Alvarado v. Dart Container Corp. of CaliforniaAlvarado v. Dart Container Corp. of California
FACTS AND PROCEDURAL BACKGROUND
Defendant Dart Container Corporation of California is a manufacturer of food service products. Plaintiff Hector Alvarado was employed by defendant as a warehouse associate from September 2010 to January 2012. He is a member of a
The dispute in this case arises because the attendance bonus must be factored into an employee‘s regular rate of pay so that the employee‘s overtime pay rate (generally, 1.5 times the regular rate of pay) reflects all the forms of regular compensation that the employee earned. Defendant‘s formula for calculating an employee‘s overtime compensation is as follows.
Step one: Defendant multiplies the number of overtime hours the employee worked in the relevant pay period by the employee‘s straight time rate (i.e.,
Step two: Defendant adds (a) the total hourly pay for nonovertime work during the pay period; (b) any nonhourly compensation the employee earned during the pay period, including any attendance bonuses; and (c) the base hourly pay for overtime work (from step one, ante). The result is the total base pay for the pay period, including base compensation for overtime work. Defendant then divides the total base pay by the total number of hours the employee worked in the pay period, including overtime hours. The result is an hourly rate that defendant considers to be the employee‘s regular rate of pay for the pay period.
Step three: Defendant multiplies the regular rate of pay (from step two, ante) by the total number of overtime hours in the relevant pay period, and then divides that amount in half. The result is what defendant considers to be the overtime premium. We use the word “premium” to refer to the extra amount a worker must be paid, on top of normal pay, because certain work qualifies as overtime.1
Step four: Defendant adds the base hourly pay for overtime work (from step one, ante) to the overtime premium (from step three, ante) to get the total overtime compensation for the pay period.
Plaintiff favors a different formula for calculating overtime compensation, one that determines regular rate of pay by allocating the attendance bonus only to nonovertime hours worked during the relevant pay period. Plaintiff would first calculate the overtime compensation attributable only to the employee‘s hourly wages, doing so by multiplying the employee‘s straight time rate by 1.5 and by the number of overtime hours. Plaintiff would next calculate the overtime compensation attributable only to the employee‘s bonus, doing so by calculating the bonus‘s per-hour value (based on the number of nonovertime hours worked), and then multiplying that per-hour
In August 2012, plaintiff filed a complaint, alleging that defendant had not properly computed his overtime pay under California law. As amended, plaintiff‘s complaint alleges the following causes of actions: (1) failure to pay proper overtime, in violation of
Defendant moved for summary judgment or, alternatively, for summary adjudication. Defendant argued that even though California law governing overtime wages is more protective of workers than federal law, and even though plaintiff here is relying on California law, the trial court should look, for ” ‘persuasive guidance’ ” (Bell v. Farmers Insurance Exchange (2001) 87 Cal.App.4th 805, 817), to a federal regulation explaining how to factor a flat sum bonus into an employee‘s regular rate of pay.2 The trial court should do so,
defendant asserted, because the only California regulation on point is an enforcement policy of the Division of Labor Standards Enforcement (DLSE), and that policy is void for failure to comply with the Administrative Procedure Act (APA) (
Plaintiff opposed defendant‘s motion, arguing that the Court of Appeal decision in Marin v. Costco Wholesale Corp. (2008) 169 Cal.App.4th 804 (Marin) supported his way of calculating overtime compensation. Marin, which is discussed in more detail below, concerned how an employer should calculate overtime compensation if it pays its hourly workers a semi-annual longevity bonus. In dictum, the Marin court approved the DLSE‘s method of factoring a flat sum bonus into overtime compensation, which is the same method that plaintiff advocates here. Plaintiff‘s opposition further argued that even if the DLSE‘s method is set forth in a void underground regulation — that is, a regulation not adopted in accordance with the APA (see
The trial court granted defendant‘s motion for summary judgment, concluding that there was no valid California law or regulation explaining how to factor a flat sum bonus into an employee‘s regular rate of pay for purposes of calculating the employee‘s overtime compensation. The court stated that Marin, supra, 169 Cal.App.4th 804, was factually distinguishable, and that the DLSE‘s method of factoring a bonus into overtime compensation was set forth in a void underground regulation. In the absence of any valid California law or regulation on point, the trial court concluded that the relevant federal regulation must be followed, and because defendant‘s method was compliant with the federal regulation, the court further concluded that there was no basis for any of plaintiff‘s causes of action.
The Court of Appeal affirmed, adopting the trial court‘s reasoning, and we then granted review to decide how a flat sum bonus earned during a single pay period should be factored into an employee‘s regular rate of pay for purposes of calculating the employee‘s overtime compensation.
DISCUSSION
I.
