Overtime pay in California is based on the employee’s “regular rate of pay,” which is not always an employee’s normal hourly wage and must include almost all forms of pay that the employee receives.

Yesterday, the California Supreme Court ruled that an employer must calculate the regular rate of pay by dividing the employee’s total compensation by the number of non-overtime hours an employee worked during the pay period, rather than the total number of hours the employee worked, including overtime hours (Alvarado v Dart Container Corporation of California).

Many of you may pay your employees a premium for working on a weekend or a night shift and you should be aware of this distinction in the law.   Others may pay a “make up amount” to compensate workers who have changed from a daily or weekly rate to an hourly rate and have a separate line to increase their pay to meet a minimum payment.  It may be subject to increased overtime rates as well.  This may eventually extend to housing or other items that are considered part of the regular compensation package.  It may all need to be included at some point as this ruling evolves.

In the case, Dart Container Corporation of California, allegedly maintained a policy of paying a flat “attendance bonus” of $15 per day to employees who worked Saturday and Sunday shifts, regardless of the number of hours worked on the weekend shift. An employee sued, claiming he was improperly paid overtime during the weeks that he earned the weekend attendance bonus.

The employee argued that overtime pay on any flat sum bonus should be divided only by the “regular” hours he worked that week (the method in the Division of Labor Standards Enforcement [DLSE] manual), not by the “total” hours worked during the week (regular hours plus overtime hours worked, the federal formula). For example, to determine the employee’s regular rate of pay, you would divide only by 40 regular hours instead of 48 total hours (regular hours plus overtime hours). This would result in a higher regular rate of pay and, thus, a higher overtime rate.

The California Supreme Court unanimously reversed the lower court and approved the DLSE method of calculating the regular rate of pay when a flat sum bonus is involved: Employers must divide the employee’s total compensation by the employee’s non-overtime hours worked (not by the total hours worked).

The Court reasoned that a flat sum bonus is not tied to the number of hours worked – the $15 will be paid when an employee picks up a weekend shift, regardless of how many hours the employee worked that week. Because the flat sum bonus was payable even if the employee didn’t work overtime, only the non-overtime hours should be considered when calculating the regular rate of pay.

The Court also based its ruling on two other policy factors:

  • California law requires premium overtime pay which is meant to discourage employers from imposing overtime work.
  • California labor laws are interpreted liberally in favor of worker protection.

The Court also decided that this ruling should apply retroactively, not just going forward.

This decision is limited to flat-sum bonuses, but we may see employees argue that it should apply to other types of extra compensation.

We strongly urge employers who want to give “extra pay” to hourly workers should consult legal counsel.

Job Killer Bill to Start 2018

Assembly Appropriations Committee to Hear Job Killer Bill

Cal-Chamber sent out the article below.  I am putting it here in hopes that all of you in California will take this very seriously and notify your assembly person.-Jeff Schanbacher, HR Mobile Services, Inc.

The Assembly Appropriations Committee today will consider a California Chamber of Commerce-opposed job killer bill that subjects employers to costly fines and multiple avenues of litigation for technical violations that do not actually result in any harm to the employee, is inconsistent with existing law and will limit job opportunities for unemployed workers.

In addition, AB 5 will limit employers’ ability to effectively manage their workforce to address both consumer and employee requests.

Proposes Unnecessary Burdens on Small Employers

AB 5 mandates small employers with as few as 10 employees to offer all employees who have the skills and experience to perform additional hours of work that become available, prior to hiring a new employee, temporary employee or contractor.  This mandate creates a host of complications and concerns, including:

  1. If an employer has facilities in different parts of the state, AB 5 mandates the employer to offer additional hours of work to employees in facilities where the employee does not work.
  2. AB 5 mandates an employer to contact each employee who has the skills and responsibilities to perform the work required, even though that employee may have explicitly told the employer the employee is not interested in more hours of work, is unavailable at the time of the additional hours, or the additional hours will mean that employee works overtime, thus increasing the employer’s cost.
  3. AB 5 fails to indicate what an employer actually has to do to satisfy the “offer” requirement of additional hours.
  4. After contacting each employee whom the employer reasonably presumes can perform the work, AB 5 requires an employer to use a “transparent and nondiscriminatory process” to pick amongst numerous available employees who will ultimately receive the additional hours of work.  This requirement exposes an employer to threats of litigation, fines, and administrative complaints when one employee is given the additional time over the other.
  5. AB 5 also imposes an unreasonable document retention mandate on employers.  Under AB 5, an employer shall retain documentation regarding offers of additional hours of work, employee work schedules, and employee written statements.  There is no time limit on this document retention and, therefore, an employer essentially has to retain such documents indefinitely.

Imposes Multiple Layers of Enforcement and Lawsuits Against Small Employers

AB 5 additionally exposes small employers to multiple enforcement mechanisms for technical violations that do not even injure the employee. Under AB 5, an employee can either choose to file a complaint with the Division of Labor Standards Enforcement (DLSE) or civil litigation for any violation of the provisions in the bill.

AB 5 provides any employee with the right to sue for these paper violations, even if such document violations do not pertain to that specific employee or actually cause any harm or injury to an employee.

Moreover, due to the inclusion of this proposal under the Labor Code, an employee can also file a Labor Code Private Attorneys General Act (PAGA) lawsuit and receive $100 per employee, per pay period, for these violations, in addition to attorney’s fees.  Piling litigation costs on small employers for violations that do not actually harm or injure an employee is simply unnecessary and unfair, and it limits employers’ ability to expand and create jobs.

Creates a Conflict for Employers Between State and Federal Laws and Punishes Employers for Communicating Truthful Information

AB 5 also includes language regarding retaliation concerning the threat of reporting actual or suspected citizenship or immigration status to a federal, state or local agency that is already addressed in existing law.

Current law balances concern about retaliation against employees with employers’ concerns about complying with federal law. AB 5 does not have that same balance and will place employers in an unnecessary legal predicament between state and federal laws.

AB 5 further seeks to limit an employer’s freedom of speech by deeming any communication to another employer regarding an employee’s exercise of rights under this law as “retaliation.”  This expansive prohibition on the right to free speech is concerning given that it would limit an employer’s ability to communicate about public information such as civil litigation, as well as inform a successor employer of potential liabilities that the successor employer may assume.

It is unnecessary to penalize an employer for communicating truthful information.

Limits Opportunities for Other Workers

AB 5 mandates an employer to offer existing employees additional hours of work, rather than offering those hours to unemployed individuals, favoring one employee over another and potentially prolonging an individual’s unemployment status. Moreover, AB 5 may discourage employers from offering part-time employment opportunities at all due to this mandate and will encourage those employers to simply supplement a full-time workforce with contract employees when needed.

Similar Local Ordinances Are Significantly Narrower than AB 5

AB 5 appears to be modeled after San Jose and San Francisco ordinances requiring larger employers to provide part-time employees with additional hours of work. However, the San Francisco ordinance is applicable only to national employers with multiple locations and San Jose has a specific small employer exemption. Moreover, both ordinances require an employer to offer additional hours of work only to part-time employees, not full-time employees. AB 5 applies to all employers with only 10 employees, and does not limit the requirement to offer additional hours of work to only part-time employees, thereby exposing small employers throughout California to significant scheduling burdens and litigation that they are not capable of implementing or defending.

Action Needed

CalChamber is urging businesses to contact their Assembly representatives and ask them to oppose AB 5.

Staff Contact: Laura Curtis