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California Law Doesn't Follow Federal/ FLSA regarding Regular Rate of Pay (Part 2)

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California Supreme has liberally construed California’s wage laws in favor of worker protection

The California Supreme Court has repeatedly stated that California’s wage laws are to be liberally construed to protect workers.
 
All of the following California Supreme Court cases: Brinker, Ayala, Peabody, Iskanian, Mendiola, Kilby, Augustus, Williams, Alvarado, Dynamex, and Troester - - all stand for the proposition that the California Labor Code and California’s Wage Orders must be interpreted liberally in order to protect workers.
 

This is Part 2 of a 4 Part series of articles on California regular rate of pay 

 

Part 1:  California Regular rate of pay - understanding how to get the wages you are entitled to under California wage law

Part 2:  This article / webpage: California Law Doesn't Follow Federal/ FLSA regarding Regular Rate of Pay

Part 3:  What compensation is included in calculating your regular rate of pay

Part 4:   How to calculate regular rate of pay, providing step by step mathematical computations  for regular rate of pay

 

What is covered in this article on regular rate of pay? 

When you bring a regular rate of pay case, you may be faced with the prospect of convincing the court and your employer that California law does not follow federal law/ the FLSA regarding regular rate of pay. The issue here is that the DLSE Manual is simply incorrect in the DLSE's conclusion that California adheres to federal law regarding regular rate of pay. 

In this article, I give you all the authority you need to persuade your court and the company in your case that California doesn't follow federal law in regards to regular rate of pay.  Why is this so important? Because if you prevail in this argument you may be entitled to A LOT of unpaid wages. 

In this article on California regular rate or pay, I answer these questions and address these issues: 

California Supreme has liberally construed California’s wage laws in favor of worker protection
 
What about all the cases that say "When defining the term 'regular rate of pay,'” California courts look to the FLSA?” 
 
What about the Ralphs case? ... why the Ralphs case doesn’t actually say what people say it says
 
The California Supreme Court in Alvarado rejected the notion that  federal law must be applied because there was no state law on regular rate
 
The DLSE Manual is wrong by relying on federal law in regards to regular rate of pay compensation
 
Isn’t what is in the DLSE Manual “the law?” 
 
The DLSE is cryptic in referring to itself in quotes by the California Supreme Court
 
The DLSE Manual asserts that California adheres to federal law regarding regular rate of pay - without providing one California case, Statute and/or Wage Order that supports this assertion 
 
The California Supreme Court has  repeatedly rejected that California wage law follows Federal wage law
 
California Supreme Court cases that reject that California follows federal wage law
 
Ramirez v. Yosemite Water Co. (1999) - “reliance on federal regulations or interpretations to construe state regulations is misplaced”
 
Martinez v. Combs (2010) - “where the IWC intended the FLSA to apply to wage orders, it has specifically so stated” and courts must interpret the Wage Orders  to provide greater protection to workers than federal law affords
 
Morillion v. Royal Packing Co. (2000) - California wage law provides greater protection than the FLSA, thus, California doesn’t follow federal wage law and importantly, “where the IWC intended the FLSA to apply to wage orders, it has specifically so stated” 
 
The conclusion in the DLSE Manual that California adheres to federal law regarding regular rate of pay is completely contradicted by the California Supreme Court in Martinez and Morillion
 
Peabody v. Time Warner (2014) - Once again, the California Supreme court held California wage law does not follow federal wage law
 
Mendiola v. CPS Security (2015) - California does not incorporate federal wage law into California’s Wage Orders - federal law is not implicitly incorporated into the Wage Orders
 
The DLSE Manual's contention that FLSA's regular rate of pay laws are incorporated into the Wage Orders was specifically rejected by the California Supreme Court in Mendiola
 
Alvarado v. Dart Container Corp. (2018)  - state law is controlling  to the extent it is more protective of workers than federal law in regards to regular rate of pay; rejected the notion that  federal law must be applied because there was no California law on regular rate 
 
Troester v. Starbucks Corp. (2018) - "We will not presume the IWC intended to incorporate a less protective federal rule without evidence of such intent"
 
None of the California Wage Orders show any intent to somehow exclude compensation for regular rate of pay
 
Let's take a closer look into the FLSA
 
The FLSA has statutory exclusions to regular rate 
 
California has no statutory exclusions for compensation for regular rate of pay
 
Why is it important to consider the California Supreme Court, public policy and protecting workers? 
 
The California Supreme Court is getting more worker friendly one opinion at a time
 
What is the proof in the pudding? ...The millions and millions of dollars in wage and hour settlement money my clients have received based upon my contentions that are the same as the ones are presented in this article on regular rate of pay
 
At the end of the day - you have extremely powerful authority to persuade the court that California doesn't follow federal law regarding regular rate of pay


What about all the cases that say "When defining the term 'regular rate of pay,'” California courts look to the FLSA?”
 

There are a bunch of cases where courts have stated, "When defining the term 'regular rate of pay,' California courts look to the FLSA."  Culley v. Lincare Inc., 236 F. Supp. 3d 1184, 1190 (E.D. Cal. 2017). Citing Advanced-Tech Sec. Servs., Inc. v. Superior Court, 163 Cal. App. 4th 700 (2008).
 
