SACRAMENTO — Earlier this month, the California Supreme Court unanimously ruled in favor of employee-friendly overtime rules in a decision that will drastically impact employers all over the state.

In the case of Alvarado v. Dart Container Corporation of California, the court ruled that employers must now calculate overtime earned during pay periods in which an employee earns a flat rate bonus by dividing the total compensation by the non-overtime hours worked.

This is a departure from federal rules that calculate overtime by requiring the division of total compensation by total worked hours to determine designated overtime. This decision from the state’s highest court now requires employers to reevaluate their salary and pay policies and practices. 

“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,” the opinion from the Supreme Court ordered. The Northern California Record obtained the order, which was filed on March 5.

“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,” the order continues.

The immediate case made it to its current status and consequent ruling after the plaintiff sued the defendants for allegations of miscalculation overtime pay. 

On JD Supra, Fisher Phillips attorney Ashton Riley pointed out that the opinion “determined that the formula put forth by Alvarado" was "marginally more favorable to employees,” adding that “the court’s guiding principles were two-fold: discouraging the imposition of overtime work through premium overtime pay and interpreting state law liberally in favor of worker protection.”

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