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Subtracting Cable Installers' Piece Rate Overtime Premium from Bonus Before Calculating Regular Rate Doesn't Add Up: Ninth Circuit
Practical Law Legal Update w-007-1031 (Approx. 5 pages)
Subtracting Cable Installers' Piece Rate Overtime Premium from Bonus Before Calculating Regular Rate Doesn't Add Up: Ninth Circuit
by Practical Law Labor & Employment
| Published on 27 Mar 2017 • USA (National/Federal) |
In Brunozzi v. Cable Communications, Inc., the US Court of Appeals for the Ninth Circuit held that an employer's piece-work-based payment plan, which includes a contractually-required bonus that decreases proportionally with an increase in the number of overtime hours worked, violated the overtime provisions of the Fair Labor Standards Act (FLSA).
On March 21, 2017, in Brunozzi v. Cable Communications, Inc., the US Court of Appeals for the Ninth Circuit held that an employer's piece-work-based payment plan, which includes a contractually-required bonus that decreases proportionally with an increase in the number of overtime hours worked, violated the FLSA's overtime provisions. This decision reversed a district court's grant of summary judgment for the employer. ( (9th Cir. Mar. 21, 2017).)
Background
Cable Communications, Inc. (CCI) employed technicians who regularly worked more than 40 hours per week and worked six-day weeks. The employees were paid on a piece-work basis (meaning a fixed rate per completed project). Each technician signed an agreement that he would receive the total earned by any piece-rate jobs during the pay period plus a bonus. To determine a technician's earnings:
- CCI calculated the Piece Rate Total for the week and added a Production Bonus of 1/6 of the Piece Rate.
- If the technician worked over 40 hours during a week, CCI:
- calculated the average hourly rate for the week by dividing the Piece Rate Total by the number of hours worked; and
- determined the Piece Rate OT Premium by dividing the hourly rate by two and multiplying the quotient by the number of overtime hours worked that week.
- CCI determined the technician's Production Bonus by dividing the Piece Rate Total by 60, multiplying the quotient by 70, and subtracting the Piece Rate Total and any Piece Rate OT Premium from that product.
- If the technician worked overtime and earned a Production Bonus, the Production Bonus OT Premium was calculated by:
- dividing the Production Bonus by the number of hours worked that week;
- dividing that quotient by two; and
- multiplying that quotient by the number of overtime hours worked that week.
Two technicians filed lawsuits alleging that CCI violated the FLSA by diminishing the overtime premium from their bonus payment before determining their regular rate. The plaintiffs' other claims included state law retaliation and failure to timely pay wages on termination.
The district court granted summary judgment in favor of CCI. Both technicians appealed.
Outcome
The Ninth Circuit:
- Reversed the district court's grant of summary judgment in favor of the defendant.
- Held that that any employer with a piece-work-based payment plan, which includes a contractually-required bonus that decreases proportionally with an increase in the number of overtime hours worked, violates the FLSA's overtime provisions.
The Ninth Circuit noted that:
- The US Supreme Court has interpreted regular rate as "the hourly rate actually paid the employee for the normal, non-overtime workweek for which he is employed." (Walling v. Youngerman-Reynolds Hardwood Co., 325 U.S. 419, 424 (1945); see Practice Note, The Regular Rate of Pay Under the FLSA: Statutory Exclusions and The Regular Rate of Pay Under the FLSA: Statutory Exclusions Chart).
- DOL regulations interpreting the FLSA prohibit an employer from reducing an employee's hourly rate when he works overtime (29 C.F.R. § 778.316).
The Ninth Circuit also noted that for employees who are paid on a piece-rate basis:
- Their regular hourly rate of pay should be computed by:
- adding their total piece-rate earnings for the week and all other sources of pay, including production bonuses; and
- dividing the total by the number of hours worked that week.
- Their overtime pay is equal to one-half of the regular rate multiplied by the number of hours worked over 40 in the week.
- Only half-time pay is required where employees receive straight-time compensation at piece rates for all hours worked.
Concerning the bonus structure of CCI's piece-work-based pay plan, the Ninth Circuit found that:
- The technicians correctly raised the issue of CCI's mishandling of the Production Bonus when they worked overtime. Employees were not paid the full amount of required overtime pay because CCI designed the Production Bonus to decrease proportionally as the number of overtime hours worked increased.
- CCI's Production Bonus did not fall under the DOL's definition of "bonus" because CCI was contracted to include the payment as part of employee's regular wages.
- When calculating overtime pay for employees who had the Production Bonus, rather than dividing the sum of the Piece Rate Total and Production Bonus to determine an employee's regular hourly rate, CCI reduced the amount of Production Bonus paid during a regular 40 hour workweek by the amount of overtime premium that it calculated its employee was owed on his Piece Rate Total.
- Since the Production Bonus (1/6 of Piece Rate) was part of employees' regular income, reducing that total during weeks in which they worked overtime allowed CCI to pay employees less than what was required and therefore violated the DOL's regulations.
Practical Implications
The FLSA provides that all compensation for hours worked must be included in an employee's regular rate. Employers that pay employees on a piece-rate basis should review their regular rate calculation protocols to ensure that all required compensation is included. Employers must fully comply with the FLSA's overtime requirements and cannot diminish other regular rate pay in order to provide overtime payment.