Lemm v. Ecolab

Filed 1/3/23
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION FIVE
STEPHEN LEMM, B312232
Plaintiff and Appellant, (Los Angeles County
Super. Ct. No. 19STCV21322)
v.
ECOLAB INC.,
Defendant and Respondent.
APPEAL from a judgment of the Superior Court of Los
Angeles County, Steven J. Kleifield, Judge. Affirmed.
Hathaway, Perrett, Webster, Powers, Chrisman &
Gutierrez, The Hathaway Law Firm and Alejandro P. Gutierrez;
Palay Hefelfinger, Daniel J. Palay and Brian D. Hefelfinger for
Plaintiff and Appellant.
Jones Day, Kelsey A. Israel-Trummel, Michael J. Gray and
Ann-Marie Woods for Defendant and Respondent.
_______________________________
Stephen Lemm appeals from a judgment in favor of his
employer, Ecolab, Inc. Lemm sued Ecolab under the Private
Attorneys General Act (PAGA; Lab. Code, § 2698 et seq.) alleging
Ecolab improperly calculated the overtime due on a
nondiscretionary bonus paid to Lemm and other similarly
situated employees. Ecolab successfully moved for summary
judgment on the ground its formulation of the overtime payment
comported with the Fair Labor Standards Act of 1938 (FLSA).
On appeal, Lemm argues California authorities require a
different method of calculation and supersede federal authority in
this instance because California provides greater protection to
employees like him. We affirm.
FACTS
After working for Ecolab for several years, Lemm became a
route sales manager for the company beginning April 5, 2018.
Ecolab provides to its customers, among other things, sanitation
and pest control services and supplies, commercial kitchen
equipment and appliance maintenance, and food safety services.
As a route sales manager, Lemm was Ecolab’s primary contact
with certain customers. He visited these customers regularly to
install, repair, and maintain Ecolab equipment, provide ongoing
training and customer service, and sell Ecolab products and
parts.
1. Compensation for Route Sales Managers
Route sales managers are nonexempt employees who are
entitled to overtime compensation. Lemm regularly worked more
than 12 hours a day and more than 40 hours a week in 2018 and
2019.
Lemm’s compensation was calculated pursuant to an
annual Incentive Compensation Plan. Under the plan, his
2
compensation was comprised of hourly wages and a
nondiscretionary monthly bonus. The method of calculating the
nondiscretionary bonus is at the heart of this appeal.
Lemm’s hourly wages, including any overtime or double
time wages, were paid every two weeks. The overtime and double
time hours were determined by state and federal guidelines and
are not in dispute to the extent those hours do not comprise part
of the calculation of the monthly bonus.
The monthly bonus is nondiscretionary, meaning the
employee is entitled to it under his or her compensation package
whenever the employee meets target metrics. We describe the
target metrics below. Although the bonus is nondiscretionary,
the actual amount of the bonus may vary from month to month
based on the factors that are considered in the calculation of the
bonus pursuant to the employee’s compensation plan. Unlike
regular wages, the monthly bonus is paid every four to six weeks
pursuant to a schedule set out in the Incentive Compensation
Plan. For 2018 and 2019, the period at issue, Lemm’s Incentive
Compensation Plan described the monthly bonus as follows:
“A monthly bonus is calculated on the following payout
factors, based on net sales after distributor sales
adjustments and product returns:
• Territory Sales Budget Achievement
• Service Detail Reporting with Observations
“Monthly bonus is earned after completion of the following:
• Direct sales are billed by the credit department
• Receipt of reporting from the Distributor Sales
• Items sold or shipped to the customer have not
been returned within three (3) months of the
initial order (see Policy – Returns)
3
• Calculation and approval of the bonus advance
by the Company”
Under the plan’s terms, the monthly bonus depends on
Lemm meeting or exceeding the two target metrics – sometimes
referred to as “payout factors” – which we list above in the
indented portion of the text: (1) Territory Sales Budget
Achievement and (2) Service Detail Reporting with Observations.
The “Territory Sales Budget Achievement” factor depended on
Lemm achieving at least 80 percent of his territory sales budget.
If he met this goal, his gross wages for the month were increased
by at least 22.5 percent. The greater his sales, the greater the
percentage multiplier.
The “Service Detail Reporting with Observations” factor
depended on Lemm completing a report on at least 90 percent of
his regular customer calls. The service detail report documented
Lemm’s efforts to sell Ecolab services and products each time he
visited a customer. If he met this goal, his gross wages for the
month were increased by an additional 5 percent. Unlike the
Territory Sales Budget Achievement factor, this percentage did
not change even if Lemm completed reports on more than 90
percent of his regular customer calls.
