Piece-Rate Consternation

2014 June 1.

State and federal courts in California have recently held that piece-rate employees must be paid at least minimum wage for all non-piece-rate activities, including those to which the piece-rate doesn't apply.  This is true even when employees receive, on balance, at least minimum wage for all hours worked.

While agricultural employers have generally adjusted their compensation systems to comply with the changing legal landscape, many employers are in jeopardy due to the retroactive application of these court-ordered rules.

As we recently reported in Spotlight, Western Growers executives have held several discussions with high-ranking members of the Brown Administration and legislators to seek relief from class action lawsuits being filed by a few trial lawyers.  It is unclear at this time what form any relief might take and whether legal and political obstacles can be overcome, but we are encouraged by early discussions.  Western Growers members are urged to immediately contact me (WG Vice President and General Counsel Jason Resnick), if they are served with such a lawsuit.  It is critical for the association to have an accurate count of these lawsuits, and an ability to estimate total industry exposure, in order to effectively convey the scope of the issue to members of the legislature and the administration.

 

Background

Some of the recent California state and federal district court decisions that clarify the pay requirements for workers paid on a piece rate basis include the following:

•  Gonzalez v. Downtown LA Motors:  A California appellate court held that an employer must pay a separate hourly rate of at least minimum wage for the non-piece producing time.  This differs from the Fair Labor Standards Act (FLSA), which permits minimum wage compliance by ensuring that at least the minimum wage is paid on average over the pay period.  Now employers must ensure that employees are paid at least the minimum wage each hour for non-piece producing time.

•  Bluford v. Safeway Stores:  A different California appellate court held that employers must separately compensate employees for rest breaks and that wages earned for productive tasks cannot be used to subsidize paid rest breaks.  Because the employer’s pay system did not provide for such rest break payments, the court directed certification of a class of truck drivers.

•  Con-Way Freight v. Quezada:  A federal district court ruled that under California law, truck drivers paid on a piece-rate must be separately compensated for work time that is not covered by the piece-rate.

•  Nordstrom v. Balasanyan:  Not a piece-rate case but based on a similar theory, a federal district court held that retail salespersons paid on a commission basis and allegedly required to perform work for which they could not earn their commission rate, had to be separately paid at least the minimum wage for stocking assignments, and pre-opening and post-closing activities.

In recent weeks, at least eight wage and hour lawsuits have been filed in superior court in Ventura County and Monterey County.  These lawsuits typically claim that employees were paid by piece-rate but were not paid for their time spent on other tasks or rest periods.

In light of these cases, employers with employees paid on a piece-rate basis are advised to keep accurate records of compensable rest breaks and other “non-productive” work hours, and pay employees at least the minimum wage for this time.  Alternatively, some agricultural employers have opted to dispense with piece-rate entirely and have switched to a pure hourly pay or alternative incentive-based (non-piece-rate) compensation systems.  Members are advised to consult with experienced employment and labor law counsel before implementing new compensation systems.

 

Break periods

In Bluford, the Court of Appeal held that an employer must separately compensate piece-rate workers at the minimum or contracted hourly wage for the two 10-minute rest breaks per day that must be authorized and permitted by their employers under California law.  Prior to this decision, such rest breaks had always been permitted to be included as part of piece-rate and commission plans.

However, the California Labor Commissioner has gone farther than the Bluford court by recently taking the position that paid rest periods must be paid at the average piece-rate if that rate is higher than the minimum or contracted hourly wage.  This interpretation is based on the language of the Industrial Welfare Commission Wage Orders that say, “Authorized rest period time shall be counted as hours worked for which there shall be no deduction from wages.”  The Labor Commissioner believes that paying an employee for rest-period time at less than the employee's average piece-rate earning rate would result in a deduction from the employee’s wages (i.e., the employee would be paid less than he would have had he worked through the rest period.)  The Labor Commissioner has also opined that paying employees while working on a piece-rate basis less than their average piece-rate earnings for authorized rest periods would discourage them from taking those rest periods, as they would suffer an economic loss by taking them.  This interpretation only applies to authorized paid rest breaks and not other non-productive time.

Legal counsel representing the state’s agricultural industry has questioned the Labor Commissioner on the basis for her position, which goes far beyond the Bluford decision.  The industry is awaiting a response from the Labor Commissioner, which means there remains some uncertainty as to the appropriate rate of pay for paid rest breaks.  In the meantime, members are advised to consult with experienced employment law counsel when establishing the rate for paid rest breaks.

 

Retroactive Exposure

Unfortunately, because these recent court decisions claim to clarify existing law, employers that did not separately pay piece-rate workers for non-productive time or paid breaks may be at risk of a lawsuit.  In many cases, plaintiffs’ attorneys have sued for back wages going back up to four years.  Moreover, these suits also claim unpaid overtime, rest period violations, inaccurate wage statements, Private Attorneys General Act (PAGA) penalties and other penalties, interest, court costs, and attorneys’ fees.

Under PAGA, an aggrieved employee must serve a notice on the state labor agency of the claim.  The agency has just 33 days to respond and notify the claimant of the agency’s intent to investigate certain violations of the California Labor Code or not.  If the agency chooses not to investigate, an aggrieved employee may then initiate a civil action, on behalf of himself or herself and other current or former employees, against his or her employer.  If the representative plaintiff prevails, the aggrieved employees are statutorily entitled to 25 percent of the civil penalties received, and the agency is entitled to the other 75 percent.  When these penalties are multiplied over hundreds of employees over many pay periods, the PAGA penalties alone can easily amount to millions of dollars.  Tacking on back wages, other attendant penalties, legal fees and costs, can increase the exposure exponentially.

In some cases, it may be better for an employer to simply settle with the agency then to litigate with a plaintiffs’ attorney.  Because time is of the essence once the PAGA notice is issued, it is important for the employer to notify WG and/or the agency of its desire to resolve the claim administratively.

Watch Spotlight for updates on efforts to limit this retroactive litigation exposure.

 

Guidance for Employers

While the retroactivity issue remains a significant concern, there are actions that employers can take to minimize their risk going forward.  Western Growers recommends that members adopt the following practices immediately:

•  Update rest period policies to ensure that authorized rest breaks are separately compensated at the minimum wage or contracted hourly rate (pursuant to Bluford) or the average piece-rate (pursuant to the Labor Commissioner), after consultation with counsel.

•  Implement a policy defining and setting the rate of pay for non-productive work time and ensure that employees are advised of this policy at the time of employment orientation and on the Labor Code sec. 2810.5 Notice to Employee.

•  Ensure that itemized wage statements contain a line item for non-productive work time and break periods, and the rate at which each is being paid, in compliance with Labor Code Section 226.

•  Conduct regular audits of daily time sheets, payroll data and wage statements to ensure that employees are being paid all wages, reporting time pay, standby time, non-productive work time and overtime.

•  Train supervisors on labor relations.  Employees who have been disciplined or believe they were treated unfairly by company representatives are far more likely to sue.

•  Always consult with experienced employment and labor law counsel to ensure that you are in compliance with wage and hour and other employment laws.  Western Growers Ag Legal Network attorneys are ready to assist WG members at a reduced rate.

 

Implementing and consistently applying strong policies and procedures is the best way to avoid and defend expensive wage and hour lawsuits.