Labor & Employment Law Daily Wrap Up, WAGE-HOUR—CLASS ACTIONS—N.D. CaI.: Employees may pursue claim Apple unlawfully omitted restricted stock in calculating overtime, (Feb 11, 2025)

By Ronald Miller, J.D.

For now, Apple has not identified enough potentially exempt class members to justify denying certification on this ground.

Apple employees were entitled to certification of a class action lawsuit alleging that the employer violated California and New York overtime laws by omitting the value of restricted stock units from their regular rates when it calculated class members’ overtime pay, ruled a federal district court in California. The court concluded that the driving question of whether vested RSUs should be included in calculating the class members’ regular rate of pay can be resolved on a class wide basis based on the terms in Apple’s documents. Apple’s affirmative defense with respect to overtime exemptions applied only to a small percentage of the class (Costa v. Apple, Inc., No. 23-cv-01353-WHO (N.D. Cal. Feb. 10, 2025)).

Restricted stock units. The employees worked for Apple as hourly, non-exempt, employees eligible for overtime pay. They alleged that, in addition to their hourly pay, Apple paid them compensation in the form of restricted stock unit (RSUs), which they understood to have a three-year vesting period. Since 2015, Apple has granted RSUs to employees that it classifies as “non-exempt/overtime eligible.” As a matter of policy, Apple does not include the value of the vested RSUs when calculating the regular rate for non-exempt/overtime eligible employees.

Employees who receive these RSUs do not own shares of Apple stock; they later receive Apple stock on the condition that they continue working for Apple after the RSU is awarded and until it vests. If an employee leaves Apple before the RSU vests, the employee loses the right to the unvested RSUs.

Once Apple awards the RSUs, employees have a contractual right to Apple stock if they continue actively working for Apple until the RSUs vest, and Apple has a contractual obligation to issue the stock at vesting.

FLSA collective. An Apple employee filed a putative FLSA collective action on March 23, 2023, alleging that the tech giant did not include the value of vested restricted stock unit remuneration in the regular rate it uses to calculate overtime pay. On June 14, 2023, the employees added California state-law claims. On August 11, 2023, the employees added a New York class representative for additional claims arising under New York state law. On October 27, 2023, the employees amended once more to add a claim under the California Private Attorneys General Act (PAGA). Thereafter, the court authorized notice to the FLSA collective.

Class certification. The employees moved for certification of two classes: a California class and a New York class. Fed. R. Civ. P. 23 governs class actions. A “plaintiff[] must make two showings” to certify its purported class. “First, the plaintiffs must establish ‘there are questions of law or fact in common to the class,’ as well as demonstrate numerosity, typicality, and adequacy of representation.” “Second, the plaintiffs must show that the class fits into one of three categories” as provided in Rule 23(b).

Apple’s main challenge to the employees’ class certification request was concern regarding commonality/predominance. Apple also attacked the plaintiffs’ typicality/adequacy, and their proposed damages model. Apple did not challenge numerosity: 2,270 plaintiffs joined the FLSA collective from California, and 479 joined from New York. Accordingly, numerosity was met.

Commonality/Predominance. To meet the commonality requirement, “a party must demonstrate that they and the proposed class members have suffered the same injury and have claims that depend on a common contention capable of class-wide resolution.” This means that the determination of the common contention’s truth or falsity “will resolve an issue that is central to the validity of each one of the claims in one stroke”.

The predominance requirement is more demanding. It “asks the court to make a global determination of whether common questions prevail over individualized ones.” Here, the employees showed that common questions predominate over individualized ones and the class is sufficiently cohesive to warrant certification. They challenged Apple’s common policy of not including the value of vested RSUs when calculating non-exempt employees’ regular rate of pay. The question of whether this policy comports with California and New York overtime law was common to the class because the class is made of non-exempt/overtime eligible employees, meaning that they would all be presumed subject to this policy. And the question predominated.

Apple raised three arguments against commonality/predominance. It argued that individualized questions predominate over common ones with respect to: (1) whether class members were truly entitled to overtime pay; (2) whether the vested RSUs qualify as exclusions under the FLSA such that Apple did not need to include them in regular rate calculations; and (3) whether class members waived their right to participate in class actions against Apple.

Employee exemptions. California exempts computer software employees from overtime who are “primarily engaged in work that is intellectual and requires the exercise of discretion and independent judgment.” New York adopts federal law, and exempts from overtime employees who are “[c]omputer systems analysts, computer programmers, software engineers or other similarly skilled workers in the computer field.”

However, the court concluded that the possible application of this computer exemption affirmative defense to some class members does not bar class certification at this point. If later during litigation it becomes apparent that the plaintiffs’ claims hinge upon individualized inquiries, then Apple may request procedural protections including dividing the class into sub-classes or decertifying the class. For now, the court found, Apple had not identified enough potentially exempt class members to justify denying certification on this ground.

Exclusions from regular rate. The “regular rate” must account for “all remuneration,” which includes compensation that is “not directly attributable to any particular hours of work.” Apple identified four types of compensation excluded from the regular rate calculation. Apple asserted that RSU remuneration is excludable from the regular rate as: gifts; payments for periods where no work is performed; sums in recognition of services performed during a period made at sole discretion of an employer; and stock options, stock appreciation rights, and a bona fide employee stock purchase plan.

However, the court declined to consider the individual plaintiffs’ experiences with respect to their receipt of the vested RSUs because the statutory regular rate of pay exclusions turn on the employer’s actions and intentions, not the employees’ understanding.

Arbitration agreements. Finally, Apple argued that many class members are subject to arbitration agreements—which also cannot be resolved by common proof. “Courts traditionally have been reluctant to deny class action status under Rule 23(b)(3),” however, “simply because affirmative defenses may be available against individual members.”

Apple identified at least 131 FLSA opt-in plaintiffs who are subject to such a release. Here, the court concluded that Apple’s concerns can be addressed by excluding those 131 FLSA opt-in plaintiffs. That was the court’s approach.

While the issues that Apple raised against commonality and predominance may necessitate the creation of sub-classes down the line, they did not preclude certification.

The case is No. 23-cv-01353-WHO.

Judge: Orrick, W.

Attorneys: Loren B. Donnell (Shavitz Law Group) for Francis Costa. Megan M. Cooney (Gibson Dunn & Crutcher) for Apple, Inc.

Companies: Apple, Inc.

Cases: WageHour ClassActions Overtime PensionBenefitPlans Exemptions Arbitration CaliforniaNews NewYorkNews GCNNews