Piece Rate Workers in California Must Be Paid Separately For Time That Falls Outside the Scope of the Piece Rate Work

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A California appellate court recently held that California law requires piece rate workers to be paid separately, at least at the minimum wage rate, for any work time that falls outside the scope of the work that is the subject of the piece rate.  A copy of the court’s recently published opinion in Gonzalez v. Downtown LA Motors, LP can be downloaded here.

Downtown LA Motors, LP (DTLA) compensated its automobile service technicians on a piece-rate basis for repair tasks completed.  Under DTLA’s system, technicians were paid a flat rate that varied based on the technician’s experience, for each “flag hour” a technician accrued.  Flag hours were assigned to every repair task that a technician performed, and were intended to correspond to the amount of time a technician would likely need to perform the task.  A technician who completed a repair task accrued the number of flag hours assigned to that task, regardless of how long the technician actually took to complete it.  Technicians accrued flag hours only when working on a repair order.

In addition to tracking a technician’s flag hours, DTLA also kept track of all the time a technician spent at the work site, whether or not the technician was working on a repair order.  Technicians were required to clock in at the beginning of a shift, clock in and out for lunch, and clock out at the end of the shift.  Technicians did not always have vehicles available to work on, but were required to remain at the work site.  While waiting for repair work, technicians were expected to perform various non-repair tasks, including obtaining parts, cleaning their work stations, attending meetings, participating in training, and performing other duties.  Technicians accrued no flag hours while performing these non-repair tasks.

At the end of each two week pay period, DTLA calculated each technician’s pay by multiplying flag hours accrued during that pay period by the technician’s flat rate.  DTLA then compared the technician’s flat rate/flag hour pay to the technician’s “minimum wage floor,” which is the amount the technician would have earned if being paid the minimum wage for all recorded work hours.  If the technician’s flat rate/flag hour pay fell short of the minimum wage floor, DTLA would supplement the technician’s pay to cover the shortfall.

A class of technicians sued DTLA, claiming the company violated California law by not paying them a minimum wage for time when they were on the clock, but not performing repair work.  After a bench trial, the trial court ruled in favor of the technicians, concluding that DTLA violated California law by not paying its technicians separately for non-repair work time.

On appeal, DTLA argued that it complied with California law by ensuring, through its “minimum wage floor,” that each technician received an amount equal to or greater than the amount the technician would have earned if paid the minimum wage for all hours worked.  DTLA further argued that requiring employers to pay their piece-rate employees separately for any work not subject to the piece rate would undermine the piece-rate system, which is intended to reward piece-rate workers for performing piece-rate tasks efficiently.

The Court of Appeal took note of previous decisions holding that California laws and regulations governing employee pay differ substantially in both language and intent from federal minimum wage laws, which allow employers to average the total compensation of piece rate workers over an entire work week to satisfy minimum wage obligations.  After analyzing relevant California Labor Code and wage order language, the court held that California law requires employees to be paid at least at the minimum wage rate for each hour of work, which effectively prohibits employers from averaging out the piece rate compensation over an entire work week.  In other words, California law requires that for each work hour (or part of an hour), an employee must be paid either an agreed rate or the minimum wage rate, and prohibits an employer from applying any part of any employee’s piece-rate pay as a credit against its minimum wage obligation for work falling outside the scope of the work that is subject to the piece rate.

This case serves as a blunt reminder that California wage and hour laws differ from federal law in many important respects, and compliance with federal law does not necessarily protect an employer from wage claims brought pursuant to California law.  Any company employing workers in California, especially companies based outside the state who may have less familiarity with California wage laws, should review their wage practices on a regular basis.

Employers that have piece-rate employees working in California should immediately review their pay practices to make sure that all employee work time is being compensated at either the agreed piece rate, at an agreed hourly rate, or at the applicable minimum wage rate.

Aaron Buckley – Paul, Plevin, Sullivan & Connaughton LLP – San Diego, CA

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