Alvarado v. Dart Container Corp. of Cal.

• Citation: 4 Cal.5th 542,411 P.3d 528,229 Cal.Rptr.3d 347
• Decision Date: 05 March 2018
• Docket Number: S232607
• Parties: Hector ALVARADO, Plaintiff and Appellant, v. DART CONTAINER CORPORATION OF CALIFORNIA, Defendant and Respondent.
• Court: United States State Supreme Court (California)

4 Cal.5th 542

411 P.3d 528

229 Cal.Rptr.3d 347

Hector ALVARADO, Plaintiff and Appellant,

v.DART CONTAINER CORPORATION OF CALIFORNIA, Defendant and Respondent.

S232607

Supreme Court of California

Filed March 5, 2018

As Modified April 25, 2018

Dennis F. Moss, Los Angeles; Lavi & Ebrahimian, Joseph Lavi and Jordan D. Bello, Beverly Hills, for Plaintiff and Appellant.

Quintilone & Associates, Richard E. Quintilone II, Lake Forest, and Alvin B. Lindsay, Los Angeles, for California Employment Lawyers Association as Amicus Curiae on behalf of Plaintiff and Appellant.

Best Best & Krieger, Howard B. Golds and Elizabeth A. Han, Riverside, for Defendant and Respondent.

Manufacturers' Center for Legal Action, Linda E. Kelly, Patrick N. Forrest, Leland P. Frost; Littler Mendelson, Michael J. Lotito, San Francisco, and Elizabeth Parry, Walnut Creek, for National Association of Manufacturers as Amicus Curiae on behalf of Defendant and Respondent.

Paul Hastings, Paul W. Cane, Jr., San Francisco, Zachary P. Hutton and Jesse C. Ferrantella for California Employment Law Council and Employers Group as Amici Curiae on behalf of Defendant and Respondent.

CHIN, J.

In this case, we decide how an employee's overtime pay rate should be calculated when the employee has earned a flat sum bonus during a single pay period. Specifically, we consider whether the divisor for purposes of calculating the per-hour value of the bonus should be (1) the number of hours the employee actually worked during the pay period, including overtime hours ; (2) the number of nonovertime hours the employee worked during the pay period; or (3) the number of nonovertime hours that exist in the pay period, regardless of the number of hours the employee actually worked. We conclude that the divisor should be the second of these options. We reverse the judgment of the Court of Appeal.

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 putative class of employees who, during the period alleged in the complaint, were paid on an hourly basis and who, in addition to their normal hourly wages, received an "attendance bonus" if they were scheduled to work on a Saturday or Sunday, and did so, completing the full work shift. The amount of the bonus was a flat sum of $15 per day of weekend work, regardless of whether the employee worked in excess of the normal work shift on the day in question.

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., his or her normal hourly wage rate), thus obtaining the employee's base hourly pay for the overtime work. We use the word "base" to refer to the pay the employee is entitled to receive simply because he or she has worked additional hours for the employer, exclusive of any extra amount that must be paid because the work qualifies as overtime.

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 value by 1.5 and by the number of overtime hours worked. Plaintiff would then combine the foregoing overtime amounts to obtain the total overtime compensation for the pay period. Plaintiff's formula turns out to be marginally more favorable to employees; the key distinction between the two formulas is whether the bonus is allocated to all hours worked, or only to the nonovertime hours worked.²

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 Labor Code sections 510 and 1194, by not including shift differential premiums and bonuses in calculating overtime wages; (2) failure to provide complete and accurate wage statements, in violation of Labor Code section 226 ; (3) failure to timely pay all earned wages due at separation of employment, in violation of Labor Code sections 201, 202, and 203 ; (4) unfair business practices, in violation of Business and Professions Code section 17200 et seq. ; and (5) civil penalties under the Labor Code Private Attorneys General Act of 2004 ( Lab. Code, § 2698 et seq. ).

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, 105 Cal.Rptr.2d 59 ), to a federal regulation explaining how to factor a flat sum bonus into an employee's regular rate of pay.³ 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) ( Gov. Code, § 11340 et seq. ). Defendant went on to argue that its formula for calculating overtime compensation was fully compliant with the relevant federal regulation, and therefore summary judgment was appropriate on all causes of action.

Plaintiff opposed defendant's motion, arguing that the Court of Appeal decision in Marin v. Costco Wholesale Corp. (2008) 169 Cal.App.4th 804, 87 Cal.Rptr.3d 161 ( 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 Cal. Code Regs., tit. 1, § 250, subd. (a) )—the trial court should nonetheless follow it because it reflects the DLSE's experience, knowledge, and expertise.

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, 87 Cal.Rptr.3d 161, 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...