Under Ecolab’s calculation, gross wages for the purpose of
calculating the bonus included straight time, overtime, and
double time wages.
2. The Lawsuit
On March 25, 2019, Lemm served a PAGA notice of various
Labor Code violations on the Labor and Workforce Development
4
Agency (the agency) and Ecolab. The agency did not take action
on Lemm’s claim, allowing Lemm to file suit against Ecolab.1
On June 19, 2019, Lemm brought his representative PAGA
suit, alleging he and other Ecolab route sales managers failed to
receive the proper overtime rate as part of the nondiscretionary
monthly bonus. Lemm did not assert an individual cause of
action.
On July 25, 2019, Ecolab answered and denied Lemm’s
allegations. About two months later, on October 2, 2019, Lemm
served an amended PAGA notice on the agency, asserting
additional claims for “civil penalties associated with the failure of
Ecolab to pay all required wages, including reporting time and
split shift wages, during the employment.”
The parties stipulated to the filing of cross-summary
adjudication motions to resolve how overtime rates are treated in
the calculation of the monthly bonus. The parties agreed the
summary adjudication motions would not resolve the issues
raised by Lemm’s amended PAGA notice seeking penalties for
reporting time and split shift wages. Ecolab took the position
that Lemm’s amended PAGA filing was not adequately or timely
asserted but agreed it would be more efficient to decide the
overtime issue first. The trial court granted the parties’ request
and agreed to adjudicate whether “the manner in which Ecolab
1 PAGA requires that an employee give written notice of an
alleged Labor Code violation to both to the agency and the
employer. (§ 2699.3, subd. (a)(1); Kim v. Reins International
California, Inc. (2020) 9 Cal.5th 73, 81.) If the agency does not
investigate, does not issue a citation, or fails to respond within a
specified time, the employee may assert PAGA claims as a
representative of the state. (§ 2699.3, subd. (a)(2); LaFace v.
Ralphs Grocery Co. (2022) 75 Cal.App.5th 388, 394.)
5
calculated and paid Plaintiff his Monthly Bonuses [was] a lawful
method to calculate and pay overtime and double time
compensation owed on the Monthly Bonuses under California
law.”
3. Summary Adjudication
In their cross-motions for summary adjudication, the
parties did not dispute that overtime and double time
compensation was due on the nondiscretionary bonus. They
differed on which method to use to calculate the overtime due on
the bonus.
In his motion for summary adjudication, Lemm argued that
under California law, nondiscretionary bonus payments must be
incorporated into the regular rate of pay, which in turn would
affect any overtime calculations. Lemm relied on the formula
presented in section 49.2.4 (section 49.2.4) of the Division of
Labor Standards Enforcement Manual (DLSE Manual) for his
formulation. We set out the formula below.2 Lemm argued the
California Supreme Court opinion in Alvarado v. Dart Container
Corp. of California (2018) 4 Cal.5th 542 (Alvarado) compelled the
court to adopt section 49.2.4’s formula because it was more
favorable to employees.
Ecolab relied on federal law, specifically 29 C.F.R. section
778.210 (CFR 778.210), for its method of calculating the overtime
2 The most recent version of the DLSE Manual is published
online. (See DLSE, The 2002 Update of the DLSE Enforcement
Policies and Interpretations Manual (Revised) (August 2019)

[as of December 27, 2022] archived at .) Revisions to the DLSE Manual in 2017 and 2019 do not
affect our analysis.
6
due on the monthly bonus. It argued CFR 778.210 applies to
what are known as percentage bonuses, which are paid as a
percentage of gross earnings that have already incorporated
straight time, overtime, and double time wages for each bonus
period.
The trial court granted Ecolab’s motion and denied Lemm’s,
finding Alvarado’s holding was limited to flat sum attendance
bonuses, not percentage bonuses, and federal law was not at odds
with California authorities. It explained, “Ultimately, [Ecolab’s]
position makes logical sense. Simply put, a requirement for an
employer to pay overtime on a percentage bonus that already
includes overtime pay makes the employer pay ‘overtime on
overtime.’ This is not a requirement under the law. By paying a
bonus based on a percentage of gross earnings that includes
overtime payments the employer automatically pays overtime
simultaneously on the bonus amount. (Russell [v. Government
Employees Ins. Co. (9th Cir. 2019)] 787 Fed. Appx [953,] 954 [a
percentage of total earnings bonus ‘serves as both a bonus and a
simultaneous payment of overtime compensation due on the
bonus’].)”
4. Judgment on the Pleadings
After the trial court’s summary adjudication ruling, Ecolab
filed a motion for judgment on the pleadings on Lemm’s amended
PAGA claim for reporting time and split shift wage violations.