The court in Advanced—Tech Sec. Servs. 163 Cal. App. 4th 700, 707, 77 Cal. Rptr. 3d 757 (2008) held that California courts look to Department of Labor regulations interpreting the "regular rate" of pay under the FLSA to interpret that term as used in California Labor Code § 510. Advanced—Tech Sec. Servs., Inc. v. Superior Court, 163 Cal. App. 4th 700, 707 (2008).
 
Court frequently cite to the Ralphs case for the proposition that, absent controlling or conflicting California law, "California follows the federal standard for purposes of determining, under the Labor Code, what constitutes an employee's regular pay subject to an overtime rate." Prachasaisoradej v. Ralphs Grocery Co., 42 Cal. 4th 217, 242 n.14, 64 Cal. Rptr. 3d 407, 165 P.3d 133 (2007) (citing Huntington Mem'l Hosp. v. Superior Court, 131 Cal. App. 4th 893, 902, 32 Cal. Rptr. 3d 373 (2005)).
 
If you notice, these cases all eventually cite to the Ralph’s case. However, I suggest, not so fast.
 

What about the Ralphs case? ... why the Ralphs case doesn’t actually say what people say it says

 
Please recall that some courts cite the Ralphs case for the support that California follows the federal law in determining regular rate of pay. Not so.
 
The issue that was being discussed in Ralphs was whether a profit sharing plan was legitimate would be “excludable from ‘regular pay for purposes of calculating an employee's overtime rate. 29 U.S.C. § 207(e)(3).’” However, the California Supreme Court in Ralphs simply did not decide the issue:
 
 Amici curiae assert that Ralphs' was an unqualified plan under these standards insofar as supplementary incentive compensation payments for a particular store's employees rose when their productivity and efficiency increased that store's revenues and reduced its operating costs, but fell when the opposite result occurred. Even if amici curiae are correct that amounts paid out under Ralphs' plan did not qualify, under overtime rules, for exclusion from employees' regular pay— an issue we need not and do not decide —that issue simply has nothing to do with whether Ralphs was precluded from offering such a plan under California law.
 Prachasaisoradej v. Ralphs Grocery Co., Inc. (2007) 42 Cal.4th 217, 242, fn. 14. (Emphasis added). 
 
 
Thus, Ralph’s doesn’t really stand for what other courts have repeatedly said that Ralph’s  stands for.  Instead, the Ralph’s court didn’t decide what is excluded from regular rate of pay, “we need not and do not decide...” Prachasaisoradej v. Ralphs Grocery Co., Inc. (2007) 42 Cal.4th 217, 242, fn. 14.
 

The California Supreme Court in Alvarado rejected the notion that  federal law must be applied because there was no state law on regular rate

The court of Appeals in Alvarado made the same mistake that the foregoing cases made that held that California wage law looks to federal wage law.
 
The California Supreme Court in Alvarado completely rejected the notion that federal law must be applied because there was no state law on regular rate:
 
 The Court of Appeal erred, therefore, in concluding that there was no state law governing the issue we must decide and that federal law, on that account, applied. The Court of Appeal said: “By not regulating overtime pay on bonuses, the state has in effect left to federal regulation computing overtime on bonuses. … This court … cannot mandate and enforce compliance with plaintiff's proposed formula … , when there is no applicable statute or regulation providing for such a formula. … [D]efendant's use of the federal formula is lawful because … there is no state law or regulation providing an alternative formula. [¶] … [T]here is no law or regulation the trial court or  this court can construe or enforce … other than the applicable  federal regulation … .” (Italics added.)
 
These assertions are simply incorrect. There is state law for the courts to construe and enforce; it is Labor Code section 510 and Wage Order No. 1, both of which require the payment of an overtime premium based on an employee's “regular rate of pay.”
 Alvarado v. Dart Container Corp. of California (2018) 4 Cal.5th 542, 560. (Emphasis added). 
 
Bill Turley Testifying before the California State Senate on Wage Legislation 

Bill Turley before the California State Senate on wage legislation


The DLSE Manual is wrong by relying on federal law in regards to regular rate of pay compensation

 
Okay. I know that I am taking on the DLSE here. I get it.  But sometimes the DLSE is just wrong. This is one of those times. Let me explain.

The DLSE Manual is simply incorrect in relying on the FLSA in determining payments (read: compensation) that are to be excluded in the determining “regular rate.”
 
First, let’s put this in perspective. The compensation that is to be included or excluded in the regular rate is the top part of our regular rate fraction. That is, the numerator. The more compensation that is included in the numerator - the larger your regular rate of pay and the higher your overtime rate. The, make no mistake about it - we are talking about your money here (read: your wages). I explain this in Part 1 of this series of articles on regular rate of pay
 
In the DLSE Manual there is a section entitled: Payments that are to be excluded in the determining “regular rate.” DLSE Manual March, 2010 49.12.4 Pages 49-2 to 49-4.
 
