Arechiga v. Dolores Press: Court of Appeal Issues Decision on Regular Rate of Pay and "Explicit Mutual Wage Agreement"

The Court of Appeal in Arechiga v. Dolores Press, Inc. (February 7, 2011) --- Cal.App.4th ----, 2011 WL 359350, held that an employer and a non-exempt employee can enter into an agreement that a salary will compensate the employee for all regular and overtime hours worked.

Appellant Carlos Arechiga began working as a janitor for respondent Dolores Press, Inc. (“Employer”), in January 2000. Arechiga and Employer orally agreed he would work eleven hours a day, six days a week, for a total of 66 hours per week. Because Arechiga was a nonexempt employee under labor law, they agreed his work-schedule meant he earned 26 hours of overtime pay each week. By agreement, Employer paid Arechiga $880 a week.

In October 2003, Arechiga and Employer signed a written “Employment Separation Agreement,” followed that same day by a written “Employment Agreement” which they both signed. Apparently, Employer directed that they enter into a written agreement in order to institute privacy safeguards for members of a religious body affiliated with Employer. Other than adding privacy provisions, the written employment agreement did not change the terms of Arechiga's employment. The written agreement stated “Employee shall be paid a salary/wage of $880.00 ”; the word “salary” was circled, which we indicate with a box, and the dollar amount was filled in by hand.

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The court [Los Angeles Superior Court, Judge Munoz] entered judgment for Employer. The court found that an explicit mutual wage agreement existed between Arechiga and Employer under which Arechiga's fixed salary of $880 lawfully compensated him for both his regular and overtime work based on a regular hourly wage of $11.14 and an hourly overtime wage of $16.71. In finding for Employer, the court rejected Arechiga's assertion that Labor Code section 515, subdivision (d), outlawed explicit mutual wage agreements.

The Court of Appeal affirmed. It held that substantial evidence supported the trial court's finding of an explicit, mutual agreement that the salary would cover all hours of work. It held that Labor Code section 515(d) does not outlaw such agreements.

Next, the Court held that the term "salary" in the agreement was ambiguous, and the trial court properly allowed parol evidence to explain its meaning:

The employment agreement's use of the word “salary” was ambiguous because the contract did not identify the number of work-hours for which Arechiga earned his compensation. Arechiga contends the $880 salary covered only the 40 hours of his work-week that did not spill into overtime. Employer asserts, on the other hand, that $880 was Arechiga's entire weekly compensation, calculated as 40 hours of straight time a week at $11.14 per hour plus 26 hours of overtime at $16.71 ($11.14 x 1.5) per hour. Because the employment agreement did not identify the time period to which the $880 applied, which thus rendered “salary” susceptible to more than one meaning, the court did not err in admitting parol evidence to interpret the agreement.

The Court next held that Arechiga failed to develop "with argument supported by citation to legal authority" his argument that the trial court erred in admitting a co-worker's testimony "that then-supervisor Simms [now deceased] offered Arechiga and Garcia an hourly wage of $11.14 when he hired both of them." The Court thus deemed the argument abandoned.

Finally (for our purposes), the Court held that the trial court did not err in admitting expert witness testimony as to the wages typically paid to janitors in Los Angeles. "The court allowed the evidence because the court deemed it relevant to commercial reasonableness, which assisted the court in interpreting the contract under industry custom and usage." The answer: $7.90 per hour -- less than California's minimum wage.