Loews Hollywood Hotel, LLC employed Jessica Ferra as a bartender. Loews paid Ferra hourly wages as well as quarterly nondiscretionary incentive payments.

For the days when she had to work during lunch or a rest break, her employer paid Ferra only the hourly wage and did not include a percentage of the quarterly incentive.

Ferra filed a class action suit against Loews. Ferra alleged that Loews, by omitting nondiscretionary incentive payments from its calculation of premium pay, failed to pay her for noncompliant meal or rest breaks in accordance with her “regular rate of compensation” as required by Labor Code section 226.7(c).

The trial court granted summary adjudication for Loews on the ground that calculating premium pay according to an employee’s base hourly rate is proper under Labor Code section 226.7(c). The court agreed with Loews that “regular rate of compensation” in section 226.7(c) is “not interchangeable” with the term “regular rate of pay” under section 510(a), which governs overtime pay.

The Court of Appeal affirmed, holding that “regular rate of compensation” in section 226.7(c) and “regular rate of pay” in section 510(a) are “not synonymous, and the premium for missed meal and rest periods is the employee’s base hourly wage.”

The California Supreme Court reversed in the case of Ferra v Loews Hollywood Hotel, LLC.

The question is what the Legislature meant when it used the phrase “regular rate of compensation” in section 226.7(c). Neither the Labor Code nor Wage Order No. 5-2001 defines the term, and the words by themselves may reasonably be construed to mean either hourly wages, as Loews contends, or hourly wages plus nondiscretionary payments, as Ferra contends.

After review of the legislative history and case law, The Supreme Court held that the term “regular rate of compensation” in section 226.7(c) has the same meaning as “regular rate of pay” in section 510(a) and encompasses not only hourly wages but all nondiscretionary payments for work performed by the employee.

This interpretation of section 226.7(c) comports with the remedial purpose of the Labor Code and wage orders and with our general guidance that the “state’s labor laws are to be liberally construed in favor of worker protection.”

It also rejected Loews’s request that the decision be prospectively applied. The decision shall have retroactive effect.