California Court Says California Law Does Not Mandate Use of Weighted Average Method for Calculating Overtime

On June 25, 2021, a California Appeals Court held that an employer did not violate California law in calculating the regular rate of pay for overtime purposes by using the rate-in-effect method, as opposed to the weighted average method, for dual-rate employees. The weighted average method determines the regular rate of pay by adding all hours worked in the week and dividing that number into the total compensation for the week. Under the rate-in-effect method, the regular rate of pay is the hourly rate in effect at the time the overtime hours began.

In Levanoff v. Dragas (Cal. Ct. App., 2021), employees argued that the employer was required to use the weighted average method for calculating the regular of pay for overtime in part because the California Division of Labor Standards Enforcement (DLSE) endorses the weighted average method in its DLSE Manual. In this case, the employer and employees agreed in advance to calculate the regular rate of pay for overtime using the rate-in-effect method. In addition, dual-rate employees received greater overtime pay under the rate-in-effect method compared to what they would have received had the employer used the weighted average method. The Appeals Court rejected the employees’ argument, stating that the statements in the DLSE Manual were not binding. As California law does not mandate the use of the weighted average method for calculating the overtime rate of pay, the Appeals Court held that the employer was not in violation of California law when it used the rate-in-effect method for its dual-rate employees.

Although the DLSE Manual and DLSE opinions offer helpful guidance in the absence of clear and unambiguous language in statutes, they are not binding. Employers Council members should consult the California Legal Services team at CAInfo@employerscouncil.org to ask questions about implementing any specific wage and hour practice.