9th Circuit Provides Employers with More Detailed Direction on Reporting of Performance-Based Bonuses under Labor Code section 226(a)(9)
June 10, 2021
California Labor Code section 226(a)(9), part of the section requiring employers to furnish their employees itemized wage statements, now has some clarification after the 9th Circuit’s recent decision in a class action case, Magadia v. Wal-Mart Associates, Inc., favoring the defendant retail giant.
Section 226(a)(9) states:
An employer, semimonthly or at the time of each payment of wages, shall furnish to his or her employee… (9) an accurate itemized statement in writing showing…all applicable hourly rates in effect during the pay period and the corresponding number of hours worked at each hourly rate by the employee…
The employee class had successfully argued in district court that their performance-based quarterly bonuses plus their subsequent adjusted overtime pay should have included a corresponding “rate” and “hours worked” at the end of each quarter on their wage statements. Wal-Mart appealed after the lower court lodged a $102 million judgment against it for alleged pay stub and meal break violations.
The focus of the appeal was on the italicized words quoted above, and it came down to the dictionary meaning of the phrase “in effect” and the term “during”. Referencing the Oxford English Dictionary, the appellate panel analyzed the language and determined that “in effect during the pay period” means that the hourly rate must have been “operative” or “in force” “throughout the whole continuance” or “in the time of” the pay period in the wage statement. The court concluded that Wal-Mart complied with the wage statement law because the quarterly bonuses retroactively affected the hourly rates and were not in effect during the pay period.
The 9th Circuit thereby gave employers some clear guidance on wage statements going forward:
During the last two-week pay period of the quarter, but before Walmart generates the…bonus, an employee works under his or her ordinary overtime hourly rate, which must be reported… in the employee’s paystub. At the end of the quarter, if the employee receives a…bonus and its required overtime adjustment, then Walmart must also calculate the overtime adjustment rate. But at no time during the preceding two-week pay period did the employee work under that overtime rate because it’s calculated after the close of the pay period based on the preceding six pay periods of work. … In sum, because Walmart must retroactively calculate the…overtime adjustment based on work from six prior periods, we do not consider it an hourly rate “in effect” during the pay period for purposes of § 226(a)(9).
In sum, subsequent overtime adjustments due to nondiscretionary bonus payments are not an “hourly rate in effect during the pay period” under section 226(a)(9) and need not be included on a wage statement. Keeping in mind that the Magadia decision is persuasive, not binding, authority, employers should consult McKague Rosasco LLP with any wage statement compliance questions or concerns.