Employers Beware: Overtime Wages Must Be Paid to Salaried Employees

On September 30, 2012, Assembly Bill No. 2103 was signed into law, amending Labor Code Section 515 to require that non-exempt salaried employees (exempt employees are defined as executive, learned professionals, administrative, outside sales and physicians) be paid overtime for any hours worked in excess of 40 hours per week. This Assembly Bill has the practical effect of overriding the 2011 California Appellate Court decision in Arechiga v. Dolores Press, Inc. (2011) 192 Cal.App.4th 567.

The plaintiff in Arechiga worked as a janitor for Dolores Press. His written employment contract specified he was paid $880.00 per week. After Arechiga was fired, he filed suit, claiming he was entitled to overtime wages for the three last years of his employment because he worked on average 66 hours a week. The trial court dismissed the claim based upon Labor Code Section 515(d), which at the time validated a private agreement for a fixed salary, including regular and overtime pay. The Court of Appeal in Arechiga affirmed the trial court’s decision, holding that Labor Code Section 515(d) authorized employment agreements which provide for a total compensation amount, including regular wages and overtime wages.

Assembly Bill 2103 takes away the ability of an employer to include overtime wages in the salary of a non-expemt employee and has the effect of overruling the holding in Arechiga. Assembly Bill 2103 clarifies 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.”

The lesson to take for employers from Assembly Bill 2103 is that payment of a salary to a non-exempt employee is not an effective way of limiting exposure for overtime wages. Therefore, there is no practical benefit for using a salary based wage payment for non-exempt employees and hourly rates should be utilized. On any concern whether or not an employee is exempt or non-exempt, you should contact an attorney.