Labor Law Standards Subject to Interpretation
California employers are once again left with uncertainty regarding the Division of Labor Standards Enforcement (DLSE) Enforcement Policies and Interpretations Manual following a California Supreme Court ruling earlier this month.
The state high court’s March 5 ruling in Alvarado v. Dart Container Corporation of California dealt mainly with how an employer must calculate overtime compensation for an employee who earns both an hourly rate and a flat sum nondiscretionary bonus.
In its analysis, the Supreme Court also provided lengthy discussion on whether the DLSE’s manual was binding authority on the courts. The Supreme Court concluded that the DLSE Enforcement Manual is a void underground regulation and not entitled to any deference. However, the Supreme Court held that it still could consider the DLSE’s interpretation if the court was independently persuaded that the interpretation was ultimately correct.
In this case the Supreme Court was persuaded and adopted the DLSE’s method of calculating overtime on flat sum bonuses. The DLSE’s method was more favorable to the plaintiff than the federal standard used by the employer.
This is not the first time that the California Supreme Court has opined about the validity of the DLSE manual. More than two decades ago, the California Supreme Court discussed the legitimacy of the DLSE manual in Tidewater Marine Western, Inc. v. Bradshaw (December 19, 1996).
In Tidewater, the Court was tasked with deciding whether the DLSE manual constituted regulations within the meaning of the Administrative Procedure Act (APA).
If a policy constitutes a regulation under the APA, it must follow specific protocols to be adopted. The APA outlines a technical process that requires public participation to “ensure that those persons or entities whom a regulation will affect have a voice in its creation as well as notice of the law’s requirements so that they can conform their conduct accordingly.”
If a regulation is not properly adopted per the APA requirements, it will be deemed unlawful. Notably, the DLSE manual has never been adopted through the APA process.
Procedures Not Identical
Although the Labor Code does include procedural protections for adopting some regulations “analogous to those in the APA,” the procedures are not identical to the APA. The procedures also apply only to the Industrial Welfare Commission and not the DLSE manual.
Ultimately, the Tidewater court held that because the DLSE manual provided interpretation of the law itself in its policy manual, the manual is actually regulatory in nature. And since “[n]o state agency shall issue, utilize, enforce, or attempt to enforce … a regulation” without complying with the APA’s notice and comment provisions, the DLSE manual was found to be a void underground regulation.
The Tidewater court went on to say that the DLSE manual is simply “one among several tools available to the court,” stating that “[d]epending on the context, it may be helpful, enlightening, even convincing,” or “[i]t may sometimes be of little worth.”
So, where does this leave employers? Employers are still in the same position they have been in for decades. Tidewater and now Alvarado v. Dart have unfortunately not changed a thing. The DLSE will continue to interpret and enforce state labor laws and employers still will not know in advance whether the courts will uphold the DLSE’s interpretations—potentially subjecting an employer to a retroactive interpretation and penalties and/or damages, as seen in Alvarado v. Dart.
Businesses need more certainty that they’re correctly applying the law and shouldn’t be left to guess. For now, employers should still rely on legal counsel when making difficult employment decisions and should assume that the courts will continue to utilize the DLSE manual as “one among several tools available to the court” when interpreting California law.
The Oxnard Chamber of Commerce Ambassadors are a carefully selected group of highly respected individuals from all facets of business. They are an extension of the Oxnard Chamber Board and staff as they take on the role of welcoming committee. Ambassadors are an essential component of the Oxnard Chamber’s growth and success, and their feedback is invaluable and incorporated in Chamber programs and events.
What does an Ambassador do?
Does this sound like something for you? If so, then come to a Chamber Ambassador meeting and meet everyone! Meetings are held on the first Tuesday of the month at 12:00PM at the Chamber office. Want more information? Contact Sharen Strong, Director of Member Services at email@example.com or call (805) 983-6118. We look forward hearing from you!
California’s corporate tax base may increase by up to 12% as a result of federal tax reform legislation, according to a study recently released by the State Tax Research Institute (STRI).
