Commentary: Bill addresses uncertainties about piece-rate pay

Issue Date: October 7, 2015
By Bryan Little and Carl Borden
Bryan Little
Carl Borden
Two court cases decided in 2013 created confusion about piece-rate compensation plans. Legislation on Gov. Brown’s desk aims to address some of the issues raised by the court rulings.
Photo/Cing Lee

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

Gov. Jerry Brown is expected to sign Assembly Bill 1513 by Assembly Member Das Williams, D-Carpinteria; the bill's provisions would take effect on Jan. 1. The bill addresses problems raised by the court decisions, which both occurred in 2013.

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 first case, an appeals court ruled that employees must, in addition to their unit-based earnings, be paid at least the 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; 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 second case addressed whether additional time-based pay is due for rest periods taken by piece-rate employees. A different appeals court ruled that piece-rate employees must be compensated for rest periods in addition to their piece-rate earnings.

After the state Supreme Court refused to review the decisions, California Labor Commissioner Julie Su determined that an employee must be paid for rest periods in addition to the employee's piece-rate earnings, at no less than the employee's average piece-earning rate for the workweek in which the breaks occurred.

According to Su, paying an employee less than his or her average piece-earning rate for rest periods would tend to discourage the employee from taking them. Further, 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.

Su also opined that time spent in other non-piece-producing work activities—such as traveling, standby time or attending meetings—may be compensated at no less than the minimum wage.

Legislation passed in 2014 applied the "no deduction from wages" provision to cool-down breaks taken under the Cal/OSHA Heat Illness Prevention Standard, making it virtually certain the labor commissioner would insist that heat-recovery periods also be paid at the employee's average piece-earning rate.

Importantly, the interpretations made in the two court cases apply not only to future wage payments under piece-rate compensation plans, but to past ones as well. That 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 a result of the court decisions, those farm employers were in unintentional violation of California wage-and-hour law.

That raised another problem. Claims for unpaid wages and related violations can be brought for pay periods dating back four years, exposing farm employers to tens or hundreds of thousands of dollars in liability for unpaid wages, plus 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. Under the bill, a piece-rate employee must be paid for rest and recovery periods at an hourly rate that is the higher of the minimum wage or the employee's average hourly rate, which 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 would also require 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, an employer complies with this requirement—but not necessarily with the requirement for rest and recovery periods discussed in the prior paragraph.

The legislation addresses how the amount of other nonproductive time would be determined, and sets out how an employer that underestimated and underpaid such time due to a good-faith error may avoid civil penalties.

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 an employee the compensation due for rest and recovery periods and other nonproductive time for pay periods through Dec. 31, 2015. The bill lays out details for how that would be done, and gives employers electing to use the safe harbor until July 1, 2016, to notify the state Department of Industrial Relations.

The California Farm Bureau Federation did not support passage of AB 1513 because 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 court decisions. But 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.

For a more detailed explanation of the court cases and legislation, see the CFBF website.

(Bryan Little is director of employment policy for the California Farm Bureau Federation and chief operating officer of the Farm Employers Labor Service. Carl Borden is a CFBF associate counsel.)

Permission for use is granted, however, credit must be made to the California Farm Bureau Federation when reprinting this item.