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The California Supreme Court is set to issue a ruling that could reshape the way overtime is calculated under state law.
Depending on how the court rules, overtime could become more expensive for employers and more generous for workers, according to Joshua Rodine, a management attorney with Seyfarth Shaw LLP in Los Angeles. A decision from the court is expected March 5. The court usually releases opinions around 1 p.m. Eastern.
The question before the court is whether overtime should be calculated according to a method adopted by a California labor commissioner policy and interpretations manual or one laid out by the U.S. Labor Department in federal regulations.
“What the Division of Labor Standards Enforcement manual says is you don’t factor in the overtime hours when calculating the overtime rate,” Rodine told Bloomberg Law. That means the overtime rate is determined by dividing the worker’s hourly pay by 40, rather than including the overtime hours in that calculation.
“It makes the overtime rate higher because you’re dividing by fewer number of hours,” he said.
Overtime generally is one and a half times the regular rate of pay, so a larger regular rate results in more overtime. There are situations when overtime under California law may be higher than time and a half, such as working more than 12 hours in one day.
An appeals court sided with Dart Container Corp. in 2016. It held that the company was right to use the federal formula to calculate former warehouse associate Hector Alvarado’s regular hourly rate because it’s based on a regulation. The state manual, on the other hand, doesn’t carry the force of law because it’s a guidance document the agency adopted to establish uniformity in its operations.
The federal formula divides the amount Alvarado earned in hourly wages and bonuses by the total number of hours worked. By dividing someone’s earnings by a number that may be larger than 40, it results in a lower regular rate than the California formula.
The case is Alvarado v. Dart Container Corp. of Cal., Cal., No. S232607.
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