New law clarifies overtime rules

Tech companies glum about their sagging stock prices can take cheer in a bill Gov. Arnold Schwarzenegger has signed into law that aims to make it easier for employers to determine which of their workers are exempt from overtime compensation.

A number of technology companies, including Sony Corp., Electronic Arts Inc., Apple Inc. and Cisco Systems Inc., had been tripped up by California’s overtime rules, which stated that skilled technology workers earning less than $75,000 a year, or $36 an hour, were entitled to OT.

Sounds simple, but the devil is in the math. Companies have contended that as long as the worker’s annual salary was at least $75,000, he or she was exempt from overtime pay, regardless of how many hours the employee clocked. Labor advocates have countered that the number of hours worked matters very much: They argued that the regulation in fact required companies to pay $36 or more for each hour worked, or else the employee was due OT.

As a result, programmers, engineers and graphic artists have filed lawsuits in recent years demanding overtime compensation for working long hours without extra pay. Some, including Sony and EA, have paid tens of millions of dollars to settle those cases.

The new law, which Schwarzenegger signed late Tuesday and took effect immediately, eliminates the hourly calculation. It says employers can instead meet the overtime exemption by paying their workers a gross salary of at least $6,250 a month. That equals the same $75,000 a year, but it means that high-tech companies now don’t have to worry about keeping track of the number of hours their employees work, said Carol Freeman, a partner at law firm Morgan, Lewis & Bockius in Palo Alto.

“There was an ambiguity in the law, and this clarifies that,” Freeman said.

Labor advocates said the law, which applies only to highly skilled tech workers, opens the door for companies to force employees to work unlimited hours without paying them anything extra.

-- Alex Pham