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California Supreme Court Decides Non-Discretionary Payments Are To Be Included When Calculating Overtime Pay

In a published opinion, Ferra v. Loews Hollywood Hotel LLC, 11 Cal. 5th (2021), the California Supreme Court examined the issue of whether the state legislature intended the term "regular rate of compensation" as it is used under California Labor Code Section 226.7(c) has the same meaning as the term "regular rate of pay" pursuant to California Labor Code Section 510(a), so that an employer's calculation of overtime or premium pay owed to an employee must account for the employee's hourly wages and non-discretionary payments for work performed by the employee during missed meal or break and recovery periods. The Court determined that it does!

What are non-discretionary payments?

Non-discretionary payments are payments for an employee's work that are owed under a prior contract, agreement or promise between the employer and the employee. Non-discretionary payments are not determined at the sole discretion of the employer, meaning that an employee will have meaningful input when arriving at the agreement to receive non-discretionary payments from an employer. Examples of non-discretionary payments or wages include hiring bonuses, attendance bonuses, individual or group production bonuses, and incentive bonuses.

California Supreme Court rules Non-Discretionary Payments must be accounted for when calculating Overtime or Premium Pay for work performed by employee during missed meals, breaks, and recovery time. 

What happened in Ferra?

Non-discretionary payments were at the heart of the issue underlying the Ferra lawsuit filed before the California Supreme Court. Jessica Ferra, a bartender employed by Lowes Hollywood Hotel LLC, filed a lawsuit against Loews alleging that the company failed to include her non-discretionary payments - specifically quarterly incentive payments - when calculating her regular rate of pay for overtime or premium payments owed to her for work performed during missed meals, and rest break periods as required by the California Labor Code Section 510(a). Loews argued that under its interpretation of the law, Jessica was only to be compensated her hourly wage - or regular rate of compensation - under California Labor Code Section 226.7(c), meaning that the company should not have to include quarterly incentive payments in calculating overtime or premium payments that Jessica accrued while working through her meal and rest break time.

At trial and on appeal, Jessica Ferra lost both times, meaning the trial court and appeals court agreed with Loews that "regular rate of compensation" and "regular rate of pay" had two different definitions, despite being used interchangeably throughout the California Labor Code and by the Industrial Welfare Commission (IWC). However, the California Supreme Court granted review of Ferra's lawsuit and reversed the lower court decisions. Essentially, the California Supreme Court found Loews' interpretation of the law to be incorrect, and that "regular rate of compensation" and "regular rate of pay" have the same meaning under California wage and labor laws.

To arrive at the conclusion that "regular rate of compensation" under Labor Code Section 226.7(c) and "regular rate of pay" under Labor Code Section 510(a) are synonymous, the California Supreme Court unpacked in detail the lengthy legislative history behind the creation of the Industrial Welfare Commission (IWC); the Court reviewed the state legislature's adoption of California Labor Code Sections 226.7(c) and 510(a); and, it discussed how California's wage and labor policies are intended to mirror federal law where consistent, mainly, the Fair Labor and Standards Act (FLSA). The underlying goal of California and Federal wage and labor laws are meant to protect employees from meal and rest break violations by penalizing employers for non-compliance with meal and rest break laws.

Key Takeaways

One key takeaway from the Ferra lawsuit for employees is that regular rate of compensation and regular rate of pay are synonymous or have the same meaning. The California Supreme Court noted during its discussion of the legislative history that the Industrial Welfare Commission adopted an overtime or premium pay requirement for meal or rest break period violations using the term "regular rate of compensation", while at the same time the IWC issued an adopted wage order revising overtime policies that included use of the term "regular rate of pay". In short, Loews' interpretation was wrong as the Court outlined several instances in California's legislative history where "compensation" and "pay" along with "regular rate" were used interchangeably to describe how employees wages are to be calculated. Ultimately, Ferra determined that employees are entitled to receive non-discretionary wages or payments as part of the calculation for the employee's pay - or compensation - for overtime work performed during missed meal and rest break time.

