FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
KAREN HARTSTEIN, in her No.22-55276
representative capacity and on behalf of
herself and all others similarly situated, D.C. No.
Plaintiff-Appellant, 2:20-cv-04874-
v. DSF-JPR
HYATT CORPORATION, a
Delaware corporation doing business OPINION
in California,
Defendant-Appellee.
Appeal from the United States District Court
for the Central District of California
Dale S. Fischer, District Judge, Presiding
Argued and Submitted July 17, 2023
Pasadena, California
Filed September 22, 2023
Before: A. Wallace Tashima and Danielle J. Forrest,
Circuit Judges, and Kathleen Cardone,* District Judge.
Opinion by Judge Tashima
*
The Honorable Kathleen Cardone, United States District Judge for the
Western District of Texas, sitting by designation.
2 HARSTEIN V. HYATT CORP.
SUMMARY**
Employment Claims
The panel affirmed in part and reversed in part the
district court’s summary judgment in favor of Hyatt
Corporation in a class action brought by former California
employees of Hyatt who were laid off after the COVID-19
pandemic, alleging that Hyatt violated California law by
failing to pay them immediately for their accrued vacation
time and by failing to compensate them for the value of the
free hotel rooms employees received each year.
Hyatt contended that it was not required to pay its
employees their accrued vacation pay until June 2020, when
the employees were formally terminated. The panel
concluded that the prompt payment provisions of the
California Labor Code required Hyatt to pay plaintiffs their
accrued vacation pay in March 2020. The California
Division of Labor Standards Enforcement (“DLSE”)
opinion letter and its Policies and Interpretations Manual
establish that a temporary layoff without a specific return
date within the normal pay period is a discharge that triggers
the prompt payment provisions of Cal. Labor Code § 201.
Hyatt thus should have paid the accrued vacation pay at the
initial layoff in March 2020 because the temporary layoff
was longer than the normal pay period and there was no
specific return date. The panel reversed the district court’s
grant of summary judgment to Hyatt as to the vacation pay
claim and remanded for the district court to consider whether
**
This summary constitutes no part of the opinion of the court. It has
been prepared by court staff for the convenience of the reader.
HARSTEIN V. HYATT CORP. 3
Hyatt acted willfully in failing to comply with the prompt
payment provisions.
The panel also reversed the grant of summary judgment
as to plaintiffs’ Private Attorneys General Act and unfair
competition claims, which the district court had dismissed as
derivative of plaintiffs’ claims under the Labor Code.
The panel held that the complimentary hotel rooms Hyatt
provided to employees were excludable from the calculation
of employees’ regular rate of pay under the federal Fair
Labor Standards Act (FLSA) because they were excludable
as “other similar payments” under 29 C.F.R. § 778.224. The
panel therefore affirmed the grant of summary judgment as
to the complimentary hotel room claim.
COUNSEL
Michael Rubin (argued) and Eileen B. Goldsmith, Altshuler
Berzon LLP, San Francisco, California; Matthew W. Dietz
and Jonathan M. Genish, Blackstone Law PC, Beverly Hills,
California; for Plaintiff-Appellant.
Ian H. Gershengorn (argued), Lindsay C. Harrison, Adam G.
Unikowsky, and Illyana A. Green, Jenner & Block LLP,
Washington, D.C.; Kelsey L. Stimple, Jenner & Block LLP,
Chicago, Illinois; Holger Besch and Brian P. Long, Seyfarth
Shaw LLP, Los Angeles, California; Michael Afar, Seyfarth
Shaw LLP, Los Angeles, California; for Defendant-
Appellee.
4 HARSTEIN V. HYATT CORP.
OPINION
TASHIMA, Circuit Judge:
Plaintiffs, Karen Hartstein and members of a certified
class, are former California employees of Hyatt Corporation
who were laid off after the COVID-19 pandemic struck in
March 2020. Plaintiffs were laid off in March 2020 and then
terminated in June 2020. Plaintiffs contend that Hyatt
violated California law by failing to pay them immediately
for their accrued vacation time and by failing to compensate
them for the value of free hotel rooms employees received
each year. The district court granted summary judgment in
favor of Hyatt and dismissed the case with prejudice.
