Chavez v. Converse, Inc. et al

Filing 80

ORDER GRANTING DEFENDANT'S MOTION FOR PARTIAL SUMMARY JUDGMENT. Re: Dkt. No. #55 . Signed by Judge Nathanael Cousins. (lmh, COURT STAFF) (Filed on 8/18/2016)

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UNITED STATES DISTRICT COURT

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NORTHERN DISTRICT OF CALIFORNIA

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ERIC CHAVEZ,
Plaintiff,

United States District Court
Northern District of California

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v.
CONVERSE, INC.,
Defendant.

Case No. 15-cv-03746 NC
ORDER GRANTING DEFENDANT’S
MOTION FOR PARTIAL
SUMMARY JUDGMENT
Re: Dkt. No. 55

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In this state law wage and hour case, Chavez alleges that Converse inadequately

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compensated its store employees by failing to appropriately pay overtime and by failing to

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pay employees for mandatory bag checks at the end of each shift. At issue in this

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summary judgment motion is whether Converse violates the California Labor Code by

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paying employees a quarterly bonus without increasing their overtime pay. Certain

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categories of bonuses require an employer to recalculate the “regular rate” of pay, and as a

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result, recalculate the time-and-a-half overtime pay. The Court concludes that Converse

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does not need to recalculate its overtime pay for bonuses paid as a percentage of total

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earnings or for fully discretionary bonuses. In addition, the Court finds that Chavez did

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not present material facts that Converse provided a bonus that requires a recalculation of

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the overtime pay. Thus, the Court GRANTS defendant’s motion for summary judgment

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on claim 2, and GRANTS defendant’s motion as to claims 5, 6, and 7 based on the theory

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that Converse failed to include bonuses in the regular rate of pay.
Case No. 15-cv-03746 NC

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I.

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LEGAL STANDARD
Partial summary judgment may be granted only when, drawing all inferences and

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resolving all doubts in favor of the nonmoving party, there is no genuine dispute as to any

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material fact. Fed. R. Civ. P. 56(a); Tolan v. Cotton, 134 S. Ct. 1861, 1863 (2014);

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Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). A fact is material when, under

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governing substantive law, it could affect the outcome of the case. Anderson v. Liberty

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Lobby, Inc., 477 U.S. 242, 248 (1986). A dispute about a material fact is genuine if “the

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evidence is such that a reasonable jury could return a verdict for the nonmoving party.” Id.

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Bald assertions that genuine issues of material fact exist are insufficient. Galen v. Cnty. of

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L.A., 477 F.3d 652, 658 (9th Cir. 2007).

United States District Court
Northern District of California

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The moving party bears the burden of identifying those portions of the pleadings,

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discovery, and affidavits that demonstrate the absence of a genuine issue of material fact.

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Celotex, 477 U.S. at 323. Once the moving party meets its initial burden, the nonmoving

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party must go beyond the pleadings, and, by its own affidavits or discovery, set forth

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specific facts showing that a genuine issue of fact exists for trial. Fed. R. Civ. P. 56(c);

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Barthelemy v. Air Lines Pilots Ass’n, 897 F.2d 999, 1004 (9th Cir. 1990) (citing Steckl v.

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Motorola, Inc., 703 F.2d 392, 393 (9th Cir. 1983)). All justifiable inferences, however,

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must be drawn in the light most favorable to the nonmoving party. Tolan, 134 S. Ct. at

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1863 (citing Liberty Lobby, 477 U.S. at 255).

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II.

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DISCUSSION
Chavez’s second cause of action alleges that Converse has a pattern and practice of

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violating California Labor Code §§ 510 and 1194. Dkt. No. 1 at 26. Those Labor Code

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sections require an employer to pay overtime at a rate of one and one-half the employee’s

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regular rate of pay for any work in excess of eight hours in a workday or 40 hours in a

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workweek. Dkt. No. 1 at 26. Chavez alleges that Converse has a pattern and practice of

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failing to properly pay overtime because of the way it pays out bonuses.

