Commentary: Ruling delays deadline on piece-rate-pay provision

Issue Date: July 13, 2016
By Bryan Little and Carl Borden
Bryan Little
Carl Borden
A recently enacted state law establishes rules for paying piece-rate employees for breaks and other nonproductive time. The latest court hearing in a lawsuit challenging the new law is scheduled for next week.
Photo/Cecilia Parsons

A temporary restraining order issued late last month by a Fresno County judge has put on hold—at least briefly—a provision of a recently enacted state law establishing rules for paying piece-rate employees for breaks and other nonproductive time.

The court order affects the part of the Labor Code that allows employers with piece-rate compensation systems to apply for a "safe harbor" provision and pay employees if employers failed to pay a separate hourly wage for rest periods, heat-safety cool-down breaks and other nonproductive time prior to 2016.

The order, issued June 30, froze the July 1 deadline by which employers needed to notify the state Department of Industrial Relations that they were electing to use the safe-harbor provision. Wanting a chance to consider the underlying issues raised by the case, the judge set a hearing on them for Monday, July 18.

If the judge decides not to invalidate the law in question, employers wanting to use the safe-harbor provision would have until July 28 to notify the state agency of their intent to do so.

Here is some background: The Fresno-based Nisei Farmers League sued the Department of Industrial Relations, alleging the requirements of the 2015 legislation—Assembly Bill 1513 by Assembly Member Das Williams, D-Carpinteria—are unconstitutionally vague and that the agency should be prevented from enforcing it. The Legislature passed AB 1513 in response to two 2013 California appellate court decisions that led to confusion—and to numerous wage-and-hour lawsuits—against California farmers and other employers who use piece-rate compensation systems.

The two 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.

Those rulings applied beyond the employers that were defendants in the cases. The rulings had the effect of setting legal requirements for all employers that had been paying employees in California on a piece-rate basis.

The rulings accordingly created substantial legal liability, dating back as long as four years, 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. The rulings left those farm employers in unintentional violation of California wage-and-hour law.

Resulting lawsuits for unpaid non-productive time and related violations exposed farm employers to liability for unpaid wages, plus damages and statutory penalties, ranging from tens of thousands to millions of dollars.

AB 1513 attempted to address 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 by hourly pay for rest and heat-recovery periods and other nonproductive time, separate from their piece-rate compensation. Under the resulting law, Labor Code Section 226.2, a piece-rate employee must be paid for rest and recovery periods at an hourly rate that is at least 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 law also requires a piece-rate employee be paid for other nonproductive time at an hourly rate that is no less than the minimum wage. By paying piece-rate compensation, such as a production bonus, on top of an hourly rate of at least the minimum wage for all hours worked, an employer complies with this requirement—but not necessarily with the compensation requirement for rest and recovery periods discussed in the previous paragraph.

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

Second, Section 226.2 lets an employer obtain an affirmative defense to claims for 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. Employers intending to use the safe harbor had until July 1 to notify the Department of Industrial Relations of that decision. This was the deadline extended by the Fresno court's June 30 decision.

The court's action gave farm employers a few additional weeks to determine if they have potential liability for nonpayment of rest and recovery periods and other nonproductive time of piece-rate employees, and to decide whether to avail themselves of the safe harbor.

The Farm Employers Labor Service (FELS®), a company affiliated with the California Farm Bureau Federation, has furnished a resource page on its website for farm employers who want to learn more about AB 1513 and the safe harbor. See, search for AB 1513, and choose FELS AB 1513 FAQ.

(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.