Note: the DLSE Manual has different publication dates for each of the pages in the DLSE Manual. When there is a change in the law or an update in the law, the particular page is sometimes “updated.” I say sometimes, because I will see one page updated and other pages still don’t have the new case or change in the law.
 
In any event, this section (read: regular rate of pay) in the DLSE Manual is almost all based upon the Federal Labor Standards Enforcement (FLSA). Meaning Federal law. 
 
In case you might have missed it, the employer in the Alvarado Supreme Court case was urging the Supreme Court to follow the federal method of computing regular rate for a flat-rate bonus. 
 
That is, dividing the total compensation by the actual hours worked - both straight time (regular time) and overtime hours in order to determine the regular rate of pay.  The California Supreme Court specifically declined to follow federal law - by holding that California Law is more protective than federal law. Alvarado v. Dart Container Corp. of California (2018) 4 Cal.5th 542, 554.
 
Admittedly, the Alvarado case concerned a flat rate bonus and the California Supreme Court did not rule on how to calculate other types of compensation. However, what is clear from Alvarado, is that California does not follow federal wage law. I will explain. 
 
In paragraph after paragraph in the current DLSE Manual, the DLSE quotes the FLSA in “payments that are excluded in determining the regular rate.” DLSE Manual March, 2010 49.12.4 Pages 49-2 to 49-4. As I explain more later in this article, the DLSE Manual is simply wrong in relying on federal law to exclude compensation for regular rate.


Isn’t what is in the DLSE Manual “the law?”

 
No. The Supreme Court directly addressed this issue in the Alvarado case and the Tidewater case. In fact, the Supreme Court called the DLSE Manual “a void underground regulation:”
 
 The policy satisfies the definition we set forth in Tidewater for a regulation that is subject to the APA. It is “intend[ed] … to apply generally, rather than in a specific case,” and it “‘implement[s], interpret[s], or make[s] specific the law enforced or administered by [the DLSE] … .’” ... Moreover, the policy “predicts how the agency will decide future cases” , and in that sense,
 
The DLSE Manual “...  is intended to influence both the present and future behavior of employers. Finally, the DLSE Manual does not cite any agency decisions or advice letters that support the policy,  and it therefore is not merely a restatement or summary of such decisions or advice letters. Hence, the policy is a regulation, and ...because, like other portions of the DLSE Manual, it was not adopted in accordance with the APA, it is void. But the DLSE's policy is not necessarily wrong just because it is set forth in a void underground regulation. The policy interprets controlling state law, and that interpretation may be correct.  Alvarado v. Dart Container Corp. of California (2018) 4 Cal.5th 542, 560.
 
And, that interpretation, may be incorrect. 
 
In a nutshell, as pointed out in Alvarado, the DLSE Manual was correct in stating that California does not follow federal law in regards to calculating regular rate of pay regarding flat rate.  Why the DLSE Manual is also relying on federal law in regards to what compensation to excluded in the regular rate of pay calculation is frankly, somewhat baffling.
 
Here, it is my take, that the DLSE Manual is simply incorrect in it’s extremely narrow interpretation of the Alvarado decision.
 
Bill Turley was called "California's Leading Wage and Hour Class Action Lawyer" 
 
Regular rate of pay in California - the most comprehensive article. Period.
 
 
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The DLSE Manual is cryptic in referring to itself in quotes by the California Supreme Court

Interestingly, the DLSE Manual refers to the DLSE Manual - quoting the California Supreme Court in  - “as DLSE internal documents” which were “underground regulations.” DLSE Manual 49-5 May, 2007, quoting the California Supreme Court in the case of Tidewater Marine Western, Inc. v. Bradshaw (1996) 14 Cal.4th 557, 563.
 
The DLSE Manual is actually fairly cryptic in that the DLSE Manual doesn’t explain that the term “underground regulation” is in reality, referring to the DLSE Manual.
 
Stated differently, the California Supreme Court in Alvarado and Tidewater referred to the DLSE Manual as "void underground regulations." Instead of the DLSE acknowledging that the California Supreme Court had termed the DLSE Manual as "void underground regulations" , the DLSE Manual instead appears to refer to the "void underground regulations" as "DLSE internal documents." 
 
Which is interesting in that the California Supreme Court agreed with the DLSE Manual's conclusion that California didn't follow federal law in regards to flat rate bonuses and calculating regular rate of compensation in the Alvarado case. 
 

The DLSE Manual asserts that California adheres to federal law regarding regular rate of pay - without providing one California case, Statute and/or Wage Order that supports this assertion 

 
The DLSE Manual states, in not defining the term “regular rate of pay”, the Industrial Welfare Commission has manifested its intent to adopt the definition of “regular rate of pay” set out in the Fair Labor Standards Act (“FLSA”). DLSE Manual 49.1.2 June, 2002 Page 49-1
 
Again, although this page is dated 2002, it is part of the current DLSE Manual.
 
The DLSE Manual goes on to state, “In determining what payments are to be included in or excluded from the calculation of the regular rate of pay, California law adheres to the standards adopted by the U.S. Department of Labor to the extent that those standards are consistent with California law.”   DLSE Manual 49.1.2 June, 2002 Page 49-1. (Emphasis added). 
 