California has a longstanding policy of discouraging employers from imposing overtime work. For nearly a century, this policy has been implemented through regulations, called wage orders, issued by the Industrial Welfare Commission (IWC). These wage orders are issued pursuant to an express delegation of legislative power, and they have the force of law. (See Martinez v. Combs (2010) 49 Cal.4th 35, 52–57 [setting forth a brief history of the IWC].) The IWC‘s wage orders originally protected only women and children, but since the 1970s, they have applied to all employees, regardless of gender. (See Stats. 1973, ch. 1007, § 8, p. 2004; Stats. 1972, ch. 1122, § 13, p. 2156; see generally Industrial Welfare Com. v. Superior Court (1980) 27 Cal.3d 690, 700–701.) The specific wage order applicable here is Wage Order No. 1, governing wages, hours, and working conditions in the manufacturing industry, but wage orders covering other industries contain analogous restrictions.
Traditionally, Wage Order No. 1 has required the payment of an overtime premium for, among other things, any work in excess of eight hours in a day. In 1998, the IWC modified several wage orders, including Wage Order No. 1, and by doing so it partially eliminated the eight-hour-day rule, thus permitting employers to offer flexible hours within a 40-hour workweek without having to pay an overtime premium. (See IWC Order No. 1-98 Regulating Wages, Hours, and Working Conditions in the Manufacturing Industry <https://www.dir.ca.gov/iwc/Wageorders1998/IWCArticle1.pdf> [as of March 5, 2018].) The Legislature responded swiftly by enacting the Eight-Hour-Day Restoration and Workplace Flexibility Act of 1999, and the IWC‘s wage orders were then modified again, this time to conform to the 1999 act. Thus, the obligation to pay an overtime premium is now found in both statutory law (see
Subject to exceptions that are not relevant here, Wage Order No. 1 provides that an employer is obligated to pay an overtime premium for work in excess of eight hours in a day, 40 hours in a week, or for any work at all on a seventh consecutive day. (IWC Order No. 1-2001 Regulating Wages, Hours and Working Conditions in the Manufacturing Industry, subd. 3 <https://www.dir.ca.gov/iwc/IWCArticle1.pdf> [as of March 5, 2018] (IWC Wage Order No. 1-2001).) Such work must be compensated at 1.5 times the employee‘s “regular rate of pay,” stepping up to double the “regular rate of pay” if the employee works in excess of 12 hours in a day or in excess of eight hours on a seventh consecutive working day. (
As noted,
These requirements are more protective of workers than federal law, which does not require premium pay for workdays in excess of eight hours. Moreover, it is well settled that federal law does not preempt state law in this area, and therefore state law is controlling to the extent it is more protective of workers than federal law. (See, e.g., Tidewater Marine Western, Inc. v. Bradshaw (1996) 14 Cal.4th 557, 566–568 (Tidewater); see also Morillion v. Royal Packing Company (2000) 22 Cal.4th 575, 592; Skyline Homes, Inc. v. Department of Industrial Relations (1985) 165 Cal.App.3d 239, 250–251 (Skyline Homes).)
Significantly, an employee‘s “regular rate of pay” for purposes of
Here, the attendance bonus that defendant pays for weekend work is incentive pay for completing a full work shift on a day that is unpopular for working (a Saturday or a Sunday). Nonetheless, it is part of an employee‘s overall compensation package, and therefore both parties agree that its per-hour value must be determined so that the employee‘s regular rate of pay — and, derivatively, the employee‘s overtime pay rate — reflects all the various forms of regular compensation that the employee earned in the relevant pay period. In other words, for the limited purpose of calculating overtime pay, the attendance bonus (which is earned all at once by completing a weekend work shift) is treated as if it were earned on a per-hour basis throughout the pay period. The question then arises whether the bonus is treated as if it were earned throughout the entire pay period (including any overtime hours), or whether the bonus is treated as if it were earned throughout only the nonovertime hours of the pay period. It is this question that lies at the heart of the parties’ disagreement.
Because the question at issue here is expressly resolved in plaintiff‘s favor by the DLSE‘s enforcement policy, we must determine at the outset whether the DLSE‘s enforcement policy is controlling, and that question requires us to consider whether the policy is a void underground regulation, and if it is, whether a court can nonetheless agree with it and follow it.
The DLSE is the state agency charged with enforcing California‘s labor laws, including the IWC wage orders. (
In Tidewater, supra, 14 Cal.4th 557, this court concluded that an earlier version of the DLSE‘s manual contained void underground regulations. We noted that “[a] regulation subject to the APA . . . has two principal identifying characteristics. [Citation.] First, the agency must intend its rule to apply generally, rather than in a specific case. The rule need not, however, apply universally; a rule applies generally so long as it declares how a certain class of cases will be decided. [Citation.] Second, the rule must ‘implement, interpret, or make specific the law enforced or administered by [the agency], or . . . govern [the agency‘s] procedure.’ [Citation.]” (Tidewater, supra, at p. 571.) We concluded that the enforcement policy at issue in Tidewater “was expressly intended as a rule of general application to guide deputy labor commissioners on the applicability of IWC wage orders to a particular type of employment. In addition, the policy interpret[ed] the law that the DLSE enforce[d] by determining the scope of the IWC wage orders.” (Id. at p. 572.) Because “the record d[id] not establish that the policy was, either in form or substance, merely a restatement or summary of how the DLSE had applied the IWC wage orders in the past,” it was “a regulation within the meaning of [the APA] and therefore void because the DLSE failed to follow APA procedures” in adopting it. (Ibid.)