Ecolab pointed out that Lemm’s complaint did not include these
particular Labor Code violations. More significantly, Lemm
could not amend his complaint to include the new PAGA claims
because he had failed to exhaust his administrative remedies,
7
having served the amended PAGA notice on the agency after the
lawsuit had already been filed.3
Lemm opposed the motion for judgment on the pleadings.
He asserted the allegations in his complaint encompassed the
same Labor Code violations as asserted in the amended PAGA
notice since the complaint generally alleged a failure to pay
wages owed. Further, Ecolab was on notice of the reporting time
and split shift wage violations. Lemm alternatively sought to
amend the complaint to include reporting time and split shift
violations.
The trial court granted judgment on the pleadings, finding
the complaint was devoid of facts sufficient to state causes of
action for reporting time and split shift wage violations. It
further denied Lemm leave to amend the complaint, concluding
that allowing Lemm to amend the complaint would defeat the
exhaustion of administrative remedies requirement of Labor
Code section 2699.3, subdivision (a).
Lemm appealed from the judgment entered in favor of
Ecolab.
DISCUSSION
On appeal, Lemm contends the method by which Ecolab
calculated overtime and double time compensation owed on the
monthly bonuses failed to comport with California law.
Relatedly, he contends the trial court prejudicially erred in
relying on federal law to analyze his state law employment
claims. We affirm the trial court’s ruling on summary
adjudication.
3 Lemm’s complaint was filed June 19, 2019, while the
amended PAGA claim was served on the agency on October 2,
2019.
8
Lemm also challenges the trial court’s rulings on the
motion for judgment on the pleadings and request to amend the
pleadings. We find these issues are moot.
A.
NONDISCRETIONARY BONUS CLAIM
1. Standard of Review for Summary Adjudication
“We review the grant of summary adjudication de novo.”
(King v. Wu (2013) 218 Cal.App.4th 1211, 1213.) “In performing
this de novo review, we view the evidence in the light most
favorable to the opposing party and strictly construe the evidence
of the moving party, and resolve any evidentiary doubts in favor
of the opposing party.” (Dowell v. Biosense Webster, Inc. (2009)
179 Cal.App.4th 564, 574.) “ ‘Summary adjudication of a cause of
action is appropriate only if there is no triable issue of material
fact as to that cause of action and the moving party is entitled to
judgment on the cause of action as a matter of law.’ ” (Burch v.
Superior Court (2014) 223 Cal.App.4th 1411, 1416, overruled on
another point in McMillin Albany LLC v. Superior Court (2018)
4 Cal.5th 241, 258; Code Civ. Proc., § 437c, subd. (f)(1).) “There is
a triable issue of material fact if, and only if, the evidence [and
reasonable inferences drawn from the evidence] would allow a
reasonable trier of fact to find the underlying fact in favor of the
party opposing the motion in accordance with the applicable
standard of proof.” (Aguilar v. Atlantic Richfield Co. (2001)
25 Cal.4th 826, 850 (Aguilar).)
In general, the moving party “bears an initial burden of
production to make a prima facie showing of the nonexistence of
any triable issue of material fact; if he carries his burden of
production, he causes a shift, and the opposing party is then
subjected to a burden of production of his own to make a prima
9
facie showing of the existence of a triable issue of material
fact. . . . A prima facie showing is one that is sufficient to support
the position of the party in question.” (Aguilar, supra, 25 Cal.4th
at pp. 850–851, fns. omitted.)
2. Governing Wage Statutes, Regulations, and Cases
While payment of overtime compensation in California is
governed by both federal and state law, “[i]t is well settled that
federal law does not preempt state law in this area, and therefore
state law is controlling to the extent it is more protective of
workers than federal law.” (Alvarado, supra, 4 Cal.5th at p. 554;
see also 29 U.S.C. § 218(a).) Nevertheless, “[b]ecause the
California wage and hour laws are modeled to some extent on
federal law, federal cases may provide persuasive guidance.”
(Nordquist v. McGraw-Hill Broad. Co. (1995) 32 Cal.App.4th 555,
562.) We begin by examining the applicable state and federal law
on overtime compensation.
a. State Authorities
In California, “wage and hour claims are today governed by
two complementary and occasionally overlapping sources of
authority: the provisions of the Labor Code, enacted by the
Legislature, and a series of 18 wage orders, adopted by the IWC
[Industrial Welfare Commission].” (Brinker Restaurant Corp. v.
Superior Court (2012) 53 Cal.4th 1004, 1026.) “ ‘When construing
the Labor Code and wage orders, we adopt the construction that
best gives effect to the purpose of the Legislature and the
IWC. . . . Time and again, we have characterized that purpose as
the protection of employees — particularly given the extent of
legislative concern about working conditions, wages, and hours
when the Legislature enacted key portions of the Labor Code. . . .
