2 Litigating CA Wage & Hour and Labor Code Class Actions (22nd Edition) Seyfarth Shaw LLP | www.seyfarth.com II. Common Exempt Misclassification Claims The first wave of California class actions primarily challenged the exempt status of groups of employees holding the same job. The plaintiffs argued that the employer had engaged in a common practice of misclassifying a group of employees as exempt from overtime pay and other requirements, thus entitling all employees in the group to recover overtime pay, interest, and associated statutory penalties.2 The following discussion addresses issues arising around the misclassification of employees under various available exemptions. A. Overview of State Overtime Law3 Before January 1, 2000, the California Industrial Welfare Commission (“IWC”) was the body authorized by statute to set overtime requirements. It acted in a quasi-legislative capacity, promulgating a series of “Wage Orders“ that set rules for wages, hours, and working conditions that differed slightly from one industry to another. The IWC eliminated daily overtime from the Wage Orders in 1997.4 In response, in 1999 the Legislature passed AB 60, which inserted new provisions in the Labor Code to provide for daily overtime and to enshrine various employee protections that cannot be altered by the IWC.5 The Wage Orders remain in effect, but the IWC cannot promulgate rules within the Wage Orders that conflict with the Labor Code itself.6 Under Labor Code Section 510, employees are entitled to one and one-half times the regular rate7 of pay when they work more than eight hours in a single day, more than forty hours in a workweek, or during the first eight hours of the seventh consecutive day of a single workweek.8 Employees are entitled to double time when 2 Punitive damages are not recoverable when liability is premised solely on Labor Code wage and hour violations. Brewer v. Premier Golf Props., 168 Cal. App. 4th 1243, 1252 (2008). 3 California employers calculating overtime pay should know that the “regular rate” used to calculate overtime premium pay may differ from the straight-time rate. The regular rate “can change from pay period to pay period, includes adjustments to the straight time rate, reflecting, among other things, shift differentials and the per-hour value of any non-hourly compensation the employee has earned.” Alvarado v. Dart Container Corp. of California, 4 Cal. 5th 542, 554 (2018). In Alvarado, the California Supreme Court held that the methodology for calculating the regular rate can differ from that applied under the FLSA. Alvarado held that “flat sum” attendance bonuses (and likely other “flat sum” bonuses that do not increase in proportion to hours worked) “should be factored into an employee’s regular rate of pay by dividing the amount of the bonus by the total number of non-overtime hours actually worked during the relevant pay period and using 1.5, not 0.5, as the multiplier for determining the employee's overtime pay rate.” Id. at 573. 4 Collins v. Overnite Transp. Co., 105 Cal. App. 4th 171, 176 (2003). 5 See, e.g., Lab. Code § 510 (daily overtime requirement) and Lab. Code § 226.7 (meal and rest period requirements). Note that Labor Code section 510 does not apply to employees covered by a valid collective bargaining agreement if “the agreement expressly provides for the wages, hours of work, and working conditions of the employees” and “provides premium wage rates for all overtime hours worked and a regular hourly rate of pay for those employees of not less than 30 percent more than the state minimum wage.” Lab. Code § 514; see also Vranish v. Exxon Mobil Corp., 223 Cal. App. 4th 103 (2014) (affirming trial court ruling that employer: (1) properly paid overtime under the terms of a collective bargaining agreement; and (2) was exempted from Labor Code section 510 pursuant to Labor Code section 514). 6 Collins, 105 Cal. App. 4th at 178-80 (Wage Orders and Labor Code should be read together to understand scope of wage and hour regulation of California employees). 7 Recently, the Ninth Circuit held that per diem payments to employees must be factored into calculating an employee’s regular rate of pay for purposes of overtime compensation. Clarke v. AMN, 987 F.3d 848 (9th Cir 2021) 8 Note that employers may assign employees to work schedules that differ from company’s designated workweek or workday and base overtime calculations on the designated workweek or workday as long as the schedule is not established for the purpose of evading lawful overtime requirements. Seymore v. Metson Marine, 194 Cal. App. 4th 361 (2011).
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