CHIN, J.—
In this case, we decide how an employee's overtime pay rate should be calculated when the employee has earned a flat-sum bonus during a single pay period. Specifically, we consider whether the divisor for purposes of calculating the per-hour value of the bonus should be (1) the number of hours the employee actually worked during the pay period, including overtime hours; (2) the number of nonovertime hours the employee worked during the pay period; or (3) the number of nonovertime hours that exist in the pay period, regardless of the number of hours the employee actually worked. We conclude that the divisor should be the second of these options. We reverse the judgment of the Court of Appeal.
Defendant Dart Container Corporation of California is a manufacturer of food service products. Plaintiff Hector Alvarado was employed by defendant as a warehouse associate from September 2010 to January 2012. He is a member of a putative class of employees who, during the period alleged in the complaint, were paid on an hourly basis and who, in addition to their normal hourly wages, received an "attendance bonus" if they were scheduled to work on a Saturday or Sunday, and did so, completing the full work shift. The amount of the bonus was a flat sum of $15 per day of weekend work, regardless of whether the employee worked in excess of the normal work shift on the day in question.
The dispute in this case arises because the attendance bonus must be factored into an employee's regular rate of pay so that the employee's overtime pay rate (generally, 1.5 times the regular rate of pay) reflects all the forms of regular compensation that the employee earned. Defendant's formula for calculating an employee's overtime compensation is as follows.
Step one: Defendant multiplies the number of overtime hours the employee worked in the relevant pay period by the employee's straight time rate (i.e.,
Step two: Defendant adds (a) the total hourly pay for nonovertime work during the pay period; (b) any nonhourly compensation the employee earned during the pay period, including any attendance bonuses; and (c) the base hourly pay for overtime work (from step one, ante). The result is the total base pay for the pay period, including base compensation for overtime work. Defendant then divides the total base pay by the total number of hours the employee worked in the pay period, including overtime hours. The result is an hourly rate that defendant considers to be the employee's regular rate of pay for the pay period.
Step three: Defendant multiplies the regular rate of pay (from step two, ante) by the total number of overtime hours in the relevant pay period, and then divides that amount in half. The result is what defendant considers to be the overtime premium. We use the word "premium" to refer to the extra amount a worker must be paid, on top of normal pay, because certain work qualifies as overtime.
Step four: Defendant adds the base hourly pay for overtime work (from step one, ante) to the overtime premium (from step three, ante) to get the total overtime compensation for the pay period.
Plaintiff favors a different formula for calculating overtime compensation, one that determines regular rate of pay by allocating the attendance bonus only to nonovertime hours worked during the relevant pay period. Plaintiff would first calculate the overtime compensation attributable only to the employee's hourly wages, doing so by multiplying the employee's straight time rate by 1.5 and by the number of overtime hours. Plaintiff would next calculate the overtime compensation attributable only to the employee's bonus, doing so by calculating the bonus's per-hour value (based on the number of nonovertime hours worked), and then multiplying that per-hour
In August 2012, plaintiff filed a complaint, alleging that defendant had not properly computed his overtime pay under California law. As amended, plaintiff's complaint alleges the following causes of actions: (1) failure to pay proper overtime, in violation of Labor Code sections 510 and 1194, by not including shift differential premiums and bonuses in calculating overtime wages; (2) failure to provide complete and accurate wage statements, in violation of Labor Code section 226; (3) failure to timely pay all earned wages due at separation of employment, in violation of Labor Code sections 201, 202, and 203; (4) unfair business practices, in violation of Business and Professions Code section 17200 et seq.; and (5) civil penalties under the Labor Code Private Attorneys General Act of 2004 (Lab. Code, § 2698 et seq.).
Defendant moved for summary judgment or, alternatively, for summary adjudication. Defendant argued that even though California law governing overtime wages is more protective of workers than federal law, and even though plaintiff here is relying on California law, the trial court should look, for "`persuasive guidance'" (Bell v. Farmers Ins. Exchange (2001) 87 Cal.App.4th 805, 817 [105 Cal.Rptr.2d 59]), to a federal regulation explaining how to factor a flat-sum bonus into an employee's regular rate of pay.
