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Governor Brown Signs Piece-Rate Resolution

Two California appellate court decisions issued in 2013 have caused confusion and fostered numerous wage-and-hour lawsuits against California farmers who use piece-rate compensation plans. In response, the Legislature has sent to the governor a measure intended to provide some clarity and relief in this troubling area of the law.

Gov. Jerry Brown has signed Assembly Bill 1513 by Assembly Member Das Williams, (D-Carpinteria); the bill’s provisions would take effect on Jan. 1. AB 1513 addresses problems raised by those decisions — Gonzalez v. Downtown LA Motors and Bluford v. Safeway Stores — and a resulting interpretation by California Labor Commissioner Julie Su.

In the two cases, the courts ruled that piece-rate employees must be paid –in addition to their piece-rate earnings — an hourly wage for time worked during which they are not producing pieces.

• In the Gonzalez case, the Second District Court of Appeal ruled that
employees must, in addition to their unit-based earnings, be paid at least the legal minimum wage for working time spent waiting to do unit-compensated work and for time spent doing other work activities. The additional wage is owed no matter how much the employees earn from their unit-compensated work. In other words, an employer may not apply earnings from unit-compensated work to cover the employer’s duty to pay at least minimum wage for other hours worked. The Gonzalez case, however, expressly did not address whether additional time-based pay is due for rest periods taken by piece-rate employees under an Industrial Welfare Commission wage order.
• Two months after the Gonzalez case was decided, the Bluford decision addressed the rest-period issue. The Third District Court of Appeal ruled that piece-rate employees must, in addition to their piece-rate earnings, be compen-sated for rest periods taken under an IWC wage order. "[A] piece-rate compensation formula that does not compensate separately for rest periods does not comply with California minimum wage law," the court held.

After the state Supreme Court refused to review the decisions, Labor Commissioner Su, in a November 2013 staff memo, opined that an employee must be paid, in addition to the employee’s piece-rate earnings, for rest periods taken under an IWC wage order at no less than the employee's average piece-earning rate for the workweek in which the rest periods were taken.

The labor commissioner said her position is consistent with the California Supreme Court's holding in Brinker Restaurant Corp. v. Superior Court (Hohnbaum) that an employer may not discourage employees from taking rest periods. According to Su, paying an employee less than the employee's average piece-earning rate for rest periods would tend to discourage the employee from taking them.

Further, she noted that the rest-period section in the IWC wage orders states that authorized rest period time must be counted as hours worked “for which there shall be no deduction from wages.” Paying an employee for rest periods at less than his or her average piece earning rate, she said, would result in an improper deduction from the employee's wages — the deduction amount being the difference between the wages that should have been paid using the employee's (higher) average piece earning rate and the (lower) wages actually paid.

Su’s memo also opined that time spent in other non-piece-producing work activities — such as time spent traveling, waiting to produce pieces (i.e., standby time) or attending meetings —may be compensated at no less than the minimum wage. This position is consistent with the Gonzalez case and with published Division of Labor Standards Enforcement policy stating that employers may designate for different work activities different pay rates of at least minimum wage.

Su did not address the pay rate for cool-down breaks taken under the Cal/OSHA Heat Illness Prevention standard, but legislation passed in 2014 applied to them the “no deduction from wages” provision of the IWC wage order rest-period section. With that enactment, it is virtually certain she would also insist that heat-recovery periods taken by an employee also be paid at the employee's average piece-earning rate.

Importantly, the interpretations made in the Gonzalez and Bluford cases apply not only to future wage payments under piece-rate compensation plans, but to past ones as well. In other words, the requirement to separately compensate piece-rate employees for non-piece-producing time at the minimum wage or greater is the law and always was the law.

The two cases thus created substantial legal liability for farm employers who, in good faith, had long relied on “excess” piece-rate earnings —that is, in excess of the minimum wage due for piece-producing time — to satisfy their obligation to pay at least minimum wage for non-piece-producing time as well. As a result of the court decisions, those farm employers were in unintentional violation of California wage-and-hour law.

That fact raised, in turn, another problem. Claims for unpaid wages and related wage-statement violations can be brought for pay periods dating back up to four years, exposing farm employers to tens or hundreds of thousands of dollars in liability for unpaid wages, and multiples of that amount in damages and statutory penalties.

AB 1513 addresses both the uncertainty about the pay rates for non-piece-producing time and the problem of liability for past noncompliance.

First, AB 1513 requires that piece-rate employees be compensated for rest and recovery periods and other nonproductive time separate from any piece-rate compensation. Other non-productive time means time under the employer’s control, exclusive of rest and recovery periods, that is not directly related to the activity being compensated on a piece-rate basis.

Under the bill, a piece-rate employee must be paid for rest and recovery periods taken in a workweek at an hourly rate that is the higher of the minimum wage or the employee’s average hourly rate. That rate is determined by dividing the total compensation for the workweek, minus compensation for rest and recovery periods and any premium compensation for overtime, by the total hours worked in the workweek, exclusive of rest and recovery periods.

The bill also requires a piece-rate employee to be paid for other nonproductive time at an hourly rate that is no less than the minimum wage. By paying an hourly rate of at least the minimum wage for all hours worked in addition to piece earnings, an employer complies with this requirement — but not necessarily with the requirement for rest and recovery periods discussed in the prior paragraph.

The amount of other nonproductive time may be determined by either time records or the employer’s reasonable estimates. An employer found to have, due to a good-faith error, under-estimated and underpaid other non-productive time is liable for the full amount remaining due, but is not liable for statutory civil penalties as long as:
• the employer provided specified wage-statement information and paid the compensation due for the amount of other nonproductive time erroneously determined by the employer and;
• the total compensation paid for any day in the pay period is no less than what was due at minimum wage plus any required overtime com-pensation. This treatment applies to other nonproductive time under-paid in both the past and the future.

Second, the bill lets an employer obtain an affirmative defense to claims for recovery of wages, damages, liquidated damages, statutory penalties or civil penalties based solely on the employer’s failure to pay the employee the compensation due for rest and recovery periods and other nonproductive time for pay periods through Dec. 31, 2015.

To qualify for the affirmative defense, an employer would pay by Dec. 15, 2016, each of its employees for uncompensated or undercompensated rest and recovery periods and other nonproductive time from July 1, 2012, to Dec. 31, 2015.

One of these formulas could be used:
• The employer determines and pays the actual sums due, together with 10 percent annual interest.
• The employer pays each employee an amount equal to four percent of the employee’s gross earnings in pay periods in which any piece work was performed from July 1, 2012, to Dec. 31, 2015, less amounts already paid to the employee, separate from piece-rate compensation, for rest and recovery periods and other nonproductive time during the same time. The allowable reduc-tion, however, is capped at one percent of the employee’s gross earnings during the same time.

An employer electing to use the safe harbor will have to notify the Department of Industrial Relations of that election by July 1, 2016.

California Farm Bureau Federation –FELS’s parent – did not support AB 1513 because various deadlines for availability of the safe harbor excluded some farm employers. CFBF sought unsuccessfully to amend AB 1513 to ease or remove those time barriers.

AB 1513 is by no means a perfect solution to the problems created by the two court decisions. Nonetheless, it offers farm employers an opportunity to protect themselves from potential penalties and damages on wages that were not paid due to their good-faith reliance on the law as it was widely understood before those cases were decided.