The California Court of Appeals has held that a California employer did not owe overtime to an employee because it had entered into an explicit mutual wage agreement that provided for base compensation and overtime in one lump sum.  Arechiga v. Dolores Press, Inc., No. B218171 (Cal. Ct. App. Feb. 7, 2011).  Carlos Arechiga (“Arechiga”) and Dolores Press, Inc. (“DPI”) agreed that Arechiga would work 11 hours a day, six days a week, for a total of 66 hours per week, consisting of 40 straight-time hours and 26 overtime hours.  DPI paid Arechiga a lump sum of $880.00 a week. Arechiga and DPI later entered into a written employment agreement stating that Arechiga would be paid a “salary/wage of $880.00.”

Arechiga argued that Labor Code Section 515(d) prohibited explicit mutual wage agreements for nonexempt employees based on the California’s Division of Labor Standards Enforcement’s Enforcement Policies and Interpretations Manual.  The Court rejected Arechiga’s argument, noting that the DLSE’s Manual was “non-binding” on the courts because it was not properly adopted under the Administrative Procedures Act.  Further, California case law recognized such agreements for non-exempt employees.  The Court concluded that explicit mutual wage agreements remained valid under California law and that the trial court properly upheld the parties’ agreement.

 The use of explicit mutual wage agreements for non-exempt employees should be entered into carefully and employers should work with counsel to ensure that they comply with applicable law.  For additional information click on California Court Rules Employer Not Required to Pay Overtime under Explicit Mutual Wage Agreement