Plaintiff opposed defendant's motion, arguing that the Court of Appeal decision in Marin v. Costco Wholesale Corp. (2008) 169 Cal.App.4th 804 [87 Cal.Rptr.3d 161] (Marin) supported his way of calculating overtime compensation. Marin, which is discussed in more detail below, concerned how an
The trial court granted defendant's motion for summary judgment, concluding that there was no valid California law or regulation explaining how to factor a flat-sum bonus into an employee's regular rate of pay for purposes of calculating the employee's overtime compensation. The court stated that Marin, supra, 169 Cal.App.4th 804, was factually distinguishable, and that the DLSE's method of factoring a bonus into overtime compensation was set forth in a void underground regulation. In the absence of any valid California law or regulation on point, the trial court concluded that the relevant federal regulation must be followed, and because defendant's method was compliant with the federal regulation, the court further concluded that there was no basis for any of plaintiff's causes of action.
The Court of Appeal affirmed, adopting the trial court's reasoning, and we then granted review to decide how a flat-sum bonus earned during a single pay period should be factored into an employee's regular rate of pay for purposes of calculating the employee's overtime compensation.
California has a long-standing policy of discouraging employers from imposing overtime work. For nearly a century, this policy has been implemented through regulations, called wage orders, issued by the Industrial Welfare Commission (IWC). These wage orders are issued pursuant to an express delegation of legislative power, and they have the force of law. (See Martinez v. Combs (2010) 49 Cal.4th 35, 52-57 [109 Cal.Rptr.3d 514, 231 P.3d 259] [setting forth a brief history of the IWC].) The IWC's wage orders originally protected only women and children, but since the 1970s, they have applied to all employees, regardless of gender. (See Stats. 1973, ch. 1007, § 8, p. 2004; Stats. 1972, ch. 1122, § 13, p. 2156; see generally Industrial Welfare Com. v. Superior Court (1980) 27 Cal.3d 690, 700-701 [166 Cal.Rptr. 331, 613 P.2d 579].) The specific wage order applicable here is IWC wage order No. 1 (Wage Order No. 1), governing wages, hours, and
Traditionally, Wage Order No. 1 has required the payment of an overtime premium for, among other things, any work in excess of eight hours in a day. In 1998, the IWC modified several wage orders, including Wage Order No. 1, and by doing so it partially eliminated the eight-hour-day rule, thus permitting employers to offer flexible hours within a 40-hour workweek without having to pay an overtime premium. (See IWC Order No. 1-98, Regulating Wages, Hours, and Working Conditions in the Manufacturing Industry <https://www.dir.ca.gov/iwc/Wageorders1998/IWCArticle1.pdf> [as of Mar. 5, 2018].) The Legislature responded swiftly by enacting the Eight-Hour-Day Restoration and Workplace Flexibility Act of 1999, and the IWC's wage orders were then modified again, this time to conform to the 1999 act. Thus, the obligation to pay an overtime premium is now found in both statutory law (see Lab. Code, § 510) and in the wage orders of the IWC. (See Brinker Restaurant Corp. v. Superior Court (2012) 53 Cal.4th 1004, 1026 [139 Cal.Rptr.3d 315, 273 P.3d 513]; Reynolds v. Bement (2005) 36 Cal.4th 1075, 1084 [32 Cal.Rptr.3d 483, 116 P.3d 1162].)
Here, the attendance bonus that defendant pays for weekend work is incentive pay for completing a full work shift on a day that is unpopular for working (a Saturday or a Sunday). Nonetheless, it is part of an employee's overall compensation package, and therefore both parties agree that its per-hour value must be determined so that the employee's regular rate of pay — and, derivatively, the employee's overtime pay rate — reflects all the various forms of regular compensation that the employee earned in the relevant pay period. In other words, for the limited purpose of calculating overtime pay, the attendance bonus (which is earned all at once by completing a weekend work shift) is treated as if it were earned on a per-hour basis throughout the pay period. The question then arises whether the bonus is treated as if it were earned throughout the entire pay period (including any overtime hours), or whether the bonus is treated as if it were earned throughout only the nonovertime hours of the pay period. It is this question that lies at the heart of the parties' disagreement.
Because the question at issue here is expressly resolved in plaintiff's favor by the DLSE's enforcement policy, we must determine at the outset whether the DLSE's enforcement policy is controlling, and that question requires us to consider whether the policy is a void underground regulation, and if it is, whether a court can nonetheless agree with it and follow it.