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No party disputes that Converse pays overtime on regular paychecks, then gives
employees quarterly bonuses. However, the parties dispute whether Converse’s quarterly
Case No. 15-cv-03746 NC
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bonuses should be included in the calculation of “regular rate of pay” to increase the

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employee’s rate of pay, and thus increase the employee’s overtime rate. The parties agree

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that Converse does not currently make such adjustments.

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Converse argues that Chavez received quarterly bonuses as a percentage of an
employee’s total earnings for the quarter, so the regular rate of pay does not need to be

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recalculated to include bonus pay. Dkt. No. 55 at 11. In support of its position, Converse

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states that California courts adopt the definition of “regular rate” set forth in the federal

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Fair Labor Standards Act (“FLSA”), 29 U.S.C. § 207(e). See Prachasaisoradej v. Ralphs

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Grocery Co., Inc., 42 Cal. 4th 217, 242 n.14 (2007) (noting that “California follows the

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federal standard for purposes of determining, under the Labor Code, what constitutes an

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United States District Court
Northern District of California

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employee’s regular pay subject to an overtime rate.”). Chavez argues that the California

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Division of Labor Standards Enforcement (“DLSE”) Enforcement Policies and

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Interpretation Manual §§ 49.1, 49.2.4 provides that employers must include all non-

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discretionary items of pay, including annual merit bonuses, into the regular rate of pay to

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calculate overtime.

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In reviewing the authorities cited by the parties, the Court concludes that California

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law encourages the Court to be guided by the FLSA where California labor laws are

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unclear. See Nordquist v. McGraw-Hill Broad. Co., 32 Cal. App. 4th 555, 562 (1995)

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(“Because the California wage and hour laws are modeled to some extent on federal law,

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federal cases may provide persuasive guidance.”). “In sum, no California court decision,

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statute, or regulation governs bonus overtime . . . Thus, there is no controlling California

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authority apart from the directive that overtime hours be compensated at a rate of no less

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than one and one-half times the regular rate of pay.” Marin v. Costco Wholesale Corp.,

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169 Cal. App. 4th 804, 815 (2008), as modified on denial of reh’g (Jan. 21, 2009).

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In the context of the “regular rate of pay,” the DLSE guidance provides, “In not

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defining the term ‘regular rate of pay,’ the Industrial Welfare Commission has manifested

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its intent to adopt the definition of ‘regular rate of pay’ set out in the Fair Labor Standards

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Act . . . In determining what payments are to be included or excluded from the calculation
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of the regular rate of pay, California law adheres to the standards adopted by the U.S.

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Department of Labor to the extent that those standards are consistent with California law.”

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DLSE Enforcement Policies and Interpretations Manual § 49.1.2 (2002).
The FLSA provides that the “regular rate” of pay includes “all renumeration for

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employment paid to, or on behalf of the employee” with various exceptions. 29 U.S.C. §

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207. One of these exemptions are bonuses for a “percentage of total earnings.” 29 C.F.R.

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§ 778.210. Logically, this makes sense. If an employer grants a bonus to employee as a

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percentage of total pay, the employer increased both the regular rate of pay and the bonus

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pay by the same percentage.
However, if the bonus is based on factors to act as an incentive to the employee, the

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United States District Court
Northern District of California

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regular rate of pay must be recalculated to include the additional bonus pay under both

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federal regulations and California DLSE guidance. 29 C.F.R. § 778.211(c); DLSE Manual

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§ 49.2.4. These incentive factors include bonuses for production, efficiency, quality, and

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duration of service. Id. Merit awards where “both the fact that payment is to be made and

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the amount of the payment are determined at the sole discretion of the employer” do not

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have to be included in the regular rate of pay. DLSE Manual § 49.1.3.4(3).
Here, Converse has provided evidence that the bonus plans for store associates use

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the following formula: “quarterly earnings x target percentage (5%) x 100% x the store

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revenue achievement percentage.” Arevalo Decl. ¶¶ 3,5, Exh. A-C. Quarterly earnings

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include all base pay, paid time off, overtime, and merit developmental lump sum awards.

