By Lois M.kosch
Lois M. Kosch is a partner at Wilson Turner Kosmo. She specializes in counseling and representing employers in all aspects of employment law and litigation. Ms. Kosch is a former member of the Labor and Employment Law Section's Executive Committee.
Alvarado v. Dart Container Corp., 4 Cal. 5th 542 (2018)
In this matter of first impression, the California Supreme Court provided much needed guidance on how to calculate the regular rate of pay for purposes of determining overtime pay under California law when an employer pays a flat-sum bonus during a workweek. In this case the plaintiff, a warehouse worker, was paid in addition to his hourly rate, a flat $15 bonus if he worked on a Saturday or Sunday and completed his full shift. The court found the correct divisor for purposes of calculating the per-hour value of the bonus should be the number of non-overtime hours worked during the pay period. Although this methodology is set forth in the Department of Labor Standards Enforcement (DLSE) Enforcement Manual, the employer challenged the validity of this enforcement policy because the DLSE had failed to comply with the Administrative Procedures Act (APA)1 Instead, it argued that its formula for calculating overtime compensation (wages divided by total number of regular and overtime hours worked) was fully compliant with the relevant federal regulation.2
Two state policies guided the court's analysis. First, the state's overtime laws reflect the policy favoring an eight-hour workday and six-day 40-hour workweek. Second, the state's labor laws are to be liberally construed in favor of worker protection. The court held that when an employer calculates overtime in pay periods that include a flat-sum bonus, such as an attendance bonus, the employer must divide total compensation for that pay period by only the non-overtime hours worked by the employee. This calculation results in a slightly higher overtime rate of pay, which is more beneficial to employees. In contrast, the employer's method resulted in a rate of pay that decreased with each additional hour of overtime worked, undermining the state policy of discouraging overtime work.
Interestingly, Chief Justice Cantil-Sakauye issued a concurring opinion chastising the DLSE for not providing clarity on this issue long ago. She noted that the DLSE Manual has not been entitled to any deference since the 1996 decision in Tidewater Marine Western, Inc. v. Bradshaw,3 because it was not promulgated in accordance with the rulemaking provisions of the APA. As such, there was no authoritative guidance from a state agency for employers or employees on how to correctly calculate "regular rate of pay" in this context for more than two decades. In that...
