SAN FRANCISCO (CN) – A federal judge on Tuesday tentatively ruled that restricted stock units awarded to hourly Apple employees do not fall under federal exemptions that would allow the company to exclude awards from employees’ regular rate of pay for purposes of calculating overtime pay.
Restricted stock units (RSUs) are awards that give employees a contingent right to own company stock at a future date, subject to certain conditions. Vesting is the process an employee takes to earn stock ownership, such as waiting a certain amount of time or reaching a certain career level.
The plaintiffs, current former Apple employees who were paid hourly and entitled to overtime, argue that in addition to their hourly pay, they received restricted stock units as part of their Apple compensation.
Under the Fair Labor Standards Act and California and New York state law, employers are required to pay employees a higher rate of pay for overtime. Plaintiffs argue that the employees’ regular rate of pay includes pay derived from other forms of compensation, such as restricted stock units.
They claim that Apple’s policy of not including the value of restricted stock units in regular pay rates illegally pays employees for overtime.
“When an employer pays employees in stock, unless it meets the statutory requirements for an exemption, the value must be included in the regular rate when calculating overtime pay,” the plaintiffs say in motion for summary judgment.
They add: “Apple does not, which gives it the benefit of overtime pay at a lower rate than required by law. Apple cannot prove that the restricted stock unit (RSU) award qualifies for an exemption from the regular rate.”
In a hearing on the parties’ motions for summary judgment, U.S. District Judge William H. Orrick said he does not believe gift, discretionary bonus or other similar payment exceptions apply to restricted stock units.
Orrick, an appointee of Barack Obama, said the only exception he could see applying would be the equity exception, which deals with awards such as stock options, stock appreciation rights and employee stock purchase programs.
“I agree that it’s very similar to stock options. It’s treated the same for tax purposes and I think it meets the criteria for employer-provided grants or rights. But it’s not a stock option, stock appreciation right, or a bona fide employee stock purchase program. Under the FLSA, that’s a big exception,” he said.
“I can think of many reasons why the exemption should cover it,” Orrick continued. “It seems I should, but I don’t think your argument is how I can substitute my own understanding of policy arguments for law.”
Apple argued that the judge should weigh more heavily on the legislative history of the Fair Labor Standards Act, noting that restricted stock units did not exist at the time Congress changed the law to create the equity exemption.
“It’s very clear that Congress wanted this as broad as possible, and stock options have been taken over by RSUs,” said Theane Evangelis of Gibson, Dunn & Crutcher, a lawyer for Apple. “The intent of Congress was broad enough to cover what we have here. It would be pretty ironic if this broad equity exemption that Congress passed didn’t cover the most prevalent stock option today.”
In response, plaintiffs’ attorney Michele Fisher of Nichols Kaster argued that Congress intentionally limited the stock exemptions in all three programs, and the court would rewrite the law if it found the restricted stock units included.
“Congress had an intent that an employer could not give employees something valuable like this for free. There has to be some kind of payment for it, or else it has to be included in their regular rates as part of their compensation,” she said.
As for the other exceptions, Apple argued that restricted stock units that are not tied to an employee’s work hours or efficiency are not contractually binding and are entirely within the company’s discretion to grant to anyone, in any amount, at any time.
Evangelis claimed that Apple’s requirements that an employee stay with the company and be in good standing to vest the restricted stock units are insufficient to tie the award to hours worked.
“Does this work as a pay or compensation for hours worked? Here, all the evidence shows that RSUs are not tied to how much you work. And we have a situation where you can be on vacation and have them put on,” she said, adding, “So how can they be tied to hours worked at that point?”
Evangelis also commented on the impact the court ruling could have on companies and employees, telling the judge that finding in favor of the plaintiffs would be the first time a court has ruled companies that exempt restricted stock units from regular pay “somehow got it all wrong.”
She added that a ruling in favor of the plaintiffs could discourage companies from even offering restricted stock units to employees because of complications with overtime pay.
“I think the challenge with RSUs is that nobody knows what the value of the stock is going to be,” she said. “So when they’re provided by employers, there’s no way to budget for that expense, to predict what it’s going to cost, to plan for the future.”
Orrick responded that Apple may be right, “this could be a bad thing for employees,” but said he wouldn’t make a decision based on theoretical impacts.
“You don’t have to tell me that RSUs are the greatest thing since sliced bread. You have to tell me why they fit under the FLSA,” he said.
Fisher disputed Apple’s contention that a ruling in favor of the plaintiffs could harm employees, saying companies have made similar arguments for other bonuses but managed to adjust.
“Employers have argued in other cases that if the court makes this bonus part of the regular rate, the employer will stop giving the bonus. But what could happen is that they could lose their employees by not giving that bonus,” she said. “Apple will have to decide, ‘Do we want to continue to give this bonus and roll it into the regular fee, just like any other bonus that’s paid out over a period of time?'”
Orrick found in Apple’s favor on the plaintiffs’ claim that the company had acted in bad faith and intentionally violated federal law by excluding restricted stock units from the regular rate of pay, saying “the scope of the law and statutory interpretation is not clear.”
Evangelis called that decision “exactly fair,” adding that there was no way Apple could have predicted in the past two decades that they would be facing this potential decision.
“Apple did everything right. It took proactive compliance measures, it conducted periodic, regular fee audits, it did all the right things,” she said.
However, Fisher argued that Apple has refused to provide information on meetings the company has held where they claim they discussed restricted stock units, claiming the privilege.
“You can’t just say I talked to a lawyer, I’m not going to tell you what it was and fill out the good faith exception. They’ve claimed privilege. We haven’t been able to ask them,” she said.
Orrick did not specify when he would issue a final order.
A trial for damages is currently scheduled to begin on September 14, 2026.
Representatives for neither party immediately responded to a request for comment.
The plaintiffs filed their complaint against Apple in March 2023. That November, the court certified FLSA class action in the case composed of “all current and former employees of Apple, Inc. classified as eligible non-exempt/overtime who received restricted stock units that vested on or after March 23, 2020, and who logged more than forty hours of work in a workweek after receiving an RSU but before the RSU vested.”
In February, the court certified two state- and date-differentiated classes for current and former California and New York employees who are classified as non-exempt/qualified overtime and received restricted stock units that were granted on or after June 14, 2020, for the California class, and August 11, 2017, for the New York class.
Additionally, former or current employees who fall within the definition of one of the classes but who worked only as one of the 37 “excluded positions” do not qualify for this class. These positions include Data Scientist 2, Software Development Engineer 2, and Test Engineer 2.
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