How Courts Interpret Statutes: “Pay” versus “Compensation”

In general, there is a similarity in the way in which California courts interpret California statutes and the way in which courts interpret written contracts. As with contracts, the words used by our Legislators are important — words matter. A good example comes from the recent case of Ferra v. Loews Hollywood Hotel, LLC, Case No. B283218 (Cal. App. 2nd Dist. October 9, 2019).

The plaintiff, Ferra, in that case sued her former employer, Loews Hollywood Hotel (“Loews”), for alleged failure to pay the proper amount of “wage premiums” for rest and meal breaks and for allegedly underpaying her because Loews rounded Ferra’s clock-in-clock-out time to the nearest quarter hour. The court held that the method used by Loews with respect to rounding was lawful. The other part of the case required the court to delve into statutory interpretation.

The facts of the case showed that Loews understood its obligations under various California Wage Orders to pay “wage premiums” if an employee is not given proper meal and rest breaks. All San Diego and California employers have this obligation. Employers must pay workers an extra hour of pay/compensation for each shift where the workers are not given their breaks. Ferra worked as a bartender for Loews. Ferra received various meal and rest period premiums from Loews when she missed her meal and rest breaks. But Ferra disagreed with how Loews calculated the amount paid. Loews paid Ferra an extra hour of time based her hourly wage. Ferra wanted to be paid based on her hourly rate plus additional amounts paid for overtime and other types bonuses. The parties in the case cited two different sections of the California Labor Code. Loews cited Labor Code Section 226.7(c) which states that the rest/meal premium is based on the employee’s “… regular rate of compensation.” By contrast, Ferra cited Labor Code Section 510(a) which identifies the method of determining how overtime and other benefits are calculated. Under Section 510(a), the statute uses the words “regular rate of pay.”

At the trial level, the judge ruled that “the terms ‘regular rate of compensation’ and ‘regular rate of pay’ are not interchangeable” and that, as a result, rest and meal period premiums under § 226.7(c) are to be paid at the base hourly rate. The trial court ruled in favor of Loews.

A split California Court of Appeals affirmed and upheld the trial court’s ruling. The analysis used by the court is similar to the analysis that a court uses when interpreting contracts. Like with a contract, the court began by looking at the words written. As noted, the two provisions of the statute used different words. That suggested that the State Assembly intended the statutory provisions to have different meanings. Had the State Assembly meant the provisions to be interpreted the same, it could have used the same words. The court then looked to the history of the two statutes, just like a court might look at the history surrounding the drafting and signing of a contract. The court noted that both Labor Code sections were enacted in the same year — thus, by the same set of Legislators. Because of this, the court held that, indeed, the Legislators used two different words intentionally, and that, therefore, §§ 226.7(c) and 510 were intended to be different and have different purposes. The court noted that there were other instances of differences in word usage in the applicable Wage Orders which were revised the same year. Ultimately, the court held that the choice of words makes a difference in how statutes are to be interpreted. The trial court’s decision was affirmed.

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For more information, call corporate attorney Michael Leonard, Esq., of San Diego Corporate Law.  Mr. Leonard has been named as “Best of the Bar” by the San Diego Business Journal for the last four years. Mr. Leonard has extensive experience in drafting employee policies, employee handbooks, employment contracts, and all other contracts and agreements necessary for running your business. Mr. Leonard can be reached at (858) 483-9200 or via email. Like us on Facebook.

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