We conclude that the prompt payment provisions of the
California Labor Code required Hyatt to pay Plaintiffs their
accrued vacation pay in March 2020. We therefore reverse
the district court’s grant of summary judgment to Hyatt as to
the vacation pay claim and remand for the district court to
consider whether Hyatt acted willfully in failing to comply
with the prompt payment provisions. However, the
complimentary hotel rooms Hyatt provided to employees
were excludable from the calculation of employees’ regular
rate of pay under the Fair Labor Standards Act (FLSA). We
therefore affirm the grant of summary judgment as to the
complimentary hotel room claim.
BACKGROUND
In March 2020, because of the reduction in business
caused by the COVID-19 pandemic, Hyatt decided to
furlough or temporarily lay off over 7,000 employees.
Hartstein received a letter dated March 24, 2020, from Greg
Cornwell, Director of Human Resources at the Hyatt
Regency Huntington Beach Resort & Spa, stating that “all
HARSTEIN V. HYATT CORP. 5
colleagues . . . will be furloughed/temporarily laid off from
their employment on March 24, 2020,” and expressing the
hope that the hotel’s business would return to normal in eight
to twelve weeks, depending on “the circumstances at that
time.”1 The letter stated that health benefits would continue
through April and May and that accrued vacation pay could
be paid upon the employee’s request, although Hyatt was
“not separating anyone’s employment at this time. . . . As
with personal leaves of absence, colleagues on furlough will
not accrue vacation/PTO [paid time off] during their
furlough period.”2
In June 2020, Hyatt sent another letter, informing
employees that “your furlough will become a layoff effective
June 27, 2020 and your employment with Hyatt will be
terminated as of that date.” The letter stated that, “[a]s part
of the transition to layoff status, you will be paid all unused
accrued and earned vacation as well as unused floating
holidays.” In a “Frequently Asked Questions” notice, Hyatt
explained that “[y]our status with Hyatt is ‘layoff’ and we
hope this will be temporary. However, because we are
unable to provide you with a return to work date at this time,
your layoff is ‘indefinite’ and is considered a termination.”
Plaintiff filed a class action complaint in Los Angeles
County Superior Court on behalf of a putative class of
California Hyatt employees, asserting claims under
California law for failure to pay all wages upon discharge,
1
According to Cornwell, there was no difference between a temporary
layoff and a furlough, but “‘furlough’ sounds better and is more palatable
to people who are experiencing it.”
2
Cornwell stated that he subsequently learned that “the system” did
cause employees to continue to accrue vacation time “until the point that
they were laid off.”
6 HARSTEIN V. HYATT CORP.
waiting time penalties, failure to furnish accurate wage
statements, unfair business practices, and enforcement under
the Private Attorneys General Act (“PAGA”), Cal. Labor
Code § 2698.3 Hyatt removed the action to federal court.
In her First Amended Complaint, Plaintiff added a claim
for failure to pay overtime. The district court granted
Plaintiff’s motion for class certification and certified a class
of individuals employed in California by Hyatt at any time
between April 24, 2016, and final judgment, with three
subclasses: (1) class members whose employment was
terminated and who were not paid for vested vacation time
and/or floating holidays immediately upon termination;
(2) class members whose employment was terminated and
who were not paid for “vested non-discretionary hotel room
bonuses” immediately upon termination;4 and (3) class
members who were hourly and/or non-exempt who worked
overtime, received overtime pay, and earned hotel room
bonuses.
The district court granted Hyatt’s motion for summary
judgment, denied Plaintiff’s motion for partial summary
judgment, and dismissed the action with prejudice. The
district court concluded that the March 2020 furlough of
Hyatt’s employees was not a termination within the meaning
of § 227.3 because there was not a complete severance of the
employer-employee relationship. The court thus rejected
Plaintiff’s claim that Hyatt failed to pay all wages upon
discharge. The court also rejected Plaintiff’s claim that the
value of the complimentary hotel rooms class members were
3
Further statutory references will be to the California Labor Code unless
otherwise specified.
