[Source: The San Diego Union-Tribune] Except for executives, professionals, and others exempt from overtime rules, California employees are legally entitled to one-and-half times their “regular” hourly rate of pay for hours over eight in a day, over 40 in a week, and for all hours worked on the seventh day in a workweek. Non-exempt employees — including salaried non-exempt workers — are entitled to double their hourly wage for hours worked over 12 in a workday and over eight hours on the seventh day of a workweek. The overtime rate for salaried non-exempt workers generally is calculated by dividing their weekly salary by 40 hours and multiplying by 1.5 or 2.
But how is an employee’s overtime pay rate determined where the employee earns a flat bonus during a single pay period in which he works overtime? What is the number of hours by which the bonus should be divided to calculate the per-hour value of the bonus?
In Alvarado v. Dart Container, the California Supreme Court recently ruled that the right divisor under California law is the number of nonovertime hours the employee worked in the relevant pay period. That formula is “marginally more favorable to employees” than the approach reflected in federal regulations and advocated by the defendant-employer, Dart Container Corporation. Dart argued that the bonus should be divided by all hours worked, including overtime hours. At issue was a $15 “attendance” bonus given to hourly workers who were scheduled to work on a Saturday or Sunday, and completed the full work shift.
Two principles guided the court’s analysis. First, the employer’s obligation to pay a premium for overtime work reflects a “state policy favoring an eight-hour workday and a six-day 40-hour workweek, and discouraging employers from imposing work in excess of those limits.” Second, California labor laws are “liberally construed in favor of worker protection.”
The court approved the rationale in the Division of Labor Standards Enforcement Manual’s interpretation of California’s overtime statute and the applicable wage order to exclude overtime hours worked from the divisor to calculate the per-hour rate of pay.
“‘If the bonus is a flat sum, such as . . . $5.00 for each day worked,’ only nonovertime hours should be considered ‘because the bonus is not designed to be an incentive for increased production for each hour of work; but instead is designed to insure that the employee remain in the employ of the employer.’” The bonus was payable even if the worker worked no overtime in the pay period and therefore, in calculating the overtime pay rate, the bonus was properly “treated as if it were fully earned by only the nonovertime hours in the pay period, and therefore only nonovertime hours should be considered when calculating the bonus’s per-hour value.”
The court acknowledged that not all overtime is “imposed” by an employer; workers sometimes choose to work overtime. “Nonetheless, state policy clearly favors the eight-hour workday and the 40-hour workweek, doing so by requiring employers to pay premium wages for work in excess of those limits, thereby creating an incentive for employers to hire additional workers rather than to increase the hours of existing workers.”
Much of the court’s opinion is devoted to the lack of legal weight given to policy statements in the DLSE’s Enforcement Manual because issuance of that manual did not comply with state rules for administrative regulations. And yet the court found the guidance in the manual “persuasive” on the question before it in light of that agency’s “expertise and special competence” and the “considerable deliberation at the highest policymaking level of the agency” that went into producing the manual.
While courts consider DLSE enforcement policies in the manual in some cases “void underground regulations,” those policies “may nonetheless be accurate interpretations of binding state law,” as the court found in this case. That is why the court applied its ruling retroactively rather than limiting its ruling only to future cases, potentially subjecting Dart and other employers to substantial penalties. Employers had “every reason to predict” the California Supreme Court would interpret the law at issue as it did because that interpretation was in the DLSE Manual, even though the trial court and the Court of Appeal had applied the less employee-protective federal approach in siding with Dart absent any “valid” state guidance on the issue.
A California employer disregards at its legal and financial peril even guidance in the manual that is not definitive. The 328-page DLSE Enforcement Manual is available online. Download it and, with the guidance of counsel, use it.
Dan Eaton is a partner with the San Diego law firm of Seltzer Caplan McMahon Vitek where his practice focuses on defending and advising employers. He also is an instructor at the San Diego State University Fowler College of Business where he teaches classes in business ethics and employment law. He may be reached at eaton@scmv.com. His Twitter handle is @DanEatonlaw.
Source: The San Diego Union-Tribune
March 19, 2018