The DLSE Manual states this without providing one California case, Statute and/or Wage Order that supports this baseless assertion that California law adheres to federal standards.
 
Which is somewhat perplexing because the California Supreme Court in Alvarado appears to have rejected the FLSA method of calculating the regular rate of pay.
 
Further, this 2002 page in the DLSE Manual is completely in disagreement with the California Supreme Court decisions in Ramirez, Martinez v. Combs, Morillion, Peabody, Mendiola,  Alvarado, and Troester.  Let's look closer at these cases. 
 

The California Supreme Court has  repeatedly rejected that California wage law follows Federal wage law 

I know that it may sound like I’m kicking a dead horse here. But, since I am taking on the DLSE Manual and all of these courts that seem to cling to the “California follows federal wage law,” It’s important to dispel this notion once and for all. Because, as you will see, the California Supreme Court has been trying to debunk that “California follows federal wage law” for a long time. 
 

California Supreme Court cases that reject that California follows federal wage law

 
Let’s take a look at some of the California Supreme Court cases that reject that California follows federal wage law.
 

Ramirez v. Yosemite Water Co. (1999) - “reliance on federal regulations or interpretations to construe state regulations is misplaced”

The Ramirez case was about whether employees are exempt employees because they are “outside sales persons.” The employer in Ramirez was urging the court that California law was the same as federal law regarding the “outside sales person” exemption.
 
The California Supreme Court in Ramirez held:
 
 “By choosing not to track the language of the federal exemption and instead adopting its own distinct definition of "outside salespersons," the IWC evidently intended to depart from federal law and to provide, at least in some cases, greater protection for employees. Ramirez v. Yosemite Water Co. (1999) 20 Cal.4th 785, 797. (Emphasis added). 
 
The California Supreme Court in Ramirez  cautioned against “confounding federal and state labor law.”  Ramirez v. Yosemite Water Co., 20 Cal. 4th 785, 798 (1999). “... [W]here the language or intent of state and federal labor laws substantially differ, reliance on federal regulations or interpretations to construe state regulations is misplaced.” Ramirez v. Yosemite Water Co., 20 Cal. 4th 785, 798 (1999). (Emphasis added). 
 
The Ramirez case certainly suggests that California wage law not adhere to the federal wage laws as is suggested by the DLSE and some courts. 


Martinez v. Combs (2010) - “where the IWC intended the FLSA to apply to wage orders, it has specifically so stated” and courts must interpret the Wage Orders  to provide greater protection to workers than federal law affords
         

In Martinez v. Combs the California Supreme Court stated, the language used by the IWC in wage orders since 1947 to define “employer”— “employs or exercises control over the wages, hours, or working conditions of any person” —does not appear anywhere in the FLSA (29 U.S.C. § 201 et seq.) or its implementing regulations.
Martinez v. Combs (2010) 49 Cal.4th 35, 67.
 
Importantly, The California Supreme Court in Martinez explained:
 
The IWC has on occasion deliberately incorporated federal law into its wage orders. However, “where the IWC intended the FLSA to apply to wage orders, it has specifically so stated.” For example, IWC wage orders Nos. 1-2001 through 13-2001, 15-2001 and 16-2001 all expressly incorporate specific federal regulations issued under the FLSA to define exempt executive, administrative and/or professional employees. In contrast, the wage order applicable to this case (Wage Order No. 14) and one other (IWC Wage Order No. 17-2001) do not. The only reference to federal law in Wage Order No. 14 appears in a provision exempting individuals participating in national service programs. All wage orders contain a similar provision. No wage order, however, incorporates federal law in defining the terms “employ” or “employer.”
Martinez v. Combs (2010) 49 Cal.4th 35, 67. (Emphasis added).
 
In Martinez v. Combs the California Supreme Court held that, “Courts must give the IWC's wage orders independent  effect in order to protect the commission's delegated authority to enforce the state's wage laws and, as appropriate, to provide greater protection to workers  than federal law affords.” Martinez v. Combs (2010) 49 Cal.4th 35, 68.
 
Importantly regarding regular rate of pay, there is no incorporation in any of  the Wage Orders that California intends to incorporate the FLSA regular rate of pay exclusions. In other words, the IWC didn’t intend the FLSA to apply to the Wage Orders in regards to regular rate of pay. 


Morillion v. Royal Packing Co. (2000) - California wage law provides greater protection than the FLSA, thus, California doesn’t follow federal wage law and importantly, “where the IWC intended the FLSA to apply to wage orders, it has specifically so stated”

 
The California Supreme Court in Morillion held that California doesn’t follow federal law when state law provides more protection to workers:
 
Our departure from the federal authority is entirely consistent with the recognized principle that state law may provide employees greater protection than the FLSA. ... IWC's wage orders, although at times patterned after federal regulations, also sometimes provide greater protection than is provided under federal law in the [FLSA] . . . ."... Indeed, we have recognized that "past decisions additionally teach that in light of the remedial nature of the legislative enactments authorizing the regulation of wages, hours and working conditions for the protection and benefit of employees, the statutory provisions are to be liberally construed with an eye to promoting such protection." ...Finally, we note that where the IWC intended the FLSA to apply to wage orders, it has specifically so stated. (See Cal. Code Regs., tit. 8, § 11040, subd. 2(H), 11050, subd. 2(H) ["Within the health care industry, the term 'hours worked' means the time during  which an employee is suffered or permitted to work for the employer, whether or not required to do so, as interpreted in accordance with the provisions of the [FLSA]".
 Morillion v. Royal Packing Co. (2000) 22 Cal.4th 575, 592; California Wage Order 5. (Emphasis added).
 
