Another Emerging Trend: Miscalculation of Overtime Compensation
Two recent class action lawsuits illustrate an emerging trend in wage and hour class action litigation, namely, claims for failure to pay overtime wages based on the improper calculation of the employees’ overtime rates.
The first lawsuit, filed against clothing retailer Forever 21 by a former 13-year employee, alleges that employees were not paid all of their overtime wages due to Forever 21’s failure to take into account non-discretionary bonuses and incentive pay when calculating the employees’ overtime rates. Juana Diaz, the plaintiff in this lawsuit, seeks to represent all of Forever 21’s hourly warehouse employees in the State of California. This lawsuit was filed May 24, 2013 in the Los Angeles County Superior Court.
In the second lawsuit, plaintiff William Sullivan seeks to represent non-exempt employees of Lyon Management Group, a property management company, in a similar claim. Sullivan alleges that Lyon failed to include the employees’ commissions and bonuses when calculating their overtime rates. This lawsuit was filed May 8, 2013 in the Orange County Superior Court.
Although the outcome of these cases remains to be seen, two recent decisions finding such claims suitable for class certification confirm the viability of class certification of claims based on the improper calculation of overtime rates. In a May 10, 2013 decision in the case of Faulkinbury v. Boyd & Associates, Inc., a California appellate court ruled that the question of whether annual bonuses must be included in calculating the overtime rates of the proposed class was appropriate for class certification. On May 28, 2013, the federal Court of Appeals for the Ninth Circuit overturned a lower court decision denying class certification in Levya v. Medline Industries, Inc. The plaintiffs in that action sought to represent over 500 employees on a number of claims, including a claim that nondiscretionary bonuses had been improperly excluded from overtime rates. The federal court ordered the proposed class certified.
The calculation of an employee’s overtime rate varies from case to case. Federal and California laws state that an employee’s overtime rate is based on that employee’s “regular rate of pay,” which includes all of the compensation the employee normally receives for the work performed for the employer. In many cases, it is not enough to look only at the employee’s hourly rate. The employer must also include any other compensation normally paid to the employee for their work including salary, piecework earnings, non-discretionary bonuses, and commissions in the regular rate of pay. Conversely, discretionary bonuses, payments in the nature of gifts on special occasions, and contributions by an employer to certain welfare plans generally are not included in the calculation of the “regular rate of pay.” Whether a particular type of compensation should be included in the regular rate of pay is a very fact-specific determination. The cases above make clear that employers of all sizes should review their practices to ensure that the regular rate is being properly calculated. As cases have illustrated, this is an issue that lends to class certification, which greatly increases the risk and exposure of a potential claim.