In furtherance of that purpose, we liberally construe the Labor
10
Code and wage orders to favor the protection of employees.’ ”
(Troester v. Starbucks Corp. (2018) 5 Cal.5th 829, 839 (Troester),
citations omitted.)
Labor Code section 510 and IWC Wage Order No. 5 require
an employer to pay an overtime premium of 1.5 times the regular
rate of pay for work in excess of eight hours in a day, 40 hours in
a week, or for the first eight hours worked on the seventh
consecutive day of work. An employer is obligated to pay twice
the regular rate of pay (double time) for any work in excess of 12
hours in one day. (Lab. Code, § 510, subd. (a); see IWC Wage
Order No. 5, §§ 2(P)(1), 3(A)(1)(a)-(b).)
The DLSE is the state agency charged with enforcing labor
laws and regulations. (Lab. Code, §§ 21, 61, 95, 98 et seq.,
1193.5.) To that end, it has compiled a series of policy manuals
interpreting California’s labor laws. (Alvarado, supra, 4 Cal.5th
at pp. 554–555.) The appellate courts consider the DLSE Manual
“to the extent we find it persuasive.” (Alvarado, at p. 567.)
Section 49 of the DLSE Manual describes and explains the
methods for computing regular rate of pay and overtime. An
employee’s “regular rate of pay” for purposes of Labor Code
section 510 and the IWC wage orders is not the same as the
employee’s straight time rate (i.e., his or her normal hourly wage
rate). Regular rate of pay, which can change from pay period to
pay period, includes adjustments to the straight time rate,
reflecting, among other things, shift differentials and the per-
hour value of any nonhourly compensation the employee has
earned. (Alvarado, supra, 4 Cal.5th at p. 554.)
Pertinent to this case, section 49.2.4 of the manual explains
“Computing Regular Rate and Overtime on a Bonus” as follows:
11
“When a bonus is based on a percentage of production[4] or some
formula other than a flat amount and can be computed and paid
with the wages for the pay period to which the bonus is
applicable, overtime on the bonus must be paid at the same time
as the other earnings for the week, or no later than the payday
for the next regular payroll period. (See Lab. Code, § 204.) Since
the bonus was earned during straight time as well as overtime
hours, the overtime ‘premium’ on the bonus is half-time or full-
time (for double time hours) on the regular bonus rate. The
regular bonus rate is found by dividing the bonus by the total
hours worked during the period to which the bonus applies. The
total hours worked for this purpose will be all hours, including
overtime hours. (See previous section)”
To calculate overtime compensation on a bonus described in
section 49.2.4, “[f]irst, find the overtime due on the regular
hourly rate. . . . Then, separately, compute overtime due on the
bonus: find the regular bonus rate by dividing the bonus by the
total hours worked throughout the period in which the bonus was
earned. The employee will be entitled to an additional half of the
regular bonus rate for each time and one-half hour worked and to
an additional full amount of the bonus rate for each double time
hour, if any.” (DLSE Manual, § 49.2.4.1.) The DLSE Manual
includes the following example to illustrate this formula:
Regular hourly rate of pay………………………………….$ 20.00
Total hours worked in workweek = 52
Total overtime hours at time and one-half = 12
Overtime due on regular hourly rate = 12 x $30.00……$360.00
Bonus attributable to the workweek……………………..$138.00
4 Ecolab’s Incentive Compensation Plan contained a
percentage formula.
12
Regular bonus rate = $138.00 ÷ 52 = $2.6538 ÷ 2 = $1.33
$1.33 x 12 Overtime Hours[5]………………..……$ 15.92[6]
Total earnings due for the workweek:
Straight time: 40 hours @ $20.00………………………$800.00
Overtime: 12 hours @ 30.00……………………………. $360.00
Bonus…..……………………………………………………$138.00
Overtime on bonus ……..………………………………… $ 15.92
Total……………………………………………………….$1,313.92
b. Federal Authorities
The FLSA requires an employer to pay overtime
compensation at 1.5 times an employee’s “regular rate” of pay
when an employee works over 40 hours in one week. (29 U.S.C.
§ 207(a)(1).) The FLSA defines “regular rate” to include “all
remuneration for employment paid to, or on behalf of, the
employee” unless it falls under one of eight statutory exceptions.
(29 U.S.C. § 207(e).) “Among these excludable payments are
discretionary bonuses . . . Bonuses which do not qualify for
exclusion from the regular rate as one of these types must be
totaled in with other earnings to determine the regular rate on
which overtime pay must be based.” (29 C.F.R. § 778.208.)