The DLSE is the state agency charged with enforcing California's labor laws, including the IWC wage orders. (Lab. Code, §§ 21, 61, 95, 98 et seq., 1193.5.) Of course, enforcement of a law, especially an ambiguous law,
In Yamaha, decided just 20 months after Tidewater, this court further clarified its Tidewater holding. Like Tidewater, Yamaha considered the effect of an interpretive policy that had many of the characteristics of an administrative regulation, but that had not been adopted in accordance with the APA. This court's opinion explained that, historically, the Board of Equalization (the Board) had prepared "`annotations,'" which we described as "summaries of opinions by [the Board's] attorneys of the business tax effects of a wide range of transactions." (Yamaha, supra, 19 Cal.4th at p. 4.) These annotations were "prompted by actual requests for legal opinions by the Board, its field auditors, and businesses subject to statutes within its jurisdiction." (Ibid.) At issue in Yamaha was the degree of deference, if any, courts should give the interpretations set forth in the annotations. As digests of opinions written by the Board's legal staff in response to inquiries from concerned individuals and institutions, the annotations were essentially restatements of prior agency decisions and advice letters, and therefore they were not regulations. (See Yamaha, at p. 15; Tidewater, supra, 14 Cal.4th at p. 571.) But as "brief statements — often only a sentence or two — purporting to state definitively the tax consequences of specific hypothetical business transactions" (Yamaha, at p. 5), the annotations functioned very much like the void underground regulations we considered in Tidewater.
The DLSE did not, however, repudiate enforcement policies that were not supported by prior decisions or advice letters and that were therefore void underground regulations under our holding in Tidewater. The DLSE thus
As noted, the DLSE Manual addresses the precise issue we must decide here. We must interpret the requirement that an employer pay an overtime premium for work in excess of eight hours in a day, 40 hours in a week, or for any work at all on a seventh consecutive day. (Lab. Code, § 510; IWC Wage Order No. 1-2001, supra, subd. 3; Cal. Code Regs., tit. 8, § 11010, subd. 3.) According to both Labor Code section 510 and Wage Order No. 1, such work must be compensated at 1.5 times the "regular rate of pay," stepping up to double the "regular rate of pay" if the employee works in excess of 12 hours in a day or in excess of eight hours on a seventh consecutive day of work. (Lab. Code, § 510, subd. (a); IWC Wage Order No. 1-2001, subd. 3; Cal. Code Regs., tit. 8, § 11010, subd. 3.) For purposes of applying these overtime pay requirements, an employer must factor the per-hour value of a flat-sum bonus into an employee's regular rate of pay for the relevant pay period, and it is our task here to decide whether, in calculating that per-hour value, the amount of the bonus is divided by (1) the number of hours the employee actually worked during the pay period, including overtime hours; (2) the number of nonovertime hours the employee worked during the pay period; or (3) the number of nonovertime hours that exist in the pay period, regardless of the number of hours the employee actually worked.
The DLSE Manual addresses that precise question in section 49.2.4.2, saying: "If the bonus is a flat sum, such as $300 for continuing to the end of
The policy satisfies the definition we set forth in Tidewater for a regulation that is subject to the APA. It is "intend[ed] ... to apply generally, rather than in a specific case," and it "`implement[s], interpret[s], or make[s] specific the law enforced or administered by [the DLSE]....' [Citation.]" (Tidewater, supra, 14 Cal.4th at p. 571.) Moreover, the policy "predicts how the agency will decide future cases" (id. at pp. 574-575), and in that sense, it is intended to influence both the present and future behavior of employers. Finally, the DLSE Manual does not cite any agency decisions or advice letters that support the policy, and it therefore is not merely a restatement or summary of such decisions or advice letters. (Tidewater, at p. 571.) Hence, the policy is a regulation, and because, like other portions of the DLSE Manual, it was not adopted in accordance with the APA, it is void. But the DLSE's policy is not necessarily wrong just because it is set forth in a void underground regulation. The policy interprets controlling state law, and that interpretation may be correct.
