April 2018 Employment Law Update: California Supreme Court Provides Instructions On Regular Rate of Pay and Court of Appeal Provides Relief To Staffing Agencies by Jing Li

Since our last Employment Law Update, published on January 9, 2018, there has been a decision by the California Supreme Court and one by the First Appellate District of the Court of Appeal that have far reaching consequences for some California employers.

Hector Alvarado v. Dart Container Corporation of California

In California, calculating overtime rate of pay is not as simple as multiplying an employee’s hourly rate by one and a half times. California requires employers to calculate an employee’s overtime rate based on the employee’s “regular rate of pay.”

“Regular rate of pay” has always been a confusing and misunderstood issue for many California employers. The California Supreme Court, in Hector Alvarado v. Dart Container Corporation of California, has provided some guidance and clarification on this issue with regards to how flat sum bonuses are factored into the “regular rate of pay.”

Defendant Dart Container Corporation of California (Dart) employed Plaintiff Hector Alvarado (Alvarado) as a warehouse associate. In order to reward employees that worked on weekends, Dart provided a flat sum attendance bonus of $15 per day for weekend work.

Alvarado, on behalf of a putative class of employees, sued Dart arguing that Dart had miscalculated his overtime rate of pay by incorrectly factoring the attendance bonus into his “regular rate of pay.” The parties agreed that the attendance bonus had to be calculated into the “regular rate of pay.” It was the formula for that calculation that was in dispute.

Due to a lack of state authority on the issue, Dart had used the federal Fair Labor Standards Act (FLSA) formula in calculating the regular rate of pay. Dart took the total non-overtime compensation that the employee received during the pay period and divided that by the total number of hours worked, including overtime hours. Alvarado, however, favored a different method, one in which the total non-overtime compensation is divided by the total non-overtime hours actually worked, which would produce a slightly higher regular rate of pay.

The Supreme Court acknowledged that Alvarado’s formula is not part of any case law or statute.  However, the Court replied on the interpretive regulation of the state’s Labor Commissioner’s (DLSE) manual to interpret  the relevant Labor Code Sections and Wage Orders to hold that Alvarado’s formula is the correct one.

The Court then went on to apply this formula retroactively, potentially exposing other California employers to liability, including class action claims.  In light of this decision, employers that compensate their non-exempt employees with anything more than just their hourly rate (i.e. commission, bonuses) should review their regular rate of pay formula with their employment counsel.

Norma Serrano v. Aerotek, Inc.

In a decision favorable to California staffing agencies, the Court of Appeal last month ruled in favor of Aerotek, Inc. (Aerotek), a staffing agency in a lawsuit by a former employee Norma Serrano  alleging failure to provide meal breaks. This case illustrates the importance of good written employment policies.

Aerotek placed Serrano as a temporary employee with Bay Bread, LLC (Bay Bread). Serrano raised four causes of action against both Aerotek and Bay Bread for failure to provide meal periods.

Aerotek on its part, had set forth compliant meal period policies in its employee handbook. Additionally, the contract between Aerotek and Bay Bread required Bay Bread to comply with applicable wage and hour laws. Aerotek then provided its meal period policy to temporary employees and trained them on it during orientation. Moreover, the policy requires employees to notify Aerotek if they believe they were being prevented from taking meal breaks. The Court held that this was sufficient for Aerotek, as a staffing agency, to meet its obligations to provide meal periods to its employees who work at its client’s location.

The Court further noted that even if Aerotek had actual or constructive knowledge that Serrano was not taking her meal breaks on time, this does not by itself establish liability “because an employer has no obligation to ensure that employees actually take provided breaks.”

This is a welcome relief for staffing agencies statewide. However, staffing agencies should still be vigilant in policing their meal period policies. The biggest takeaway from this case is that staffing agencies should ensure that they have state and federal law complaint written meal and rest break policies and that their contracts with their clients provide sufficient protections for both the employees and the company. Moreover, staffing agencies should ensure that they have an actual avenue for employees to report wage & hour violations and not just a policy that states that they can.

Conclusion

These are only some of the newest changes that continue to affect California employers. To the extent that any of these changes affect your business, we suggest that you amend your policies, practices, and procedures accordingly. If the need arises, we look forward to assisting you with any questions or concerns you may have with respect to your employment practices.

***The information provided in this article is for informational purposes only and not for the purpose of providing legal advice. You should contact your attorney to obtain advice with respect to any particular issue or problem.***