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Ruling Offers California Employers Guidance on Calculating Regular Pay Rate | Shook, Hardy & Bacon LLP

A Ninth Circuit panel recently ruled that Target Corp.’s payment practices are consistent with California law, and therefore Target’s motion for a trial of the pleadings should have been granted by the district court. See Bowen v Target Corp., #21-56136 (9th circle, 1 Nov 2022). The unpublished report provides guidance for California employers who are tasked with calculating an employee’s regular pay rate (RROP).

The plaintiffs alleged that Target’s method of calculating overtime pay violated the retention of Alvarado v Dart Container Corp., 411 P.3d 528 (Cal. 2018), which concerned the calculation of an employee’s RROP when an employee earns a flat attendance bonus. In this case, the California Supreme Court ruled that only non-overtime hours should be included in the calculation because flat-rate bonuses do not increase as more hours are worked. Otherwise, the numerator in the calculation (total compensation) would stay the same while the denominator (total hours worked) would increase, meaning that an employee’s RROP would gradually decrease as hours worked. Because Target included total hours worked in its RROP calculations and not just non-overtime hours, plaintiffs argued that Target’s practices violated California law.

However, the Ninth Circuit panel disagreed, noting that Target’s contested salary calculations did not include flat-rate bonuses. Contrary to the circumstances of Alvarado, Target’s RROP calculations included shift bonuses — hourly payments proportional to the number of hours worked. Therefore, Target’s calculation methodology did not result in an artificially declining RROP, and Target’s practices did not violate either stance or rationale Alvarado.

The panel similarly dismissed the plaintiffs’ allegation that Target violated California’s requirement that overtime be charged at a rate of “not less than one-and-a-half times the [RROP].” The panel found that Target’s payment methods resulted in overtime being paid at a rate of one and a half of an employee’s RROP and found no wage and hour violations in Target’s practices.

The panel therefore found that the plaintiffs’ claims were nothing more than a complaint that “Target should have used a payment method that maximized their overtime pay.” But because “California law does not require that finding,” the panel ruled that the district court should have granted Target’s motion for a trial of the briefs. This case should therefore remind employers that compliance with California wage and hour laws must be a top priority.

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