Labor Code section 515, subdivision (d) provides: "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." In Arechiga v. Dolores Press, Inc. (February 7, 2011), the Court of Appeal (Second Appellate District, Division Eight) considered whether section 515(d) effectively eliminated "explicit mutual wage agreements" for non-exempt employees. The Court concluded that section 515(d) did not void such agreements, rejected the DLSE's conclusion on that issue, and affirmed a questionable interpretation of section 515 that will allow employers to circumvent California overtime laws and use a system more like that available under federal law.
Plaintiff and employer entered into a written agreement that plaintiff would receive a salary of $880.00 a week as a janitor. Plaintiff worked 66 hours per week (11 hours per day, six days per week). Upon termination, plaintiff sought unpaid overtime. The trial court found that plaintiff's regular hourly wage was $11.14 and his overtime wage was $16.71. The trial court credited some testimony that this hourly wage was communicated to plaintiff and found that plaintiff was adequately paid. The trial court also found that all elements of an explicit mutual wage agreement were satisfied. Note: acording to authority from before the enactment of section 515, an explicit mutual wage agreement “requires an agreement which specifies the basic hourly rate of compensation upon which the guaranteed salary is based before the work is performed, and the employee must be paid at least one and one-half times the agreedupon rate for hours in excess of forty.” Ghory v. Al-Lahham, 209 Cal. App. 3d 1487, 1491 (1989).
The Court of Appeal agreed with the trial court's application of the explicit mutual wage agreement doctrine, saying "Arechiga cites no case law supporting his assertion that Labor Code section 515, subdivision (d) abolished explicit mutual wage agreements." Slip op., at 7. Immediately thereafter, in a footnote, the Court said, "Appellant's reliance on the Enforcement Policies and Interpretations Manual of the Division of Labor Standards Enforcement is unavailing because regulators did not properly adopt it, making it non-binding on courts." Slip op., at 7, n. 5. The Manual states:
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[, supra,] 209 Cal.App.3d 1487). 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.
Slip op., at 7, n. 5, quoting Manual. The Court relied, instead, on jury instruction citing to a pre-section 515 opinion and federal court opinions about California law (which, incidentally, are entitled to as little deference as the DLSE, and probably less, given that the DLSE's expertise in the area is entitled to some consideration). In other words, the Court criticized plaintiff's lack of "authority" to support the proposition that explicit mutual wage agreements for non-exempt employees are now invalid, but the Court identified no controllling authority to controvert the plain language of section 515(d).
Most of the remainder of the opinion deals with various evidentiary rulings at trial. Those don't concern me for purposes of this post. What does trouble me is the potential for decisions like this to offer judicial roadmaps for how to "back in a regular rate" and avoid what, in my view, is a clear and unambiguous statutory provision. Under this construction, employers could, after the fact, claim that an employee was "shown" a basic hourly wage. So long as that alleged hourly wage was above the minimum wage, the employer could justfy, ex post facto, any salary that equaled the reverse engineered wage and overtime calculation. Section 515 is inconsistent with cases decided prior to its enactment.
Courts shouldn't be legislating, whether they agree with the policy goals of the legislation or not. It's not like the Court was asked to consider a constitutional challenge to a law or something. All it had to do was decide whether a trial court correctly applied a simple statute to some facts. The Court blew it.