JESSICA FERRA et al., Plaintiffs and Appellants, v. LOEWS HOLLYWOOD HOTEL, LLC, Defendant and Respondent.
S259172
IN THE SUPREME COURT OF CALIFORNIA
July 15, 2021
Second Appellate District, Division Three B283218; Los Angeles County Superior Court BC586176
Justice Liu authored the opinion of the Court, in which Chief Justice Cantil-Sakauye and Justices Corrigan, Cuéllar, Kruger, Groban, and Jenkins concurred.
Under California law, employers must provide employees with overtime pay when employees work more than a certain amount of time. (
The question here is whether the Legislature intended “regular rate of compensation” under
I.
From June 16, 2012, to May 12, 2014, defendant Loews Hollywood Hotel, LLC (Loews), employed plaintiff Jessica Ferra as a bartender. Loews paid Ferra hourly wages as well as quarterly nondiscretionary incentive payments. 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.” (Division of Labor Standards Enforcement (DLSE), Update of the DLSE Enforcement Policies and Interpretations Manual (rev. 2019) § 49.1.2.4(3), p. 49-3 (2019 DLSE Manual), citing
In 2015, Ferra filed a class action suit against Loews. Among other claims, 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
The Court of Appeal affirmed, holding that “regular rate of compensation” in
We granted review.
II.
“When construing the Labor Code and wage orders, we adopt the construction that best gives effect to the purpose of the Legislature and the IWC.... Time and again, we have characterized that purpose as the protection of employees — particularly given the extent of legislative concern about working conditions, wages, and hours when the Legislature enacted key portions of the Labor Code.... In furtherance of that purpose, we liberally construe the Labor Code and wage orders to favor the protection of employees.” (Troester v. Starbucks Corp. (2018) 5 Cal.5th 829, 839, citations omitted.) In construing a statute or wage order whose language is susceptible of more than one reasonable interpretation, we consider “the ostensible objectives to be achieved by the statute, the evils to be remedied, the legislative history, public policy, contemporaneous administrative construction and the statutory scheme of which the statute is a part.” (Murphy v. Kenneth Cole Productions, Inc. (2007) 40 Cal.4th 1094, 1105 (Murphy).)
The question is what the Legislature meant when it used the phrase “regular rate of compensation” in
A.
“When the Legislature adopted
Section 7(a) of the federal Fair Labor Standards Act of 1938 (FLSA) required employers to pay overtime “at a rate not less than one and one-half times the regular rate at which he is employed.” (Pub.L. No. 75-718 (June 25, 1938) 52 Stat. 1060, 1063; see
For workers paid a guaranteed hourly rate plus an “‘incentive bonus’ or ‘piecework earnings‘” (Harnischfeger, supra, 325 U.S. at p. 429) for efficient performance, the “regular rate” is “greater . . . than the minimum base rate”
Congress amended the FLSA in 1949 to define “regular rate” for purposes of overtime “to include all remuneration for employment paid to, or on behalf of, the employee” (Pub.L. No. 81-393 (Oct. 26, 1949) 63 Stat. 910, 913; see
Meanwhile, as early as 1947, California‘s wage orders imposed similar requirements for overtime pay. (See Ramirez v. Yosemite Water Co. (1999) 20 Cal.4th 785, 795 [IWC‘s wage orders are “at times patterned after federal regulations” and “sometimes provide greater protection“]; Alcala v. Western Ag Enterprises (1986) 182 Cal.App.3d 546, 550 (Alcala) [“California‘s wage orders are closely modeled after (although they do not duplicate), section 7(a)(1) of the [FLSA].“].) But instead of using the term “regular rate,” the wage orders used the term “regular rate of pay” in stating the requirement that “overtime is compensated for at not less than one and one-half times the employee‘s regular rate of pay.” (IWC wage order No. 10 R (June 1, 1947) [former wage order concerning amusement and recreation industries]; see IWC wage order No. 3 R (June 1, 1947) [former wage order concerning canning and preserving industries]; IWC wage order No. 6 R (June 1, 1947) [former wage order concerning laundry, dry cleaning, and dyeing industries]; IWC wage order No. 8 R (June 1, 1947) [former wage order concerning after-harvest industries].) The term “regular rate of pay” also appears in the 1947 version of Wage Order No. 5 (IWC wage order No. 5 R (June 1, 1947)) and in other predecessors to the current version of Wage Order No. 5 (e.g., IWC wage order No. 5-89 (as amended June 29, 1993)).
