, requiring the payment of bonuses at the employee’s “base” hourly rate.

The Court agreed with the first proposition, concluding that the “regular rate of pay” and the “regular rate of pay” are one and the same.

For some, the result was predictable because the Court has always “interpreted[d] the Labor Code and wage ordinances to promote the protection of employees. form, the decision of the Court in Ferré guarantees that severance bonuses will be paid to the more “protector” – that is, the higher – of the two rates of pay in question.

Under California law, “regular rate of pay” has been given the same meaning as federal “regular rate of pay”. An employee’s “regular rate” is always equal to or greater than their basic hourly rate. Indeed, the “normal rate” takes into account the basic hourly remuneration. and differential rates of pay (eg shift bonuses), non-discretionary bonuses and several other forms of non-discretionary payments.

In the Court’s opinion, if the “regular rate of pay” under section 226.7 meant the basic hourly rate of pay, “employers would be encouraged to minimize the basic hourly rates of employees and the compensation of employees. shifts elsewhere, thus hurting employees who are paid in one form or another. other than a basic hourly rate.

The Court’s interpretation in Ferré is contrary to those of the lower Court of Appeal and many federal district courts in previous decisions.

Retroactive result and no reasonable confidence for employers

In Ferré, the Court also concluded that its decision applied retroactively because “no consideration of equity or public order justifies [prospective application]. “Employers who had relied on contrary directives in good faith would likely disagree.

California’s labor law enforcement agency DLSE has made an “unequivocal distinction between ‘regular rate of pay’ and ‘overtime rate'” in its enforcement manual, as Loews pointed out. Additionally, the California labor commissioner has repeatedly ordered employers to pay severance bonuses based on employee base hourly rates, as opposed to higher regular rates. Further, as noted, the Lower Court of Appeals and various federal district courts have reached a different conclusion than the California Supreme Court in Ferré. Employers’ decisions are often made on the basis of such directions and decisions. The court, however, was not convinced.

In the Court’s opinion, employers “cannot claim a reasonable confidence” unless the Court has “ruled beforehand” on the matter. And when the Court speaks, it is likely to interpret the Labor Code and the Wage Ordinances with the reasonable interpretation that most closely adheres to the orientation that “state labor laws are to be interpreted liberally. for the protection of workers ”.

The “Bonus Buster”?

Ferré perhaps the California Supreme Court ruling that has California employers say goodbye to certain non-discretionary bonus programs.

When non-exempt employees earn a non-discretionary bonus over multiple pay periods, employers must pay the bonus and any additional overtime compensation “owed on the bonus” because the bonus increases the “regular rate” during the bonus period. . After Ferré, it would appear that these employers also have to pay an additional severance premium due on the premium for the same reason.

The Court’s decision in Alvarado vs. Dart Container has led many employers to consider abandoning incentive bonus plans. In Alvarado, the Court established a new standard for the calculation of overtime due on certain attendance premiums, deviating from DLSE guidelines on the same subject and creating an additional calculation for employers who pay premiums.

Yes Alvarado placing employers near a tipping point, Ferré could overflow them, as it may be administratively impossible to pay monthly, quarterly or annual premiums that require a “retrospective” recalculation of all overtime, double time and break premiums during the premium period. the Ferré This decision supports the old cliché that “no good deed goes unpunished”. This may signal a Ferré-although non-discretionary bonuses for many employers.

Risk avoidance and call to action

Make sure you pay premiums for meals and breaks based on the regular rate – the same rate used to calculate the overtime pay rate for employees. While non-exempt employees can earn a non-discretionary bonus over multiple pay periods, ensure that your payroll processes and / or suppliers will provide additional compensation for any severance bonus paid during the bonus period (as well as a additional compensation for any other payment based on the “normal rate”). Also, consult with an attorney to make sure the payroll calculations and resulting payroll statements meet onerous California standards.

With the above measures in place, join the chorus of Californians speaking to their state officials and demanding reforms. Lawsuits under the Private Attorneys General Act (“PAGA”) have generated hundreds of millions of dollars for the state and these funds are not being used as intended. The legislature demanded that these funds be used “for the enforcement of labor laws … and for the education of employers and employees on their rights and responsibilities under this code.” Laboratory. Code § 2699 (i). Despite sufficient funding for the PAGA settlements and years of protracted litigation over technical issues of salary reporting, timing requirements, appropriate seating and other highly technical issues, the employment agencies of the state did not provide clear guidelines to employers informing them of their obligations. Instead, the state’s 2020-21 budget plan provided for $ 107 million from the PAGA settlement fund to be transferred to the general fund. (See https://lao.ca.gov/Publications/Report/4274#top.)

While employers who rely on the advice of labor agencies may not be immune to individual or group claims, like those at Ferra, such confidence should serve as a defense in PAGA’s actions seeking civil penalties. on behalf of the same labor agency. Most, if not all, employers seek to comply with the law. It’s just hard to do it in the dark or when the rules keep changing.

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