We were careful in Tidewater to delineate certain limits to our holding. We said: “[I]f an agency prepares a policy manual that is no more than a restatement or summary, without commentary, of the agency‘s prior decisions in specific cases and its prior advice letters, the agency is not adopting regulations. [Citation.] A policy manual of this kind would of course be no more binding on the agency in subsequent agency proceedings or on the courts when reviewing agency proceedings than are the decisions and advice letters that it summarizes.” (Tidewater, supra, 14 Cal.4th at p. 571.) But “[i]f an issue is important, then presumably it will come before the agency either in an adjudication or in a request for advice. By publicizing a summary of its decisions and advice letters, the agency can provide some guidance to the public, as well as agency staff, without the necessity of following APA rulemaking procedures.” (Tidewater, at p. 576.)
We further concluded, however, that when the APA applies, administrative policies that are not adopted in accordance with its requirements are “void” regulations that are “not entitled to any deference.” (Tidewater, supra, 14 Cal.4th at p. 577; see Reilly v. Superior Court (2013) 57 Cal.4th 641, 649 [reaffirming Tidewater]; Morning Star Co. v. State Bd. of Equalization (2006) 38 Cal.4th 324, 340 [same]; Morillion v. Royal Packing Company, supra, 22 Cal.4th at pp. 581–582 [same]; Armistead v. State Personnel Board (1978) 22 Cal.3d 198, 204 [stating same rule as Tidewater]; see also
In Yamaha, decided just 20 months after Tidewater, this court further clarified its Tidewater holding. Like Tidewater, Yamaha considered the effect of an interpretive policy that had many of the characteristics of an administrative regulation, but that had not been adopted in accordance with the APA. This court‘s opinion explained that, historically, the State Board of Equalization (the Board) had prepared ” ‘annotations,’ ” which we described as “summaries of opinions by [the Board‘s] attorneys of the business tax effects of a wide range of transactions.” (Yamaha, supra, 19 Cal.4th at p. 4.) These annotations were “prompted by actual requests for legal opinions by the Board, its field auditors, and businesses subject to statutes within its jurisdiction.” (Ibid.) At issue in Yamaha was the degree of deference, if any, courts should give the interpretations set forth in the annotations. As digests of opinions written by the Board‘s legal staff in response to inquiries from concerned individuals and institutions, the annotations were essentially restatements of prior agency decisions and advice letters, and therefore they were not regulations. (See Yamaha, at p. 15; Tidewater, supra, 14 Cal.4th at p. 571.) But as “brief statements — often only a sentence or two — purporting to state definitively the tax consequences of specific hypothetical business transactions” (Yamaha, at p. 5), the annotations functioned very much like the void underground regulations we considered in Tidewater.
In Yamaha, we concluded that the annotations were ” ‘entitled to some consideration by the Court.’ ” (Yamaha, supra, 19 Cal.4th at p. 15.) We emphasized that “[c]ourts must . . . independently judge the text of the
In Yamaha, we did not back away from our Tidewater holding that interpretations embodied in void underground regulations are “not entitled to any deference.” (Tidewater, supra, 14 Cal.4th at p. 577.) We noted, for example, that when an agency has adopted its interpretation in accordance with the APA, that fact implies “careful consideration by senior agency officials” and “enhance[d] . . . accuracy and reliability,” which, taken together, “weigh[] in favor of judicial deference.” (Yamaha, supra, 19 Cal.4th at p. 13.) By contrast, we said that an “interpretive bulletin[]” that was not adopted in accordance with the APA was ” ‘not controlling.’ ” (Id. at p. 14Id. at p. 14, italics added.) In other words, an agency‘s underground interpretive regulation should not be afforded any special weight or deference, but it is nonetheless something a court may consider, and assuming the court is persuaded that the agency‘s interpretation is correct, the court may adopt it as its own. Moreover, the persuasiveness of the agency‘s interpretation increases in proportion to the expertise and special competence that are reflected therein, including any evidence that the interpretation was carefully considered at the highest policymaking level of the agency. (Id. at pp. 11 and 13–14.)