The term “regular rate of pay” first appeared in
Like the DLSE, courts have understood “regular rate of pay” in
In addition, we recently said that “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.” (Alvarado, supra, 4 Cal.5th at p. 554; see id. at p. 569 [“Not all employees earn at a fixed pay rate throughout a pay period, and therefore regular rate of pay is a weighted average reflecting work done at varying times, under varying circumstances, and at varying rates.“].) Consistent with the meaning of “regular rate” in the FLSA, we observed that an “attendance bonus” earned for weekend work (a form of “incentive pay“) was “part of an employee‘s overall compensation package, and therefore . . . its per-hour value must be determined so that the employee‘s regular rate of pay — and, derivatively, the employee‘s overtime pay rate — reflects all the various forms of regular compensation that the employee earned in the relevant pay period.” (Alvarado, at p. 554.)
In sum, the history above shows that the term “regular rate” in section 7(a) of the FLSA accounts for not only hourly wages but also nondiscretionary payments and that the term “regular rate of pay” as used in
B.
As noted, when the Legislature passed Assembly Bill No. 60 (1999-2000 Reg. Sess.) (Assembly Bill 60) in 1999, it not only enacted
In the same wage order, the IWC for the first time adopted provisions requiring premium pay for meal or rest break violations: “the employer shall pay the employee one (1) hour of pay at the employee‘s regular rate of compensation” for each workday that a compliant meal or rest period is not provided. (Wage Order No. 5-2001, §§ 11(B), 12(B).) This is where the phrase “regular rate of compensation” first appeared.
An IWC commissioner explained the purpose of these provisions at the June 30, 2000 hearing where the IWC adopted them. (See Murphy, supra, 40 Cal.4th at pp. 1109-1110 [relying on this hearing to discern IWC‘s intent in requiring premium pay for meal and rest break violations].) The IWC, the commissioner said, had “received testimony that despite the fact that employees are entitled to a meal period or rest period, that there really is no incentive as we establish it, for example, in overtime or other areas, for employers to ensure that people are given their rights to a meal period and rest period. At this point, if they are not giving a meal period or rest period, the only remedy is an injunction against the employer or — saying they must give them.” (IWC public hearing transcript (June 30, 2000) p. 25.) The new provisions, the commissioner explained, would ensure that employees received “proper meal periods and rest periods.” (Id. at p. 26.) “And, of course,” the commissioner concluded, “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. 30.)
Soon thereafter, the IWC memorialized this understanding in its Statement as to the Basis, a document “explaining ‘how and why the commission did what it did.‘” (Harris v. Superior Court (2011) 53 Cal.4th 170, 179; see Brinker, supra, 53 Cal.4th at p. 1046.) In reviewing its wage orders “for purposes of complying with AB 60,” “the IWC heard testimony and received correspondence regarding the lack of
We come now to the enactment of
With Assembly Bill 2509 pending, the IWC on June 30, 2000, adopted the meal and rest break provisions in Wage Order No. 5-2001. (Ante, at p. 12.) Two months later, Assembly Bill 2509 was amended to provide that “the employer shall pay the employee one additional hour of pay at the employee‘s regular rate of compensation for each work day that the meal or rest period is not provided.” (Assem. Bill 2509 (1999-2000 Reg. Sess.) as amended Aug. 25, 2000, § 7, italics added.) This language is what the Legislature enacted in
To recap, the IWC adopted a premium pay requirement for meal or rest break violations using the term “regular rate of compensation” at the same time and in the same wage order (i.e., Wage Order No. 5-2001) that it adopted revised overtime provisions using the term “regular rate of pay.” The IWC‘s official explanation of its action described this premium pay as “one additional hour of pay at the employee‘s regular rate of pay.” Then, in enacting
C.
In addressing this history, Loews contends that at the time the IWC and the Legislature adopted the premium pay requirement for meal or rest break violations, the term “regular rate of pay” was an established term of art in the specific context of California overtime law. It is thus significant, Loews says, that the IWC and the Legislature, while using “regular rate of pay” in addressing overtime in Wage Order No. 5-2001 and
But canons of interpretation “are not immutable rules“; they are “guidelines subject to exceptions.” (Wishnev v. The Northwestern Mutual Life Ins. Co. (2019) 8 Cal.5th 199, 213 [canons cannot be mechanically applied, especially when competing canons point in different directions].) Here, Loews‘s argument is difficult to square with the fact that courts and the DLSE have consistently understood the term “regular rate of pay” to have the same meaning as “regular rate” in the FSLA.
