BILL ANALYSIS Ó
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THIRD READING
Bill No: AB 2103
Author: Ammiano (D)
Amended: 4/10/12 in Assembly
Vote: 21
SENATE LABOR & INDUSTRIAL RELATIONS COMM. : 5-1, 6/13/12
AYES: Lieu, DeSaulnier, Leno, Padilla, Yee
NOES: Wyland
NO VOTE RECORDED: Runner
SENATE APPROPRIATIONS COMMITTEE : Senate Rule 28.8
ASSEMBLY FLOOR : 51-24, 5/7/12 - See last page for vote
SUBJECT : Employment: wages and hours: overtime
SOURCE : California Employment Lawyers Association
California Teamsters Public Affairs Council
DIGEST : 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.
ANALYSIS : Existing law, with certain exceptions, defines
a day's work as eight hours of labor. Overtime wages are
required to be paid to nonexempt employees for any hours
worked after eight in one workday or after 40 in one
workweek. Overtime is compensated as follows:
CONTINUED
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Any work in excess of eight hours in one workday, any
work in excess of 40 hours in any one workweek, and the
first eight hours worked on the seventh day of work in
any one workweek shall be compensated at the rate of no
less than one and one-half times the regular rate of pay
for an employee.
Any work in excess of 12 hours in one day shall be
compensated at the rate of no less than twice the regular
rate of pay for an employee.
Any work in excess of eight hours on any seventh day of a
workweek shall be compensated at the rate of no less than
twice the regular rate of pay of an employee.
Under existing law, for the purpose of computing the
overtime rate of compensation required to be paid to a
nonexempt full-time salaried employee, the employee's
regular hourly rate shall be 1/40th of the employee's
weekly salary. (Labor Code Section 515(d))
This bill provides further clarity as to what hours and
rate of pay a salaried employee is being compensated for
when receiving his/her payment.
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.
Comments
Arechiga v. Dolores Press . Under existing law, overtime
wages are required to be paid to a nonexempt employee for
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any hours worked over eight in a workday, or over 40 in a
workweek. Most nonexempt employees are paid an hourly
rate, making the calculation of their overtime pay a
relatively straight forward process (one-and-one-half times
the regular rate of pay). However, employers are also
allowed to pay employees on a salary (rather than an
hourly) basis, as long as the employer properly compensates
the employee for overtime work as required by law.
Determining the regular and overtime rate of pay for a
salaried employee is a more complicated process than
calculations of an employee paid on an hourly basis.
Currently, 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). ÝLabor Code Section
515(d).] The overtime rate is then determined by
multiplying this regular rate by the appropriate overtime
rate. However, differing interpretations of the law have
raised the question of whether a fixed salary includes
payment for regular hours as well as overtime hours worked.
In Arechiga v. Dolores Press, Arechiga and his employer
orally agreed he would work 11 hours a day, six days a
week, for a total of 66 hours at a fixed salary of $880 a
week. According to the court, because Arechiga was a
nonexempt employee under labor law, the agreement between
Arechiga and his employer meant he earned 26 hours of
overtime pay each week and the $880 salary covered both his
regular and overtime hours. In 2006, Arechiga was
terminated after six years of employment and, in 2007, he
filed a complaint alleging multiple causes of action
against his employer. Citing Labor Code Section 515(d),
Arechiga argued that his salary of $880 compensated him
only for a regular 40-hour work week at $22 per hour
($880/40 hours). Therefore, Arechiga argued, the employer
owed him $33 per hour for the 26 weekly hours of overtime
worked for the three years alleged in the complaint.
Dolores Press, however, disagreed with Arechiga's assertion
and argued that California's "explicit mutual wage
agreement" doctrine applied. According to the employer,
under the doctrine, an employer and employee may lawfully
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agree to a guaranteed fixed salary as long as the employee
is being compensated for all overtime as required by law.
The court agreed with the employer and found that an
explicit mutual wage agreement existed under which the $880
salary lawfully compensated the employee for both his
regular and overtime work based on an $11.14 hourly wage
and an $16.71 hourly overtime wage.
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 non-exempt employee's
compensation for anything more than a 40-hour workweek.
