Labor & Employment Law Daily California ‘regular rate’ not limited to hourly pay; $97M awarded to Wells Fargo class
Monday, May 14, 2018

California ‘regular rate’ not limited to hourly pay; $97M awarded to Wells Fargo class

By Nicole D. Prysby, J.D.

Under California law, an employee’s “regular rate of compensation” is not limited to the employee’s straight hourly rate but includes other forms of compensation such as incentive pay, held a federal district court in California, ruling on damages after awarding summary judgment in favor of a class of Wells Fargo home mortgage consultants on their Labor Code claims. Moreover, the court rejected the contention that a reduction in the classwide damages calculation was warranted because 961 of the 4,481 class members received only hourly pay (Ibarra v. Wells Fargo Bank, N.A., May 8, 2018, Anderson, P.).

Rest period claims. A Wells Fargo home mortgage consultant brought wage-hour class action on behalf of a class of more than 4,400 employees. In earlier decisions, the court dismissed all but the employees’ claims for rest-period violations. It certified a Rule 23 class of all nonexempt Wells Fargo employees working in California in home mortgage positions. It then granted summary judgment for the employees as to liability. The remaining issue was how to calculate damages for the rest-period infractions which, under California law, are assessed at “one additional hour at the employee’s regular rate of compensation for each workday that [a rest] period is not provided.”

Determining “regular rate of compensation.” The employer argued that only the hourly rate should be considered when computing damages. The employees countered that the damages calculation should include all forms of qualifying compensation earned during the pay period, including commissions. The court found that, by definition, their normal compensation includes incentive and overtime pay. Their pay was governed by a compensation plan that consisted of hourly pay, incentive pay, and overtime premiums; also, the plan stated that hourly pay was merely an advance against commissions, and that commissions would be paid only to the extent that the gross incentive amount exceeded the hourly pay received. Moreover, less than 25 percent of the class members received only hourly pay. Thus, “regular rate of compensation” was not limited to an hourly rate, but should include other forms of qualifying compensation.

In support of this conclusion, the court cited the California and FLSA overtime wage provisions, which define regular rate not as the straight-time rate, but as that rate adjusted for shift differentials and other non-hourly pay. The legislative history of the statute supported this interpretation as well. The language was changed from requiring payment at the “average hourly rate” to requiring payment at the “regular rate of compensation.” This revision could suggest that the “regular rate” was not meant to be limited to the hourly rate (although the court noted that other interpretations were possible). The court also rejected the employer’s argument that including more than the hourly rate in damage calculations would create administrative difficulties.

No reduction in damages. Wells Fargo also argued that the classwide damage award should be reduced based on class members who never earned commissions beyond the hourly rate. But the court disagreed these employees should be excluded from the damages calculation. While there may be some employees who never qualified for any incentive pay and were compensated for missed rest breaks, the employer failed to establish how many (if any) of those employees existed.

Therefore, the court awarded $97,284,817 in damages to the class for the rest-period violations.

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