The Court of Appeal erred, therefore, in concluding that there was no state law governing the issue we must decide and that federal law, on that account, applied. The Court of Appeal said: "By not regulating overtime pay on bonuses, the state has in effect left to federal regulation computing overtime on bonuses.... This court ... cannot mandate and enforce compliance with plaintiff's proposed formula ..., when there is no applicable statute or regulation providing for such a formula.... [D]efendant's use of the federal formula is lawful because ... there is no state law or regulation providing an alternative formula. [¶] ... [T]here is no law or regulation the trial court or this court can construe or enforce ... other than the applicable federal regulation...." (Italics added.)
These assertions are simply incorrect. There is state law for the courts to construe and enforce; it is Labor Code section 510 and Wage Order No. 1, both of which require the payment of an overtime premium based on an employee's "regular rate of pay." Irrespective of what the DLSE said in its policy manual, it is the court's task to construe how "regular rate of pay" should be calculated in the circumstances presented here. The DLSE's policy
Moreover, as discussed, reviewing courts are not obligated to reject the interpretation set forth in the DLSE's void regulation. As an underground regulation, the DLSE's policy is not entitled to any special deference (Tidewater, supra, 14 Cal.4th at pp. 576-577), but the interpretation embodied in that policy may still be valid. Therefore, so long as we exercise our independent judgment, we may consider the DLSE's interpretation and the reasons the DLSE proffered in support of it, and we may adopt the DLSE's interpretation as our own if we are persuaded that it is correct. (Tidewater, at p. 577.) And, in doing so, we may take into consideration the DLSE's expertise and special competence, as well as the fact that the DLSE Manual is a formal compilation that evidences considerable deliberation at the highest policymaking level of the agency. (Yamaha, supra, 19 Cal.4th at pp. 11, 13-14.) We turn therefore to the question of how a flat-sum bonus should be factored into an employee's regular rate of pay for purposes of applying the state's overtime pay laws.
Relying on federal regulations that interpret federal law, the employer in Skyline Homes argued that an employee's weekly salary constituted base compensation for all the hours worked during the week, including overtime hours, and therefore if an employee worked overtime, only the 50 percent overtime premium needed to be added. The employer therefore divided the weekly salary by the total number of hours worked during the week, including overtime hours, thus determining a regular rate of pay for the employee, and the employer then divided that regular rate in half and multiplied the result by the number of overtime hours to determine the amount of the 50 percent overtime premium that was owed. Significantly, because the employee's weekly salary was fixed, his or her regular rate of pay decreased, under the employer's method, as the number of overtime hours increased. (See Skyline Homes, supra, 165 Cal.App.3d at pp. 245-246.)
Two employees challenged the employer's method of calculating overtime compensation, and the DLSE upheld their claim. These employees argued that their weekly salaries were compensation only for the nonovertime hours that they worked, and therefore that the employer needed to pay both overtime base compensation and overtime premium to fully compensate them for the overtime hours that they worked. These employees further asserted that the employer should divide an employee's weekly salary by 40 (the number of nonovertime hours in a workweek) to determine the employee's regular rate of pay, and that the employer should then multiply that regular rate of pay by 1.5 and by the number of overtime hours to determine the amount of overtime compensation that was due. (See Skyline Homes, supra, 165 Cal.App.3d at pp. 245-246.)
The Court of Appeal in Skyline Homes rejected the employer's method, agreeing with the employees that the regular rate of pay should be determined by dividing the weekly salary by the number of nonovertime hours. The court reasoned that the weekly salary was intended as compensation for the regular 40-hour workweek; it was not intended as compensation for time worked in
The court expressly disagreed with the employer's argument that the IWC had modeled state law on federal law, and that therefore the IWC intended to adopt the federal interpretation of how regular rate of pay should be calculated. The court noted in this respect that the state's wage order was more protective of workers than was the federal law, and that the purpose of state law was to discourage overtime in any day, not just in any week. The employer's method, under which the worker's regular rate of pay decreased as the number of overtime hours increased, did not fulfill that purpose. (Skyline Homes, supra, 165 Cal.App.3d at pp. 247-249.) As noted, this court in Ramirez v. Yosemite Water Co., supra, 20 Cal.4th at page 795, expressly approved the foregoing holding of Skyline Homes.
Skyline Homes is, however, ambiguous in one respect. It is not clear from the opinion whether the divisor for purposes of calculating the per-hour value of a weekly salary should be the number of nonovertime hours actually worked by the employee in the workweek in question, even if that number is less than 40, or whether it should be 40 (i.e., the number of nonovertime hours that exist in a workweek). In codifying the holding of Skyline Homes, the Legislature adopted the latter rule. (Lab. Code, § 515, subd. (d)(1) ["the employee's regular hourly rate shall be 1/40th of the employee's weekly salary"].) But the opinion in Skyline Homes is less clear.
