California Court Endorses the Use of Salary Agreements
Mar 07, 2011
A recent court decision will have a significant impact on how dairy employers – not just in California but potentially nationwide -- pay their employees.
By Anthony P. Raimondo, attorney
On Feb. 7, 2011, the Second Appellate District (Los Angeles) of the California Court of Appeal issued a landmark decision in Arechiga v. Dolores Press, Inc. This case will have a significant impact on how dairy employers – not just in California but potentially nationwide -- pay their employees, since it relaxes the overtime rules for salaried non-exempt employees.
Historically, it has been a common practice for dairy employers to pay employees a fixed salary regardless of the number of hours that they work. In California, this practice led to liability with the passage of Labor Code section 515 in 2000 because the Labor Commissioner and the courts have held that such salaries only compensate for an employee’s regular hours. California dairies found themselves exposed to a higher hourly rate, and no credit toward the overtime pay that was owed. This case represents a complete reversal of prior policies, and gives relief to California dairies in a difficult economy.
Under this new decision, the court held that an employer and an employee can enter into “an explicit agreement” to pay a salary that will compensate for both regular and overtime hours. Such an agreement must specify the basic hourly rate of compensation on which the guaranteed salary is based, and must be entered into before the work is performed. The employee must receive at least one and one-half times the agreed hourly rate for overtime hours.
Specifically, the agreement must be in writing and must include the following:
1. The days that the employee will work each week;
2. The number of hours the employee will work each day;
3. The guaranteed salary that the employee will be paid;
4. The basic hourly rate upon which the salary is based;
5. That the agreement covers both regular and overtime hours; and
6. That the agreement be reached before the work is performed.
This case sets an important landmark standard for dairy employers to bring their salary pay agreements into compliance with applicable law. Generally, written agreements defining the scope of the employment and the compensation can help protect employers from potential liability, and can ensure that the employment is “at-will,” giving the dairy greater flexibility when problems arise.
For dairies outside of California, the case sets a good example of how to approach salary agreements in order to reduce the risk of liability. Dairies should be sure to consult with an experienced attorney in their state for guidance regarding particular laws and regulations in their state.
All dairy employers should immediately enter into written agreements with salaried employees regarding the established hourly wage and the intended number of overtime hours to be covered by the salary. Of course, if employees work overtime beyond the salary guarantee, they must be paid for any hours worked in excess of the salary.
But this is the first opportunity in over a decade for dairy employers to gain some relief from California’s onerous wage and hour laws and the way those laws have impacted employers who pay on a salary basis. Employers should have their agreements reviewed by counsel to be sure that they meet the requirements of the law, and that they provide protection in other areas of the employment relationship, such as preserving the at-will presumption.
The major question remains regarding the requirement that the agreement be reached “before the performance of the work.” At minimum, entering into such an agreement immediately will protect dairies from claims going forward, but may not protect them from claims covering the period prior to the written agreement. In any event, such agreements will be an important way to minimize exposure and at least cut off the growth of future exposure.
For assistance with such an agreement, contact Anthony Raimondo at McCormick Barstow at (559) 433-1300.
Based in Fresno, Calif., Anthony Raimondo is a labor attorney specializing in agricultural labor issues, primarily in the dairy industry. He counsels farmers on legal compliance and labor relations strategies and defends them before courts and administrative agencies. He has run counter-organizing campaigns against the country's most aggressive agricultural unions and has negotiated favorable contracts for unionized employers. He is also the primary labor resource for Western United Dairymen. Contact him at (559) 433-1300 or Anthony.Raimondo@mccormickbarstow.com.