The DLSE responded to our decisions in Tidewater and Yamaha by revising the DLSE Manual. Among other things, the DLSE noted in an introductory section to its revised manual that Tidewater had permitted agencies to publish enforcement policies without concern for APA compliance so long as those policies are merely restatements or summaries of prior decisions and advice letters. (See DLSE Manual, supra, § 1.1.3, p. 1-2.) Accordingly, the DLSE added to its manual, where appropriate, references to prior decisions and advice letters that supported the various enforcement policies the manual set forth. (See id. at § 1.1.6.1, p. 1-3.) As Tidewater explained, policies that are supported by such decisions and advice letters are
The DLSE did not, however, repudiate enforcement policies that were not supported by prior decisions or advice letters and that were therefore void underground regulations under our holding in Tidewater. The DLSE thus implicitly recognized that even void sections of its manual continued to serve the laudable purposes of promoting agencywide uniformity of decision and notifying the public of the agency‘s interpretations of the law. (See Asimow, California Underground Regulations (1992) 44 Admin. L.Rev. 43 [California law should not discourage agencies from adopting and publicizing interpretations of the laws they administer]; cf.
As noted, the DLSE Manual addresses the precise issue we must decide here. We must interpret the requirement that an employer pay an overtime premium for work in excess of eight hours in a day, 40 hours in a week, or for any work at all on a seventh consecutive day. (
The DLSE Manual addresses that precise question in section 49.2.4.2, saying: “If the bonus is a flat sum, such as $300 for continuing to the end of the season, or $5.00 for each day worked, the regular bonus rate is determined by dividing the bonus by the maximum legal regular hours worked during the period to which the bonus applies. This is so 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. . . .” (DLSE Manual, supra, §§ 49.2.4.2, p. 49-9, italics added.) Therefore, we must determine whether the foregoing DLSE policy statement is a void underground regulation, as was the DLSE policy statement at issue in Tidewater.
The policy satisfies the definition we set forth in Tidewater for a regulation that is subject to the APA. It is “intend[ed] . . . to apply generally, rather than in a specific case,” and it ” ‘implement[s], interpret[s], or make[s] specific the law enforced or administered by [the DLSE] . . . .’ [Citation.]” (Tidewater, supra, 14 Cal.4th at p. 571.) Moreover, the policy “predicts how the agency will decide future cases” (id. at pp. 574–575), and in that sense, it is intended to influence both the present and future behavior of employers. Finally, the DLSE Manual does not cite any agency decisions or advice letters that support the policy, and it therefore is not merely a restatement or summary of such decisions or advice letters. (Tidewater, at p. 571.) Hence, the policy is a regulation, and because, like other portions of the DLSE Manual, it was not adopted in accordance with the APA, it is void. But the DLSE‘s policy is not necessarily wrong just because it is set forth in a void underground regulation. The policy interprets controlling state law, and that interpretation may be correct.
The Court of Appeal erred, therefore, in concluding that there was no state law governing the issue we must decide and that federal law, on that account, applied. The Court of Appeal said: “By not regulating overtime pay on bonuses, the state has in effect left to federal regulation computing overtime on bonuses. . . . This court . . . cannot mandate and enforce compliance with plaintiff‘s proposed formula . . . , when there is no applicable statute or regulation providing for such a formula. . . . [D]efendant‘s use of the federal formula is lawful because . . . there is no state law or regulation providing an alternative formula. [¶] . . . [T]here is no law or regulation the trial court or
These assertions are simply incorrect. There is state law for the courts to construe and enforce; it is
Moreover, as discussed, reviewing courts are not obligated to reject the interpretation set forth in the DLSE‘s void regulation. As an underground regulation, the DLSE‘s policy is not entitled to any special deference (Tidewater, supra, 14 Cal.4th at pp. 576–577), but the interpretation embodied in that policy may still be valid. Therefore, so long as we exercise our independent judgment,
we may consider the DLSE‘s interpretation and the reasons the DLSE proffered in support of it, and we may adopt the DLSE‘s interpretation as our own if we are persuaded that it is correct. (Tidewater, at p. 577.) And, in doing so, we may take into consideration the DLSE‘s expertise and special competence, as well as the fact that the DLSE Manual is a formal compilation that evidences considerable deliberation at the highest policymaking level of the agency. (Yamaha, supra, 19 Cal.4th at pp. 11 and 13–14
III.
Two overarching interpretive principles guide our analysis. First, the obligation to pay premium pay 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. (See Skyline Homes, supra, 165 Cal.App.3d at p. 254; Industrial Welfare Com. v. Superior Court, supra, 27 Cal.3d at pp. 701–702.)6 Second, the state‘s labor laws are to be
liberally construed in favor of worker protection. (See, e.g., Mendoza v. Nordstrom, Inc. (2017) 2 Cal.5th 1074, 1087; Brinker Restaurant Corp. v. Superior Court, supra, 53 Cal.4th at pp. 1026–1027; Industrial Welfare Com. v. Superior Court, supra, 27 Cal.3d at p. 702.) Therefore, in deciding how to factor a flat sum bonus into an employee‘s overtime pay rate, we are obligated to prefer an interpretation that discourages employers from imposing overtime work and that favors the protection of the employee‘s interests.
Under
the nonovertime hours in the pay period, and therefore only nonovertime hours should be considered when calculating the bonus‘s per-hour value.