The important part with the Morillion case for our discussion is this. As in Wage Order 5, the California IWC had no problem in adopting federal law into the Wage Order. The IWC certainly knew how to incorporate federal law into the Wage Order.
 
Based upon Ramirez, Martinez and Morillion, absent the intentional incorporation of the federal law into the Wage Order, the California Supreme Court is not going to incorporate part of the federal law into the Wage Orders. No matter how many times companies are going to try and get away with it.  And, even when the DLSE Manual says that California adopts federal wage law into the Wage Orders.
 

The conclusion in the DLSE Manual that California adheres to federal law regarding regular rate of pay is completely contradicted by the California Supreme Court in Martinez and Morillion

The DLSE Manual states: 
 
 In determining what payments are to be included in or excluded from the calculation of the regular rate of pay, California law adheres to the standards adopted by the U.S. Department of Labor to the extent that those standards are consistent with California law.
DLSE Manual 49.1.2, Page 49-1, June, 2002.
 
This statement is directly contradicted by the holdings in Morillion that, “where the IWC intended the FLSA to apply to wage orders, it has specifically so stated.” Morillion v. Royal Packing Co. (2000) 22 Cal.4th 575, 592. See also Martinez v. Combs (2010) 49 Cal.4th 35, 67
 
The DLSE Manual provides absolutely no authority for this sweeping statement that California law adheres to federal law regarding regular rate of pay. Instead, the DLSE Manual simply cites to the FLSA such as: “Discussed in 29 CFR § 778.212,” “Discussed in 29 CFR §§ 778.216 through 778.224.”  


Peabody v. Time Warner (2014) - Once again, the California Supreme court held California wage law does not follow federal wage law

The California Supreme Court in Peabody concerns whether California follows federal wage law in regards to commissioned sales employee exemption. The California Supreme Court in Peabody held that the employer’s reliance on Federal law in interpreting California wage laws was misplaced.  In Peabody, the employer contended that federal law permits the sort of wage attribution it advocated, and it urged the California Supreme Court to follow suit. The California Supreme court held:
 
 
Although it is true that the commissioned employee exemption has a federal counterpart in 29 U.S.C. section 207(i), “[w]e have previously cautioned against ‘confounding federal and state labor law’ … ‘… where the language or intent of state and federal labor laws substantially differ.’ ” (Martinez v. Combs, (2010) 49 Cal.4th 35, 68.) Unlike state law, federal law does not require an employee to be paid semimonthly... It also permits employers to defer paying earned commissions so long as the employee is paid the minimum wage in each pay period... In light of these substantial differences from California law, reliance on federal authorities to construe state regulations would be misplaced.
 
 In conclusion, we hold that an employer satisfies the minimum earnings prong of the commissioned employee exemption only in those pay periods in which it  actually pays the required minimum earnings. An employer may not satisfy the prong by reassigning wages from a different pay period.
 Peabody v. Time Warner Cable, Inc. (2014) 59 Cal.4th 662, 669-670. (Emphasis added). 
 
Thus, in Peabody, the California Supreme Court once again reaffirmed that courts should not rely on federal law in when interpreting more liberal state wage laws.


Mendiola v. CPS Security (2015) - California does not incorporate federal wage law into California’s Wage Orders - federal law is not implicitly incorporated into the Wage Orders

Once again, the California Supreme has held that California wage law does not follow federal wage law. In Mendiola, the California Supreme Court rejected the employer's argument that federal DOL regulations furnished the appropriate definition for hours worked under California's wage order. Mendiola v. CPS Security Solutions, Inc. (2015) 60 Cal.4th 833, 842-844.
 
Importantly, was the California Supreme Court emphasizing that it had previously "cautioned against confounding federal and state labor law," the California Supreme Court ruled that the language of Wage Order 4 did not evidence the state Industrial Welfare Commission's intent to incorporate, by reference, federal law and regulations. Mendiola v. CPS Security Solutions, Inc. (2015) 60 Cal.4th 833, 847. (Emphasis added). 
 
The California Supreme court directly rejected the Court of Appeals argument that federal law “is implicitly incorporated into all 16 industry-specific wage orders." Mendiola v. CPS Security Solutions, Inc. (2015) 60 Cal.4th 833, 847.
 