4
Termination was defined to include employees who had been
“temporarily laid off, laid off, or furloughed.”
HARSTEIN V. HYATT CORP. 7
eligible to receive constituted wages they should have
received upon discharge. And because it concluded that
Hyatt was not required to pay the accrued vacation in March
2020, the district court declined to address whether Hyatt
was liable for waiting time penalties under § 203 and
whether Hyatt had a good faith dispute about the payments.
Finally, the court granted Hyatt’s summary judgment motion
as to Plaintiff’s claims under California’s unfair competition
law and PAGA as derivative of the claims under the
California Labor Code. The action was dismissed with
prejudice.
STANDARD OF REVIEW
The district court’s ruling on cross-motions for summary
judgment is reviewed de novo. Innova Sols., Inc. v. Baran,
983 F.3d 428, 431 (9th Cir. 2020) (citing Guatay Christian
Fellowship v. County of San Diego, 670 F.3d 957, 970 (9th
Cir. 2011)).
DISCUSSION
I. Prompt Payment Provisions
“California has long regarded the timely payment of
employee wage claims as indispensable to the public
welfare.” Smith v. Superior Ct., 137 P.3d 218, 221 (Cal.
2006). The California Supreme Court has explained that this
public policy is necessary because “[d]elay of payment or
loss of wages results in deprivation of the necessities of life,
suffering inability to meet just obligations to others, and, in
many cases may make the wage-earner a charge upon the
public.” Id. at 220–21 (quoting Kerr’s Catering Serv. v.
Dep’t of Indus. Rels., 369 P.2d 20, 24 (Cal. 1962)).
In furtherance of this important public policy, “[w]hen
an employment relationship comes to an end, the Labor
8 HARSTEIN V. HYATT CORP.
Code requires employers to promptly pay any unpaid wages
to the departing employee. The law establishes different
payment deadlines depending on the manner of departure.”
Naranjo v. Spectrum Sec. Servs., Inc., 509 P.3d 956, 960
(Cal. 2022). Section 201 “establishes a baseline statutory
deadline for paying employees who are discharged from
their employment.” Id. The statute provides that, “[i]f an
employer discharges an employee, the wages earned and
unpaid at the time of discharge are due and payable
immediately.”5 § 201(a). If an employer willfully fails to
pay wages due upon discharge as required by § 201, § 203
provides for so-called “waiting time penalties.” Bernstein v.
Virgin Am., Inc., 3 F.4th 1127, 1143 (9th Cir. 2021), cert.
denied, 142 S. Ct. 2903 (2022).
Hyatt does not contest that it was required to pay its
employees their accrued vacation pay when the employees
were discharged. The question is when the employees were
discharged within the meaning of California’s prompt
payment provisions. Plaintiff argues that the indefinite
layoff in March 2020 was a “discharge” within the meaning
of § 201(a), triggering Hyatt’s obligation to pay accrued
vacation pay. Hyatt contends that it was not required to pay
accrued vacation pay until June 2020, when employees were
formally terminated. The district court concluded that
payment was not due until the employees were terminated in
June 2020, relying on § 227.3 rather than § 201. However,
5
Section 202 “specifies the default deadline for paying employees who
instead resign,” and are not discharged. Naranjo, 509 P.3d at 961. In
contrast to employees who are discharged and whose wages are “due and
payable immediately,” Cal. Lab. Code § 201, the wages of an employee
who “quits his or her employment . . . shall become due and payable not
later than 72 hours thereafter,” id. § 202.
HARSTEIN V. HYATT CORP. 9
this interpretation of the prompt payment provisions is not
supported by California authority.