This means that revenues from California’s corporate income tax could increase by as much as $1.3 billion—without any action by state lawmakers to increase corporate tax rates or income definitions.
Larger tax revenues will result from the new tax reform law, which limited deductions and changed foreign tax rules. The federal tax law imposed new restrictions on companies’ ability to deduct interest payments, exchange property without paying capital gains taxes, deduct some fringe benefits and immediately write off future research costs. At the federal level, those changes were far outweighed by the rate cut.
According to Karl Frieden, vice president and general counsel at the Council on State Taxation, the study’s sponsor, “The state tax increase for corporations is totally inadvertent.”
The windfall from federal tax reform will likely produce even more revenue than would a recently proposed constitutional amendment to impose a 10% surcharge on corporate net incomes of more than $1 million.
The avowed purpose of that measure is “to share with ordinary California taxpayers the economic gains provided by federal income tax cuts for corporations with over one million dollars ($1,000,000) in net income.”
It turns out that federal tax reform will accomplish that goal without the Legislature casting a vote.
“The Impact of Federal Tax Reform on State Corporate Income Taxes” was prepared for STRI by Ernst & Young. STRI is the 501(c)(3) research affiliate of Council on State Taxation, a nonprofit trade association of multistate corporations.
Following the Oxnard Chamber’s candidates’ forum on March 8, its political action committee met to discuss what they heard at the forum and what they knew about the candidates.
“The Oxnard Chamber of Commerce opposed the city council recall election when petitions were being circulated among voters. However, the recall is here. If the current mayor is recalled, we believe the best candidate to succeed him is Miguel Lopez. Miguel is an open-minded champion for Oxnard and would assume office without any preconceived agendas,” said Chamber CEO Nancy Lindholm.
The Chamber’s mission is to represent business interests and advocate public policies that promote a
healthy economy. The mission is accomplished through legislative involvement, networking events,
and numerous other programs and services that are offered.
The goal of the Oxnard Chamber of Commerce is to promote the business and economic well-being of
our diverse community to benefit enterprises, big and small, through advocacy, services and
education, business exposure, and promotional opportunities. The Chamber values the quality of life in
our community and encourages economic vitality.
The special recall election will be held May 1. Voters will be asked if Mayor Flynn, Mayor Pro Tem Ramirez, Councilmember Perello and Councilmember Madrigal should be recalled. After voters choose “Yes” or “No” for each incumbent they are asked to vote for a replacement candidate for each office.
Although each of us must transact to live a satisfying and comfortable life, most fail the fundamentals of transaction; they cannot influence others, labor far more than they’d like, and don’t make the money they could. Most people don’t think accurately about the transactions built to satisfy their aims. They’ve never considered the architecture of these transactions and how the construction of these exchanges either allows them to live as they want—or cripples their ability to meet their aims. Transactional competence is a unique ability that offers ambitious professionals the certainty, freedom, and consistency to satisfy lofty aims. In this workshop, attendees will leave with an understanding of what a transaction is, how they work, and how to speed them up. This model begins an understanding of the architecture of any transaction and the asset and liability of our own personality and transactional behavior.
Each participant will leave with a roadmap to satisfy any aim.
Overtime pay in California is based on the employee’s “regular rate of pay,” which is not always an employee’s normal hourly wage and must include almost all forms of pay that the employee receives. But how do you calculate the regular rate of pay when an employee receives both an hourly wage and a flat sum bonus – such as an extra $15 for working a weekend shift?
This week, the California Supreme Court ruled that an employer must calculate the regular rate of pay by dividing the employee’s total compensation by the number of nonovertime hours an employee worked during the pay period, rather than the total number of hours the employee worked, including overtime hours (Alvarado v Dart Container Corporation of California).
