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Ferra v. Loews Hollywood Hotel, LLC

California Court of Appeals, Second District, Third Division

October 9, 2019

JESSICA FERRA et al., Plaintiffs and Appellants,
v.
LOEWS HOLLYWOOD HOTEL, LLC, Defendant and Respondent.

          APPEAL from a judgment of the Superior Court of Los Angeles County, Kenneth R. Freeman, Judge.

          Moss Bollinger, Ari E. Moss, Dennis F. Moss; Law Offices of Sahag Majarian II and Sahag Majarian II for Plaintiffs and Appellants.

          Altshuler Berzon, Michael Rubin, Eileen B. Goldsmith; Haffner Law, Joshua H. Haffner, Graham G. Lambert; Stevens L.C. and Paul D. Stevens for California Employment Lawyers Association and Jacqueline F. Ibarra as Amici Curiae on behalf of Plaintiffs and Appellants.

          Ballard Rosenberg Golper & Savitt, Richard S. Rosenberg, John J. Manier and David Fishman for Defendant and Respondent.

          Blank Rome, Laura Reathaford, Brock Seraphin; Lathrop Gage and Laura Reathaford for Association of Southern California Defense Counsel as Amicus Curiae on behalf of Defendant and Respondent.

          EGERTON, J.

         Does “regular rate of compensation” for calculating meal or rest break premium payments mean the same thing as “regular rate of pay” for calculating overtime premium payments, and does facially neutral “rounding” of employee work time systematically undercompensate Jessica Ferra and a class of employees of Loews Hollywood Hotel, LLC (Loews)? We agree with the trial court that the phrases have different meanings, and Loews's facially neutral rounding policy does not systematically undercompensate Loews employees.

         BACKGROUND

         On October 7, 2015, Ferra filed a first amended complaint against Loews on behalf of herself and three alleged classes of hourly Loews employees extending as far back as June 26, 2011. Among other causes of action, Ferra alleged Loews improperly calculated her premium payment when Loews failed to provide her with statutorily required meal and/or rest breaks, in violation of Labor Code section 226.7, [1] and Loews underpaid Ferra by unlawfully “shaving or rounding time from the hours worked by Ferra.”

         The parties stipulated that Ferra worked as a bartender for Loews from June 16, 2012 to May 12, 2014, and Loews paid (and continued to pay) meal and rest period premiums to hourly employees at their base rate of compensation (their hourly wage), without including an additional amount based on incentive compensation such as nondiscretionary bonuses. The trial court ordered that, on those stipulated facts, it would summarily adjudicate under Code of Civil Procedure section 437c, subdivision (t) “[w]hether meal and rest period premium payments paid to employees pursuant to Labor Code § 226.7 must be paid at employees' ‘regular rate of compensation,' i.e. their regular hourly wage, or at their ‘regular rate of pay,' ” and if it concluded the premium must be at the “regular rate of pay, ” whether section 226.7 was void for vagueness under the due process clause of the federal Constitution.

         After briefing and a hearing, on February 6, 2017, the trial court issued an order granting the motion for summary adjudication, concluding: “[T]he terms ‘regular rate of compensation' and ‘regular rate of pay' are not interchangeable.... [R]est and meal period premiums under § 226.7 need only be paid at the base hourly rate. As is consistent with the legislative history of §§ 226.7 and 510, it is apparent that the terms in both statutes are different, and have different purposes. [¶]... [¶] [M]eal and rest period premium payments paid to employees pursuant to Labor Code § 226.7 must be paid at employees' ‘regular rate of compensation,' i.e., their regular hourly wage, and not at their ‘regular rate of pay.' ” Loews's due process claim therefore was moot.

         Loews also filed a motion for summary judgment on Ferra's remaining causes of action, arguing that Loews's “rounding” policy and practice did not result in underpayment of hourly employees, and any alleged underpayments were de minimis. After briefing and a hearing, on April 24, 2017, the trial court issued an order granting summary judgment, concluding that on the undisputed facts, “Loews's [rounding] policy is neutral on its face and as applied” and did not “fail[ ] to compensate the employees for hours worked.” The trial court declined to address as unnecessary Loews's alternative argument that any underpayments were de minimis.

         The court granted in full Loews's motion for summary judgment. Judgment was entered May 11, 2017, Loews served notice of entry of judgment on May 19, 2017, and Ferra filed this timely appeal from the summary adjudication and summary judgment.

