Labor & Employment Law Daily Wrap Up, WAGE-HOUR—OVERTIME—N.D. Cal.: Apple permissibly excluded restricted stock units from calculation of ‘regular rate’ for overtime purposes, (Jun 12, 2026)

By Ronald Miller, J.D.

Whether the value of vested RSUs is excludable from the regular rate under the so-called “equity exclusion” under the FLSA was central to this case.

On cross-motions for summary judgment, a federal district court in California concluded that restricted stock units (RSUs) Apple granted to its nonexempt, overtime eligible employees were not required to be included in the regular rate of pay when calculating the employees’ overtime pay under the FLSA. Rather, the court determined that the RSUs were excluded under the equity exception of 29 U.S.C. § 207(e)(8), which excludes from the regular rate of pay any value or income derived from rights provided pursuant to a stock option. Alternatively, the RSUs were excluded under the “gift exception” of 29 U.S.C. § 207(e)(1). Because Apple retained complete discretion whether to grant any RSU award in the first place, and because the amount of the award was not tied to hours worked, production, or efficiency, the gift exception also applied (Costa v. Apple, Inc., No. 23-cv-01353-WHO (N.D. Cal. June 11, 2026)).

Restricted stock units. In October 2015, Apple expanded its RSU offerings to cover all employees working for the company—including those classified as nonexempt or eligible for overtime. Apple described this new program to its employees as a “promise to give [them] shares of Apple stock over a period of time,” and that the awards were meant to serve “as an incentive” for employees “to continue their important contributions to Apple.”

RSUs are a future right to receive shares, subject to the terms of Apple’s agreement with the employees. Every October, Apple’s compensation team determines which employees will receive awards, taking into consideration each employee’s job level and function. But the ultimate decision to recommend RSU awards is untethered to hours worked or production. Past performance has no bearing on the amount of RSUs an employee may receive.

After recommendations are made, an email notifies employees of the grant date, the number of RSUs granted, and the vesting date. Employees do not know the ultimate value of the RSU at the time of grant, as the value hinges on market conditions on each vesting date. Employees may decline to accept their RSU award, but do not receive another bonus or payment in lieu of the RSU award. RSUs for nonexempt employees are typically subject to a three-year vesting period, with one-third vesting per year.

Employees who accept their RSU awards receive a Global Restricted Stock Unit Award Agreement from Apple, which describes the terms and conditions of the award. These agreements note that the RSU award is “an exceptional, discretionary, one-time grant, is voluntary, and occasional and does not create any contractual or other right to receive future awards of RSUs, or benefits in lieu of RSUs, even if RSUs have been awarded in the past.”

Overtime claims. The named plaintiffs in this case all worked in jobs Apple classified as nonexempt or overtime eligible, which Apple pays on an hourly basis. As a matter of policy, Apple did not include the value of the vested RSUs when calculating the regular rate for nonexempt/overtime eligible employees.

The employees brought this case to challenge that policy. In their view, RSUs should not be excluded from the regular rate of pay calculations under the FLSA and they are entitled to damages. On February 10, 2025, the court granted class certification as to two classes of employees: a California class and a New York class.

Both parties moved for summary judgment.

Regular rate. Under the FLSA, employers must pay overtime at a rate “not less than one and one-half times the regular rate at which” the employee is paid. The FLSA defines the “regular rate” as “all remuneration for employment paid to, or on behalf of, the employee.” Importantly, however, the FLSA excludes eight categories of payments from this definition.

Apple claims that its RSU payments fall under four exceptions of the FLSA: (1) the gift exclusion, (2) the discretionary bonus exclusion, (3) the “other similar payments” exclusion, and (4) the equity exclusion. Here, the court found that two of the exceptions applied.

