(Tidewater, supra, 14 Cal.4th at p. 563.) The Tidewater court concluded federal law did
not preempt California law regulating maritime employment within California. (Id. at p.
564.) In reaching this conclusion, the Tidewater court noted that, “not only does the
FLSA leave ‘room’ for supplementary state regulation of overtime,” the FLSA expressly
states that it does not presumptively preempt state law regulation of overtime. (Id. at p.
567.) The Tidewater court explained that “[t]he FLSA includes a ‘savings clause,’
WHICH PROVIDES: ‘No provision of this chapter or of any order thereunder shall
excuse noncompliance with any . . . State law or municipal ordinance establishing . . . a
maximum workweek lower than the maximum workweek established under this chapter
. . . .’ (29 U.S.C. § 218(a).) The federal courts that have addressed this question have
interpreted this savings clause as expressly permitting states to regulate overtime wages.
[Citations.].)” (Ibid.) The Tidewater court concluded that none of the three situations in
which preemption may occur applied. (Id. at p. 568.)
Likewise, here, there is no federal law preemption. None of the three situations in
which preemption may occur applies here. First, the FLSA does not expressly preclude
states from regulating overtime applied to bonuses. Furthermore, as explained in
Tidewater, supra, 14 Cal.4th 557, the FLSA includes a savings clause which expressly
permits states to regulate overtime wages. Second, as indicated by our high court in
12
Tidewater, the federal law is not so comprehensive that it leaves no room for
supplementary state regulation of overtime. Third, federal and state laws regarding
overtime, as applied to bonuses, do not actually conflict; primarily because there is no
express state law providing a formula for calculating bonus overtime. Even though
federal law does not preempt state law here, this does not preclude applying federal law
where there is no state law regulating bonus overtime.
Plaintiff argues there is state law applicable to bonus overtime which is more
favorable than federal law. Citing Skyline, supra, 165 Cal.App.3d 239, plaintiff argues
federal formulas for calculating overtime cannot be used because they disregard the
differences in federal and California law and the federal formulas undermine the
legislative intent behind California overtime laws. In Skyline, the employer filed a
declaratory relief action against the DLSE, seeking a ruling that the employer’s method
for computing overtime pay for its salaried employees was proper. The employees
worked a fluctuating workweek, in which their work hours varied. On some days the
employees worked more than eight hours and on other days they did not work or only
worked a few hours. Some weeks the employees worked more than 40 hours. The
employer paid its workers a fixed minimum salary, plus overtime for working over 40
hours a week. The employees argued the employer improperly computed their overtime
pay, leading DLSE to institute proceedings against the employer to compel payment.
The trial court granted DLSE’s motion for summary judgment, and the court in Skyline
affirmed. (Id. at p. 255.)
13
The trial court in Skyline rejected the employer’s method of calculating overtime
by dividing the employee’s weekly salary by the total number of hours actually worked in
a given week to obtain the regular rate of pay, with hours worked over 40 hours in a week
compensated as overtime at one-half the regular rate of pay. This method, based on
federal law, resulted in lower pay for overtime because the more hours an employee
worked overtime, the lower the regular pay rate used to calculate overtime. (Skyline,
supra, 165 Cal.App.3d at pp. 245-247.)
The Skyline court noted that, “Unless the insertion of the limitation with respect to
the eight-hour day is to be rendered meaningless, we must assume that the IWC intended
to impose a different standard for determining overtime than that allowed under the
FLSA. If, as seems obvious, the IWC intended to employ an eight-hour day standard and
to discourage the use of longer work days, the fluctuating workweek would not effectuate
this purpose.” (Skyline, supra, 165 Cal.App.3d at p. 248.) The Skyline court concluded
California law’s eight-hour day limitation was incompatible with the federal law’s
fluctuating workweek method of calculating the regular pay rate and overtime, which
relies solely on the 40-hour workweek, without taking into account an eight-hour day
limitation. (Id. at pp. 248, 254.) “[I]n California overtime wages are also recognized as
imposing a premium or penalty on an employer for using overtime labor, and . . . this
penalty applies to excessive hours in the workday as well as in the workweek.” (Id. at p.