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Id.

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Converse argues that because the bonus structure is based on quarterly earnings, the

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entire bonus should be considered a “percentage of total earnings” bonus. In contrast,

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Chavez argues that Converse’s bonus formula includes more than just quarterly earnings,

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so it should be broken down into the component elements. Dkt. No. 58 at 13. Chavez

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argues that the merit developmental lump sum awards must be included in the regular rate

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of pay. Id. Converse replies that its merit awards are given at the sole discretion of the

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employer. Stuckey Decl. ¶ 3. In addition, Converse argues that Chavez never actually
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received a merit award. Stuckey Decl. ¶ 4.
Chavez did not depose Jessica Stuckey, Converse’s declarant establishing that the

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merit awards are discretionary and that Chavez did not receive a merit award. Chavez

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states that he has not had adequate opportunity to receive discovery on the question of

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whether he received a merit award. In support of his argument that further fact finding is

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necessary, Chavez includes personal wage statements and pay stubs which establish that he

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earned a quarterly bonus. Dkt. No. 63 at Exhs. A, B. These wage statements and pay

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stubs demonstrate that Chavez received a bonus but that it is not possible to determine

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what type of bonus he received. Id.
Additionally, Chavez argues for the first time in his supplemental brief that a

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United States District Court
Northern District of California

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quarterly bonus based on paid-time off benefits must be included in the regular rate of pay.

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Dkt. No. 63 at 4. The Court disregards this argument because it was not raised in the

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initial briefing and Converse’s formula does not appear to include paid-time off benefits.

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Arevalo Decl. ¶¶ 3,5, Exh. A-C.

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As to the parties’ initial request that the Court resolve as a matter of law whether

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Converse’s bonus plan is lawful, the Court finds that Converse may provide bonuses based

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on a percentage of total earnings and fully discretionary merit awards without recalculating

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the regular rate of pay.

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Furthermore, the Court finds that Jessica Stuckey’s declaration establishes under

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penalty of perjury that Chavez did not receive any other type of bonus. The Court

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permitted Chavez to request a deposition of Stuckey and to explain why it had not sought

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to depose her earlier. Dkt. No. 62. In response, Chavez did not provide any justification

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for failing to seek these facts earlier. As such, Chavez has not established material facts to

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rebut Converse’s evidence and arguments that Chavez did not receive a bonus other than

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the lawful percentage of total earnings and fully discretionary merit award bonus. Chavez

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has also not established facts to suggest that Converse’s merit award bonus is not

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discretionary. The motion for partial summary judgment is GRANTED.

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Additionally, Converse moves for partial summary judgment on claim 5 (California
Case No. 15-cv-03746 NC

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Labor Code § 266(a)), claim 6 (penalties pursuant to the Private Attorneys General Act of

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2004), and claim 7 (violation of California Business and Professions Code § 17200).

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Converse seeks partial summary judgment on these claims, in as much as they are

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premised on Chavez’s theory that Converse failed to pay adequate overtime wages. The

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Court GRANTS the motion.

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III. CONCLUSION

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The Court GRANTS Converse’s motion for partial summary judgment as to claim 2

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in its entirety. The Court also GRANTS Converse’s motion for partial summary judgment

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as to claims 5, 6, and 7 to the extent the claims arise from the failure to pay overtime

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United States District Court
Northern District of California

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wages as a result of the miscalculation of Chavez’s regular rate of pay.
IT IS SO ORDERED.

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Dated: August 18, 2016

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_____________________________________
NATHANAEL M. COUSINS
United States Magistrate Judge

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Case No. 15-cv-03746 NC

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