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Verdict for California Employee Who Complained About Unpaid Overtime and Got Fired Upheld

In California, employees must be paid overtime for any hours worked beyond eight in a workday or 40 during a workweek. Employers must also provide meal and rest breaks to employees or compensate them for that time. The overtime rate is one-and-one-half times the employee's regular rate of pay, which is generally calculated by dividing the total number of hours worked by 40 for salaried employees. However, when commissions are also paid, those are normally isolated and divided by the total number of hours worked before being included in the regular rate of pay calculation. In Morales v. Factor Surfaces LLC, Cal. Ct. App. Case No. 306652, the Court of Appeal considered a case in which a salaried employee who received commissions had his regular rate of pay calculated by dividing the total number of hours worked by 40 without separating out the commissions when the employer failed to keep records or submit an alternative calculation method to the trial court.[1]

Factual and Procedural History

Byron Jerry Morales was hired by Factor Surfaces LLC, a tile and flooring store, in 2016. He worked from 8 am to 6 pm on Monday through Friday and 9 am to 5 pm on Saturday until March 9, 2018, when his schedule was changed so that he no longer worked each Saturday. After he asked about receiving overtime pay in 2018, Factor fired him. Morales filed a wage and hour lawsuit against Factor on Feb. 14, 2019, alleging the company had provided inaccurate wage statements, failed to pay all wages owed, failed to pay overtime compensation, failed to provide rest and meal breaks, failed to pay him his unpaid wages when he was discharged, retaliated against him, and wrongfully terminated him.

The case went to a bench trial on March 4, 2020. Gregory Factor testified that he kept Morales' records of employment in his truck, and his truck was stolen from the parking lot where he lived. When the truck was later recovered, he testified that nothing was inside. He could not provide accurate testimony without the records about the hours Morales had worked, whether he had told Morales that Morales would be compensated at $120 per day and other questions. His wife, Bianca Factor, also could not testify about how many hours of overtime Morales had worked. She testified that Morales did not receive commissions and stated that he might have received some reimbursements for lunches.

Morales testified that he had been hired by Factor at $120 per day for working Monday through Saturday. He also testified that he received 3% commissions from the time of his hiring until 2017. At that time, his commissions were halved to 1.5%, and they were later zeroed out and his daily pay was increased to $150. After March 9, 2018, he stopped working every Saturday and instead started working two to three Saturdays per month. He submitted copies of his weekly paychecks into evidence. Factor did not present any evidence to the court.

After the trial, the court issued its decision. It first stated that it did not find the testimony given by Gregory or Bianca Factor to be believable and gave it no weight. The court accepted Morales' testimony that he worked from Monday through Saturday and his calculation that he worked 18 hours of overtime each week until March 9, 2018, and then 14 hours per week following that date until his termination. The court also accepted the meal and rest break overtime computation chart admitted by Morales and attached it as an exhibit to the court's decision. The court found that Morales had not been paid $42,792 in overtime compensation and entered a judgment in his favor on that and the other counts in a total amount of $99,394.16. Factor Surfaces and Gregory Factor appealed. While Morales had initially also filed suit against Bianca Factor, her portion was dropped after she filed for bankruptcy during the case.

Issue: Can the regular rate of pay be calculated by dividing a weekly paycheck by 40 when no overtime was paid?

Gregory Factor and Factor Surfaces filed an appeal on the sole issue of how the trial court calculated Morales' unpaid overtime compensation. The defendants argued that dividing his weekly paychecks by 40 to determine the regular rate of pay was erroneous. Morales argued that the calculation was not erroneous and that the court did not err in awarding him slightly more than $42,000 in unpaid overtime compensation.

Rule: The regular rate of pay is determined by dividing the number of hours an employee worked during a workweek by the number of non-overtime hours.

Employers are required to pay an overtime premium to employees who work more than eight hours per day or more than 40 hours per week under Cal. Lab. Code § 510 at a rate of one-and-one-half times the regular rate of pay.[2] An employee's regular rate of pay for an employee that is paid a salary is calculated by dividing the total number of hours worked during a workweek by the number of non-overtime hours the employee actually worked under Cal. Lab. Code § 515, which would be equivalent to 1/40th of the salary the employee was paid for the week.

Analysis

Employers are required to keep accurate employment records, provide accurate wage statements, provide rest and meal breaks, and pay overtime compensation to employees for the hours they work beyond eight in a day or 40 in a week. Employers are also prohibited from retaliating against an employee for complaining about wage and hour violations, including any adverse job action up to and including wrongful termination.[3] If employers fail to meet these obligations, the employees are entitled to pursue damages.

Factor Surface and Gregory Factor argued that the court erred in calculating Morales' unpaid overtime compensation by simply dividing the total amount he was paid during a workweek by 40 instead of first isolating the commissions he received.[4] They argued that the court should have divided the commissions he received by the actual number of hours worked instead of including them in the salary and dividing the total by 40. Morales did not dispute the proper method of calculating overtime pay for commissioned, salaried employees. However, he argued that in situations in which the employer fails to keep employment records as required by law, the consequences should fall on the employer instead of the employee. Under Hernandez v. Mendoza, 199 Cal.App.3d 721 (1988), an employee's imprecise evidence can be accepted as meeting the employee's initial burden of proof.[5] The burden of proof then switches to the employer to present evidence showing the employee's records are inaccurate. If the employer fails to meet its burden, the court may then accept the calculations provided by the employee and order the employer to pay damages.

In Morales' case, the defendants did not present any evidence about Morales' hours worked or the amounts he had been paid. Bianca Factor even denied that he had received commissions during her testimony. The court admitted the chart submitted by Morales in which Morales had calculated his regular rate of pay by dividing the total number of hours worked by 40 to arrive at a regular rate of pay of $18 per hour. The appeals court noted that the defendants could have submitted an alternative method of calculating the portion attributable to commissions but did not.

Conclusion

The court ruled in Morales' favor and affirmed the finding by the trial court. Factor Surface and Gregory Factor were ordered to pay Morales his costs on the appeal.

Talk to an Experienced Employment Lawyer

If you believe that your employer has failed to keep accurate employment records or to pay you for all of the hours you have worked or the overtime compensation you should have received, you may be entitled to pursue compensation through a wage and hour lawsuit. An experienced employment lawyer at the law firm of Steven M. Sweat, APC, can examine your documents and explain whether you appear to have grounds to file a claim. Call us today to request a free consultation at 866.966.5240.

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