California Court of Appeal Issues Favorable Decision Allowing For Explicit Mutual Wage Agreements For Non-Exempt Employees

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On February 7, 2011, the California Court of Appeal in Arechiga v. Dolores Press, Inc., ___ Cal. Rptr. 3d ___, 2011 WL 359350 (Cal. App. 2nd Dist., Feb. 7, 2011) ruled that an employer and employee may enter into an explicit wage agreement under which a non-exempt employee may receive a guaranteed fixed salary for all work (including overtime hours) so long as the employer pays the employee for all overtime wages at the correct premium rate.

In Arechiga, the employee worked 66 hours per week and received a set salary of $880.00 per week. The employer claimed that it had entered into an explicit wage agreement with the plaintiff under which the employee's fixed salary of $880.00 compensated him for both his regular and overtime work based on a regularly hourly wage of $11.14 and an hourly overtime wage of $16.71 ($11.14 x 1.5). The employee argued that his salary of $880.00 compensated him only for a regular 40-hour work-week at an imputed base pay of $22 per hour ($880 / 40 hours), and did not include his regularly scheduled 26 hours of overtime. California Labor Code section 515(d) provides that "[f]or the purpose of computing the overtime rate of compensation required to be paid to a non-exempt full-time salaried employee, the employee's regular hourly rate shall be 1/40th of the employee's weekly salary." Thus, according to the employee, the employer owed him overtime pay equal to 1.5 times his hourly based pay for his regularly scheduled 26 hours of weekly overtime (26 hours x $33.00 per hour ($22.00 x 1.5) = $858.00 per week in back overtime). The trial court rejected the employee's assertion that Section 515(d) prohibited explicit mutual wage agreements and held that the employee was not entitled to recover further overtime pay. The plaintiff appealed.

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