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Employer Was Not Required To List Hours And Rates Next To Its Calculation Of Employee’s “True-Up” Overtime Under Labor Code Section 226
Pacific Bell hired Dave Meza in January 2014 as a premises technician. Meza left Pacific Bell in October 2015. Meza filed a class action lawsuit against Pacific Bell alleging several Labor Code violations, including failure to provide itemized wage statements in violation of Labor Code Section 226, subdivision (a)(9). Section 226, subdivision (a)(9) provides that an employee wage statement must include “all applicable hourly rates in effect during the pay period and the corresponding number of hours worked at each hourly rate by the employee.”
Meza alleged Pacific Bell violated this section by failing to include rates and hours attributable to its “true-up” overtime payments. The overtime true-up payments were calculated using a complex formula involving bonus amounts and hours from prior pay periods. Under Pacific Bell’s incentive program, each month employees earned “points” that could be exchanged for merchandise based on the achievement of specified metrics. Pacific Bell assigned the points a cash value for tax purposes and calculated the additional income taxes owed on the points. Pacific Bell generally listed these monetary amounts on the first wage statement of the month after the employee earned them.
As required by law, Pacific Bell included the value of the points (which was a form of a bonus) in the regular rate of pay for purposes of calculating the employee’s overtime pay. Because the employees earned the bonus over the course of the month and the bonus amount was not known until the end of that month, there was no way to determine the overtime owed in relation to that bonus on a pay-period-by-pay-period basis. Instead, Pacific Bell calculated the additional overtime owed – the overtime true-up – after the close of the month.
After significant litigation, the trial court held that Pacific Bell’s wage statements complied with Labor Code Section 226, concluding that “an employer must only identify on the wage statement the hourly rate in effect during the pay period for which the employee was currently being paid and the corresponding hours worked.” Meza appealed.
The Court of Appeal agreed with the trial court and held that Labor Code Section 226 does not require Pacific Bell to list the rates and hours from prior pay periods underlying the overtime true-up calculation. The Court reasoned that Section 226, subdivision (a)(9) is explicit that it requires a list of hourly rates “during the pay period.” Therefore, Pacific Bell was not required to include the rates and hours from prior pay periods, especially because the overtime true-up was an after-the-fact calculation based in significant part on the amount of bonus the employee earned the prior month.
The Court of Appeal affirmed the trial court’s order dismissing Meza’s wage statement claim.
Meza v. Pac. Bell Tel. Co. (2022) 79 Cal. App. 5th 1118.
Under federal and state law, employers must include bonuses and incentives to the regular rate of pay for calculating overtime. The Court of Appeal held that Pacific Bell was not required to list the wage rate or hours worked for overtime true-up payment for the prior month’s work based on a bonus paid that month. This case serves as a reminder that private K-12 schools, colleges, and universities must strictly adhere to California’s wage statement requirements.