246 | 2024 Cal-Peculiarities ©2024 Seyfarth Shaw LLP www.seyfarth.com compensation that had been paid in the form of the restricted stock—if the employee quit or was dismissed for cause before the vesting date. An employee who took restricted stock and then quit before the vesting date sued to challenge the forfeiture provisions. The employee argued that the forfeiture violated Labor Code requirements that employees be paid all earned, unpaid wages upon termination or resignation, and a Labor Code provision that prohibits agreements that purport to circumvent those requirements. Schachter rejected the employee’s challenge because, according to the terms of the incentive plan, there were no earned, unpaid wages remaining unpaid upon termination of employment. That is, the plan provided a longevity bonus, which was never earned because the employee quit before the relevant date. Even in granting the employer a victory, however, Schachter found it necessary to opine that bonuses, commissions, and other incentive compensation may have to be paid where the worker does not quit but is fired: “If the employee is discharged before completion of all of the terms of the bonus agreement, and there is not valid cause, based on conduct of the employee, for the discharge, the employee may be entitled to recover at least a pro rata share of the promised bonus.” For this proposition Schachter cited no law but rather a DLSE Manual provision and a DLSE opinion letter. Schachter’s dictum did not address how the Supreme Court would interpret a 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,”420 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,421 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.422 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.
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