“Where a bonus payment is considered a part of the regular rate
at which an employee is employed, it must be included in
computing his regular hourly rate of pay and overtime
compensation. No difficulty arises in computing overtime
compensation if the bonus covers only one weekly pay period.
5 In the DLSE hypothetical, the employee worked 52 hours;
thus, 12 hours qualified for overtime.
6 $15.92 is the overtime on the bonus.
13
The amount of the bonus is merely added to the other earnings of
the employee (except statutory exclusions) and the total divided
by total hours worked.” When the calculation of a bonus is
deferred over a longer period of time, the employer “may pay
compensation for overtime at one and one-half times the hourly
rate paid by the employee, exclusive of the bonus. When the
amount of the bonus can be ascertained, it must be apportioned
back over the workweeks of the period during which it may be
said to have been earned. The employee must then receive an
additional amount of compensation for each workweek that he
worked overtime during the period equal to one-half of the hourly
rate of pay allocable to the bonus for that week multiplied by the
number of statutory overtime hours worked during the week.”
(29 C.F.R. § 778.209.)
“In some instances, the contract or plan for the payment of
a bonus may also provide for the simultaneous payment of
overtime compensation due on the bonus. For example, a
contract made prior to the performance of services may provide
for the payment of additional compensation in the way of a bonus
at the rate of 10 percent of the employee’s straight-time earnings,
and 10 percent of his overtime earnings. In such instances, of
course, payments according to the contract will satisfy in full the
overtime provisions of the [FLSA] and no recomputation will be
required. This is not true, however, where this form of payment
is used as a device to evade the overtime requirements of the Act
rather than to provide actual overtime compensation, as
described in [sections] 778.502 and 778.503.” (CFR 778.210.)
The above CFR 778.210 example is a “percentage-based
bonus” scheme of the type used by Ecolab. (Barragan v. Home
Depot U.S.A., Inc. (S.D. Cal. Aug. 17, 2021 No.
14
319CV01766AJBAGS) 2021 WL 3634851, at p. *6.) “[P]ercentage
bonuses are only tolerated because they are mathematically
equivalent to recomputing the bonus into the employee’s regular
rate.” (Weninger v. Gen. Mills Operations LLC (E.D.Wis. 2018)
344 F.Supp. 3d 1005, 1010; accord Hornady v. Outokumpu
Stainless USA (S.D.Ala. Feb. 17, 2022, No. CV 1:18-00317-JB-N)
2022 WL 495186, at p. *10.)
In Russell v. Gov’t Emps. Ins. Co. (9th Cir. 2019)
787 Fed.Appx. 953, 954, the plaintiff employee relied on 29 C.F.R
section 778.209 to argue her employer was required to
retroactively allocate her annual cash payment bonus over the
calendar year, recompute her regular rate of pay for the
workweeks covered, and make a supplemental overtime payment
on the bonus. The district court found no recomputation was
required because the employer’s formulation fell under
CFR 778.210. The Ninth Circuit agreed. It concluded the
employer’s payment of a bonus based on percentage of total
earnings, which included both regular wages and overtime
earnings, comported with federal and California law. (Ibid.)7
7 See also Brock v. Two R Drilling Co. Inc. (5th Cir. 1986)
789 F.2d 1177, 1180 (a percentage bonus “increases both straight
time and overtime wages by the same percentage, which is the
rationale for the percentage bonus rule as stated in section
778.503” (internal quotations omitted)); Siomkin v. Fairchild
Camera & Instrument Corp. (2d Cir. 1949) 174 F.2d 289, 292–294
(“A percentage paid upon current earnings . . . has the same
effect . . . as though it was added to each unit of pay, the unit and
a half earned for overtime as well as the unit earned for straight
time; and it ought to be deemed the equivalent of an increment to
each of the units for current work.”); Chavez v. Converse, Inc.
(N.D. Cal. Aug. 18, 2016) No. 15-cv-03746) 2016 WL 4398374, at
15
3. Analysis
CFR 778.210 addresses the precise issue presented in this
case. The terms of Lemm’s Incentive Compensation Plan
expressly provide for the simultaneous payment of overtime
compensation due on the monthly bonus by way of a percentage
increase to his straight time and overtime earnings. Under CFR
778.210, these simultaneous payments satisfy in full the overtime
provisions of the FLSA. The Ninth Circuit and the California
District Courts agree that the type of calculation that Ecolab uses
for overtime due on the monthly bonus is proper under federal
and California authorities. (Russell v. Gov’t Emps. Ins. Co.,
supra, 787 Fed.Appx. at p. 954; Chavez v. Converse, Inc., supra,
2016 WL 4398374, at p. *1; Pytelewski v. COSTCO, supra, 2010
WL 11442902, at p. *4.) We find these authorities persuasive.
