Court Shows the Correct California Calculation of Flat-Rate Bonus Overtime

by Cathleen S. Yonahara

In a recent case, a California employer followed a federal regulation for calculating overtime on a flat-rate bonus. An employee filed a lawsuit alleging that the calculation was improper under California law. Which side ended up prevailing?

Facts

Dart® Container Corporation of California produces food service products, including cups and plates. Hector Alvarado worked for Dart as a warehouse associate from September 2010 until January 2012. According to Dart’s bonus policy, an attendance bonus of $15 per day would be paid to any employee who worked a full shift on Saturday or Sunday, regardless of the number of hours worked beyond the normal scheduled length of a shift.

The amount of overtime paid on attendance bonuses during a particular pay period was calculated as follows:

1. Multiply the number of overtime hours worked in a pay period by the straight hourly rate (straight hourly pay for overtime hours).
2. Add the total amount owed in a pay period for (a) regular nonovertime work, (b) extra pay such as attendance bonuses, and (c) overtime due from the first step. That total amount is divided by the total hours worked during the pay period. This amount is the employee’s “regular rate.”
3. Multiply the number of overtime hours worked in a pay period by the employee’s regular rate. This amount is then divided in half to obtain the “overtime premium” amount, which is multiplied by the total number of overtime hours worked in the pay period (overtime premium pay).
4. Add the amount from Step 1 to the amount in Step 3 (total overtime pay). This overtime pay is added to the employee’s regular hourly pay and the attendance bonus.

While employed by Dart, Alvarado earned attendance bonuses during weeks he worked overtime. In August 2012, Alvarado filed a complaint for damages and restitution, alleging that Dart had not properly computed bonus overtime under California law as set forth in the Divisions of Labor Standards Enforcement manual.

Section 49.2.4.2 of the manual states, “If the bonus is a flat sum, such as $300 for continuing to the end of the season, or $5.00 for each day worked, the regular bonus rate is determined by dividing the bonus by the maximum legal regular hours worked during the period to which the bonus applies.”

Dart asked the court to dismiss the case without a trial on the grounds that its formula for calculating overtime on attendance bonuses was lawful. Further, it argued that Alvarado’s proposed formula was based solely on void regulations from the DLSE manual.

The trial court dismissed the case, holding that Section 49.2.4.2 of the DLSE manual is a void regulation, and since there is no controlling California law, Dart properly followed federal regulations for computing overtime on bonuses.

Alvarado appealed. Read on to see the decision of the appeals court.