249.) Skyline noted that a purpose of the California overtime premium requirement “is to
discourage long daily hours which the commission has determined are detrimental to the
14
welfare of employees, and further, that the overtime is to discourage the use of daily
schedules in excess of eight hours.” (Id. at p. 254.)
The Skyline court therefore rejected the federal law method of calculating
overtime and approved the method based on a California wage order regulation, as
construed by the DLSE. (Skyline, supra, 165 Cal.App.3d at p. 250.) After the Skyline
decision, the formula Skyline adopted for salaried employees was codified in Labor Code
section 515, subdivision (d), which provides: “For the purpose of computing the
overtime rate of compensation required to be paid to a nonexempt full-time salaried
employee, the employee’s regular hourly rate shall be 1/40th of the employee’s weekly
salary.” (Lab. Code, § 515, subd. (d); Marin, supra, 169 Cal.App.4th at p. 812.)
Plaintiff’s reliance on Skyline is misplaced because it was confined to salaried
employees working a fluctuating workweek, did not address bonuses, and dealt with an
employer who failed to pay overtime for work exceeding eight hours in a day. (See
Marin, supra, 169 Cal.App.4th at pp. 810-811.) In rejecting an equal protection
challenge, the Skyline court states: “[T]he method of computing overtime compensation
for employees other than salaried employees is not before us. Plaintiffs’ pleadings in the
trial court specifically stated that ‘The dispute in this case centers on the proper method
of overtime computation for employees who receive a fixed salary but work a variable
number of hours each week. This case does not concern employees working on a
commission, piece rate or other wage basis.’ There has been no showing that those
employees are similarly situated to salaried employees.” (Skyline, supra, 165 Cal.App.3d
15
at p. 254 (emphasis added); see Marin, at pp. 812-813.) Skyline is not dispositive in the
instant case, which concerns computing an hourly employee’s bonus overtime.
In Tidewater, the court disapproved Skyline, but only as to Skyline’s holding that
DLSE’s written interpretive policies in its manual are not regulations within the meaning
of the Administrative Procedure Act (APA).2 (Tidewater, supra, 14 Cal.4th at pp. 561,
572-573; Skyline, supra, 165 Cal.App.3d at p. 253.) The court held in Tidewater that
DLSE Manual’s written policies interpreting IWC wage orders constitute void
regulations because they are legislative in nature and were not adopted in accordance
with requisite APA rulemaking procedures. (Tidewater, at pp. 561, 573; Marin, supra,
169 Cal.App.4th at p. 812.) Therefore the trial court cannot rely on DLSE Manual
policies and interpretations because they do not have the force of law. (Tidewater, at p.
573; see Marin, at p. 815.)
The Tidewater court explained that in the early 1980’s, written DLSE “policy
existed only in a draft policy manual the DLSE prepared for the guidance of deputy labor
commissioners. In 1989, however, the DLSE prepared a formal ‘Operations and
Procedures Manual’ incorporating the same policy and made that manual available to the
public on request. The manual reflected ‘an effort to organize . . . interpretive and
enforcement policies’ of the agency and ‘achieve some measure of uniformity from one
office to the next.’ The DLSE prepared its policy manuals internally, without input from
affected employers, employees, or the public generally.” (Tidewater, supra, 14 Cal.4th at
2 Government Code section 11340 et seq.
16
p. 563.) There was thus no compliance with the APA, which is required when creating
regulations.
The court in Tidewater acknowledged that, “[o]f course, interpretations that arise
in the course of case-specific adjudication are not regulations, though they may be
persuasive as precedents in similar subsequent cases. [Citations.] Similarly, agencies
may provide private parties with advice letters, which are not subject to the rulemaking
provisions of the APA. (Gov. Code, §§ 11343, subd. (a)(3), 11346.1, subd (a).) Thus, if
an agency prepares a policy manual that is no more than a restatement or summary,
without commentary, of the agency’s prior decisions in specific cases and its prior advice
letters, the agency is not adopting regulations. (Cf. Lab. Code, § 1198.4 [implying that
some ‘enforcement policy statements or interpretations’ are not subject to the notice
provisions of the APA].) A policy manual of this kind would of course be no more
binding on the agency in subsequent agency proceedings or on the courts when reviewing
agency proceedings than are the decisions and advice letters that it summarizes.”
