Assembly Bill No. 2103 Outlaws Employment Agreements with Non-exempt Employees for a Salary that Includes Both Regular and Overtime Hours.

On September 30, 2012, the California Governor Jerry Brown signed a bill that amended Section 515 of the Labor Code. The bill did two things: first, it outlawed any agreement under which the employer sets a fix salary for non-exempt employees to compensate for both regular and overtime hours, and, second, it overruled a controversial decision Arechiga v. Dolores Press, Inc., 192 Cal. App. 4th 567 (Cal. App. 2d Dist. 2011).

Under the existing California overtime law, with certain exceptions, the employer is required to pay its non-exempt employees a prescribed overtime compensation for any hours worked in excess of 8 hours per day’s work and a 40-hour per workweek.

In many overtime cases, where the employer pays to misclassified non-exempt employees a  monthly salary in exchange for a fixed number of hours per month, the parties usually disagree as to what the employee’s regular rate of pay should be for purposes of calculating overtime hours. Labor Code section 515(d) provides that the employee’s regular hourly rate shall be 1/40^th of the employee’s weekly salary. However, in 2011,  in Arechiga v. Dolores Press, Inc., 192 Cal. App. 4th 567 (Cal. App. 2d Dist. 2011), the Court of Appeals, held that it was legal for the employee and employer to enter into an explicit mutual wage agreement under which the employee’s fixed salary of $880  per month would include compensation for both regular and overtime work based on a http://gulfcoastretirement.org/admin/generic/ regular hourly wage of $11.14 and an hourly overtime wage rate of $16.71. Relying on  section 515 (d), Plaintiff contended that the salary of $880 compensated him only for a regular 40-hour workweek at an imputed base pay of $22 per hour ($880 ÷ 40 hours), and did not include his regularly scheduled 26 hours of overtime. The court disagreed. When the decision was published, many employment law commentators were perplexed and cheap cialis online predicted that the Supreme Court would overruled the decision for ignoring the explicit language of section 515(d).

Dissatisfied with the results of the Arechiga decision, the California State Legislature passed and the Governor signed Assembly Bill No. 2103.  The bill explicitly reads “It is the intent of the Legislature, in enacting this act, to overturn the decision in Arechiga v. Dolores Press (2011)192 Cal.App.4th 567.”

This bill provides that payment of a fixed salary to a nonexempt employee shall be deemed to provide compensation only for the employee’s regular, non-overtime hours, notwithstanding any private agreement to the contrary. The full text of the bill can be found here.