On February 7, 2011, a Court of Appeals in Los Angeles ruled that the “explicit mutual wage agreement” doctrine is available in California wage & hour cases notwithstanding the significant changes made by the Legislature to the Labor Code more than ten years ago. (Arechiga v. Dolores Press, Inc., Court of Appeals, Second Appellate District, Division Eight, Case No. BC380124) Under an “explicit mutual wage agreement,” an employer can avoid the payment of the overtime hours worked by a non-exempt employee if the fixed salary pays the employee at least 1 1/2 the employee’s basic hourly rate for all overtime hours.
To prove the existence of an explicit fixed wage agreement, the employee must have been told: 1) The days he or she would work; 2) The number of hours he or she would work; 3) that he or she would be paid a guaranteed salary of a specific amount; 4) The basic hourly salary rate upon which his or her salary is based; 5) That the salary will cover both his or her regular and overtime hours; and 6) The agreement must be reached before the work was performed by the employee.
This decision will most likely be appealed before the California Supreme Court. Until such time as the Supreme Courts defines the availability of the explicit mutual wage agreement doctrine, employers should exercise caution and continue to pay overtime based on the effective rate of the employee. In the case of non-exempt salaried employees, the Labor Code states that the “regular hourly rate shall be 1/40th of the employees’ weekly salary.”