In two places, the opinion refers to a divisor of "no more than 40" (Skyline Homes, supra, 165 Cal.App.3d at p. 245, italics added), thus implying that if an employee works fewer than 40 hours in a week (but still works overtime on some days), the divisor for calculating the per-hour value of the weekly salary should be the number of nonovertime hours actually worked in the workweek in question. (Cf. id. at p. 254 [discussing a possible divisor of 39 hours, but not expressly approving it].) By contrast, in discussion of a hypothetical example that appears on pages 248 to 249 of the Skyline Homes opinion, the court consistently used a divisor of 40 even though the employee in the hypothetical worked only 32 nonovertime hours in one of the two weeks discussed. It might be that the court's use of 40 as the divisor in this hypothetical was intended to reflect an unstated holding of the court, or it might be that it was merely an inadvertent error.
As noted, the Legislature, in codifying the holding of Skyline Homes, adopted 40 as the divisor for all cases (Lab. Code, § 515, subd. (d)(1)), but where, as here, the issue involves a flat-sum bonus for weekend work, not a weekly salary, there are strong reasons supporting the alternative rule — that is, that the divisor should be the number of nonovertime hours actually worked. Consider, for example, the case of an employee who earns $15 per hour and who works only on Saturdays. Most weeks, this employee works
We can discern no basis for holding that the per-hour value of a flat-sum bonus should be calculated as if a part-time employee were actually working a full-time schedule, thus dramatically reducing the overtime pay rates of part-time employees in California. Such a rule would contradict the principle that our state's labor laws must be liberally construed in favor of worker protection. (See, e.g., Mendoza v. Nordstrom, Inc., supra, 2 Cal.5th at p. 1087; Brinker Restaurant Corp. v. Superior Court, supra, 53 Cal.4th at pp. 1026-1027.) Nor would we be furthering this state's policy of discouraging the imposition of overtime work (see Skyline Homes, supra, 165 Cal.App.3d at p. 254; Industrial Welfare Com. v. Superior Court, supra, 27 Cal.3d at pp. 701-702) if we were to permit employers to dilute the value of the flat-sum bonuses that their part-time employees earned, fictionally treating those bonuses as if the part-time employees were working full-time schedules.
It is true that under this interpretation, the per-hour value of a flat-sum bonus will be lower for a full-time employee than for a part-time employee, but that disparity is simply in the nature of what a flat-sum bonus is. If both the part-time and the full-time employees do the work that is required to earn the bonus, then both are entitled to receive the bonus, and all other things being equal, the bonus will necessarily make up a larger share of the part-time employee's overall compensation than it does of the full-time employee's overall compensation. That is not unfair, but it will mean that the part-time employee has a higher regular rate of pay and therefore earns overtime pay at a higher pay rate.
Thus, there is a strong argument that the number of nonovertime hours actually worked in a pay period should be the divisor when calculating the
With respect to fixed weekly salaries — the specific issue addressed in Skyline Homes, supra, 165 Cal.App.3d 239 — the question is definitively settled by Labor Code section 515, subdivision (d). In that context, the divisor is 40, not the number of nonovertime hours actually worked. But in extending the holding of Skyline Homes to a flat-sum bonus like the attendance bonus at issue here, we are not obligated to adopt 40 as the divisor, and we can hold instead, consistent with the apparent original intent of the IWC, that the divisor is the number of nonovertime hours actually worked in the relevant pay period.
Moreover, although we do not defer to the DLSE's enforcement policy, we do consider it to the extent we find it persuasive, keeping in view the DLSE's expertise and special competence, as well as the fact that the DLSE Manual evidences considerable deliberation at the highest policymaking level of the agency. (Yamaha, supra, 19 Cal.4th at pp. 11, 13-14.) Therefore, we find it significant that the DLSE has adopted an interpretation of regular rate of pay that treats a flat-sum bonus in the same manner as the salary at issue in Skyline Homes, supra, 165 Cal.App.3d 239, but uses the "maximum legal regular hours worked during the period" (not the hours that exist in the period) as the divisor when calculating the bonus's per-hour value. (DLSE Manual, supra, § 49.2.4.2, p. 49-9, italics added.)
