Ninth Circuit: Bonus Plans Can Violate The Fair Labor Standards Act

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10/21/2017

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Ninth Circuit: Bonus Plans Can Violate The Fair Labor Standards Act

By: Jarred Lieber

In a recent decision out of Oregon (Brunozzi v. Cable Communications), the Ninth Circuit discussed the effects of the Fair Labor Standards Act (“FLSA”) requirement that employers must use all payments, wages, piece work rates, and discretionary bonuses to compute an employee’s “regular rate of pay” for purposes of calculating the rate at which overtime must be paid. In Brunozzi, the plaintiffs were cable tv installers who were paid on a piece-rate basis for each installation, with a guarantee of at least minimum wage, plus overtime for hours worked over 40 in the week. Plaintiffs were also paid a production bonus equal to one-sixth the amount of their piece-rate earnings. However, in what was the fatal flaw for the Court, the employer subtracted the overtime premium earned on the piece-rate work from the production bonus for weeks in which the Plaintiffs worked overtime.  As a result, the more overtime hours Plaintiffs worked, the smaller their production bonus became. Because production bonuses must be included in an employees’ regular rate of pay for calculating overtime pay, the Court concluded that this diminishing “bonus” device in the employer’s pay plan caused it to undervalue the plaintiffs’ regular rate of pay during weeks in which they worked overtime. The Court concluded that this was a violation of the FLSA and reversed the trial court’s order granting summary judgment in the employer’s favor.

COUNSEL TO MANAGEMENT:

Under the FLSA, overtime is calculated at 1.5x the “regular rate of pay.”  As this case reminds us, the “regular rate of pay” includes all payments, wages, piece work rates, discretionary bonuses, and things of value that form part of the normal weekly income.  As a result, overtime calculations must include all such payments and, unlike the pay plan in Brunozzi, cannot devalue any of these components.  Contact the experts at The Saqui Law Group if you have any questions regarding the calculation of overtime.

 

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