Alert: California Court Holds That Holiday Pay Premium Need Not Form “Regular Rate Of Pay” Under California Overtime Statute

The California Court of Appeal has assured employers that enhanced hourly rates offered for holiday work will not be considered the "regular rate of pay" for purposes of calculating California statutory overtime requirements.  Thus, the California statute only requires that overtime worked on such holidays be paid at a multiple of the non-holiday "regular rate of pay."  The Court did, however, warn that such enhanced holiday rates could create a contractual promise of higher overtime rates if the employer is not careful.

In Advanced-Tech Security Servs., Inc. v. Superior Court (Roman), No. B205186 (June 3, 2008), the employer paid employees their normal wage for holidays not worked and time and one-half for holidays actually worked.  Plaintiff Ester Roman had worked beyond eight hours on two holidays, and contended that she should be paid for those overtime hours at one and one-half times the vacation premium rate, rather than the rate she received on other days.  The employer, Advanced-Tech Security Services, contended that the overtime hours were adequately compensated by the holiday rate since it was one and one-half times the rate normally paid.

Affirming summary judgment for Advanced-Tech, the Court of Appeal agreed that the holiday rate satisfied California statutory overtime requirements.  In rejecting Ms. Roman's argument that the premium rate paid on holidays became her "regular rate of pay" for overtime purposes, the Court noted that the California overtime statute expressly provides, "Nothing in this section requires an employer to combine more than one rate of overtime compensation in order to calculate the amount to be paid to an employee for any hour of overtime work."  Borrowing from federal case law interpreting the Fair Labor Standards Act, the Court ruled that extra compensation provided by a premium rate on holidays does not constitute the employee's "regular rate of pay."

The Court did, however, suggest that its conclusion might have been different if the employee had alleged that the pay breached a contractual promise of one and one-half the holiday premium rate for overtime hours worked on holidays.  Thus, employers should examine their policies and handbooks to assure that they may not be interpreted as suggesting that wage premium rates will be compounded.