The foregoing point finds support in the plain meaning of the phrase “regular rate of pay.” As noted, an employee‘s regular rate of pay changes from pay period to pay period depending on whether the employee has earned shift differential premiums or nonhourly compensation. Therefore, the word “regular” in this context does not mean “constant.” Furthermore,
That indeed was the holding of the Court of Appeal in Skyline Homes, supra, 165 Cal.App.3d 239, which this court expressly approved in Ramirez v. Yosemite Water Co., Inc. (1999) 20 Cal.4th 785, 795. In Skyline Homes, the Court of Appeal was asked to decide how, under state law, to calculate overtime pay when an employee is paid a fixed weekly salary and has a “fluctuating workweek,” meaning hours that vary from week to week. (Skyline Homes, supra, 165 Cal.App.3d at p. 243.) More specifically, the question was whether, when calculating regular rate of pay, the employee‘s weekly salary should be divided by all the hours he or she worked during the relevant workweek, including overtime hours, or whether it should be divided by only the nonovertime hours worked during the workweek.
Relying on federal regulations that interpret federal law, the employer in Skyline Homes argued that an employee‘s weekly salary constituted base compensation for all the hours worked during the week, including overtime hours, and therefore if an employee worked overtime, only the 50 percent overtime premium needed to be added. The employer therefore divided the weekly salary by the total number of hours worked during the week, including overtime hours, thus determining a regular rate of pay for the employee, and the employer then divided that regular rate in half and multiplied the result by the number of overtime hours to determine the amount of the 50 percent overtime premium that was owed. Significantly, because the employee‘s weekly salary was fixed, his or her regular rate of pay decreased, under the employer‘s method, as the number of overtime hours increased. (See Skyline Homes, supra, 165 Cal.App.3d at pp. 245-246.)
Two employees challenged the employer‘s method of calculating overtime compensation, and the DLSE upheld their claim. These employees argued that their weekly salaries were compensation only for the nonovertime hours that they worked, and therefore that the employer needed to pay both overtime base compensation and overtime premium to fully compensate them for the overtime hours that they worked. These employees further asserted that the employer should divide an employee‘s weekly salary by 40 (the number of nonovertime hours in a workweek) to determine the employee‘s regular rate of pay, and that the employer should then multiply that regular rate of pay by 1.5 and by the number of overtime hours to determine the
The Court of Appeal in Skyline Homes rejected the employer‘s method, agreeing with the employees that the regular rate of pay should be determined by dividing the weekly salary by the number of nonovertime hours. The court reasoned that the weekly salary was intended as compensation for the regular 40-hour workweek; it was not intended as compensation for time worked in excess of 40 hours in a week. Therefore, the weekly salary divided by the number of nonovertime hours yielded the employee‘s regular rate of pay, which then needed to be multiplied by 1.5, not by 0.5, because the employer owed both overtime base compensation and overtime premium. The resulting overtime pay rate (i.e., 1.5 times the employee‘s regular rate of pay) next needed to be multiplied by the number of overtime hours to get the amount of overtime compensation that was due. (Skyline Homes, supra, 165 Cal.App.3d at 250.)
The court expressly disagreed with the employer‘s argument that the IWC had modeled state law on federal law, and that therefore the IWC intended to adopt the federal interpretation of how regular rate of pay should be calculated. The court noted in this respect that the state‘s wage order was more protective of workers than was the federal law, and that the purpose of state law was to discourage overtime in any day, not just in any week. The employer‘s method, under which the worker‘s regular rate of pay decreased as the number of overtime hours increased, did not fulfill that purpose. (Skyline Homes, supra, 165 Cal.App.3d at pp. 247-249.) As noted, this court in Ramirez v. Yosemite Water Co., Inc., supra, 20 Cal.4th at page 795, expressly approved the foregoing holding of Skyline Homes.7
Moreover, after Skyline Homes was decided, its formula for calculating the regular rate of pay in the case of a fluctuating workweek with a fixed weekly salary was codified as
Skyline Homes is, however, ambiguous in one respect. It is not clear from the opinion whether the divisor for purposes of calculating the per-hour value of a weekly salary should be the number of nonovertime hours actually worked by the employee in the workweek in question, even if that number is less than 40, or whether it should be 40 (i.e., the number of nonovertime hours that exist in a workweek). In codifying the holding of Skyline Homes, the Legislature adopted the latter rule. (
In two places, the opinion refers to a divisor of ”no more than 40” (Skyline Homes, supra, 165 Cal.App.3d at p. 245, italics added), thus implying that if an employee works fewer than 40 hours in a week (but still works overtime on some days), the divisor for calculating the per-hour value of the weekly salary should be the number of nonovertime hours actually worked in the workweek in question. (Cf. id. at p. 254 [discussing a possible divisor of 39 hours, but not expressly approving it].) By contrast, in discussion of a hypothetical example that appears on pages 248 to 249 of the Skyline Homes opinion, the court consistently used a divisor of 40 even though the employee in the hypothetical worked only 32 nonovertime hours in one of the two weeks discussed. It might be that the court‘s use of 40 as the divisor in this hypothetical was intended to reflect an unstated holding of the court, or it might be that it was merely an inadvertent error.9
as here, the issue involves a flat sum bonus for weekend work, not a weekly salary, there are strong reasons supporting the alternative rule — that is, that the divisor should be the number of nonovertime hours actually worked. Consider, for example, the case of an employee who earns $15 per hour and who works only on Saturdays. Most weeks, this employee works just eight hours, but some weeks he is asked to stay late, and he earns overtime pay. And, like every other Saturday employee, he earns a $15 attendance bonus by completing his weekend work shift, thus earning an extra $30 in each two-week pay period. If, when calculating this part-time employee‘s overtime pay rate, his employer were to divide the amount of the $30 bonus by 80 hours (i.e., the number of nonovertime hours that exist in the two-week pay period), then this employee would have good reason to object. He continues in his employment, rather than looking for an alternative job, because the job pays him $270 for two days’ work ([16 hours x $15/hour] + a $30 bonus), and he considers that amount to be fair compensation. From his perspective, then, his regular rate of pay is $16.875 per hour. On what basis — he would ask — can his employer divide his $30 bonus by 80 hours, as if he were an ordinary full-time employee, thus sharply diluting his regular rate of pay and his overtime pay rate? For him, the per-hour value of the $30 bonus is $1.875, but his employer treats it as if it were a fifth of that amount.
