AB 1513 – New Requirements for Employers Who Pay Piece-Rate Wages and a Limited Safe Harbor for Past Violations

Piece rate is a common method of establishing wages in many industries.  Employers like piece-rate because it pays based on production and is easy to track.  Experienced, efficient and productive employees enjoy piece-rate wages because they can earn more.  However, piece-rate wages are not without difficulty, particularly in California. 

In 2013, Gonzalez v. Downtown LA Motors, LP held that employees paid by the piece must also be paid by the hour for any non-productive time.  Mr. Gonzalez, a mechanic, was paid a piece-rate (called “flagged hours” in the industry) for repairing vehicles.  Each job was worth a certain amount of money.  However, he also engaged in work that was not productive such as attending meetings, reading technical bulletins, and waiting for cars to enter the shop. 

The dealer contended that Mr. Gonzalez earned at least minimum wage for all hours worked when considering the amount of piece-rate wages he earned.  Mr. Gonzalez claimed that each hour must be examined separately for minimum wage compliance.  When he attended meetings or engaged in other non-productive time he earned nothing.  That, he contended, was a violation of the law. 

The court sided with Mr. Gonzalez and determined that every employee must be paid at least minimum wage for each hour worked, examined separately. 

The obvious change for employers paying piece-rate wages was to account, and pay for, non-productive time. 

Then came Bluford v. Safeway Stores, Inc.  Mr. Bluford, a truck driver, sought class certification on three issues, including employees not paid for a rest period.  His attorney must have read the LA Motors case and concluded that rest periods are like non-productive time – they are minutes spent by the employee for which the employer must pay wages.  If the trucker is paid by the mile, then the trucker is not paid for a rest period, when the truck is stopped.  The court agreed with Mr. Bluford and allowed class certification for rest periods. 

So now any employer who has paid piece-rate wages, but who has not paid employees an hourly wage for taking rest periods has failed to pay all wages due.  Add to that “recovery periods,” which must be paid by the employer while the employee recovers from the effects of a hot day. 

To top it off, Labor Code § 226 requires employers to include nine separate pieces of information on a paycheck stub (itemized wage statement).  One of the requirements is to identify hours worked and the rate of pay.  Most employers have not included rest periods or non-productive hours on their paycheck stubs. 

Wage litigation has become the hot-button issue in California.  Attorneys love filing class action lawsuits on each of these issues.  Paycheck stub litigation can be particularly lucrative for plaintiffs’ lawyers.  All they need to do is examine a paycheck stub to determine if all nine pieces of information are listed.  If not, the employee is entitled to a penalty that may reach $4,000 per employee.  Plus attorneys’ fees! 

Here is where the California Legislature is attempting to lessen the blow on employers.  Going forward, employers must include the total number of hours for rest periods and recovery periods, the rate of compensation, and the gross wages paid for those periods during the pay period on the paycheck stub.  The rate of compensation must be the higher of the minimum wage or the average hourly rate.  This average hourly rate is calculated by dividing the total compensation for the workweek (not pay period), exclusive of compensation for rest and recover periods or overtime, divided by the total hours worked excluding rest and recovery periods. 

Employers must also include on the paycheck stub the total hours of non-productive time (other than rest and recovery periods), the rate of compensation and the gross wages for those periods during the pay period.  The rate of compensation must be at least minimum wage. 

The legislature also provided a partial fix for employers who have violated the law in the past.  A safe harbor is provided to an employer who makes payments, no later than December 15, 2016, to piece-rate employees for uncompensated time for the time period of July 1, 2012 and December 31, 2015.  It must also provide notice to the Department of Industrial Relations before July 1, 2016, and provide detailed statements to employees. 

The safe harbor is limited and very specific.  Employers are encouraged to read the law carefully.  Each employer must make a determination whether making the retroactive payments is cost effective. 

The law can be found here:  http://leginfo.legislature.ca.gov/faces/billNavClient.xhtml?bill_id=201520160AB1513