(Tidewater, supra, 14 Cal.4th at p. 571.) The DLSE Manual provisions were regulations
but are unenforceable because they were not adopted in accordance with the APA. (Id. at
p. 573.) Likewise, DLSE opinion letters are not controlling upon the courts as binding
legal authority. (Brinker Restaurant v. Superior Court (2012) 53 Cal.4th 1004, 1029, fn.
11; Morillion, supra, 22 Cal.4th at p. 584.)
The court in Tidewater nevertheless held, based on independent analysis other
than the DLSE Manual provisions, that the DLSE properly exercised its enforcement
jurisdiction and the trial court erred in enjoining DLSE’s enforcement of IWC wage
17
orders regarding overtime pay. (Tidewater, supra, 14 Cal.4th at p. 577.) The Tidewater
court reasoned: “The DLSE’s policy may be void, but the underlying wage orders are not
void. Courts must enforce those wage orders just as they would if the DLSE had never
adopted its policy.” (Ibid.) The Tidewater court accordingly concluded the wage orders
applied as authoritative law and therefore the trial court erred in enjoining overtime
applications founded on the wage orders. (Id. at p. 579.)
Tidewater is instructive here as to its holding that the DLSE Manual provisions are
void regulations which are not binding on this court. (Tidewater, supra, 14 Cal.4th at p.
576.) Even though DLSE’s interpretations are not entitled to the judicial deference due
quasi-legislative rules, such interpretations may be entitled to consideration. (Yamaha
Corp. of America v. State Bd. of Equalization (1998) 19 Cal.4th 1, 21 (Yamaha).) As
explained by our high court in Yamaha, “Whether judicial deference to an agency’s
interpretation is appropriate and, if so, its extent — the ‘weight’ it should be given — is
thus fundamentally situational. A court assessing the value of an interpretation must
consider a complex of factors material to the substantive legal issue before it, the
particular agency offering the interpretation, and the comparative weight the factors
ought in reason to command.” There are two broad categories of factors relevant to a
court’s assessment of the weight due an agency’s interpretation: “[t]hose ‘indicating that
the agency has a comparative interpretive advantage over the courts,’ and those
‘indicating that the interpretation in question is probably correct.’ [Citations.]” (Id. at p.
12.)
18
The first category includes factors that “‘assume the agency has expertise and
technical knowledge, especially where the legal text to be interpreted is technical,
obscure, complex, open-ended, or entwined with issues of fact, policy, and discretion. A
court is more likely to defer to an agency’s interpretation of its own regulation than to its
interpretation of a statute, since the agency is likely to be intimately familiar with
regulations it authored and sensitive to the practical implications of one interpretation
over another.’ [Citation.]” (Yamaha, supra, 19 Cal.4th at p. 12.)
The second group of factors relevant to assessing the weight due an agency’s
interpretation “includes indications of careful consideration by senior agency officials
(‘an interpretation of a statute contained in a regulation adopted after public notice and
comment is more deserving of deference than [one] contained in an advice letter prepared
by a single staff member’ [citation], evidence that the agency ‘has consistently
maintained the interpretation in question, especially if [it] is long-standing’ [citation] . . .
and indications that the agency’s interpretation was contemporaneous with legislative
enactment of the statute being interpreted. If an agency has adopted an interpretive rule
in accordance with Administrative Procedure Act provisions . . . that circumstance
weighs in favor of judicial deference. However, even formal interpretive rules do not
command the same weight as quasi-legislative rules. Because ‘“the ultimate resolution of
. . . legal questions rests with the courts”’ [citation], judges play a greater role when
reviewing the persuasive value of interpretive rules than they do in determining the
validity of quasi-legislative rules.” (Yamaha, supra, 19 Cal.4th at pp. 12-13.)
