Skyline Homes, Inc. v. Department of Industrial Relations
| Decision Date | 05 March 1985 |
| Docket Number | No. E000595,E000595 |
| Citation | 211 Cal.Rptr. 792,165 Cal.App.3d 239 |
| Parties | , 27 Wage & Hour Cas. (BNA) 327 SKYLINE HOMES, INC., etc., et al., Plaintiffs and Appellants, v. DEPARTMENT OF INDUSTRIAL RELATIONS, et al., Defendants and Respondents. Former Civ. 33121. |
| Court | California Court of Appeals Court of Appeals |
The facts of this case are not in dispute. Defendants, Johannes and Cozine, both salesmen employed by plaintiff Skyline Homes, Inc., worked what is commonly known as a fluctuating workweek which guarantees a fixed minimum salary to employees who work varying hours from week to week. Depending on factors such as business volume and the season of the year, the length of defendant's workweek varied from less than 40 hours some weeks to over 40 hours other weeks. Although Johannes and Cozine were guaranteed a fixed minimum salary, they were paid overtime compensation for all work performed over 40 hours in any given workweek. The dispute in this case concerns the method used by Skyline in computing such overtime compensation for its employees who worked a fluctuating workweek.
Defendants filed a claim against Skyline with defendant Department of Industrial Relations, Division of Labor Standards Enforcement (DLSE), alleging that Skyline improperly computed their overtime pay. The DLSE instituted proceedings against Skyline to compel payment. Skyline filed the complaint herein seeking a declaration that the procedure it used in computing overtime pay for its salaried employees who worked a fluctuating workweek was proper. The trial court granted summary judgment in favor of DLSE and Skyline has appealed.
The California Industrial Welfare Commission (IWC) is authorized to promulgate wage orders regulating wages, hours and conditions of employment for employees throughout the state. (Lab.Code, § 1173.) 1 Wage order 1-76 was adopted pursuant to this authority.
Wage order 1-76 was promulgated in 1976 and covers the manufacturing industry in California. It provides as follows:
The DLSE is the agency empowered to administer and enforce the IWC wage orders. ( § 61, 1193.5) The DLSE has interpreted wage order 1-76 to mean that an employee's "regular rate of pay" must be computed by dividing the weekly straight time salary by no more than 40 hours regardless of how many hours the employee worked. In effect, the DLSE interpretation equates "regular" with normal, and therefore overtime should not be used in the computation of "regular rate of pay." Under this interpretation, the employee's weekly salary is considered straight time compensation for the employee's "regular" hours, i.e., non-overtime hours of no more than 40 in a week. For example, assuming a salaried employee works 50 hours in one week, the DLSE would compute overtime as follows:
$500 / 40 hours = $12.50 per hour ("regular rate of pay")
50 hours - 40 hours = 10 overtime hours
10 hours x $18.75 (1 1/2 of regular rate of pay) = $187.50
$ 187.50 overtime compensation
k 500.00 fixed weekly salary
------
$ 687.50 total compensation
Thus, under the DLSE interpretation, wage order 1-76 prohibits the use of more than 40 hours in a workweek in establishing the "regular rate of pay" to be used in computing overtime compensation of salaried employees. (See the DLSE Operations and Procedures Manual, 3-78, § 10.49, p. 6.)
The fluctuating workweek method of calculation establishes the "regular rate of pay" by dividing the employee's weekly salary by the number of hours actually worked in a given week, no matter how many hours per day or how many hours per week that may be. Thus, for these fluctuating workweek employees, overtime hours, i.e., hours worked over 40, are compensated at one-half the rate of pay thus determined in addition to the salary payment because the salary is treated as compensation at the straight time regular rate for all hours worked. Under this method the more hours an employee works overtime, the lower the "regular rate" becomes.
Applying this procedure Skyline computed overtime for defendants Johannes and Cozine in the following manner (assuming the sales employee worked 50 hours in a particular workweek and his fixed weekly salary was $500):
$500/week / 50 hours = $10 ("regular rate of pay")
(50 hours - 40 hours = 10 overtime hours)
10 hours x $5 (1/2 regular rate of pay = $50
$ 50 overtime compensation
k 500 fixed weekly salary (representing straight time
compensation for all hours worked)
$ 550 total compensation for one week
Under this method of calculating overtime for fluctuating workweek employees, the "regular rate of pay" is reduced as the number of overtime hours is increased in a given workweek. If an employee works 60 hours in one week, his "regular rate of pay" will be substantially less than if he works 40 hours.
Skyline contends that the trial court erred in upholding the interpretation of wage order 1-76 adopted by the DLSE which prohibits the use of the fluctuating workweek method of computing overtime compensation. Specifically, Skyline argues: (1) federal law provides for the fluctuating workweek method of overtime computation, and in the absence of California law or regulation to the contrary, and in view of the similar language and purpose of the California and federal statutes, federal law should be followed; (2) neither the California Labor Code nor the Industrial Welfare Commission wage orders preclude the use of the fluctuating workweek method of overtime compensation; (3) the DLSE's operations and procedures manual which interprets wage order 1-76 as prohibiting the use of the fluctuating workweek is an improper exercise in rule making and was not promulgated in accordance with law.
Skyline is correct in stating that federal law permits the use of the fluctuating workweek. However, we reject the remaining contentions for reasons that will be explained.
The Fair Labor Standards Act of 1938 (FLSA), 29 U.S.C. sections 201-219 provides at section 207, subdivision (a)(1) that "... no employer shall employ any of his employees who in any workweek is engaged in commerce or in the production of goods for commerce, or is employed in an enterprise engaged in commerce ... for a workweek longer than forty hours unless such employee receives compensation for his employment in excess of the hours above specified at a rate not less than one and one-half times the regular rate at which he is employed." (Emphasis added.) Thus, where an employee works over 40 hours in one week, overtime compensation is computed at one and one-half times the employee's "regular rate" of pay.
Under the federal method, where an employee receives a salary which by agreement between the employer and employee is designed to provide basic non-overtime compensation for all hours worked (i.e., the fluctuating workweek) and the employee is compensated by a fixed weekly salary, the employee's "regular rate" of pay is determined by dividing the number of hours actually worked in the particular workweek into the amount of the fixed weekly salary (rather than dividing the salary by the standard nonovertime workweek of 40 hours) for overtime compensation. (Overnight Motor Transp. Co. v. Missel (1942) 316 U.S. 572, 62 S.Ct. 1216, 86 L.Ed. 1682, rehrg. denied 317 U.S. 706, 63 S.Ct. 76, 87 L.Ed. 563.) In fact, the United States Department of Labor has adopted regulations regarding the fluctuating workweek. (29 C.F.R., § 778.114.) The regulations issued under the Walsh-Healey Act, 41 U.S.C. sections 35-45, and the Wage and Hour Division bulletin interpreting the FLSA both authorize the use of the fluctuating workweek.
Skyline argues that the IWC was presumably well aware of these regulations and the Overnight decision when it adopted the overtime provisions and "regular rate of pay" concept, and thus it should be assumed that the IWC intended "regular rate of pay" to carry the same meaning as it had under federal law.
Amicus argues that the IWC intended to adopt and follow all established overtime standards under federal law because it adopted the definition of "workday" and "workweek" under the Walsh-Healey Act federal law, thus presumably the IWC also adopted the federal definition of "regular rate of pay."
Both of these arguments ignore the fact that the IWC wage order clearly adopts a different...
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Wage and Hour Case Notes
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