Seyfarth Synopsis: With apologies to Dr. Seuss, we’ve penned an ode to the judicial chaos of the year just past, highlighted by three California Supreme Court decisions—Alvarado v. Dart Container Corp., Dynamex Operations v. Superior Court, and Troester v. Starbucks Corp.—all of which deviated from federal or common law norms to create more new cal-peculiar law that is friendly to plaintiffs and hostile to California business. Happy New Year!

The California Supremes, as we so often hear it,
rarely leave an employer in holiday spirit.

2018, alas, gave much more of the same,
placing employers behind in the game.

There were many new laws and decisions to weigh,
but here are just three to ruin management’s day:

At the beginning of March, to make business irate,
the Court changed how to figure the regular rate.

Flat-sum bonus calculation? Just tear it to shreds!
California proclaims, “We are not like the feds.”

Instead of dividing the bonus by all hours each week,
Just use the straight time, a division so bleak.

Important for employers seeking lawful abidance
is carefully following our regular-rate guidance.

The California Supremes continued their way,
wreaking more havoc just before May:

On April 30, Two Thousand Eighteen,
they continued their pro-plaintiff’s lawyer routine.

The Court issued a much anticipated decision,
inventing new law to some widespread derision.

Is one independent, or instead employee?
The Court says it’s simple as A, B, and C.

To be independent under wage order sections,
the worker must be free from control and directions.

Also a hirer must always enforce
that the work be beyond business’s usual course.

And also the work must be usually made
in some independent business or trade.

The decision is one we’re happy to share;
it should be considered with the utmost care.

Then in mid-summer, near end of July,
the California Supremes made still more of us cry.

In dissing a doctrine—de minimis time—
the Court found the federal law out of line:

Leeway for small stray time cannot be afforded
where high-tech can see that all time is recorded.

Advice that to us now seems rather quite sage
is to make sure all the work time is paid as a wage.

You have our best wishes this holiday season;
call us for advice for some employment-law reason.

For all who agree California law’s strange,
we will help in adopting all needed change.

Counting moneyWe normally write about how California law differs from American law generally. Today, though, we highlight a recent California case that rejected the notion that California law should deviate from analogous federal wage and hour law. That case is Alvarado v. Dart Container Corp. of California. More detailed information appears here.

In Alvarado, the California Court of Appeal ruled that an employer complies with California law when it uses the federal method of calculating the regular rate of pay in determining the overtime premium pay owed on a “flat sum” bonus.

Why are we writing about this? Well, under both California law and federal law, employers must pay overtime premiums based on the regular rate of pay. The regular rate is also important in California because it is the rate at which benefits under the California Paid Sick Leave Act must be paid to non-exempt employees (unless the 90-day lookback method is used). Therefore, knowing how to calculate the regular rate is important to ensure that employers make these payments properly.

Calculating the regular rate includes all items of remuneration paid to non-exempt employees, except for those items that are specifically excludable. The regular rate thus includes almost all payments, including non-discretionary bonuses. Employers, in paying those bonuses, sometimes forget to add overtime premium pay. The employer in Alvarado remembered to make that payment, but used a method of calculating the regular rate that an employee then challenged

The employee was paid a $15 attendance bonus for working weekend shifts. The employer calculated the overtime pay due on this bonus by using the FLSA method of calculating the regular rate of pay. Under the FLSA regulations, an employer may derive the regular rate of pay by simply adding the bonus to the other includable compensation paid and then dividing the sum by the total number of hours worked. The regulations provide an example: an employee works 46 hours in a week, earns $12 an hour, and receives a $46 production bonus for the week.  Under the FLSA formula, the regular rate of pay would be $13 an hour [(46 hours x $12/hour) + $46 bonus] / 46 hours].

California statutes do not specifically address how to calculate the regular rate of pay in computing the overtime pay due on a non-discretionary bonus. Thus, like many employers, the employer in Alvarado used a formula that was consistent with the FLSA formula.

The California Department of Labor Standards Enforcement, meanwhile, has taken a different, peculiarly Californian position: the DLSE has opined that the regular rate must be the sum of all compensation divided by only the regular (non-overtime) hours worked.  Otherwise, the DLSE has reasoned, the regular rate would be diluted in a way that would conflict with a general California public policy discouraging the use of overtime hours.

The Alvarado court, noting the absence of specific statutory guidance on this subject, rejected the DLSE’s position. The Court of Appeal held that the DLSE’s view was not valid and that employers do not violate California law when following the federal standard.

Now, California employers who pay “flat sum bonuses” in the same pay period that they are earned should be able to rely on the FLSA regulations for calculating overtime payments.  It turns out that, in this particular respect, California is not so different after all.