19
The extent of our reliance on the DLSE Manual for guidance turns on “‘the
thoroughness evident in its consideration, the validity of its reasoning, its consistency
with earlier and later pronouncements, and all those factors which give it power to
persuade, if lacking power to control.’” (Yamaha, supra, 19 Cal.4th at pp. 14-15,
quoting Skidmore [v. Swift & Co. (1944) 323 U.S. 134,] 140.) In determining how much
weight to give the DLSE Manual as guidance in the instant case, we first consider the
DLSE Manual’s statement of sources relied upon in forming the DLSE policies and
interpretations stated in the DLSE Manual: “This manual summarizes the policies and
interpretations which DLSE has followed in discharging its duty to administer and
enforce the labor statutes and regulations of the State of California. The summarized
policies and interpretations are derived from the following sources:
“1. Decisions of California’s courts which construe the state’s labor statutes and
regulations and otherwise apply relevant California law.
“2. California statutes and regulations which are clear and susceptible to only one
reasonable interpretation.
“3. Federal court decisions which define or circumscribe the jurisdictional scope
of California’s labor laws and regulations or which are instructive in interpreting those
California laws which incorporate, are modeled on, or parallel federal labor laws and
regulations.
“4. Selected opinion letters issued by DLSE in response to requests from private
parties which set forth the policies and interpretations of DLSE with respect to the
application of the state’s labor statutes and regulations to a specific set of facts.
20
“5. Selected prior decisions rendered by the Labor Commissioner or the Labor
Commissioner’s hearing officers in the course of adjudicating disputes arising under
California’s labor statutes and regulations.” (DLSE Manual, June 2002, § 1.1.6, pp. 1-2,
1-3.) The DLSE Manual further states that the particular sources underlying the DLSE
Manual’s specific policies and interpretations, such as opinion letters, administrative
decisions, and decisions by the labor commissioner adopted as a precedent decision, are
indicated in the DLSE Manual. (DLSE Manual, June 2002, §§ 1.1.6.1, 1.1.6.3, p. 1-3.)
The DLSE Manual contains provisions on how to calculate overtime on bonuses.
It distinguishes between flat sum bonuses and percentage of production or other
formulaic bonuses. The DLSE Manual sections 49.2.4.2 and 49.2.4.3 of the DLSE
Manual address overtime on flat sum bonuses. The DLSE Manual section 49.2.4.2
provides: “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. This is so because the bonus is not designed to be an incentive for
increased production for each hour of work; but, instead is designed to insure that the
employee remain in the employ of the employer. To allow this bonus to be calculated by
dividing by the total (instead of the straight time hours) would encourage, rather than
discourage, the use of overtime. Thus, a premium based on bonus is required for each
overtime hour during the period in order to comply with public policy.” The DLSE
Manual section 49.2.4.3 of the Manual gives an example of how such overtime on a flat
sum bonus is calculated.
21
Because the DLSE Manual does not carry the force of law, this court is not
required to mandate compliance with the formula provided in the DLSE Manual section
49.2.4.2. As explained in Marin, supra, 169 Cal.App.4th at p. 815, “[l]ike the DLSE
interpretation at issue in Skyline, Manual section 49.2.4.2 is ‘a standard of general
application interpreting the law the DLSE enforce[s],’ and ‘not merely a restatement of
prior agency decisions or advice letters.’ [Citation.] Our conclusion is supported by
section 1.1.6.1 of the Manual, which states that if the source of the interpretation is a
statute, regulation, court decision, opinion letter, or ‘Administrative Decision’ or
‘Precedent Decision’ of the Labor Commissioner, that source will be identified in the
Manual. No such sources are mentioned in section 49.2.4.2. The only source cited for
the flat sum bonus rule is ‘public policy.’ Accordingly, section 49.2.4.2 does not have
the force of law.” (Ibid., fn. omitted.) It not only has no precedential value, it carries
very little, if any, persuasive value because the DLSE Manual section 49.2.4.2 does not
cite any supporting legal authority. This lack of any citation to supporting binding
California law is because there is none. There is no state law specifying a formula for
overtime applied to bonuses, particularly flat sum bonuses.
