Wage and Hour Case Notes

• Citation: Vol. 30 No. 3
• Publication year: 2016
• Author: By Leonard H. Sansanowicz

Wage and Hour Case Notes

By Leonard H. Sansanowicz

Leonard H. Sansanowicz is a senior associate with Feldman Browne Olivares, APC and represents employees in all aspects of employment law. He has been a Southern California Rising Star each year since 2013 and in 2015 was named to the Up-and-Coming 100 list. He can be contacted at: leonard@leefeldmanlaw.com.

Because No California Law Specifies a Method for Computing Overtime on Flat Sum Bonuses, Company's Formula Suffices if it Complies with Federal Law

Alvarado v. Dart Container Corp. of Calif., 243 Cal. App. 4th 1200 (2016)

Departing from the holding in Marin v. Costco Wholesale Corp.¹ and invalidating the formula set forth in the Division of Labor Standards Enforcement (DLSE) Policies and Interpretations Manual, the Fourth District Court of Appeal held that an employer's formula for calculating overtime premium pay on flat sum bonuses paid in the same pay period in which they are earned, which complied with federal law, was permissible.

Bonuses can be paid either based on some percentage of production or as a flat sum; in this case, the company paid a bonus of $15 per day to those employees who worked a full shift on a Saturday or a Sunday, irrespective of the number of hours worked.

Defendant used the following formula to calculate overtime:

1. Multiply the number of overtime hours worked in a pay period by the straight hourly rate.
2. Add the total amount owed in a pay period for (a) regular non-overtime work, (b) extra pay such as attendance bonuses, and (c) the first step total. Divide by total hours worked during the pay period, to yield the employee's "regular rate."
3. Multiply the number of overtime hours worked in a pay period by the step two regular rate; divide by two to obtain the "overtime premium" amount; multiply by the total number of overtime hours worked in the pay period.
4. Add the amount from step 1 to the amount in step 3. Add total overtime pay to the employee's regular hourly pay and the attendance bonus.

Plaintiff argued that defendant's formula diluted and reduced the regular rate of pay by lumping together overtime and regular hours when calculating the overtime rate on the flat sum bonuses, and instead proposed the following formula, as set forth in the DLSE Manual and upheld in Marin:

1. Multiply regular hours by the employee's hourly rate (regular pay).
2. Multiply overtime hours by the employee's hourly rate (overtime pay on overtime hours).
3. Divide flat sum bonus by regular hours (overtime rate), and multiply by 1.5 (overtime pay on bonus).
4. Add pay for regular hours, bonus, overtime pay on overtime hours, and overtime pay on bonus (total pay).

The court of appeal held that federal law applied not because it preempted the California wage and hour framework (which it acknowledged was more protective than federal law) but because plaintiff improperly relied on Skyline Homes, Inc. v. Department of Industrial Relations,² which the Alvarado court noted had specifically dealt with the calculation of overtime wages for salaried employees, not hourly employees. The court also held that the DLSE Manual was comprised of void regulations,³ and that although courts must enforce the underlying wage orders upon which the DLSE's policies are based, neither the DLSE Manual nor DLSE opinion letters are binding on courts.⁴

Arbitration Agreement Held Both Procedurally and Substantively Unconscionable

Carbajal v. CWPSC, Inc., 245 Cal. App. 4th 227 (2016)

Defendant appealed an order denying its motion to compel arbitration. The Fourth District Court of Appeal found the ruling was correct, as the agreement was sufficiently unconscionable, both procedurally (as a contract of adhesion, and because the employer failed to articulate which arbitration rules applied or provide a copy of the applicable rules) and substantively (the employer retained the right to obtain injunctive relief in court for breach of the arbitration agreement yet required arbitration to be the sole remedy for its employees' relief, waived its statutory requirement to post a bond or undertaking to obtain injunctive relief, and waived its employees' right to statutory attorney's fees by requiring each party to bear its own fees). Each was held to present a moderate level of unconscionability.

The court of appeal further held that the trial court did not need to sever the offending contractual provisions before ruling as it did, nor did the trial court abuse its discretion in refusing to sever, as multiple unconscionable terms permeated the entire contract. The court of appeal also rejected the employer's argument that the injunctive relief carve-out was already provided for in the California Arbitration Act (CAA),⁵ finding that the carve-out provision (which could allow for a permanent injunction) was broader than the CAA, which only authorizes preliminary injunctive relief.⁶

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The court also held that the employer failed to timely present any evidence that the employment contract and the arbitration provision contained therein had a substantial relationship to interstate commerce and therefore found that the FAA did not...