Lemm urges us to disregard CFR 778.210 and the federal
courts that have applied it in California wage and hour cases.
Acknowledging that “Labor Code section 510 and Wage Order
No. 5 do not explicitly state how overtime should be calculated
under the facts of this case,” Lemm relies on section 49.2.4 for a
formula that results in an additional amount of overtime
compensation due on the monthly bonus. According to Lemm,
this additional overtime compensation affirmatively shows that
California law provides greater protection to similarly situated
employees and Ecolab is bound to follow it.
Lemm provided this example of the section 49.2.4 formula
based his actual earnings for the week of March 3 through 9,
2019.
page *1 (same); Pytelewski v. COSTCO (S.D. Cal. Nov. 3, 2010)
No. 09-CV-2473-H (BLM)) 2010 WL 11442902, at page *4 (same).
16
Regular hourly rate of pay……………………………..…..$ 14.84
Total hours worked in workweek = 53.50
Total overtime hours at time and one-half = 13.50
Overtime due on regular hourly rate = 13.5 x $22.26….$300.51
Bonus attributable to the workweek……………………..$468.87
Regular bonus rate = $468.87 ÷ 53.5 = $8.7639 ÷ 2 =
$4.3820 x 13.5 Overtime Hours…………………...……$ 59.16
Total earnings due for the workweek:
Straight time: 40 hours @ $14.84……………………..….$593.60
Overtime: 13.5 hours @ $22.26…………………………...$300.51
Bonus…..……………………………………………………...$468.87
Overtime on bonus ……..…………………………………..$ 59.16
Total…………………………………………………………$1,422.14
Lemm contends this was the proper method to calculate his
wages and that the wages he was actually paid for this period,
totaling $1,362.98, were incorrectly calculated. The difference
between the compensation he actually received ($1,362.98) and
what he claims was due under the DLSE section 49.2.4
formulation is $59.16, the amount of “overtime on bonus.”
We conclude the $59.16 amount for overtime on bonus that
Lemm claims is due him represents a double counting of
“overtime on overtime.” This is because the $468.87 bonus
attributed to that period under Lemm’s table already includes
overtime pay.
Ecolab determined the bonus this way using Lemm’s
compensation for the same week (March 3 through 9, 2019):
17
Type of Wages Hours Bonus Bonus
Wage Worked Payout Amount
Percentage8
Straight $593.60 40 52.44% $311.28
Time
Overtime $300.51 13.5 52.44% $157.59
Total $894.11 53.5 52.44% $468.87
By Ecolab’s calculation using the method described in CFR
778.210, Lemm was owed and was paid $1,362.98 ($894.11
[wages] + $468.87 [bonus]) in total compensation. Ecolab’s expert
testified that Lemm would have been owed $1,362.98, the same
amount he was paid, for the week of March 3 through 9, 2019
using the formula in section 49.2.4.1 if the “bonus attributable to
the workweek” excluded the overtime on overtime double
counting.
Ecolab’s expert calculated Lemm’s wages for the week this
way:
Regular hourly rate of pay…………………………….…….$ 14.84
Total hours worked in workweek = 53.50
Total overtime hours at time and one-half = 13.50
Overtime due on regular hourly rate = 13.5 x $22.26….$300.51
Bonus attributable to the workweek………………….…..$416.34
Regular bonus rate = $416.34 ÷ 53.5 = $7.7820 ÷ 2 =
$3.89 x 13.5 Overtime Hours………….……………$ 52.53
8 Lemm’s bonus payout percentage reflected the fact that he
exceeded his Territory Sales Budget Achievement goal of 80
percent.
18
Total earnings due for the workweek:
Straight time: 40 hours @ $14.84……………………...….$593.60
Overtime: 13.5 hours @ $22.26………………………...….$300.51
Bonus…..………………………………………………….…...$416.34
Overtime on bonus ……..……………………………….…..$ 52.53
Total…………………………………………………………..$1,362.98
The primary difference between Lemm’s calculation and
Ecolab’s is the amount each assigns to “bonus attributable to the
workweek.” Under Lemm’s application of section 49.2.4, the
bonus attributable to the workweek is $468.87, the bonus he was
paid by Ecolab for that week. As we have observed, Lemm’s
calculation failed to take into account that the bonus he received
already included overtime on the bonus. Under Ecolab’s
application of section 49.2.4, the bonus attributable to the
workweek is $416.34, the amount of the bonus paid minus the
overtime on the bonus.9 The difference between $468.87 and
$416.34 is $52.53, the amount representing the overtime on
bonus for that week.
