Employer Lessons From Apple Ruling Resolving OT Question
On June 11, the U.S. District Court for the Northern District of California issued the first-ever ruling to squarely address whether restricted stock units must be included in the regular rate of pay when calculating overtime under the Fair Labor Standards Act.
In Costa v. Apple Inc., the court granted summary judgment to Apple, holding that both the FLSA gift exception and its equity exception permitted Apple to exclude the value of vested restricted stock units from the regular rate of pay for a certified class of nonexempt employees across California and New York.
Although this decision hands employers a win on a previously unresolved wage and hour question, it is a reminder that favorable outcomes on novel issues often hinge on the specific facts of a company’s own program, as well as the kind of ongoing, documented compliance efforts that helped shield Apple from liquidated damages and a longer look-back period, as discussed below.
The Case: Costa v. Apple
In October 2015, Apple expanded its restricted stock unit, or RSU, program to cover all employees, including those classified as nonexempt and eligible for overtime. Apple described the awards to employees as a promise to give them shares of Apple stock over a vesting schedule, awarded at no cost and vesting over time during active employment.
Each year, Apple determined which employees would receive RSU awards and in what amount based on job level and function — decisions that the record showed were untethered to hours worked, production or past performance. Apple excluded the value of vested RSUs from the regular rate of pay it used to calculate overtime for its nonexempt employees.
Plaintiff Francis Costa sued on behalf of himself and other nonexempt Apple employees who received RSUs, arguing that Apple’s exclusion of the vested RSU value from the regular rate violated the FLSA and analogous California and New York wage laws. Following class certification, both sides moved for summary judgment on the central question of whether RSU value must be folded into the regular rate.
The Court’s Rulings
The court held that Apple’s RSUs satisfy the FLSA equity exception, even though that provision, by its terms, applies to grants under a “stock option, stock appreciation right, or bona fide employee stock purchase program” and does not mention RSUs specifically — noting that RSUs were not yet a common form of equity pay when Congress created the exception more than 25 years ago.
Relying on the statute’s legislative history and the close functional similarities between RSUs and stock options, the court concluded that RSUs fall within the exception’s intended scope.
The court also held, in the alternative, that Apple’s RSUs qualify for the FLSA’s gift exception. Because Apple retained complete discretion over whether to grant RSUs at all, and because award size was not tied to hours worked, production or efficiency, the court found the awards more closely resembled discretionary longevity payments that other courts have excluded as gifts than compensation promised in advance for labor.
Beyond the regular-rate question, which the court recognized was a novel question and could be subject to appellate scrutiny, the court addressed the secondary issues of Apple’s good faith and willfulness defenses. It found that Apple’s payroll team had made ongoing efforts to monitor developments affecting regular-rate calculations, including through internal reviews and industry engagement, and that no controlling authority existed that could have put Apple on notice that its RSU treatment might be unlawful.
Because Apple’s conduct was neither willful nor lacking in good faith, the court recognized that, under the FLSA, a two-year, rather than three-year, statute of limitations should apply if the case continued and that liquidated damages were inappropriate.
Implications for Employers With Equity Programs
Costa provides welcome clarity for employers that have expanded equity programs to hourly and other nonexempt workers.
Apple paid its employees full wages and overtime; the only question was whether RSU values should have been included for the overtime rate, and the court’s answer was a clear no. But the ruling is fact-intensive, and employers should not assume their own equity programs will receive the same treatment.
The court’s analyses turned on specific features of Apple’s program: (1) Apple retained complete discretion over whether to grant RSUs and to whom, (2) award amounts were untethered to hours worked or production, (3) employees had no contractual right to future grants, and (4) the ultimate value of the awards was unknowable until vesting.
Employers offering equity to nonexempt employees should audit their own plan documents and administration to confirm these same characteristics are present — and documented — before assuming RSUs or similar equity awards can be excluded from the regular rate for purposes of calculating owed overtime compensation.
Employers should also remember that nonexempt employees must still receive 1.5 times the regular rate of pay for each hour worked over 40 in a workweek, and that the regular rate generally includes all nondiscretionary bonuses, commissions, shift differentials and incentive pay, even though qualifying equity awards need not be included.
Caution: Not a License to Use Equity as a Substitute for Wages
Startup companies, in particular, routinely run into trouble by skipping wages entirely and substituting equity for the paychecks the law demands. The FLSA applies to virtually all private employers, and courts interpret its coverage broadly.