In its manual, the DLSE also explained why overtime hours should not be included in the divisor, saying: "If the bonus is a flat sum, such as ... $5.00 for each day worked," only nonovertime hours should be considered "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." (DLSE Manual, supra, § 49.2.4.2, p. 49-9, italics added.) We think the DLSE identifies an important distinction that is relevant to this case. If a bonus is a reward "for each hour of work," and its
Defendant tries to distinguish Skyline Homes, supra, 165 Cal.App.3d 239. Defendant argues that the attendance bonus at issue here is different from the weekly salary at issue in Skyline Homes, because plaintiff here is an hourly worker receiving a bonus, not a salaried worker. We find the distinction to be irrelevant. To the extent of the attendance bonus, plaintiff is similarly situated to a salaried worker. Suppose, for example, an employer paid its highly skilled hourly employees the minimum wage, but it also paid those employees a weekly flat-sum bonus that was the larger portion of their earnings. If that bonus were not treated in the same way as the salary at issue in Skyline Homes, then employers could circumvent the holding of Skyline Homes — and also Labor Code section 515, subdivision (d) — merely by converting a salary into minimum hourly compensation with a bonus.
It is true that a weekly salary is subject to Labor Code section 515, subdivision (d), and therefore under this court's holding, a flat-sum bonus will be treated slightly differently from a fixed weekly salary in the case of an employee who works fewer than 40 hours in a week. But defendant's formula — using total hours, including overtime hours, as the divisor when determining the per-hour value of a flat-sum bonus — must be rejected because it results in a progressively decreasing regular rate of pay as the number of overtime hours increases, thus undermining the state's policy of discouraging overtime work. In short, the same considerations that supported
Defendant also argues that the holding in Skyline Homes turned on preserving the distinction between California and federal law, and that it therefore applies only to cases in which an employee works less than 40 hours in a workweek but more than eight hours in a day. Defendant's narrow reading of Skyline Homes is drawn from the hypothetical example that the Skyline Homes court used in the course of its analysis. (Skyline Homes, supra, 165 Cal.App.3d at pp. 248-249.) The court made the point that under the employer's method of calculating overtime (which was the same as the federal method), there might be instances — illustrated by the court's hypothetical example — in which a worker worked more than eight hours in a day but received no overtime premium pay because he or she worked less than 40 hours in the week. That possibility, the court said, would undermine the state's policy favoring an eight-hour workday. (Ibid.) But the court never suggested that its holding was limited to cases that were like the hypothetical example, and the claim brought by the workers in Skyline Homes was not, in fact, so limited. (Id. at p. 244.)
In light of this averaging of regular rate of pay across the entire length of the relevant pay period, it is not surprising that the value of a weekend
Defendant relies on Marin, supra, 169 Cal.App.4th 804, for the proposition that its attendance bonus, like the bonus at issue in Marin, does not operate in practice to encourage the imposition of overtime work.
The Marin court conceded that the longevity bonus functioned as a flat-sum bonus if the worker worked more than 1,000 hours, because at that point, the amount of the bonus became fixed, and therefore its per-hour value decreased as the number of hours worked increased. But even then, the employer's method of calculating overtime compensation did not, according to the court, "encourage[] imposition of overtime." (Marin, supra, 169 Cal.App.4th at p. 818.) Therefore the court concluded that there was no rationale for adopting the formula proposed by the plaintiffs in that case. (Id. at pp. 817-819.)
Here, defendant argues that its attendance bonus, like the longevity bonus at issue in Marin, does not encourage the imposition of overtime. Defendant
Defendant disagrees with the foregoing analysis, arguing that its attendance bonus actually advances the state's policy of discouraging overtime. It does so by ensuring that employees report for, and complete, their scheduled weekend work shifts, thus making it unnecessary to ask some employees to work overtime to cover for other employees who fail to show up or who leave early. The reasoning is obviously flawed. If normal pay rates do not provide sufficient motivation to cause employees show up for weekend work shifts, then the solution is not to pay overtime pay rates to the few employees who do show up; the solution is to increase the weekend pay rates for all employees, and that, in effect, is what the attendance bonus does. Thus, the attendance bonus is simply one component of an employee's total compensation, and it must be factored into the employee's regular rate of pay in such a way that the overtime pay rate remains constant, rather than decreasing incrementally with each additional hour of overtime. Defendant is arguing, in effect, that we should tolerate a decreasing overtime pay rate because otherwise employers will pay undermarket wages and will be forced, because of the resulting no-shows, to impose more overtime. The argument has no merit. Regardless of how well an employer chooses to compensate its weekend workers, it must pay a full overtime pay rate, not one that decreases with each additional hour of overtime.