In the case, Dart Container Corporation of California, which manufactures food service products such as cups and plates, allegedly maintained a policy of paying a flat “attendance bonus” of $15 per day to employees who worked Saturday and Sunday shifts, regardless of the number of hours worked on the weekend shift. An employee sued, claiming he was improperly paid overtime during the weeks that he earned the weekend attendance bonus.
The employee argued that overtime pay on any flat sum bonus should be divided only by the “regular” hours he worked that week (the method in the Division of Labor Standards Enforcement [DLSE] manual), not by the “total” hours worked during the week (regular hours plus overtime hours worked, the federal formula). For example, to determine the employee’s regular rate of pay, you would divide only by 40 regular hours instead of 48 total hours (regular hours plus overtime hours). This would result in a higher regular rate of pay and, thus, a higher overtime rate.
The lower court followed the federal formula for calculating overtime on flat sum bonuses and rejected the DLSE’s method found in its Enforcement Manual — finding that the manual is only guidance and not legally binding, and that California had no controlling law.
Supreme Court Agrees with Employee
The California Supreme Court unanimously reversed the lower court and approved the DLSE method of calculating the regular rate of pay when a flat sum bonus is involved: Employers must divide the employee’s total compensation by the employee’s nonovertime hours worked (not by the total hours worked).
The Court reasoned that a flat sum bonus is not tied to the number of hours worked – the $15 will be paid when an employee picks up a weekend shift, regardless of how many hours the employee worked that week. Because the flat sum bonus was payable even if the employee didn’t work overtime, only the nonovertime hours should be considered when calculating the regular rate of pay.
The Court also based its ruling on two other policy factors:
Interestingly, the Court held that the DLSE manual is a void underground regulation and not entitled to any deference. But, despite this holding, the Court held that it could consider the DLSE’s interpretation of the law if the Court was independently persuaded it was correct —which in this case it was.
The California Supreme Court was presented with an employer who was seemingly trying to do the right thing — giving its employees a bonus and taking that bonus into account when calculating overtime pay. The employer relied on a commonly used federal formula to calculate the regular rate of pay where there was no specific controlling state law on the issue.
Despite these efforts, the Court found against the employer. The employer asked the Court to only apply the decision going forward – as it would be unfair to hold the employer liable when no statute specifically addressed the flat-sum bonus calculation. Unfortunately, the Court determined that the employer should not be given a “free pass” and that its holding would apply retroactively, not just going forward.
This decision is limited to flat-sum bonuses, but we may see employees argue that it should apply to other types of extra compensation.
Employers who want to give “extra pay” to hourly workers should consult legal counsel.
CalChamber members can test their knowledge of some of the rules and exceptions for paying overtime in California in the Overtime Quiz. Not a member? Learn more about what HRCalifornia can do for you.
Message from our CEO
The trends in the Oxnard tourism industry are quite sunny!
I’m fortunate to serve on the board of directors for the Oxnard Convention & Visitors Bureau. The experience affords me the opportunity to keep up with how our hoteliers are doing and what the trends are in the tourism sector of our local economy. I’m happy to report we have started 2018 on a high note!
Granted there are a lot of factors that affect hotel statistics, and certainly the Thomas fire and Montecito mudslides had a big impact on our region. But for the month of January Oxnard was on top of the occupancy rate and in second place for average daily rate. Here is the data:
Occupancy rates for January 2018
Thousand Oaks 64.7
Ventura County 69.0
Santa Barbara County 64.7
Los Angeles 67.5
Average daily rates for January 2018
Thousand Oaks 116.1
Ventura County 126.2
Santa Barbara County 152.7
Los Angeles 127.9
All of this hotel activity certainly impacts other businesses in Oxnard. Our restaurants, entertainment, and retail all benefit from increased hotel business. But let’s not forget about local government. The transit occupancy tax every hotel guest pays generates more than $5 million annually for the city’s coffers. That’s a substantial number and it doesn’t take into account what our hotels pay in property tax each and every year.
So next time you have out of town guests or you are planning a corporate meeting, utilize the great selection of hotels in Oxnard and generate some revenue for other local businesses and the city.