The DLSE Manual's contention that FLSA's regular rate of pay laws are incorporated into the Wage Orders was specifically rejected by the California Supreme Court in Mendiola

 
This is the same argument advanced in the DLSE Manual, “In not defining the term “regular rate of pay”, the Industrial Welfare Commission has manifested its intent to adopt the definition of “regular rate of pay” set out in the Fair Labor Standards Act (“FLSA”) 29 USC § 207(e).DLSE Manual, 49.1.2, Page 49-1, June, 2002. 
 
Make no mistake about it, the DLSE Manual is advocating that federal law is implicitly incorporated into the California Wage Orders regarding regular rate of pay.  This "implicit incorporation" of the FLSE into the Wage Orders was specifically rejected in Mendiola. 
 
 
Just so there is no confusion here. There is no place in the California Wage Orders that incorporates federal law in regards to regular rate of pay. Either implicitly or explicitly. It’s just not there.


       
Alvarado v. Dart Container Corp. (2018)  - state law is controlling  to the extent it is more protective of workers than federal law in regards to regular rate of pay; rejected the notion that  federal law must be applied because there was no California law on regular rate 

In Alvarado the California Supreme Court dispelled any argument that somehow unlike every other part of federal wage law that isn't specifically adopted by the Wage Orders, that California law has implicitly adopted federal law regarding regular rate of pay. 
 
The California Supreme Court in Alvarado case held that California wage law does not follow federal wage law:
 
These requirements are more protective of workers than federal law, which does not require premium pay for workdays in excess of eight hours. Moreover, it is well settled that federal law does not preempt state law in this area, and therefore state law is controlling  to the extent it is more protective of workers than federal law. Alvarado v. Dart Container Corp. of California (2018) 4 Cal.5th 542, 554.
 
The California Supreme Court in Alvarado rejected the notion that  federal law must be applied because there was no California state law on regular rate. Alvarado v. Dart Container Corp. of California (2018) 4 Cal.5th 542, 560.

Troester v. Starbucks Corp. (2018) - "We will not presume the IWC intended to incorporate a less protective federal rule without evidence of such intent"

In Troester  the federal de minimis rule  was rejected by the California Supreme Court. The federal de minimis rule states that employers don’t have to pay employees for small amounts of work time. The California Supreme Court once again in Troester found that the IWC had not adopted the FLSA (read: Federal law) in interpreting California wage law. Troester v. Starbucks Corp. (2018) 5 Cal.5th 829, 835.
 
The California Supreme Court held:
 
 
Here, the DLSE's adoption of the federal de minimis rule appears to be based on the general proposition that federal case law construing the FLSA “may sometimes provide guidance to state courts in interpreting the IWC Orders.” (DLSE Opn. Letter No. 1988.05.16, at p. 1.) But we will not presume the IWC intended to incorporate a less protective federal rule without evidence of such intent, and we see no sign of such intent here.
 Troester v. Starbucks Corp. (2018) 5 Cal.5th 829, 841. (Emphasis added).
 
As the California Supreme Court points out in Troester, the DLSE is incorrect by relying on Federal law in interpreting California Wage Orders.
 
The DLSE Manual’s adopting federal law in interpreting regular rate of pay is simply misplaced.
 

None of the California Wage Orders show any intent to somehow exclude compensation for regular rate of pay

 
There is no intent in any of the California Wage Orders that California was following the exclusions contained in Federal law for exceptions to compensation in regard to regular rate of pay.
 
We should perhaps, first focus on compensation that even the DLSE agrees should be included in calculating the regular rate of pay.  Then we will look at the FLSA exclusions to regular rate of pay and discuss those.
       
However, no matter what the DLSE Manual states, absent an intent in the California Wage Orders, California law does not follow federal law in excluding compensation from the regular rate calculation. Ramirez v. Yosemite Water Co., 20 Cal. 4th 785, 798 (1999); Martinez v. Combs (2010) 49 Cal.4th 35, 67; Morillion v. Royal Packing Co. (2000) 22 Cal.4th 575, 592; Peabody v. Time Warner Cable, Inc. (2014) 59 Cal.4th 662, 669-670; Mendiola v. CPS Security Solutions, Inc. (2015) 60 Cal.4th 833, 847; Alvarado v. Dart Container Corp. of California (2018) 4 Cal.5th 542, 554; Troester v. Starbucks Corp. (2018) 5 Cal.5th 829, 841.

 

Let's take a closer look into the FLSA

 
In the Fair Labor Standards Act (FLSA) (29 U.S.C. § 201 et seq.), the “regular rate” is defined as “all remuneration for employment paid to, or on behalf of, the employee … .” (29 U.S.C. § 207(e). Huntington Memorial Hospital v. Superior Court (2005) 131 Cal.App.4th 893, 903.
For example, the amount of the bonus is merely added to the other earnings of the employee (except statutory exclusions) and the total divided by total hours worked.
29 C.F.R. § 778.209.
 
Remember, there are two main issues in regards to the difference between California law in regards to regular rate of pay and federal law.
 
First, is whether the total hours worked (overtime hours and nonovertime hours) or just nonovertime hours should be used in the divisor (read: denominator) in calculating the regular rate of pay.  The California Supreme Court ruled in Alvarado that for a flat bonus, only the nonovertime hours be used in the divisor/ denominator.
 