Section 227.3 provides, in part, that “whenever a
contract of employment or employer policy provides for paid
vacations, and an employee is terminated without having
taken off his vested vacation time, all vested vacation shall
be paid to him as wages at his final rate.” It addresses
whether accrued vacation pay constitutes wages that are due
to the employee at termination – not when those wages are
due. The purpose of the statute is to “prohibit[] forfeiture of
vested vacation pay at termination” and thus protect an
employee’s right to be paid for accrued vacation pay.
Boothby v. Atlas Mech., Inc., 8 Cal. Rptr. 2d 600, 602 (Ct.
App. 1992); see also Suastez v. Plastic Dress-Up Co., 647
P.2d 122, 128 (Cal. 1982) (construing § 227.3 to mean that
“[t]he right to a paid vacation . . . constitutes deferred wages
for services rendered,” “a proportionate right to a paid
vacation ‘vests’ as the labor is rendered,” “the right is
protected from forfeiture by section 227.3,” and that, “[o]n
termination of employment, therefore, [§ 227.3] requires
that an employee be paid in wages for a pro rata share of his
vacation pay”); Paton v. Advanced Micro Devices, Inc., 129
Cal. Rptr. 3d 784, 785 (Ct. App. 2011) (explaining that,
“[u]nder sections 201 and 202, an employer must pay an
employee all wages earned and unpaid at the time, or soon
after, employment terminates,” and that, “if an employer
offers paid vacations, section 227.3 provides that if an
employee is terminated without having taken his vested
vacation time, ‘all vested vacation shall be paid to him as
wages at his final rate’ and the employer’s policy ‘shall not
provide for forfeiture of vested vacation time upon
termination’”); Church v. Jamison, 50 Cal. Rptr. 3d 166, 171
(Ct. App. 2006) (“An employee’s right to be paid for
10 HARSTEIN V. HYATT CORP.
vacation time that has not been used when the employment
ends is addressed by Labor Code section 227.3.”). The
parties do not dispute that the employees had the right to be
paid for vacation time, and Hyatt paid the accrued vacation
time after the June 2020 layoff.
In contrast to § 227.3, which establishes the right to
accrued vacation pay, § 201 addresses when those wages
become due and payable – that is, immediately upon
discharge. As the California Supreme Court has explained,
“[t]he prompt payment provisions of the Labor Code impose
certain timing requirements on the payment of final wages
to employees who are discharged (Lab. Code, § 201 (section
201)) and to those who quit their employment (§ 202).”
McLean v. California, 377 P.3d 796, 797 (Cal. 2016); see
also Nishiki v. Danko Meredith, APC, 236 Cal. Rptr. 3d 626,
633 (Ct. App. 2018) (“The purpose of section 203 is to
compel the prompt payment of earned wages.” (quoting
Barnhill v. Robert Saunders & Co., 177 Cal. Rptr. 803, 806
(Ct. App. 1981))). The issue here is not whether Plaintiffs
were entitled to accrued vacation pay pursuant to § 227.3,
but whether the prompt payment provision was triggered by
the temporary layoff. That is, when did the discharge occur
and the accrued vacation pay thus become due and payable
– was it March 2020 or June 2020? Section 201(a), which
requires the immediate payment of “wages earned and
unpaid at the time of discharge,” is the statute applicable
here.6
6
Hyatt contends that § 227.3 is “the provision that specifically concerns
vacation pay.” However, that section’s concern is that “an employer
must compensate the employee for all vested vacation time remaining
unused at termination.” Boothby, 8 Cal. Rptr. 2d at 601–02. It does not
HARSTEIN V. HYATT CORP. 11
Section 201 does not define “discharge.” The question
accordingly is whether a temporary layoff, with no specified
return date, is a discharge for purposes of § 201. We have
not found, and the parties have not cited, any caselaw that
addresses this question. However, the California Division of
Labor Standards Enforcement (“DLSE”) has answered the
question explicitly.