Lemm’s adoption of the section 49.2.4 formulation, without
taking into account that the bonus attributable to the workweek
already includes overtime on overtime, contravenes Labor Code
section 510 and Wage Order No. 5, which require an employer to
pay an overtime premium of 1.5 times the regular rate of pay, not
9 Ecolab’s expert calculated the bonus attributable to the
workweek as follows: First, he determined the regular bonus
rate of $7.782 per hour by dividing the portion of the bonus
attributable to straight time hours by the number of straight
time hours worked in the workweek ($311.28/40 = $7.782). He
then multiplied the regular bonus rate by the total number of
hours worked in the workweek to determine the nonovertime
portion of the bonus for the workweek ($7.782 x 53.5 = $416.34.)
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some greater amount. Ecolab’s calculation thus complies with
both federal and California law.
Lemm presented no expert testimony or other evidence that
his proposed formula does not include “overtime on overtime.”
He instead asserts Alvarado compels we look to section 49.2.4
rather than CFR 778.210 for the correct formula.
We agree Alvarado provides useful guidance as to the
applicability of the DLSE Manual, including section 49.2.4. In
Alvarado, the Supreme Court determined how to calculate an
employee’s overtime pay rate when the employee has earned not
a percentage bonus (as in the case here) but a flat sum bonus
during a single pay period—$15 for working a full shift on a
Saturday or Sunday. (Alvarado, supra, 4 Cal.5th at p. 549.) The
Alvarado court found section 49.2.4.2 of the DLSE Manual
explained how to calculate overtime on flat sum bonuses, the
precise issue in dispute in Alvarado. (Alvarado, at pp. 559, 561.)
The court was persuaded the DLSE formula was correct but
expressly “limit[ed] [its] decision to flat sum bonuses comparable
to the attendance bonus at issue here.” (Id. at p. 561, n. 6.)
The Alvarado court addressed the deference to be accorded
to the DLSE Manual, noting the policies in the manual were not
regulations adopted according to the Administrative Procedure
Act (see Cal. Code Regs., tit. 1, § 250). Thus, the DLSE Manual
was an “underground regulation” not entitled to the same level of
deference as the IWC’s wage orders. The high court nevertheless
held that courts were not obligated to reject the DLSE Manual
outright, “so long as we exercise our independent judgment, we
may consider the DLSE’s interpretation and the reasons the
DLSE proffered in support of it, and we may adopt the DLSE’s
interpretation as our own if we are persuaded that it is correct.
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[Citation.] And, in doing so, we may take into consideration the
DLSE’s expertise and special competence, as well as the fact that
the DLSE Manual is a formal compilation that evidences
considerable deliberation at the highest policymaking level of the
agency.” (Alvarado, supra, 4 Cal.5th at p. 561.)
Having exercised the independent judgment the Supreme
Court compels, we are not persuaded Ecolab was required to use
the exact formulation presented in the section 49.2.4 example to
calculate a percentage-based bonus such as the one Lemm
received. Ecolab demonstrated Lemm would have been paid the
same amount whether Ecolab used the section 49.2.4 formula as
applied to percentage bonuses or the CFR 778.210 formula, so
long as the calculation did not include overtime on overtime. As
we have explained, Lemm’s use of the section 49.2.4 example did
not address the percentage-based bonus and added an additional
overtime premium to a bonus that already included overtime on
that bonus.
We are also not persuaded that the DLSE or IWC’s failure
to incorporate CFR 778.210 into the manual or wage orders
means we should disregard it. Lemm acknowledges that
payment of overtime compensation is governed by both federal
and state law. It is only when state law provides more protection
to employees that federal law does not control. (Morillion v.
Royal Packing Co. (2000) 22 Cal.4th 575, 594.) Lemm asserts
California law provides more protection to employees in this case
because he would receive a higher wage under section 49.2.4 by
his calculation than under CFR 778.210. We agree that, as a
general rule, we must adopt the construction that favors the
protection of employees. (Troester, supra, 5 Cal.5th at p. 839.)
We do not understand this policy to obligate courts to interpret
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state law to give an employee “overtime on overtime” when such
an interpretation would be inconsistent with the fundamental
principal of overtime which, as embodied in Labor Code section
510 and Wage Order No. 5, is that overtime is paid at 1.5 times
the regular rate of pay. We see nothing in California law that
favors giving an employee a windfall by using the section 49.2.4
calculation in a way that does not apply to the terms of Lemm’s
compensation plan.
B.
REPORTING TIME AND SPLIT SHIFT CLAIMS
Lemm’s final contention is the trial court erred when it
granted Ecolab’s motion for judgment on the pleadings and
denied him leave to amend his complaint. The issue is moot.