Second, is what compensation should be included and/or excluded in the numerator in the regular rate of pay calculation.
 
The issue here is that the FLSA and regulations have exclusions to compensation for the calculating the regular rate of pay.  These are what was referred to earlier in this article as the exclusions to compensation that are in the current DLSE manual.
 
The whole rational to the exclusions being excluded from regular rate compensation is that California follows federal law in regards to California wage law generally and in regards to calculating regular rate of pay.
 
 

The FLSA has statutory exclusions to regular rate

 
The FLSA excludes several types of remuneration from the regular rate. Among the statutory exclusions are, in very basic terms:
 
 (1) gifts on special occasions; 207(e)(1).
 (2) payments made for occasional periods when no work is performed due to vacation, holiday, illness, or lack of work; 207(e)(2).
 (3) payments made for traveling and business expenses; 207(e)(2).
 (4) bonuses that are not promised and are determined in the employer's sole discretion as to the fact and amount of payment; 207(e)(3).
 (5) payments made pursuant to a bona fide profit-sharing plan; 207(e)(3).
 (6) talent fees paid to performers, radio and TV announcers; 207(e)(3).
 (6) contributions irrevocably made to a trustee or third person pursuant to a bona fide plan for providing old-age, retirement, life, accident, or health insurance; 207(e)(4).
 (7) extra compensation provided by a premium rate paid for working in excess of eight hours in one day or in excess of the employee's normal working hours; 207(e)(5).
 (8) extra compensation provided by a premium rate paid for working on Saturdays, Sundays, holidays, or regular days of rest; 207(e)(6).
 (9) extra compensation provided by a premium rate paid pursuant to an applicable employment contract or collective bargaining agreement for work outside the hours established in good faith by the contract or agreement as the basic, normal, or regular workday; 207(e)(7). and
 (10) any  value or income derived from grants or rights provided by the employer pursuant to a stock option or a bona fide employee stock purchase program.207(e)(8).
 29 U.S.C. § 207(e)(10-(8).
 

California has no statutory exclusions for compensation for regular rate of pay


 
Suffice it to say that California has no statutory exclusions to regular rate of pay.
 
And, if you recall, there are many California Supreme Court cases that hold that California law does “ not presume the IWC intended to incorporate a less protective federal rule without evidence of such intent." Troester v. Starbucks Corp. (2018) 5 Cal.5th 829, 835.
 
“Where the IWC intended the FLSA to apply to wage orders, it has be specifically so stated.” Martinez v. Combs (2010) 49 Cal.4th 35, 67; Morillion v. Royal Packing Co. (2000) 22 Cal.4th 575, 592.
 
The fact that the California Wage Orders have no exclusions for compensation for regular rate of pay means that California wage law does not follow the federal law regarding such exclusions.
 
It seems like the DLSE and others are making the very mistake that the California Supreme Court cautioned against in Troester:
 

 
But we will not presume the IWC intended to incorporate a less protective federal rule without evidence of such intent, and we see no sign of such intent here.
Troester v. Starbucks Corp. (2018) 5 Cal.5th 829, 841. (Emphasis added).

Thus, until either the California Supreme Court rules on this issue or the Wage Orders are amended to exclude compensation, the law in California is that there are no statutory exclusions to compensation for regular rate in California.

 

Why is it important to consider the California Supreme Court, public policy and protecting workers? 

The Alvarado case and all of the worker protection cases discussed in the article and and this article on the California Supreme Court gets it - - demonstrate that the California Supreme Court is very concerned about helping workers. 
 
When it comes down to it - the Alvarado case (and all of the California worker friendly cases that I have discussed in these articles demonstrate that the California Supreme Court is concerned about helping workers. 
 
California has a long-standing policy of discouraging employers from imposing  overtime work. For nearly a century, this policy has been implemented through regulations, called wage orders, issued by the Industrial Welfare Commission (IWC). Alvarado v. Dart Container Corp. of California, 4 Cal. 5th 542, 552- 553 (2018).
 
 
The state's labor laws are to be liberally construed in favor of worker protection. Alvarado v. Dart Container Corp. of California, 4 Cal. 5th 542, 561-562 (2018).  (Citing Brinker v. Superior Court  53 Cal. 4th 1004, 102 (2012).
 
The California Supreme Court in Alvarado explained the obligation courts have in interpreting California overtime laws:

“Therefore, in deciding how to factor a flat-sum bonus into an employee's overtime pay rate, we are obligated to prefer an interpretation that discourages employers from imposing overtime work and that favors the protection of the employee's interests.” Alvarado v. Dart Container Corp. of California, 4 Cal. 5th 542, 561-562 (2018).
 
The takeaway with the emphasis on discouraging overtime, protecting workers and the obligation courts have in interpreting California law in order to discourage employer's from imposing overtime and protecting workers is powerful. 
 
Everything that is in this article must be viewed in this tapestry laid out by the California Supreme court. 
 
