On June 11, 2026, the U.S. District Court for the Northern District of California issued a significant decision addressing the novel wage-and-hour question of whether the value of restricted stock units (RSUs) must be included in the “regular rate” of pay when calculating overtime under the Fair Labor Standards Act (FLSA). In Costa v. Apple, Inc., the court held that RSUs are not required to be included in the regular rate and granted summary judgment in Apple’s favor.
Background
Apple, Inc. awards RSUs broadly across its workforce, including to employees eligible for overtime, as a form of equity-based compensation that vests over a period of time.
RSUs function as a promise to deliver shares in the future, subject to vesting conditions. Their value is not fixed at the time they are granted and, instead, fluctuates based on market conditions at the time of vesting.
Apple’s policy was to exclude the value of vested RSUs from the “regular rate” of pay used to calculate overtime. The plaintiffs, non-exempt Apple employees, filed suit, challenging Apple’s practice of excluding RSUs from overtime rate calculations.
The Legal Issue
Under the FLSA, employers must calculate overtime based on an employee’s “regular rate,” which generally includes “all remuneration for employment,” subject to certain statutory exclusions.
The key question before the court was whether RSUs fall within one or more of those exclusions, particularly
- the “gift” exclusion (29 U.S.C. § 207(e)(1)); and/or
- the “equity” exclusion (29 U.S.C. § 207(e)(8)).
The Court’s Holding
The court concluded that RSUs are not required to be included in the regular rate, finding that both FLSA exclusions at issue applied.
1. Equity-Based Compensation Exclusion
The court held that RSUs fall within the FLSA’s “equity” exclusion, which applies to certain employer-provided stock-based compensation.
Although RSUs are not specifically listed in the statute, the court reasoned that the provision should be interpreted in a flexible, forward-looking manner. It emphasized that
- the statutory text includes “employer-provided grants,” not just stock options;
- RSUs were not widely used when the statute was enacted; and
- RSUs serve purposes similar to stock options, including incentivizing employee retention and aligning employee interests with company performance.
Based on these considerations, the court found it appropriate to treat RSUs as falling within the equity exclusion.
2. Gift Exception (Alternative Holding)
The court separately held that RSUs qualify for the FLSA’s “gift” exclusion because
- awards are discretionary;
- they are not tied to hours worked, production or efficiency; and
- employees have no contractual entitlement to receive them.
In particular, the court focused on the character of the award at the time it is granted, concluding that RSUs more closely resemble discretionary, tenure-based rewards than compensation tied to labor performed.
3. Other Exclusions Rejected
The court declined to apply other FLSA exclusions, including
- the discretionary bonus exclusion; and
- the “other similar payments” exclusion.
However, because the equity and gift exclusions applied, Apple was entitled to summary judgment.
Additional Rulings
The court also held that
- no prior case law squarely addressed the issue, underscoring its novelty;
- Apple acted in good faith and did not willfully violate the FLSA; and
- derivative California Labor Code claims failed for similar reasons.
Key Takeaways for Employers
This decision provides helpful guidance for employers that use equity-based compensation programs, particularly those that extend RSUs to non-exempt employees.
- Courts may take a functional approach to stock-based compensation. Even where a compensation vehicle is not explicitly listed in the statute, courts may look to its economic characteristics and purpose.
- Discretion and lack of linkage to hours worked matter. The court repeatedly emphasized that the RSUs were not tied to hours, productivity or efficiency—a key factor in excluding them from the regular rate—which may not be true in other situations.
- Novel issues remain unsettled. The court acknowledged the absence of controlling authority, suggesting that appellate guidance or further litigation may follow.
- State law considerations still apply. Although the court noted that California and New York follow the FLSA framework for “regular rate” analysis, employers should continue to evaluate state law nuances. Indeed, some state wage and hour laws do not include the FLSA’s “equity” exclusion in 29 U.S.C. § 207(e)(8).