We can discern no basis for holding that the per-hour value of a flat sum bonus should be calculated as if a part-time employee were actually working a full-time schedule, thus dramatically reducing the overtime pay rates of part-time employees in California. Such a rule would contradict the principle that our state‘s labor laws must be liberally construed in favor of worker protection. (See, e.g., Mendoza v. Nordstrom, Inc., supra, 2 Cal.5th at p. 1087; Brinker Restaurant Corp. v. Superior Court, supra, 53 Cal.4th at pp. 1026–1027.) Nor would we be furthering this state‘s policy of discouraging the imposition of overtime work (see Skyline Homes, supra, 165 Cal.App.3d at p. 254; Industrial Welfare Com. v. Superior Court, supra, 27 Cal.3d at pp. 701–702) if we were to permit employers to dilute the value of the flat sum bonuses that their part-time employees earned, fictionally treating those bonuses as if the part-time employees were working full-time schedules.
It is true that under this interpretation, the per-hour value of a flat sum bonus will be lower for a full-time employee than for a part-time employee, but that disparity is simply in the nature of what a flat sum bonus is. If both the part-time and the full-time employees do the work that is required to earn
Thus, there is a strong argument that the number of nonovertime hours actually worked in a pay period should be the divisor when calculating the per-hour value of a flat sum bonus. Moreover, that interpretation may have been the original intent of the IWC even as regards a fixed weekly salary. The DLSE Manual, discussing how to factor a fixed weekly salary into regular rate of pay for purposes of calculating the overtime pay rate, quotes from unspecified 1963 “Findings” of the IWC, which state: “It was the Commission‘s intent that in establishing the regular rate of pay for salaried employees the weekly remuneration is divided by the agreed or usual hours of work exclusive of daily hours over eight.” (DLSE Manual, supra, § 48.1.4, p. 48-2, fn. *, italics added.) The phrase “agreed or usual hours of work” strongly implies that nonovertime hours actually worked, not 40, was the divisor the IWC originally intended.10
With respect to fixed weekly salaries — the specific issue addressed in Skyline Homes, supra, 165 Cal.App.3d 239 — the question is definitively settled by
Moreover, although we do not defer to the DLSE‘s enforcement policy, we do consider it to the extent we find it persuasive, keeping in view the DLSE‘s expertise and special competence, as well as the fact that the DLSE Manual evidences considerable deliberation at the highest policymaking level of the agency. (Yamaha, supra, 19 Cal.4th at pp. 11 and 13–14.) Therefore, we find it significant that the DLSE has adopted an interpretation of regular rate of pay that treats a flat sum bonus in the same manner as the salary at issue in Skyline Homes, supra, 165 Cal.App.3d 239, but uses the “maximum legal regular hours worked during the period” (not the hours that exist in the period) as the divisor when calculating the bonus‘s per-hour value. (DLSE Manual, supra, § 49.2.4.2, p. 49-9, italics added.)
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.” (DLSE Manual, supra, § 49.2.4.2, p. 49-9, italics added.) We think the DLSE identifies an important distinction that is relevant to this case. If a bonus is a reward “for each hour of work,” and its amount therefore increases in rough proportion to the number of hours worked (as might be true of a production or piecework bonus or a commission), then it might be said that the payment of the bonus itself constitutes base compensation, including base compensation for overtime work, in which case one might be able to argue that only the overtime premium need be added. But the attendance bonus at issue here does not reward the employee “for each hour of work,” and its amount does not increase in rough proportion to the number of hours worked; rather, it is a flat sum bonus that rewards the employee for completing a full weekend shift. As such, it is more like the salary at issue in Skyline Homes than it is like an hourly wage. But because the amount of the bonus is not tied to the number of hours worked, its per-hour value will necessarily be larger for an employee who works less than 40 hours in a particular workweek, resulting in a larger overtime pay rate. That circumstance is built into the very nature of a flat sum bonus, and therefore it is not unfair to employees who work full-time schedules.
