“The California Supreme Court Modifies Its Opinion in Alvarado v. Dart Container Corporation, 4 Cal.5th 542 (2018) only to leave open the ‘workweek v. pay period’ regular rate calculation question.”
Things couldn’t get much worse for employers in the area of calculating the regular rate of pay – a complicated operation even on a good day. The California Supreme Court just made the calculation murkier when it modified its March 5, 2018 Alvarado v. Dart Container Corporation opinion.
We recently reported that, on March 5, 2018, the California Supreme Court issued its long awaited overtime calculation decision in Alvarado v. Dart Container Corporation. The specific question before the Court was “how an employee’s overtime pay rate should be calculated when the employee has earned a flat sum bonus during a single pay period.”
To recap briefly, in Alvarado, a group of employees who received a flat sum bonus for working on a weekend filed a class action arguing that the employer must allocate the bonus only to non-overtime, regular hours worked during the pay period when determining the regular rate of pay for any overtime calculations. Plaintiff Alvarado relied upon a Division of Labor Standards Enforcement (DLSE) Manual policy, which directly addressed the issue. Following federal law, Dart Container had allocated the bonus to all hours worked, thus including overtime hours.
The California Supreme Court agreed with Plaintiff Alvarado finding that, when allocating a flat sum bonus, an employer must allocate that bonus only to non-overtime, regular hours worked in a pay period.
Questions cropped up immediately as the Court specifically discussed calculating the per-hour value within a pay period. As employers know, overtime is calculated on a workweek basis, not a pay period basis. However, a bonus earned over a time period longer than a workweek is apportioned over that time period. DLSE Manual Section 220.127.116.11. On March 22, 2018, the California Employment Law Council filed an Amicus Letter Requesting Clarification and/or Modification of the Court’s Order. In its Amicus Letter, the Council sought clarification regarding what seemed to be the Court’s suggestion that “employers should calculate the regular rate of pay for overtime compensation for each pay period, rather than each individual work week within the pay period.” (Amicus Letter, p. 1) The Council sought modification of the Court’s decision by changing the term “pay period” to “workweek or other period over which the bonus is earned.” (Amicus Letter, p. 3)
On April 25, 2018, the Court issued a modified opinion, which denied the Council’s Request and stated:
Unfortunately, the Court leaves the “workweek v. pay period” question for another day. Thus, employers are well advised to seek their labor counsel’s advice regarding that question when employers are re-working their payroll systems to comply with Alvarado’s mandate that they use only non-overtime hours as the divisor for purposes of calculating the per-hour value of the bonus.