The Fourth District of the Court of Appeal recently gave an opinion in the case of Levanoff v. Dragas, 65 Cal. App.5th.1079 (June 25, 2021). This case provided important clarification for both employers and employees as to whether California Law requires a specific method for calculating overtime wages for dual rate employees.
The case involved a number of employees who worked for Buffalo Wings Restaurants throughout California. The employees claimed that their employer had violated the California Labor Code and the California Unfair Competition Law, among other provisions. The employees claimed that the employer had failed to pay overtime wages, provide meal periods, rest periods, pay wages upon ending employment, and keep accurate payroll records.
But upon appeal the key issue of the case revolved around the overtime pay and the calculations used for dual rate employees. Dual rate employees work at different rates of pay within a single pay period. For example, an employee who wears various hats for the employer receives a different salary amount for each. Sometimes this can be more complicated with employees switching roles during shifts or on different days.
For these types of employees, the question becomes: if they work overtime, which rate/salary is paid for that overtime? Employers typically have used two different methods for determining this. First, they use the rate-in-effect method. This is the simpler of the two methods, and means the employee is paid overtime at the rate which was in effect when the overtime began. So if the employee was working at $20 an hour when his shift ended and overtime began, and then worked overtime he would continue to receive $20 an hour for that overtime. The second way of calculating overtime pay for dual rate employees is called weighted average method. Under this method, the employer adds all the hours worked in one pay period and divides that number into the employee’s total compensation for the pay period.
The employers here used the rate-in-effect method. But the employees claimed that California Law required their employer to use the weighted average method. While the court dealt with other issues relating to the classification of the employees, the main take-away was the court's comments on whether or not California Law require the rate-in-effect method.
Before this case was heard by the Court of Appeal, The Superior Court sided with the employers. The court simply concluded that “the method employers must always use is an issue we need not decide.” Under California Law, neither method is required to be used by employers. Instead, California simply requires employers to use a method of compensation that is most economically beneficial to the group of employees at issue. This is to be done by looking not only at individuals over certain periods of time, but by looking at the impact of the practice on the entire group of employees at issue during the relevant statutory period. In this case, the court looked at the employer’s intent, which it noted was to follow industry standards and to seek to compensate hard working employees.
This case provides an important clarification for both workers and employers. It makes clear that employers do have latitude as to which method they wish to use in compensating dual rate employees for overtime. But it also upholds a long-held requirement in California that the court will look to the intent of the employers, to ensure continued protection for workers.