“The DLSE ‘is the state agency empowered to enforce
California’s labor laws.’” Brinker Rest. Corp. v. Superior
Ct., 273 P.3d 513, 529 n.11 (Cal. 2012) (quoting Morillion
v. Royal Packing Co., 995 P.2d 139, 142 (Cal. 2000)); see
also Alvarado v. Dart Container Corp., 411 P.3d 528, 534
(Cal. 2018) (stating that “enforcement of a law, especially an
ambiguous law, necessarily requires interpretation of that
law, and with the benefit of many years’ experience, the
DLSE has developed numerous interpretations of
California’s labor laws, which it has compiled in a series of
policy manuals”).
In Opinion Letter 1996.05.30, the DLSE addressed an
employer’s question “regarding the obligation of an
employer to pay wages due at the time of a ‘temporary
layoff.’” The DLSE replied that, “if an employee is laid off
without a specific return date within the normal pay period,
the wages earned to and including the lay off date are due
and payable in accordance with Section 201.” The DLSE
cited Campos v. Employment Development Department, 183
Cal. Rptr. 637 (Ct. App. 1982), which addressed “whether
workers on indefinite layoff are disqualified from receiving
unemployment benefits when they refuse to accept recall
offers in the course of a trade dispute.” Id. at 639. Campos
address the timeliness of that payment. Section 201 is the statute that
requires prompt payment of the vested vacation time.
12 HARSTEIN V. HYATT CORP.
concluded that, “where the employees have no contractual
right to recall within any specified time period, the better
approach is to treat such layoffs as indefinite, thereby
terminating any employment relationship.” Id. at 645.
The DLSE stated in Opinion Letter 1996.05.30 that
[t]he needs of employees in the situation of a
‘layoff’ are what prompted the Division to
historically take the position that the date of
return must be within the pay period. For
example, the employee may be required by
the circumstances to travel to another
location seeking work. Since many workers
live from paycheck to paycheck, this travel
and its attendant costs would require that the
worker be paid all wages owed at that time.
The DLSE’s position thus furthers the public policy
implemented in § 201 – to avoid depriving employees of the
necessities of life and making them “a charge upon the
public.” Smith, 137 P.3d at 220–21 (quoting Kerri’s
Catering Serv., 369 P.2d at 24).
The DLSE rejected the employer’s argument that there
was no termination because the employee had contractual
recall rights, explaining that “absent an unconditional right
to return to full time employment on a date certain regardless
of economic conditions, the ‘right to recall’ would be
nothing more than a conditional promise by the employer
unenforceable by the employee.” Furthermore, “absent a
specific agreement to the contrary, the employee would have
the right to seek employment elsewhere and not return to the
employer so there would exist no mutual promises to support
a contract for continued employment.” Similarly here,
HARSTEIN V. HYATT CORP. 13
Hyatt’s position is that Plaintiffs were told that their
employment was not terminated and that they would return
to work at some unknown time – perhaps in eight to twelve
weeks, according to its layoff letter. However, as the DLSE
reasoned, and as was borne out here, this was nothing but an
unenforceable promise.
The DLSE adopted the same position in its Policies and
Interpretations Manual. In the chapter addressing wages
payable on termination under section 201, the Policies and
Interpretations Manual provides as to a layoff:
If an employee is laid off without a specific
return date within the normal pay period, the
wages earned up to and including the lay off
date are due and payable in accordance with
Section 201. If there is a return date within
the pay period and the employee is scheduled
to return to work, the wages may be paid at
the next regular pay day.
DLSE Opinion Letter 1996.05.30 and the DLSE Manual
thus establish that a temporary layoff with no specific return
date within the normal pay period is a discharge within the
meaning of § 201, requiring the immediate payment of
accrued wages. Thus, the temporary furlough in March 2020
triggered the prompt payment requirement of § 201 because,
at eight to twelve weeks, there was no specific return date
within the normal pay period.