         DISCUSSION

         If after an independent review of the record and the applicable law, we agree with the trial court that undisputed facts show there is no triable issue of material fact and Loews, as the moving party, was entitled to judgment as a matter of law, we must affirm the trial court's grant of summary adjudication and summary judgment. (Code Civ. Proc., § 437c, subds. (c), (t); Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 860.)

         1. “Regular rate of compensation” means the employee's base hourly wage

         Section 226.7, subdivision (c) states: “If an employer fails to provide an employee a meal or rest or recovery period in accordance with a state law..., 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.” (Italics added.) The Industrial Welfare Commission (IWC) Wage Order that applies to Loews and its employees also states that if an employer fails to provide an employee a meal or rest period, “the employer shall pay the employee one (1) hour of pay at the employee's regular rate of compensation for each workday that the [meal or rest] period is not provided.” (IWC Wage Order No. 5-2001, subds. 11(B), 12(B) (Cal. Code Regs., tit. 8, § 11050, subds. 11(B), 12(B)), italics added.) This additional hour is a “premium wage.” (Esparza v. Safeway, Inc. (2019) 36 Cal.App.5th 42, 52.) The wage orders entitle employees “to an unpaid 30-minute, duty-free meal period after working for five hours and a paid 10-minute rest period per four hours of work. (Cal. Code Regs., tit. 8, § 11070, subds. 11, 12.) If denied two paid rest periods in an eight-hour workday, an employee essentially performs 20 minutes of ‘free' work, i.e., the employee receives the same amount of compensation for working through the rest periods that the employee would have received had he or she been permitted to take the rest periods. An employee forced to forgo his or her meal period similarly loses a benefit to which the law entitles him or her. While the employee is paid for the 30 minutes of work, the employee has been deprived of the right to be free of the employer's control during the meal period. [Citations.] Section 226.7 provides the only compensation for these injuries.” (Murphy v. Kenneth Cole Productions, Inc. (2007) 40 Cal.4th 1094, 1104) (Murphy).)

         Section 510, the statute governing overtime, states in subdivision (a): “Any work in excess of eight hours in one workday and any work in excess of 40 hours in any one workweek and the first eight hours worked on the seventh day of work in any one workweek shall be compensated at the rate of no less than one and one-half times the regular rate of pay for an employee, ” and “[a]ny work in excess of 12 hours in one day... [and] any work in excess of eight hours on any seventh day of a workweek shall be compensated at the rate of no less than twice the regular rate of pay of an employee.” (Italics added.) The overtime provisions in Wage Order No. 5-2001, subdivision 3(A) mirror the statutory language, stating that overtime work must be compensated at either one and one-half times or double “the employee's regular rate of pay for all hours worked.” (Italics added.) “[T]he extra amount a worker must be paid, on top of normal pay, because certain work qualifies as overtime” is also called a premium. (Alvarado v. Dart Container Corp. of California (2018) 4 Cal.5th 542, 550.) In the overtime context, “[s]ignificantly, an employee's ‘regular rate of pay' for purposes of Labor Code section 510 and the IWC wage orders is not the same as the employee's straight time rate (i.e., his or her normal hourly wage rate). Regular rate of pay, which can change from pay period to pay period, includes adjustments to the straight time rate, reflecting, among other things, shift differentials and the per-hour value of any nonhourly compensation the employee has earned.” (Id. at p. 554.)

         California case law does not define the meaning of “regular rate of compensation” in section 226.7, subdivision (c) and Wage Order No. 5-2001, subdivisions 11(B) and 12(B), which address rest and meal periods. The trial court agreed with Loews that “regular rate of compensation” means the additional hour premium is calculated as one hour of the employee's base hourly wage. On appeal, Ferra argues “regular rate of compensation” means the same as “regular rate of pay, ” so the premium must be calculated as an additional hour at the employee's base hourly wage, plus an additional amount based on her nondiscretionary quarterly bonus. We agree with the trial court and with Loews, however, that the statutory terms “regular rate of pay” and “regular rate of compensation” are not synonymous, and the premium for missed meal and rest periods is the employee's base hourly wage.

         a. The statutes' plain language differentiates “regular rate of compensation” from “regular rate of pay”

