BILL ANALYSIS Ó
AB 2103
Page 1
ASSEMBLY THIRD READING
AB 2103 (Ammiano)
As Amended April 10, 2012
Majority vote
LABOR & EMPLOYMENT 6-1 APPROPRIATIONS 12-5
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|Ayes:|Swanson, Alejo, Allen, |Ayes:|Fuentes, Blumenfield, |
| |Bonnie Lowenthal, Gorell, | |Bradford, Charles |
| |Yamada | |Calderon, Campos, Davis, |
| | | |Gatto, Hall, Hill, Lara, |
| | | |Mitchell, Solorio |
| | | | |
|-----+--------------------------+-----+--------------------------|
|Nays:|Morrell |Nays:|Harkey, Donnelly, |
| | | |Nielsen, Norby, Wagner |
| | | | |
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SUMMARY : Clarifies that "explicit mutual wage agreements"
provide only regular compensation, and not overtime
compensation, as specified. Specifically, this bill :
1)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.
2)Declares the intent of the Legislature, in enacting this bill,
to overturn a recent California Court of Appeal decision in
Arechiga v. Dolores Press (2011) 192 Cal. App. 4th 567.
3)Makes other technical and nonsubstantive changes to existing
law.
FISCAL EFFECT : According to the Assembly Appropriations
Committee, this bill will result in no direct fiscal impact to
the state.
COMMENTS : This bill is intended to overturn a recent California
Court of Appeal decision dealing with "explicit mutual wage
agreements."
Under California law, overtime wages are required to be paid to
AB 2103
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a nonexempt employee for any hours worked after eight in one
workday or after 40 in one workweek. Most nonexempt employees
are paid an hourly rate of pay, which makes the calculation of
their overtime rate of pay relatively simple (one-and-one-half
times the regular rate of pay).
However, nothing prohibits an employer from paying a nonexempt
employee on a salary (rather than an hourly) basis, as long as
the employer properly compensates the employee for overtime work
as required by the law. Obviously, determining the regular and
overtime rate of pay is a more complicated exercise for salaried
employees rather than hourly employees.
Existing California law (Labor Code Section 515(d)) provides
that, for a nonexempt full-time salaried employee, the
employee's regular rate of pay is calculated by dividing their
weekly salary by 40 (to essentially determine a regular "hourly"
rate of pay). The overtime rate is then determined by
multiplying this regular rate by one-and-one-half.
This bill deals with a recent court decision in which the
employer attempted to utilize an "explicit mutual wage
agreement" which essentially provided for a fixed salary that
purported to compensate the employee for all regular and
overtime hours worked. Arechiga v. Dolores Press (2011) 192
Cal. App. 4th 567.
In the Arechiga case, a janitor and his employer agreed that
payment of a fixed salary of $880 a week would provide
compensation for 66 hours of work each week. The Court of
Appeal held that this method of payment comported with
California overtime law, and that no additional overtime
compensation was owed. The Court rejected the employee's
contention that existing Labor Code Section 515(d) prohibits any
sort of agreement that would allow a fixed salary to serve as a
nonexempt employee's compensation for anything more than a 40
hour workweek.
Critics of the Arechiga decision have argued that it improperly
relied upon this federal court precedent, because in California
the statute explicitly defines the "regular rate of pay" for
nonexempt salaried employees (Labor Code Section 515(d)). Thus,
these critics distinguish California law by noting that the
Legislature decided to expressly define this term precisely to
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ensure that employees' right to overtime pay would not be
subverted by private agreements.
Supporters argue that this bill simply restores the status quo
prior to a misguided and short-sighted court decision that
jeopardized the rights of low-wage workers. The policy of
calculating overtime hours separately is better for workers and
for employers. It promotes better record-keeping and a clear
understanding of both parties what constitutes a regular
workweek and what is additional overtime.
Analysis Prepared by : Ben Ebbink / L. & E. / (916) 319-2091
FN: 0003433