CA Supreme Court Issues Employee-Friendly O/T Formula

On March 5, the California Supreme Court rejected a formula for calculating overtime for employees receiving flat sum bonuses the U.S. Department of Labor has suggested for many years, endorsing  instead (retroactively) the method adopted by the Division of Labor Standards Enforcement (DLSE), a part of the CA Department of Industrial Relations.

 

In Alvarado v. Dart Container Corp., the Court decided that the federal method (where the employer divides the employee's total weekly compensation including bonuses by all hours worked, including overtime hours) is not valid in California.  Rather, California employers must divide total weekly compensation (including bonuses) by the employee's straight-time hours only.  The Court adopted this position retroactively, meaning employers paying flat sum bonuses are at risk for litigation for unpaid overtime if they used the federal formula and thus underpaid overtime. The statute of limitations for such an (at the time) unknowing violation is at least three years, and may be as long as four years.

 

The Court's logic in justifying this decision emphasized California's long-standing policy of discouraging imposition of overtime work on employees (as agricultural employers learned painfully with passage of ag overtime legislation in 2016). The Court further acknowledged that the underlying law was at best unclear, and it endorsed guidance issued by DLSE without the agency having undertaken any regulatory action on the subject.  

 

In applying this interpretation retroactively, the Court noted this situation "conceivably could have been avoided had an interpretative regulation of this subject been promulgated through formal APA (Administrative Procedure Act) rulemaking," and "regrettably, more was not done to help employers meet their statutory responsibility."

 

FELS will apprise you of further developments, including suggested means of compliance with the rules as established by the Court in Alvarado.  For more information, please contact us at 1-800-753-9073 or This email address is being protected from spambots. You need JavaScript enabled to view it..