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California Supreme Court OKs More Generous Overtime Pay Formula (1)

March 5, 2018, 6:34 PM; Updated: March 5, 2018, 11:00 PM

Dart Container Corp. was wrong to use the cheaper federal formula for calculating overtime pay, rather than California’s standard, the state supreme court ruled, overturning a lower court.

The decision means overtime is likely to become more expensive for employers and more generous for workers, Joshua Rodine, a management attorney with Seyfarth Shaw LLP in Los Angeles, told Bloomberg Law.

The question before the court was whether overtime should be determined according to a formula adopted by a California labor commissioner policy and interpretations manual, or one laid out by the U.S. Labor Department in federal regulations.

“What the Division of Labor Standards Enforcement manual says is you don’t factor in the overtime hours when calculating the overtime rate,” Rodine told Bloomberg Law. That means the overtime rate is determined by dividing the worker’s hourly pay by 40, rather than including the overtime hours in that calculation.

“It makes the overtime rate higher because you’re dividing by fewer number of hours,” he said.

Overtime generally is one and a half times the regular rate of pay, so a larger regular rate results in more overtime. There are situations when overtime under California law may be higher than time and a half, such as working more than 12 hours in one day.

The high court decision reverses an intermediate appeals court, which found in 2016 that it was appropriate to use the federal formula to calculate Hector Alvarado’s overtime because it’s based on a regulation. It said the state formula, on the other hand, didn’t carry the force of law because it is laid out in a labor agency enforcement manual.

“When the employer has to conduct mathalympics, it usually means the paystub is noncompliant,” Richard Quintilone II, an attorney in Lake Forest, Calif., told Bloomberg Law. He filed an amicus brief in support of Alvarado on behalf of the California Employment Lawyers Association, a worker-side lawyers group.

“What goes into the sausage of a California employee’s pay? Everything,” he said. That means bonuses Dart paid Alvarado are counted in total compensation.

On the other side of fraction, only the non-overtime hours an employee works should be counted for determining an employee’s regular rate of pay, the court said. “You can’t use the overtime hours worked to dilute the regular rate calculation,” Quintilone said.

“It used to be that bonuses’ reach was limited with the more overtime hours worked,” Dennis Moss, a Sherman Oaks, Calif., lawyer who argued the case for Alvarado, told Bloomberg Law. “This puts an end to that in California.”

Joseph Lavi and Jordan Belo with Lavi & Ebrahimian in Beverly Hills, Calif. also represented Alvarado.

Dart didn’t immediately respond to a request for comment. Elizabeth Han, an associate with Best Best & Krieger LLP in Riverside, Calif., who represented Dart, referred Bloomberg Law to Howard Golds, a partner with the firm who didn’t immediately respond to a request for comment.

The case is Alvarado v. Dart Container Corp. of Cal., Cal., No. S232607, 3/5/18.

(Updated throughout with additional reporting.)

To contact the reporter on this story: Jon Steingart in Washington at jsteingart@bloomberglaw.com

To contact the editor responsible for this story: Terence Hyland at thyland@bloomberglaw.com

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