         The basic principle of statutory construction is “that we must look first to the words of the statute, ‘because they generally provide the most reliable indicator of legislative intent.' ” (Murphy, supra, 40 Cal.4th at p. 1103.) We must “give[ ] significance to every word, phrase, sentence and part of an act.” (Flowmaster, Inc. v. Superior Court (1993) 16 Cal.App.4th 1019, 1028.) “ ‘Wage orders are quasi-legislative regulations and are construed in accordance with the ordinary principles of statutory interpretation.' ” (Vaquero v. Stoneledge Furniture, LLC (2017) 9 Cal.App.5th 98, 107.) We should avoid a construction of the wage order or statute that renders any part meaningless, inoperative, or superfluous. (Ibid.; Shoemaker v. Myers (1990) 52 Cal.3d 1, 22.) “[S]tatutes governing conditions of employment are to be construed broadly in favor of protecting employees. [Citations.] Only when the statute's language is ambiguous or susceptible of more than one reasonable interpretation, may the court turn to extrinsic aids to assist in interpretation.” (Murphy, at p. 1103.)[2]

         “Where different words or phrases are used in the same connection in different parts of a statute, it is presumed the Legislature intended a different meaning.” (Briggs v. Eden Council for Hope & Opportunity (1999) 19 Cal.4th 1106, 1117.) Ferra argues that the two phrases have the same meaning because both include the words “regular rate.”

         Ferra thus urges us to construe only the phrase “regular rate, ” as used in the Labor Code and the federal Fair Labor Standards Act (FLSA), 29 United States Code section 201 et seq., and to disregard the additional language because “pay” and “compensation” are interchangeable.[3] But that would render meaningless the Legislature's choice to use “of compensation” in one statute and “of pay” in the other. If the Legislature had intended meal and rest break premiums to be calculated the same way as overtime premiums, it would not have used “regular rate of compensation” when setting premiums for missed meal and rest breaks, and “regular rate of pay” when setting premiums for overtime work. We assume the Legislature intended different meanings when it did not simply use “regular rate, ” but added different qualifiers in the statutes and wage orders establishing premiums for overtime and for missed meal and rest periods.

         Ferra also points out that sections 226.7 and 510 were both enacted in 2000, and both used “regular rate”; but the legislative decision to add “of compensation” to the first statute, and “of pay” to the second, works against Ferra's argument that the words do not matter, because surely the Legislature meant something different when it used different language in two statutes enacted at the same time.[4] “[I]f the Legislature carefully employs a term in one statute and deletes it from another, it must be presumed to have acted deliberately.” (Ferguson v. Workers' Comp. Appeals Bd. (1995) 33 Cal.App.4th 1613, 1621; see Murphy, supra, 40 Cal.4th at p. 1108 [“That the Legislature chose to eliminate penalty language in section 226.7 while retaining the use of the word in other provisions of [Assem.] Bill No. 2509 is further evidence that the Legislature did not intend section 226.7 to constitute a penalty.”])

         b. Legislative history does not compel the conclusion that “regular rate of compensation” and “regular rate of pay” are synonymous and interchangeable

         Although we do not believe the statutes' use of different definitions for the different premiums is ambiguous, we note that Ferra's resort to the legislative history does not require us to conclude that “regular rate of compensation” is the same as “regular rate of pay.” Ferra acknowledges the legislative history does not define the two phrases, but points to the regulatory history of the wage order revisions in which the IWC adopted the hour premium for rest and meal period violations, quoting the use in Murphy, supra, 40 Cal.4th 1094, of a commissioner's statement at a “June 30, 2000 hearing at which the IWC adopted the ‘hour of pay' remedy.” (Id. at pp. 1109-1110.) The commissioner stated: “ ‘This [meal and rest pay provision applies to] an employer who says, “You do not get lunch today, you do not get your rest break, you must work now.” That is-that is the intent.... And, of course, the courts have long construed overtime as a penalty, in effect, on employers for working people more than full-you know, that is how it's been construed, as more than the-the daily normal workday. It is viewed as a penalty and a disincentive in order to encourage employers not to. So, it is in the same authority that we provide overtime pay that we provide this extra hour of pay.' ” (Id. at p. 1110.)

