246 | 2023 Cal-Peculiarities ©2023 Seyfarth Shaw LLP www.seyfarth.com longevity bonus plan that expressly requires continued employment to a given date, regardless of the reasons for the termination of employment, but Schachter’s language strongly implies that a California employer could not deny the bonus if the employer has dismissed the employee without cause. 7.16.4 Retroactive bonus overtime pay Employers must pay overtime premium pay on non-discretionary bonuses paid to nonexempt employees. The federal method. A bonus amount must be included in the workweek in which it was earned. When the bonus earnings cannot be identified with particular workweeks, employers can adopt any “reasonable and equitable method of allocation” of the bonus to the relevant workweeks, such as assuming that employees earned an equal amount of bonus each hour of the relevant period and determining the resultant hourly increase by dividing the total bonus by the number of hours worked during the period for which the bonus is paid. “The additional compensation due for the overtime workweeks in the period may then be computed by multiplying the total number of statutory overtime hours worked in each such workweek during the period by one-half this hourly increase,”402 in recognition of the fact that the employee already has received the straight-time portion of the bonus. Peculiar California method for “flat sum” bonuses. For years, the DLSE, while recognizing that the federal method is proper to calculate overtime premium pay on a formula bonus, such as a production bonus,403 took a peculiar approach to a “flat sum” bonus, such as a payment of $300 for working through the end of a season. As to a “flat sum” bonus, the DLSE opined that the employer must calculate the regular rate by dividing the amount of the bonus by the straight-time hours worked, and then multiply that rate by 1.5 (for overtime) or 2.0 (for doubletime) to calculate the amount of overtime pay or double-time pay. The DLSE insisted that this peculiar arithmetic was needed to avoid a dilution of the bonus regular rate that, in the DLSE’s imagination, would somehow encourage employers to assign more overtime hours to bonus-earners.404 There was no particular law behind the DLSE’s position, as opposed to a policy preference that overtime work must be discouraged whenever and wherever and however possible. Thus, while federal law would determine a regular bonus rate on a “flat sum” bonus by dividing the bonus by all hours worked and then multiplying the number of overtime hours by 0.5 times the regular rate to determine the amount of bonus overtime pay, California would more than triple the amount of bonus overtime pay, by requiring employers to divide the bonus by only the straight-time hours worked and then multiply the number of overtime hours by 1.5 times the regular bonus rate. In 2016, the Court of Appeal, in Alvarado v. Dart Container Corp., rejected the DLSE’s notion, holding that California law follows federal law as to calculating “flat sum” bonuses.405 The employer in Alvarado calculated weekly bonus overtime pay. The employer’s method essentially divided the $15 weekly bonus by all weekly hours worked (both straight-time and overtime) to yield a bonus regular rate, and then multiplied one-half that amount by the number of weekly overtime hours to produce the weekly bonus overtime pay. The plaintiff claimed that this method of compliance with the federal method failed to pay overtime premium pay due under Labor Code sections 510 and 1194. The employer prevailed on summary judgment. The trial court found no legal basis for the plaintiff’s proposed formula, because federal law did not conflict with the employer’s method, and because the plaintiff was relying on notions of California public policy lifted from a dictum in the DLSE Enforcement Manual that lacks any legally binding effect. Thus, the Court of Appeal affirmed the trial court’s sensible result, recognizing that California employers may use the federal method to calculate the overtime pay due on bonuses. But then the California Supreme Court intervened, to take review of the case.406
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