Employee Friendly Overtime Adopted

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Posted by: By Lorene D. Park, J.D. (edited) on Thursday, March 15, 2018 at 12:00:00 am

The California Supreme Court, reversing the appellate court, has held that in determining an employee’s regular rate of pay, which included a flat sum attendance bonus for working unpopular weekend shifts, the divisor used to calculate the per-hour value of the bonus should be the number of nonovertime hours actually worked during the pay period. The divisor should not also include overtime hours worked, which would result in a lower regular rate of pay (and thus overtime pay). (Alvarado v. Dart Container Corporation of California, February 5, 2018).

The plaintiff in this putative class action seeking overtime pay under the California Labor Code (among other claims) worked as a warehouse associate from September 2010 to January 2012. Each putative class member was allegedly paid on an hourly basis and, in addition to normal hourly wages, received an "attendance bonus" if he or she was scheduled to work a weekend shift and completed the full shift. The amount of the bonus was a flat sum of $15 per day of weekend work, regardless of whether the employee worked in excess of the normal work shift on the day in question. The dispute in this case arose because the attendance bonus must be factored into an employee’s regular rate of pay  so that the employee’s overtime pay rate (generally, 1.5 times the regular rate of pay) reflects all the forms of regular compensation the employee earned.

The employer argued that even though California law governing overtime wages is more protective of workers than federal law, the trial court should look, for "persuasive guidance," to a federal regulation explaining how to factor a flat sum bonus into an employee’s regular rate of pay. The only California regulation on point, asserted the employer, was an enforcement policy in the Division of Labor Standards Enforcement (DLSE), which didn’t have the force of law. Siding with the employer, the trial court found, and the appeals court affirmed, that there was no California law specifying a method for computing overtime on flat sum bonuses, and the employer’s formula had complied with federal law that does provide a formula for calculating bonus overtime.

Reversing, the California Supreme Court noted California’s longstanding policy of discouraging employers from imposing overtime work. Subject to exceptions not relevant here, employers must pay an overtime premium for work in excess of eight hours in a day, and 40 hours in a week, or for any work at all on a seventh consecutive day. These requirements are more protective than federal law, explained the court, and it is well settled that federal law does not preempt state law in this area, so state law is controlling to the extent it is more protective. The court also noted that California laws are to be "liberally construed in favor of worker protection."

Divisor in calculating regular rate only includes nonovertime hours. Ultimately, the California Supreme Court held that the divisor for purposes of calculating the per-hour value of the flat sum bonus should be the number of nonovertime hours actually worked during the pay period. It should not include overtime hours worked.

Nonovertime hours actually worked. The court also rejected a calculation that would have the divisor be the number of nonovertime hours that exist in a pay period. To allow that would permit employers to dilute the value of the flat sum bonuses that part-time employees earned, fictionally treating those bonuses as if the part-time employees were working full-time.

Based on the foregoing, and finding no reason to apply its decision only prospectively (as urged by the employer), the court concluded that the "flat sum bonus at issue here should be factored into an employee’s regular rate of pay by dividing the amount of the bonus by the total number of nonovertime hours actually worked during the relevant pay period and using 1.5, not 0.5, as the multiplier for determining the employee’s overtime pay rate."

The case is No. S232607.

Important here, an employee’s "regular rate of pay" for purposes of Section 510 and Industrial Welfare Commission (IWC) wage orders is not the same as the employee’s straight time rate (i.e., 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 flat sum attendance bonus here was incentive pay for working unpopular shifts, was part of the overall compensation, and its per-hour value had to be determined so the regular rate of pay reflects all forms of regular compensation earned in a pay period.

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