The only narrow exception with respect to the provision of equity in lieu of pay is the business owners’ exemption for employees who own at least 20% of the business and are actively engaged in its management — meaning they direct employees, plan work or control budgets, not simply work long hours without exercising managerial authority.
For everyone else, including engineers or marketing hires promised equity in lieu of a salary, there is no general startup exemption, and the employer must pay at least minimum wage and overtime unless the worker independently qualifies for another exemption — in which case, the salary requirement must be met. The decision in Costa did not change these long-standing principles.
Of Note: Apple’s Documented Compliance Efforts Mattered
The court’s discussion on Apple’s good faith and willfulness defenses also offers a practical lesson: Documented, ongoing compliance efforts matter, even when performed by nonlawyers.
Costa v. Apple arrives against a backdrop of substantial and growing wage and hour exposure. The U.S. Department of Labor continues to secure multimillion-dollar recoveries across healthcare, restaurants, logistics and construction — including more than $146 million for overtime violations and more than $27 million for minimum wage violations in fiscal year 2025 alone, with 2026 on a similar (if not greater) pace.[1]
Private litigation frequently produces even larger recoveries. These recoveries are often very large because FLSA penalties are steep — employees can recover unpaid wages and an equal amount in liquidated damages, plus attorney fees, and state law penalties can add further exposure. Employers that learn from others’ costly mistakes, as well as from others’ valuable good practices, will be far better positioned to avoid becoming the next multimillion-dollar cautionary tale.
Key Takeaways and Compliance Tips
Even if Apple had lost the regular-rate issue, it would have avoided liquidated damages and a longer statute of limitations or look-back period for calculating actual damages, in part, because its payroll team conducted regular reviews of new payment types and stayed abreast of developments affecting regular-rate calculations. Employers should build similar habits into their own wage and hour compliance programs and HR departments.
Capture all time worked.
Require every nonexempt employee to record all time, including preshift, postshift, remote and mobile work. Create an easy process to report missed time punches, interrupted meals and after-hours work. Audit for unpaid tasks like computer startup, security screenings and donning/doffing uniforms.[2]
Audit overtime calculations.
Confirm which employees are nonexempt, and review payroll configurations to ensure overtime includes all required remuneration in the regular rate — nondiscretionary bonuses, commissions, shift differentials and premiums, and incentive pay. Run periodic payroll audits for blended rates, missed premiums and state daily overtime rules.[3]
Make break policies real, not just written.
Because many states, like California, mandate compensable meal breaks, tailor written break policies to each state, schedule breaks timely, and ensure employees are fully relieved of duty during unpaid meals (that is, they are not called off-break to address a concern — unless that break is compensated).
Use attestation prompts on time punch recording devices or systems for missed or interrupted meal periods, requiring employees to verify at the end of a shift or pay period whether they received their mandated breaks and to report any exceptions.
Treat classification as an ongoing process.
Do not classify employees as exempt based on title alone. Conduct privilege-protected audits focusing on actual duties, discretion, supervisory authority, salary basis and salary threshold. Reassess when job duties change. Be especially cautious with assistant managers, account managers and team leads.[4]
Train your managers.
Many violations originate with frontline supervisors who may ask employees to work off-the-clock or skip breaks due to staffing or emergent work needs. Managers must understand that they can control scheduling and that they cannot avoid paying for work performed.
Build an internal correction process.
Create a retaliation-free channel for wage concerns to be reported, investigate quickly, fix systemic issues prospectively and make retroactive corrections where needed. This process can provide a strong defense to later claims.
Taking these sorts of proactive steps can catch and eliminate a wage and hour violation before it becomes a million-dollar mistake, and it can also help demonstrate the kind of good faith that proved valuable for Apple.
- https://www.dol.gov/agencies/whd/data/charts/fair-labor-standards-act.
- For more on this topic, see Watch Out Illinois Employers: The Illinois Wage Law Does Not Exclude Preliminary or Postliminary Activities from Compensable Work.
- For more on this topic, see The Importance of Internal Wage and Hour Audits and DOL Reminds Employers to Include Non-Discretionary Bonuses When Calculating Regular Rates and Overtime Premiums — But How?
- For more on this topic, see Reclassifying Employees to Independent Contractors Just Became Easier — Or Did It?.
This article was originally published in Law360 on July 10, 2026, and is republished here with permission.
