Mediator’s Minute: Court Says RSUs Not Part of Regular Rate…But Could They Be?

Photo Credit: Shireen Wetmore

On June 11, 2026, Judge Orrick of the Northern District of California granted summary judgement on a novel issue of wage-and-hour law under the Fair Labor Standards Act (FLSA).  The case, Costa v. Apple, Inc., case no. 23-cv-01353-WHO (N.D. Cal.), involved allegations that non-exempt employees were not paid the correct amount of overtime because Apple failed to incorporate the value of restricted stock units (RSU) in the calculation of the regular rate of pay.  Plaintiffs brought their wage and hour claims under the FLSA, and succeeded in certifying two classes: a New York class and a California class.  See Order on Mot. to Exclude and Summ. J. (“S.J. Order”), Costa v. Apple, Inc., N.D. Cal. case no. 23-cv-01353-WHO at 4 (June 11, 2026) (ECF No. 505).

Both parties then moved for summary judgment.  Defendant Apple moved for summary judgement arguing that their RSUs did not need to be included in the regular rate calculation based on several theories of law.  Specifically, the defendant argued that its RSU scheme fit into four of the eight statutory exemptions from the regular rate calculation.  S.J. Order at 14-15.  The court agreed with the defendant on two of those theories.  The court found that the applicable Apple RSUs were exempted from the FLSA regular rate calculation under both 29 U.S.C. § 207(e)(8) and 29 U.S.C. § 207(e)(1).  Id. at 15-16, 19-20.  The former excludes equity grants by an employer from the regular rate, and the latter excludes gifts.

Equity Exclusion Applies to RSU

Section 207(e)(8) is known as the “equity exclusion” and excludes from the regular rate calculation “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. . .”  The court compared the RSUs to stock options and found that the two were nearly identical “in purpose, form, and function.”  S.J. Order at 19.  In doing so, the court highlighted that both forms of equity grants at typically non-cash, voluntary, discretionary, subject to vesting requirements, along with a series of other similar characteristics.  Id. at 17-19.  The court then explained that RSUs were not common at the time of the drafting of the equity exception, and found that it would be improper to limit the exemption in light of the rapid shift in favor of RSUs over stock options, post-amendment.  See id. at 19. 

Gift Exclusion Applies to RSU

Section 207(e)(1), also known as the “gift exception,” excludes from the regular rate “sums 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.”  Here the court explained that although “gift” seemed an “anomalous term” to describe the RSUs, it nonetheless fit the description of the RSU scheme.  S.J. Order at 20.  The court again highlighted the fact that the RSUs were discretionary, not based on hours or performance, and had no guaranteed value.  Id.  The court noted that no case directly addressed whether RSU would be exempt from the regular rate under the FLSA and highlighted a circuit split over potentially analogous longevity payments.  Id. at 21-22.  That split is currently partially resolved by the First Circuit’s finding that longevity payments outlined in a collective bargaining agreement were contractual and therefore not exempt (with a similar finding from the Sixth Circuit), while the Fifth Circuit’s holding that longevity payments (without a contractual obligation to offer them) were exempt from the regular rate.  Id. Finally, the court explained that the contractual question should be addressed at the time the grant is made, and not when it vests.  Id. at 23-24.

But...RSU Not Discretionary for Purposes of FLSA

The court rejected the defendant’s two other theories, agreeing with plaintiffs that the RSUs did not qualify under the “discretionary” exemption because the award determination was not made near the end of the period when the employee’s work was performed.  Id. at 26. Interestingly, the court also found that the defendant employer did not retain control over the value of the award, not because the grant specified the number of shares awarded that would vest at a given time, but because the value of the shares could not be known until the time of vesting.  Id. at 27.  The court also found that the supposed “catch all” exemption for “other similar payments” did not include payments like RSUs.  Id. at 30.  

The court also granted summary judgment in favor of the defendant on the derivative California Labor Code 226 and 203 claims, based on its findings that the RSUs did not need to be included in the regular rate calculation.  Id. at 34-35.

It is important to note that the court specifically relied upon unique features of the RSU scheme in its analysis and how they applied in practice, leaving open the possibility that similar schemes that do incorporate factors like employee hours or performance goals, may receive different treatment. 

Moreover, while Judge Orrick’s ruling is the first of its kind in the nation, the law may not yet be settled on this topic.  Attorneys for the plaintiffs have stated that plaintiffs intend to appeal the ruling.  See “Apple, Inc.: No Company Is Too Big to Play Fair,” Nichols Kaster LLP, available at https://www.nka.com/cases/a-f/apple-inc-/ (last accessed July 2, 2026).  

Shireen Wetmore is a mediator specializing in complex employment matters and can be reached for questions, comment, or booking at www.shireenwetmoremediation.com.  

This Mediator’s Minute is for informational purposes only and does not constitute legal advice.