California’s high-tech industry has won a significant political and financial victory in the Capitol: An obscure bill was rewritten late in the Legislature’s hectic session at the industry’s behest to eliminate the hourly overtime-pay rule for computer professionals. Organized labor says the action, which targets some 250,000 private workers, is unprecedented in a California state budget and the industry believes it is the toughest such exemption in the nation.

The bill, AB 10,  carried no author’s name but only the imprint of the Assembly Budget Committee. It was signed Tuesday by Gov. Arnold Schwarzenegger, and is one of more than 850 bills that were approved by the Legislature but held in limbo as lawmakers wrangled over the delayed 2008-09 budget. The bill was crafted as part of the final budget deal between the governor and lawmakers. The legislation originally dealt with bonds for children’s hospitals and sought voter approval to borrow some $980 million for improvements. That plan, similar to a $750 million bond measure that voters approved four years ago, now appears separately on the Nov. 4 ballot as Proposition 3.

Instead, AB10 was gutted and rewritten at the behest of Silicon Valley-based technology companies, at least in part to inoculate themselves against lawsuits from employees disputing the nonpayment of overtime and in part to ease their bookkeeping load.
Under current law, which has no income restriction, a worker earning $80,000 and paid $36 per hour in overtime for 20 hours a week would earn about $117,000. Under the new law, the worker would earn $80,000.

With a number of exceptions, the new bill exempts “computer professionals” from overtime pay if they earn at least $75,000 annually working full time, or $6,250 per month. The salary level, pegged to the California Consumer Price Index, would be adjusted each year.
Supporters of the new law note that “the tracking of hours generally is anathema to the creative and free thinking computer professional employees,” the Assembly’s analysis noted. “They claim that if more resources must go to calculate and pay overtime, resources for bonuses, stock options and stock awards will be reduced.”

“This is the first time that the Legislature has done a takeaway of the rights of private-sector workers as part of the budget deal,” said Caitlin Vega of the California Labor Federation. “We just think it is wrong. We think it will really hurt the groups of workers who will be expected to work through the weekend and not get paid.”

For the industry, which apparently has sought the change for several years, the issue is not so clear cut. California, they note, is the only state to require hourly tracking of computer professionals.

The point of the bill, backed by the Technet-Technology Network of Palo Alto, is to create a workable exemption that allows companies to pay top salaries and operate effectively without being crippled by huge levels of overtime. The average salary of a computer professional is about $90,000, far higher than the average salary of the rest of the workplace. Computer professionals are those engaged in computer systems analysis, programming or “another similarly skilled computer-related occupation.” Drafters, machinists, engineers generally would not be covered by the exemption, according to the bill.

Schwarzenegger’s office said the governor signed the bill because “it provides flexibility in overtime laws to exempt high-paid software engineers in the competitive technology industry from overtime rules.”

The industry also does not see the exemption as a labor-management issue, since virtually none of the employees covered by the legislation are unionized or subject to collective bargaining. The industry also believes the budget linkage is proper, because of the economic growth projections.

The bill marks a departure from past practices, including the 1990s legislation authored by former Assemblyman Wally Knox, which required daily overtime pay, including time-and-a-half after eight hours and double pay after 12 hours. The rules had been in effect in California for a number of years, but were changed in 1998 by the Industrial Welfare Commission, which adopted the federal standard of paid overtime only after 40 hours of work a week.

The latest bill drops the hourly tracking requirement, in effect allowing companies to pay a flat annual rate in 12-month increments.
“We think that’s part of the problem with this. There is an annual salary requirement, but the cost of living varies by region. If you live in the Silicon Valley, you need a lot more money in order to keep a roof over your head,” Vega said.