         While Ferra argues that this means the hour premium for meal and rest break violations should be calculated like overtime pay, Murphy used the commissioner's statement to differentiate the two payments, pointing out that although the IWC used the word “ ‘penalty' ” at times to refer to meal and rest period payments, “the Legislature's occasional description of the meal and rest period remedy as a ‘penalty' in the legislative history should be informed by the way in which the IWC was using the word; namely, that like overtime pay, the meal and rest period remedy has a corollary disincentive aspect in addition to its central compensatory purpose. [¶] We conclude that the administrative and legislative history of the statute indicates that, whatever incidental behavior-shaping purpose section 226.7 serves, the Legislature intended section 226.7 first and foremost to compensate employees for their injuries.” (Murphy, supra, 40 Cal.4th at pp. 1110-1111, fn. omitted, italics added.) Section 226.7's “ ‘additional hour of pay'... is a premium wage intended to compensate employees, not a penalty.” (Murphy, at p. 1114.)[5] Murphy recognized that the occasional use of “penalty” in the legislative history did not require the court to conclude that section 226.7 was intended to be a penalty, noting that “the Legislature chose to eliminate penalty language in section 226.7 while retaining the use of the word in other provisions... [which] is further evidence that the Legislature did not intend section 226.7 to constitute a penalty.” (Murphy, at p. 1108.) Here, the occasional equating of the purpose of providing overtime premiums with the premiums for missed meal and rest breaks does not require us to conclude that the premiums must be calculated identically, especially in light of the Legislature's choice to use “regular rate of compensation” in section 226.7 and “regular rate of pay” in section 550.[6]

         It is the Legislature's choice to use different phrases that must be construed to mean that the statutes mean different things. Ferra and amicus California Employment Lawyers Association point out a few occasions on which the Division of Labor Standards Enforcement used the phrases interchangeably, but the Legislature and the statutes did not, and it is the Legislature's choice of different descriptions of the premiums that governs our analysis. While in common parlance “pay” and “compensation” are sometimes used interchangeably, the Legislature did not do so in choosing the language of the statutes.

         c. Persuasive federal opinions favor construing the phrases differently

         No published California case distinguishes “regular rate of compensation” as it applies to missed meal and rest periods from “regular rate of pay” for overtime purposes. We therefore look to “analytically sound” reasoning in federal opinions, and “[a]lthough not binding precedent on our court, we may consider relevant, unpublished federal district court opinions as persuasive.” (Futrell v. Payday California, Inc. (2010) 190 Cal.App.4th 1419, 1432, fn. 6.)

         A number of federal district courts have concluded that the use of “regular rate of compensation” in section 226.7 means that the premium for missed meal periods must be paid at the regular rate of compensation (the base hourly rate), rather than at the regular rate of pay applicable to overtime premiums. In Bradescu v. Hillstone Restaurant Group, Inc. (C.D.Cal., Sept. 18, 2014, SACV No. 13-1289-GW) 2014 U.S. Dist. Lexis 150978 (Bradescu), the court agreed with the defendant that “payment of any meal period premium at Plaintiff's regular rate of compensation-as opposed to her regular rate of pay- was appropriate” under section 226.7, subdivision (c), and Wage Order No. 5-2001, subdivision 11(B). (Bradescu, at *14.) “[T]here is no authority supporting the view that ‘regular rate of compensation,' for purposes of meal period compensation, is to be interpreted the same way as ‘regular rate of pay' is for purposes of overtime compensation. The Court consequently agrees with [defendant] that the legislature's choice of different language is meaningful, in the absence of authority to the contrary, and therefore rules in [defendant's] favor on this point.” (Id. at *22.) In Wert v. United States Bancorp (S.D.Cal., Dec. 18, 2014, No. 13-cv-3130-BAS) 2014 U.S. Dist. Lexis 175735 (Wert), the court agreed with Bradescu, that the use of different language in the meal period and overtime statutes was meaningful: “The plain language of §§ 226.7 and 510 does not suggest that the phrase[ ] ‘regular rate of compensation' is synonymous to and may be used interchangeably with ‘regular rate of pay.' ” (Wert, at *10.) In denying the plaintiff's motion for reconsideration, the court reiterated: “[T]he legislature's choice of different language is meaningful, and... the relief under § 226.7 is not necessarily or logically the same as the relief under § 510 insofar as the ‘regular rate' language is involved.” (Wert v. U.S. Bancorp (S.D.Cal., June 9, 2015, No. 13-cv-3130-BAS) 2015 U.S. Dist. Lexis 74523, at *7; see Van v. Language Line Services, Inc. (N.D.Cal., June 6, 2016, No. 14-CV-03791-LHK) 2016 U.S. Dist. Lexis 73510, at *54.)