Nevertheless, the court in Marin indicated that the DLSE Manual section 49.2.4.2
provides a reasonable formula for calculating overtime on a flat sum bonus. “The flat
sum bonus formula set forth in sections 49.2.4.2 and 49.2.4.3 of the Manual, which uses a
divisor of straight time, instead of total hours worked to set the regular bonus rate, and a
multiplier of 1.5, rather than 0.5, to fix the bonus overtime due, produces ‘a premium
22
based on bonus’ that the DLSE believes is necessary to avoid encouraging the use of
overtime.” (Marin, supra, 169 Cal.App.4th at pp. 817-818.)
The Marin court noted that, “[i]n the case of a true flat sum bonus where the
employee cannot earn any additional bonus by working overtime hours, excluding such
hours from the divisor prevents them from diluting the regular rate. Including those
hours would give the employer an incentive to impose overtime because the additional
overtime would reduce the cost of overtime by decreasing the regular rate—part of the
situation addressed in the Skyline case.” (Marin, supra, 169 Cal.App.4th at p. 819.)
Although, as indicated by Marin, the DLSE Manual section 49.2.4.2 provides a
reasonable formula for calculating overtime on a flat sum bonus, the formula has not
been enacted as enforceable law and therefore this court cannot enforce it. Furthermore,
enacting the formula in the DLSE Manual section 49.2.4.2 as enforceable law falls within
the domain of the Legislature and IWC, not this court.
In Marin, the court concluded the DLSE Manual flat sum bonus formula did not
apply because the bonus in Marin was a hybrid bonus which functioned primarily as a
production bonus and did not encourage the use of overtime. (Marin, supra, 169
Cal.App.4th at p. 818.) Relying on Skyline and the DLSE Manual policies, the trial court
in Marin held the employer’s overtime formula violated California law, noting that
“‘[t]he law is sparse regarding how an employer is to calculate overtime when awarding
bonuses,’ and finding that, ‘given the paucity of California authority in this area and
contrary Federal authority, there are substantial grounds for differences of opinion.’”
(Marin, at p. 810.) On appeal, the Marin court reversed the trial court, concluding the
23
employer’s formula did not violate either California or federal law and was lawful. (Id.
at p. 806.)
Marin is not dispositive here. Marin concerns a deferred, semi-annual, formulaic
bonus which is primarily a production bonus and was not paid in the same pay period
earned. The Marin bonus was based on the number of years worked for the company and
number of paid hours accrued during a six-month period. In addition, the bonus was paid
at the end of a six-month period, with overtime pay added to the bonus. Furthermore, in
Marin, unlike in the instant case, there was no directly applicable federal regulation or
statute. Here, plaintiff’s bonus is a flat sum bonus paid in the same period earned.
Unlike in Marin, federal regulation, CFR section 788.209(a), applies and provides a
formula used by defendant for computing overtime on plaintiff’s bonus.
Defendant argues that since there is no state law that provides a formula for
computing overtime on bonuses, defendant lawfully applied the federal formula. In
urging this court to find defendant’s use of the federal formula lawful, defendant explains
it had no alternative but to follow the only existing explicit method founded on
enforceable law. By not regulating overtime pay on bonuses, the state has in effect left to
federal regulation computing overtime on bonuses. Congress has specifically permitted
states to enforce overtime laws more generous than the FLSA under the savings clause
(Tidewater, supra, 14 Cal.4th at p. 567; Ramirez v. Yosemite Water Co. (1999) 20 Cal.4th
785, 795 (Ramirez)), yet this state has not enacted any legislation or regulations
specifying a formula for computing overtime paid on bonuses. This court therefore
cannot mandate and enforce compliance with plaintiff’s proposed formula for computing
24
overtime on bonuses, when there is no applicable statute or regulation providing for such
a formula. Even though the federal formula for computing bonus overtime may not
comport with state policy discouraging overtime, defendant’s use of the federal formula
is lawful because it is based on federal law, and there is no state law or regulation
providing an alternative formula.