On October 2, 2019, Lemm served an amended PAGA
notice to the agency, asserting additional claims for reporting
time and split shift wage violations. Lemm asserted those claims
were encompassed by the same PAGA claim he had already filed
with the agency and then alleged in the complaint. Ecolab
disagreed.
The parties and the court agreed to defer consideration of
the reporting time and split shift claims until after the trial
court’s ruling on summary adjudication. Accordingly, after the
summary adjudication ruling, Ecolab filed a motion for judgment
on the pleadings on the reporting time and split shift claims. The
trial court ultimately ruled in Ecolab’s favor, finding Lemm’s
complaint did not include allegations of reporting time and split
shift wage violations. The court also denied Ecolab leave to
amend its pleading to state those claims.
In his opening brief in the current appeal, Lemm argued
the trial court erred in its rulings on the motion for judgment on
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the pleadings and request to amend. On March 4, 2021, shortly
before he filed his reply brief in this appeal, Lemm filed a second
PAGA action against Ecolab in the Los Angeles Superior Court,
case No. 21STCV08647 (Lemm II). In his Lemm II complaint, he
alleged the same claims for reporting time and split shift wage
violations that he had asserted in his amended PAGA notice filed
with the agency. In his reply brief in the current appeal, Lemm
continued to assert the trial court erred in granting the motion
for judgment on the pleadings and denying his request to amend.
He failed to apprise this court that he had filed Lemm II.
On June 27, 2022, Ecolab moved to compel arbitration in
Lemm II, relying on the recent United States Supreme Court
decision in Viking River Cruises, Inc. v. Moriana (2022) __ U.S. __
[142 S.Ct. 1906]. In Viking River Cruises, the Supreme Court held
that a defendant employer was entitled to enforce an arbitration
agreement insofar as it mandated arbitration of the plaintiff
employee’s individual PAGA claim. The high court stated that,
because PAGA provides no mechanism to enable a court to
adjudicate representative claims once the individual PAGA claim is
committed to a separate proceeding, the plaintiff employee lacked
standing to maintain her representative PAGA claims. The
Supreme Court reversed the California Court of Appeal decision
that had affirmed the trial court’s denial of the motion to compel
arbitration. (Viking River Cruises, at p. 1925.)
On August 9, 2022, the trial court in Lemm II granted
Ecolab’s motion to compel arbitration of Lemm’s individual
reporting time and split shift wage claims and to dismiss his
representative claims.
On August 15, 2022, Ecolab filed two documents with this
court. The first was a request for judicial notice of the August 9,
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2022 trial court order in Lemm II granting the petition to compel
arbitration and dismissing the representative PAGA claim.
Ecolab stated in its judicial notice request that the Lemm II order
was relevant to Lemm’s argument that he should have been
allowed to amend his complaint in Lemm I to include the
reporting time and split shift claims. Lemm did not oppose
judicial notice, which we granted on August 24, 2022.
The second document Ecolab filed with this court on
August 15, 2022, was a letter advising us of the Supreme Court’s
decision in Viking River Cruises. Neither party asked this court
for leave to file a letter brief addressing Viking River Cruises.
Under these circumstances, we need not consider Lemm’s
claims that the trial court erred when it granted Ecolab’s motion
for judgment on the pleadings and denied Lemm’s motion to
amend. Lemm’s reporting time and split shift claims, which
underlay the motion for judgment on the pleadings and motion to
amend, have now been sent to arbitration in Lemm II. There is
no relief we may grant on those claims because we have no
authority to reverse the trial court’s arbitration order in Lemm II.
By filing Lemm II (with the resulting order to compel
arbitration), Lemm rendered moot his appeal in this case of those
claims. (See Watkins v. Wachovia Corp. (2009) 172 Cal.App.4th
1576, 1588.) By order of the trial court in Lemm II, he must now
pursue any relief for Ecolab’s failure to pay reporting time or split
shift wages in arbitration. His appellate remedy for the order
compelling arbitration in Lemm II is an appeal from any final
adverse judgment in Lemm II. (Ashburn v. AIG Fin’l Advisors,
Inc. (2015) 234 Cal.App.4th 79, 94 [“An order granting a petition
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to compel arbitration is not appealable, but is reviewable on
appeal from a subsequent judgment on the award”].)10
DISPOSITION
The judgment is affirmed. Ecolab shall recover its costs on
appeal.
RUBIN, P. J.
WE CONCUR:
MOOR, J.
TAMZARIAN, J.*
10 Our discussion of Viking River Cruises is not intended to
suggest that the decision in that case does or does not have
application to any future proceedings dealing with Lemm’s report
time and split shift claims.
* Judge of the Los Angeles Trial Court, assigned by the Chief
Justice pursuant to article VI, section 6 of the California
Constitution.
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