Equity exception. 29 U.S.C. § 207(e)(8) excludes from the regular rate of pay “any value or income derived from employer-provided grants or rights provided pursuant to a stock option, stock appreciation right, or bona fide employee stock purchase program,” subject to certain requirements. This exception was originally introduced to the FLSA via amendment in 2000, when Congress passed the Worker Economic Opportunity Act (WEOA).

As an initial matter, the court addressed the text of the statute. Here, the court determined that Apple met its burden in establishing that RSUs fall into the Section 207(e)(8) exemption. Companies “generally use both RSUs and stock options for the same purposes, including to encourage equity ownership among employees and to recruit and show appreciation for employees.” The court found it hard to imagine that Congress would exclude stock options from FLSA overtime rate calculations but would choose not to exclude RSUs, which are almost identical in purpose, form, and function. Accordingly, the equity exception applied, and the court granted summary judgment in Apple’s favor.

Gift exception. The court also concluded, alternatively, that the “gift exception,” 29 U.S.C. § 207(e)(1), applied to the RSUs. That section excludes from the regular rate “[s]ums paid as gifts; payments in the nature of gifts made at Christmas time or on other special occasions, as a reward for service, the amounts of which are not measured by or dependent on hours worked, production, or efficiency.”

“To qualify for exclusion under section 7(e)(1) the bonus must be actually a gift or in the nature of a gift.” “If it is measured by hours worked, production, or efficiency, the payment is geared to wages and hours during the bonus period and is no longer to be considered as in the nature of a gift.” Should the payment be “so substantial that it can be assumed that employees consider it a part of the wages for which they work,” or if “the bonus is paid pursuant to contract (so that the employee has a legal right to the payment and could bring suit to enforce it), it is not in the nature of a gift.”

In this case, Apple was not required by contract to offer RSUs to anyone. Once granted, Apple’s RSU awards are not measured by or dependent upon hours worked, production, or efficiency—only on tenure.

Vesting. This dispute raised another important question: at what point should the RSUs be analyzed for purposes of determining their eligibility for this exception under the FLSA: Is it at the time of grant or at the time of vesting? The relevant inquiry under Section 207(e)(1) focuses on the character of the award itself, not when it vests. Because Apple retained complete discretion whether to grant any RSU award in the first place, and because the amount of the award was not tied to hours worked, production, or efficiency, the RSUs more closely resemble discretionary longevity awards than contractual compensation promised in advance for labor. Accordingly, the court concluded that the gift exception also applied to support summary judgment in Apple’s favor.

Discretionary bonus. The parties argued about two other exceptions, the “discretionary bonus” exception, and “other similar payments,” neither of which the court determined applied. 29 U.S.C. § 207(e)(3), also known as the “discretionary bonus” exception, excludes from the regular rate of pay sums paid in recognition of services performed during a given period if payment is determined at the sole discretion of the employer. Such bonuses “must not be paid pursuant to any prior contract, agreement, or promise.”

While Apple retains control over the number of RSUs, it does not retain control over their value at the time of vesting. The value depends “entirely on the closing price of Apple’s stock on each vesting date and will continue to fluctuate based on the market unless or until the shares are sold.” Accordingly, the court concluded that the “discretionary bonus” exception did not apply to Apple’s RSU awards.

“Other similar payments.” The court also disagreed that the RSUs qualify as “other similar payments.” Section 7(e)(2) of the FLSA lists a variety of payments that may be excluded from regular rate calculations. The court was not persuaded by Apple’s argument that the “and other similar payments” language in Section 7(e)(2) must be understood as a “catch-all” that exempts Apple’s RSU program. Accordingly, the “other similar payments” exception did not apply.

Because the gift and equity exceptions applied to Apple’s RSUs, the employer was entitled to summary judgment.

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

Judge: Orrick, W.

Attorneys: Michael John Palitz (Shavitz Law Group) for Francis Costa. Megan M. Cooney (Gibson Dunn & Crutcher) for Apple, Inc.

Companies: Apple, Inc.

Cases: WageHour Overtime ClassActions CaliforniaNews GCNNews