Indeed, by the time
Loews sees evidence of a contrary intent in the Legislature‘s and IWC‘s use of “regular rate” with different modifiers, i.e., “of pay” and “of compensation.” But neither the adoption history of the phrase “regular rate of compensation” nor the provisions in which it appears contain any hint that the Legislature or the IWC intended it to mean something different than “regular rate of pay” or specifically to mean an employee‘s hourly rate only. In fact, the Legislature used the terms “pay” and “compensation” interchangeably in the very text of
The fact that the Legislature and IWC used “pay” and “compensation” interchangeably is unsurprising against the backdrop of similar interchangeable usage in case law. (See Bay Ridge Operating Co. v. Aaron (1948) 334 U.S. 446, 448-449 [using “regular rate of pay” to mean “regular rate” under the FLSA]; Hardwood, supra, 325 U.S. at p. 424 [using “regular rate of compensation” to mean “regular rate“]; Harnischfeger, supra, 325 U.S. at p. 430 [same]; Walling v. Garlock Packing Co. (2d Cir. 1947) 159 F.2d 44, 46 [same]; Walling v. Wall Wire Products Co. (6th Cir. 1947) 161 F.2d 470, 473, 475 [using both “regular rate of pay” and “‘regular rate’ of compensation” to mean “regular rate“].) It is doubtful that the phrase “regular rate of compensation” came to have a distinct meaning that the Legislature and IWC silently discerned in the year 2000, but that the courts until then never had.
Loews cites several federal district court opinions holding that “regular rate of compensation” in
fn. 4 [“[T]he operative word or phrase in each section is not ‘compensation’ or ‘pay’ but rather ‘regular rate.’ “].)
Justice Edmon, upon examining the history, aptly described the difficulty with Loews‘s position: “In 1999, ‘regular rate’ [in the FLSA] was widely understood to mean base hourly rate plus bonuses. Although the Legislature modified the federal language when it adopted section 510, the Legislature intended ‘regular rate of pay’ to have the same meaning as ‘regular rate.’ But although the Legislature modified the federal language in a similar (although not identical) manner when it adopted section 226.7, [Loews contends] it intended an entirely different meaning — and although it nowhere articulated that intended meaning, it expected parties and the courts
D.
Loews suggests that interpreting “regular rate of compensation” and “regular rate of pay” to be synonymous would render the words “of compensation” and “of pay” superfluous. It is true that courts should generally avoid interpreting statutes in a way that renders some terms surplusage. (Kaanaana v. Barrett Business Services, Inc. (2021) 11 Cal.5th 158, 176.) But “‘“‘the rule against surplusage will be applied only if it results in a reasonable reading of the legislation.‘“’ (Ferra, supra, 40 Cal.App.5th at p. 1265 (conc. & dis. opn. of Edmon, P. J.), quoting Park Medical Pharmacy v. San Diego Orthopedic Associates Medical Group, Inc. (2002) 99 Cal.App.4th 247, 254, fn. 5.) To attribute “controlling significance to the modifier ‘of compensation‘” would lead “to an entirely unreasonable conclusion — namely, that the Legislature used the phrase ‘regular rate’ in
Loews further contends that “[t]he rationale for defining ‘regular rate of pay’ to include forms of pay other than the base hourly rate — to ensure employers do not circumvent overtime laws by paying a low hourly rate — is logically inapplicable to break premiums, which unlike overtime premiums are not proportional to time worked and may be owed to employees who perform no overtime work.” According to Loews, “‘pay’ invariably is given for goods or services rendered, while ‘compensation’ additionally may pertain to remuneration for a loss — such as deprivation of a legally-required meal break or rest period. This distinction aptly reflects this Court‘s recognition that break premiums are designed to preserve employees’ health and welfare, as opposed to overtime premiums which are calculated to provide full wages for work performed.”
But even if we were to agree with Loews that “compensation” and “pay” mean different things, there is little reason to think the former would mean something narrower than the latter. (Compare Black‘s Law Dict. (11th ed. 2019) [Defining “compensation” as “[Compensation] includes wages,
Further, we have previously rejected the argument that because premium pay under
As Murphy makes clear, contrary to Loews‘s argument, the 50 percent (or 100 percent) overtime premium (
In one week, Employee A earns $1,000 ($25 per hour multiplied by 40 hours), as do Employee B ($50 per chair multiplied by 20 chairs) and Employee C ($20 per hour multiplied by 40 hours, plus $10 per chair multiplied by 20 chairs). The hourly pay for each employee is $25 per hour ($1,000 divided by 40 hours). There is no dispute that $25 per hour is the “regular rate of compensation” for purposes of calculating meal or rest break premium pay for Employees A and B. (See 2002 DLSE Manual, supra, at p. 49-6.) But under Loews‘s position, the “regular rate of compensation” for Employee C is only the base hourly rate of $20 per hour.
