Daily Blast March 9, 2018

This week, the California Supreme Court issued an opinion regarding overtime compensation; specifically, how an employee’s overtime pay rate should be calculated when the employee has earned a flat sum bonus during a single pay period. In Alvarado v. Dart Container Corporation of California, (March 3, 2018, S232607) __ Cal.5th __, the court held that the flat sum bonus at issue should be factored into an employee’s regular rate of pay by dividing the amount of bonus by the total number of nonovertime hours actually worked during the relevant pay period. (Slip Opn., p. 37.)

This case involved a dispute over how to properly allocate a flat sum bonus – or a bonus that does not change based on the number of hours worked. Proper allocation is important because under California law, such bonuses are part of an employee’s overall compensation package, which must be assigned a per-hour value for purposes of determining the employee’s regular rate of pay – and, derivatively, the employee’s overtime pay rate. (Slip Opn., p. 9; See Cal. Code Regs., tit 8, § 11010, subd. 3(a)(1); Labor Code § 510; IWC Wage Order No. 1-2001.)

The defendant, Dart Container Corporation of California (“Dart”), provided an “attendance bonus” of $15 per day to employees who completed a full shift on Saturday or Sunday. (Slip Opn., p. 2.) Dart calculated the per-hour value of this bonus by allocating all compensation (including attendance bonuses) to the total number of hours (including overtime) worked during the period. (Id. at pp. 2-3.) The plaintiff contended that Dart failed to pay proper overtime in violation of California law. (Id. at pp. 1-2, 4.) The plaintiff argued that the attendance bonus should only be allocated to nonovertime hours worked during the pay period. (Id. at p. 3.) This calculation would result in an overtime rate that is marginally more favorable to employees than the one used by Dart. (Id. at p. 4.)

The Supreme Court agreed with the plaintiff, holding that the flat sum bonus at issue should be factored into an employee’s regular rate of pay by dividing the amount of bonus by the total number of nonovertime hours worked during the relevant pay period. (Slip Opn., p. 37.) The Court relied on a Department of Labor Standards Enforcement (DLSE) regulation as well as the established liberal construction of California’s labor laws in favor of worker protection in arriving at its conclusion. (Id. at pp. 18-19, 29.)