In the absence of a formula for computing bonus overtime founded on binding
state law, there is no law or regulation the trial court or this court can construe or enforce
as a method for computing overtime plaintiff’s bonuses, other than the applicable federal
regulation, CFR section 778.209(a). This is not a situation in which state and federal
labor laws substantially differ and therefore reliance on federal law is misplaced.
(Skyline, supra, 165 Cal.App.3d at pp. 247-249; Ramirez, supra, 20 Cal.4th at p. 798.)
Defendant therefore lawfully used the federal formula for computing overtime on
plaintiff’s flat sum bonuses. In turn, the trial court properly granted defendant’s motion
for summary judgment.3
3 During oral argument plaintiff untimely raised new legal theories not previously briefed by plaintiff and authority not included in plaintiff’s appellate briefs. Plaintiff argued for the first time the flat sum bonus was not actually a bonus but rather salary, and the flat sum bonus was artificially labeled a bonus, constituting a subterfuge that operates to evade overtime pay laws by reducing the regular hourly rate when overtime hours are worked on the weekend. The legal authority, raised for the first time during oral argument, included Huntington Memorial Hospital v. Superior Court (2005) 131 Cal.App.4th 893; Walling v. Youngerman-Reynolds Hardwood Co. (1945) 325 U.S. 419, 424-425; 29 CFR § 778.203 (premium pay for work on Saturdays, Sundays, and other “special days”); 29 CFR § 778.327(b) (temporary or sporadic reduction in schedule); and 29 CFR § 778.502 (artificially labeling part of the regular wages a “bonus”). We do not address in this decision such untimely, waived theories and legal authority on the grounds plaintiff did not include them in its appellate opening brief or [footnote continued on next page]
25
V
DISPOSITION
The judgment is affirmed. Defendant is awarded its costs on appeal.
CERTIFIED FOR PUBLICATION
CODRINGTON J.
We concur:
HOLLENHORST Acting P. J.
KING J.
reply; plaintiff did not provide defendant or this court with notice before oral argument of plaintiff’s intent to rely on new legal authority and raise new theories; and defendant therefore did not have an opportunity to review and provide a fully informed response to such new theories and legal authorities. Furthermore, without suggesting whether plaintiff’s new theories and legal authority have merit, we decline to consider them because plaintiff has not demonstrated good cause for raising them for the first time during appellate oral argument. (See Shade Foods, Inc. v. Innovative Products Sales & Marketing, Inc. (2000) 78 Cal.App.4th 847, 894, fn. 10 [points raised in appellate reply brief for the first time will not be considered, unless good reason is shown for failure to present them before]; Acquire II, Ltd. v. Colton Real Estate Group (2013) 213 Cal.App.4th 959, 977, fn. 12; Estate of McDaniel (2008) 161 Cal.App.4th 458, 463, quoting People v. Harris (1992) 10 Cal.App.4th 672, 686 [“‘contentions raised for the first time at oral argument are disfavored and may be rejected solely on the ground of their untimeliness.’”].
26
AI Brief
AI-generated · verify before citing
Holding. The court held that an employer's formula for calculating overtime on flat sum bonuses is lawful because there is no California law specifying a method for such calculations, and the employer's formula complies with federal law.
Issues
Whether defendant’s formula for calculating overtime on flat sum bonuses paid in the same pay period in which they are earned is lawful under California law.
Disposition. Affirmed
Quotations verified verbatim against the opinion
“There is no California law specifying a method for computing overtime on flat sum bonuses, and defendant’s formula complies with federal law, which provides a formula for calculating bonus overtime.”
“The DLSE Manual provisions were regulations but are unenforceable because they were not adopted in accordance with the APA.”