The second key takeaway from the Ferra lawsuit for employees is that the California Supreme Court ruled that its decision would have retroactive application in workplaces throughout California. What this means is that employees in California may be owed additional overtime or premium pay for non-discretionary wages or payments accrued for work performed by the employee during missed meal and rest break periods that were not calculated in the employee's regular rate of compensation or regular rate of pay. Each case will depend on the specific facts, so it is important to consult with an experienced labor law attorney to assess the specifics of your case to determine if you are owed additional compensation and unpaid wages from your employer.

Free Consultation

Srourian Law Firm, with locations in Los Angeles, Westwood, Woodland Hills, and Orange County is experienced in all aspects of employment law including wage, labor, meal and rest break violations in the workplace, and have aggressively represented employees in Los Angeles, Hollywood, Santa Monica, Orange, Irvine, Anaheim, Santa Ana, Newport Beach, Costa Mesa, Fullerton, Tustin, Mission Viejo, San Clemente, Garden Grove, Laguna Niguel, Brea, Fountain Valley, Aliso Viejo, Yorba Linda, Westminster, Laguna Hills, Cypress, and La Habra.

If you or someone you know suffered employment violations, you may have certain employee rights under state and federal law, and may be entitled to compensation as a part of a class action lawsuit. Please contact us to speak with one of our lawyers for a free consultation.


Cannabis Workers Protected under Federal Employment Law

According to a recent decision by the U.S. Court of Appeals for the Tenth Circuit, employees in the cannabis industry are protected under the Federal Labor Standards Act (FLSA) even though the sale of marijuana is prohibited under federal law.

In the case, Kenney v. Helix TCS, the lead plaintiff, security guard Robert Kenney, filed a suit against his former employer, Helix TCS, Inc., a service provider to the legal (state-sanctioned) cannabis industry. Kenney is seeking unpaid overtime pay, damages and costs on behalf of all similarly situation security guards and site supervisors.

Workers in the Cannabis Industry May Be Entitled to Overtime Pay

In the complaint, Kenney alleges that Helix misclassified all security guards as exempt employees. and failed to pay overtime required under the FLSA. In an unsuccessful motion to dismiss, defendant Helix maintains that the FLSA applies only to legal businesses, and the sale of recreational marijuana violates federal law. In essence, despite Colorado law allowing the sale of recreational marijuana, Helix argues that due to the federal Controlled Substances Act (CSA), Kenney, and all Helix employees, are essentially engaging in illegal “drug trafficking” and therefore not protected under the FLSA.

The appellate court affirmed the denial of defendant’s motion to dismiss and held that “employers are not excused from complying with federal laws just because their business practices are federally prohibited.” Moreover, the clear intent of the FLSA is to protect the workers’ well-being, and not to regulate potential illegal activities. Similarly, marijuana workers are not specifically exempt from the FLSA nor does the CSA repeal the protection guaranteed under the FLSA for workers in the cannabis industry. On the contrary, the FLSA has been amended to exclude certain categories of employees in response to the CSA, and has refused to exclude cannabis workers from protection under the FLSA.

The Definition of “Employee” Is Very Broad Under the FLSA

Notably, the U.S. Supreme Court has recognized the “striking breadth” of the definition of employee under the FLSA and purposefully expansive scope designed to maximize the full reach of the Act. As more states legalize the sale of recreational marijuana, this case serves as a reminder that workers in the cannabis industry are protected under the FLSA despite the CSA. Moreover, this is one example of how federal law will not trump a more permissive state law and allow employers in the cannabis industry to deny protections afforded under the FLSA.

California Marijuana Workers and Employee Rights under Federal and State Laws

The California courts have yet to decide the issue of cannabis industry workers and their employee rights under the FLSA. As the courts consider this issue, marijuana workers should be aware of their rights under the California Labor Code and the FLSA. In most cases, workers in the cannabis industry are protected and have employment rights including overtime wages, meal and rest breaks, and protection from missing wages or late paychecks.

California is one of 11 states that permit the sale of marijuana for recreational purposes. Because state marijuana laws are in conflict with federal law prohibiting the sale of cannabis, courts are being asked to protect marijuana workers rights.