Defendant also asserts that adopting plaintiff's formula for calculating overtime compensation would violate defendant's right to due process of law because ordinary people could never have predicted that the law would be interpreted in the way plaintiff proposes. This argument, too, is meritless. Labor Code section 510 and Wage Order No. 1 state that the overtime pay rate is a fixed multiple of a worker's "regular rate of pay," and both the DLSE and the courts are obligated to liberally construe the phrase "regular rate of pay" so as to protect workers (see, e.g., Mendoza v. Nordstrom, Inc., supra, 2 Cal.5th at p. 1087; Brinker Restaurant Corp. v. Superior Court, supra, 53 Cal.4th at pp. 1026-1027). One very reasonable way to construe "regular rate of pay" is to conclude that in calculating the per-hour value of a flat-sum bonus, the bonus is apportioned only over regular-time hours (i.e., nonovertime hours). Thus, defendant is simply wrong when it argues that ordinary people could not have predicted plaintiff's interpretation, and that it would violate defendant's due process rights to adopt that interpretation. In fact, the interpretation was published in the DLSE Manual, and so defendant had every reason to predict it.
The judgment of the Court of Appeal is reversed.
Corrigan, J., Liu, J., Cuéllar, J., Perren, J.,
I concur in the judgment. I agree with the majority that, when calculating a "regular rate of pay" for purposes of setting overtime compensation, Labor Code section 510, subdivision (a) and Industrial Welfare Commission wage order No. 1 (Cal. Code Regs., tit. 8, § 11010, subd. 3(A)(1)) are properly construed as allocating the bonus at issue here only to nonovertime hours actually worked during a pay period. I also agree with the majority's rejection of the request by defendant Dart Container Corporation of California (Dart) for prospective-only application of the court's interpretation of these authorities. As the majority concludes, the presence of a degree of uncertainty regarding a civil statute's meaning does not on its own justify such a limitation. (See Grafton Partners v. Superior Court (2005) 36 Cal.4th 944, 967 [32 Cal.Rptr.3d 5, 116 P.3d 479].) I write separately to explain that some of the uncertainty surrounding the proper calculation of an overtime pay rate in this situation could, and in my view should, have been dispelled long ago.
Prior to today's decision, the spare language of the pertinent state authorities could have left employers that fully intended to comply with state overtime laws somewhat uncertain about how to proceed. Although a policy manual issued by the Division of Labor Standards Enforcement (DLSE) relates what the court determines today to be a correct view regarding state law, the interpretation's placement within this manual, by itself, entitles it to "no weight" (Tidewater Marine Western, Inc. v. Bradshaw (1996) 14 Cal.4th 557, 576 [59 Cal.Rptr.2d 186, 927 P.2d 296] (Tidewater)) because the DLSE did not promulgate this manual in accordance with the rulemaking provisions of the Administrative Procedure Act (APA; Gov. Code, § 11340 et seq.). Thus there has been no authoritative construction by a state agency of what a "regular rate of pay" entails in this context.
The result is that employees such as plaintiff Hector Alvarado had to sue to assert their right to higher overtime pay, and employers such as Dart may now be faced with substantial penalties. This state of affairs, which is unfortunate for employees and employers alike, conceivably could have been avoided had an interpretative regulation on this subject been promulgated through formal APA rulemaking during the more than two decades that have elapsed since our decision in Tidewater, supra, 14 Cal.4th 557. An interpretation of a statute posited through such a regulation is accorded greater weight than a view related only in a policy manual (see Yamaha Corp. of America v. State Bd. of Equalization (1998) 19 Cal.4th 1, 12-13 [78 Cal.Rptr.2d 1, 960 P.2d 1031]), and would have provided a more robust basis for employers and
Corrigan, J., Liu, J., and Kruger, J., concurred.