Hyatt disputes the persuasiveness of the DLSE opinion
letter, but we have explained that “[t]he DLSE’s opinion
letters, while not controlling upon the courts by reason of
their authority, do constitute a body of experience and
informed judgment to which courts and litigants may
14 HARSTEIN V. HYATT CORP.
properly resort for guidance.” Abdullah v. U.S. Sec. Assocs.,
Inc., 731 F.3d 952, 958 (9th Cir. 2013) (quoting Brinker, 273
P.3d at 529 n.11). The California Supreme Court also has
stated that,
so long as we exercise our independent
judgment, we may consider the DLSE’s
interpretation and the reasons the DLSE
proffered in support of it, and we may adopt
the DLSE’s interpretation as our own if we
are persuaded that it is correct. And, in doing
so, we may take into consideration the
DLSE’s expertise and special competence, as
well as the fact that the DLSE Manual is a
formal compilation that evidences
considerable deliberation at the highest
policymaking level of the agency.
Alvarado, 411 P.3d at 538 (citations omitted).
The DLSE’s interpretation of § 201 in its May 30, 1996,
Opinion Letter and its Policies and Interpretations Manual,
and the reasons it proffered in support of its interpretation,
are consistent with the purpose of the statute to protect
workers. See Smith, 137 P.3d at 221 (stating that, “because
of the economic position of the average worker and, in
particular, his dependence on wages for the necessities of life
for himself and his family, it is essential to the public welfare
that he receive his pay when it is due” (quoting Ex parte
Trombley, 193 P.2d 734, 740 (Cal. 1948))); id. at 226
(stating that a broad construction of the term “discharge” in
§ 201 made sense “in light of the important public policy at
stake”); Kao v. Holiday, 219 Cal. Rptr. 3d 580, 593 (Ct. App.
2017) (“‘The plain purpose of sections 201 and 203 is to
HARSTEIN V. HYATT CORP. 15
compel the immediate payment of earned wages upon a
discharge.’ The prompt payment of an employee’s earned
wages is a fundamental public policy of this state.” (quoting
Smith, 137 P.3d at 228) (cleaned up)).
Taking into consideration the agency’s “expertise and
special competence,” Alvarado, 411 P.3d at 538, we adopt
the DLSE’s interpretation of § 201. Although Hyatt’s
actions are understandable given the uncertainty during the
early period of the pandemic, the March 2020 layoff was a
discharge within the meaning of § 201, triggering the prompt
payment requirement, because there was no specific return
date within the normal pay period. We therefore reverse the
district court’s grant of Hyatt’s motion and denial of
Plaintiff’s motion for summary judgment as to the claim that
Hyatt violated the prompt payment provisions.
The district court granted summary judgment as to
Plaintiffs’ claim for waiting time penalties under § 203,
declining to consider whether Hyatt had a good faith dispute
regarding whether payment was due. See Choate v. Celite
Corp., 155 Cal. Rptr. 3d 915, 922 (Ct. App. 2013) (stating
that “[s]ection 203 entitles a terminated employee to
‘waiting time penalties’ of up to 30 days’ wages if the
employer ‘willfully fails to pay’ the employee any
outstanding wages immediately upon termination,” and that
“an employer’s reasonable, good faith belief that wages are
not owed may negate a finding of willfulness”) (citations
omitted). But see Maldonado v. Epsilon Plastics, Inc., 232
Cal. Rptr. 3d 461, 479 (Ct. App. 2018) (stating that “a mere
subjective good faith belief that wages were not due is
insufficient; the test is whether there was an objectively
reasonable, even if unsuccessful, defense to the payment of
wages,” and that the lack of an “objectively reasonable
factual basis” for a defense “is sufficient to defeat [an
16 HARSTEIN V. HYATT CORP.
employer’s] claim of good faith”). We reverse the grant of
summary judgment as to waiting time penalties and remand
for the district court to consider the willfulness issue in the
first instance.
II. Complimentary Hotel Rooms
Plaintiffs contend that the complimentary hotel rooms to
which employees were entitled constituted a
nondiscretionary bonus that was a form of employee
remuneration. Thus they argue that the value of the free
rooms should have been included in the calculation of their
regular rate of pay in determining their final wage and
overtime payments.
