Where an employer agrees to pay employees premium pay for holiday work, the employer is not required to pay overtime based on the premium rate if the employees work more than 8 hours in a day or 40 hours in a week, the California Court of Appeal ruled. Advanced-Tech Security Svcs., Inc. v. Superior Court (Roman), No. B205186 (Cal. Ct. App. June 3, 2008). Rather, the employer is entitled to credit the time and one-half premium pay on holidays against otherwise earned overtime. Accordingly, the appellate court directed the trial court to vacate its order denying the employer's motion for summary adjudication on an employee's claim for unpaid overtime and to enter an order granting the employer's motion.

The employee worked as a security guard for the employer. The employer had a written overtime and holiday pay policy which provided, among other things, that employees who worked on designated holidays would be paid a premium rate of one and one-half times the employee's regular rate for that day. During Labor Day week 2006, the employee worked the following number of hours: 12 hours on Labor Day, 12 hours on Tuesday and Wednesday, and 8 hours on each of Thursday, Friday, and Saturday for a total of 60 hours. The employer paid the employee 8 hours of overtime and 12 hours of premium holiday pay, for a total of 40 hours at the regular rate and 20 hours of overtime.

Similarly, during the week of Memorial Day 2007, the employee worked 8 hours on Memorial Day and 8 hours of other overtime during that week. The employer paid the employee 39.50 hours of regular pay, 8 hours of premium holiday pay, and 8 hours of overtime.
Alleging that she was entitled to be paid one and one-half times the premium rate for the hours she worked on Labor Day and Memorial Day, the employee sued the employer for unpaid overtime under Labor Code Section 510. The trial court denied the employer's a motion for summary adjudication of the overtime claim. The employer filed a writ of mandate in the Court of Appeal.

On appeal, the court first examined Labor Code Section 510. The statute provides, in relevant part, "Any work in excess of eight hours in one workday and any work in excess of 40 hours in any one workweek . . . shall be compensated at the rate of no less than one and one-half times the regular rate of pay for an employee. Any work in excess of 12 hours in one day shall be compensated at the rate of no less than twice the regular rate of pay for an employee." In addition, the statute states, "Nothing in this section requires an employer to combine more than one rate of overtime compensation in order to calculate the amount to be paid to an employee for any hour of overtime work."

The employer argued that it complied with Section 510 and that, under the federal Fair Labor Standards Act, holiday pay is excluded from the regular rate. Siding with the employer, the court found that nothing in the statute's express language supported the employee's position. Further, the statute's legislative history did not suggest that the Legislature intended "to deem premium holiday pay, voluntarily offered by the employer, as regular pay." Rather, the purpose of Section 510 was to restore daily overtime as the general rule in California.

The court also noted that the employer's position was supported by the FLSA and federal case law. Citing a 1945 U.S. Supreme Court decision, the court stated, "Premium holiday pay is not considered as a ‘regular rate' of pay an employee receives for a normal workday. ‘[T]he regular rate "refers to the hourly rate actually paid the employee for the normal, [non-overtime] workweek for which he is employed.'"

Further, the Department of Labor regulations which interpret the FLSA expressly state that time and one-half holiday pay may be treated as overtime pay. The court noted that the employer paid its employees consistently with the FLSA and its regulations. Indeed, the employee did not dispute that she was paid one and one-half times her regular rate. Rather she wanted "to be paid time and one-half on top of the time and one-half premium pay she received for holiday work, a sum to which she is not entitled."

In response, the employee argued that, by failing to pay her overtime based on the premium pay rate, the employer violated Labor Code Section 221, which prohibits employers from collecting or receiving "from an employee any part of wages theretofore paid by said employer to said employee." The court rejected the employee's argument because she was paid all wages to which she was entitled. "Nothing was taken from her." Accordingly, the court vacated the trial court's order and directed that summary adjudication be entered in favor of the employer.

"Here the employee tried to use the employer's employee handbook provision to argue she should be paid both the holiday premium pay promised by the handbook, and overtime premiums on top of that," observed Rob Pattison, Managing Partner of Jackson Lewis's San Francisco office and a wage-hour law practitioner. "Federal regulations permit employers to use holiday pay to count as the overtime pay that may also be due. The court in Advanced-Tech Security Services said California law permits the same crediting of holiday pay for overtime pay obligations."

"A simple statement in the employer's handbook might have prevented this lawsuit," said Jon Siegel of Jackson Lewis's Orange County office, another of the firm's wage-hour law specialists. "Employers should consider having their employee handbook state that any holiday premiums will be counted as overtime premiums that might be due for overtime hours on the holiday or during the holiday week."