Court of Appeal reaches employer-friendly conclusion regarding meal and rest period premiums and rounding policies

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Last month, the Court of Appeal issued a rare employer-friendly ruling regarding the calculation of meal and rest period premiums and regarding time rounding policies. In Ferra v. Loews Hollywood Hotel, LLC, plaintiff – a former bartender for the defendant – alleged that her employer improperly paid employees’ meal and rest period premiums at the base rate of compensation (i.e., the hourly wage), without including an additional amount based on incentive compensation such as nondiscretionary bonuses. Plaintiff reasoned that, because these additional amounts are included for the purpose of calculating overtime premiums, they should also be included for the purpose of calculating meal and rest period premiums, since the language in the statutes governing each of these payments is essentially identical.

The trial court and the court of appeal concluded that the language requiring payment of meal and rest premiums at the “regular rate of compensation” was not interchangeable with the language requiring payment of overtime premiums at the “regular rate of pay.” The appellate court concluded that, if the words “pay” and “compensation” were synonymous, the Legislature would not have chosen to use different words in each. Accordingly, the Court of Appeal found that meal and rest period premiums were properly calculated based on plaintiff’s hourly wage.

Plaintiff also alleged that defendant’s electronic timekeeping system unlawfully rounded employees’ time to the nearest quarter hour. In California, an employer is entitled to use a rounding policy if the policy is fair and neutral and is used in such a manner that it does not result in a failure to compensate employees properly over a period of time. For instance, if an employer’s policy was that employees clocking in early would have their time rounded down, whereas employees clocking in late would not have their time rounded at all, this would not be a neutral policy. In this case, plaintiff alleged that defendant’s quarter-hour rounding system was not neutral as applied given that the majority of shifts showed employees lost time from rounding, whereas a much smaller fraction showed employees benefited from the rounding.

The trial court and the Court of Appeal found that defendant’s policy was neutral on its face because it rounded to the nearest quarter-hour without looking at whether the employer or the employee is benefiting from the rounding. Additionally, the courts found insufficient evidence to show that the rounding practice systematically undercompensated employees. The Court of Appeals held that “a ‘fair and neutral’ rounding policy does not require that employees be overcompensated, and a system can be fair or neutral even where a small majority loses compensation.” Accordingly, the Court of Appeal upheld the lower court’s decision in the employer’s favor.

What does this mean for employers?

Employers who currently pay their employees meal and rest break premiums at their employees’ hourly rate of pay now have published case law supporting their practice, which may help in defeating allegations made by employees regarding improper premium payments. It should be noted, however, that there is still no California Supreme Court decision regarding this issue, and the defendant in Loews may very well appeal the Court of Appeal’s ruling to the Supreme Court.

This case also provides an extra level of defense to employers who implement facially neutral quarter-rounding policies, provided that the rounding policies do not result in systematic underpayments to employees over time.

Employers should consult with an attorney to discuss the benefits and risks of using any kind of rounding system and to assess the neutrality of their rounding polices. Employers should also consult with an attorney to evaluate their practice of paying employee meal and rest break premiums.