BILL ANALYSIS Ó
AB 2103
Page 1
Date of Hearing: May 2, 2012
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Felipe Fuentes, Chair
AB 2103 (Ammiano) - As Amended: April 10, 2012
Policy Committee: Labor and
Employment Vote: 6-1
Urgency: No State Mandated Local Program:
No Reimbursable: No
SUMMARY
This bill requires payment of a fixed salary to a nonexempt
employee to be deemed compensation only for the employee's
regular, non-overtime hours, notwithstanding any private
agreement to the contrary. Specifically, this bill:
Declares legislative intent that enacting this act is meant to
overturn a recent California Court of Appeals decision in
Arechiga v. Dolores Press (2011) 192 Cal. App. 4th 567.
FISCAL EFFECT
No direct fiscal impact to the state; this bill, however, does
overturn a state court decision regarding overtime pay and
nonexempt employees.
COMMENTS
1)Background . Existing law deems eight hours of labor a day's
work. It also requires overtime to be paid to employees who
work in excess of eight hours in one workday and in excess of
40 hours in one workweek. Statute requires overtime pay to be
calculated at the rate of no less than one and one-half times
the regular rate of pay for an employee. Most nonexempt
employees are paid an hourly rate of pay, which allows for
straightforward overtime pay calculations (i.e., one and half
times their rate of pay).
Current law also affords employers an exemption in calculating
overtime pay per the requirements above. Specifically,
statute authorizes employers to adopt a regularly scheduled
AB 2103
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alternative workweek with their employees. This alternative
authorizes employees to work no longer than 10 hours per day
within a 40-hour workweek.
AB 60 (Knox), Chapter 134, Statutes of 1999, requires a
nonexempt full-time employee's regular hourly rate to be
divided by 40 for the purposes of calculating his or her
overtime pay. As such, the overtime rate of the nonexempt
employee is determined by multiplying the regularly hourly
rate by one-half. This calculation conflicts with the federal
Fair Labor and Standards Act (FLSA), which utilizes the
"fluctuating workweek" method. This method calculates the
regular rate of pay by dividing the weekly salary by the total
number of hours worked in a week, including overtime hours.
2)Arechiga v. Dolores Press (2011) 192 Cal. App. 4th 567 .
Carlos Arechiga began working as a janitor for Dolores Press,
Inc. in January 2000. Mr. Arechiga and Dolores Press, Inc.
orally agreed he would work 11 hours a day, six days a week,
for a total of 66 hours per week. Because Mr. Arechiga was a
nonexempt employee under state law, they agreed his work
schedule entitled him to earn 26 hours of overtime pay each
week. By agreement, Dolores Press, Inc. paid him $880 per
week. This agreement was later put in writing with no
substantive changes to these provisions.
In September 2006, Dolores Press, Inc. terminated Mr.
Arechiga. In November 2007, he filed a complaint alleging
multiple causes of action against Dolores Press, including a
complaint of unfair business practice predicated on his
employment agreement violated state law with respect to
calculating his overtime pay. Specifically, Mr. Arechiga
argued state statute required his overtime pay to be
calculated by dividing his regular hourly rate by 40, which is
required for nonexempt employees. As such, he asserted his
salary of $880 per work only compensated him for a 40 hour
work week, not his agreed upon workweek of 66 hours (which
included 26 hours of overtime). Mr. Arechiga argued Dolores
Press Inc. owed him overtime pay for three years.
Dolores Press, Inc. disagreed and cited state law, which
authorizes employers to negotiate an alternative workweek
schedule (i.e., explicit mutual wage agreement). Under this
statute, overtime pay must be calculated at the rate of no
less than one and one-half times the regular rate of pay for
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an employee. Dolores Press, Inc. asserted it complied with
state law.
The trial court ruled in favor of Dolores Press, Inc. because
they had an explicit mutual wage agreement. Specifically, the
court stated: "Under California law, when there is an explicit
mutual wage agreement between the parties, even a fixed salary
like the one ÝArechiga] received serves to adequately
compensate him for both overtime and regular pay. . . .
ÝDolores Press, Inc.] has met its burden."
Mr. Arechiga appealed this decision arguing state law does not
allow mutual wage agreements for nonexempt employees.
Instead, it requires the employee's regular hourly rate to be
divided by 40.
In February 2011, the California Court of Appeals, Second
District upheld the trial court's decision based on the
determination that Dolores Press, Inc. had an explicit mutual
wage agreement with Mr. Arechiga and statute regarding
overtime pay for nonexempt employees does not abolish this
agreement. The court cited federal case law in this
determination.
3)Purpose . According to the author, AB 60 (Knox), Chapter 134,
Statutes of 1999 "codified California's overtime requirements
and the long standing provisions of the Industrial Welfare
Commission (IWC) wage orders, which is reflected in the
Division of Labor Standards and Employment (DLSE) Manual on
overtime pay for non-exempt employees. Specifically, the
manual states: "In the past, California law has been construed
to allow the employer and the employee to enter into an
explicit mutual wage agreement which, if it met certain
conditions, would permit an employer to pay a salary to a
non-exempt employee that provided compensation for hours in
excess of 40 in a workweek. (See, Ghory v. Al-Lahham (1989)
209 Cal.App.3d 1487, 257 Cal.Rptr. 924). Such an agreement
(backing in the regular rate) is no longer allowed as a result
of the specific language adopted by the Legislature at Labor
Code § 515(d). To determine the regular hour rate of pay for a
non-exempt salaried employee, one must divide the weekly
salary paid by no more than forty hours."
The author further states: "Prior to Ýthe Arechiga] decision,
state law was clear. Non-exempt workers could be paid hourly
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or by salary, but any overtime hours worked must be calculated
separately and added onto regular pay. This ruling is
dangerous because it allows employers to estimate overtime and
include it in a fixed salary. That opens the door to workers
being required to work additional overtime without being
fairly compensated."
Analysis Prepared by : Kimberly Rodriguez / APPR. / (916)
319-2081