New Law Halts Explicit Mutual Wage Agreements

11.2012
Employment Law Reporter, Ervin Cohen & Jessup LLP

On the final days of the California Legislature’s term, Governor Brown quietly signed into law Assembly Bill 2103, a bill which was specifically designed to overturn existing case law which allowed employers to have “explicit mutual wage agreements” with employees. The case was Arechiga v. Dolores Press, and it held that existing law did not prevent an employer and an employee who is not exempt from overtime from entering into an explicit mutual wage agreement that provided for the payment of base compensation and overtime in fixed salary. These agreements were designed to simplify and standardize payments to employees with irregular hours.

However, as taxpayers know all too well, “simplify” and “legislature” are two words that don’t often mix. AB 2103 amends Labor Code Section 515 to provide that payment of a fixed salary to a non-exempt employee shall be deemed to provide compensation only for the employee’s regular, non-overtime hours, notwithstanding any private agreement to the contrary. 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. With certain exceptions, overtime is earned after an employee works 8 hours in a day and 40 hours in a workweek.

The new law takes effect on January 1, 2013.

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