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Your Legal Corner - Client Alert Blog

Overtime Compensation Agreements Are Void

Written By: Melissa C. Marsh, Esq., California Attorney, October 2012 Add to Favorites
California Labor Code 510 generally requires the payment of overtime to nonexempt employees for hours worked over 8 hours in a day, 40 hours in a workweek, and all hours on the seventh consecutive day of work. Calculating the overtime owed is relatively simple for nonexempt employees paid an hourly wage (1/40th of the employee's weekly salary); but not so easily computed for nonexempt employees paid a fixed salary. Consequently, many employers have entered into agreements with their salaried employees to the effect that an employee will work say 55 hours per week for a salary of "x." To restrict this practice, the California Department of Labor Standards and Enforcement invalidated such agreements and in its Enforcement Manual specifically stated that such agreements were illegal and void as a matter of law after the enactment of Labor Code 515.

In opposition to the DLSE's position, a California Court of Appeal in Arechiga v. Dolores Press, 192 Cal.App.4th 567 (2011) held that Labor Code 515 did not prohibit a written employment agreement that provided a non-exempt employee a salary based on more than 40 hours of work in a week.

In response to the Court's ruling, the California legislature passed Assembly Bill 2103 which adds new subsection (d)(2) to California Labor Code 515:

"payment of a fixed salary to a nonexempt employee shall be deemed to provide compensation only for the employee's regular, nonovertime hours, notwithstanding any private agreement to the contrary."

Thus, effective January 1, 2013, a fixed salary paid to a nonexempt employee may only include compensation for the employee's regular, non-overtime hours. The legislation invalidates any employment agreement to the contrary.

Posted In: Employment Law News 

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Located in Los Angeles, California, the Law Office of Melissa C. Marsh handles business law and corporation law matters as a lawyer for clients throughout Los Angeles including Burbank, Sherman Oaks, Studio City, Valley Village, North Hollywood, Woodland Hills, Hollywood, West LA as well as Riverside County, San Fernando, Ventura County, and Santa Clarita. Attorney Melissa C. Marsh has considerable experience handling business matters both nationally and internationally. We routinely assist our clients with incorporation, forming a California corporation, forming a California llc, partnership, annual minutes, shareholder meetings, director meetings, getting a taxpayer ID number (EIN), buying a business, selling a business, commercial lease review, employee disputes, independent contractors, construction, and personal matters such as preparing a will, living trust, power of attorney, health care directive, and more.