FREE CONSULTATION

Srourian Law Firm, with locations in Los Angeles, Westwood, Woodland Hills, and Orange County is experienced in all aspects of employment law including wage and overtime pay and have aggressively represented employees in Los Angeles, Hollywood, Santa Monica, Orange, Irvine, Anaheim, Santa Ana, Newport Beach, Costa Mesa, Fullerton, Tustin, Mission Viejo, San Clemente, Garden Grove, Laguna Niguel, Brea, Fountain Valley, Aliso Viejo, Yorba Linda, Westminster, Laguna Hills, Cypress, and La Habra.

If you or someone you know suffered employment violations as an employee in the cannabis industry in California, you may have certain employee rights under state and federal law. Marijuana workers may be entitled to overtime wages, meal breaks and rest breaks; and may be entitled to compensation as a part of the class action lawsuit. Please contact us to speak with one of our lawyers for a free consultation.


Know The Law

Know the Law. Know your Rights.

Under California labor law, overtime wages must be paid when an eligible employee works overtime. Make sure your rights are protected when you work overtime. Here are some FAQs about overtime wages:

When am I entitled to overtime wages?

According to California labor law, a work day consists of eight hours of labor, and a workweek consists of no more than 40 hours a week. Any additional hours beyond eight hours per day or 40 hours per week are considered “overtime” and employees are entitled to overtime wages. Under the law, overtime wage must be at least one and one-half times the regular rate of pay. Moreover, any employee who works more than 12 hours in one day shall be entitled to overtime pay of no less than two times the regular rate of pay. There are additional overtime requirements for employees who work more than eight hours on their seventh consecutive workday,

Not every employee is entitled to overtime pay however. There are some narrow exemptions based on salary and job description, and in cases where a flexible work schedule is agreed upon. Also, some hours such as travel time, is not considered part of the workday.

How is overtime pay calculated?

Overtime pay is based on the employee’s regular hourly rate of pay. If the employee earns a salary, then the hourly rate is calculated by dividing the annual salary by 52 weeks, and the weekly pay is further divided by 40 hours. If an employee receives different rates of pay, then overtime is calculated by a weighted average of the rate.

What happens if I don’t get overtime pay?

An employer who fails to pay the lawful overtime wage to an eligible employee has broken the law. In that case, an employee has the right to sue under California law. According to California labor code section 1194, the employee may be able to recover the unpaid balance plus interest, as well as attorney’s fees and costs.

California labor law also requires overtime pay to be included in the next schedule paycheck. This is required by law regardless of any administrative delays such as having a supervisor approve the overtime.

Can I decline overtime pay?

Under California labor law, an employee cannot decline overtime pay if they are eligible. In other words, an employee cannot tell an employer that they will work overtime at the regular hourly rate. The reason for this is because California labor laws are designed to protect employees and are among the most strict and specific in the country. Allowing employees to waive their state rights to overtime pay is not good public policy and may be harmful to employees overall.

Also, employees cannot hide the fact that they are starting “overtime” hours from employers. This means that an employee cannot prevent employers from knowing they are about to accrue overtime hours, and therefore allow the employer the opportunity to prevent the employee from working overtime hours.

FREE CONSULTATION

Srourian Law Firm, with locations in Los Angeles, Westwood, Woodland Hills, and Orange County is experienced in all aspects of employment law including overtime wages and have aggressively represented employees in Los Angeles, Hollywood, Santa Monica, Orange, Irvine, Anaheim, Santa Ana, Newport Beach, Costa Mesa, Fullerton, Tustin, Mission Viejo, San Clemente, Garden Grove, Laguna Niguel, Brea, Fountain Valley, Aliso Viejo, Yorba Linda, Westminster, Laguna Hills, Cypress, and La Habra.

If you or someone you know suffered employment violations as an employee such as not receiving overtime pay in California, you may have certain employee rights under state and federal law and may be entitled to unpaid wages, interest, attorneys’ fees and costs, and/or be entitled to compensation as a part of the class action lawsuit. Please contact us to speak with one of our experienced lawyers for a free consultation.