June 30, 2015

Industry Challenges Piece-Rate Compensation Decisions

In the summer of 2013, after the California Supreme Court declined to review the Appellate Court decisions in Gonzalez v. Downtown L.A. Motors and Bluford v. Safeway Stores—the two key cases that declared that piece rate employees must be separately paid for non-productive time and break periods—the flood gates have opened.  Over the past two years, dozens of California agricultural employers have been sued in employee class action lawsuits seeking ruinous penalties for paying piece rate employees in a manner that everyone understood at the time was perfectly legal.

Those who have adjusted their compensation plans in an effort to ensure compliance going forward have gotten twisted up by conflicting legal and regulatory interpretations that have only resulted in confusion and uncertainty.

Efforts to fix the problem politically and legislatively have stalled. Now, Western Growers, its industry partners, and some embattled members are going on the offensive.  Below are two examples of cases pending before the courts that could offer some relief to agricultural employers.


VCAA v. Julie Su

Following the decision in the Bluford case, many agricultural employers began paying their employees, in addition to their piece rate earnings, wages of no less than the legal minimum wage or contractual hourly rate for their Industrial Welfare Commission wage order rest periods consistent with the holding in that case.  However, shortly after the state Supreme Court declined to review the Bluford decision, the Labor Commissioner issued a memo to DLSE staff containing the subject line “The Minimum Wage and Rest Period Obligations of Employers in the Context of Piece Rate Employment.”  The memo discusses the holding in Bluford, and reiterates the requirement of Section 12 of IWC wage order 14-2001.

That section requires every employer to “authorize and permit all employees to take rest periods….  The authorized rest period time shall be based on the total hours worked daily at the rate of ten (10); minutes net rest time per four (4) hours or major fraction thereof…. Authorized rest period time shall be counted as hours worked for which there shall be no deduction from wages.”(Italics added).  The memo goes on to proclaim, “the hourly rate payable to piece rate employees during rest periods is the hourly piece rate wage calculated by dividing the total weekly piece rate earnings by the total hours of piece rate work performed in the week.”  In other words, the memo purports to require that a piece rate employee be paid for wage order mandated rest periods at the employee’s average hourly piece-earning rate for the workweek in which the rest periods occurred.  The memo concludes with the Labor Commissioner’s edict to DLSE staff: “Employee compensation programs involving piece rate workers should be examined to [ensure] that these obligations are being complied with.”

We believe the Labor Commissioner’s interpretation is an unlawful regulation since it does not meet the rulemaking requirements of the Administrative Procedure Act.  In addition, the Labor Commissioner’s interpretation runs counter to Bluford’s holding that rest periods must be paid at the minimum wage or contracted hourly rate.  This unlawful regulation has caused great confusion within the industry, with most associations and practitioners advising their members and clients to follow the holding in Bluford, and others counseling their clients to take the more conservative route and pay break periods at the average piece rate per the Labor Commissioner’s interpretation.  Labor contractors are also charging their clients for rest periods in a variety of inconsistent ways as a result of the confusion set upon the industry by the Labor Commissioner.

On April 6, 2015, Western Growers, Ventura County Agricultural Association, Grower-Shipper Vegetable Association of Central California, and Nisei Farmers League filed a Petition for Writ of Mandate in Sacramento Superior Court against Julie Ann Su as Labor Commissioner and Chief of the Division of Labor Standards Enforcement (DLSE) and DLSE.  The petition seeks a court order declaring the Labor Commissioner’s interpretation as unlawful and an injunction preventing DLSE from enforcing to that standard.  We are hopeful that the court will rule in our favor and prevent the Labor Commissioner from enforcing her interpretation of the law and prevent her from compelling employers to pay average piece rate going forward as a condition of settling piece rate compensation based wage claims.


JAL Berry Farms v. Superior Court (Valdez)

JAL Berry Farms, LLC, is a grower of strawberries and raspberries in and around Monterey County.  The company was sued for allegedly failing to pay harvest workers separately for rest periods. (Carlos Valadez v. JAL Berry Farms, LLC, Monterey County Superior Court Case Number M127425 filed April 10, 2014).  JAL uses an incentive-based mixed hourly/piece rate compensation system such that each harvester is paid an hourly rate and an additional amount per piece (box) harvested.  To ensure payment of no less than the minimum wage of $9.00, JAL took the total compensation earned for each day and divided it by the number of hours worked.  Any harvester earning less than $9.00 per hour would have their compensation increased to meet that minimum wage.  JAL guaranteed its employees were paid for all hours worked at more than California’s minimum wage and the company does not average wages for any purpose.

JAL filed a Motion for Summary Adjudication asking the trial judge to rule that its compensation system satisfies California’s minimum wage law by arguing that Bluford does not apply to the agricultural industry.  JAL argued that agriculture is covered by a separate wage order and the history that led to adoption of the rest period provisions and this dictates a different result.  Based on the peculiar facts in Bluford (which involved Safeway truck drivers paid primarily on miles driven), the attorneys for JAL argued that Bluford should be distinguished and not applied to agricultural employers.

The trial court judge found that JAL made “very good and logical arguments,” but felt constrained by the Court of Appeal’s decision in Bluford and denied the motion for summary adjudication on that basis.

JAL has now filed a petition for writ of mandate asking the Sixth District Court of Appeal (which covers the Central Coast) to rule on the issue of whether the holding in Bluford applies to Wage Order 14 rest periods.  Western Growers, several industry partners, and a number of farming companies have written letters urging the Court of Appeal to issue the writ in this case.  A positive outcome in this case could have valuable and widespread implications benefiting agriculture as a whole.