 

The California Supreme Court is getting more worker friendly one opinion at a time

 
Here is a good example, compare the language regarding rest breaks in the Brinker California Supreme Court case in 2012 with the language in Augustus Supreme Court case in 2016. I know something about these cases because I represented the workers in the Brinker case and I wrote the winning brief in the Augustus case.
 
When I wrote the amicus brief in Augustus I urged the court to go further in protecting the workers than the lawyers that represented the employees were advocating. With my Supreme Court brief I was writing it for every worker in California - not just the workers in the Augustus case. The point I am making here is that the California Supreme Court went with my worker protection arguments.
 
This is the very reason why companies have paid millions of dollars to my clients in regular rate of pay cases where I have disagreed with the DLSE Manual and other so called “experts.”  Because at the end of the day, the company lawyers are telling the companies that they should not gamble their companies money with the worker friendly California Supreme Court.
 
This is why the most important part of the Alvarado decision is the court’s obligation in interpreting California’s overtime laws (which bears repeating):
 
When calculating regular rate of pay courts are “...obligated to prefer an interpretation that discourages employers from imposing overtime work and that favors the protection of the employee's interests.” Alvarado v. Dart Container Corp. of California, 4 Cal. 5th 542, 561-562 (2018). (Emphasis added). 


What is the proof in the pudding? ...The millions and millions of dollars in wage and hour settlement money my clients have received based upon my contentions that are the same as the ones are presented in this article on regular rate of pay

 
The proof is in the pudding is an idiom. According to the Urban Dictionary:
 
The original phrase is "The proof of the pudding is in the eating!" Which means you have to eat the pudding to know what's inside of it.
 
The modern version of "The proof is in the pudding," implies that there is a lot of evidence that I will not go through at this moment and you should take my word for it, or you could go through all of the evidence yourself.
 
Here, I mean it both ways. Let me explain. Here’s some of the evidence. I gave a whole lot more evidence in this article.
 
When I did a Google search for “California wages - regular rate of pay” or variations of that theme, many - if not most - of the web sites on the first page of Google rely on federal law (FLSA) in concluding how to properly calculate regular rate of pay. I get why. Because that is the way it was been done for years. And it’s what is in the current DLSE Manual. I get it. Most folks haven’t done the research or the analysis that is contained in this article.
 
The bottom line is that most folks have simply mis-read and/or mis-interpreted the full ramifications of the Alvarado case. And they haven’t considered all of the California Supreme Court cases that have said time and again that California law doesn’t follow federal law. That is why I laid all of these cases out in this article. 
 
But this is not the proof in the pudding that I am talking about.  The proof in the pudding is the millions and millions of dollars in wage and hour settlement money my clients have received based upon my contentions that are the same as the ones are presented in this article. That’s right. Our clients have received millions and millions of dollars in unpaid wages based upon the very same arguments that are presented in this article.
 
Most of the “experts” - that is the lawyers that you will find when you search Google for “California wage - regular rate of pay” calculate regular rate of pay seem to see the law differently than I suggest in this article. In some respects, who are you going to believe?  Them, or the millions and millions of dollars my clients have received based upon the regular rate of pay contentions made in this series of article? 
 
 
Regular rate of pay - settlements - happy clients
 
What this is all about - helping workers get their unpaid wages from the company. 
 
 
I am not suggesting that I promise you or your case the same results. Every case is different.
 
I am simply suggesting that at the end of the day, that you shouldn’t underestimate the heart of the California Supreme Court. The California Supreme Court gets it.
This is why the employers in the regular rate of pay cases that we have handled have paid millions of dollars in unpaid wages. Publicly, they will say one thing. Privately, they have counseled their clients to not bet against the California Supreme Court.
 
Again, this is not a guarantee that you will get the great results that we have gotten in other unpaid wages cases. Every case is different. There are no guarantees in life or law.
 

At the end of the day - you have extremely powerful authority to persuade the court that California doesn't follow federal law regarding regular rate of pay 

Which brings us back to where we started. With all due respect to the DLSE, the DLSE Manual has not engaged in the analysis contained in this article regarding California law not following federal law in regards to regular rate of pay. 
 
I have given you very powerful authority in this article. This legal analysis that will help both California courts and the employer/ company in your regular rate of pay case understand these legal issues. 
 
 
 
 
 
Call us at 619-304-1000  - If you call after regular business hours, when you leave a message, be sure to repeat your name and telephone number twice, so we get it correctly. And be sure to indicate whether it's okay if we respond by text.

Text us at 858-281-8008 - Be sure and put "new wage case" in your text.

Or leave us a message on this webpage
 
 
 
 
 
This article isn't legal advice
 
These discussions and/or examples are not legal advice. All legal situations are different. These testimonials, endorsements, photos and/or discussions do not constitute a guarantee, warranty, or prediction regarding the outcome of your legal matter, your particular case/ situation. Every case is different. There are any number of reasons why class actions are not certified, not won and/or PAGA actions are not successful.

Just because we have gotten great results in so many other unpaid wage cases, doesn't guarantee in particular result in other cases. Including, your wage case. Every case is different. In other words, your mileage may vary.
William Turley
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“When I seek out professional advice, I don’t want B.S., I want it straight up. I figure you do also.”
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