In reaching their decision, the court relied on a series of
federal cases, one in particular (Walling v. A.H. Belo
Corp. (1942) 316 U.S. 624) in which the United States
Supreme Court held that nothing in the Federal Labor
Standards Act (FLSA) prohibits an employer from paying its
employee a fixed salary to cover a specified number hours,
consisting of both regular and overtime hours. The Court
held that as long as the agreement between the employer and
employee provided a fixed salary for the specific number of
hours, specified the basic hourly rate of pay of no less
than the minimum wage, and paid not less than one and
one-half times that rate for every hour of overtime worked
beyond the maximum non-overtime hours, then the employees
are not entitled to additional overtime pay unless they
exceed the number of hours specified in the agreement.
Need for this bill . At question in Arechiga v. Dolores
Press was also the issue of whether California law even
allows for "explicit written wage agreements" between the
employer and employees. The Court found that Labor Code
Section 515 does not outlaw explicit mutual wage agreements
and stated that "an employer and employee may lawfully
agree to a guaranteed salary as long as the employee
receives the appropriate overtime pay for any hours worked
beyond the statutorily defined workday of eight hours."
However, the Division Labor Standards Enforcement (DLSE)
Enforcement Policies and Interpretations Manual provides a
different interpretation of what current law allows.
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According to the DLSE, explicit written wage agreements are
not allowed since the enactment of Labor Code Section
515(d) ÝAB 60(Knox) of 1999]. The DLSE Manual states the
following:
Salaried Non-Exempt - Explicit Written Agreement No
Longer Allowed. 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. (DLSE
Enforcement Policies and Interpretations Manual, Section
49.1.5)
Critics of the Arechiga v. Dolores Press decision have
argued that it improperly relied upon federal court
precedent because in California the statute explicitly
defines the "regular rate of pay" for nonexempt salaried
employees at Labor Code Section 515(d) to ensure that
employees are correctly compensated for overtime hours
worked. Given the inconsistent interpretations of how
salaried employees are required to be paid and whether an
"explicit written wage agreement" is even allowed, the bill
is necessary to provide clarity and specify 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 thereby requiring employers to pay their
salaried employees for any overtime hours worked
separately.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: Yes
SUPPORT : (Verified 6/25/12)
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California Employment Lawyers Association (co-source)
California Teamsters Public Affairs Council (co-source)
AFSCME
California Conference Board of the Amalgamated Transit
Union
California Conference of Machinists
California Labor Federation
California Nurses Association
Engineers and Scientists of California, IFPTE Local 20,
AFL-CIO
International Longshore & Warehouse Union
Professional and Technical Engineers, IFPTE Local 21,
AFL-CIO
UNITE HERE, AFL-CIO
United Food & Commercial Workers, Western States Council
Utility Workers Union of America, Local 132
ARGUMENTS IN SUPPORT : According to the author's office,
prior to the Arechiga decision, state law was clear in that
non-exempt workers could be paid hourly or by salary, but
any overtime hours worked must be calculated separately and
added onto regular pay. The author argues that the
Arechiga ruling is dangerous because it allows employers to
estimate overtime and include it in a fixed salary without
fairly compensating for any additional hours worked.
Proponents also argue that the court took a very simple,
bright line rule in labor law enforcement and made it
hopelessly complicated, turning Labor Code Section515 (d)
on its head and making the law more confusing for employers
and employees and opening the door for potential worker
abuse.
Proponents also 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.
They argue that the policy of calculating overtime hours
separately is better for workers and for employers because
it promotes better record-keeping and a clear understanding
to both parties of what constitutes a regular workweek and
what is additional overtime.
ASSEMBLY FLOOR : 51-24, 5/7/12
AYES: Achadjian, Alejo, Allen, Ammiano, Atkins, Beall,
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Bill Berryhill, Block, Blumenfield, Bonilla, Bradford,
Buchanan, Butler, Charles Calderon, Campos, Carter,
Cedillo, Chesbro, Davis, Dickinson, Eng, Feuer, Fong,
Fuentes, Galgiani, Gatto, Gordon, Gorell, Hayashi, Roger
Hernández, Hill, Huber, Hueso, Huffman, Lara, Bonnie
Lowenthal, Ma, Mendoza, Mitchell, Monning, Pan, Perea, V.
Manuel Pérez, Skinner, Solorio, Swanson, Torres,
Wieckowski, Williams, Yamada, John A. Pérez
NOES: Conway, Cook, Donnelly, Beth Gaines, Garrick, Grove,
Hagman, Halderman, Harkey, Jeffries, Jones, Knight,
Logue, Mansoor, Miller, Morrell, Nestande, Nielsen,
Norby, Olsen, Silva, Smyth, Valadao, Wagner
NO VOTE RECORDED: Brownley, Fletcher, Furutani, Hall,
Portantino
PQ:m 6/26/12 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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