Apple Won the RSU Overtime Fight—Can Other Employers?

Equity awards are no longer just for executives. As RSUs and stock options reach more employees—including nonexempt workers—an unexpected question has emerged: can giving employees stock increase a company’s overtime liability?

In Costa v. Apple Inc., a federal court in California recently ruled that Apple could exclude certain vested RSUs from the regular rate used to calculate overtime. But the decision is not a blanket exemption for all equity awards. It turns on how the compensation program is designed, documented, and administered.

If your company is developing or revising an equity compensation plan, contact the ILS legal team at contact@consultils.com. We help employers review compensation structures, overtime calculations, and wage-and-hour risks while supporting effective talent incentives.

Why Was Apple Sued?

The lawsuit arose from Apple’s RSU program for nonexempt employees. The plaintiff argued that vested RSUs constituted compensation and therefore should have been included in the employee’s regular rate of pay when calculating overtime wages.

Apple, on the other hand, maintained that its RSU awards fell outside the categories of compensation that must be included in the regular rate under the Fair Labor Standards Act (FLSA). The court ultimately agreed with Apple.

Importantly, however, the court did not conclude that every employer may exclude RSUs from overtime calculations. Rather, the decision turned on the specific structure and administration of Apple’s equity compensation program. 

The Decision Was About Compensation Design—Not Simply RSUs

One of the most significant takeaways from the case is that the court focused less on the label “RSU” and more on how Apple’s compensation program was designed.

Among other factors, the court noted that:

• Apple retained complete discretion over whether to grant RSUs and to whom;

• RSU awards were not tied to hours worked, productivity, or production;

• Employees had no contractual entitlement to future RSU grants; and

• The ultimate value of the awards remained uncertain until vesting. 

Based on these facts, the court concluded that Apple’s RSUs could be excluded from the regular rate of pay under the specific circumstances presented in the case. The court repeatedly emphasized, however, that its analysis depended on Apple’s particular compensation program rather than establishing a universal rule applicable to all employers. 

Why This Decision Matters Beyond RSUs

Although the case focused on RSUs, its broader significance extends to overall compensation design.

For employers, the legal analysis is not limited to equity awards. Bonuses, commissions, incentive compensation, shift differentials, and other forms of remuneration may also affect overtime calculations depending on how they are structured.

The decision serves as a reminder that employers should evaluate compensation programs as a whole rather than reviewing individual pay components in isolation.

Key Compliance Considerations for Employers

Employers offering equity awards—or introducing new compensation programs—should consider reviewing the following:

• Review how equity awards are structured: Evaluate whether equity awards are discretionary or whether they are tied to hours worked, productivity, performance metrics, or other compensation factors.

• Determine whether employees have contractual rights: Offer letters, employment agreements, equity plans, and compensation policies should be reviewed to determine whether employees have a guaranteed right to future awards.

• Reassess overtime calculations: In addition to equity compensation, employers should confirm whether bonuses, commissions, incentive payments, and other forms of remuneration are properly included in overtime calculations where required by applicable law.

• Do not substitute equity for statutory wage obligations: Equity compensation generally does not replace an employer’s obligations to pay minimum wage, overtime, or other legally required compensation.

• Maintain an ongoing compliance review process: As compensation programs evolve, HR, Payroll, Finance, and Legal teams should periodically review whether new forms of compensation affect wage-and-hour compliance.

• Preserve compliance documentation: Internal compensation reviews, policy updates, legal analyses, and payroll records may provide valuable evidence of an employer’s good-faith compliance efforts if wage-and-hour disputes arise. The court specifically noted Apple’s ongoing compliance efforts when addressing the company’s good-faith defense.

Conclusion

The Apple decision does not establish that RSUs may always be excluded from overtime calculations. Rather, it illustrates that wage-and-hour compliance depends on the specific design of an employer’s compensation program and the manner in which it is administered.

As compensation structures become increasingly sophisticated, employers should regularly review not only their equity compensation plans, but also their broader payroll practices, overtime calculations, and wage-and-hour compliance procedures.

If your company is implementing or revising an equity compensation program, or would like to assess potential wage-and-hour risks associated with its compensation structure, the ILS team can help evaluate your compensation policies, payroll practices, and compliance framework to reduce litigation risk while supporting long-term business objectives.

If your company is developing or revising an equity compensation plan, contact the ILS legal team at contact@consultils.com. We help employers review compensation structures, overtime calculations, and wage-and-hour risks while supporting effective talent incentives.

Disclaimer: The materials provided on this website are for general informational purposes only and do not, and are not intended to, constitute legal advice. You should not act or refrain from acting based on any information provided here. Please consult with your own legal counsel regarding your specific situation and legal questions.

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As Managing Partner at ILS, Richard Liu ranks among the leading U.S. attorneys in corporate, employment, and regulatory law. He is known for crafting legal strategies aligned with clients’ business objectives and advising Fortune 500 companies, startups, and executives on corporate transactions, financing, privacy, and employment matters across the technology, healthcare, and financial sectors.

Before founding ILS, Richard practiced at top defense firms, where he developed a reputation for anticipating risks and designing strategies that balance protection with growth. He has secured favorable outcomes in contract and intellectual property disputes, represented clients in state and federal courts, and is recognized for combining large-firm expertise with boutique-firm agility. Richard is also a frequent speaker at industry and legal conferences.

Email: contact@consultils.com | Phone: 626-344-8949