“California follows the federal standard [the (FLSA)] for
purposes of determining, under the Labor Code, what
constitutes an employee’s regular pay subject to an overtime
rate.” Prachasaisoradej v. Ralphs Grocery Co., 165 P.3d
133, 147 n.14 (Cal. 2007) (citing Huntington Mem. Hosp. v.
Superior Ct., 32 Cal. Rptr. 3d 373, 376–77 (Ct. App. 2005)).
“‘The FLSA is construed liberally in favor of employees;
exemptions are to be narrowly construed against the
employers seeking to assert them. . . .’ The employer bears
the burden of establishing that it qualifies for an exemption.”
Flores v. City of San Gabriel, 824 F.3d 890, 897 (9th Cir.
2016) (quoting Cleveland v. City of Los Angeles, 420 F.3d
981, 988 (9th Cir. 2005)).
Under the FLSA, “the ‘regular rate’ at which an
employee is employed shall be deemed to include all
remuneration for employment paid to, or on behalf of, the
employee.” 29 U.S.C. § 207(e). Among other exclusions,
the regular rate does not include gifts or discretionary
bonuses. Id. Plaintiffs contend that the hotel rooms are
nondiscretionary bonuses that must be included in their
HARSTEIN V. HYATT CORP. 17
regular rate of pay. Hyatt argues that the hotel rooms are
gifts because they are provided for free or at a discount to
their employees without a contractual obligation to do so and
thus are not included in the regular rate of pay.
The hotel room policy, as described in the February 2014
Hyatt Regency Huntington Beach Resort & Spa Associate
Handbook, provided as follows:7
Full-time associates are eligible for twelve
complimentary room nights per calendar year
(*) and part-time associates are eligible for
six complimentary room nights per calendar
year (*) for personal travel at domestic Hyatt
Hotels and participating Hyatt Hotels
internationally. *There is a pro-rated
entitlement when becoming eligible after one
year. Associates may stay a maximum of
three nights per anniversary year at any single
hotel using the complimentary rate.
Discretionary bonuses under the FLSA are
defined as
sums paid in recognition of services
performed during a given period if (a) both
the fact that payment is to be made and the
amount of the payment are determined at the
sole discretion of the employer at or near the
end of the period and not pursuant to any
7
A document produced by Hyatt entitled “Colleague Complimentary
Rooms Rate Policy,” similarly stated under “Description of Benefits,”
that “Full-time colleagues are eligible for twelve complimentary room
nights per calendar year,” and “Part-time colleagues are eligible for six
complimentary room nights per calendar year.”
18 HARSTEIN V. HYATT CORP.
prior contract, agreement, or promise causing
the employee to expect such payments
regularly. . . .
In order for a bonus to qualify for exclusion
as a discretionary bonus . . . the employer
must retain discretion both as to the fact of
payment and as to the amount until a time
quite close to the end of the period for which
the bonus is paid. The sum, if any, to be paid
as a bonus is determined by the employer
without prior promise or agreement. The
employee has no contract right, express or
implied, to any amount. If the employer
promises in advance to pay a bonus, he has
abandoned his discretion with regard to it.
29 C.F.R. § 778.211(a)–(b). “[A]ny bonus which is
promised to employees upon hiring . . . would not be
excluded from the regular rate under this provision of the
Act.” Id. § (c).
Gifts are described as “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.” 29 U.S.C. § 207(e)(1); 29 C.F.R.
§ 778.200(a)(1). To qualify for exclusion from the regular
rate of pay,
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
HARSTEIN V. HYATT CORP. 19
considered as in the nature of a gift. . . .
Obviously, 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.
29 C.F.R. § 778.212(b).
The district court concluded that the hotel rooms were
“gifts . . . as a reward for service” within the meaning of 29
U.S.C. § 207(e)(1). We conclude that the hotel rooms are
not gifts, but are nonetheless excludable from the regular rate
of pay as “other similar payments” under 29 C.F.R.