Accordingly, we conclude — consistent with DLSE‘s policy on point — that the divisor for purposes of calculating the per-hour value of defendant‘s attendance bonus should be the number of nonovertime hours actually worked in the relevant pay period, not the number of nonovertime hours that exist in the pay period.
Defendant tries to distinguish Skyline Homes, supra, 165 Cal.App.3d 239. Defendant argues that the attendance bonus at issue here is different from the weekly salary at issue in Skyline Homes, because plaintiff here is an hourly worker receiving a bonus, not a salaried worker. We find the distinction to be irrelevant. To the extent of the attendance bonus, plaintiff is similarly situated to a salaried worker. Suppose, for example, an employer paid its highly skilled hourly employees the minimum wage, but it also paid those employees a weekly flat sum bonus that was the larger portion of their earnings. If that bonus were not treated in the same way as the salary at issue in Skyline Homes, then employers could circumvent the holding of Skyline Homes — and also
It is true that a weekly salary is subject to
Defendant also argues that the holding in Skyline Homes turned on preserving the distinction between California and federal law, and that it therefore applies only to cases in which an employee works less than 40 hours in a workweek but more than eight hours in a day. Defendant‘s narrow reading of Skyline Homes is drawn from the hypothetical example that the Skyline Homes court used in the course of its analysis. (Skyline Homes, supra, 165 Cal.App.3d at pp. 248-249.) The court made the point that under the employer‘s method of calculating overtime (which was the same as the federal method), there might be instances — illustrated by the court‘s hypothetical example — in which a worker worked more than eight hours in a day but received no overtime premium pay because he or she worked less than 40 hours in the week. That possibility, the court said, would undermine the state‘s policy favoring an eight-hour workday. (Ibid.) But the court never suggested that its holding was limited to cases that were like the hypothetical example, and the claim brought by the workers in Skyline Homes was not, in fact, so limited. (Id. at p. 244.)
It might be argued that defendant‘s attendance bonus is different from other types of flat sum compensation because the bonus rewards only weekend work. According to this reasoning, overtime work done on a weekday (i.e., Monday through Friday) should not increase the size of the attendance bonus, because the bonus has no relation to weekday work. This argument, however, misunderstands what regular rate of pay is. Not all employees earn at a fixed pay rate throughout a pay period, and therefore regular rate of pay is a weighted average reflecting work done at varying times, under varying circumstances, and at varying rates. (See
In light of this averaging of regular rate of pay across the entire length of the relevant pay period, it is not surprising that the value of a weekend attendance bonus should also be averaged across the entire pay period, even though, like a weekend shift differential, it is offered as a reward for work done only on the weekend. Hence, there is nothing improper in the fact that weekday overtime will effectively increase the size of the weekend attendance bonus. The attendance bonus must not be viewed in isolation; rather, it is a component of the employee‘s regular rate of pay for the entire pay period, and overtime worked at any point during the workweek must, by law, be compensated at a multiple of that regular rate of pay.
Defendant relies on Marin, supra, 169 Cal.App.4th 804, for the proposition that its attendance bonus, like the bonus at issue in Marin, does not operate in practice to encourage the imposition of overtime work.11 In Marin, the employer paid a bonus every six months, in graduated amounts, based on the longevity of a worker‘s employment with the company. To qualify for the full bonus, the worker had to work a minimum of 1,000 hours during the relevant six-month period (i.e., full time), and if the worker worked less than 1,000 hours, the bonus was prorated. The Marin court concluded that although the bonus had “some of the characteristics of a ‘flat sum’ bonus on hours exceeding 1,000,” it functioned “for the most part like a production bonus,” with each hour of work increasing the amount of the bonus. (Marin, at p. 816.) Therefore, in calculating the additional overtime compensation that was payable because of the bonus, the amount of the bonus had to be divided, in the court‘s view, by the total number of hours worked, including overtime hours, and that per-hour value then had to be multiplied by 0.511
(not 1.5) and by the number of overtime hours. (Ibid.) The court concluded that the per-hour value of the bonus had to be multiplied by 0.5 (not 1.5) because it was only necessary for the employer to pay the 50 percent overtime premium that was attributable to the bonus. (Id. at p. 817.)
The Marin court conceded that the longevity bonus functioned as a flat sum bonus if the worker worked more than 1,000 hours, because at that point, the amount of the bonus became fixed, and therefore its per-hour value decreased as the number of hours worked increased. But even then, the employer‘s method of calculating overtime compensation did not, according to the court, “encourage[] imposition of overtime.” (Marin, supra, 169 Cal.App.4th at p. 818.) Therefore the court concluded that there was no rationale for adopting the formula proposed by the plaintiffs in that case. (Id. at pp. 817–819.)