         Two years later, Brum v. Marketsource, Inc. (E.D.Cal., June 19, 2017, No. 2:17-cv-241-JAM-EFB)2017 U.S. Dist. Lexis 94079 (Brum) agreed with Wert and Bradescu and rejected the reasoning in Studley v. Alliance Healthcare Services, Inc. (C.D.Cal., July 26, 2012, SACV No. 10-00067-CJC) 2012 U.S. Dist. Lexis 190964 (Studley, discussed below). Brum acknowledged the plaintiff's argument that California cases have used “regular rate of pay” and “regular rate of compensation” interchangeably, but pointed out that none of these cases addresses the difference between the two terms as they appear in the statutes. (Brum, at *13-14.) More recently, in Frausto v. Bank of America (N.D.Cal., Aug. 2, 2018, No. 18-cv-01983-MEJ) 2018 U.S. Dist. Lexis 130220, the plaintiff alleged that her premiums for missed meal periods “were inadequate because they were only based on her straight time rate, not her regular rate of pay that includes all bonuses earned.” (Id. at *12.) The court cited Bradescu, Brum, and Wert to conclude “there is no legally tenable argument that section 226.7 payments should be paid at the ‘regular rate' used for overtime purposes, ” as section 226.7 “ ‘uses the employee's rate of compensation.' ” (Frausto, at *14.)

         As Ferra points out, Studley reached a different result, reasoning that premiums for missed meal periods were like overtime pay, and like the overtime statute, section 226.7 used the term “regular rate.” Studley concluded that “regular rate of compensation” in section 226.7 and “regular rate of pay” in section 510 should be interpreted the same, because “the operative word or phrase in each section is not ‘compensation' or ‘pay' but rather ‘regular rate,' ” and the meanings of “compensation” and “pay” were essentially identical. (Studley, supra, 2012 U.S. Dist. Lexis 190964, at *14 & fn. 4.)

         Two later cases agree. In Ibarra v. Wells Fargo Bank, N.A. (C.D.Cal., May 8, 2018, CV No. 17-4344-PA) 2018 U.S. Dist. Lexis 78513 (Ibarra), the court declined to compare the language of section 226.7 to section 510. The employees were mortgage consultants whose “normal compensation was not comprised solely or even primarily of pay calculated at an hourly rate, ” “the hourly pay was stated to be only an advance on commissions, ” and the employees “could receive compensation based on commissions such that the hourly rate was essentially irrelevant.” (Ibarra, at *7.) Under those circumstances, “[t]he Court is not persuaded that the ‘regular rate of compensation' for all class members should be an hourly rate that did not actually determine the compensation received by most of the class members.”[7] (Id. at *7-8, italics added.) The court acknowledged the cases finding significant the language “regular rate of compensation” in section 226.7 and “regular rate of pay” in section 510, but agreed with Studley, that the operative language in both statutes was “regular rate.” (Ibarra, at *9-10.) Legislative history did not clearly support either side, and interpreting section 226.7 to require premiums at more than the base hourly rate comported with construing the labor laws in favor of worker protection. (Ibarra, at *12-14.) One recent district court opinion, Magadia v. Wal-Mart Associates, Inc. (2019) 384 F.Supp.3d 1058 (Magadia) required Wal-Mart to factor in a nondiscretionary quarterly bonus in calculating the “regular rate of compensation” under section 226.7, noting it had adopted Ibarra's conclusion that the regular rate of compensation included the base rate of compensation and other forms of qualifying compensation. (Magadia, at pp. 1077-1078.)[8]

         Most recently, and just after we heard oral argument in this case, the court in Valdez v. Fairway Independent Mortgage Corporation (S.D.Cal., July 26, 2019, No. 18-cv-2748-CAB-KSC) ___ F.Supp.3d ___ [2019 U.S. Dist. Lexis 126013] (Valdez) stated: “The Court does not agree with the reasoning behind cases Defendant relies on that find the two terms interchangeable, as those cases either narrowly construed such a finding to the specific circumstances of that case or rejected the difference in language without explanation. [Citations.]” (Id. at *14, citing Ibarra, supra, 2018 U.S. Dist. Lexis 78513, at *11 and Magadia, supra, 384 F.Supp.3d at pp. 1077-1078.) “The Court is more persuaded by the reasoning behind the cases acknowledging the distinction between the two terms and Plaintiff's assertion that the overwhelming weight of authority supports the position that ‘regular rate of compensation' is not synonymous with ‘regular rate of pay.' [Citations.]” (Valdez, at *14-15, citing Wert, supra, U.S. Dist. Lexis 175735, at *10-11; Frausto, supra, 2018 U.S. Dist. Lexis 130220, at *14; Murphy, supra, 40 Cal.4th at p. 1113; and Brum, supra, 2017 U.S. Dist. Lexis ...


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