California Supreme Court Action in Piece-Rate Pay Case Causes Concerns About Alternative Pay Systems

Gonzalez v. Downtown LA Motors, LP, No. S210681 (July 17, 2013): In April of 2013, a California Court of Appeal decided how automobile service technicians should be paid while waiting between jobs. The court held that the technicians, who were paid on a “piece-rate” basis, must also be paid at least the minimum hourly wage for the time that they are required to wait between their piece-rate paid repair jobs. On July 19, the California Supreme Court refused to review the appeal court ruling, making it binding law. Gonzalez v. Downtown LA Motors, LP, B235292 (April 2, 2013).

In its ruling, the Court of Appeal noted that California law requires that employees be paid “not less than the applicable minimum wage for all hours worked in the payroll period, whether the remuneration is measured by time, piece, commission, or otherwise” (emphasis added). This requirement really means, the court ruled, that the minimum hourly wage must be paid for each and every hour worked, no matter how the employee is normally compensated. In practical terms, this means that employers can no longer show that the required minimum wage has been paid by averaging the total compensation over the total number of hours worked in the pay period as permitted by the Fair Labor Standards Act (FLSA) and all other states.

This requirement of the California courts for piece-rate compensated workers was also recently adopted by a federal district court in a trucking case. Con-Way Freight v. Quezada, 3:09-cv-03670-JSW (June 27, 2013). In that case, the court held that drivers who were paid a piece-rate based on a pre-set mileage rate and who were also paid on an hourly rate for work performed such as loading and unloading had not been paid any wages for certain non-driving tasks, such as vehicle inspections and some waiting time at each stop. This time spent on non-driving tasks is time that the company had contended was properly included in the piece-rate compensation system. Like in the Downtown LA Motors case, the court ruled that California law required that this non-driving time be paid at a separate hourly rate, equal to at least the minimum wage.

Court Extension to Commission Sales

Similar results have also been ordered by a federal district court in two consolidated cases where retail salespersons paid on a commission basis had alleged that they were required to perform work for which they could not earn their commission rate. This allegedly unpaid work included stocking assignments, and pre-opening and post-closing activities. Nordstrom v. Balasanyan, 3:11-cv-02609-JM and Nordstrom v. Maraventano, 3:10-cv-02671-JM. These cases may have a profound impact upon all commission sales work in that the plaintiffs had contended, and the court appeared to agree, that “stocking” time includes all time other than face-to-face customer interaction work, which would make all such time separately compensable on an hourly basis. In a footnote to these cases, the district court indicated that it felt it was constrained by California law to reach this “peculiar result,” which “forces employers to craft hybrid compensation systems for commissioned . . . employees where they are also paying employees per hour for any activity that is not directly related to earning a commission, even when that activity might assist in generating future profits.”

Additional Case Remains Up for Supreme Court Review

One additional possible chance for review of the issues related to the requirement that minimum wages be paid for each and every hour worked by employees who are currently compensated on piece-rate and commission systems remains under consideration by the California Supreme Court. That case is Bluford v. Safeway Stores, Inc., C066074 (May 24, 2013). 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.

According to a shareholder in Ogletree Deakins’ San Francisco office: “This troubling recent avalanche of decisions by the state and federal district courts requiring that at least minimum hourly wages be paid for each hour of ‘non-productive’ time worked by piece-rate and commission compensated employees certainly presents serious problems for all employers paying employees by way of any of the expressly permitted non-hourly forms of compensation. Absent a legislative fix, which is currently being actively pursued by Ogletree Deakins in conjunction with various business groups and other interested parties, it is critical that employers that compensate workers on a piece-rate or commission basis immediately review their pay plans to ensure that all productive time be properly included in the definition of the work required for the piece-rate or commission to be earned and that any truly ‘non-productive’ time be compensated at a separate hourly rate that is equal to at least the minimum wage.” Employers are strongly encouraged to work directly with their Ogletree Deakins counsel in looking at possible alternative methods for complying with these newly imposed pay system requirements.