Here, defendant argues that its attendance bonus, like the longevity bonus at issue in Marin, does not encourage the imposition of overtime. Defendant is wrong. According to defendant‘s formula, the attendance bonus is a fixed amount, and therefore the per-hour value of the bonus decreases (as does the employee‘s overtime pay rate) as the number of overtime hours the employee works increases. Thus, the disincentive created by
Defendant disagrees with the foregoing analysis, arguing that its attendance bonus actually advances the state‘s policy of discouraging overtime. It does so by ensuring that employees report for, and complete, their scheduled weekend work shifts, thus making it unnecessary to ask some employees to work overtime to cover for other employees who fail to show up or who leave early. The reasoning is obviously flawed. If normal pay rates do not provide sufficient motivation to cause employees show up for weekend work shifts, then the solution is not to pay overtime pay rates to the few employees who do show up; the solution is to increase the weekend pay rates for all employees, and that, in effect, is what the attendance bonus does. Thus, the attendance bonus is simply one component of an employee‘s total compensation, and it must be factored into the employee‘s regular rate of pay in such a way that the overtime pay rate remains constant, rather than decreasing incrementally with each additional hour of overtime. Defendant is arguing, in effect, that we should tolerate a decreasing overtime pay rate because otherwise employers will pay under-market wages and will be forced, because of the resulting no-shows, to impose more overtime. The argument has no merit. Regardless of how well an employer chooses to compensate its weekend workers, it must pay a full overtime pay rate, not one that decreases with each additional hour of overtime.
Defendant further argues that even if an employee who receives the attendance bonus will have a slightly decreasing overtime pay rate as the number of overtime hours increases, the employee‘s overtime pay rate will still be more than it would have been if the attendance bonus had not been paid at all, because under its formula the attendance bonus does factor into the worker‘s regular rate of pay, just not as generously as plaintiff would like. Therefore, defendant asserts, the attendance bonus makes overtime work more costly for an employer, not less costly, and in that way it serves to discourage the imposition of overtime. This argument, too, misses the mark.
Defendant also asserts that adopting plaintiff‘s formula for calculating overtime compensation would violate defendant‘s right to due process of law because ordinary people could never have predicted that the law would be interpreted in the way plaintiff proposes. This argument, too, is meritless.
wrong when it argues that ordinary people could not have predicted plaintiff‘s interpretation, and that it would violate defendant‘s due process rights to adopt that interpretation. In fact, the interpretation was published in the DLSE Manual, and so defendant had every reason to predict it.
At oral argument, defendant‘s counsel urged that if we rule for plaintiff, our holding should be given prospective application only. We
We conclude that the flat sum bonus at issue here should be factored into an employee‘s regular rate of pay by dividing the amount of the bonus by the total number of nonovertime hours actually worked during the relevant pay period and using 1.5, not 0.5, as the multiplier for determining the employee‘s overtime pay rate.
DISPOSITION
The judgment of the Court of Appeal is reversed.
CHIN, J.
WE CONCUR:
CORRIGAN, J.
LIU, J.
CUÉLLAR, J.
PERREN, J.*
* Associate Justice of the Court of Appeal, Second Appellate District, Division Six, assigned by the Chief Justice pursuant to article VI, section 6 of the California Constitution.
CONCURRING OPINION BY
I concur in the judgment. I agree with the majority that, when calculating a “regular rate of pay” for purposes of setting overtime compensation,
Prior to today‘s decision, the spare language of the pertinent state authorities could have left employers that fully intended to comply with state overtime laws somewhat uncertain about how to proceed. Although a policy manual issued by the Division of Labor Standards Enforcement (DLSE) relates what the court determines today to be a correct view regarding state law, the interpretation‘s placement within this manual, by itself, entitles it to “no weight” (Tidewater Marine Western, Inc. v. Bradshaw (1996) 14 Cal.4th 557, 576 (Tidewater)) because the DLSE did not promulgate this manual in accordance with the rulemaking provisions of the Administrative Procedure Act (APA;
The result is that employees such as plaintiff Hector Alvarado had to sue to assert their right to higher overtime pay, and employers such as Dart may now be faced with substantial penalties. This state of affairs, which is unfortunate for employees and employers alike, conceivably could have been avoided had an interpretative regulation on this subject been promulgated through formal APA rulemaking during the more than two decades that have elapsed since our decision in Tidewater, supra, 14 Cal.4th 557. An interpretation of a statute posited through such a regulation is accorded greater weight than a view related only in a policy manual (see Yamaha Corp. of America v. State Bd. of Equalization (1998) 19 Cal.4th 1, 12-13), and would have provided a more robust basis for employers and
CANTIL-SAKAUYE, C. J.
WE CONCUR:
CORRIGAN, J.
LIU, J.
KRUGER, J.