Earlier this week a hard fought victory was secured for California employers when a California Court of Appeal found that the employer did not violate the law when it selected a method of calculating the regular rate of pay that most benefitted the employees, even though that method was contrary to the method endorsed by the California Division of Labor Standards Enforcement (“DLSE”). In the words of the Court, “[i]mposing penalties of any amount against Defendants under these circumstances would be unjust.”
California law requires that non-exempt employees be paid 1.5 times their “regular rate of pay” for work performed in excess of 40 hours in a week or 8 hours in a day – and twice their “regular rate of pay” for time worked in excess of 12 hours in day or 8 hours on the seventh day of the workweek. However, the method of calculating the “regular rate of pay” is not expressly defined in the California Labor Code.
When an employee works at the same rate of pay during a workweek, calculation of regular rate of pay presents no complications. But some employees work at different rates of pay rather than a fixed rate during a single workweek. For these “dual rate” employees, two methods of calculating the regular rate of pay have been developed: (1) the weighted average method, which establishes the regular rate by adding all hours worked by the dual-rate employee in the workweek and dividing that number by the total compensation for that week; and (2) the rate-in-effect method where the regular rate of pay is the hourly rate in effect at the time the overtime hours begin.
In Levanoff v. Dragas, Defendants, owners of several Buffalo Wild Wings restaurants, adopted the rate-in-effect method because it was the method that most benefited the dual rate employees. Plaintiffs, however, argued that the employer must always use the weighted average method because only that method has been endorsed by the California Division of Labor Standards Enforcement (“DLSE”).
The Court of Appeal disagreed with plaintiffs and affirmed the trial court’s decertification of the dual rate subclass and judgment in favor of defendant on the Private Attorneys General Act (“PAGA”) dual rate claim following a bench trial, both of which alleged that Defendants violated the law by not using the weighted average method. The Court of Appeal concluded that the DLSE’s adoption of the weighted average method is not binding or exclusive and that employers are not obligated to accept the weighted average method as the exclusive method of calculating overtime for dual rate employees. Rather, in evaluating the use of the “rate-in-effect” method, the Court looked at both the face of the practice and it’s net effect, analogizing it to the use of a time-rounding practice. The Court concluded that the “rate-in-effect” policy was neutral on its face, and that Defendants’ use of the “rate-in-effect” method actually resulted in Buffalo Wild Wings employees overall receiving more overtime pay than they would have received under the “weighted average” method. Under these facts, the Court of Appeal considered the dual rate claim to be “meritless” and agreed with the trial court “that the dual rate overtime claim did not vindicate the rights of Defendants’ employees.”
While the Court’s decision is limited to the facts of this case, it provides employers a roadmap to challenge such “meritless” PAGA and class claims that have become all too common.
Defendants were represented by CDF Labor Law LLP, attorneys Tim Freudenberger, Amy Williams, and Niki Lubrano.
