California Supreme Court Decision Complicates the Calculation of Penalties for Meal Period, Rest Period, and Recovery Period Violations for Many Employers

07.23.2021

As we previously reported here, in Alvarado v. Dart Container Corp. of California (2018) 4 Cal.5^th 542, the California Supreme Court clarified how overtime premium pay must be calculated when a non-exempt employee earns a non-discretionary bonus of a fixed sum during a given pay period in addition to the employee’s straight time hourly rate of pay.  Examples include shift differential premiums and bonuses, longevity bonuses, attendance bonuses, safety bonuses, and so forth.  In those circumstances, “for the limited purpose of calculating the overtime pay rate, a flat-sum bonus must be treated as if it were earned on a per hour basis throughout the relevant pay period.” Emphasis in original.  The employer “must factor the per-hour value of a flat-sum bonus into an employee’s regular rate of pay for the relevant pay period” to correctly calculate the overtime rate of pay whether it be one and one-half times the employee’s “regular rate of pay” or two times the employee’s “regular rate of pay.”  The calculation is based on the number of straight time hours worked during the relevant pay period and not the number of straight time hours plus any overtime hours, if any. 

On July 15, 2021, the California Supreme Court issued its decision in Ferra v. Lowes Hollywood Hotel, LLC., S25917.  The Court applied much of the reasoning of its decision in Alvarado v. Dart to the question of whether non-discretionary payments earned by a non-exempt employee in addition to the employee’s straight time hourly rate of pay must be factored into the employee’s “regular rate of compensation” for purposes of calculating rest period, meal period, and recovery period violation penalties (all discussed in detail below).  The Court stated, “we use the term ‘nondiscretionary payments’ to mean payments for an employee’s work that are owed ‘pursuant to [a] prior contract, agreement, or promise,’ not ‘determined at the sole discretion of the employer.”  The Court held that non-discretionary payments must be factored in when calculating rest period, meal period, and recovery period violation penalties in the same way non-discretionary payments must be factored in when calculating a non-exempt employee’s overtime rate of pay.  As it did in Alvarado v Dart, the Court held, also, that its decision applies retroactively subject to any applicable statutes of limitation. 

The Court’s decision in Ferra v. Lowes warrants a review of California’s meal period, rest period, and heat recovery period requirements and of the penalties that apply when violations occur.  Claims for such penalties are sought in nearly every wage and hour class action lawsuit together with claims for additional penalties under the California Labor Code Private Attorneys General Act of 2004, usually referred to as “PAGA.”

What Are an Employer’s Obligations Regarding Meal Periods, Rest Periods, and Heat Recovery Periods?

The California Labor Code mandates that “[a]n employer shall not require an employee to work during a meal or rest or recovery period mandated pursuant to an applicable statute, or regulation, standard, or order of the Industrial Welfare Commission the Occupational safety and Health Standards Board, or the Division of Occupational Safety and Health.”  Cal. Labor Code § 226.7(b). 

Meal Periods:  California employers must provide to non-exempt employees at least one unpaid meal period of at least 30-minutes that begins no later than the completion of the fifth hour of work that is duty free, uninterrupted, and free of employer control except when no more than 6 hours will complete the workday, in which case the meal period can be waived by mutual consent of the employee and the employer.  Employees must be free to leave the worksite during required meal periods.  When a non-exempt employee works more than 10 hours in a workday, the employer must provide a second compliant meal period, but the second meal period can be waived with the mutual consent of the employee and of the employer.

Rest Periods:  California employers must authorize and permit non-exempt employees to take at least one paid 10-minute rest period for every four hours of work or major fraction thereof.  The phrase “major fraction thereof” is interpreted to mean anything more than two hours.  Thus, when a non-exempt employee works more than six hours in a workday, a second paid 10-minute rest period must be authorized and permitted, and when a non-exempt employee works for more than 10 hours in a workday, a third paid 10-minute rest period must be authorized and permitted.  Employees must be allowed to leave the worksite during rest breaks.  

Recovery Periods:  An often overlooked requirement is the requirement that California employers provide to all affected employees a “recovery period,” which is defined as “a cooldown period afforded an employee to prevent heat illness” that must comply with the requirements of Cal/OSHA regulations.  Cal. Labor Code § 226.7.  Generally speaking those regulations require paid “recovery periods” as needed that are protected by shade for no less than 5 minutes. See 8 C.C.R. § 3395, and Cal/OSHA’s Heat Illness Prevention e-tool.

What Are The Penalties For Meal Period, Rest Period, and Recovery Period Violations? 

California Labor Code section 226.7(c) states as follows:

If an employer fails to provide an employee a meal or rest or recovery period in accordance with a state law, including, but not limited to, an applicable statute or applicable regulation, standard, or order of the Industrial Welfare Commission Wage, the Occupational Safety and Health Standards Board, or the Division of Occupational Safety and Health, the employer shall pay the employee one additional hour of pay at the employee’s regular rate of compensation for each workday that the meal or rest or recovery period is not provided.  [Emphasis added.] 

By way of example, if a non-exempt employee suffered in one workday a rest period violation, a meal period violation, and a recovery period violation, the employee would be entitled to be paid penalties equivalent to three hours of pay at the employee’s “regular rate of compensation.” 

What Steps Can An Employer Take to Reduce Its Exposure To Penalties For Meal Period Violations, Rest Period Violations, and Recovery Period Violations?

There are a number of steps California employers should consider taking to reduce their exposure to penalties for rest period violations, and for heat recovery violations:

• Maintain written, up-to-date, California compliant policies regarding non-exempt employees’ rights to paid 10-minute rest periods, unpaid meal periods of at least 30 minutes, and recovery periods.  Rest period and meal period policies are most frequently stated in an employee handbook.  Recovery period policies are most frequently stated in an employer’s Injury and Illness Prevention Program every California employer is required to maintain.  See 8 C.C.R. § 3205. 
• Train all supervisory and management personnel about the importance of complying with California’s rest period, meal period, and recovery period obligations and the importance of enforcing the employer’s rest period, meal period, and recovery period policies.
• Require non-exempt employees to promptly notify in writing designated supervisory personal of any instance in which the employee believes the employee was prevented from taking a required rest period, meal period, or recovery period.  This will enable to employer to promptly investigate and to take corrective action if necessary. 
• Use acknowledgement forms for non-exempt employees to indicate whether they were prevented, for any reason, from taking a required meal period, a required rest break, or a required recovery period during the preceding pay period.  Doing this will make it difficult for an employee to credibly contend, contrary to the signed acknowledgement forms that the employee suffered rest period, meal period, or recovery period violations. 
• Request that all applicants and current employees sign an arbitration agreement.  Arbitration agreements between employees and their employer are one of the most effective tools to avoid wage and hour class action lawsuits, which are the most frequently filed class action lawsuits in California.  A properly drawn arbitration agreement can require a current or former employee to submit, with some limited exceptions, all employment related claims to binding arbitration on an individual, non-class basis.
• Timely pay rest period penalties, meal period penalties, and recovery period penalties when such penalties are owed at the appropriate rate of pay taking into consideration all forms of compensation earned in addition to the non-exempt employee’s base hourly rate.  When an employer adopts this practice, it can be a strong defense to claims for alleged failure to pay rest period, meal period, and/or recovery period penalties.

This AALRR publication is intended for informational purposes only and should not be relied upon in reaching a conclusion in a particular area of law. Applicability of the legal principles discussed may differ substantially in individual situations. Receipt of this or any other AALRR publication does not create an attorney-client relationship. The Firm is not responsible for inadvertent errors that may occur in the publishing process. 

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