Ruling Offers California Employers Guidance on Calculating Regular Rate of Pay

A Ninth Circuit panel has ruled that Target Corp.’s pay practices comport with California law, and as such, Target’s motion for judgment on the pleadings should have been granted by the district court. See Bowen v. Target Corp., No. 21-56136 (9th Cir., Nov. 1, 2022). The unpublished opinion thus offers guidance to California employers who are faced with the task of calculating an employee’s regular rate of pay (RROP).

Plaintiffs claimed that Target’s method for calculating overtime pay violated the holding of Alvarado v. Dart Container Corp., 411 P.3d 528 (Cal. 2018), which concerned the calculation of an employee’s RROP where an employee earns a flat-sum attendance bonus. In that case, because flat-sum bonuses do not increase as more hours are worked, the California Supreme Court ruled that only non-overtime hours should be included in the calculation. Otherwise, the numerator in the calculation (the total compensation) would remain the same while the denominator (the total hours worked) would increase, meaning an employee’s RROP would progressively decrease as more hours were worked. Therefore, because Target included the total number of hours worked in its RROP calculations, as opposed to only non-overtime hours, the plaintiffs argued that Target’s practices violated California law.

The Ninth Circuit panel disagreed, however, noting that Target’s challenged pay calculations did not involve flat-sum bonuses. In contrast to the circumstances of Alvarado, Target’s RROP calculations involved shift premiums–hourly payments that are proportional to the number of hours worked. Therefore, Target’s method of calculation did not result in an artificially declining RROP, and Target’s practices violated neither the holding nor the reasoning of Alvarado.

The panel similarly rejected the plaintiffs’ contention that Target had violated California’s requirement that overtime hours be paid at a rate of “no less than one and one-half times the [RROP].” Noting that Target’s payment methods resulted in overtime hours being compensated at a rate of one and one-half of an employee’s RROP, the panel found no wage and hour violations in Target’s practices.

The panel thus found that the plaintiffs’ claims amounted to nothing more than a complaint that “Target should have adopted a payment methodology that maximizes their overtime pay.” But because “California law does not require that outcome,” the panel ruled that the district court should have granted Target’s motion for judgment on the pleadings. This case should therefore serve as a reminder for employers that compliance with California’s wage and hour laws must be a top priority.

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