§ 778.224.
In addition to gifts, the FLSA exempts the following
from the definition of the “regular rate” of pay:
payments made for occasional periods when
no work is performed due to vacation,
holiday, illness, failure of the employer to
provide sufficient work, or other similar
cause; reasonable payments for traveling
expenses, or other expenses, incurred by an
employee in the furtherance of his
employer’s interests and properly
reimbursable by the employer; and other
similar payments to an employee which are
not made as compensation for his hours of
employment.
29 U.S.C. § 207(e)(2) (emphasis added).
29 C.F.R. § 778.224 addresses the “other similar
payments” exclusion, explaining that these payments are
excluded from the regular rate because they “are not made
20 HARSTEIN V. HYATT CORP.
as compensation for [an employee’s] hours of employment.
Such payments do not depend on hours worked, services
rendered, job performance, or other criteria that depend on
the quality or quantity of the employee’s work.” 29 C.F.R.
§ 778.224(a). The regulation provides examples of “other
similar payments,” one of which is “Discounts on employer-
provided retail goods and services, and tuition benefits
(whether paid to an employee, an education provider, or a
student loan program).” Id. § (b)(5). Hyatt’s provision of
free hotel rooms does not “depend on hours worked, services
rendered, job performance, or other criteria that depend on
the quality or quantity of the employee’s work,” and the
complimentary hotel rooms certainly can be characterized as
a discount on an employer-provided retail good or service.
Thus, although the hotel room policy has some
characteristics of a nondiscretionary bonus – it “promises in
advance,” 29 C.F.R. § 778.211(b), that employees are
entitled to the free hotel rooms and does not give Hyatt
discretion whether to give them – the policy falls under the
plain language of the regulation governing discounts on
employer-provided retail goods and services. Plaintiffs
further argue that the regulation states that, in order to be
excluded from the regular rate, as “other similar payments,”
the “miscellaneous payments [that] are paid by an employer
to an employee under peculiar circumstances . . . must . . . be
‘similar’ in character to the payments specifically described”
in 29 U.S.C. § 207(e)(2). 28 C.F.R. § 778.224(a). The
argument is that the complimentary hotel rooms are not
similar in character to any of the payments described in the
statute. They are not provided for “occasional periods when
no work is performed due to vacation, holiday, illness,
failure of the employer to provide sufficient work, or other
similar cause,” nor are they payments for expenses “incurred
HARSTEIN V. HYATT CORP. 21
by an employee in the furtherance of his employer’s interests
and properly reimbursable by the employer.” 29 U.S.C.
§ 207(e)(2). Instead, they are given at regular intervals to
every employee.
Nonetheless, the regulation states that discounts on
employer-provided retail goods and services is an example
of “other similar payments.” 29 C.F.R. § 778.224(b)(5). We
therefore affirm the district court’s conclusion that the value
of the complimentary hotel rooms was properly excluded
from the calculation of Plaintiffs’ regular rate of pay.
CONCLUSION
The DLSE’s opinion letter and its Policies and
Interpretations Manual establish that a temporary layoff
without a specific return date within the normal pay period
is a discharge that triggers the prompt payments provision of
§ 201. Hyatt thus should have paid the accrued vacation pay
at the initial layoff in March 2020 because the temporary
layoff was longer than the normal pay period and there was
no specific return date. We therefore reverse the district
court’s grant of summary judgment in favor of Hyatt as to
the vacation pay and waiting time penalties claims and
remand for the court to consider whether Hyatt acted
willfully within the meaning of § 203. We also reverse the
grant of summary judgment as to Plaintiffs’ PAGA and
unfair competition claims, which the district court dismissed
as derivative of Plaintiffs’ claims under the Labor Code. We
affirm the grant of summary judgment as to the
complimentary hotel room policy.
The parties shall pay their own costs on appeal.
AFFIRMED in part, REVERSED in part, and
REMANDED.