ALERT: Important news for farmers and others that pay, or previously paid, piece-rate – Notice to DIR is now required by July 28, 2016

Q:     What is going on with the lawsuit regarding piece-rate pay?

A:     We have previously discussed the new piece-rate legislation (AB 1513) in an earlier blog. No doubt, many employers (particularly those that have traditionally paid piece rate such as agricultural employers) view this legislation as a piece of what is found on many livestock farms across the Valley.  In short, the AB 1513 legislation resolved a dispute as to whether an employer was required to specifically pay for rest breaks where the employees were being paid piece-rate.  Prior to the legislation, there was a theory that an employer could pay an employee entirely by “piece-rate” so long as at the end of the day (or pay period) the employee made more than the minimum wage once the employer divided the compensation by the number of hours worked.  AB 1513 put that theory to rest and determined that employers must specifically pay for rest breaks and other non-productive time (such as heat breaks) even if the ultimate pay far exceeded minimum wage.

Because the previous “piece-rate” compensation was a fairly accepted and common pay practice, AB 1513 attempted to provide a mechanism for employers that did not specifically pay for rest breaks to avoid uncertainty and extensive liability.  Accordingly, AB 1513 stated that employers could file with the Department of Industrial Relations (“DIR”) and enter an agreement to provide back payments.  If the employer provided notice and made the specified payments, they would then have an affirmative defense against any employee that subsequently filed a claim for a failure to properly pay for non-productive time.  The original date for employers to provide notice to the DIR indicating that the employer was going to make the back payments was July 1, 2016.  The Nisei Farmer league filed a case in Fresno County Superior Court challenging the implementation of the law.  As a result there was a temporary restraining order staying the enforcement of the new law, and thus, staying the requirement to provide notice to the DIR.  On July 25, 2016, the court denied the preliminary injunction further staying enforcement of the new law. The date for employers to provide notice to the DIR is now July 28, 2016.

This Legal Update / Bulletin is for educational purposes only as well as to give you general information and a general understanding of the law, not to provide specific legal advice. The hypothetical question is posed to illustrate a point and does not contemplate all potential legal considerations This update should not be used as a substitute for competent legal advice from a licensed professional attorney in your state.

 

I heard that the new “piece-rate” legislation on the Governer’s desk could cost California employers a lot of money. Is that true??

Q:     What is this about a new law affecting employers regarding “piece-rate,” rest breaks, and other unproductive time? I heard the Governor struck a deal.

A:     The new legislation is AB 1513. And, it potentially requires back payment to all workers that were paid “piece-rate” from July 2012 to December 31, 2015. It is currently on the Governor’s desk awaiting signature, but the Governor is touting the deal as positive.

Until fairly recently, there was a theory that an employer could pay an employee “piece-rate” so long as at the end of the day (or pay period) the employee made more than the minimum wage once the employer divided the compensation by the number of hours worked. However, two recent cases changed that idea.

In Gonzalez v. Downtown LA Motors (April 2, 2013), the court found that automobile service technicians who were paid on a “piece-rate” basis should have been paid their minimum hourly wage for the waiting time between repairs. The court found the employer (a Mercedes dealership) violated the California Labor Code through illegal “pay averaging” and the employer was required to pay a separate hourly rate for any time that the mechanics were not actively engaged in repairs.

Specifically, the court found that “[e]very employer shall pay to each employee, on the established payday for the period involved, not less than the applicable minimum wage for all hours worked in the payroll period, whether the remuneration is measured by time, piece, commission, or otherwise.” The court further noted that the applicable wage order at issue in the case also defined “hours worked” as “the time during which an employee is subject to the control of an employer, and includes all the time the employee is suffered or permitted to work, whether or not required to do so.” In short, the court found the obligation to pay minimum wage attaches to each and every separate hour worked during the payroll period.

The next battle ground was rest breaks.  Since rest breaks are unproductive but compensable time, one would think an employer can average the hour in which a break was taken.   In Bluford v. Safeway Stores Inc., the court said no.  As such, employers that utilize “piece-rate” pay should have an alternative method for paying for each 10 minute rest break.

After Gonzalez and Bluford, the general school of thought was that employers were required to pay a base minimum wage for all hours worked to which some form of “piece-rate” incentive would be added (either to each hour or at the end of the day).  Unfortunately, the only way to determine if an employee is receiving at least minimum wage for each hour is to know what he or she is earning each hour.  Gonzalez forecloses the possibility of a looking back to calculate whether employees are getting paid at least minimum wage.  The employee must earn at least minimum wage for all hours worked and be paid at least a minimum wage rate for his 10 minute rest breaks (or heat rest periods).

Because there is a three year statute of limitations for wage claims, the question then became: what do employers who paid “piece-rate” prior to Gonzalez and Bluford do? The answer: evidently, go to Sacramento and negotiate. On October 1, 2015, David Siders reported in the Fresno Bee that:

The Brown Administration, business and labor officials emerged from dozens of hours of private meetings and conference calls with a plan to resolve a festering dispute over pay for farm workers and other low wage labors. The solution, passed in a bill on the legislature’s final day, reflected a multi-million dollar compromise: In exchange for back payments to thousands of employees for rest periods and other work hours, farmers would receive protection from lawsuits – and potentially far stiffer penalties – for past failure to pay.

According to the language in the statute, the employer is now required to make the back payment in one of two ways: 1) pay the actual sums for each missed rest period together with accrued interest; or 2) pay each employee an amount equal to 4 percent of that employee’s gross earnings in pay periods in which any work was performed on a “piece-rate” basis from July 1, 2012, to December 31, 2015, inclusive, less amounts already paid to the employee, separate from piece-rate compensation. The issue with the first option is how does an employer calculate actual sums, when they did not think they were required to record unproductive time.

Under the AB 1513, there are some limited exceptions, and the amount and timing of the payments can be a little technical. Accordingly, all employers that paid “piece-rate” should contact their employment attorney prior to making any payments under this new legislation.