We see no reason why the Legislature or IWC would have singled out workers like Employee C, who receive both hourly wages and other nondiscretionary payments, for such disadvantage instead of requiring premium pay in accordance with the total nondiscretionary payments earned by each employee. Were we to adopt Loews‘s interpretation, employers would be incentivized to minimize employees’ base hourly rates and shift pay elsewhere, thereby harming employees who are paid in some form other than a base hourly rate. Loews‘s interpretation thus undercuts one of
Assembly Bill 2509‘s legislative history also weighs against Loews‘s reading. As noted, Assembly Bill 2509 originally included differentiated remedies for piece-rate workers and hourly workers. (Ante, at p. 14.) But these were replaced with one remedy for all workers: an hour of pay at the “regular rate of compensation,” whatever the underlying basis of their compensation. (Ante, at pp. 14-15.) This early iteration of Assembly Bill 2509 shows that the Legislature was equally concerned with protecting piece-rate workers and hourly workers, and it supports an inference that the Legislature believed the
In sum, we hold that the term “regular rate of compensation” in
III.
Finally, Loews argues that our decision today should apply only prospectively. But no considerations of fairness or public policy warrant such a holding.
In general, judicial decisions apply retroactively. (Vazquez v. Jan-Pro Franchising International, Inc. (2021) 10 Cal.5th 944, 951 (Vazquez); see Newman v. Emerson Radio Corp. (1989) 48 Cal.3d 973, 978.) This rule applies to decisions interpreting statutes, for “‘[a] judicial construction of a statute is an authoritative statement of what the statute meant before as well as after the decision of the case giving rise to that construction.‘” (Vazquez, at p. 951.) And the fact that a decision disapproves decisions by lower courts does not itself justify applying our decision prospectively only. (Id. at p. 952.) We recognize “‘narrow exceptions to the general rule of retroactivity . . . when considerations of fairness and public policy are so compelling in a particular case that, on balance, they outweigh the considerations that underlie the basic rule.‘” (Ibid.)
In this case, we interpret a statute against the backdrop of a divided Court of Appeal decision and conflicting opinions of various federal district courts. We neither overrule nor disapprove any decision. Because the question presented is not one on “‘which this court had previously issued a definitive decision, from the outset any reliance on the previous state of the law could not and should not have been viewed as firmly fixed as would have been the case had we previously spoken.‘” (Vazquez, supra, 10 Cal.5th at p. 953.) “In short, defendant cannot claim reasonable reliance on settled law.” (Alvarado, supra, 4 Cal.5th at p. 573.)
Loews argues, first, that it and employers like it reasonably relied on the canon that a lawmaker is presumed to intend a different meaning when it
Second, relying on Claxton v. Waters (2004) 34 Cal.4th 367 (Claxton), Loews argues that our decision will have a substantive effect because it will expose employers to “millions” in liability. But Loews cites no evidence that retroactive application of our holding will expose employers to “millions” in liability, and even if Loews were correct, it is not clear why we should favor the interest of employers in avoiding “millions” in liability over the interest of employees in obtaining the “millions” owed to them under the law.
Further, Claxton does not suggest that retroactivity is disfavored when a judicial decision may have the substantive effect of imposing liability. In Claxton, we explained that one consideration relevant to the retroactivity determination was “‘the nature of the change as substantive or procedural.‘” (Claxton, supra, 34 Cal.4th at p. 378, quoting Smith v. Rae-Venter Law Group (2002) 29 Cal.4th 345, 372.) In Smith, we relied on Woods v. Young (1991) 53 Cal.3d 315, where we declined to apply retroactively our decision involving a statute of limitations for medical malpractice actions. (Woods, at p. 330.) The decision in Woods was “procedural, affecting only the calculation of the limitations period.” (Ibid.) “Prospective application will not remove any substantive defense to which defendants would otherwise be entitled,” we explained, but retroactive application “would bar plaintiffs’ actions regardless of their merits.” (Ibid. [“Retroactive application of an unforeseeable procedural change is disfavored when such application would deprive a litigant of ‘any remedy whatsoever.’ “].) Here, our decision will not deprive any litigant of a remedy or defense. An employee may claim that his or her employer has violated
For these reasons, we reject Loews‘s request that we apply our decision only prospectively.
CONCLUSION
We reverse the judgment of the Court of Appeal and remand for further proceedings consistent with this opinion.
LIU, J.
We Concur:
CANTIL-SAKAUYE, C. J.
CORRIGAN, J.
CUÉLLAR, J.
KRUGER, J.
GROBAN, J.
JENKINS, J.